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Income Tax Appellate Tribunal, “G” BENCH, DELHI
Before: MS. MADHUMITA ROY & SHRI NAVEEN CHANDRA
The instant appeal filed by the Revenue is directed against the order passed by the Ld. NFAC, Delhi dated 31.07.2024 arising out of the Assessment Order dated 29.12.2019 passed by the ITO, Ward-24(3), Delhi, under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2017 -18.
Deletion of addition of Rs.3,72,69,265/- made under Section 68 of the Act is under challenge before us.
The assessee engaged in trading of gold and diamond jewellery filed its return of income on 30.10.2017 declaring total income at Rs.11,83,450/-. The case was selected for scrutiny and notice, thereafter, under Section 143(2) of the Act was issued on 21.09.2018 followed by notice under Section 142(1) of the Act dated 04.09.2019 asking the assessee to explain the source of cash deposit made by the assessee during demonetization period commencing from 09.11.2016 to 30.12.2016 in his bank account. Specific queries were also raised to explain the genuineness and the source of such cash deposit made by the assessee. The assessee in fact deposited cash of Rs.3,54,70,000/- into its 3 bank accounts namely HDFC Bank, Punjab National Bank & Yes Bank Limited from 09.11.2016 to 30.12.2016. It was further contented by the assessee that the source of cash deposit was the cash sales made by the assessee on 08.11.2016 as well as advance received by it on 08.11.2016 from various customers. The copy of the cash book for Assessment Year 2016-17 were duly furnished by the assessee which has been reproduced by the AO in its order of assessment. According to the AO November 2016 is the only month of Financial Year 2016-17 when the assessee company has reported astronomical and extraordinary cash sales/receipt of cash advances exceeding to Rs.2 crores. The assessee claimed to have made 206 number of sales on 08.11.2016 and the total proceeds of sale of that particular date was shown at Rs.206,55,451/-. According to the Ld. AO the theory of cash sales and cash advance is cooked story and these are nothing but sham transactions and thus, such entire cash deposit of Rs.3,35,74,641/- comprising purported cash sales of Rs.206,55,451/- and cash advances of Rs.1,29,19,190/- deposited during demonetization was found to be unexplained cash credit and added in the hands of the assessee under Section 68 of the Act which was in turn deleted by the First Appellate Authority. Hence, the instant appeal before us.
Heard the Ld. Counsels appearing for the respective parties and we have also perused the relevant materials available on record. We find that while deleting the addition, the Ld. CIT(A) observed as follows:
“6.1 The order of the Ld. AO passed u/s 143(3) of the I.T. Act, 1961 dated 29.12.2019 as well as the grounds of appeal, statement of facts and written submission filed by the appellant have been carefully considered. Ground No. 1 taken by the appellant is general in nature and hence does not call for adjudication. Ground No. 2 raised by the appellant relates to the action of the Ld. AO regarding addition of Rs.3,72,69,265/- on account unexplained cash credit u/s 68 of the I.T. Act, 1961 r.w.s. 115BBE of the Act. 6.2 It is seen that during the year under consideration, the appellant made total sales of Rs.5,61,36,583/-, out of which credit sales amounted to Rs.1,26,27,059/- and balance sales of Rs.4,35,09,524/- were made in cash. Out of the said cash sales, sale made on 08.11.2016 amounted to Rs.2,06,55,451/-. Apart from the said cash sales, the appellant also received advances aggregating to Rs.1,29,19,190/- in cash on that date itself. The said amount of cash sales and advances received were deposited by the appellant in its regular bank account during the demonetization period from 09.11.2016 to 31.12.2016. The appellant deposited a total amount of Rs.3,54,70,000 in its bank account during the said period. 6.3 In the assessment order, the assessing officer, held that cash of Rs.3,35,74,641/- (comprising of cash sales of Rs.2,06,55,451/- and advances of Rs.1,29,19,190/- received on 08.11.2016) deposited during demonetization period is a cooked story and is just a creation of paper trail of sham transactions which did not happen at all and that the assessee has introduced its own unaccounted money in this books of accounts in disguise of cash sales and cash of Rs. 1,29,19,190/- and thus is not explained and from undisclosed sources and thus, proceeded to make addition of said amount under section 68 of the Act. In the written submissions filed by the appellant, it has been contended that the aforesaid addition is patently erroneous, legally flawed and unsustainable in law in so far as the cash was deposited out of: (i) cash in hand available with the appellant on account of regular cash sales effected during the period upto October 2016; and ii) cash sales made during the pre- demonetization period i.e., on 08.11.2016.
In support of the above, the appellant has placed on record the following evidences/ documents:
1. Income tax return of relevant assessment year 2. Month-wise sales and purchase details of the relevant financial years 2014-15 to 2016-17 3. Extracts of Cash Book for the entire financial year 2016-17 4. Bank statements of the relevant financial year 5. VAT returns of sales made by the appellant during the relevant financial year 6. Assessment order for the year in support of VAT paid and confirmation of acceptance of account books turnover and copy of challan paid for 31.03.2017 7. Detailed working of opening stock month wise and closing stock with specimen copy of purchase invoices and price tag.
