THE INCOME TAX OFFICER, CORPORATE WARD-2,, COIMBATORE vs. M/S SAHANA JEWELLERY EXPORTS PRIVAE LTD., COIMBATORE

आदेश / O R D E R

PER MANJUNATHA.G, AM:

This appeal filed by the Revenue is directed against the order of the

Commissioner of Income Tax (Appeals), Income Tax Department,

National Faceless Appeal Centre (NFAC), Delhi, dated 05.10.2022, and

pertains to assessment year 2017-18.

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd.

:: 2 ::

10.The Ld. CIT(A) failed to appreciate the fact that out of the 50 creditors to whom summons were issued by the AO, 46 tapals were returned by the Postal Authorities with remarks viz. Addressee left, Addressee not available, No such Addressee etc. Only three have responded. Out of these, 2 creditors denied of having any transaction with the assessee. Only one creditor though admitted about having transaction with the assessee, but did not furnish any supporting evidence.

11 .For these and any other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be quashed and that of the AO restored.

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 3 ::

Jewellery Exports Pvt. Ltd., is engaged in the business of trading in gold

and jewellery. The assessee has filed its return of income for AY 2017-18

on 07.11.2017 admitting total income of Rs.15,36,890/-. The case was

selected for scrutiny under CASS in order to verify cash deposits during

demonetization period. During the course of assessment proceedings, the

AO called for information from various banks by issuing notice u/s.133(6)

of the Income Tax Act, 1961 (in short “the Act") and ascertained that the

assessee has deposited cash into accounts with Oriental Bank of

Commerce, Coimbatore, State Bank of India, SME, Coimbatore, and State

Bank of India, Main Branch, Coimbatore, in total amounting to

Rs.48,80,73,000/- during demonetization period. The AO called upon the

assessee to furnish books of accounts, including cash book and also

explain source for cash deposits during the demonetization period. In

response, the assessee vide letter dated 11.12.2019 submitted that

source for cash deposits is out of advance received from customers for

gold scheme and the same has been recorded in the books of accounts of

the assessee. The assessee further claimed that as on the date of

demonetization i.e. 08.11.2016, cash in hand as per cash book

maintained by the assessee was at Rs.48,82,75,750/-. The assessee

claimed that source for cash deposits is out of sales declared prior to the

date of demonetization and argued that it has sufficient cash in hand to

explain cash deposits during the demonetization period. In order to verify

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 4 ::

the claim of the assessee, the AO issued summons u/s.131(1) of the Act

dated 19-12-2019 to 50 persons. Out of 50 persons, 46 summons issued

were returned by postal authorities citing ‘addressee cannot be located’ or

‘no such person’ or ‘no such addressee at the above address’. However,

remaining three persons have responded to summons issued by the

Assessing Officer, and out of three, two persons denied having any

transaction with the assessee and one person has confirmed that he has

paid an advance with the company for purchase of gold. The AO issued

show cause notice dated 24.12.2019 and informed that summons issued

to various persons were returned ‘unnerved’, and therefore, called upon

the assessee to file necessary details, including name and address of the

parties from whom advance has been collected against gold scheme and

also file books of accounts and other details to justify cash deposits. In

response, the assessee vide letter dated 28.12.2019 submitted that due

to human error of ‘CUT’ & ‘PASTE’, the Auditor who was handling the case

before the AO, has filed wrong details with regard to source for cash

deposits and claimed that source for cash deposits is out of advances

received from various persons. However, fact remains that the assessee

has received advances from various persons for sale of gold jewellery and

the same has been accounted as sales for relevant period.

also taken note of various facts, analyzed the claim of the assessee

towards source for cash deposits in light of total sales and cash sales for

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 5 ::

the impugned assessment year and corresponding total sales and cash

sales for earlier Financial Year and observed that the assessee claims to

have collected deposits from more persons during the impugned

assessment year when compared to earlier assessment year to cover up

source for cash deposits during the demonetization period. The AO further

observed that although, the assessee claims to have furnished books of

accounts, including cashbook, but, no evidence has been produced. The

AO has discussed the issue at length in light of various evidences filed by

the assessee and observed that the assessee has designed a modus

operandi to create source for cash deposits in to bank accounts during the

demonetization period and introduced cash receipts as scheme payment

from parties. The huge disproportion in the number of parties and

collections for the period from 01.04.2016 to 08.11.2016 and from

09.11.2016 to 31.03.2017, clearly portrays the method of the assessee.

