ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-25(1), NEW DELHI, NEW DELHI vs. VINEY GEMS AND JEWELLERY PRIVATE LIMITED, NEW DELHI

3.1. The Assessing Officer also noted that there were no cash sales before the month of October, 2016 and on perusal of the bills, complete address of purchasers were not mentioned and all the sale bills were below Rs.2 lakhs. The Assessing Officer also noted about the business of the wholesale trading and manufacturing of the assessee as per the Form 3CD report and para 5 of the auditor’s note was reproduced in the assessment order as under:-

“That the provision of collecting 1% TCS on Cash Sale of jewellery is only applicable on Sale Bill of over 2.00,000/- .That since no bill for cash sales done by the assessee during the AY. 2017-18 is exceeding Rs. 2,00,000/- thereby there is no applicability of provision of TCS on the assessee.” 3.2. The Assessing Officer on the basis of above chart noted that the assessee had booked sales majorly in the months of October and in November before demonetization period and all the sales bills were below Rs.2 lakhs and were not having complete address of the purchasers. The Assessing Officer issued show cause stating that as there was no cash sales till the month of September, 2016 and in the month of October, there was a huge increase in cash sales amounting to Rs.2,66,98,983/- and asked the assessee to explain as to why the said amount should not be added to the total income of the assessee as under:-

“It can be seen that there is no cash sale till the month of Oct 2016. In Oct 16 it can seen that there is a huge increase in cash sale to Rs 26,698,983. Explain with all the documentary evidences and show cause as to why the amount may not be added back to your income.” 3.3. The assessee submitted its reply on the ITBA stating that this was amount was on account of the festive season due to which more customers were available, resulting in the high cash sales of Rs.2.66 cores. The relevant reply of the assessee is reproduced in para 4.6 of the page-4 of the assessment order is reproduced as under:-

“That the assessee company has started the business of jewellery in the month of February. 2016 and the sale of jewellery items is a seasonal business which is dependent on Hindu marriages season and festival occasions. That the month of October to November is the festive season in our country comprising of many festivals like Karwachauth, Dhanteras. Diwali, etc. During such period the retail sales of the company was huge, due to availability of more customers at such period which resulted in a high cash sale of 2.66 crore approximately The amount so generated from the sales was deposited in bank by the company. 3.4. The Assessing Officer noted that all the cash sales bills were below value of Rs.2 lakhs, not requiring the PAN or deduction of TCS as required u/s 206 of the Act and the fact that in majority of the bills, no address was provided. The Assessing Officer observed that jewellery purchase was invariably big ticket purchase wherein the purchaser invariably insists on sale bill in order to make any claim against the seller in the event of dispute regarding purity, exchange or any other issue. The Assessing Officer also noted that in absence of even a single cash sale bill which was amenable to verification (in the sense that complete name and address of the purchaser was provided and could be taken up for verification to corroborate the claim of the assessee that genuine cash sales had taken places) indicates highest possibility of manipulation of cash book.

3.5. The Assessing Officer also held that the probable reason behind this anomalous increase of alleged cash sales restricted to month of October and in November till 08.11.2016 could be clearly understood in the circumstances of the sudden announcement of demonetization and the fact that the assessee had already filed VAT return for first two quarters covering period from 01.04.2016 to 30.09.2016. The Assessing Officer further noted that the assessee had deposited cash amounting to Rs.20,600/- during the month of September, 2016 indicating that for no valid reason the assessee, contrary to its regular practice and behaviour of any normal prudent businessmen chose to keep large amount as cash in hand of Rs.3,03,68,800/- as on 08.11.2016 rather than deposing the same in its bank account. The Assessing Officer also noted that neither any past trend was observed in assessee’s behaviour to hoard large sum of cash (by not depositing the same in its bank account) nor any valid explanation was submitted for this abnormal behaviour. In view of these facts, the Assessing Officer held that it is logically inferred that the assessee has simply introduced its own unaccounted cash into its cash book under the guise of cash sale by generating sale bills with fictitious names/address of value below of Rs.2 lakhs per sale bill and therefore, the said sales bills could not be accepted as genuine. The Assessing Officer, after considering the previous trends of sale and allowed benefit of cash sales amounting to Rs.6,21,688/- as cash in hand as on 01.10.2016 and added the balance amount of Rs.2,95,78,312/- (Rs.3,02,00,000 – Rs.6,21,688/-) u/s 68 r.w.s. 115BBE of the Act. In this regard, the Assessing Officer relied upon the test of human probability and relied upon the following decisions:- i. CIT vs Durga Prasad More (214 ITR 801)(SC) ii. Hersh Win Chadha Vs DCIT (ITA Nos.3088 to 3098 & 3107/Del/2015)(Del. Trib.) iii. McDowell & Co. Ltd. vs The Commercial Tax Officer 1986 AIR 649:

3. Copy of purchase register for FY 2016-17 4. Copy of stock registers for AY 2017-18 of principal items of goods traded 5. Copy of cash book for FY 2015-16, FY 2016-17 and FY 2017- 18. 6. Month wise breakup of purchase into cash and cheque purchase for FY 2016-17, FY 2017-18, FY 2018-19 and FY 2019-20. 7. Month wise breakup of sale into cash and cheque sale for FY 2016-17, FY 2017-18, FY 2018-19 and FY 2019-20. 8. Copy of VAT returns for the period: (a) 01.04.2016 to 30.06.2016 (Original) (b) 01.07.2016 to 30.09.2016 (Original and Revised) (c) 01.10.2016 to 31.12.2016 (Original) (d) 01.01.2017 to 31.03.2017 (Original and Revised) 4.1. The ld. AR submitted before the Ld. CIT(A) that the addition of Rs.2,95,78,312/- made by the Assessing Officer u/s 68 of the Act amounted to double taxation since this figure had already been shown as a part of sales of the assessee in A.Y. 2017-18. It was further submitted that the Assessing Officer had not found any defect in the purchases and the stock of the assessee and had also not rejected its books of accounts u/s 145(3) of the Act. Accordingly, the assessee submitted that the Assessing Officer’s action of making addition was illogical because while on the one hand he is accepting the purchases made by the assessee and on the other hand he is declaring the sale as bogus.

4.2. During the appellate proceedings, the assessee filed fresh evidence to establish the genuineness of its purchases and the stock in hand. This evidence included:- i. Copy of bills of suppliers from whom the appellant had made purchases during the year. ii. Copy of ledgers of suppliers in the books of the appellant. iii. Copy of Axis Bank Statement from which the appellant made payments to the suppliers. 4.3. The ld. CIT(A) after calling remand report from the Assessing Officer (in which the Assessing Officer objected its submission) admitted the same in the appellate proceedings. The Ld. CIT(A) noted that the Assessing Officer had relied heavily on the preponderance of probabilities in deeming certain events as unlikely to have taken place while holding other scenarios as more probable. The ld. CIT(A), after considering the material and fresh evidences filed during the appellate proceedings took note of the fact of the purchases amounting to Rs.86,82,734/- that the assessee had made during F.Y. 2015-16, opening stock of Rs.86,55,436/- as on 01.04.2016 and further in the next six months i.e. from 1st April 2016 to 30th September 2016, the assessee had made purchases of Rs.2.24 crores and also made sale nearly of Rs.60 lakhs. The ld. CIT(A) held that the Assessing Officer did not make any attempt to verify these purchases or to establish that the assessee did not possess sufficient stock of jewellery from which to affect sales. The Ld. CIT(A) also took note of the fact that the Assessing Officer had not discredited the sales made by the assessee through modes of payment other than cash which implies that the Assessing Officer accepts that the assessee is carrying on a genuine jewellery business and also that it had available stock from which to make sales.

4.4. According to the ld. CIT(A), the Assessing Officer in order to make the sales as bogus should have first established that the purchases were fake and the assessee had no stock from which to make the sales. The Ld. CIT(A) also observed that the Assessing Officer did not carry out any verification of purchases in spite of having the details of purchases with him. The Ld. CIT(A) further observed that more importantly, the Assessing Officer did not reject the books of accounts, meaning thereby, that the Assessing Officer accepts the purchases and sales of jewellery made by the Assessing Officer. The ld. CIT(A) also held that by doing so and adding the same income twice was contradictory in nature. According to the ld. CIT(A), the Assessing Officer in order to dispute the sales should have verified the purchases and after having established that they were bogus and thereafter the books of account should have been rejected. Taking note of the fact that the Assessing Officer did not think fit to consider to examine the genuineness of the purchases filed by way of additional evidences, the ld. CIT(A) held that the purchases of the assessee stand on a firm footing. The Ld. CIT(A) also noted the fact that on perusal of the purchase ledger, it was seen that regular cheque payments were made for the purchases and the same tallied with the bank account of the assessee in Axis Bank. Accordingly, the ld. CIT(A) held that once the purchases have been found to be established as genuine and it has been proved that sufficient stock of jewellery was there with the assessee, then sales from such stock cannot be doubted. The ld. CIT(A) also took note of the fact that a crucial piece of evidence that was filed by the assessee during the assessment proceedings was the original VAT return for the quarter 01.10.2016 to 31.12.2016 and the sales shown in the VAT return corresponds with the sales declared by the assessee in its books of account which further establishes the genuineness of the sales and purchases of the appellant. The Ld. CIT(A) also took note of the fact that VAT return for this period was not revised by the assessee. Further, the ld. CIT(A) relied upon the following case laws:- i. ACIT, Central Circle-14. Delhi vs Delhi Spot Buliion Trading company private limited ii. DCIT vs Kundan Jewellers iii. Bharat Agro Industries vs DCIT (ITA No.3934/Del/2023) iv. M/s Heera Panna Jewellers (ITA No.253A/ViZ/2020) 4.5. In view of the above findings, the Ld. CIT(A) deleted the addition of Rs.2,95,78,312/- made by the Assessing Officer u/s 68 r.w.s. 115BBE of the Act.

8.1. The view of the ld. CIT(A) has been carefully considered but not found to be acceptable. The Assessing Officer had made the addition of Rs.2,95,78,312/- u/s 68 of the Act. It is an undisputed fact that the cash deposit amounting to Rs.3,02,00,000/- was deposited during the period of post demonetization between 09.11.2016 to 31.12.2016. The claim made by the assessee that the amount of Rs.3,02,00,000/- was on account of cash sales of the jewellery was required to be satisfied with verifiable evidence in view of the period of demonetization and the Assessing Officer calling for documentary evidences to support its claim. Therefore, as per the provisions of section 68 of the Act, the onus was on the assessee to establish that the cash sales amounting to Rs.2,95,78,312/- represented cash sales of jewellery business with the name and addresses of the such purchasers. Unless the same is produced by the assessee, the onus on the part of the assessee in claiming that the amount of Rs.2,95,78,312/- represents cash sales is not discharged by the assessee. In view of this fact, the ld. CIT(A) erred in taking a view that the AO should have verified the claim of purchases made by the assessee and the availability of the jewellery stock and without establishing the same to be not genuine, the Assessing Officer could not have disputed the claim of the assessee that the said amount did not represent cash sales of jewellery. In fact, in the given facts even if the claim of purchases and stock available is found to be genuine then also the genuineness of the cash sales amounting to Rs. 2,95,78,312/- is not established in absence of the name and address of the purchasers. The Ld. CIT(A) did not give any finding on the finding of the fact recorded by the Assessing Officer that the entire cash sales of Rs.3,02,00,000/- was made during the month of October, 2016 (Rs.2,66,98,983/-) and for the period just prior to demonetization i.e. from 01.11.2016 to 08.11.2016 (Rs.30,44,131/-) The claim of the assessee in this regard that the same represented due to seasonal sale on account of festivities is also not supported by the fact that no such cash sales was made by the assessee during the said period, in FY 2017-18, FY 2018-19 and 2019-2020 (upto September 2019), which is evident from the details of month-wise cash and credit sales submitted by the assessee on page no.256 to 259 of the paper book filed by the assessee, which is reproduced as under:-

8.2. So, it is seen that as compared to cash sales of Rs.2,66,40,274/- and Rs.30,13,993/- in the month of October, 2016 and from 01.11.2016 to 08.11.2016 in F.Y. 2016-17, the total cash sales is only Rs.1,90,461/- and Rs.2,95,487/- in the month of November, 2017 and March, 2018 in F.Y. 2017-18 and further Rs.2,91,263/- in the month of September, 2018 in F.Y. 2018-19 and Rs.6,77,250/- in the month of September, 2019 in F.Y. 2019-20 respectively which are just not comparable amounts because as against the cash sales of Rs.3,02,00,000/- in the month of October and November, 2016, the total cash sales was only Rs.15,62,258/- for the combined three financial years i.e. 2017-18, 2018-19 and 2019-20 respectively. The same is tabulated as below:-

Sl. Financial Month Amount of cash No. Year sales of jewellery 1 2016-17 April, 2016 Rs.50,350/- 2 2016-17 August, 2016 Rs.37,037/- 3 2016-17 September, 2016 Rs.20,410/- 4 2016-17 October, 2016 Rs.2,64,40,274/- 5 2016-17 November, 2016 Rs.30,13,993/- 6 2017-18 November, 2017 Rs.1,90,461/- 7 2017-18 March 2018 Rs.2,95,487/- 8 2018-19 September, 2018 Rs.2,91,263/- 9 2019-20 September, 2019 Rs.6,77,250/-

For all other months in all the above financial years, the cash sales of jewellery business was NIL. 8.3. It may be mentioned that the provisions of section 269ST was brought into the statute by Finance Act 2017 w.e.f. 01.04.2017 prohibiting receipt of an amount of Rs.2 lakhs or more in cash. However, if the contention of the assessee that the cash sale receipts of Rs.3,02,00,000/- was on account of sale of jewellery with each transaction being less than Rs.2 lakhs on account of festive season in the month of October, 2016 and November, 2016 such similar cash sales should have been made by the assessee during Financial Years 2017-18, 2018-19 and 2019-20 on such festive occasions as claimed by the assessee for FY 2016-17. However, no such comparable quantum of sales has been shown in the subsequent Financial Years i.e. 2017-18, 2018-19 and 2019-20 and, therefore, the contention of the assessee that the cash sales of Rs.2,64,40,274/- and Rs.30,13,993/- for the months of October, 2016 and November, 2016 (prior to demonetization) was on account of cash sales of jewellery is not acceptable. As stated above, the assessee has claimed to have started its jewellery business from February, 2016 and therefore no such comparative figures of cash sales are available for the previous financial years.

8.4. Further, the ld. CIT(A) did not negate the reasoning of the Assessing Officer wherein the Assessing Officer had stated as to why the assessee was forced to manipulate its cash book and show the cash sales for the month of October 2016 and during the prior period of demonetization i.e 01.11.2016 to 08.11.2016 because the assessee had already filed its VAT return for the period 01.04.2016 to 30.09.2016, which could not be revised and therefore the manipulation in the cash book by showing the cash sales of Rs.2,66,40,274/- and Rs.30,13,983/- in October, 2016 and from 01.11.2016 to 08.11.2016 was done by the assessee to introduce its unaccounted money. Further, it has to be kept in mind that the Value Added Tax (VAT) is a form of sales tax and it is collected in stages on transactions involving sales of goods. Therefore, the VAT department is concerned with the sales submitted by the assessee and the commercial taxes department will get higher VAT against higher sales declared by the assessee and therefore in the given circumstances the matching of the sales as per the books of the account of the assessee and its VAT return will not make the sales genuine in terms of its credit in its books of accounts as claimed by the assessee unless the genuineness of the cash sales is established by the assessee by furnishing the names and addresses of the purchasers particularly in view of the adverse findings noted by the Assessing Officer about the genuineness of the sales wherein not a single sales above Rs.2 lakhs in cash were shown and no identity or even any trace of the identity of the purchaser was furnished by the assessee and further no such unusual sales in cash was made by the assessee in the month of October, November or any other festive month during the subsequent financial years i.e. 2017-18 and 2018-19 and 2019-20. Since, the assessee had claimed to started its jewellery business from the month of February 2016, no comparative figures for sale of jewellery during the month of October, November or any other festive month for the previous financial years are available in the case of the assessee.

8.5. As regards, the view of the ld. CIT(A) that the Assessing Officer did not reject the books of accounts and thereby accepted the purchases as well as the stock does not dilute the finding of the Assessing Officer because the Assessing Officer had not accepted the claim of cash sales of jewellery amounting to Rs.2,95,78,312/- and its deposit in its bank account on account of cash sales as claimed by the assessee. In this regard, the view of the Ld. CIT(A) that by not rejecting the books of accounts the Assessing Officer has accepted the cash sales is not correct, because the Assessing Officer has disputed the credit of Rs.2,95,78,312/- on account of cash sales of jewellery in its books of accounts and added it as unexplained cash credit u/s 68 of the Act r.w.s. 115BBE of the Act. As discussed above, in the given facts of the case, the onus is on the assessee to establish its cash sales by way of submitting the name and address of the purchasers particularly in view of the adverse finding of the Assessing Officer and the circumstances in which the cash sales amounting to Rs.2,95,78,312/- has been claimed to be an account of cash sales of jewellery. This fact is also supported by our finding that the explanation of the assessee for the so-called boost in the sale of jewellery in the month October, 2016 and November, 2016 is not acceptable in view of the fact that no such boost in sale in cash sales of jewellery was reflected in the month of October or any other festive month in FY 2017-18, 2018-19 and 2019-20 and other factors as discussed above. Moreover, it has been judicially held that once the books of accounts are rejected, no separate addition can be made by the Assessing Officer in respect of the items forming part of the said books of the accounts. In fact, we are of the considered view that the Assessing Officer rightly did not reject the books of accounts because by rejecting it, the books of accounts would not have been in existence and the Assessing Officer could not have made the addition of Rs.2,95,78,312/- u/s 68 of the Act as unexplained cash credit cash credited in the books of the accounts of the assessee in the garb of sales of jewellery. Further, the Assessing Officer did not accept the cash sales of Rs.2,95,78,312/- on account of cash sales of the assessee’s jewellery business as claimed by the assessee and added the same u/s 68 r.w.s. 115BBE of the Act. The Assessing Officer accepted only cash sales amounting to Rs.6,21,688/- out of total cash deposit of Rs.3,02,00,000/- as genuine cash sales of jewellery business and considered it to be its business income. In view of these facts, the observation of the Ld. CIT(A) that the amount of cash sales of Rs.2,64,40,274/- and Rs.30,13,393/- in the month of October, 2016 and for the period from 01.11.2016 to 08.11.2016 has been taxed twice once as business income and again u/s 68 r.w.s. 115 BBE of the Act is not correct.

8.6. Further, the ld. CIT(A) did not make any comment on the observation of the Assessing Officer that the assessee had deposited cash amount of Rs.20,600/- during the month of September, 2016 indicating that for no valid reason the assessee, contrary to its regular practice and behaviour of any normal prudent businessman choose to keep large amount cash in hand (of Rs.3,03,68,800/- as on 08.11.2016) rather than depositing the same in its bank account. The ld. CIT(A) also did not make any comment about the adverse observation of the Assessing Officer that neither any past trend was observed in assessee’s behaviour to hoard large sum of cash/money (by not depositing the same in its bank account) nor any valid explanation for such abnormal behaviour was put forth by the assessee. In fact, in view of the discussion and the facts brought on record by the Assessing Officer, the conclusion arrived by the Assessing Officer that in the given circumstances, it was to be logically inferred that the assessee had simply introduced its own unaccounted cash amounting to Rs.2,95,78,312/- in its cashbook under the guise of cash sales by generating sales bills with fictitious names/address of value below Rs.2 lakhs per sale bill is justified.

8.7. Further, the observation of the ld. CIT(A) that it was noteworthy that the Assessing Officer had not discredited the sales made by the Assessing Officer through mode of payments other than cash which implies that the Assessing Officer accepts that the assessee is carrying on a genuine jewellery business and also that it had an available stock from which to make sales. We have considered the above observation of the ld. CIT(A) but not found to be acceptable because the nature of the claim of the business of the assessee is not very relevant as the assessee has to satisfy the Assessing Officer regarding the cash sales of Rs.2,95,78,312/- in its books of accounts being claimed from the sale of jewellery business or any business claimed to have been carried out by the assessee which as per our finding in this order, the assessee has failed to do so. Income tax is a civil proceeding, wherein, the view is taken on the preponderance of probability and not on the test of beyond doubt.

8.8. Therefore, in view of the above facts and discussion, the Assessing Officer was correct in holding that in a situation like this the matter should be considered by applying the test of human probabilities and not beyond doubt and in the given facts the said test of human probability was satisfied in treating the so called cash sales of jewellery amounting to Rs.2,95,78,312/- as unexplained cash credit u/s 68 of the Act r.w.s. 115BBE of the Act.

8.9. The various case laws relied upon by the Ld. CIT(A) has been carefully perused. In the case of ACIT, Central Circle-14. Delhi vs Delhi Spot Buliion Trading Company Private Limited (supra), the distinguishing facts as discussed earlier have been brought out as to why the cash sales and the VAT return filed by the assessee cannot be accepted in this case. Similar is the proposition with respect to other case laws relied by the ld. CIT(A) for accepting the cash sales. As regards, the decision of the Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax vs M/S. Agson Global Pvt. Ltd. (supra), the Hon’ble Delhi High Court (in para no. 16.5 of its order) took note of the fact of cash sales and cash deposits made by the assessee during FY 2014-15, 2015-16 and 2016-17 and found it to be comparable to the cash sales and cash deposits during the said periods. The relevant part of the table extracted in para no.126 of the order of the Tribunal was reproduced in the order as under:-

F.Y. 2014-15 F.Y. 2015-16 F.Y.2016-17 Cash sales Cash Cash sales Cash Cash sales Cash deposits deposits deposits Total 237.44 242.65 412.52 428.19 633.86 633.74 Rs.(Cr.)

8.10. As discussed above, in the case of the present assessee there are no comparable figures for the earlier years because the assessee has claimed to started its jewellery business in the month of February, 2016 with a nominal sale of Rs.32,784/- in FY 2015-16 and therefore this case is distinguishable on this vital fact. Further, as noted from the details submitted by the assessee and reproduced in para no.8.1 of this order and as tabulated in para no.8.2 of this order, the cash sales of jewellery were disproportionately lower in FY 2017-18, 2018-19 and 2019-20 as compared to in the month of October, 2016 and for the period, just prior to demonetization w.e.f 01.11.2016 to 08.11.2016 to inspire any confidence with respect to the claim of the assessee that the cash sales of Rs.2,95,78,312/- represented genuine cash sales of jewellery in the month of October, 2016 and for the period from 01.11.2016 to 08.11.2016.

8.11. In view of the above facts and discussion and the facts brought on record by the Assessing Officer and the analysis made by him, we are of the considered view that the Assessing Officer was justified in making the addition of Rs.2,95,78,312/- u/s 68 r.w.s. 115BBE of the Act. Therefore, the decision of the ld. CIT(A) in deleting the same is not sustainable and the same is reversed. Ground no.1 of the appeal of the Revenue is allowed.

Order pronounced in the open court on 20th June, 2025.