Further, the assessing officer has not disputed and has in fact accepted:
cash sales effected during the year and duly recorded in the regular books of account; 2. quantitative details of stock maintained, including the sales effected in cash; 3. the books of account properly maintained which were not rejected by the assessing officer; 6.4 It has been contended that once cash sales and the regular books of accounts wherein the said cash sales stood recorded, were accepted by the assessing officer, there was no way the assessing officer could have treated cash deposited in the bank account out of cash in the regular books of account as unexplained cash credit under section 68 of the Act. During the year under consideration, it is stated that the appellant made total sales of Rs.5,61,36,583, out of which credit sales amounted to Rs. 1,26,27,059 and balance sales of Rs.4,35,09,524 were made in cash. Out of the said cash sales, sale made on 08.11.2016 amounted to Rs.2,06,55,451/-. Apart from the said cash sales, the appellant also received advances aggregating to Rs.1,29,19,190. Thus cash sales of Rs.4,35,09,524 represent about 78 percent of the total sales and the cash received against such cash sales is subsequently deposited into the bank account regularly from time to time.
It is stated by the appellant that cash sales is a normal business feature in the trade of the assessee involving transactions with several customers on daily basis and the cash deposited in bank account is attributable to sales made from trading of jewellery/ ornaments. The details of similar proportion of cash sales made during the immediately preceding and subsequent assessment years) was provided as under:
Financial Cash Sales Bank Sales Total Sales % of Cash Year Sales 2015-16 Rs.3,36,09,785 Rs.1,13,41,473 Rs.4,49,51,258 75% 2016-17 Rs.4,35,09,524 Rs.1,26,27,095 Rs.5,61,36,583 78% 2017-18 Rs.2,34,65,939 Rs.1,84,38,052 Rs.4,19,03,991 56% On perusal of the above, it is noted that cash sales in the relevant assessment year 2017-18 was not exorbitant or out of the ordinary as alleged by the assessing office, but was in fact in line with the trend of earlier years) as demonstrated above.
It was also submitted that items such as jewellery, ornaments, etc., are volatile commodities and the business of trading in such goods/ items is cash centric business with numerous transactions involving huge sum of money coupled with heavy investment and dealing with several customers on day-to- day basis running into thousands or lakhs of rupees.
The following explanation has been provided by the appellant in the written submission in respect of cash sales:
“In this regard, it is pertinent to mention that the appellant had achieved higher level of sales effected during the period of November, due to long period of festival occasions of Diwali, Dhanteras, etc., followed by the period of wedding preparations, when people at large tend to buy gold/ jewellery, considered as customary and auspicious.
It is well known fact of Indian tradition that these festivals are considered most auspicious period for purchase of bullion, jewellery, ornaments etc., on account of which there were increased sales of the appellant corresponding to increase in amount of cash balance with the appellant in November.
Another important event which happens immediately after Diwali festivals is wedding preparations, which usually starts immediately after the festivals, and starts peaking in November, December and January every year. Wedding in Indian families, it is well known, is a big festival in itself, when people at large, i.e., not only the immediate families of bride and groom but also numerous close as well as distant relatives and other near and dear start preparing for the wedding celebrations. Buying bullion, jewellery, ornaments etc., is one of the integral part of the wedding celebrations in India and people invest heavily and in large sums in such commodities during such occasion.
In the aforesaid background, when suddenly on 08.11.2016, the extraordinary event happened and the Hon'ble Prime Minister announced the decision to demonetize old 1000/500 currency notes, many people, having cash, came out in large number to utilize old notes for buying bullion, jewellery, etc. It is submitted that the public were in fanatic move and were anxious to convert the old 1000/500 currency notes into some other form and felt wiser to make investment in jewellery. The appellant being one of the reputed shops having long time presence, the customers stepped into its show room in large numbers. Since large number of customers stepped into the showroom within a short span of time of 4 to 5 hours, the appellant made necessary arrangements for attending the customers for sale of gold jewellery, however, could not take the details which were not mandatory in respect of the sales below Rs.2 lakhs. Copy of newspaper clippings showing customers thronging jewellery outlets/stores till midnight of 08.11.2021 is enclosed in paperbook.
It will kindly be appreciated that the appellant merely sensed a huge business opportunity, more so, when there was no bar on sale of existing stock of jewellery, ornaments, etc., and undertook cash sales within the four-corners of law to the customers who came for the purchase.
The aforesaid circumstances, it is submitted, helped the appellant to register a sale of approximately Rs.2,24,41,204 in the month of November, which was duly offered to tax in the return of income. The sales made in the said month were predominantly in cash (i.e., Rs.2,19,90,457) and the cash deposited in bank in the month of November, after demonetization, it would be appreciated, is attributable to the aforesaid cash proceeds.