Further, although, the assessee had furnished name and address of the

purported parties, till date assessee has not furnished confirmation from

even single person. Substantial number of summons issued u/s.131(1) of

the Act, were returned back by the postal authorities by citing ‘no such

person’ or ‘insufficient address’. Therefore, opined that assessee could

not discharge the initial onus to establish three things necessary to

obviate the mischief of sec.68 of the Act i.e. identity of the investors,

about their creditworthiness and genuineness of the transactions. Since,

the assessee has failed to prove the credits found in his bank account to

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 6 ::

the satisfaction of the AO, the total cash receipts amounting to

Rs.51,39,39,100/- has been treated as unexplained cash credit and

brought to tax u/s.68 of the Act r.w.s.115BBE of the Act.

an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has

filed detailed written submissions on the issue which has been reproduced

in Para No.2.2 on Page Nos.10-16 of the order of the Ld.CIT(A). The sum

and substance of the arguments of the assessee before the Ld.CIT(A) are

that source for cash deposits is out of sales achieved before the

demonetization period and also substantial amount of cash withdrawal

from very same bank account before the date of demonetization. The

assessee further contended that closing cash balance as on the date of

demonetization i.e. 07.11.2016 was much higher than the amount of cash

deposits made during the demonetization period. The assessee has

furnished all evidences, including books of accounts, purchase and sales

bills, to establish genuineness of sales declared up to/before the date of

demonetization and also explained that there is no abnormal variation in

total sales and cash sales declared for the impugned assessment year

when compared to earlier Financial Year. The assessee further contended

that the AO has not pointed out any discrepancy in books of accounts

maintained by the assessee, including purchase and sales declared for the

period prior to the date of demonetization period. In fact, the assessee

has declared huge sales for the month of June & July, 2016, which is

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 7 ::

more than the amount of sales declared for the month of November,

2016, and also explained reasons for high volatility in sales month on

month and according to the assessee, the demand for gold and jewellery

is high during festival seasons and if you compare months, in which, the

assessee has declared higher sales which falls under various festivals

whereby customers buy more and more gold and jewellery. The assessee

had also took support from certain judicial precedents including the

decision of the Hon’ble Delhi High Court in the case of CIT v. Agson Global

(P) Ltd reported in 441 ITR 550 (Del) and also the decision of the Hon’ble

Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT

reported in [1959] 37 ITR 288 (SC).

assessee and also by considering the ratios of various judicial precedents,

including the decision of the Hon’ble Supreme Court in the case of

Lalchand Bhagat Ambica Ram v. CIT(Supra) opined that the assessee is

able to explain source for cash deposits during the demonetization period

out of cash in hand available before the date of demonetization as per

cash book maintained for the impugned assessment year. The Ld.CIT(A)

further observed that the AO tries to build up a case on the presumption

that the so-called advances claims to have been received by the assessee

or cash credits which needs to be examined in light of provisions of

Sec.68 of the Act, ignoring the legal position settled by various courts,

including the Hon’ble Supreme Court that trade advances which has been

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 8 ::

subsequently accounted sales in the books of accounts of the assessee,

cannot be treated as cash credits in light of provisions of Sec.68 of the

Act. The Ld.CIT(A) has discussed the issue at length in light of various

evidences filed by the assessee, including books of accounts, purchase

bills, sale bills, and stock registers maintained by the assessee for the

business, and opined that the AO has not pointed out any discrepancy in

books of accounts maintained by the assessee with regard to purchase

and sales declared for the relevant period. The AO failed to make out any

of such irregular movement of stock in trade or deficit stock in trade when

the assessee has declared sales for the relevant period. In fact, there is

no iota of evidence in the order passed by the AO with regard to

discrepancy in books of accounts and stock details maintained by the

assessee. In fact, the assessee has declared purchase and sales to GST

authorities and the same has been accepted without any deviation. In

absence of any findings with respect to incorrectness in books of accounts

maintained by the assessee, the AO cannot simply bring trade advance

received by the assessee as cash credits which falls under the mischief of

sec.68 of the Act, more particularly, when the assessee has declared said

advances as sales and also offered to tax. The Ld.CIT(A) had also

negated observation of the AO with regard to certain judicial precedents,

including the decision of the Hon’ble Supreme Court in the case of Sumati

Dayal v. CIT(Supra) and CIT v. Durga Prasad More reported in 82 ITR 540

and also the decision of the Hon’ble Supreme Court in the case of CIT v.

