ITAT Lucknow affirms deletion of ₹2.98 crore addition under Section 68 — spike in cash sales during demonetization held justified
Case: ACIT vs. Harshit Garg (ITA No. 451/LKW/2024) | Order Date: 04.07.2025 | Assessee: Proprietor of M/s Bachhe Lala Jewellers | AY: 2017–18
During the demonetization window, the assessee deposited ₹3.80 crore in cash — which triggered scrutiny by the AO. Alleging fictitious cash sales designed to launder SBNs, the AO invoked Section 68 r/w Section 115BBE and made an addition of ₹2.98 crore, citing:
Sudden spike in October–November 2016 sales
Non-identifiable customers (sub-₹2 lakh invoices)
Lack of PAN/KYC disclosures
Yet, despite these red flags, no defects were found in the books, stock records, or cash book. The CIT(A) held that sales were from verifiable stock and matched the business’s robust growth pattern.
Business turnover:
₹13.52 Cr (FY 2015–16)
₹49.49 Cr (FY 2016–17)
₹73.71 Cr (FY 2017–18)
ITAT agreed that the AO did not reject books or identify fictitious entries. The mere absence of customer details for small-value invoices didn't automatically justify an addition under Section 68.
While major relief was granted, the deduction of ₹70 lakh declared under PMGKY was disallowed — rightly so, as income declared under the scheme is treated as undisclosed and not eligible for business expense deduction under Section 37.
Judicial references included landmark rulings:
Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC)
CIT v. Vishal Exports Overseas Ltd. (Gujarat HC) …among others.
Takeaway: A spike in sales, by itself, isn’t a conclusive basis for an addition under Section 68. Without rejection of books or proven fictitious transactions, such additions may not survive scrutiny.