Further, the appellant also received cash advance aggregating to Rs. 1,66, 13,814 during the relevant assessment year (out of which advance of Rs. 1,29,19,190 was received on 08.11.2016), on account of certain schemes that were being run by the appellant.
The cash deposited in bank in the month of November, it would be appreciated, is attributable to the cash proceeds realized from sale of aforesaid jewellery, ornaments, etc items and advances received under certain schemes which was subsequently deposited in the bank account maintained by the appellant.
The assessing officer, however, disregarding the submission of the appellant and the circumstances which lead to the cash sales, in the assessment order, has, on mere conjectures and surmises, made addition of Rs.3,72,69,265 under section 68 of the Act in respect of cash deposited during demonetization period and other cash advances received by the appellant as under:
• Cash sale on 08.11.2016 - Rs.2,06,55,451 • Cash Advance received on 08.11.2016 - Rs. 1,29, 19, 790 • Other cash advances - Rs.36,94,624 It is submitted that the aforesaid addition is patently erroneous and clearly not sustainable in law as explained hereunder:
It is emphatically reiterated that cash deposited during demonetization was pursuant to cash sales of the appellant, which has been duly recorded in books of account and accepted by the assessing officer. Further, it is submitted that neither the cash sales have been disputed nor has anything been brought on record to dispute cash sales effected during the year. In fact, no cogent reasons have been assigned for non-acceptance of cash deposited during the demonetization period out of the cash available in the regular books of account.
The aforesaid addition and adverse inference, it is submitted, has been made despite cash sales and cash deposits being part and parcel of the regular business operations of the appellant and books of account of the appellant, even during the pre-demonetization period, which has not been controverted in the assessment order. As a matter of fact, it has not been doubted that the aforesaid cash deposited in the bank account was reflected against cash sales, which was duly offered to tax as income by the appellant.
Pertinently, it will kindly be appreciated that all transactions of sale(s) have been duly declared in the books of accounts, which have been accepted and not rejected. There is also no allegation of any sale being made outside regular books of account which could have resulted in generation of unaccounted cash deposited in the bank account. Once cash sales stood accepted, stock stood accepted and there is no allegation of any sale being made outside the regular books of account, the appellant fails to understand where is the question of doubting the cash deposited in the bank accounts of the appellant. It is also reiterated that the documents/ information submitted by the appellant have not been rebutted by the assessing officer nor there is any finding that cash in hand disclosed in the books is not substantiated from bank account. Simply, because cash was deposited in bank account after announcement of demonetization on 08.11.2016, it does not mean that cash in hand as on 09.11.2016 and/or on 31.03.2015 and 31.03.2016, duly reflected in balance sheet and disclosed to the Department in the ITR filed on several instances, was unexplained.
It is further submitted that the sales were not only fully recorded in books but also corroborated with VAT returns which have been accepted by the sales tax/ VAT authorities, with VAT/ sales tax having been paid thereon. It is also pertinent to mention that assessment has been completed of said returns wherein sales declared by the appellant have been accepted and no variation/ deviation/ adjustment has been proposed. Copy of the assessment order is enclosed in the paper book. In the aforesaid circumstances, the appellant, it is submitted, fails to appreciate how could the cash deposits, out of the cash sales effected, at all be disputed in the assessment order, that too, despite cash sales, quantitative stock and books of account being accepted as such by the assessing officer. However, disregarding the submissions/ documents filed by the appellant, the assessing officer, on mere conjectures and surmises, has treated the cash deposited during the demonetization period to be the income from undisclosed sources as per section 68 of the Act.” 6.5 It is also stated in the submission that the issue is squarely covered in favor of the appellant by the decision of various Tribunals, wherein it has been consistently held that where cash deposited post-demonetization by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by assessing officer and there was sufficient stock available with assessee to make cash sales, sales made by assessee out of existing stock were sufficient to explain deposit of cash (obtained from realization of sales) in bank account and, thus, cash deposits could not have been treated as undisclosed income of assessee: • Fine GujaranwalaJewellers vs. ITO: 151 taxmann.com 340 (Del) • ACIT vs. HirapannaJewellers: 128 taxmann.com 291 (Visakhapatnam Trib.) • Balwinder Kumar vs. ITO: 151 taxmann.com 338 (Amritsar Trib.) • R S Diamonds India (P.) Ltd. v. ACIT: 198 ITD 344 (Mum. Trib.) • R. S. Diamonds India (P.) Ltd. Vs. CIT: 145 taxmann.com 545 (Mum Trib.) • AnantpurKalpana vs. ITO: 138 taxmann.com 141 (Bang Trib.) • Mahesh Kumar Gupta vs. ACIT: 151 taxmann.com 339 (Jaipur Trib.) • ITO vs. Raj Kumar Nowal: 146 taxmann.com 581 (Jaipur Trib.) • ACIT vs. Chandra Surana: 149 taxmann.com 379 (Jaipur Trib.) • DCIT vs. Roop Fashion: 145 taxmann.com 216 (Chandigarh Trib.) It has been contended that in the case of the appellant too the cash sales have been duly accepted by Sales Tax/VAT Department and not doubted by assessing officer and there was sufficient stock available with assessee to make cash sales, which too is not disputed by the assessing officer. Further, the assessing officer has proceeded merely on conjectures and surmises and not undertaken any independent verification or brought on record any corroborative evidence to doubt the genuineness of the transaction. In view of the above, it has been contended that the issue now stands squarely covered in favour of the appellant by decision of various benches of the Tribunal, including jurisdictional Delhi Tribunal and thus deserves to be deleted at the very threshold.
6.6 In the assessment order, the primary findings of the assessing officer for making addition is as under:
"7. It is the stand of the assessee that the source of cash, which is deposited by it into its bank account pursuant to announcement of scheme of demonetization, is the sale proceeds of the sales made by the assessee company in its showroom on 08.11.2016. To defend this stand of making of sales, defence line of the assessee is submission of 'cash book' for the period 01.04.16 to 31.03.2017 wherein purported sales of Rs. 2,06,55,451/-claimed to be made on 08.11.2016 by way of making / raising 206 sales invoices. However, this shield of defence of the assessee automatically stands pierced / demolished once the theory of 'affecting sales' of such a huge magnitude fails to survive the basic test of normal human behaviour. The evidences put-forth also fails to qualify the test of 'probabilities' as to whether such a large number of sale bills can be raised in a single day of 24 hours when the working hours of any normal business unit including that assessee are that not more than of 9 to 11 hours daily. Neither in the FY 2016-17 except on 08.11.2016 nor in the immediate preceding financial year 2015-16, the assessee has ever reported a single day cash sales exceeding Rs. 2,00,00,000/- or more in a single day.
7.1 Assesse is claiming which is not real, which cannot be genuine. It is claimed that out of the total cash sales of the November 2016, it had made 96.72% of such total cash sales on 08.11.2016 alone. In turn, it is also claimed that out of the total sales of the year 2016-17, 35.82% of the total sales on single day of 08.11.2016 alone itself.
7.2 Another interesting aspect is noticed from the purported part cash book furnished by the assessee and referred to as well as discussed hereinabove. It is further noticed that all the purported sales bills are below the statutory limit of Rs. 2,00,000/- prescribed under the Income Tax Statutes which mandates compulsory and mandatory quoting of PAN of the buyer of bullion/jewellery once whenever the purchase consideration is exceeding Rs.2,00,000/-. This has been done to by-pass the Income Tax Statutes and the unexplained money has been camouflaged as sales so as to introduce the unexplained money in the cash-book and then into its banking channel/accounts. This straightway goes to prove that trail of back dated trail of sales had been created after the announcement of scheme of demonetization.
7.3 This approach / behaviour is normal human behaviour of any person which persuade to reduce one's tax liability. Quite often we came across cases where a taxpayer has structured its transactions in a manner that the transaction squarely falls within the letter and the four corners of the Law. This is called colourable devise for the purpose of tax evasion. However, instinctively and logically one often feels that something about the situation is not quite 'right'.
7.4 If facts of the case in hand/situation in hand visualized/examined in the light of the ratio of the Hon'ble Supreme Court in Mcdowells' case (supra), instinctively and logically one often feels that something about the situation is not quite 'right'.
7.5 In the case in hand, what is not quite right is the theory of affecting single day cash sales of Rs.2,03,55,451/-, and single day receipt of cash advances of Rs. 1,29, 19, 190/-. This sales is claimed to had been made by way of raising 206 cash sale invoices. It is not humanly, scientifically and practically not possible to raise 161 sales invoices, all below the threshold limit of Rs.2,00,000/- mandating compulsory quoting of PAN, in a single day. Such an arraignment is in defiance of all the 'probabilities', logic' and cannot be called 'real' and 'genuine. At best this arrangement is nothing but an arrangement of avoidance /evasion of tax. …………………..
7.9 Thus taking support in this settled legal position it is evident that the circumstances as noted in this case hold evidentiary value supporting the conclusion derived that the entire claim of single day cash sales of Rs. 2,06,55,451/- coupled with the receipt of Rs. 1,29,19,190/- as receipt of single day 'cash advance declared' by the assessee on 08.11.2016 is not genuine.
7.10 This entire edifice through which the assessee claimed to have made cash sales of such huge magnitude on 08.11. 16 fails the tests of both genuineness and human probabilities. In the case of Sumati Dayal Vs CIT (214 /TR 801) the apex court propounded the principle of human probabilities and applying it in that case held that whether apparent is real is to be decided on the basis of incriminating circumstances. The apex court concluded that "There is no dispute that the amounts were received by the appellant from various race clubs on the basis of winning tickets presented by her. What is disputed is that they were really the winnings of the appellant from the races.
7.11 In the case in hand the jewellery business is not disputed. But what is disputed is the fact of making 38.55% of the total cash sale of the FY 2016-17 on single day on 08.11.2016, fact of making 96.58 % of the total sales of the November 2016 on single day of 08.11.2016 is also disputed. And by disputing such facts, the claim and fact of single day cash sales amounting to Rs. 2,06,55,451/- on 08.11.2016 by way of raising 206 bills along with raising cash advances of Rs. 1,29,19,190/- from 145 persons on 08.11.16 alone is also disputed.
7.12 This raises the question whether the apparent can be considered as real. As laid down by the Courts, 'apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out thereality and the matter has to be considered by applying the test of human probabilities.' 7.13 The assessee has completed paper-trail by producing the cash book and claimed that cash of Rs.2,06,55,451/- was generated on 08.11.2016 by making 206 sales bills. Mere furnishing of this paper trail does not inspire any confidence in the light of undisputed fact that the claim of single day cash sale of 08.11.2016 is not found real/genuine. It is also a fact that receipt of cash advance of Rs. 1,29,19,190/- on 08.11.2016 alone from 145 persons is not found real/genuine.
7.14 It is a matter of fact and record that assessee has failed to discharge its onus of proving the identity, creditworthiness and genuineness of its liability of Rs. 1,66, 13,724/- as on 31.03.2017 being the 'advance from customers.
7.15 Evidences to prove the genuineness of transaction are themselves found to serve as smoke screen/camouflage. Apparatus should be ignored to unearth the harsh reality. Hence, the explanation/justification of the assessee with regard to the source of cash deposited offered is not accepted. In fact based on the facts and circumstances this claim of the assessee is rejected.
7.16 Reliance is also placed on the decision of the Apex court in the case of Durga Prasad More Vs CIT wherein the principle of human probabilities was relied upon by the court in deciding the case in favour of revenue.
7.17 In the present case, the assessee has not been able to the existence of running any such schemes with corroborative evidences. It has simple chosen to state that the cash deposited by it during the period of demonetization consists of not only the sale proceeds of 08.11.2016 but also consist of cash advances received on 08.11.2016 alone. However, both the contentions remains unproved and it is found that the theory of cash sales and cash advance is a cooked storey and is just a creation of paper trail of sham transactions which did not happen at all. As mentioned above, no prudent businessman would allow its business operations to be used, to defeat any scheme of the Government and to help unlawful individuals to adjust their unaccounted money. It is clear that the assessee has introduced its own unaccounted money in the books of accounts in the disguise of cash sales and cash advance. Since, the assessee has failed to establish their nature and source, these cash credits are clearly unexplained as per the provisions of section 68 of the Income Tax Act. Hence, the entire cash of Rs 3,35,74,641/- (comprising purported cash sales of Rs. 2,06,55,451/- plus purported cash advances of Rs. 1,29, 19,190/-) on 08.11.2016 made by the assessee company during the period of demonetization is being added to the income of the assessee as unexplained cash credit under the provisions of section 68 of the Income Tax Act, 1961. Besides, the remaining cash credit, which is shown in the books of accounts as advance from customers, i.e. sum of Rs. 1,66, 13,734 which is shown as payable to customers as on 31/03/2017, less Rs. 1,29, 19, 190/- which was shown as advance received on 08/11/2016 (has already been treated as unexplained cash credit), is also treated as unexplained cash credit, as the assessee has failed to furnish documents to substantiate complete identity and creditworthiness of alleged customers and genuineness of the transaction.
7.17 Based on the facts and circumstances of the case, the amount of Rs. 3,72,69,265/- [representing the aggregate of the purported bogus sales of 08.11.2016 amounting to Rs.2,06,55,451/- plus the entire quantum of cash advances of Rs. 1,29, 19, 190/- plus Rs. 36,94,624, as mentioned above] is treated as unexplained cash credit in the hands of the assessee u/s 68 of the Act.
7.18 In view of the above discussion, an amount of Rs. 3,72,69,265 /- is being added to the total income of the assessee for AY 2017-18 under the provisions of section 68 of the Income Tax Act, 1961 which is taxed as special rates under section 115BBE of the Income Tax Act, 1961."
6.7 have gone through the submissions made by the appellant and the assessment order. It is seen that the cash sales is a normal business feature in the trade of the assessee involving transactions with several customers on daily basis and the cash deposited in bank account is attributable to sales made from trading of jewellery/ornaments. It has been reported by the appellant that similar proportion of cash sales were made during the immediately preceding and subsequent assessment years). Cash sales in the relevant assessment year 2017-18 was not exorbitant or out of the ordinary as alleged by the assessing officer, but was in fact in line with the trend of earlier year(s).
The appellant registered a sale of approximately Rs.2,24,41,204/- in the month of November, which was duly offered to tax in the return of income. The sales made in the said month were predominantly in cash (i.e., Rs.2,19,90,457/-) and the cash deposited in bank in the month of November, after demonetization, is attributable to the aforesaid cash proceeds a very large proportion of which was made on 08.11.2016.
It is the contention of the appellant that there is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret that the sale are bogus sale and are only to give color to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the VAT returns were filed regularly. Accordingly, the issue is squarely covered in favor of the appellant by the decision of the Delhi Tribunal in the case of Fine Gujaranwala Jewellers vs. ITO: 151 taxmann.com 340 and ACIT vs. Hirapanna Jewellers 128 taxmann.com 291 (Visakhapatnam - Trib.).
There is contradiction in the assessment order in as much as on one side, the assessing officer accepted the cash sales as genuine by accepting/ not disputing the trading results as disclosed by the assessee and, on the other hand, held cash deposited in bank account from realization of the very same accepted sales to be unexplained.
It was noted that the appellant has submitted stock details to Ld. AO. No mistake in the stock or purchases have been identified by the Ld. AO to show manipulation in sales on 8th November, 2016. The Ld. AO failed to pinpoint any mismatch in stock or purchase to demonstrate that the cash sales as claimed by appellant could not be effected. The cash deposited during demonetization was pursuant to cash sales made by the appellant, which has been duly recorded in books of account and accepted by the assessing officer and nothing has been brought on record to dispute cash sales effected during the year.
There is no allegation of any sale being made outside regular books of account which could have resulted in generation of unaccounted cash deposited in the bank account since cash sales stood accepted, stock stood accepted and there is no allegation of any sale being made outside the regular books of account.
Once the sale proceeds received is accounted for as income, then further addition under section 68 on account of cash sales amounts to double taxation and inclusion of the same amount as income twice to the appellant, is against the provisions of the law. The trading operations/ results and books of account of the appellant have been accepted and have not been disputed/ disturbed in the impugned assessment order. No discrepancy has been pointed in details of cash including opening cash, cash withdrawal, cash deposited, cash expenses, closing cash in hand and increase in cash in hand and no inquiry has been made by the assessing officer to disapprove the cash disclosed in books of account and balance sheet.
As regards cash advances received of Rs.1,66,13,814/-, the same has been received from different customers on account of monthly business schemes in which amount is received in monthly installments and given back in the shape of ornaments with either one month bonus in some schemes and without bonus in another schemes. The details of the customers who participated in the schemes have been mentioned in the list enclosed in the paper book where date wise collections against scheme are reflected in cash book which was also filed before the assessing officer. The Ld. AO on the one hand observed that "the assessee has not been able to the existence of receiving any such schemes with corroborative evidences" but at the same time accepted such receipts by not disputing the trading results as disclosed by the assessee and without any further enquiry. Further, it is stated by the appellant that the aforesaid advances received by the appellant have been duly reported as sales and offered to tax in the subsequent assessment years).
The appellant has also referred to the decision of the Hon'ble jurisdictional ITAT, Delhi Bench 'E', Delhi in the case of DCIT, Central Circle- 1, New Delhi vs. Manuvel Malabar Jewellers Pvt. Ltd. The Hon'ble ITAT in a similar issue observed that: - “.......Whereas in the return of income filed by the assessee on 30.10.2017 itself, the assessee had disclosed cash sales made on 8th November 2016 and included the same in the cash book and the entire cash book was duly placed before the statutory and tax auditors of the assessee company and return filed after due conduct of audit thereon. As stated earlier, no discrepancies whatsoever were found by the Id. AO in the cash book, stock registers, sales book etc except entertaining suspicion in his mind with a pre-conceived notion in order to reach a pre-determined destination. Moreover, we find that the assessee had made a categorical submission that it had not entertained receipt of cash in specified bank notes from 9th November 2016 onwards from any customers due to the ban announced by the Government. This fact has not been controverted by the revenue. Effectively, the assessee had only recorded huge cash sales and cash advance received from customers on 8th November 2016 in demonetized currency (as the said currency was valid upto 12 AM of 8th November 2016) and had merely deposited the same thereafter. For the cash sales made by the assessee on 8th November 2016, the assessee had sufficient stocks of gold and diamond with it and had duly reduced the stocks in the stock register to the extent of sales made. There is nothing wrong on the business behaviour of the assessee trying to seize the business opportunity of making huge cash sales on 8th November 2016. What is required and relevant is that assessee should have sufficient stocks in its kitty to effectuate the sales. As long as existence of stocks with the assessee is not doubted by the Id. AO, and cash sales made by the assessee is accepted by the Id. AO, in our considered opinion, the entire cash deposits made during the period 09.11.2016 to 31.12.2016 in the sum of R$ 3,43,50,000/- stands duly explained and there is no case for making any addition u/s 68 read with section 115BBE of the Act. We find that similar issue was also considered by the Hon'ble Jurisdictional High Court in the case of CIT vs Kailash Jewellery House in ITA 613/2010 wherein it was held that the cash deposited out of sales cannot be treated as income u/s 68 of the Act once the sales are not disputed by the revenue. Similarly in the context of cash deposits made during demonetization period, the co-ordinate bench of Vizag Tribunal in the case of Hirapanna Jewellers reported in 128 taxmann.com 291 had decided the issue in favour of the assessee. The Ld. CIT(A) had duly appreciated these factual and legal contentions of the assessee and granted relief to the assessee, on which we do not find any infirmity.”
Respectfully following the decision of the Hon'ble Jurisdictional ITAT, Delhi Bench 'E', Delhi in the case of DCIT, Central Circle- 1, New Delhi vs. Manuvel Malabar Jewellers Pvt. Ltd. as well as the discussion made above, addition of Rs. 3,72,69,265.00/- on account of cash deposited in bank made by the assessing officer is not sustainable and hence the Ld. AO is directed to delete the addition. Therefore, Ground No. 2 taken by the appellant stands allowed.”
Upon perusal of the records placed before us, it is found that the assessee made total sales of Rs.5,61,36,583/- out of which credit sales was of Rs.1,26,27,059/- and cash sales was made of Rs.4,35,09,524/- out of which the assessee made cash sales on 08.11.2026 of an amount of Rs.2,06,55,451/-. The assessee also received advance aggregating to Rs.1,29,19,190/- in cash on the said date; the entire amount of cash of Rs.3,54,70,000/- was deposited in the bank from 09.11.2016 to 31.12.2016. It is the case of the assessee that cash in hand was available with the assessee on account of regular cash sales effected during the period up to October, 2016 and further cash sales made during pre- demonetization period i.e. on 08.11.2016 in support of which Income tax return for the relevant assessment year, month wise sales and purchase for Assessment Years 2015-16 to 2016-17, extract of cash book for that entire Financial Year 2016-17, bank statement, VAT returns of sales of the relevant assessment year, the assessment order for the year under consideration in support of VAT paid and confirmation of acceptance of accounts books turnover along with copy of challan paid for 31.03.2017, detailed working of opening stock month wise and closing stock with specimen copy of purchase invoices and price tags were duly submitted. Relevant to mention that the Ld. AO has not disputed this particular fact of cash sales effected during the year having been duly recorded in the regular books of accounts, quantitative or details stock maintained including the cash sales. Neither the books of accounts maintained by the assessee was rejected by the AO. Once the cash sales stood recorded and accepted by the Ld. AO the question of treating the said cash deposit in the bank account out of cash in the regular books of account cannot be termed as unexplained cash credit under Section 68 of the Act as the case made out by the assessee was duly considered by the First Appellate Authority. It further appears that the cash sales fully recorded in the books of accounts were also corroborated with VAT returns which have been accepted by the sales tax/VAT authorities. Thus, VAT/Sales tax having been paid thereon was ought to have been considered by the Ld. AO before making addition in the hands of the assessee under Section 68 of the Act. It is further to be appreciated that the Ld. AO raised doubt in raising 206 cash sales invoices as according to him does not humanly, scientifically and practically possible to raise such number sale invoices of below the threshold limit of Rs. 2 lakhs mandating the compulsory quoting of PAN in a single day. Such finding of the Ld. AO as not supported by any corroborative evidence and found to be purely on surmises and conjectures. The scenario as on that date keeping in view the demonetization aspect cannot be brushed aside without the corroborative evidence against the assessee in the hands of the Revenue. Such fact of sale under that particular facts and circumstances of the matter cannot be said to be bogus sales neither genuine transaction can be said to be non-genuine. The CIT(A) further took into consideration the judgment passed by the Coordinate Bench in the case of Fine Gujaranwala Jewellers Vs. ITO, reported in 151 taxmann.com 340 (Del Trib) dated 27.03.2023 in support of the case made out by the assessee. Apart from that the case of DCIT Vs. Manuvel Malabar Jewellers Pvt. Ltd. was also taken care of by the Ld. CIT(A). Thus, having regard to the entire aspect of the matter in the absence of concrete evidence in the hands of the Revenue in support of such sales made by the assessee being bogus particularly when the books of accounts was not rejected and further that VAT return clearly corroborates the impugned sales made out by the assessee the order passed by the Ld. CIT(A)in deleting such addition made in the hands of the assessee is found to be just and proper so as not to warrant interference.
This ground of appeal preferred by the Revenue is, thus, dismissed.
2nd Ground:
The disallowance of Rs.28,50,886/- under Section 40A(3) of the Act was under challenge before the Ld. CIT(A) wherein cash payment was made in lieu of certain gold jewellery purchased from customer who insisted on cash payments and such payments were made on Sunday being a holiday.
We have heard the Ld. Counsels appearing for the respective parties and we have also perused the relevant materials available on record. It is the case of the assessee that the provision of Section 40A(3) is not applicable in the case in hand which is subject to exception provided in Rule 6DD of the Income Tax Rules, 1962 clause 1 whereof provides exception of payment in cash in case made on Sunday or holidays. While deleting the addition the Ld. CIT(A) observed as follows:
“In view of the above, it has been contended that the assessing officer erred in invoking provisions of section 40A(3) of the Act when the case of the appellant clearly fell within the exception provided in Rule 6DD(i) of the Rules.
The reasoning provided by the assessing officer in the assessment order for the disallowance is as under:
"8. Violation of the Provisions of Section 40A(3) of the Income Tax Act, 1961. …..
8.2 In the above explanation, assessee is admitting its act of making cash payments. However, the explanation furnished by the assessee is just an eye wash. Assessee is saying that it had made purchases in cash on Sundays since banks are closed on those days. This is a very lame excuse. It is the banks which are closed on Sunday, but the assessee is always in possession of the cheque books and it could have easily issued the cheque of same date when the person had visited its showroom for selling the jewellery. It is the normal banking practice that the cheques are en-cashed in a period of two-three days. So, nothing prevented the assessee company in making payment by cheque in lieu of old jewellery being purchased. Now, the violation of section 40A(3) of the Act is detected by the Revenue and this fact is also admitted by the assessee. However, in order to escape the rigours of section 40A(3) which mandates 100% disallowance of cash payments exceeding Rs. 20,000/-, lame and vague excuses are being offered. The explanation offered is, therefore, rejected. Accordingly, an amount of Rs. 28,50,886/- is disallowed under the provisions of section 4A(3) of the Income Tax Act, 1961 and the said amount is added to the total income of the assessee for AY 2017-18.
I am satisfied that the provisions of section 270A of the Income Tax Act for under reporting of income are attracted. The assessee was required to report in the relevant columns of return of income, regarding the payment made in cash in excess of specified limit, which is not allowable u/s 40A(3) of the Income Tax Act.Thus, it is seen that the assessee has suppressed these fact. Therefore, penalty u/s 270A of Act for under-reporting of income which is in consequence of misreporting, i.e. on account of suppression of facts, is initiated separately for addition made u/s 40A(3) of the Act."
6.9 The assessing officer has proceeded to disallow cash payments aggregating to Rs.28,50,886/-, by placing reliance on the provisions of section 40A(3) of the Act. The appellant has submitted that the aforesaid cash payments were made by the appellant in lieu of certain gold jewellery purchased from customers who insisted on cash payments and such payments were made on Sunday/holidays. Section 40A(3) of the Act is subject to exception provided in Rule 6DD of the Income Tax Rules, 1962 ('the Rules'). Clause i) of Rule 6DD, provides for exception on payment in cash in case payments are made on Sundays and Holidays.
The appellant also submitted that the Courts and Tribunal have held that proviso to section 40A(3) have been diluted by way amendment in Rule 6DD of the Rules and circumstances prescribed in Rule 6DD as amended are not exhaustive enough to visualize all kinds and nature of business expediency in all possible situations and thus, the onus is on the assessing officer to ensure that genuine business expenditure should not suffer disallowance.
6.10 The assessee is into jewellery business and genuineness of expenditure is not at all in dispute while purchases of jewellery from unregistered persons. The seller refused to accept account payee cheque/ bank draft and since it was a Sunday/holiday cash payment was made. Thus, it is under such unavoidable circumstances, the appellant had no option but to pay cash to the seller. The source of payment is identified inasmuch as the same is fully recorded in the books of the assessee.
The audit report in Form 3CD at SI. No. 21(d) did not report about any cash purchase made covered u/s 40A(3) read with rule 6DD. On being pointed out by the Ld. AO in the assessment order, the appellant's version is that the purchase of old jewelleries were made from unregistered persons on holidays and weekend who insisted on payment in cash although the outlets of the assessee are situated in the city of Delhi. The Ld. AO has incorporated a list of such purchases in the assessment order with specific amount and date. It is seen that out all such purchases totalling Rs.28,50,886/-, a total payment of Rs. 15, 16,115/- in cash was made on Sundays while the remaining payment in cash amounting to Rs. 13,34,771/- was on weekdays e.g. Wednesday, Friday and Saturday which are not Govt. holidays also. Although the Ld. AO has pointed out the purchases in detail and appellant has not submitted its comment on each of such purchases other than the general comment reproduced as above and also regarding the variance with the Auditor's report with respect to cash purchases.
Considering the nature of business expediency in different situations the addition made regarding cash purchases made on Sundays is directed to be deleted. Therefore, Ground No. 3 is allowed partly.”
9. In fact, out of the purchase of Rs.28,50,886/- a total payment of Rs.15,16,115/- was made in cash of Sunday and balance amount of Rs.13,34,771/- was on weak days particularly Wednesday in the case in hand. As the assessee has not been able to explain the purchase made on Wednesday, Friday & Saturday which are non-government holidays and further that considering the variance with the auditors report with respect to such cash purchases the Ld. CIT(A) did not interfere with the addition on the purchases on those days but having regard to the cash purchases only on Sunday the ld. CIT(A), in our considered view has rightly deleted the same in terms of the provision of law as indicated hereinabove. Thus, this ground of appeal preferred by the Revenue also fails.
10. The appeal preferred by the Revenue is, thus, dismissed.