HARSHVARDHAN T.SONI,DAHOD vs. THE ACIT, PANCHAMAHAL CIRCLE, GODHRA PRESENT JURISDICTION THE ACIT., ANAND CIRCLE,, ANAND

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. 2. 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.
3. 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
Asst. Year : 2017-18
- 2–
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.
4. 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…”
5. 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,
Asst. Year : 2017-18
- 3–
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 Asst. Year : 2017-18
- 4–
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.
7. 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.
8. 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.
Asst. Year : 2017-18
- 5–
9. 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
Up to 8th
November

-
8604566
-
1182364
9th Nov to 30th
10196675
-
195630
220464
-
2211216
December

-
927822
345955
5536526
624604
2411084
January

-
1357365
2086165
1981050
651809
February
987120
-
845000
1662S87
4481340
1015886
March

-
734155
825285
-
3221900
891079
Asst. Year : 2017-18
- 6–
The month-wise Cash sales and cash Deposits from 01.04.2015 to 31.03.2016 are as under:-
Month.
Op. Cash in hand
Cash sales
Cash deposited in Bank
Cash Withdrawn from Bank
Closing Cash 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
08.11.2015
1770000
1182364
-
-
2850483
9.11.15 to 30.11.2015
2850483
2211216
1000000
-
4018006
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 hand
Cash sales
Cash deposited in Bank
Cash Withdrawn from Bank
Closing Cash 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
November
08.11.2015
2648882
8604566
-
-
11009849
9.11.15 to 30.11.2015
11009849
220464
11000000
-
145099
December
145099
345955
-
-
327214
January, 2016
327214
2086165
75000
-
641178
February,2016
641178
1662587
-
-
876564
March, 2016
876564
825285
-
-
1716316
Asst. Year : 2017-18
- 7–
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.

The order is pronounced in the open Court on 15.12.2025. (SIDDHARTHA NAUTIYAL)
VICE-PRESIDENT

Ahmedabad; Dated 15.12.2025

**btk

आदेश की ितिलिप अ ेिषत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER,सहायक पंजीकार (Dy./Asstt.