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 9 ::

Kale Khan Mohammad Hanif reported in 50 ITR 1 (SC) and argued that

those case laws are rendered in the context of the theory of human

probability and not applicable to the facts of the present case. On the

other hand, the assessee has relied upon the decision of the Hon’ble

Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT

(supra), where the Hon’ble Supreme Court held that when the assessee

maintained the books of accounts and there was sufficient cash balance in

its books and the books of accounts of the assessee were not challenged

by the AO, then, the entries in the books of accounts, needs to be

considered as genuineness. This principle is supported by the decision of

the Hon’ble Patna High Court in the case of Lakshmi Rice Mills v. CIT

reported in [1974] 97 ITR 258 (Patna). Therefore, the Ld.CIT(A) opined

that the AO is erred in making additions towards cash receipts u/s.68

r.w.s.115BBE of the Act, and thus, directed the AO to delete addition

made towards cash deposits u/s.68 of the Act. Being aggrieved by the

order of the Ld.CIT(A), the Revenue is in appeal before us.

Ld.CIT(A) failed to appreciate the fact that the assessee has failed to

prove the identity of the creditors, creditworthiness of the creditors and

genuineness of the transactions which is pre-requisite for accepting the

entries made in the books of accounts. The Ld. DR further submitted that

the Ld.CIT(A) failed to appreciate the fact that the assessee has not

furnished the details like purchase bills, sales bills, etc., which is evident

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 10 ::

from the observations of the AO in his assessment order, where the AO

records categorical findings that the assessee has failed to file necessary

evidences. The Ld.CIT DR further submitted that the assessee has made

huge deposits into his bank account after demonetization and to cover up

source for said cash deposit, introduced cash into its books of accounts in

the form of cash receipts from various persons. But, fact remains that

when the AO conducted necessary enquiries by issuing summons

u/s.131(1) of the Act, except three persons, no other persons has

responded to summons issued by the AO. In fact, summons issued to

various persons have been returned un-served with a remark ‘no such

person’ or ‘insufficient addresses. The AO called upon the assessee to

furnish confirmation letter from the persons from whom the assessee

claims to have been received trade advances, but the assessee neither

submitted any confirmation nor complete name and address of the

persons with their PAN to discharge onus cast upon the assessee as per

the provisions of Sec.68 of the Act. Although, the assessee could not

justify source for cash deposits made during demonetization period, but

the Ld.CIT(A) simply accepted the submissions of the assessee and

directed the AO to delete additions made u/s.68 of the Act.

the fact that the assessee initially stated that source for cash deposits is

out of deposits received from various persons for gold scheme, but

subsequently changed its stand and argued that it has huge cash

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 11 ::

withdrawals from very same bank account prior to demonetization period.

The subsequent stand taken by the assessee was not taken before the

Assessing Officer, but the Ld.CIT(A) without confronting those evidences,

simply accepted the claim of the assessee and deleted additions made by

the AO. The Ld. DR further submitted that the Ld.CIT(A) failed to

appreciate the fact that there is a substantial increase in cash sales during

the impugned Financial Year when compared to earlier Financial Year.

Although, the assessee claims that the percentage of cash sales to total

sales is almost equal when compared to earlier years, but fact remains

that when it comes to value, the assessee could not explain sudden spike

in cash sales before the demonetization period. Although, the AO has

brought out clear facts to the effect that the so-called trade advances

received from various parties is unexplained cash credits, which comes

under the provisions of Sec.68 of the Act, but the Ld.CIT(A) simply

accepted the explanation of the assessee and directed the AO to delete

the addition and therefore, the Ld. DR submitted that the order of the

Ld.CIT(A) should be set aside and additions made by the AO should be

upheld.

supporting the order of the Ld.CIT(A) submitted that there is no dispute

with regard to the fact that the assessee has maintained books of

accounts and as per cash book, the cash balance available as on the date

of demonetization was much higher than the amount of cash deposit

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 12 ::

made during demonetization period. The Ld. Counsel for the assessee

further submitted that the sole basis for the AO to treat cash receipts

recorded in the books of accounts of the assessee as unexplained cash

credits and taxable u/s.68 of the Act, is the fundamental mistake

committed by the AO in understanding difference between trade advances

and cash credits. It is a well settled principle of law by the decision of

various courts that trade advances are outside the scope of provisions of

Sec.68 of the Act, and those advances cannot be examined in light of

provisions of Sec.68 of the Act. Further, the AO rest their findings solely

on the basis of non-submission of confirmation letter from various parties

without understanding the law that as per Rule 114B of Income Tax

Rules, 1962, there is no need for assessee to collect the PAN details of the

buyers, if the sale value is less that Rs.2 lakhs. Further, threshold limit

under PMLA was reduced to Rs.50,000/- only w.e.f.04.05.2023, for which,

the KYC norms were prescribed to collect the identity of such customers.

