ITAT Jaipur Deletes Section 69A Addition on Demonetisation Cash Deposits: Books of Account and VAT Returns Held Sufficient Proof

Case Overview

Case Name: Damodar Prasad Agarwal Vs ITO (ITAT Jaipur)
Appeal Number: ITA No. 1204/JPR/2025
Date of Order: 31/12/2025
Assessment Year: 2017-18
Court: Income Tax Appellate Tribunal, Jaipur Bench

Background of the Dispute

This matter arose from an assessment proceedings concerning cash deposits made by a jewellery businessman during the demonetisation window, specifically from 09.11.2016 to 30.12.2016. The Assessing Officer (AO) treated cash deposits amounting to Rs. 94,49,786/- as unexplained money and brought the same to tax under Section 69A of the Income Tax Act, 1961.

The assessee, engaged in the gold and diamond jewellery trade under the firm name M/s Chandani Jewellers, contested the addition at every stage — first before the AO, then before the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi under Section 250 of the Income Tax Act, 1961, and ultimately before the ITAT Jaipur.

What the Assessing Officer Found Suspicious

The AO identified several anomalies in the assessee's financial profile that led him to conclude that the cash deposits could not be explained from legitimate business activity. The primary grounds of suspicion were as follows:

1. Abnormal Spike in Cash Sales

The AO compared cash sales for FY 2016-17 with those of the immediately preceding year FY 2015-16 and found what he described as an "astrological hike" — an exceptionally steep and unexplained surge in cash sales. The AO's order recorded:

"3.3 On examination of the details of cash deposits being SBNs during demonetization period so tabulated above, it has been found that there is exceptional increase in cash sales, which is not possible for any business or profession in general cause. In the instant case, the assessee is engaged in the gold and diamond jewellery and in this business, where any exceptional increase in cash sales is not possible. Abnormal increase of cash sales and cash deposits in the bank account as compared to last year was found suspicious as smell a rat and looking to the trend of business of the assessee, it has been found not in order."

2. Absence of Customer Details on Bills Below Rs. 2 Lakh

The AO noted that nearly all sales were below Rs. 2,00,000/- per bill and that customer identification details — such as name, father's name, address, PAN, and mobile number — were missing from these bills. As a result, the department found it impossible to independently verify whether these sales were genuine. The AO's findings read:

"3.4 The assessee has claimed the source of said cash deposit out of cash sales. While going through the details of such cash sales it has been noticed that almost all such sales are below Rs.2,00,000/-. However, in almost all cases the identity of the customer is not clear as relevant details like Father's name, address, PAN, Mobile number etc. of the customers are not mentioned. Thus, the said sales are not open for verification."

3. Unusual Rise in Cash Balances During September–November 2016

As per the AO's analysis, cash balances from April 2016 to August 2016 remained within a modest range of Rs. 8,36,427/- to Rs. 2,81,211/-. However, the balance suddenly jumped to Rs. 6,51,013/- in September 2016, Rs. 8,54,541/- in October 2016, and a staggering Rs. 99,86,836/- for the period 01.11.2016 to 08.11.2016. The AO treated this as highly anomalous.

4. Departure from Regular Cash Deposit Pattern

The AO observed that in FY 2015-16 and up to September 2016, the assessee consistently deposited cash receipts into the bank on a day-to-day basis. However, in October 2016, against cash sales of Rs. 56,13,521/-, only Rs. 36,92,000/- was deposited. Similarly, for the period 01.11.2016 to 08.11.2016, cash sales stood at Rs. 88,25,707/-, while only Rs. 10,00,000/- was deposited in the bank. The AO's order noted:

"b) On comparison of Cash deposited during the FY 2016-17 and Cash deposited during the FY 2015-16, it has been noticed that in the FY 2015-16, the assessee regularly deposits bank notes so received from cash sales in the bank accounts on day-to-day basis and which is general modus-operandi of any business..."