Once cash sales are accepted, section 68/69A cannot be invoked merely for violation of RBI guidelines for receipt of SBNs after demonetisation– ITAT
In a recent judgment, ITAT Ahmedabad has held that once cash sales recorded in books are accepted, section 68/69A cannot be invoked merely for violation of RBI guidelines for receipt of SBNs after the demonetisation announcement.
ABCAUS Case Law Citation:
5051 (2026) (02) abcaus.in ITAT
The assessee in the instant appeal had agitated the confirmation of the addition made by the AO under section 68 of the Income Tax Act, 1961 (the Act) on account of unexplained cash deposits in SBNs during the demonetisation period.
During the course of assessment proceedings, the AO observed that the assessee had deposited Specified Bank Notes (SBNs) in its bank accounts during the period of demonetisation. The assessee explained that the said cash deposits were out of the cash advances received from customers against cash sales of jewellery/bullion. The assessee submitted that these advances were received shortly before the announcement of demonetisation on 08.11.2016 and the sales were subsequently invoiced. The assessee claimed that the cash deposits were business receipts duly recorded in the books of account maintained in the regular course of business.
The AO, however, did not accept the explanation of the assessee. The AO held that the assessee had manipulated its books of account to accommodate its unaccounted cash in the guise of trade advances. The AO further observed that the assessee failed to furnish the complete details such as PAN and addresses of all the customers from whom such advances were received.
The AO also noted that in many cases the notices issued under section 133(6) of the Act to verify the genuineness of the transactions were either returned unserved or no reply was received.
Consequently, the AO rejected the books of account of the assessee under section 145(3) of the Act and treated the cash deposits unexplained cash credits under section 68 of the Act read with section 115BBE of the Act, treating the same as income from undisclosed sources.
The CIT(A) confirmed addition holding that the assessee failed to prove the identity and creditworthiness of the persons from whom the cash advances were allegedly received. The CIT(A) also held that the huge cash advances received just before demonetisation were beyond human probabilities.
The Tribunal observed that the entire case of the revenue was built upon the basis of suspicion regarding the sales booked by the assessee prior to the start of demonetization period. The AO had rejected the books of account merely because there was a spike in cash advances on three dates. However, as per the comparative data the cash sales in the year under consideration were in fact significantly lower than the preceding year.
The Tribunal opined that when the assessee had demonstrated that in the previous year, during the corresponding period, the cash sales were much higher, the allegation of “abnormal” sales during the demonetization period fell flat.
The Tribunal further observed that even, at the most, it could be alleged, though not proved, by the AO that the assessee had made certain sales and accepted SBN/demonetized currency during the relevant period. Even assuming so, as held by Kolkata Bench of the Tribunal, the assessee may have breached or violated the relevant circular/notification of the RBI/Demonetization Scheme, however, even then it can not be held a case of income from unexplained sources.
The Tribunal also observed that Bangalore Bench of the ITAT had held that once sales are recorded in books and offered to tax, section 68/69A cannot be invoked merely for violation of RBI guidelines.
As a result, the Tribunal held that the addition made by the AO was not sustainable. The assessee had successfully explained the source of cash deposits as sales/advances which are duly recorded in the books of account. The suspicion of the AO regarding the genuineness of sales was not supported by any concrete evidence and is contradicted by the comparative sales data. The AO had wrongly rejected the books of accounts of the assessee merely on suspicion of advance received on sales, without any justification. Even the violation of RBI notification, if any, does not attract the provisions of section 68 of the Act.
Accordingly, the impugned addition was ordered to be deleted.
Download Full Judgment Click Here >>
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