ITAT Upholds Jeweller’s Cash Sales on Demonetisation Day, Deletes Tax Addition
Tribunal says books of accounts valid, cash deposits linked to genuine sales
Ruling offers clarity for businesses facing scrutiny over demonetisation transactions
By Our Legal Correspondent
New Delhi: December 04, 2025:
In a significant judgment, the Income Tax Appellate Tribunal (ITAT) has held that cash sales made by a jeweller on November 8, 2016—the day demonetisation was announced—were genuine. The tribunal deleted the addition made by the Assessing Officer under Section 68 of the Income Tax Act, which treats unexplained cash credits as taxable income.
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The ruling comes as a relief to businesses that faced scrutiny for large cash deposits during the demonetisation period. The ITAT emphasized that since the jeweller’s books of accounts were not rejected, the sales recorded therein must be accepted as genuine.
Background of the Case
- Event: On November 8, 2016, the government announced demonetisation of ₹500 and ₹1,000 notes.
- Jeweller’s action: The jeweller recorded substantial cash sales on that day, depositing the money in bank accounts.
- Tax department’s view: Authorities suspected the sales were fictitious, treating the deposits as unexplained cash credits under Section 68.
- Appeal: The jeweller challenged the addition before the ITAT.
Tribunal’s Findings
- Books not rejected: The ITAT noted that the Assessing Officer had not rejected the jeweller’s audited books of accounts.
- Sales recorded: Cash sales were duly recorded, supported by invoices and stock registers.
- No evidence of falsity: The department failed to prove that the transactions were bogus.
- Addition deleted: The tribunal deleted the entire addition, ruling in favour of the jeweller.
This judgment aligns with other ITAT rulings across India, where courts have emphasized that mere suspicion cannot override documented evidence.
Why This Ruling Matters
- Relief for businesses: Many traders, especially jewellers, faced tax scrutiny for cash deposits during demonetisation.
- Legal clarity: The ruling clarifies that genuine sales recorded in books cannot be treated as unexplained income.
- Precedent: Sets a benchmark for similar cases pending before tax authorities and tribunals.
- Trust in documentation: Reinforces the importance of maintaining proper records and audited accounts.
Broader Context: Demonetisation and Tax Scrutiny
- Massive deposits: Banks saw huge cash deposits after demonetisation, triggering tax investigations.
- Jewellers targeted: The jewellery sector was under scrutiny due to high-value cash transactions.
- Litigation surge: Thousands of cases reached ITAT and High Courts, challenging additions under Sections 68 and 69A.
- Mixed rulings: While some additions were upheld, many were deleted when businesses produced proper documentation.
Expert Reactions
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- Tax professionals say the ruling strengthens the principle that books of accounts are central evidence in tax matters.
- Legal experts note that the judgment will reduce arbitrary additions by tax officers.
- Business associations have welcomed the clarity, urging members to maintain transparent records.
Implications for Future Cases
- Documentation is key: Businesses must ensure invoices, stock registers, and bank records are consistent.
- Audited accounts matter: If books are audited and not rejected, additions under Section 68 are harder to sustain.
- Reduced litigation: The ruling may help settle pending disputes related to demonetisation-era deposits.
Conclusion
The ITAT’s ruling that cash sales of a jeweller on demonetisation day were genuine is a landmark decision. By deleting the tax department’s addition, the tribunal has reinforced the importance of proper documentation and audited accounts.
For businesses, the judgment offers relief and clarity, ensuring that genuine transactions are not unfairly penalized. As India continues to grapple with the legacy of demonetisation, this ruling sets a precedent for fair and transparent tax administration.
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