Whether addition under section 68 permissible when Books Are Rejected and Cash Sales Duly Recorded?
Addition under Section 68 for Demonetisation Cash Deposits – Whether Possible When Books Are Rejected and Cash Sales Duly Recorded?
ITAT Mumbai in the case of Rakesh Jain v. DCIT (2025) ITA No. 546/Mum/2025 │ Order dated: 4 December 202 was concern with the issue of addition under Section 68 for Demonetisation Cash Deposits & whether Possible When Books Are Rejected and Cash Sales Duly Recorded?
Let us have a Short Overview of the Case: –
1. Core Issue
1. Whether cash deposits made during the demonetisation period can be taxed as unexplained cash credits under Section 68 when they are already recorded as cash sales in the books?
2. Whether Section 68 can be invoked after the Assessing Officer himself has rejected the books of account under Section 145(3) and completed the assessment under Section 144?
3. Whether such additions lead to impermissible double taxation when the sales have already been offered to tax?
2. Facts in Brief The assessee, a proprietor engaged in manufacture and sale of gold bars and jewellery, deposited ₹3.49 crore in old currency notes during the demonetisation window (Nov 2016).
Books were audited under Section 44AB and VAT audit.
The AO observed a significant jump in cash deposits and alleged discrepancies in the reported cash sales.
The AO Rejected books u/s 145(3) & Completed assessment u/s 144,
Treated the cash deposits as unexplained cash credits u/s 68, and
Applied Section 115BBE (60% tax + surcharge).
CIT(A) sustained the addition. The assessee appealed before the ITAT.
3. Assessee’s Defence
a. Cash deposits represented cash sales, duly recorded
Cash sales of ₹3,44,86,172 (ex-VAT) were recorded in sales register.
Bank deposit of ₹3,49,00,000 (incl. VAT) exactly matched the cash receipts.
Matching stock movement (opening stock → inward → outward → closing stock).
Complete accounting records: cash book, stock register, purchase/sales register, VAT audit, audited accounts.
b. Sales are already recognised as income. Once recorded, they cannot be taxed again under Section 68.
When books are rejected, the AO cannot rely on those same books to pick specific entries and treat them as unexplained (Doctrine: AO cannot blow hot and cold).
No defect found in purchases; once purchases stand accepted, corresponding sales cannot be disbelieved without evidence.
4. Section 68 requires valid “books of account”
If the AO rejects the books, Section 68 cannot be applied on entries in those rejected books.
“Once books are rejected, the AO cannot rely on entries therein to make addition under section 68.”
B. Cash sales recorded in books cannot be treated as unexplained cash credits- Recorded sales cannot be treated as unexplained cash credits u/s 68. Otherwise, the same income would be taxed twice.
C. Double taxation prohibited:
If a receipt is already taxed as business income (sales), taxing the same receipt again u/s 68 is illegal.
D. No requirement to collect PAN/address for small cash sales
Section 139A/Rule 114B mandate PAN only where cash transactions exceed ₹2 lakh per transaction.
The assessee’s cash bills were below this threshold. Courts have repeatedly held that inability to identify walk-in customers does not make sales bogus.
The copy of the order is as under:
