Introduction
The ITAT Delhi Bench has clarified that cash deposits made during the demonetization period cannot automatically be treated as unexplained income under Section 68, if the assessee maintains proper books of accounts and substantiates the source.
Facts of the Case
The present case revolves around an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] concerning Assessment Year 2017–18.
The assessee, Ms. Priti Brijal Bhatia, was engaged in the business of trading in gold, jewellery, and diamond items under the name M/s Awesome Sparkles. She filed her return declaring an income of Rs12.31 lakhs.
During scrutiny assessment, the Assessing Officer (AO) observed that the assessee had deposited Rs 1.30 crore in cash during the demonetization period (Nov–Dec 2016).
The assessee contended that:
Cash deposits were part of regular business operations
Cash sales and deposits were consistent with past trends
Deposits during demonetization were actually lower than the previous year
However, the AO was not satisfied and noted:
Sudden spike in cash balance in September & October 2016
Failure to submit detailed sales/purchase records and VAT returns
Suspicion of fictitious cash sales
Accordingly, the AO made an addition of Rs 1.30 crore under Section 68 treating it as unexplained cash credit.
Grounds of Appeal
The Revenue challenged the CIT(A)’s order mainly on the following grounds:
Deletion of Rs 1.30 crore addition was erroneous in law and facts
Abnormal increase in cash sales before demonetization indicated manipulation
Assessee failed to provide complete details of:
Cash vs credit sales
Purchases
Supporting documents
The Revenue argued that the assessee used fictitious cash sales to introduce unaccounted money.
Arguments by the Petitioner
The AO highlighted a sharp increase in cash balances just before demonetization
Monthly closing cash jumped significantly compared to earlier months
Assessee failed to produce sufficient documentary evidence
Therefore, cash deposits could not be considered genuine business receipts
The Revenue strongly relied on the pattern analysis and lack of detailed records to justify addition under Section 68.
Arguments by the Respondent
The assessee countered with the following submissions:
Cash deposits were fully recorded in books of accounts
Sales were genuine and reflected in financial statements and VAT returns
Comparative data showed:
13.95% lower deposits before demonetization
43.58% lower deposits during demonetization vs previous year
Cash deposits were directly linked to business cash sales already offered to tax
The assessee argued that:
???? Treating the same amount again under Section 68 would amount to double taxation
Findings of CIT(A)
The CIT(A) ruled in favour of the assessee and observed:
Proper books of accounts were maintained
Sales and purchases matched VAT records
No evidence of bogus sales or purchases was found
Cash deposits were explained through business activity
The CIT(A) concluded that the addition was based on:
“assumptions, presumptions, and conjectures”
Accordingly, the addition of Rs 1.30 crore was deleted.
ITAT Decision & Court Order
The Income Tax Appellate Tribunal (ITAT), Delhi upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
Mere increase in cash balance cannot justify addition
Assessee maintained proper books and cash records
Cash deposits were linked to recorded sales
Comparative analysis showed deposits were actually lower than previous year
The Tribunal held:
When books are properly maintained and not rejected,
Cash deposits arising from recorded business transactions cannot be treated as unexplained
Income Tax Case Law ACIT versus Priti Brijal Bhatia
Citation-2026 TAXONATION 661 (ITAT-DELHI)
TAXONATION GPT Demo-https://www.youtube.com/watch?v=j5HUhjcbljY&feature=youtu.be
