The Income Tax Appellate Tribunal (ITAT), Lucknow Bench, in the case of ACIT v. Abhishek Kumar Garg (ITA Nos. 372 & 451/LKW/2020), has adjudicated upon a critical issue concerning the taxability of cash deposits made during the 2016 demonetisation period under Section 69A of the Income Tax Act, 1961.
In its landmark order passed on 30 September 2026, the Tribunal evaluated whether a spike in cash sales and subsequent bank deposits during demonetisation could be summarily treated as “unexplained money.
Key Facts of the Case:
a) Assessee Profile: The assessee was actively engaged in the high-value retail sector of the jewellery business.
b) Financial Disclosures: For the relevant assessment year, the assessee declared total business turnover/sales of approximately Rs 12.79 crore, out of which cash sales constituted Rs 1.74 crore.
c) The Tax Dispute
i) The Revenue Department challenged a prior lower-appellate deletion of approximately Rs 1.93 crore made by the Assessing Officer (AO) as unexplained cash deposits.
ii) A secondary, separate dispute involved an addition of Rs 25 lakh safety-netted as unexplained cash/money stemming from a parallel “Rehan” (pledge/mortgage) business entity.
Core Legal Issue
Can the Revenue Department invoke Section 69A to treat cash deposits as unexplained income solely based on a seasonal spike or quantitative anomaly in cash sales during the demonetisation window, even when transactions are mapped to business books.
Tribunal’s Analysis and Key Takeaways
The ruling reinforces vital evidentiary principles that align with established jurisprudence regarding demonetisation-era scrutiny:
1) Rejection of Accounts as a Prerequisite: The Tribunal underscored that cash deposits arising from business receipts cannot be deemed “unexplained” under Section 69A if the underlying books of account are integrated, systematically audited, and not formally rejected under Section 145(3).
2) Suspicion vs. Evidence: A sudden surge or spike in cash sales during the demonetisation phase does not automatically taint the transactions as bogus. Unless the Revenue brings forth cogent material to disprove the availability of stock or the validity of purchases, recorded business sales must be accepted.
3) Prevention of Double Taxation: Since the sales turnover had already been offered to tax as regular business income within the trading account, treating the matching cash deposits as undisclosed income under Section 69A would amount to impermissible double taxation on the same inflows.
Conclusion
By dismissing the Revenue’s appeals, the Lucknow ITAT has fortified a taxpayer-friendly precedent. It unequivocally establishes that documented business receipts and regular cash sales cannot be re-characterized as unexplained income under Section 69A without the Revenue uncovering specific, verifiable defects in the books of account.