ITAT Delhi Upholds Section 69A Addition of ₹1,34,76,000 Over Suspicious Cash Deposits During Demonetisation Period

Overview of the Case

The Income Tax Appellate Tribunal, Delhi Bench, recently pronounced its decision in Garima Leather Exports Vs ITO, dismissing the assessee's appeal and confirming an addition of ₹1,34,76,000 made under Section 69A of the Income Tax Act, 1961. The dispute arose from cash deposits made during the demonetisation window and whether those deposits could legitimately be traced back to actual business transactions. The order was pronounced in open court on 3rd June, 2026.

The case presents a significant judicial discussion on the evidentiary standards required to establish the genuineness of cash sales during the demonetisation period, particularly where multiple red flags converge to undermine the credibility of the assessee's explanation.

Background and Factual Matrix

The assessee — a proprietorship engaged in manufacturing and trading of footwear — had filed its income tax return for Assessment Year 2017-18 on 28.10.2017, declaring a loss of ₹7,73,140/-. Despite reporting a loss, the assessee had deposited a substantial sum of ₹1,34,76,000/- in cash into its bank accounts held with Indian Overseas Bank and Federal Bank Ltd., during the period 9th November 2016 to 31st December 2016 — the period immediately following the demonetisation announcement.

When the Assessing Officer (AO) took up scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, and called upon the assessee to explain the source of these deposits, the assessee maintained that the amounts represented proceeds from cash sales of footwear. The corresponding purchases, it was claimed, had been made from M/s Sharma Chemicals and Adhesive, described as a sister concern of the assessee.

What the Assessing Officer Found

The AO's scrutiny of the cash book and sales records revealed a pattern that appeared highly irregular on its face:

  • The cash in hand as per the cash book stood at ₹48,65,212/- as on 04.10.2016.
  • Between 4th October 2016 and 27th October 2016 — a span of merely 24 days — the assessee recorded 539 local tax-free sale vouchers, numbered sequentially from Voucher R1 to Voucher R539.
  • Every single one of these 539 vouchers reflected an identical sale amount of ₹18,480/-.

The AO found this uniformity deeply suspicious. In the ordinary course of retail or wholesale trade, it is commercially implausible for 539 separate transactions over 24 days to each result in the exact same invoice value, irrespective of the nature of goods or seasonal business patterns.

The AO then sought to verify the purchase side of the transactions by issuing notices under Section 133(6) to Shri Jitender Sharma, proprietor of M/s Sharma Chemicals and Adhesive. However, no compliance whatsoever was forthcoming from the notice recipient.

Based on the totality of circumstances — the implausibility of the identical vouchers, the failure of the sister concern to respond, and the consequent inability to verify purchases — the AO concluded that:

  1. The purchases from M/s Sharma Chemicals and Adhesive were not genuine.
  2. The downstream sales reflected through the 539 vouchers were therefore also not genuine.
  3. The cash deposits of ₹1,34,76,000/- could not be treated as arising from legitimate business operations.
  4. The entire amount was accordingly added as unexplained cash deposits under Section 69A of the Income Tax Act, 1961.

First Appellate Stage: CIT(A)'s Findings