February 04, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal has deleted an addition of ₹9.65 crore made on account of cash deposits during the demonetisation period, holding that once purchases are accepted and stock availability is not disputed, the corresponding sales cannot be treated as unexplained cash credits under Section 68 of the Income Tax Act.
The ruling came in ITA No. 1642/Ahd/2024 for Assessment Year 2017–18 in the case of Bhaumik Jewellers Private Limited v. ITO, Ward-1(1)(2), Ahmedabad. The order was pronounced on 3 February 2026 by a Bench comprising Judicial Member Sanjay Garg and Accountant Member Annapurna Gupta.
Bhaumik Jewellers Private Limited, engaged in trading in bullion and jewellery, had deposited ₹10.69 crore in specified bank notes between 9 November and 30 December 2016. Out of this, ₹9,65,97,834 was treated by the Assessing Officer as unexplained cash credits under Section 68 read with Section 115BBE.
The Assessing Officer alleged that the assessee manipulated its books by recording large cash advances from 573 persons on 5, 7 and 8 November 2016, immediately before demonetisation. The books of account were rejected under Section 145(3), and the deposits were treated as income from undisclosed sources. The Commissioner (Appeals), NFAC, Delhi, upheld the addition.
Before the Tribunal, the assessee argued that:
- The cash deposits represented business receipts from advances against sales of jewellery and bullion.
- All transactions were recorded in audited books of account.
- Purchases were made through banking channels.
- Stock registers, VAT returns, sales bills and cash books supported the transactions.
- Comparative data showed that cash sales in FY 2016–17 were significantly lower than in FY 2015–16, including during the corresponding period.
The assessee contended that the allegation of abnormal sales during demonetisation was based purely on suspicion.
The Revenue maintained that:
- The spike in advances immediately preceding demonetisation was suspicious.
- The assessee failed to establish the identity and creditworthiness of customers.
- Acceptance of specified bank notes after demonetisation violated RBI notifications and rendered the deposits unexplained.
After examining the record, the Tribunal held that the Revenue’s case rested solely on suspicion arising from a spike in cash advances over three days.
The Bench noted that comparative sales data clearly showed that cash sales during the relevant year were substantially lower than the preceding year. It found no discrepancy in the stock register and observed that purchases were made through banking channels out of duly accounted receipts.
In a key observation, the Tribunal held:
“Once the purchases are accepted and the stock is not disputed, the sales flowing out of such stock cannot be treated as non-genuine.”
The Tribunal further held that taxing the entire sales receipts under Section 68 would amount to double taxation when the profit element had already been offered to tax.
On the issue of alleged violation of RBI notifications, the Bench clarified that even if there was a breach of demonetisation guidelines, such violation would not automatically attract Section 68 where the source of deposits had been properly explained.
The Tribunal concluded that the rejection of books was unjustified and that the addition of ₹9,65,97,834 was not sustainable in law. The addition was accordingly deleted and the assessee’s appeal was allowed.
Case Details
Case Title: Bhaumik Jewellers Private Limited v. ITO, Ward-1(1)(2), Ahmedabad
Case No.: ITA No. 1642/Ahd/2024
Assessment Year: 2017–18
Coram: Sanjay Garg (Judicial Member), Annapurna Gupta (Accountant Member)
Date of Pronouncement: 03 February 2026
