ITAT Delhi Rules Section 115BBE Inapplicable for AY 2017-18: Demonetisation Cash Deposits Addition Slashed to ₹2 Lakh in Gandaram & Sons Jewellers Case

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has granted substantial relief to Gandaram & Sons Jewellers Pvt. Ltd. by drastically reducing the tax addition related to cash deposits made during the demonetisation window. The appellate authority curtailed the disputed addition from ₹2.25 crore to merely ₹2 lakh, while simultaneously ruling that the stringent tax provisions under Section 115BBE cannot be applied for Assessment Year 2017-18.

This significant ruling addresses two critical aspects: first, the evidentiary burden on assessees to substantiate cash deposits during the demonetisation period; and second, the temporal applicability of amended penal tax provisions under Section 115BBE of the Income Tax Act, 1961.

Factual Background and Assessment Proceedings

Return Filing and Scrutiny Selection

Gandaram & Sons Jewellers Pvt. Ltd. submitted its income tax return for AY 2017-18 on 30th October 2017, reporting a total income of ₹42,56,460/-. Subsequently, the case was picked up for detailed scrutiny assessment through the Computer Assisted Scrutiny Selection (CASS) mechanism.

Demonetisation Period Cash Deposits

During the assessment proceedings, the Assessing Officer's examination revealed that the assessee company had deposited cash aggregating to ₹3,71,42,500/- in its banking accounts during the demonetisation window spanning from 09.11.2016 to 30.12.2016. This substantial cash deposit attracted the Revenue's attention and triggered detailed inquiry.

Assessing Officer's Action

The Assessing Officer scrutinized the nature, source, and genuineness of these deposits. After evaluation, the AO concluded that the assessee failed to adequately explain cash transactions amounting to ₹2,79,01,079/-. However, recognizing that the assessee had declared ₹53,32,920/- under the Income Declaration Scheme, 2016 (IDS-2016), the AO granted credit for this amount.

Consequently, the net addition made by the Assessing Officer stood at ₹2,25,68,159/- (calculated as ₹2,79,01,079/- minus ₹53,32,920/-), which was treated as unexplained cash credit and taxed under Section 68 of the Income Tax Act, 1961.

First Appellate Authority's Decision

Dissatisfied with this substantial addition, the assessee challenged the order before the Commissioner of Income Tax (Appeals). The NFAC, Delhi, through its order dated 26.05.2025, examined the submissions but upheld the Assessing Officer's action in entirety, confirming the addition of ₹2,25,68,159/-.

This adverse decision prompted the assessee to escalate the matter to the Income Tax Appellate Tribunal, Delhi.

Contentions Before the Tribunal

Assessee's Arguments

The learned counsel representing Gandaram & Sons Jewellers Pvt. Ltd. advanced several compelling arguments before the Tribunal:

Primary Contention on Addition: The counsel vehemently contended that the addition was made mechanically without proper application of judicial mind. Specifically, it was argued that the Assessing Officer proceeded to make the addition without first rejecting the books of account maintained by the assessee company—a procedural requirement that assumes significance in such cases.