ITAT Delhi deletes ₹5.60 crore Section 69A addition, holding demonetisation cash deposits were duly explained in audited books.

June 4, 2026 : The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has ruled in favour of a Delhi-based jeweller and deleted an addition of more than ₹5.60 crore made by the Income Tax Department unCase Reference: Rakesh Kumar v. Income Tax Officer, Ward 58(6), Delhi, ITA No. 5882/Del/2025der Section 69A of the Income Tax Act, holding that cash deposits made during the 2016 demonetisation period could not be treated as unexplained income when the source of funds had already been recorded in audited books of accounts.

The decision came in the case of Rakesh Kumar, proprietor of M/s R.V. Gold Hallmark, who challenged an assessment order for the Assessment Year 2017-18. The tax department had treated cash deposits of ₹5.60 crore made during the demonetisation period as unexplained money and added the entire amount to his taxable income under Section 69A read with Section 115BBE of the Income Tax Act.

According to the records, the assessee had filed his income tax return declaring income of ₹8.47 lakh. During scrutiny proceedings, the Assessing Officer noticed that substantial cash deposits amounting to ₹5.60 crore had been made in the bank account during the demonetisation window. The assessee explained that the deposits represented cash advances received from customers before November 8, 2016, for the purchase of gold bullion and jewellery. Following demonetisation, the cash was deposited into bank accounts and subsequently used to purchase gold from a registered supplier, SS Bullion, through RTGS transactions.

The Income Tax Department rejected the explanation. The Assessing Officer observed that summons issued under Section 131 of the Income Tax Act to several customers remained uncomplied with and many notices were returned due to incomplete addresses. The officer also noted that the assessee had not filed VAT returns during the relevant period and questioned the genuineness of the alleged jewellery business. Based on these factors, the department concluded that the cash deposits were unexplained and represented undisclosed income.

The Commissioner of Income Tax (Appeals) upheld the assessment. The appellate authority found several deficiencies, including the absence of regular trading activity before demonetisation, lack of stock records supporting the claimed business model, non-filing of VAT returns and failure of customers to respond to departmental summons. According to the Commissioner (Appeals), the business transactions appeared to be a “colorable device” intended to legitimise unaccounted cash by presenting it as business receipts.

Before the ITAT, the assessee argued that he had maintained proper books of accounts, which were duly audited under Section 44AB of the Income Tax Act. He produced purchase confirmations from SS Bullion, details of RTGS payments, sales records and cash books to establish the genuineness of the business transactions. The assessee further contended that most retail transactions were below ₹2 lakh, and therefore there was no legal requirement to collect PAN details from customers. He maintained that the cash deposits represented genuine trade advances received before demonetisation and subsequently utilised for business purchases.

After examining the material on record, the ITAT observed that the Revenue had accepted the assessee’s business income while simultaneously disputing the cash deposits arising from the same business activity. The Tribunal found this approach inconsistent.

The Bench comprising Vice President Mahavir Singh and Accountant Member S. Rifaur Rahman observed that “on one hand the Assessing Officer accepts genuineness of the business income declared by the assessee and on the other hand doubts the cash deposited by the assessee out of the same sales.”

The Tribunal further clarified that even if there were violations of VAT laws, such issues fell within the jurisdiction of VAT authorities and could not automatically justify additions under the Income Tax Act. The Bench stated that “if at all, there is any violation of provisions of VAT, it is for the VAT authorities to look into the same and the Revenue herein need not be concerned about it for determination of total income of the assessee.”

Importantly, the Tribunal noted that the assessee had furnished a detailed cash-flow statement explaining the source of deposits, including customer advances, opening cash balance and other recorded business receipts. Since the transactions were reflected in audited books of accounts and linked to disclosed business activity, the source of cash stood explained.

The ITAT concluded that the conditions required for invoking Section 69A were not satisfied. The Bench held that once the source of cash deposits had been explained through books of accounts and the business income had already been assessed, treating the same amount again as unexplained money would be legally unsustainable.

Accordingly, the Tribunal deleted the entire addition of ₹5.60 crore and allowed the assessee’s appeal. The ruling provides significant relief to taxpayers facing scrutiny of demonetisation-era cash deposits where the transactions are supported by contemporaneous business records and duly maintained books of accounts.

The judgment is expected to have wider implications for pending demonetisation-related assessments. It reiterates that tax authorities cannot disregard audited business records without substantial evidence and that additions under Section 69A require a clear finding that the source of funds remains unexplained. The ruling also reinforces the principle that alleged indirect tax violations cannot automatically be used to justify income-tax additions without independent evidence establishing undisclosed income.

Case Reference: Rakesh Kumar v. Income Tax Officer, Ward 58(6), Delhi, ITA No. 5882/Del/2025