NIRANKARI SONS JEWELLERS PRIVATE LIMITED,DELHI vs. INCOME TAX OFFICER, WARD 18(3), DELHI, DELHI

So far as the huge cash deposit is concerned it is the case of the assessee that there was a rise in sale of gold / diamond ornaments during the month of October, 2016 on account of festive season of Diwali, Dhanteras, Bhaiya Duj and Karwa Chauth etc. Such increase in sale of gold/ diamond jewellery was duly backed by the reports published in various newspapers, one of which was also furnished before the lower authorities.

However, taking into consideration of two times of the average sales of earlier three months i.e. July, August and September, 2016, the Ld. Assessing Officer came to a finding that the assessee manipulated sale figures and introduced its unaccounted income in the garb of cash sales. The difference between the cash sales shown in the month of October, 2016 i.e. Rs. 2,09,74,074/- and two times of the above average sale of earlier 3 months i.e. Rs. 38,32,242/- as mentioned above ultimately Rs.1,33,09,590/- of cash sale resulting in cash deposit has been added in the hands of the assessee as unexplained cash credits by the Ld. Assessing Officer under Section 68 of the Act was, in turn confirmed by the Ld. CIT(A) .

So far as the cash sales made during the period from 1.11.2016 to 08.11.2016 to the tune of Rs.71,87,098/- is concerned, the assessee explained that with the announcement of Nirankari Sons Jewellers Pvt. Ltd. demonetization, the public was in fanatic move and was anxious to convert their invalid currencies into some other form and felt wiser to make investment in jewellery. The sales from 8.00 PM to 12. A.M. on 08.11.2016 were extra ordinary for which extra arrangements was also made as contended by the assessee with supporting documents was rejected by the Ld. AO and only accepting the sale upto Rs.25 lacs, the balance cash sale and cash deposit to the tune of Rs.46,87,098/-was added in the hands of the assessee treating the same as unexplained cash credit under Section 68 of the Act which was further confirmed by the Ld. CIT(A).

At the time of the hearing of the matter the Ld. Sr. Counsel Sh. Ajay Wadhwa appearing for the assessee while arguing in support of the case submitted that before the First Appellate Authority the sale invoices containing invoice No., date, party name, address of the parties, contact of purchasers, description of good such as quantity, rate, amount, labor, hallmarking charges, VAT and mode of receipt of payment were duly submitted as additional evidences in support of the genuineness of the cash transactions and the same were duly confronted to the Ld. AO during remand proceedings. In this regard he has drawn our attention to page Nos. 366 to 425 of the paper book Number II, the contents whereof were duly verified. However, the same was disregarded by the authorities below without pointing out any defect while making the addition. Such submissions made by the Ld. AR neither been able to be denied nor the veracity of those documents has been disputed by the Ld. DR.

It is the case of the assessee that cash sales supported by audited books of accounts, invoices suffered from VAT, VAT returns, stock tally cannot be disregarded, particularly, when no discrepancy was found in the stock register, purchase and sales. The purchases, sales and stock are interlinked and inseparable; every purchase increases the stock and every sale decreases the stock. Keeping in view this particular aspect of the matter, the Ld. Counsel further argued that to disbelieve the sales, the Revenue must prove that the assessee should not have sufficient stocks in his possession or that there must be defects in the stock register. Once there no defect is identified and the purchases and sales are matching with inflow and outflow of stock, there is no reason to disbelieve the sales made by the assessee and addition made thereon is, thus, wrong and not sustainable in the eyes of law.

No discrepancy either found in the qualitative tally in the stock register maintained by the assessee neither the opening stock purchases and closing stock has been doubted by the department as also contended by the Ld. AR. The Authorities below has not taken into consideration this particular aspect of the matter that the cash sales made by the assessee had been credited in the books of accounts and reduction in the stock has not been doubted; neither excess nor shortage was found in the stock register. The sales were made by the Assessee out of the opening stock and purchases and the resultant closing stock has been accepted; the sales had not been disturbed either by the Ld. AO or by GST/VAT department. Particularly when the financial statements clearly show the reduction of stock position and the Nirankari Sons Jewellers Pvt. Ltd. same is matching with the sales which further establishes that the cash generated represents the sales, the addition made by Ld. AO is arbitrary, erroneous and thus liable to be deleted as was the crux of the submissions made by the Ld. AR.

On the other hand the Ld. DR relied upon the orders passed by the authorities below.

We have heard the rival contentions made by the respective parties and have also perused the materials available on record. We find the following documents annexed to the paper books filed by the assessee before us :-

The assessee further filed the following documents :-

It can be seen that cash of Rs. 61,30,000 was deposited from 09.11.2015 to 31.12.2015 whereas cash of Rs. 2,28,00,000 was deposited from 9.11.2016 to 31.12.2016.

Further, following documents were also available on record, which have been duly considered.

Most importantly the Sale invoices containing invoice No., date, party name, party address, contact of purchasers, description of good such as quantity, rate, amount, labor, hallmarking charges, VAT and mode of receipt of payment in respect of sales made from 01.11.2016 to 08.11.2016 are appearing at pages 366- 425 of the PBK2.

It is relevant to mention that the Ld. DR has not been able to raise any objection in regard to the above details annexed to the paper book filed by the assessee which was duly submitted before the First Appellate Authority and duly confronted to the Ld.AO during remand proceedings. These documents clearly establishes that the cash deposit was made out of cash sales duly recorded in the books of account which was further audited under Section 44AB of the Act. In that view of the matter without referring any defect in the evidences so produced by the assessee in support of claim, the sales cannot be disregarded as contended by the Ld. AR is found to be acceptable. We have considered the fact that such cash deposit made out of cash sales duly accepted by the VAT/GST department; there was no revision in those returns neither any difference or defect was pointed out in these references which further establishes the fact of stock available with the assessee in Nirankari Sons Jewellers Pvt. Ltd. the form of opening stock and purchases been accepted by the Income Tax Department and also the VAT and GST Department too. Further that, the books of accounts were neither refuted by the AO or CIT(A) neither has it been said to be ingenuine. Particularly, when the balance in cash is matching with the books the assessee, explanation to the nature and sources of such deposits deserved to be accepted. The books of accounts of the assessee were duly audited by the independent Chartered Accountant under Section 44AB of the Act, the recording of sales, purchase and stock therein not been doubted by the authorities below neither specific defect was pointed out in the books of account maintained by the assessee and having regard to this aspect of the matter, the additions made on ad-hoc basis doubting sales of the assessee in the case in hand is found to be arbitrary, erroneous. The book result shown by the assessee had been accepted by the department in the current year and preceding years. The finding of the AO that the sales made by the assessee is his unaccounted income would certainly disturb the trading results of the company and would also change the GP ratio which is neither permissible without the books of account having being rejected. The authorities below did not doubt the trading results of the assessee. Thus, treatment of sales as unexplained cash credit tantamount to disregarding the audited accounts; if sales is disregarded, it must be followed by rejection of books of accounts under section 145(3) of the Act. It is never the case of the revenue that the cash was utilized elsewhere and not deposited and that sales were not made out of existing stock. The cash in hand in the present facts of the case, cannot be ascribed to bogus sales in absence of cogent evidence in the hands of the Nirankari Sons Jewellers Pvt. Ltd. revenue, particularly when sales and purchases register, invoices, Stock Register were though furnished, the AO failed to make any further enquiry on this. Moreso, only cash credit was considered under Section 68 of the Act and not the trading receipts.

Sales were offered as revenue receipt and the same has been admitted as income and therefore, addition on the same amount as un-explained cash credit under Section 68 of the Act tantamount to double taxation, as argued by the learned AR, is also found to be acceptable. There is no statutory bar in making cash sales in A.Y. 2017-18. Section 269 ST bars receiving money in cash over and above of Rs. 2 lacs against sale was introduced only in F.Y. 2017-18 w.e.f. 01.04.2017 i.e. A.Y. 2018-19. Neither there is any legal bar in keeping its money in the Bank Account. Then, considering the entire aspect of the matter, we find that the assessee has discharged the initial burden cast upon him to prove the credit entries in the books of accounts and thus, the burden shifted to Revenue to conclusively prove that the credit entries appearing in the books of accounts are unexplained in terms of the provision of Section 68 of the Act which is completely absence in the case in hand. We note that the sale are backed by documentary evidences cannot be rejected arbitrarily; the above disallowance is, thus, also found to be without any basis. Upholding the addition made by the Ld. AO by the Ld. CIT(A) merely on the premises that the purchasers did not respond to the notices issued by the Ld. AO or that the assessee failed to produce confirmations from the purchasers only because letters were issued by the AO (though without mentioning any section of Nirankari Sons Jewellers Pvt. Ltd. the statute) remained un-answered cannot lead to the conclusion that sales are bogus when there are documents galore brought on record by the assessee in support of his case, in the form of audited books of accounts / stock register item wise purchase and sales, VAT returns to demonstrate that the assessee indeed has affected the sales, the addition made by the Ld. AO further confirmed by the First Appellate Authority is found to be complete non application of mind, erroneous, arbitrarily and, therefore, not sustainable in the eyes of law. Thus, the additions made by the authorities below are deleted.

In the result, the appeal of the assessee is allowed.