KARUPPAIAH DEIVENDRAN,USILAMPATTI, MADURAI DISTRICT vs. INCOME TAX OFFICER, NON CORP. WARD 2(1), MADURAI, INCOME TAX OFFICE, BIBIKULAM, MADURAI

आदेश / O R D E R PER MANU KUMAR GIRI, JM:

This appeal by the assessee is directed against the order dated 24.06.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [“Ld. CIT(A)”], for the Assessment Year 2017-18.

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 2 :: District. For the assessment year under consideration, the assessee filed his return of income on 28.12.2017 declaring total income of Rs.8,15,620/-. The assessee claimed to have maintained regular books of account, which were stated to have been audited u/s. 44AB of the Income Tax Act, 1961 [“the Act”].

2.1 The case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer [“AO”] noticed cash deposits aggregating to Rs.2,03,93,608/- during the demonetisation period. The assessee explained that the cash deposits represented sale proceeds of jewellery and that the corresponding sales had been duly recorded in the regular books of account.

2.2 The assessee explained that the substantial increase in sales during November 2016 was attributable to the proposed opening of a new jewellery retail outlet at Madurai on 09.11.2016. According to the assessee, invitations had been distributed and customers had purchased jewellery on 08.11.2016. It was also submitted that the working-capital facility sanctioned by Tamil Nadu Mercantile Bank had been enhanced from Rs.1 crore to Rs.4 crores in September 2016 and, therefore, adequate stock was available to meet the anticipated increase in demand.

2.3 The AO, however, did not accept the explanation furnished by the assessee. The AO noticed that sales during November 2016 were Rs.2,03,93,608/-, which were substantially higher than the average monthly sales during the preceding months from April to October 2016.The AO also noticed discrepancies between the VAT audit report and the financial statements furnished for income-tax purposes, particularly in respect of opening stock, closing stock and

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 3 :: gross profit. Further, according to the AO, the assessee failed to produce the underlying sales bills in support of the alleged sales stated to have been effected on 08.11.2016.The AO found the explanation that jewellery worth approximately Rs.1.93 crores had been sold between 8.00 p.m. and midnight on 08.11.2016, particularly in the factual circumstances of the assessee's business at Usilampatti, to be improbable. The AO accordingly concluded that the explanation offered for the cash deposits did not satisfactorily establish the source thereof. Consequently, the AO treated a sum of Rs.1,95,15,110/- as unexplained money u/s.69A of the Act. The AO also made a disallowance of Rs.79,772/- u/s. 40(a)(ia) of the Act in respect of cooly/goldsmith payments.

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 4 :: assessee had revised the VAT returns for November and December 2016 on 05.03.2017. According to the AO, the subsequent revision of the VAT returns cast serious doubt on the genuineness of the sales claimed to have been made during the relevant period.The assessee, in his response, disputed the inference drawn by the AO and submitted that revision of VAT returns, by itself, could not establish that the sales or purchases were bogus. It was contended that the AO ought to have examined the purchase invoices, purchase ledger, stock register, sales bills and other books of account to ascertain whether sufficient stock was available for effecting the disputed sales.It was further submitted that the revision of the VAT return was on account of a bona fide mistake committed by the accountant and that copies of purchase invoices had been furnished in support of the purchases.

4.1 The Ld.CIT(A), after considering the assessment order, the remand report and the assessee's submissions, was not satisfied with the explanation furnished. The Ld.CIT(A) held, in substance, that the assessee had failed to furnish satisfactory documentary evidence establishing the genuineness and source of the impugned cash deposits and accordingly confirmed the addition of Rs.1,95,15,110/- u/s. 69A of the Act. The Ld.CIT(A) also confirmed the applicability of section 115BBE of the Act.

Now assessee is appeal before the Tribunal.

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 5 :: money u/s. 69A of the Act were, in fact, generated out of genuine sales of jewellery recorded in the books of account.

6.1 In the present case, there is an extraordinary and unexplained spurt in sales during the relevant period. The sales during November 2016 were Rs.2,03,93,608/-, which were substantially disproportionate to the regular level of sales during the preceding months. The assessee seeks to explain this abnormal increase principally on the basis of the proposed opening of a new showroom and the alleged purchases made by customers on 08.11.2016.However, the AO specifically recorded that the assessee did not produce the corresponding sales bills to substantiate the alleged sales on 08.11.2016. The explanation that jewellery of such substantial value was sold within a few hours, i.e., between 8.00 p.m. and midnight on 08.11.2016, assumes considerable significance when examined alongside the other discrepancies noticed by the AO.

6.2 We also find that the assessee's explanation regarding availability of stock does not, by itself, establish that the impugned cash deposits represented sale proceeds. The enhancement of the bank working-capital facility from Rs.1 crore to Rs.4 crores may

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 6 :: indicate availability of financial accommodation, but it does not conclusively establish that the particular jewellery allegedly sold on 08.11.2016 was actually available in stock and thereafter sold for cash to identifiable customers.

6.3 Likewise, the purchase invoices relied upon by the assessee may establish purchases to the extent they are otherwise found genuine, but the crucial question before us is whether the corresponding jewellery was available for sale and whether the specific cash deposits during the demonetisation period actually arose from genuine sales. There must be a credible and demonstrable linkage between the stock, the sales, the cash book and the deposits in the bank account.

6.4 Another important circumstance is the revision of the VAT returns for November and December 2016 on 05.03.2017.We agree with the assessee that revision of a VAT return, considered in isolation, cannot automatically lead to a conclusion that the underlying transactions are bogus. However, the said circumstance cannot also be brushed aside when the genuineness of the very same sales is under examination and when there are other surrounding circumstances casting doubt upon the assessee's explanation. The revised VAT returns assume significance in the present case because they relate to the very period in which the exceptional sales were claimed to have taken place. The assessee's explanation that the revision was merely due to an accounting mistake was required to be demonstrated through contemporaneous and reliable material. In the absence of satisfactory reconciliation establishing the precise nature of the original and revised figures

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 7 :: and their impact on the disputed sales, the explanation cannot be accepted merely on assertion.

6.5 The AO had also noticed discrepancies between the VAT audit report and the financial statements relating to opening stock, closing stock and gross profit. These discrepancies become material when the assessee seeks to explain a very substantial cash deposit by reference to sales of jewellery. The burden was therefore upon the assessee to satisfactorily reconcile the stock position and demonstrate that the alleged sales were supported by corresponding stock movement and contemporaneous sales documentation. The material placed before us does not, in our considered view, satisfactorily discharge that burden.We also of the view that the assessee has not demonstrated, with sufficient cogent evidence, the identity or details of the purchasers in respect of the exceptional sales which form the foundation of the explanation. While every retail sale may not necessarily require identification of the purchaser, where an assessee seeks to explain an otherwise extraordinary cash deposit running into crores of rupees by reference to a very short period of exceptional sales, the absence of satisfactory contemporaneous evidence assumes significance.

6.6 The assessee has placed reliance upon the decision of the Visakhapatnam Bench of the Tribunal in ACIT v. Hirapanna Jewellers and the judgment of the Hon'ble Madras High Court in S.M.I.L.E. Microfinance Ltd. v. ACIT.

6.7 We have considered the said reliance. However, judicial precedents have to be applied having regard to the facts and evidentiary circumstances of each case. A proposition that cash

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 8 :: sales cannot be rejected merely because they were made during the demonetisation period cannot be understood as laying down that every cash deposit claimed to represent cash sales must necessarily be accepted without examining the genuineness of the underlying transactions.

6.8 In the present case, the addition has not been made merely because the deposits were made during the demonetisation period. The addition rests upon the cumulative circumstances noticed by the AO, namely, the extraordinary increase in sales, the absence of satisfactory supporting sales bills for the crucial transactions, the discrepancies in stock and financial figures, the subsequent revision of VAT returns and the failure of the assessee to establish a satisfactory nexus between the alleged sales and the impugned cash deposits.Accordingly, the decisions relied upon by the assessee do not advance his case on the peculiar facts before us.

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 9 :: impugned sum of Rs.1,95,15,110/- represented genuine sale proceeds. The findings recorded by the AO are based on relevant circumstances and have been examined by the Ld. CIT(A), including through the remand proceedings. We do not find any perversity or infirmity in the concurrent findings of the authorities below warranting interference. We therefore uphold the addition of Rs.1,95,15,110/- made u/s.69A of the Act.

Order pronounced in the open court on the 18th day of August, 2026 in Chennai.

Sd/- Sd/- (इंतूरी रामा राव) (मनु कुमार िग�र) (INTURI RAMA RAO) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER

चे�नई/Chennai, +दनांक/Dated: 18th August, 2026. SNDP, Sr. PS

ITA No. 2161/Chny/2025 (AY 2017-18) Karuppaiah Deivendran Vs ITO NCW 2(1) :: 10 :: आदेश क! ��त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF SAND Digitally signed by EEP SANDEEP KUMAR KUMA Date: 2026.08.25 R 17:44:32 +05'30'