Since, the assessee was not required to maintain KYC of its customers, in

case, the sales do not exceed the prescribed limit, the assessee has

simply taken name and address of the persons who purchased gold

jewellery without there being any PAN. Although, the assessee has

furnished the list of persons from whom it has collected trade advances,

but many have not responded for the reasons best known to them. But,

fact remains that for someone’s mistakes the assessee cannot be held

response. The only obligation of the assessee is to file details of sales and

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 13 ::

purchases and name and address of the persons to whom sales were

made. In the present case, the assessee has discharged its onus and

filed necessary details.

made additions towards cash receipts purely on suspicion and surmise

without there being any findings ‘as to how’ trade advances collected by

the assessee comes under the purview of provisions of Sec.68 of the Act.

In fact, the AO is not disputing the fact that cash in hand as on the date

of demonetization was much higher than the amount of cash deposits.

Further, the assessee has filed all evidences before the Ld.CIT(A) to prove

that the source for cash deposits, is out of cash withdrawal from very

same bank account prior to the date of demonetization. As per the details

submitted by the assessee, the assessee has withdrawn about Rs.150

Crs. from bank accounts. The assessee had also explained the reasons for

cash withdrawal. The assessee has furnished cash book and as per cash

book maintained by the assessee, sufficient cash in hand was available

before date of demonetization. The assessee has furnished books of

accounts, including purchase bills and sales bills and also stock registers

maintained for the relevant period. The AO has not pointed out any

discrepancy in books of accounts maintained by the assessee nor was it

the case of the AO that any adverse findings from the GST authorities on

purchase and sales declared for the relevant period. In fact, the AO has

not rejected books of accounts and also not pointed out any discrepancy

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 14 ::

in books of accounts. In absence of any findings with regard to

incorrectness in books of accounts, the AO cannot make additions towards

trade advances which has been subsequently converted into sales as

unexplained cash credits and brought to tax u/s.68 of the Act

r.w.s.115BBE of the Act. The Ld.CIT(A) after considering relevant facts

has rightly deleted the additions made by the AO and their orders should

be upheld.

record and gone through orders of the authorities below. We have also

carefully considered relevant reasons given by the AO to make additions

towards cash receipts amounting to Rs.51,39,39,100/- u/s.68 of the Act.

The AO has made additions towards cash receipts pertains to sale of

jewellery for the period from 01.04.2016 to 08.11.2016 u/s 68 of the Act,

on the ground that the assessee could not prove the identity of the

creditors, genuineness of transactions, and creditworthiness of the

parties. The genesis of the dispute started from the point of verification

of source for cash deposits into bank account during demonetization

period amounting to Rs.48,73,80,000/-. In fact, the assessee has made

cash deposits of Rs.48,73,80,000/- to Oriental Bank of Commerce,

Coimbatore, State Bank of India, SME Branch, Coimbatore, and State

Bank of India, Main Branch, Coimbatore, in aggregating

Rs.48,73,80,000/-. The assessee has explained source for cash deposits

out of trade advances received from various persons and same has been

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 15 ::

subsequently converted into sale of jewellery. The assessee has

accounted sales made before 08.11.2016 in its books of accounts and

cash balance available as on 08.11.2016 as per cash book maintained by

the assessee was at Rs.48,82,75,750/-.

the assessee to file details of name and address of the persons from

whom it has received trade advances for sale of jewellery. The assessee

has filed a list of persons from whom it has received trade advances for

sale of jewellery. Out of list submitted by the assessee, the AO has

issued summons u/s.131(1) of the Act, to 50 persons to verify the

genuineness of the assessee claim of receipt of cash from them. Out the

above 50, summons issued to 40 persons returned by the Postal

Authorities citing ‘addressee cannot be located’ or ‘no such person’ or ‘no

such address’ or ‘insufficient address’ or ‘no such address at the above

place’. In response to summons, three persons were responded and out

of three, two persons namely, Shri N.Armugam and Smt.B.Deepa denied

having any kind of transactions with the assessee. Further, one person

namely Shri A.M.Vargies confirmed having paid advance to the assessee

company and also purchased jewellery from them. The Assessing Officer,

on the basis of enquiry conducted u/s.131(1) of the Act, came to the

conclusion that the assessee could not substantiate cash receipts received

from various persons towards sale of jewellery before the date of

demonetization. Therefore, vide letter dated 24.12.2019 called upon the

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 16 ::

assessee to file confirmation from all the parties and also called upon the

assessee to show cause ‘as to why’ the credits should not be considered

as unexplained cash credit u/s.68 of the Act. In response, the assessee

submitted that as per law, it is not required to collect complete address

and PAN from the persons to whom it has sold jewellery. Further, as per

Rules 114B of the Income Tax Rules 1962, if sale value of jewellery is in

excess of Rs.2 lakhs to a single person, then, it is required to collect PAN.

