ITAT deletes Demonetisation Addition on regular cash sales recorded in books and VAT returns

The Income Tax Appellate Tribunal (ITAT), Delhi, has announced its decision on an appeal filed by a company named Marche Retail Private Limited against the Income Tax Department, challenging an order dated July 16, 2025, passed by the CIT(A)/NFAC for the Assessment Year 2017-18.

The assessee company had filed its income tax return (ITR) for the year in consideration, declaring its total income at Rs. 59.94 lakh. During the assessment of the return, the tax authorities noticed that the assessee had made cash deposits amounting to Rs. 1.44 Crore during the period of demonetisation in its bank accounts (in old currency). The assessee was asked to furnish relevant information and documents explaining the source of deposits. The assessee submitted the relevant information. However, the tax authorities rejected them all and made an addition amounting to Rs. 35.22 lakh on the assessee’s income.

The aggrieved assessee filed an appeal before the CIT(A). However, the CIT(A) dismissed the assessee’s appeal and upheld the Rs. 35.22 lakh addition, treating the deposits made during the demonetisation period as unexplained. The order was announced on an ex parte basis due to the non-appearance of the appellant during the appellate proceedings.

Thereafter, the assessee approached the ITAT Delhi, challenging the CIT(A)’s ruling. The company claimed that it runs multiple retail outlets dealing in daily goods and usually maintains high cash for operations. It stated that the cash came from regular sales and was recorded in its books and VAT returns. However, the AO did not consider the same and made the impugned addition of Rs. 35.22 lakh to its income under Section 68. The assessee further argued that its books were audited, sales were genuine, and enough cash balance existed to support the deposits, and also that it was not given a proper opportunity of hearing by the CIT(A).

The tribunal, when analysing the case, noted that the assessee had a sufficient closing cash balance during the period of demonetisation, and the tax department did not properly examine the submissions before declaring the cash deposits as unexplained. The tribunal found the claims made by the assessee to be genuine and therefore allowed the assessee’s appeal. Accordingly, dismissed the additions made by the tax department as unjustified.