ITAT Delhi Upholds CIT(A) Relief: Rs. 12.20 Crore Demonetisation Cash Deposit Addition Deleted

Sanjay Sales Agency, a trader in pan masala and related products, filed its return declaring income of Rs. 1.01 crore. A surveywas conducted on 29 March 2017, during which no discrepancy was found in stock or cash. In scrutiny assessment, the AO treated Rs. 12.20 crore out of the cash deposited during the demonetization window as unexplained under Section 68, relying on an average-cash-deposit theory and alleging manipulation of books. According to the AO, the assessee could not have held cash of such magnitude as on 8 November 2016.

The assessee appealed successfully before the CIT(A), which concluded that the cash deposits represented recorded sales and deleting the addition would prevent double taxation. The Revenue challenged this before the Tribunal.

Main Issue: Whether the AO was justified in treating Rs. 12,20,50,000 deposited in specified bank notes during demonetisation as unexplained cash credit under Section 68 despite audited, accepted books and no defects found in purchases, sales, or stock.

Order by ITAT: The Tribunal endorsed the detailed fact-based reasoning of the CIT(A), noting that no specific discrepancies were ever found in the assessee’s books, stock registers, sales records, or VAT filings. The AO had accepted the purchases, the stock tallied during the survey, and the sales had been offered to tax. The Bench observed that the AO’s addition was driven purely by suspicion and not by any evidence.

The Tribunal further held that once the sales were recorded in the books and included in the declared profit, the same amount could not again be taxed under Section 68. Doing so would amount to double addition. The AO had neither rejected the books nor found any adverse material during the survey; therefore, the CIT(A)’s deletion of the addition was justified. The Revenue’s appeal was dismissed in full.

To Read Full Judgment, Download PDF Given Below