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Facts
The assessee, engaged in dealing in gold and silver ornaments, deposited Rs. 1,10,00,000/- in cash during the demonetization period. The Assessing Officer added 20% of this amount (Rs. 22,00,000/-) as unexplained cash credit under Section 68 of the Income-tax Act, 1961.
Held
The Tribunal held that the cash sales of the assessee were comparable to earlier years, and the Revenue had not disputed the availability of stock. Therefore, cash receipts from sales could not be treated as unexplained.
Key Issues
Whether the cash deposits made during the demonetization period were sufficiently explained by the assessee's sales, and whether the addition by the AO under Section 68 was justified.
Sections Cited
68, 250, 143(3), 271AAC(1), 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-SHRI SIDDHARTHA NAUTIYAL
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
This appeal has been filed by the Assessee against the order dated 07.12.2023 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad (‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (‘the Act’ in short) for Assessment Year 2017-18.
The assessee has raised 8 grounds of appeal. However, during the course of hearing, the assessee pressed only Ground No. 7, which reads as under::
“7. The learned CIT(Appeals) erred in confirming the addition of Rs.22,00,000/-.”
Thus, the only issue for adjudication before us is the confirmation of addition of Rs.22,00,000/- made u/s 68 of the Act.
The brief facts of the case are that the assessee is engaged in the business of dealing in Gold and Silver Ornaments on retail basis in the name of ‘Sonika Jewellers’. The assessee filed his return of income for the year under consideration on 16.10.2017, declaring a total income of Rs.13,48,890/-. The case was selected for complete scrutiny under CASS.
During assessment proceedings, the Assessing Officer noticed that the assessee had deposited cash of Rs.1,10,00,000/- in his bank account during the demonetization period. After examining of the cash deposits, the Assessing officer made addition of 20% of the cash deposits u/s.68 of the Act. For the sake of ready reference, the relevant part of the assessment order is reproduced here as under:
“…Based on the above facts and observation by the undersigned, the contention of assessee is not found satisfactorily. In this regard, the assessee has not submitted any credible reply/cogent evidences which can prove that the claim of the assessee is genuine. The assessee has coloring the transaction through inflating the sales and adjusted the cash deposited during the demonetization period. The onus is upon the assessee to prove that the amount credited didn't represent his income in terms of sec. 68 of the Act as ruled out by Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT [1995] 214 ITR 801. Since, the assessee fails to prove to the satisfaction of the assessing officers, the source and nature of the amount of cash credits, AO is entitled to draw an inference that the entire credit-entry represents income taxable in the hands of the assessee. It is not the duty of AO to locate exact source of the cash credits. Therefore, to plug the revenue leakage, 20% of total cash deposit during the demonetization period which calculated at Rs. 22,00,000/-(1,10,00,000/- x 20%) is added to total income of the assessee as unexplained cash credit u/s. 68 of the Act. Penalty proceeding u/s. 271AAC(1) is initiated for income deemed u/s. 68 of the I.T. Act…”
Aggrieved against the Assessment Order, the assessee filed an appeal before the Ld. CIT(A), who confirmed the addition by observing as under:
6.3 I have considered the facts on record and the submission by the appellant along with the material furnished in the paper book. I find that in this case there was a sudden spurt in activity of gold sale by the appellant as soon as the demonetization was announced from 8th November, 2016 by the Prime Minister. The AO has brought forth that during the months of April, May, September and October there were meagre cash deposits that were made by the appellant of Rs. 115,138/-, Rs. 5,00,000/-, Rs. 2,50,000/- and Rs. 11,00,000/- in the bank account. In fact, during the month of June, July, August the deposits in bank account were nil but suddenly from nowhere during the month of November after demonetization was announced, the appellant deposited Rs. 1,10,00,000/- in the bank account in that month after demonetization. Further, in December to March period also the total cash deposits were a pittance of Rs. 75,000/-. Furthermore, it is seen that the appellant has adduced sale bills for the period just before demonetization was announced in the month of November and huge sales were shown. It is very surprising that sales increased post Diwali period which was on 30th of October, 2016. Traditionally in our country gold sales spurts on the Dhanteras day which had Ellen on 28th of October, 2016. Thus, the spurt in gold sales by the appellant around 4th to 6th November shows that there is something more that meets the eye. It is also seen that although the appellant had stock in hand as per the balance sheet, copy adduced, however, the appellant paid to two parties of Mumbai on 10th and 11th November through RTGS so as to give a colour of genuineness to the stock that was purportedly sold. The entire exercise was a money laundering operation to give a colour of genuineness to hoodwink the nation and undermine the outcome of demonetization whose primary purpose was to flush out black money in the economy. The modus operandi of the appellant was the usual operation which was undertaken during demonetization period by jewellers. They exchanged black money in lieu of gold which was shown as sold by creating bills of sale for a period just before demonetization and the said cash was deposited in the bank accounts of the jeweller claiming the same to be cash in hand as on 08.11.2016.
6.3.1 The entire argument given by the appellant before the AO that the rate of gold nominally increased compared to previous FY leading to spurt in purchases in FY 2016-17 are not borne by facts. If that was the case then in why multiple of months cash deposits were such small amounts. The appellant has claimed that the gold that was sold was bought from two parties of Mumbai. There is no evidence that how that gold was transferred to the appellant just before the sale. It is also surprising that the payment of the purported purchase was made after the appellant had sold the gold. These payments were made through RTGS on 10th and 11th of November, 2016. It is most surprising that no cheque purchases were made during the period of demonetization. Thus, it can be seen that if the veil of secrecy is pierced the real nature of the transactions the appellant had indulged in are revealed. In the light of the circumstantial evidences the lull or tepid activity in the period before demonetization and sudden spurt in the period just before demonetization was just a ruse created to launder black money by utilizing unscrupulous methods by doctoring evidences and books of accounts to give it a colour of genuineness. Thus, I agree with the AO's conclusion that the appellant has completely failed to substantiate the nature and source of deposits of Rs.1,10,00,000/- in the bank account just after demonetization was announced and the entire exercise of sales during that period was bogus inflation to justify the same. The case law cited by the appellant are distinguishable on 6.3.2 It is added that it is strange that the AO only added 20% of the entire deposit although the nature and source of entire amount of Rs. 1,10,00,000/- was unexplained. However, I find that the issue was already taken care of by the Administrative PCIT who passed an order u/s 263 and reverted the matter back to the file of the AO for examination. As per the appellant no appeal was filed against this order by the administrative PCIT. The AO in his order u/s 143(3) rws 263 dated 22.03.2023 has added back the balance Rs. 88,00,000/- in the hands of appellant. The appeal against the said order is pending in this charge and shall be taken up in appropriate course of time. Hence, remedial measure has already been undertaken.
6.3.2 In view of the above discussion, as the nature and source of the deposits of Rs.22,00,000/- which were added by the AO in the order u/s 143(3) which is in current appeal, were not satisfactorily explained by the appellant. I uphold the addition of the said amount. Ground of appeal 2 is dismissed…”
6. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
Before us, the Ld. AR submitted: -
• Copies of return acknowledgement, computation of income, audited financial statements, and tax audit report for AY 2017–18.
• Copies of submissions made before the Ld. CIT(A) along with the paper- book containing sale bills, purchase bills, stock registers, and cash book. • It was contended that the cash deposits were fully explainable from sales and available cash balance. • It was further argued that the AO made an ad-hoc addition @ 20%, without rejecting books u/s 145(3) and without pointing out specific defects.
The Ld. DR, on the other hand, supported the orders of the authorities below and submitted that the pattern of sales and deposits was highly abnormal and remained unexplained.
We have heard the rival contentions and perused the materials available on record. The assessee has placed on record month-wise cash deposits for FY 2015–16 and FY 2016–17, which is reproduced as under:-
Cash Deposits (FY 2015-16 and FY 2016-17):- Month Cash deposited in FY 2015-16 Cash deposited in FY 2016-17 April 17,00,000/- 1,15,138/- May 9,00,000/- 5,00,000/- June 26,00,000/- - July - - August 31,22,700/- - September 27,00,000/- 2,50,000/- October 5,00,000/- 11,00,000/- November 01.11 to 08.11 - - November 09.11 to 30.11 10,00,000/- 1,10,00,000/- December 45,50,000/- - January 20,00,000/- 75,000/- February 2,00,000/- - March 1,00,000/- -
And, the month-wise sales and purchase details for FY 2016-17 and 2015- 16 are as under:-
Month FY 2016-17 FY 2015-16 purchase sales purchase sales Credit Cash Credit Cash Credit Cash Credit Cash April - 218823 - 182957 2993790 May 104076 - 168189 3917191 1000000 2886716
June - 249354 399046 1253537 July 78174 11077 2363308 - - August - - 2929120 228066 1785162 September - 564645 7510700 90383 969458 October 628442 3884503 1663725 - - - 8604566 - 1182364 Up to 8th November 10196675 - 195630 220464 - 2211216 9th Nov to 30th December - 927822 345955 5536526 624604 2411084
January - 1357365 2086165 1981050 651809 February 987120 - 845000 1662S87 4481340 1015886 March - 734155 825285 - 3221900 891079
The month-wise Cash sales and cash Deposits from 01.04.2015 to 31.03.2016 are as under:- Month. Op. Cash in Cash Cash deposited Cash Withdrawn Closing Cash hand sales in Bank from Bank in hand April 204090 2993790 1700000 - 1161682 May 1161682 2886716 900000 - 2878251 June 2878251 1253537 2600000 - 1951424 July 1951424 2363308 - - 4176790 August 4176790 1785162 3122700 - 2750758 September 2750758 969458 2700000 - 812773 October 812773 1663725 500000 - 1770000 November 1770000 1182364 - - 2850483 08.11.2015 9.11.15 to 2850483 2211216 1000000 - 4018006 30.11.2015 December 4018006 2411084 4550000 - 1622251 January, 2016 1622251 651809 2000000 - 100407
February,2016 100407 1015886 200000 - 694031 March, 2016 694031 891079 100000 - 684366
Month wise Cash sales and cash Deposits from 01.04.2016 to 31.03.2017 are as follows :-
Month Op. Cash In Cash Cash deposited Cash Withdrawn Closing Cash hand sales in Bank from Bank in hand April 684366 218823 115138 - 731588
May 731588 168189 500000 - 270098 June 270098 249354 - - 422558 July 422558 11077 - - 37365 August 37365 - - - 2629 September 2629 564645 250000 - 161634 October 161634 3884503 1100000 - 2648882 2648882 8604566 - - 11009849 November 08.11.2015 9.11.15 to 11009849 220464 11000000 - 145099 30.11.2015 December 145099 345955 - - 327214 January, 2016 327214 2086165 75000 - 641178 February,2016 641178 1662587 - - 876564 March, 2016 876564 825285 - - 1716316 9.1 Thus, going through the above details, it can be observed that the cash sales of the assessee are comparable to the earlier years. Cash deposits in the form of sales can be treated as unexplained if the Revenue proves that the assessee does not have sufficient stock of goods to affect such sales. In the instant case, the Revenue has not disputed the availability of stock with the assessee so that the sales are affected. The cash receipts realized out of sale of goods cannot be treated as unexplained, especially when the existence of goods is not in dispute.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 15.12.2025.