Cash During Demonetization: ITAT Says VAT Accepted Sales Can’t Be Taxed Again u/s 68

The Assessee, a jeweller, made a cash deposit of Rs. 1.32 crore between November 9, 2016, and December 31, 2016. According to him, the deposits came from actual cash sales that were properly documented in the books of account and VAT returns, backed up by sale invoices and stock registers.

But as the cash sales were higher than the previous year, the AO treated the deposits as unexplained cash credits under Section 68. The addition was made in violation of Section 115BBE‘s penal provisions, even though the AO did not discover any errors in the books or reject the accounts as per Section 145(3).

After the addition was completely removed by the CIT(A), the Revenue filed an appeal with the ITAT.

Main Issue Before Tribunal: Can cash deposits during the demonetization period, duly recorded in the books as sales and supported by tax returns, be treated as unexplained cash credit under Section 68 without any specific defect, adverse material, or rejection of books?

Tribunal’s Decision: The ITAT upheld the CIT(A)’s order, holding that the additions were baseless. The assessee’s audited books showed no defects, and cash sales couldn’t be disbelieved solely because they were higher than in earlier years. The AO relied on suspicion without proof or verification.

The Tribunal noted that VAT authorities accepted sales, and taxing them again under Section 68 would amount to double taxation. It also relied upon rulings like Deepak Sharma v. ACIT and Goel Jewellers and held that invoking Section 115BBE was unjustified in the absence of unexplained income.