Since, there is no requirement of collecting PAN, the assessee does not

having details of PAN and correct postal address of the persons from

whom it has received trade advances for sale of jewellery. Therefore,

assessee submitted that the question of filing confirmation letter from the

parties, from whom, it has collected advance for sale of jewellery does not

arise, and consequently, cash receipts cannot be assessed u/s.68 of the

Act. The assessee had also explained the AO that it has sufficient cash

balance as on 08.11.2016 as per books of accounts maintained for that

assessment year and argued that the total cash deposits into bank

account is explained out of cash in hand. The assessee has also made an

alternative submission that it has sufficient cash withdrawal from very

same bank account on various dates, which has been recorded in books of

accounts of the assessee and source for cash deposits is also out of cash

withdrawal from very same bank account. The assessee had also filed

necessary books of accounts, including cashbook, sales register, sale bills,

purchase details along with bills and stock details to prove that there is no

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 17 ::

discrepancy in books of accounts and also the assessee has reported sales

made before the date of demonetization to GST authorities.

has rejected the contention of the assessee on two grounds. The first and

foremost reasons given by the AO to reject the explanation of the

assessee is that persons from whom assessee claims to have been

received advance are not responded to summons issued u/s.131(1) of the

Act, and in few cases, they have denied any kind of transactions with the

assessee. According to the AO, the assessee could not discharge its onus

cast upon as per the provisions of Sec.68 of the Act, in respect of cash

receipts, and thus, opined that cash receipts claimed to have been

received by the assessee from various persons is unexplained cash credits

taxable u/s.68 of the Act. The second reason given by the AO was that

there is a contradiction in the claim of the assessee in so far as source for

cash deposits are concerned in as much as initially, the assessee claims to

have explained cash deposits out of cash receipts from various persons

towards sale of jewellery and subsequently changed its stand and argued

that source for cash deposits is out of cash withdrawals from very same

bank account. In so far as the first and foremost reason given by the AO

to assess cash receipts u/s.68 of the Act, we find that there is a

distinction between cash credits and cash receipts towards sales. If

assessee claims certain cash credits in his books of accounts and not able

to explain credits to the satisfaction of the AO, then, such cash credits

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 18 ::

need to be examined in light of provisions of Sec.68 of the Act. In case,

the assessee claims that it has received trade advances in cash and the

same has been subsequently converted into sales by issuing sale bills,

then, said trade advance cannot be examined in light of provisions of

Sec.68 of the Act, because, trade advances have been subsequently

converted into sales and sales has been accounted in the books of

accounts of the assessee. Therefore, in our considered view, the AO has

committed a fundamental mistake in examining the cash receipts claimed

to have been received by the assessee towards sale of jewellery in light of

provisions of Sec.68 of the Act.

furnished name and address of the customers from whom it has received

cash for sale of jewellery. The assessee need not obtain confirmation and

submit to the AO, because, the law does not mandate colleting PAN

details of the persons, if sale value of jewellery does not exceed Rs.2

lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as

compliance of KYC norms, it is mandatory under Prevention of Money

Laundering Act, 2002, w.e.f.04.05.2023 onwards and not applicable for

the impugned assessment year. Therefore, in our considered view, when

the assessee has furnished name and address of the persons from whom

it has received trade advances for sale of jewellery, the assessee has

satisfactorily discharged onus cast upon to furnish name and address of

the persons. Therefore, the observation of the AO in light of provisions of

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 19 ::

Sec.68 of the Act, that the assessee has not satisfactorily explained cash

receipts is unwarranted and devoid of merits.

explain source for cash deposits made during demonetization period or

not. It is an admitted fact that the assessee was having sufficient cash

balance as per cash book maintained for the relevant period. In fact, cash

in hand as on the date of demonetization i.e. 08.11.2016 was at

Rs.48,84,03,169/- and said cash balance is backed by cash receipts

recorded in the books of accounts before the date of demonetization.

Further, cash receipts from various persons have been further

substantiated with sales made to them before the date of demonetization.

In fact, the assessee has filed various evidences, including sales bills to

support its arguments. The AO never disputed sales declared by the

assessee nor pointed out any discrepancy in purchase or stock in trade

held in the business of the assessee before the date of demonetization.

In fact, the assessee has filed comparative sales for the month of April,

2016 to November, 2016 and corresponding April-15 to November, 2015

and we find that there is no abnormal deviation in sales declared for the

month of November, 2016 when compared to earlier periods. It is not a

case of the AO that the assessee has declared sales without purchases. In

fact, a sale declared by the assessee is backed by corresponding

purchases, and is supported by necessary purchase bills. The AO could

not point out any discrepancy in stock register maintained by the

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 20 ::

assessee nor made out a case that the assessee has declared sales

without there being any stock in hand. Therefore, in absence of any

contrary findings to the effect that the sales declared by the assessee is

not backed by any corresponding purchase or supported by stock in hand,

in our considered view, simply sales cannot be rejected on the ground

that sale for the particular month or period is higher when compared to

corresponding previous period. In our considered view, there cannot be

any reason for uniform sales in all days or month or year. There may be

various reasons for increase or decrease in sales which depends upon

various factors, including festival sales, clearing sales, yearend sales, etc.

Therefore, in our considered view, the explanation of the assessee that it

has received cash from various customers towards sale of jewellery and

subsequently the advances have been converted into sales, appears to be

bona fide and reasonable.

explanation of the assessee with regard to source for cash deposits.

Initially, assessee claims that source for cash deposits is out of trade

advances received in cash from various persons. However, during the

course of assessment proceedings itself, the assessee claimed that it was

an error in making a submission that it has received trade advances from

various persons before the date of demonetization, but fact remains that

authorized representative who appeared and made submissions before

the AO made an inadvertent error of copying submission made in another

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 21 ::

group case which is also pending for assessment. Further, immediately

after noticing the above inadvertent error, the assessee has submitted

details of cash book along with bank statements and explained that it has

sufficient cash withdrawal aggregating to Rs.150 Crs. from very same

bank account on various dates before the date of demonetization and

after utilization of the cash for the purpose, for which, it has been drawn

the net withdrawal was at Rs.136.85 Crs. The assessee was carrying

cash balance in books and once demonetization was announced, the

available cash balance in Specified Bank Notes, has been deposited into

bank account. We have perused relevant cash book and bank statements

which are available in paper book and after considering relevant

materials, we find force in the arguments of the assessee for simple

reason that as per the details furnished by the assessee like bank

statements, cash book, it is undoubtedly clear that assessee was having

sufficient withdrawals from very same bank accounts before the date of

demonetization which was recorded in the books of accounts of the

assessee. Further, the cash balance maintained by the assessee as per

books of accounts as on 08.11.2016 was much higher than the amount of

cash deposited to bank account during demonetization period. Therefore,

in our considered view, when the assessee is able to file necessary

evidences to prove that there was sufficient cash withdrawal from very

same bank account which is further backed by bank statements, where it

has been clearly evident that there are sufficient cash withdrawals, in our

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 22 ::

considered view, there is no reason for the AO to reject explanation of the

assessee that cash deposits are out of cash withdrawals from very same

bank account.

on this issue. The assessee has relied upon the decision of the Hon’ble

Delhi High Court in the case of PCIT v. Agson Global (P) Ltd., reported in

[2022] 441 ITR 550 (Delhi) (19-01-2022). The Hon’ble Delhi High Court

under identical set of facts, has deleted the additions made by the AO

towards cash deposits during demonetization u/s.68 of the Act. The

relevant findings of the Hon’ble Delhi High Court are as under:

• A careful perusal of the extract of the statement made by managing director of the assessee (as recorded in " the assessment orders in-issue) would show that all that he had stated was that it was the assessee's own money, given in the form of loan and/or bogus sales or purchases, that had been routed back to the assessee in the form of share capital/share premium, albeit, through banking channels. [Para 10.3]

• The Tribunal, in this context, records a finding of fact that "no unaccounted income of the assessee" had been introduced in its books of account in the form of share capital. Based on this, the Tribunal concluded that there was 'no confession' made by the managing director that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under section 132(4) did not constitute incriminating material. [Para 10.4]

• The Tribunal, has correctly analyzed the statement of the managing director. The statement does not allude to the fact that the assessee had introduced 'unaccounted money' in the form of share capital/share premium through investor entities. The retraction letter, as noted by the Tribunal, also did not advert to the introduction of investment of money in the assessee in the form of share capital/share premium. [Para 11.1]

• The trail of the money received from various entities in the form of share capital/share application money, concluded that the assessee had been able to place before the Assessing Officer sufficient documentary evidence which established that the money which the assessee had paid to the investor entities was routed back to it in the form of share capital/share premium. [Para 11.4]

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd.

:: 23 ::

• That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of section 68. [Para 11.5]

• In instant case, insofar as the assessee is concerned, it placed the evidence on record, which established the trail of the money, the mode through which the money had travelled from the assessee to the investor entities and back to the assessee, and the fact that each of the investor entities was in existence. Therefore, once the assessee claimed (and it was found as a fact) that it was its own money which was routed back to it in the form of share capital/share premium, the traditional test which is sought to be applied by the revenue, for triggering the provisions of section 68, which is, that the assessee had to establish the creditworthiness, genuineness and identity of the transactions would have to adapt to the circumstances obtaining in the instant case. [Para 12.1]

• Therefore the addition made under section 68 needed to be sustained as untenable, in view of the finding recorded by the Tribunal. [Para 14.4]

• The entire purchase and sales had been duly recorded in the regular books of account of all parties; the transactions were routed through regular banking channels; the purchase and sales were duly supported by quantitative details; copies of bank statements showing sales and purchases were placed before the Assessing Officer, and no incriminating documents concerning sales and purchases were found in the course of search and seizure actions. [Para 15.1]

• Tribunal also found that in respect of assessment years 2012-13, 2013-14 and 2014-15, sale and purchase transactions were verified and assessment orders were framed under section 143(3). The books of account were duly audited, both, under the Companies Act, 2013 and the Income-tax Act; no defects concerning books were found either by the Assessing Officer or the Commissioner (Appeals). Thus, according to it, no incriminating evidence was found. [Para 15.1]

• Insofar as the abated assessment years were concerned i.e., assessment years 2015-16, 2016-17 and 2017-18, it was, apparent that the assessee had purchased goods, which were in value less than the sum for which they were sold. Therefore, as held by the Assessing Officer, in the deviation report, if the purported bogus purchases were to be disallowed then necessarily the sales shown in the assessee's regular books of account would also have to be excluded which would result in the assessee's income falling below the returned/declared income. [Para 15.1]

• Furthermore, the Assessing Officer had not placed on record any material to justify the disallowance of 25 per cent of the purchases on the ground that they were bogus without carrying out any inquiry or investigation. In particular, the Tribunal also flagged the issue that the purported shortage of stock was based on a reference made qua that aspect in the appraisal report of Investigation Wing which, as noted above, did not find mention in the remand report, as during the search it was found that the stock worth the aforementioned value was lying at the assessee's warehouse, something which was completely ignored. This position, was fortified by the fact that no addition in respect of any excess or shortage of stock had been made in the assessment orders of any of the years. In effect, according to the Tribunal, the stock found in the books reconciled with the stock which was found physically. [Para 15.3]

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd.

:: 24 ::

• It appears, that the Commissioner (Appeals) did not call for the books of account i.e., to examine the same. Furthermore, the Tribunal records that the Assessing Officer, in the remand report, did not advert to the fact that the books of account were either incorrect or incomplete. According to the Tribunal, the books of account could not have been rejected till such time the revenue found "patent, latent and glaring defects in the books of account". The revenue, according to the Tribunal, made no such attempt and simply relied upon the statement of the managing director, which was retracted and in any event, did not relate to the booking of bogus expenditure'. Therefore, insofar as the Tribunal was concerned, the rejection of books of account by the Commissioner (Appeals) did not meet the legal standards. [Para 15.6]

• Thus, in effect, the Tribunal held that the books of account were rejected without crystalizing the defect in the books of account, which could have been done only after examining the same. Furthermore, according to the Tribunal, even if it is assumed that the books of account could be rejected, the profit had to be estimated based on proper material. As noted above, the Tribunal recorded the inconsistent approach adopted by the Commissioner (Appeals) in applying the gross profit ratio concerning non-related parties to purported bogus transactions i.e., those involving related parties, resulting in unsustainable conclusions. [Para 15.7]

• Accordingly, the observations made by the Tribunal are pure findings of fact, which cannot be interdicted by the Court in appeal. The inconsistency in the approach adopted by the Assessing Officer, while preparing the deviation report and framing the assessment order with regard to purported bogus purchases is an aspect, which cannot be ignored and has been correctly highlighted by the Tribunal. [Para 15.8]

• If the revenue chooses to disallow bogus purchases, it would necessarily have to ignore the corresponding sales recorded against the very same parties. As pointed out by the Tribunal, the Commissioner (Appeals) could have rejected the books of account only, after it had examined and come to the conclusion that he was not satisfied as regards their correctness or completeness. The finding of fact returned by the Tribunal is that books of account were not examined by the Commissioner (Appeals). If that be so. then, section 145(3) could not have been triggered by the Commissioner (Appeals), based on the mere statement of the managing director of the assessee. Besides this, as noted by the Tribunal, the Commissioner (Appeals) had attempted to quantify the profit by resorting to a methodology, which was incomprehensible. [Para 15.9]

