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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 2,98,53,859/- made under Section 68 for unexplained cash credit, which the Revenue believed stemmed from unvouched sales. The assessee, a jeweler, had a surge in cash sales during the demonetization period, with customers often below the PAN reporting threshold.
Held
The Tribunal held that the CIT(A) was correct in deleting the addition. The assessee had provided detailed sales and stock information, and the Assessing Officer failed to prove that the sales were not genuine or that the stock was not available. The tribunal found no discrepancy in the assessee's cash book.
Key Issues
Whether the cash sales during the demonetization period were genuine and adequately explained by the assessee's stock position, or if they represented unexplained cash credits subject to addition under Section 68.
Sections Cited
68, 115BBE, 143(3), 37, 199C, 250
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Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
A.Y. 2017-18 ACIT, Lucknow vs. Harshit Garg, Pratyaksh Kar Bhawan, 57-Ram Tirath Marg, Lucknow PAN: AIOPG3763A (Appellant) (Respondent) C.O. No.25/LKW/2024 A.Y. 2017-18 Harshit Garg, vs. ACIT, Lucknow Pratyaksh Kar Bhawan, 57- Ram Tirath Marg, Lucknow PAN: AIOPG3763A (Appellant) (Respondent) Assessee by: Sh. Akshay Agrawal, Advocate Revenue by: Sh. Sunil Kumar Rajwanshi, Addl. CIT (DR) Date of hearing: 23.04.2025 Date of pronouncement: 04.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: [ This is an appeal filed by the Revenue against the order of the ld. CIT(A) dated 17.06.2024 passed under section 250 of the Income Tax Act, 1961, wherein the ld. CIT(A) has partly allowed the appeal of the assessee against the order of the ld. AO, passed under section 143(3) of the Income Tax Act, 1961 on 26.12.2019. The grounds of appeal preferred by the Revenue are as under: - “1.) The Ld CIT(A), NFAC has erred in law and on facts in allowing the appeal of the assessee on the issue of deleting the addition of Rs 2,98,53,589/-unexplained cash credit u/s 68 read with section 115BBE without appreciating the fact that the assessee has not made sales through tax invoices. 2.) Statistical analysis presented in para 11 of assessment order makes it clear that abnormal sales happened only in a particular time period i.e. from01/10/2016 till 08/11/2016 and not through tax invoices but through sales invoices. Moreover, though assessee claimed that all his sales are fully vouchered, assessee had not furnished any vouchers of sales through sales invoices in the time period from 01/10/2016 till 08/11/2016. The Hon'ble Supreme Court in Kale Khan Mohammad Hanif v. CIT [1963]
50. ITR 1, had also clearly stated that the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee's account or in the account of a third party. 3.) During assessment proceedings the assessee had not submitted any invoices of sales made through sales invoices. There was no way to ascertain the identity of these customers and to ascertain genuineness of these transactions. Moreover all these transactions were blow the limit of Rs.2,00,000/- so that mandatory requirement of quoting the PAN number may be bypassed.”
2. Subsequent to the filing of the aforesaid appeal, the assessee filed a Cross Objection in which the following grounds of appeal were preferred, which reads as under:-
1. The Learned Assessing Officer, and the Commissioner of Income Tax Appeal was not justified for not allowing the deduction claimed by appellant u/s 37 being Rs.70,00,000/- deposited by appellant in scheme PMGKY. The CIT Appellant has deleted the addition u/s 68 of Rs.2,98,53,859/-and allowed the Grounds No 1 to 9 of the appellant. The appellant is filing alternate grounds in respect of amount deleted by CIT Appeal 2(a). The Learned Assessing officer has accepted the books of account, trading results, stock details, sale bills, VAT return, and also examined the books of account, the addition made for SBN notes by the Learned Assessing Officer amounts to double taxation of same receipt. 2(b). That the addition made u/s 68 for SBN notes deposited is bad in law.
2(c). That the provision of section 68 apply to only credit entries or entries found in the books of account. Hence the addition u/s 68 for the transactions other than credit entry in books is bad in law.”
3. Subsequent to the case being taken up for hearing, the assessee withdrew the Cross Objection and accordingly the said Cross Objection is dismissed.
The facts of the case are that the assessee, who is the proprietor of M/s Bachhe Lala Jewellers and engaged in the jewellery business filed his return of income for the assessment year 2017-18, declaring a total income of Rs.1,58,01,610/-. The case was taken up for scrutiny and the ld. AO noted that during the demonetization period, i.e. on 10.11.2016, the assessee deposited a sum of Rs.3,80,00,000/- in three bank accounts located at IndusInd Bank, Yes Bank and State Bank of Travancore and Cochin. The ld. Assessing Officer made reference to the fact that on the evening of 8th November, 2016, the Government of India had demonetized bank notes of Rs. 500 and Rs. 1000/- and this had given rise to huge transactions in jewellery post the said announcement, so that people could convert unaccounted money into gold and this also offered the opportunity to businessmen, having unaccounted SBNs in their possession, to bring the same into the books of accounts by reporting sales / realizations from sales in the period prior to demonetization. The ld. Assessing Officer noted that the earliest intimation required to be filed with regard to sales was before the VAT authorities, which was only due on the 20th day of the following month and therefore assessees who were indulging in such malpractices had the benefit of the period from 1st October, 2016 to 20th November, 2016 to manipulate their sales and accounts, in order to explain their unaccounted SBNs. Proceeding from this understanding, the ld. Assessing Officer noted that the assessee had made total sales of Rs.49,99,07,263/- during the financial year 2016-17 and the total cash sales during the year amounted to Rs.4,94,40,120/-. In respect of these cash sales, the customers were not identifiable. He noted that the average daily cash sale through sale invoices during the financial year 2016-17 was only Rs. 1,35,452/-. However, of the total cash sales, of Rs.4,94,40,120/-, the assessee had made cash sales of Rs.3,68,53,859/- in October, 2016 and of Rs.37,25,359/- uptil 8.11.2016 i.e. in the period between 1.10.2016 to 8.11.2016, the assessee had suddenly made cash sales to the tune of Rs. 4,05,79,218/- to unidentifiable small customers. The ld. Assessing Officer further noted that, this abnormality (of the spurt in October/November sales) was not seen in sales made through proper tax invoices. The ld. Assessing Officer further noted that in opposition to cash deposited on 10.11.2016, of Rs.3,80,00,000/-, the assessee had only deposited cash amounting to Rs.32,85,000/- in the period from 9.11.2015 to 30.12.2015. He, therefore, issued notices to the assessee to explain this abnormal increase in sales in October, 2016 and subsequent deposit of cash on 10.11.2016. In response, the assessee submitted that during the F.Y. 2015-16, its sale was Rs.13,52,45,135/-, which had increased to Rs.49,49,60,533/- in F.Y. 2016-17 and further increased to Rs. 73,71,65,030/- F.Y. 2017-18. Thus, the assessee submitted that its sales were continuously increasing and it was not as though the sales had increased because of demonetization of any notes. The assessee further submitted that in the month of October, 2016 its sales had totaled Rs.8,02,65,875/- , out of which cash sales were only 44.38%. It was further submitted that the assessee was maintaining books of accounts and all purchases and sales were fully vouched. All purchases were from registered dealers and the stock had also been audited by a Chartered Accountant. Accordingly, it was prayed that no addition may be made under section 68 on account of the above. The ld. Assessing Officer considered the submissions of the assessee but did not find them tenable. He held that the spurt in sales had happed in a particular time period i.e. 1.10.2016 to 8.11.2016 and not through tax invoices but through sales invoices of less than Rs.2,00,000/- that made the customers unidentifiable. He further held that the fact of the auditing of the assessee’s books, does not absolve the assessee from proving the identity of customers to whom it has sold the jewellery. Quoting from the provisions of section 68 of the Income Tax Act and the decisions in the case of Oceanic Products Exporting Co. vs. Commissioner of Income-tax, [2000] 241 ITR 497 (KER), Kale Khan Mohammad Hanif vs. CIT [1963] 50 ITR 1 (SC) and Sumati Dayal vs. CIT 214 ITR 801 (SC), the ld. Assessing Officer held that the onus was primarily upon the assessee to show that the credits to its bank accounts were not hit by section 68 of the Income Tax Act and while considering the evidences presented, an AO had to be guided by the preponderance of probability. Therefore, as in his opinion, the assessee had not satisfactorily explained the credit of Rs.3,68,53,859/- recorded as cash sales in his books during the period 1.10.2016 to 30.10.2016, he held the same to be unexplained under section 68. However, he noted that the assessee had offered a sum of Rs.70,00,000/- as unexplained cash in PMGKY and therefore, he made an addition of only Rs.2,98,53,859/-. However, the ld. Assessing Officer separately added back Rs.70,00,000/- declared under the PMGKY and claimed as deduction under section 37, holding that the deduction was only allowable if at least 25% of the declared undisclosed income was deposited in a bank or post office as per section 199C of the Scheme and since the assessee had not furnished any evidence in this regard, the same was added back to the income of the assessee and it was determined at Rs.5,26,55,469/-.
5. Aggrieved with this assessment order, the assessee went in appeal to the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee had furnished a quantitative tally of stock month wise for the previous year as well as for the current year; that the assessee had furnished a complete cash book; that the month wise sales and purchases for the last two years and the succeeding year had also been furnished; that the ld. AO had thoroughly examined the books of accounts and vouchers; that the monthly VAT return of the previous year and the current year had been furnished and no discrepancy had been found; that the ld. AO had not pointed any defect or 5 discrepancy in the books of accounts or documents submitted by the assessee; that the ld. AO had not rejected the books of accounts; that the entire addition had been made only on account of presumptions, suspicion and surmises on account of perceived cash sale abnormality; that the sale had been made out of stock in hand available in preceding months and the closing stock at the end of September, 2016 was valued at Rs.13,00,00,000/-; that the assessee had shown an increasing trend of sales from year to year which had been ignored by the ld. AO; that the ld. AO had only focused on cash sales and not on other sales which had also increased substantially during the period and due to the additions made by the ld. AO, the assessee was being subjected to double taxation as he had already offered the sale proceeds for taxation under the Income Tax Act. The assessee thereafter placed reliance on various case laws, the gist of which was narrated in his submissions. The cases relied upon by the assessee were as under:- “1. CIT vs. Associated Transport (P) Ltd (1996) 84 Taxman 146 (Cal).
Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC).
S.R. Venkata Ratnam vs. CIT [1981]; Taxman 263 (Kar).
4. Vintha Madhusudan Reddy vs. Asstt. CIT (ITA No.257/BANG/2018.
Sudhirbhai Pravinkant Thanker vs. ITO [2017] 88 taxman.com 382.
Lakshmi Rice Mills vs. CIT (1974) 97 ITR (Patna).
Kanpur Steel Co. Ltd. vs. CIT [1957] 32 ITR 56 (All).
8. Shree Sanand Textiles Industries Ltd. vs. DCTT ITA No.1166/AHD/2014.
CIT vs. Vishal Exports Overseas Limited (Gujarat High Court) Tax Appeal No.2471 of 2009.
R.B. Jessaram Fatehchand (Sugar Deptt.) vs. CIT [1970] 75 ITR 33 (Bombay HC).
11. Kishore Jeram Bhai Khaniya vs. Income Tax Officer (ITAT Delhi).
CIT vs. Jaora Flour and Foods (P) Ltd., [2012] 344 ITR 294. 13. M/s Singhal Exim Pvt. Ltd. vs. ITO (ITAT Delhi) 14. CIT vs. Smt. Harshil Chordia vs. ITO (Rajasthan High Court) 2008 298 ITR 349 Raj.” 6. The assessee also questioned the decision of the ld. AO to deny the deduction under the PMGKY, pointing that he had deposited Rs.3,80,00,000/- in his bank account out of his sales. In view of the enquiry made by the Investigation Wing of the Income Tax Department and pressure applied by them, he made the declaration under PMGKY to purchase peace and it was advised to him at that time that the amount would be deducted from his business income and the said declaration had been made only with a view to avoid harassment and litigation.
7. The ld. CIT(A) considered the submissions made by the assessee and noted that the ld. AO had not established that the assessee had accumulated cash in its books which was deposited on 10.11.2016. The assumptions made on the basis of comparison of sales figures of earlier years were not foolproof, as similar or higher sales have been made by the assessee in following financial year and the refusal to accept the sales shown by the assessee was not on account of any independent enquiry but only on the basis of assumptions/interpretations made by the ld. AO while comparing results of earlier years. Therefore, the ld. CIT(A) deleted the addition of Rs.2,98,53,859/- on account of unexplained cash deposit. However, he disallowed the deduction claimed by the assessee on account of amounts declared under PMGKY, stating that once an income had been declared as undisclosed, it could not be treated as an expense that was allowable under section 37 of the Act and accordingly the said addition was confirmed.
Aggrieved by these orders, both the Department and assessee have come in appeal. As already pointed out earlier, the assessee subsequently withdrew his Cross Objection and therefore, C.O. No.25/LKW/2024 is treated as dismissed. With regard to the appeal, Sh. Sunil Kumar Rajwanshi, Addl CIT DR representing the Department, invited our attention to the assessment order and the table contained on page no.4 of the assessment order. He pointed out that the ld. AO had observed that there had been an abnormal jump in cash sales in the month of October, 2016 and upto 8.11.2016 when compared to the overall trend of cash sales reported by the assessee during the year. Ld. Addl CIT DR pointed out that when seen in the context of demonetization of SBNs and the fact that the assessee had opportunity uptil 20.11.2016 to manipulate his accounts, he pointed out that the ld. AO had made a compelling case to show that the abnormal results of October, 2016 were only with a view to account for unexplained specified bank notes that were in the hands of the assessee. He, therefore, placed further emphasis on the case laws relied upon by the ld. AO, particularly the case of Sumati Dayal vs. CIT (supra) and stated that in considering such matters, the test of human probabilities had to be applied. Since, the assessee had not shown huge cash purchases either earlier or subsequently, it had to be held that the cash sales shown in the month of October, 2016 were abnormal and only shown with a view to explain unaccounted specified bank notes in the possession of the assessee. Ld. Addl CIT DR further pointed out that the assessee had admitted to suppression of income by making a disclosure under PMGKY, and hence the books were not reliable. However, the addition should be confirmed for that amount also which was not offered under the PMGKY, as the circumstances indicated that it too was unexplained. On the other hand, Sh. Akshay Agarwal, Advocate (hereinafter referred to as 9. the ld. AR) submitted that the assessee had filed monthly purchase details, monthly sales details and monthly opening and closing stock details before the ld. AO and the ld. AO had not pointed out any discrepancy in any of these. It was also submitted that the assessee had filed the cash book for the period 1.10.2016 to 8.11.2016 before the ld. AO and the ld. AO had not pointed out any discrepancy in the same. The ld. AR took us through page no. 54 of his paper book which showed that the assessee had an opening stock of Rs.4,68,60,215/- as on 1.04.2016. It was submitted that as a result of monthly purchases and sales, the details of which had been submitted to the ld. AO, the assessee had an opening stock of Rs. 13,08,49,603/- as on the 1st of October and a closing stock of Rs.9,53,63,490/- on 31.10.2016. Thus, the assessee clearly had the 8 necessary stocks in its possession to effect the sales. It was further submitted that any comparisons of the assessee’s sales with sales for any previous year, were odious in view of the fact that the assessee’s business was expanding and this was proved by the fact that it was not just the period of demonetization which had seen an increase in sales, but the sales continued to grow throughout the rest of the year and also in the subsequent year. Therefore, since the business was expanding and the sales were growing it was not unreasonable to expect that the cash sales would also grow. The ld.AR further submitted that the assessee could not be denied an opportunity to make sales only because customers wanted to purchase jewellery below a particular amount that did not require them to furnish PAN details etc,. As the assessee was not required to obtain KYC in respect of such customers, the ld. AO was not justified in treating such deposits as unexplained because they had been made out of sales and from stocks that had not been questioned and therefore, the provisions of section 68 could not apply. It was further argued that any addition under section 68 on this account would amount to double taxation because the receipts had already been offered to tax and therefore, the entire amount could not be brought to tax again.
10. We have duly considered the facts and circumstances of the case. On examination of the assessee’s submissions, it is observed that the assessee had set up its business in the financial year 2015-16 and made sales of Rs.13,52,45,135/- during the year. This had increased to Rs.49,49,60,533/- in the financial year relevant to the assessment year in question and further increased to Rs.73,71,65,030/- in the subsequent financial year. Thus, it is evident that the business of the assessee was an expanding business and the sales had not abnormally increased in one particular month but was showing a constant trend of increasing over the years. It is also observed that the assessee had an opening stock of jewelry worth Rs.4,68,60,215.88/- on the 1st of April, 2016. The assessee has furnished before the ld. AO the month wise details of purchases and sales made after that date and the movement in the stock 9 position. From the same, it is seen that on the 1st of October 2016, the assessee had stock worth Rs.13,08,49,603.61/- in its possession and that when viewed against the closing stock of Rs. 9,53,63,490.16/- as on 31st October, 2016, had depleted a substantial amount of that stock by way of sales. The details of stock, purchases and sales that have been submitted by the assessee before the ld. AO have not been questioned or doubted in any manner by the ld. AO. Therefore, only because the month of October, 2016 saw a spurt in cash sales below the limit of Rs.2,00,000/-, for which the assessee was not in a position to furnish details of purchasers, the sales made by the assessee cannot be doubted unless the purchases, sales and stock depletion are also cast into doubt. With regard to the argument that the assessee had not submitted the sales invoices to the Assessing Officer, we observe that unless there is a finding that the stocks were not available or were diverted elsewhere, sales claimed out of those stocks cannot be doubted The ld. AO has based his additions on the belief that there exists a possibility of manipulating the exact date of sale on account of the requirement of filing of VAT return for October, 2016 on 20.11.2016, but we observe that first of all , in this case, all the cash from sales was deposited on 10.11.2016 leaving lesser scope for manipulation but even if that were so, it would not take the credits on account of those sales in his books outside the purview of sales receipts, unless it could be shown that the sales had not occurred or that the assessee did not have the stock to sell that which he claimed to have sold. It is observed that the assessee presented the cash book before the ld. AO and the ld. AO could not find any discrepancy in the same. Therefore, the credits made in the said cash book on account of cash sales, remain uncontroverted. In the circumstances, considering that the assessee has presented evidence of available stock and depletion of the said stock on account of sales and the ld. AO has not carried out any enquiry to show that any portion of the receipts on account of the sale of that stock are unexplained by such sales, no case for addition under section 68 of the Income Tax Act is made out. We are therefore, in agreement with the ld. CIT(A) and uphold his decision to delete the addition of Rs.2,98,53,859/- on this account.
In the result, the appeal filed by the Department in Cross Objection filed by the assessee in C.O. No.25/LKW/2024 is also dismissed.