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Facts
The Assessing Officer (AO) added Rs. 5,40,00,000/- to the assessee's income on account of unexplained cash deposits made during the demonetization period, alleging manipulation of sales and insufficient stock registers. The assessee contended that sales were made from existing stock and books of accounts were maintained and audited.
Held
The Tribunal held that the AO erred in making the addition without rejecting the books of accounts, especially when the sales were supported by stock and other documentary evidence. The Tribunal found that the CIT(A) had rightly deleted the addition based on similar precedents and the facts of the case.
Key Issues
Whether the addition made by the AO on account of unexplained cash deposits during demonetization is sustainable without rejecting the assessee's books of accounts.
Sections Cited
68, 143(3), 145(3), 115BBE
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
ORDER PER: DR. S. SEETHALAKSHMI, JM This appeal by the Revenue is directed against the order of the ld. CIT(A) dated 25-07-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 raising therein following grounds of appeal; ‘’1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.5,40,00,000/- made by the on account of unexplained cash deposit during demonetization period in spite of the fact that cash sales amounting to Rs.5,99,10,833/- i.e. 82.75% of total cash sales amounting to Rs.7,24,02,554/- shown by the assessee during the year under consideration which is a huge sale on a single day (in a short time of 3 hours) cannot be accepted as genuine sales.
1. ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR 2. On the facts and circumstances of the case and in law the ld CIT(A) has erred in allowing assessee’s appeal and ignoring the facts that in the bills, narration of goods sold by the assesseeis mentioned as gold ornament (22/22 Ct.) only as well as the stock register/ details furnished by the assessee were not verifiable as the same was not prepared qualitywise and itemwise.
2.1 Apropos Ground of Appeal of the Department, it is noticed that the ld. CIT(A) has allowed the appeal of the assessee by deleting the addition of Rs. 5,40,00,000 made by the ld. AO on account of cash deposit during demonetization period. The narration as made by the ld. CIT(A) in his order is reproduced as under:- ‘’5. Decision: I have carefully considered the facts of the case and submission filed by the appellant. 5.1 Since all the grounds are interlinked the same are adjudicated simultaneously The AO has made addition of Rs. 5,40,00,000/- for the reason that the cash deposited in the bank account during the period of demonetization While deciding this issue, the AO has observed that the assessee has manipulated the sales and also did not maintain stock register quantity wise and item wise. Further. the AO has noticed that the appellant has failed to justify that huge cash sales on single day of Rs. 5.99,10,883/- 5.2 On the other hand, the appellant has submitted that- (i) the Learned AO has failed to appreciate that when opening stock, purchase of the goods and closing stock are not disputed, sales made by him during the financial year cannot be treated as bogus. In the instant case it is undisputed that the assessee-appellant had opening stock of Rs. 8,24,62.404/- as on 01.04.2016 which has been duly recorded in para 3.8(i) of the assessment order in that view of the matter sales made by the assessee-appellant to the tune of Rs 7,73,03,779/- (which includes the alleged amount of Rs 540 crore) cannot be disputed. The AO erred by invoking the provisions of section 68 without rejecting the books of accounts u/s 145(3) of the Income Tax Act 1961. (ii) Because the Ld AO has further erred in ignoring the fact that the sales made was out of the stock carried forward from previous year and thus the availability of goods is proved beyond doubt and therefore the sales made being duly backed by stock deserves to be accepted ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR (iii) Because the Learned AO failed to consider that the books of accounts, invoices, stock details and other particulars relating to the sales made by the assessee appellant during the demonetization period had been examined twice, Firstly, by the DDIT (Inv) - Il Jaipur and Secondly, by the AO during the verification proceeding of cash deposit under OCM (operation clean money). During the said examination of source of cash deposit, only certain discrepancies were found on the basis of which the assessee-appellant offered a sum of Rs. 1,91,00,000/- In view of the above that the books of accounts had been examined twice, the additions made merely on the basis of assumption (iv) Because the Learned AO grossly failed to consider that the DDIT(Inv.)- 11, Jaipur had submitted its report to the then AO who after perusal of the said report and also after verification of the sales invoices, sales ledger, stock details, bank statements and ITRS P &LS and Balance Sheets & Audit Reports of A Y 2015- 16.20 16-17 and 20 17-18 concluded that no discrepancy other than the discrepancy for which the asseseee- appellant had made disclosure in PMGKY was found it is thus clearly a case of change of opinion by the new incumbent it is a settled principle of law that change of opinion cannot be a ground to make addition in the hands of an assessee 5.3 The submission of the appellant was carefully perused and it is noticed that the AO has not pointed out any defect in the purchase and sales made as per books of accounts and merely rejected/disallowed the cash deposits made on 11 11.2016. If the purchase and sale details are accepted then there is no valid reason to reject the cash deposits made during demonetization period merely on the ground that of huge cash sales on single day Most importantly, discrepancy in sales figure was accepted by the appellant during the course of proceedings before the DDIT (Inv) and accordingly the appellant had declared an amount of Rs. 1,91,00,000/- under the PMGKY 2016. No other discrepancy was pointed out by the AO during the appeal proceedings and accordingly books was not rejected. Mere suspecting the amount of cash deposit into the bank account during the demonetization period cannot be basis of making addition under section 68 of the Act without rejecting the book result under section 68 of the Act. 5.4 Further, it is a fact that the business was in existence prior to the demonetization and two current accounts were maintained with the HDFC Bank in the name and style of M/s R.PK Gems &Jewellers, VAT return was also filed declaring purchase and sales which were also filed during the assessment proceedings. The AO has not brought any concrete material to establish that the sales and purchase disclosed in VAT return is incorrect. Merely saying that huge cash sales were made and cash deposited during demonetization period does not suffice especially if it is very much within the purview of the Act. Rules and clarifications issued by the Department of Revenue. 5.5 On identical set of facts Hon'ble ITAT Chandigarh in the case of Kalanidhi Jewelers LLP vs DCIT, vide order dated 25.03.2022 has ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR accepted the cash deposited during the demonetization period as genuine The relevant portion is reproduced herein under 10.13 In the present case also the cash deposited post demonetization by the assessee was out of the cash sales which had been accepted by the Sales Tax/VAT Department and not doubted by the AO, there was sufficient stock available with the assessee to make cash sales and there was festive season in the month of October 2016 prior to the making of the cash deposit in the bank account out of the sales. So, respectfully following the aforesaid referred to 63 orders by the various Hon'ble High Courts and the Coordinate Benches of the ITAT, we are of the view that the impugned addition made by the AO and sustained by the Ld. CIT(A) was not justified, accordingly the same is deleted." 5.6 Further. Hon'ble ITAT Delhi in the case of ACIT vs Delhi Spot Bullion Trading Co. Pvt Ltd in ITA No. 1965/D/2021 vide order dt. 23.04.2024 has stated that- "No discrepancy in the VAT retum has been found out. No specific defects in the books of accounts of the assessee have been found out and there was no negative s tock on any of the dates which only goes to prove that the cash sales have been made against the available stock. Further the Assessing Officer has accepted the sales and hence the proceeds of the sales cannot be considered u/s 68 of the Income Tax Act, 1961 The Id. CIT(A) has rightly placed reliance in the comparable judgments of the Tribunal in the case of Agson Global Pvt Ltd vs ACIT (supra) and ACIT. Central Circle Vs. HirapannaJewellers. Vishakhapatnam (supra) 5.7 Further, Hon'ble ITAT Vishakhapatnam in the case of ACIT vs Hirapannajewellers ITA No. 253/Viz/2020 vide order dt. 12.05.2021 wherein held as under 19. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to effect the sales and we do not find any defect in the stock as well as the sales. Since the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or fax the same u/s 1158BE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishal Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld" 5.8 Furthermore, the Jurisdictional ITAT, Jaipur in the case of Mahesh Kumar Gupta Vs ACIT, CIRCLE-4, JAIPUR vide ITA. No. 149/JP/2022dated 23.03.2023 has decided the issue in favour of assessee. The relevant portion of the order is as produced as under:-
ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR "9.7 In the light of the detailed discussions and finding that has been recorded by us in the preceding para we are of the considered view that the action of the id. AO making an addition under section 68 for an amount of Rs. 80,00,000/- as unexplained cash deposit without rejecting the books of account is unwarranted based on the discussion so recorded here in above. Even the Id AO has not find any defects in the details submitted by the assessee and audited books were considered and accepted while finalizing the assessment. Similar view has been taken by this coordinate bench of Jaipur in the case of Chandra Surana in wherein the similar view has been taken. The relevant finding is reproduced here in below "2.6 We have heard both the parties and perused the materials available on record. From the assessment records, it is noted that the AO made an addition of Rs 2.90,93,500/- in declared income by holding that said amount of cash deposited by the assessee in his bank account during the demonetization period is nothing but the undisclosed income of assessee which was shown under the garb of cash sales and thus it is liable to be added u/s 68 of the Act and taxable 60% under the provision of Section 115BE of the Act. It is also noted from the order of the Id. CIT(A) at para 4.1 wherein the Id. CIT(A) has described para 14 of assessee written submission that complete regular books of accounts, bill vouchers and day to day stock register having complete quantitative details have been maintained by the assessee. The said books of accounts are audited. A copy of audited statement of account alongwith complete quantitative details have been submitted alongwith the return of income. The assessee maintained manual itemwise stock register. The said stock register was bulky and so could not be produced in eproceedings but was produced before the AO in course of hearing as is evident from submission dated 27-09-2019 The fact of maintenance of stock register manually is stated in Tax Audit Report also Thus the cash sales transaction is recorded in regular books of accounts, sales are made out of stock- in-trade The assessee also filed copies of sales invoice No. 82 to 158 of Bangaluru and 110 to 216 of Koklata outlets before AO which were of 28-10-2016 and these were earlier produced before Investigation Wing in FY 2016-17 ie after the sales were made and same were verified by the Investigation Wing also. This view of the Id. CIT(A) indicates that the assessee has maintained regular books of accounts, bills, vouchers and day to day stock register having complete quantitative details and said books of accounts are audited. The assessee vide submission dated 27- 09-2019 had produced stock record during the course of hearing. The cash sales transactions are recorded in regular books of accounts and the sale are made out of stock in trade for which no adverse finding had been observed by the AO except for the change in the methodology in issuing bills as mentioned at page 7 to 8 of the assessment order. Further the Id. CIT(A) observed that the AO had treated the cash deposited in the bank during the demonetization period in demonetized currency as unexplained cash credit u/s 68 of the Act although the nature and source of the cash deposits being proceeds arising out of cash sales etc was evident from the entries in the audited books of accounts of the assessee in this ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR case the books of account of the assessee had been audited by an independent auditor. The cash sales and receipts are duly supported by relevant bills which were produced in the course of assessment proceedings before the AO and it is not the case of the AO that the assessee did not have sufficient stock for making the sales. Hence, it cannot be said that the figures of sales and purchases are not supported by the quantitative details and the AO did not make any enquiry on the matenal supplied by the assessee. Thus the AO neither brought any material on record to establish that the sale bills are bogus nor provided any evidence that such sales are bogus it is also an open fact that the demonetization of Rs 500/- and Rs 1000/-note was declared by the Hon'ble Prime Minister at 8 PM on 8-11- 2016 and after this announcement the persons reached the jewellery shop to buy jewellery in exchange of notes. Thus all such scenario indicates that the assessee had duly substantiated its claim from the documentary evidences and also with the facts it is also observed from the assessment order that the AO had not rejected the books of account of the assesee as no contrary material was available with him to reject the books of account of the assessee As regards the addition of Rs.2.90.93.500/- made by the AO by applying the provisions of Section 68 of the Act, it is noted that provisions of Section 68 are not applicable on the sale transactions recorded in the books of accounts as sales are already part of the income which is already credited in P&L account. Hence, there is no occasion to consider the same as income of the assessee by invoking the provisions of Section 68 of the Act. In view of the above deliberations and case laws relied upon by both the parties we find that the AO was not justified in making an addition of Rs 2,90,93,500/-u/s 68 of the Act which has rightly been deleted the Id. CIT(A) and we concur with his findings. Thus the appeal of the Revenue is dismissed." 9.8 Respectfully following the consistent view and after considering the factual matrix of the cash on hand in our considered view the addition made cannot sustain and therefore, we vacate the addition of Rs. 80,00,000/- made under section 68 of the Act as the same cannot be made without rejecting the books of account of the assessee regularly maintained by the assessee and the said cash deposited is duly supported by the entries passed in the books of account and part of the sale accepted by the AO in terms of these observations ground no 1 raised by the assessee is allowed" 5.9 In view of the above discussion made and case laws referred, addition of Rs. 5,40,00,000/- under section 68 of the Act on account of cash deposit made during demonetization period is hereby deleted. 5.10 Since, the issue has been decided in favour of the appellant, the second ground for levy of additional tax u/s. 115BBE become educative in nature.
6. In the result, appeal is allowed.’’ ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR 2.2 During the course of hearing, the ld. DR supported the order of the AO and submitted that the AO had rightly made addition of Rs.5,40,00,000/- as unexplained cash credit u/s 68 of the Act and the order of the ld. CIT(A) should be quashed. To this effect, the ld. DR submitted following written submission. Brief Facts of the case: In the case, the assessee filed its Return of Income for the A.Y 2017-18 on 06.11.2017/-declaring total income at Rs.27,14,340/- Subsequently, assessment was completed under section 143(3) on 26.12.2019 determining total income at Rs 5,67,14,340/- by making an addition of Rs 5,40,00,000/- u/s 68 of the Act on account of unexplained cash deposits made during the demonetization period. During the assessment proceedings, the AO noticed that the cash amounting to Rs.5,40,00,000/- deposited in the bank account during the period of demonetization and the assessee manipulated the sales and also did not maintain stock register quantity wise and item wise. The AO also noticed that the assessee failed to justify huge cash sales on single day of Rs.5,99,10,883/ Considering the facts of the case, the AO made an addition of Rs.5,40,00,000/- u/s 68 of the Act on account of unexplained cash deposits made during the demonetization period Decision of CIT(A): The CIT(A) vide order dated 25.07.2024 allowed the appeal of the assessee by holding that the AO had not pointed out any defect in the purchase and sales made as per books of account and merely rejected/ disallowed the cash deposits made on 08.11.2016. If the purchase and sale details are accepted then there is no valid reason to reject the cash deposits made during demonetization period merely on the ground that the huge cash sales on single day Most importantly, discrepancy in sales figure was accepted by the appellant during the course of proceedings before the DDIT(Inv.) and accordingly the appellant had declared an amount of Rs. 1,91,00,000/- under the PMGKY 2016. No other discrepancy was pointed out by the AO during the appeal proceedings and accordingly books wasrejected Mere suspecting the amount of cash deposit into the bank account during the demonetization period cannot be basis of making addition under section os of the Act without rejecting the book result under section 68 of the Act. Further. it is a fact that the business was in existence prior to the demonetization and two current accounts were maintained with the HDFC Bank in the name and style of M/s R.P.K. Gems &Jewellers, VAT return was also filed declaring purchase and sales which were also filed during the assessment proceedings. The AO has not brought any concrete material to establish that the sales and purchase disclosed in VAT return is incorrect. Merely saying that huge cash sales were made and cash deposited during demonetization period does not suffice especially if it is a very ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR much within the purview of the Act, Rules and clarifications issued by the Department of Revenue The Id CIT also relied upon the following decisions.
Hon'ble ITAT Chandigarh in the case of Kalanidhi Jewelers LLP vs. DCIT, vide order dated 25.03.2022 2. Hon'ble ITAT Delhi in the case of ACIT vs Delhi Spot Bullion Trading Co. Pvt. Ltd in ITA No. 1965/D/2021 vide order dated 23.04 2024 3. Hon'ble ITAT Vishakhapatnam in the case of ACIT vs. HirapannaJewellers, ITA No. 253/Viz/2020 vide order dated 12.05.2021 4. Jurisdictional ITAT, Jaipur in the case of Mahesh Kumar Gupta Vs. ACIT, Circle- 4, Jaipur vide ITA No. 149/JP/2022 vide order dated 23.03.2023. The decision of Id.CIT(A) is not acceptable for the following reasons: 1 The assessee has shown total sales of Rs.5,99,10,883/- on 08. 11. 2016. 2 The demonetization was declared at 8.00PM and the 1000 & 500 rupee notes were legal tender till 8th November, 2016 to 23.59 3. Further, the assessee could not explain the sales made by it before 8.00 PM or after 8.00 PM on 08.11 2016.
The alleged purchasers must have taken some time to reach at the shop of the assessee to purchase the gold and other jewellery 5. In such a short time, the assessee has claimed that it had sold gold & other jewellery item to 477 persons and also issued bills to them is beyond reasonableness. From selecting the items, weighing, packing, counting of money and issuing bills would generally taken at least 10-15 minutes. In the time of 3 hours (it is assumed that around 1 hour would be taken by the concerned purchasers to arrive at the shop of the assessee to purchase goods), the assessee has issued 477 bills te 2.65 bills per minute which cannot be accepted genuine.
In most of the bills narration of goods sold by the assessee is mentioned as gold ornament (22/22 Ct) only. This fact further strengthens the suspicion that the stock details furnished by the assessee are not verifiable as the same are not prepared item wise 7 Generally, in purchase of jewellery, narration of the items purchased by the concerned customer is duly mentioned so that the identity of the goods sold may be ascertained in case of exchange/buy back.
ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR 8. The assessee has shown cash sales amounting to Rs.5,99,10,883/-which is 82.75% of total cash sales amounting to Rs.7,24,02,554/- shown by the assessee in the year under reference. Such a huge sale on a single day (in a short time of 3 hours) cannot be accepted as genuine sales). Further, the assessee could not explain the source of Rs.5. 40 crore (Rs.191 Crore have been surrendered in PMGKY, 2016 by the assessee in its online declaration made before the PCIT-2, Jaipur and he has deposited total amount of Rs.7.31 Crore during demonetization period), therefore, the sum of Rs.5,40,00,000/- is rightly added by the AO as unexplained cash credit u/s 68 of the Income Tax Act, 1961 The case Laws relied upon by the Id CITIA) in his order is not squarely applicable in assessee's case as the assessee is not maintaining qualitative wise and item wise stock register and at the time of sale of the assessee in most of the sales bills did not mention the details of items sold on 08 11 2016. Keeping in view of the above facts and circumstances of the case, the AO had made rightly addition of Rs 5,40,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961 and may kindly be considered to be sustained and the order of the id CIT(A) may be quashed.’’ 2.3 On the other hand, the ld. AR supported the order of the ld. CIT(A) and reiterated the arguments as made before the ld. CIT(A). Ld. AR of the assessee also filed a detailed written submission supporting the view of the ld. CIT(A) and submitted submission on each ground taken by the revenue. 2.4 We have heard both the parties and perused the materials available on record. Brief factsof the case are that the assessee, a partnership firm is engaged in the business of manufacturing and trading of gold ornaments, diamond jewellery, silver articles bullion etc. The assessee firm for the year under consideration filed its return of income on 06-11-2017 declaring income of Rs.27,13,340/-. It is noticed that the assessment u/s 143(3) of ACIT, CIRCLE-6, JAIPUR VS R P K GEMS AND JEWELLERS, JAIPUR the Act was completed in the case of the assessee firm on 26-12-2019 wherein addition of Rs.5,40,00,000/- was made towards cash deposited during demonetization period. The relevant observation as made by the AO in the assessment order is reproduced as under:- ‘’3.9 Based on the above discussed facts, I hereby held cash deposits to the tune of Rs.5,40,00,000/- as unexplained income of the assessee and added to the total income of the assessee u/s 68 of the I.T. Act by treating the same as unexplained cash credit and taxed in its hands u/s 115BBE of the Act.’’ In first appeal, the ld. CIT(A) has deleted the addition made by the AO by observing at para 5.9 of his order as under:- ‘’5.9 In view of the above discussion made and case laws referred, addition of Rs. 5,40,00,000/- under section 68 of the Act on account of cash deposit made during demonetization period is hereby deleted.