Section 68 Cannot Apply to Recorded Cash Sales Without Rejection of Books Under Section 145(3): ITAT Agra

Case Overview

Case Name: Jitendra Kumar Agarwal Vs DCIT (ITAT Agra)
Appeal Number: ITA No. 454/Agr/2025
Assessment Year: 2017-18
Date of Order: 16/02/2026

The Income Tax Appellate Tribunal, Agra, delivered a significant ruling in favour of an HUF assessee engaged in the jewellery trade, setting aside an addition of Rs. 33,00,923/- that had been made under Section 68 read with Section 115BBE of the Income-tax Act, 1961. The addition pertained to cash deposited during the demonetisation window and had been sustained by the CIT(Appeals). The Tribunal's order restores the foundational principle that recorded and audited cash sales cannot be recharacterised as unexplained cash credits in the absence of any rejection of the books of account.

Background and Factual Matrix

The assessee, a Hindu Undivided Family operating under the trade name M/s R.P.J. Jewellers, Kinari Bazar, Agra, was engaged in the business of trading gold and silver ornaments. The business had commenced on 04.01.2016, as evidenced by VAT registration certificate No. 09400129382C dated 06.01.2016.

For Assessment Year 2017-18, the assessee filed its return of income on 31.10.2017, declaring a total income of Rs. 36,36,270/-. The return was initially processed under Section 143(1) of the Income-tax Act, 1961 and thereafter selected for complete scrutiny under CASS.

During the demonetisation period spanning 09.11.2016 to 30.12.2016, the assessee deposited cash of Rs. 45,60,000/- in its bank account (Account No. 3515725807) with the Central Bank of India. When called upon to explain the source of these deposits through statutory notices under Section 143(2) and Section 142(1), the assessee submitted that:

  • The deposits arose from the closing cash balance as on 08.11.2016, which had accumulated through regular cash sales and the opening cash balance.
  • All cash sales were recorded in the audited books of account maintained in the ordinary course of business.
  • The transactions were supported by a comprehensive trail of documents.

Documentary Evidence Placed on Record

The assessee furnished an extensive array of supporting material, including:

  • VAT Returns confirming turnover reported to tax authorities
  • Sale Register and Purchase Register for the relevant period
  • Quantitative details of stock inventories with values
  • Stock Registers demonstrating corresponding reduction in stock against sales
  • Ledger of Purchase Account and Sales Account
  • Cash Book for the period 01.10.2016 to 31.12.2016
  • Copies of Cash Memos and Bills for the period 01.10.2016 to 30.11.2016

Notwithstanding this body of evidence, the Assessing Officer rejected the explanation and treated a sum of Rs. 33,00,923/- as unexplained cash credits under Section 68 read with Section 115BBE of the Income-tax Act, 1961, vide assessment order dated 29.12.2019 passed under Section 143(3).

Grounds of Appeal Before the Tribunal

The assessee challenged both the Assessing Officer's action and the subsequent dismissal by the CIT(Appeals), NFAC, Delhi under Section 250 of the Income-tax Act, 1961, on the following key grounds:

  1. The addition of Rs. 33,00,923/- under Section 68 read with Section 115BBE was arbitrary, incorrect, and legally unsustainable, given that the cash deposits arose from disclosed sources.