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Income Tax Appellate Tribunal, DELHI B BENCH: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the assessee against the order dated 20.02.2024 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No.CIT(A), Delhi-5/10239/2019-20 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 21.12.2019 passed u/s 143(3) of the Act pertaining to assessment year 2017-18.
Brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing and selling of gold, silver and precious stones studded jewellery. The return of income was filed on 13.10.2017, declaring total income of INR 14,04,034/-. The case of the assessee was taken up for scrutiny in terms of notice issued u/s 143(2) on 11.08.2018 and thereafter, various notices were issued which were complied with by the assessee. The assessment was completed wherein it is alleged by the AO that the assessee has declared substantially high turnover for the month October and November, 2016 and thus, the cash deposited during the demonetization period was itself unexplained money and accordingly, out of total cash deposits of INR 99 Lakhs during the demonetization period, a sum of INR 77,64,353/- was added to the total income of the assessee.
Against this order, assessee preferred appeal before Ld.CIT(A) who rejected the submissions of the assessee and dismissed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), the assessee preferred appeal before Tribunal wherein following grounds of appeal are taken:- “On the facts and in the circumstances of the case and in law the Ld. CIT(A) at NFAC, Delhi erred in confirming the following actions of the Assessing Officer- 1. determining taxable income at Rs.91,68,387/- against returned income in a sum of Rs. 14,04,034/- u/s 143(3) of the Act; 2. treating the cash sales during the demonitization period of October and November 2016 unexplained in a sum of Rs. 77.64,353/- ignoring the audited accounts and complete details submitted; 3. making an addition of Rs. 77,64,353/- being the amount of cash deposited in bank out of cash sales made as unexplained invoking section 68 r.w.s. 115BBE of the Act.
The above actions being arbitrary, fallacious, unwarranted and illegal must be quashed with directions for appropriate relief.”
Before us, Ld.AR submits that the assessee is regularly engaged in the business of manufacturing and trading of jewellery and during the course of assessment proceedings, assessee produced complete books of accounts alongwith bills and vouchers including the sale bills for the month of October & November, 2016. It is further submitted by Ld.AR that the books of the assessee were audited and no defects were pointed out by the auditor in the same. The AO simply on assumption and presumption without any specific defects in bills and vouchers produced and further by ignoring the fact that such sales have duly been declared in VAT returns filed, held the turnover declared in the month of October & November, 2016 as exorbitantly high and he estimated the sales of October, 2016 at INR 5,99,572/- and of November, 2016 at INR 10,36,260/- as against the turnover of INR 56,01,718/- and 37,98,461/- declared for these two months respectively. Ld.AR submits that the AO has taken the turnover of these two months as was declared in the immediately preceding years by ignoring the fact that two years cannot be static. There were exceptional circumstances which lead to higher sale in these two months of the previous year. Ld.AR further submits that the AO doubted the sale bills solely for the reason that the rate charge for 22 karate gold and ignored the fact that gold jewellery is normally made as 22 karate gold. When t assessee produced all the bills and vouchers and stock register which has not been doubted nor the provisions of section 145(3) of the Act were invoked, therefore, no addition could be made towards the sale by holding the same as excessive and unrealistic. He therefore, prayed for the deletion of the addition made.
On the other hand Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has deliberately shown the higher turnover in the month of October & November, 2016 upto the date of demonetization just to cover up the source of cash deposited in SBN during demonetization period out of its undisclosed money and therefore, he requested for the confirmation of the order of lower authorities.
Heard the contentions of both the parties and perused the material available on record. In the instant case, it is seen that books of accounts of the assessee were duly audited and copy of the Audit Report alongwith audited financial statements were produced / submitted before the lower authorities. Further, purchase and sales registers alongwith relevant bill and stock inventory were also produced. The AO has not pointed out any specific defect or error in the purchase/sales bills produced by the assessee nor any inquiries were made for the parties with respect of sale declared by the assessee. The assessee has filed bills of sales during the month of October and November, 2016 in the Paper Book which were submitted before the AO, a perusal of which revealed that the assessee has stated the name and address of the buyer in the bills however, no effort was made by the AO for making verification of the same. It is further seen that the books of accounts maintained by the assessee and the trading results declared were not doubted. Solely for these reasons, there were higher sales as compared to immediately preceding years in two months i.s. in October and November, 2016, the sales for these two months were doubted. It is also seen that the assessee has declared turnover in the VAT returns which has been accepted by the respective authorities thus, the sales could not be stated from the undisclosed source.
The realization of cash sales is duly recorded in the cash book maintained on day to day basis The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the sales and cash deposited in SBN during the demonetization period. The AO had not doubted the availability of stock with the assessee prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and by holding the sales of two months as unexplained without reducing the same from the total sales declared. At this juncture provisions as contained in section 68 is reproduced as under: 68. “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, Page | 5
satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
From the perusal of the provisions of section 68 of the Act it is very clear that assessing officer can make addition u/s 68 only under two circumstances, i.e. (i) Appellant does not offer any explanation about nature and source of such credit; or (ii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO.
In other words, whenever Appellant provides explanation, before rejecting the same ld. AO has to record dissatisfaction as to why the explanation furnished by Appellant is not acceptable. As is evident that assessee not only offered explanation regarding nature and source of such credits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book. No specific defects whatsoever has been brought out on record by the ld. AO in those evidences and books of accounts so furnished. Therefore, addition so made u/s 68 of the Act without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified. Thus provisions of section 68 of the Act are not applicable.
The Co-ordinate bench of Mumbai ITAT in the case of ACIT v. Ramlal Jewellers (P.) Ltd. Reported in [2023] 154 taxmann.com 584 (Mumbai - Trib.) under similar circumstances, deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization into bank by making following observations: “Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee-company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 - It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock - Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]”
The Hon’ble Delhi High Court in the case of CIT v. Kailash Jewellery House in (Delhi High Court) has held as under: “In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.”
The Co-ordinate Bench of ITAT Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in vide order dt. 25.09.2024 has observed as under: 18. “Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
19. In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under: "At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11- 2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68."
Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022) dated 27.03.2023, wherein it was held as under:
“In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. 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 as the sale are bogus only to give colour 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 other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous.
Respectfully, following the above decisions, we are inclined to allow the grounds raised
by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked.
24. In the result, appeal filed by the assessee is allowed.”
15. The Co-ordinate Benches of ITAT, in the following case laws has held as under:
M/S Godwin Tourism Pvt. Ltd. V. DCIT 2024 (8) TMI 1173 [i] (ITAT, Delhi), dated- August 21, 2024, held that-
“Considered the rival submissions and material placed on record, we observed that the assessee has submitted cash book in the Paper Book wherein assessee has received share application money on various dates and received the same by way of cash on verification of the cash book submitted before us. We observed that on various dates, the assessee has maintained sufficient cash which are out of share k withdrawals and it is substantiated that sufficient source
application money and some bank of cash available with the assessee to make the bank deposit of Rs. 8 lacs. After considering the facts on record, we observed that assessee has sufficient cash in hands to make above said dash deposit. Accordingly, additions made by the Assessing Officer is deleted."
ITO V. M/s J.K. Wood India Pvt Ltd, 2024 (1) TMI 1262, [ii] dated 03.01.2024, Hon'ble ITAT Delhi held that- 14. “We have given thoughtful consideration to the factual matrix discussed hereinabove The undisputed fact is that there is not even a whisper of any defect, error or infirmity in the books of account maintained by the assessee which were audited both under the Companies Act and under the Income tax Act. The books of account have been maintained in the regular course of business and cash deposits in the books of account are duly reflected in the books of account 15. Sales made by the assessee and shown in the regular books of account have been accepted as such by VAT authorities while framing the VAT assessment. The assessee was having sufficient stock in hand for making the impugned sales during the demonetization period and it is not the case of the Assessing Officer that the assessee has shown bogus purchases to show bogus sales to cover up cash deposited during the demonetization period" JCIT V. M/s Pari Agencies Pvt Ltd. dated 14.12.2023, Hon'ble ITAT Delhi heid that- 11. Nowhere in the assessment order the Assessing Officer has mentioned that after inflating the alleged cash sales the assessee has frequently revised its VAT returns. It is not the case of the Assessing Officer that the assessee has shown alleged cash sales without having sufficient stock in hand during that period. Not a single instance of defect is pointed out in the audited books of account. The entire assessment is based on assumptions/presumptions, surmises and conjectures de hors of the facts on record." 17 Shagun Jewellers (P) Ltd. vs. DCIT ,”
Further reliance in this regard is being placed on the Judgment of ITAT Visakhapatnam in the case of ACIT, CC-1 Visakhapatnam V. M/S Hirapanna Jewellers And (Vice-Versa), 2021 (5) TMI 447, dated: 12-5-2021 held as under:- "9. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to the sales and we do not find any defect in ccoun effect the stock as well as the sales. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishel Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld."
In view of the above facts and looking to the facts that the AO has not invoked the provision of section 145(3), and by respectfully following the aforesaid judgements, we hold that no addition could be made by holding the sales of the month of October and November, 2016 as excessive without bringing any contrary material on record. Accordingly, addition of INR 77,64,353/- is hereby deleted.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 06.08.2025.