ITAT Ahmedabad Deletes Rs. 9.66 Crore Addition Under Section 68 for Demonetisation-Era Cash Deposits: Bhaumik Jewellers Private Limited Vs ITO

Case Overview

Background and Context

The Ahmedabad Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the case of Bhaumik Jewellers Private Limited Vs ITO, allowing the assessee's appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 26.07.2024. The underlying assessment had been framed under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2017-18.

At the heart of this dispute was an addition of Rs. 9,65,97,834/- made by the Assessing Officer under Section 68 of the Act, treating cash deposits during the demonetisation window as unexplained income from undisclosed sources. The Tribunal ultimately struck down this addition in its entirety, delivering a ruling that has significant bearing on similarly situated assessees from the demonetisation era.

Facts of the Case

Bhaumik Jewellers Private Limited is a private limited company engaged in trading of bullion and jewellery. Its return of income for Assessment Year 2017-18 was selected for scrutiny under CASS, the specific trigger being large cash deposits during the demonetisation period.

During assessment proceedings, it emerged that the assessee had deposited Specified Bank Notes (SBNs) totalling Rs. 10,69,00,000/- into its RBL Bank and Axis Bank accounts between 09.11.2016 and 30.12.2016.

The assessee's explanation was straightforward: these deposits represented cash advances collected from customers against jewellery and bullion sales. These advances had been received in the days immediately preceding the demonetisation announcement on 08.11.2016, and corresponding sales invoices were raised thereafter. The assessee maintained that all such receipts were reflected in its regularly maintained books of account.

Assessing Officer's Findings and Addition

The Assessing Officer declined to accept the assessee's explanation. His principal observations were:

• Approximately Rs. 9.65 crore in cash advances had been received on just three dates — 05.11.2016, 07.11.2016, and 08.11.2016 — from 573 persons, which the AO viewed as suspicious.
• The AO concluded that the assessee had manipulated its books to launder unaccounted cash under the guise of trade advances.
• Complete PAN and address details were not available for all customers from whom advances were purportedly received.
• Notices issued under Section 133(6) to verify transactions either came back unserved or received no response.
• The cash book reflected an unusually high cash balance immediately prior to demonetisation, which was not deposited immediately — contrary to the assessee's normal banking pattern.

On the basis of these observations, the AO invoked Section 145(3) to reject the books of account and treated Rs. 9,65,97,834/- as unexplained cash credits under Section 68 read with Section 115BBE of the Income Tax Act, 1961.

CIT(A)'s Order: Confirmation of Addition

On first appeal, the Commissioner of Income Tax (Appeals), NFAC, Delhi upheld the addition. The CIT(A) placed heavy reliance on the ruling of the Hyderabad Bench of the Tribunal in Vaishnavi Bullion Private Limited Vs ACIT, (2022) 145 taxmann.com 197, holding that:

• The assessee had failed to establish the identity and creditworthiness of the parties from whom cash advances were allegedly received.
• Receiving such massive cash advances in the days immediately before demonetisation was beyond the realm of normal commercial probability.

Dissatisfied with this outcome, the assessee approached the ITAT Ahmedabad.

Assessee's Submissions Before the Tribunal

Documentary Evidence Furnished

The assessee's counsel drew the Tribunal's attention to an extensive list of documents submitted during assessment proceedings, including: