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Facts
The assessee, an HUF engaged in gold and silver trading, deposited a large sum of cash during the demonetization period, which they claimed were from cash sales. The Assessing Officer (AO) made an addition under Section 68 as unexplained income, while the CIT(A) upheld this addition.
Held
The Tribunal held that the assessee had adequately explained the source of cash deposits as sales proceeds by providing supporting documents such as cash books, sales registers, and bank statements. The Tribunal noted that the sales were already reflected in the P&L account and offered for taxation, making the addition a double taxation.
Key Issues
Whether the cash deposits made during the demonetization period can be treated as unexplained income under Section 68 of the Income Tax Act, 1961, when the assessee has provided evidence of sales and offered the income for taxation.
Sections Cited
68, 115BBE, 250, 69A
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Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
स िवाई की िारीख / Date of Hearing 10.06.2025 घोर्णा की िारीख/Date of Pronouncement 01.07.2025 आदेश / O R D E R PER SANDEEP GOSAIN [J.M.]:- This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 12.12.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2017-18.
A.Y. 2017-18 Lalit R Jagawat HUF 2. The assessee has raised the following ground of appeal: “1.0 That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in not considering the submission made by the appellant. 1.1 That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in making addition u/s 68 as unexplained income with regard to cash deposits of Rs. 2,25,04,409/- made out of normal course of business and levying tax u/s 115BBE of the Act.”
3. The only ground raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the additions made u/s 68 of the Act as unexplained income with regard to cash deposits. In this regard, we have heard the counsels for both the parties and perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities.
4. From the records, we notice that the additions were made in the present case on account of the fact that there was an abnormal increase in cash deposits during the demonetization period as compared to the pre-demonetization period.
5. In this regard, Ld. AR submitted that the assessee is an HUF and is engaged in the business activity of trading in gold and silver jewellery, and the cash deposit is out of cash sales and during the FY 2014-15 and 2015-16, they had not deposited any cash in the bank account, but submitted all the required documents to prove the source of the cash deposited during the year under consideration.
6. However, as per the revenue, the assessee had not submitted copy of the cash book, purchase register, sales register, date-wise/item-wise quantitative A.Y. 2017-18 Lalit R Jagawat HUF details in support to justify the source of the cash, and thus manipulated cash sales and accumulated cash after the declaration of the demonetization period. After having heard both the parties at length and after appreciating the records placed before us, we notice that the business activity of the assessee is not in dispute. It has been specifically pleaded by the assessee that during the demonetization period, the cash deposits in the bank accounts represents the sales made which has been reflected in Trading Account submitted along with return of income and thus, the source of cash deposits was explained and as regards supporting documents, evidence and genuineness of transactions the assessee had furnished the following details: i. Cash book [day wise] - Showing names of persons whom sales is made. ii. Party wise purchases with Name/ Address /PAN iii. Party wise sales with Name/ Address /PAN iv. Purchase Register - month wise/Party wise also. v. Sales Register - Date wise / Item Wise vi. Bank Statement of all bank. Thus, the assessee had justified the source of cash deposits with all the supporting documents, evidence which are sufficient to prove the genuineness of the transaction.
It is submitted that, the day 8.11.2016 was an exceptional day in view of the demonetization of old notes. Therefore, the public were in fanatic move and were anxious to convert the SBN into some other form and felt wiser to make an investment in jewellery and gold as an alternative for the exchange of currency. The assessee being one of the reputed jewellers having long been A.Y. 2017-18 Lalit R Jagawat HUF present in the market, the customer stepped in his shop in large numbers with the old currency and hence therefore there is a cash sale during the year under consideration.
It was noticed that the assessee has made a sale of Rs.. 2,25,04,409/- on 08.11.2016, which included Rs. 2,05,75,291/- treated by the AO as unexplained cash credit. The entire sum of Rs. 2,25,04,409/- of sale made on 08.11.2016 was credited in the books of accounts and offered for taxation. Copies of party-wise sales & purchases with PAN and address were submitted before the AO and have not been found false, incorrect or fabricated. As the same sales have already been offered for taxation and accepted by the AO, the AO cannot make the addition of the same amount again under section 68 of the Act, as it amounts to double addition of the same income.
We place reliance upon the following decision of the Hon’ble Supreme Court: i. Sreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC): The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. ii. Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC): the Tribunal in arriving at the conclusion it did in the present case indulged in suspicions, coniectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be A.Y. 2017-18 Lalit R Jagawat HUF entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, perverse and this court is entitled to interfere. iii. Mehta Parikh and Company vs. CIT (1956) 30 ITR 181 (SC): the decision of the Tribunal must rest not on suspicion but on legal testimony. iv. Dhakeshwari Cotton Mills vs. CIT (1954) 26 ITR 775 (SC): the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub- section (3) of Section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3)." v. Salem Sree Ramvillas Chit Company Private Limited vs DCIT (Madras High Court) in W.P. No. 1732 of 2020 dated 04.02.2020 for AY 2017-18: The W.P. was filed by the challenging the addition of Rs.67 lakhs under section 69A being the amount deposited by the Assessee out of the cash in hand. The Hon'ble Court has remanded A.Y. 2017-18 Lalit R Jagawat HUF the matter back to the Assessing officer to examine the details as the AO has mechanically framed the assessment order without considering the submissions of the assessee.
Even otherwise, as per the provisions of section 68 of the Act, which reads as under: “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 there of or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. "Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and COME TAX DEPARTMENT (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10". As per plain reading following condition must be fulfilled for applicability of Section 68.”
Thus, it is clear that the following conditions must be fulfilled for the applicability of section 68: I] Any sum found credited in the books of accounts maintained by the assessee. II] Assessee offers no explanation about such credit. III] Explanation of the assessee is not found satisfactory by the Assessing Officer."
But after analysing the facts of the case in totality, we find that the addition u/s 68 of the Act is not possible in the case of the assessee due to the following facts:
A.Y. 2017-18 Lalit R Jagawat HUF 1. Stock existed on the date of sale, and it has not been proved that any backdating occurred. It is not the case of the revenue that back dating the entries in its accounting software it has increased the sale factiously.
The assessee has maintained the complete stock tally in its accounting software. Such books of accounts are audited, quantitative records produced before the tax auditor, such quantitative records are certified by the tax audit, and no questions have been raised by the assessing officer.
The audited accounts of the current year are compared with the audited accounts of the previous year, and there is no deviation in the gross profit ratio declared by the assessee.
It cannot be said that the assessee has purchased goods or sold goods to unidentified parties. In fact, name, address and PAN No. of all parties were submitted to the AO.
The books of accounts and gross profit shown by the appellant have been accepted by the AO.
Proper invoices were issued in respect of sales made.
7. VAT has been properly charged and paid by the assessee.
8. Proper VAT return has been filed by the assessee, and the post- demonetization has not been revised.
A.Y. 2017-18 Lalit R Jagawat HUF 13. We place reliance upon the following decisions justifying the stands taken by the assessee that no addition should have been made in the case of the assessee. A] Shree Sanad Textiles Industries Ltd. V. DCIT (Ahmedabad ITAT)
"9.6. We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only. 9.7. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with the finding of the learned CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him." B] New Pooja Jewellers v. ITO (Kolkata ITAT) "15. Be it as it may, in the normal course, we would have restored the issue to the file of the AO for fresh verification of the claim of the assessee that it had received advances from customers on the occasion of Ramnavami Nayakhata. In other words, we would have given the AO more time to conduct enquiries and investigation. In this case we find that these advances have subsequently been recorded as sales of the assessee firm and that these sales have been accepted as income by the AO during the year. He has not disturbed the sales of the assessee. When a receipt is accounted for as income, no separate addition of the same amount as income of the assessee under any other Section of the Act can be made as it would be a double addition. In the result, we delete the addition made and allow its claim of the assessee." C] ACIT v. Dewas Soya Limitd (Indore ITAT) ITA No. 336/Ind/2012 "Even otherwise, the goods were supplied to the parties after receiving the advance payments which were credited through cheques/DDs/RTGs, etc. Therefore, we hold that the CIT(A) has rightly come to the conclusion that the addition made by the Assessing Officer u/s 68 of the Act by considering the sale proceeds as cash credits cannot be sustained."
A.Y. 2017-18 Lalit R Jagawat HUF D] CIT v. Vishal Exports Overseas Limited (Gujarat High Court) Tax Appeal No. 2471 of 2009 "5. Revenue carried the matter in appeal before the Tribunal. The Tribunal did not address the question of correctness of the C.L.T. (Appeals)'s conclusion that amount of Rs.70 lakhs represented the genuine export sale of the assessee. The Tribunal however, upheld the deletion of Rs.70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double taxation of the same income.
7. In view of the above situation, we do not find any reason to interfere with the Tribunal's order." E) CIT v. Smt. Harshil Chordia v. ITO (Rajasthan High Court) 2008 298 ITR 349 (Raj) "23. So far as question No. 2 is concemed, apparently when the Tribunal has found as a fact that the assessee was receiving money from the customers in hands against the payment on delivery of the vehicles on receipt from the dealer the question of such amount standing in the books of account of the assessee would not attract Section 68 because the cash deposits becomes self-explanatory and such amounts were received by the assessee from the customers against which the delivery of the vehicle was made to the customers. The question of sustaining the addition of Rs. 6,98,000 would not arise." F] Agons Global P Ltd V. Acit (Delhi Itat) Appeal No 3741 To 3746/Del/2019 "The whole purpose of the Departmental Authorities in singling out the cash deposited during the demonetization period as arising out of unexplained sources(as against the accepted position in the past and the subsequent periods) is to somehow trigger the provisions of section 115BBE read with section 68 of the Act to the income already offered for tax by the Assessee (as cash sales) at a higher rate of tax of 77.25% (i.e. flat rate of 60% plus surcharge @ 25% on such tax and cess as applicable) on gross basis (without any deduction/allowance). In fact the treatment of the cash deposits as unexplained cash credits u/s 68 by the A.O has resulted in double taxation of the same amount, once in the form of cash sales already offered to tax by the Assessee at the rate of tax applicable to companies and again by way unexplained cash credit on deposits arising from such sales u/s 68 at higher rates specified u/s 115BBE.
In view of the above, it is prayed that the addition made by the A.O (and partly sustained by the CIT (A)) u/s 68 on account of cash deposited in banks during the demonetization period may kindly be deleted."
G] ACIT vs. Hirapanna Jewelers [I.T.A.no 253 of 2020] "Where the Assessing Officer made addition u/s.68 on account of huge amount deposited by the assessee jewelers in its bank account post demonetization, since assessee had explained source of said cash deposits as sale of jewellery, provided sale bills and admitted same as revenue receipt as well as offered it for tax and had also represented outgo of stocks which was matching with sale, impugned addition was to be deleted." H] Nikantha Saha v/s ITO [ITA No. 881/Gay/2020] 14. We conclude that in the above factual scenario, no additions were warranted as sales are already recorded in the books of accounts and the addition of the same amounts to double addition. A receipt cannot be treated sale proceeds and unexplained cash credit simultaneously. A prejudice view on sale cannot be drawn when purchases are accepted without any reservation. Section 68 connotes amount credit in books of accounts remained unexplained needs time added. Recorded sale are not unexplained cash credits. The books of accounts of the Appellant had not rejected by the Assessing Officer while passing the Assessment Order.
It is important to mention and highlight here that during the year under consideration, the assessee had made total sales of Rs. 473,25,36,214/- of gold bars/coins (Rs. 473 cr.). The month-wise sales summary of FY 2016-17 has also been placed on record as Annexure A. Relevant data of which are tabulated below:
Month Sales (Rs.) October, 2016 54,75,40,676 November, 2016 73,55,75,966 December, 2016 24,67,11,594 January,2017 62,07,66,150 February, 2017 72,84,18,430 As we can say that there is no abnormal jump in the sales for the month of November, 2016, and the closing stock of the assessee as on 07.11.2016 was 5655 grams, and the assessee had made an order of 37,000 grams on 08.11.2016 and had made payment through banking channel as has been reflected in the bank statement of 08.11.2016. Even on the day of demonetisation, significantly, there were cheque sales apart from cash sales, which makes it clear that the assessee had made both cheque sales and cash sales on the day of demonetisation. In this regard, the bank statement has also been placed on record. We also appreciate that the payment of the purchase parties was made by the assessee on the first hours of the day itself on 08.11.2016, and the ledger account of summary for 07.11.2016 and 08.11.2016 has also been placed on record in the paper book, and entries of the same are tabulated hereinbelow:
A.Y. 2017-18 Lalit R Jagawat HUF 16. Moreover, the AO had accepted the assessee’s entire sale and purchase offered in the books of account as genuine. Therefore, the addition made by the AO on account of cash deposited during the demonetisation period on the pretext that the assessee had created an artificial scenario in its books of account where unaccounted income was shown by them as cash sales and then deposited into bank accounts. In this regard, there is no evidence/proof of the said observation made by the AO. Since there is no evidence with the explanation put forth by the assessee is justified with reference to various documents, such as Cash book [day wise] - Showing names of persons whom sales is made, Party wise purchases with Name/ Address /PAN, Party wise sales with Name/ Address /PAN, Purchase Register - month wise/Party wise also, Sales Register - Date wise / Item Wise and Bank Statement of all bank. And further, such cash deposit has been shown as sales in the P&L account and has also been offered for taxation. Therefore, in our view, no addition should have been made in the case of the assessee. Reliance is being placed upon the decision of the coordinate of ITAT in case of DCIT v/s Vishva and Devji Diamond Pvt. Ltd. 171 taxmann.com 474 (Chennai Trib.) (2024), wherein it has been held that where assessee, engaged in trading business of gold and diamond jewellery, claimed that cash deposited in bank account during demonetization period pertained to sale proceeds of gold and diamond jewellery collected from its customers, since assessee's claim was backed up by relevant evidences, A.Y. 2017-18 Lalit R Jagawat HUF impugned addition made under section 69A, read with section 115BBE treating cash sales as bogus was to be deleted. Copy of the order is enclosed herewith as Annexure- 1.
Further, reliance has also been placed upon the decision of the coordinate bench in Charu Agarwal v/s DCIT, wherein the coordinate bench of the ITAT has held that held that where cash deposited by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by Assessing Officer and there was sufficient stock available with assessee to make cash sales, sales made by assessee out of existing stock were sufficient to explain deposit of cash (obtained from realization of sales) in bank account and, thus, cash deposits could not have been treated as undisclosed income of assessee.
17. Therefore, considering the entire facts and circumstances and also the judgments cited before us, we allow the ground raised by the assessee and direct the AO to delete the additions.
18. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 01.07.2025.