• The average cash deposited by the assessee with its bankers before demonetization was, approximately, Rs.42.35 crores, whereas the actual sum deposited during the demonetization period was Rs.180.53 crores. The assessee's explanation was, broadly, that deposits were made out of cash sales and, during Diwali, cash sales increase; especially in the business in which the assessee is i.e.. dry fruits. [Para 16.2]

• The assessee. in support of its plea that cash deposits were made by the assessee in respect of sales which were duly accounted for, reliance was placed on the following material:- audited books of account; bank-wise summary of cash deposits; copies of bank statements; and details of monthly cash sales and cash deposits made in earlier financial years. [Para 16.2]

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 25 ::

• In this context, the Tribunal analyzed the data pertaining to cash sales and cash deposits made in the financial year in issue. The analysis made by the Tribunal showed that, in the three financial years, the total cash deposits more or less corresponded with the cash sales. [Para 16.6]

• Based on the data, the Tribunal concluded that, in the year in which demonetization kicked in i.e., financial year 2016-17, the increase in sales in percentage terms was less than the earlier year. The Tribunal, thus, held that it could not be said that the assessee had booked non-existing sales in its books post-demonetization. [Para 16.6]

• In sum, it was the Tribunal's assessment of the material placed on record that cash deposits made by the assessee with its bankers, more or less compared with the cash sale transactions entered into by it with its - customers. The Tribunal's view was that given the fact that there was no allegation made by the revenue that the assessee had backdated its entries to enhance its cash sale figures, one could only conclude that there was a growth in the assessee's business. [Para 16.9]

• Having regard to the extensive material which has been examined by the Tribunal, in particular, the trend of cash sales and corresponding cash deposited by the assessee with earlier years, it is opined that there was nothing placed on record—which could have persuaded the Tribunal to conclude that the assessee had, in fact, earned unaccounted income i.e., made cash deposits which were not represented by cash sales. Therefore, in the Tribunal correctly found in favour of the assessee and deleted the addition made under section 68. [Para 17.6]

Visakhapatnam Bench in the case of M/s.Hirapanna Jewellers,

Visakhapatnam, in ITA No.253A/Viz/2020 and CO No.02/Viz/2021,

AY2017-18, wherein, the ITAT Visakhapatnam Bench, under identical set

of facts has held as under:

" We have heard both the parties and perused the material placed on record. In the instant case, the assessee has admitted the receipts as sales and offered for taxation. The assessing officer made the addition u/s 68 as unexplained cash credit of the same amount which was accounted in the books as sales. In this regard, it is worthwhile to look into section 68 which reads as under:

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 26 ::

From the perusal of section 68, the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is engaged in the jewellery business and maintaining the regular stock registers. Both the DDIT (Inv.) and the AO have conducted the surveys on different dates, independently and no difference was found in the stock register or the stocks of the assessee.

Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or there must be defects in the stock registers/ stocks. Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. Audit report u/s.44AB, the financial statements furnished in paper book clearly shows the reduction of stock position and matching with the sales which goes to say that the cash generated represent the sales. The assessee has furnished the trading account, P& L account in page No.7 of paper book and we observe that the reduction of stock is matching with the corresponding sales and the assessee has not declared he exorbitant profits. Though certain suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the condition of the strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence.

Provisions or section 68 are applicable in case or unexplained cash credit. Looking at the discussion at the foregoing paragraphs and the Judicial Precedents presented, I find that with sufficient stock in record for which excise duty was paid and vat taxes were paid, the sales could not be treated as unexplained cash credit u/s.68 of the Income Tax Act. It must be appreciated that an unexplained credit would imply credit which has unexplained source which is not so. The addition made on account of bogus sale thus failed that test of being unexplained as envisaged u/s 68 of the Income Tax Act. In view these of the addition of Rs.51,39,39,100/- stands deleted.

circumstances of the case, we are of the considered view that the AO is

erred in making additions towards cash receipts received for sale of

jewellery, which has been subsequently converted into sales, for the

impugned assessment year as unexplained cash credits taxable u/s.68 of

ITA No.999/Chny/2022 M/s.Sahana Jewellery Exports Pvt. Ltd. :: 27 ::

the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted

the additions made by the AO, and thus, we are inclined to uphold the

findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.

Order pronounced on the 20th day of December, 2023, in Chennai. Sd/- Sd/- (महावीर िसंह) (मंजूनाथा.जी) (MANJUNATHA.G) (MAHAVIR SINGH) लेखा सद�य/ACCOUNTANT MEMBER उपा��/VICE PRESIDENT चे�ई/Chennai, �दनांक/Dated: 20th December, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�/CIT 5. गाड� फाईल/GF 2. ��यथ�/Respondent 4. िवभागीय �ितिनिध/DR