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Facts
The assessee, engaged in the jewellery business, filed a return of income. The Assessing Officer (AO) made an addition of Rs. 15.35 crores on account of alleged undisclosed and unaccounted income deposited in cash during the demonetization period, based on a survey conducted under Section 133A. The AO found the sales during this period to be abnormally high and unsustainable.
Held
The Tribunal considered the contentions of both parties and the findings of the CIT(A). The Tribunal noted that the AO could not identify any defects in the sales register, stock register, or cash book prepared as of the survey date or demonetization date. The CIT(A) was satisfied with the assessee's explanation, and the Tribunal found no reason to interfere with the CIT(A)'s findings.
Key Issues
Whether the addition made by the Assessing Officer on account of alleged undisclosed cash deposits during the demonetization period is sustainable, and if the CIT(A)'s deletion of the addition was justified.
Sections Cited
143(3), 68, 133A, 44 AB
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Income Tax Appellate Tribunal, “B” BENCH, DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
P a g e | Chawla Jewellers (AY: 2017-18) This appeal is preferred by the revenue against the order dated 09.01.2023 of the Ld. Commissioner of Income-tax (Appeals)-27(hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.CIT(A), Delhi-27/10133/2019-20arising out of the order dated 31.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the DCIT, Central Circle-19, New Delhifor AY: 2017- 18.
Heard and perused the records. The assessee is engaged in the business of sale and purchase of gold and diamond jewellery. The assessee has three sale outlets which are situated at Rajouri Garden, Karol Bagh and Greater Kailash in Delhi. The assessee is engaged in the business of jewellery since 1995. The assessee’s return was filed at income of Rs.1,82,06,700/- and Assessing Officer has made an addition of Rs.15,35,00,000/- u/s. 68 of the Act, on the basis that during the demonetization period, undisclosed and unaccounted income of the assessee was deposited in the form of cash. It comes up that a survey was conducted on 03.01.2018 u/s. 133A of the Act and during the survey proceedings statements were recorded and relevant records were collected by the Ld. Income Tax Authorities.
P a g e | Chawla Jewellers (AY: 2017-18)
The Assessing Officer has primarily found the explanation of the assessee that, there is cash deposits out of sales to be unsustainable as Ld. Assessing Officer opined that total sales during demonetization period was abnormally high, and the statements of the employees showed that there was no abnormal business on 08.11.2016, and otherwise also, it was not humanly possible to generate so many sale invoices. Assessing Officer observes that “absence of any CCTV footage, lack of log of cash bills, lack of identity of people of whom cash sales are made etc.”, all point to the fact that the sale of gold/diamond jewellery worth Rs.15.35 crores in a small denominaitonsof less than Rs.2 lakhs is a concocted story.
However, Ld. CIT(A) was satisfied with the explanation given by the assessee, and in para 5.3 it made following factual observations to give benefit to the assessee:-
5.3 Observations and Findings: i. Sale turnover of the assessee during the year under consideration is 68.67 crores and in immediately preceding year i.e., A.Y. 2016-17 the turnover was 73.12 crores. ii. Sales made by the assessee are including VAT and VAT returns are also submitted by the assessee within due time. iii. The accounts of the assessee are liable for audit under Section 44 AB of the Act and from year to year these audited reports have been obtained and submitted to the department along with return of income filed for respective years.
P a g e | Chawla Jewellers (AY: 2017-18) iv. During A.Y. 2017-18 cash sales of the assessee have decreased to Rs 30,29,35,660/- as compared to cash sales for A.Y. 2016-17 amounting to Rs 36,69,15,088 and this ratio to total sales during A.Y. 2017-18 is 44.12% as against similar ratio of 50.18% for A.Y. 2016-17. Thus, there is no abnormal jump in cash sales as it is compared to the cash sales with assessment year 2016-17. v. Deposit of specified bank notes (SBN) in bank account had taken place on 10,11,13,17 and 21 of November, 2016. vi. There is no allegation from the ld. AO that stock was not available for sale on 8.11.2016. Total stock available with the assessee firm as on 7-11-2016 was Rs.50,27,81,007/-. After making the sales on 8/11/2016 the assessee firm was left with theclosing stock of Rs. 39,12,43,476/-. The last purchase was made in the month of September 2016. There is also no evidence that appellant had made purchases in cash or the purchases are bogus. Further, the purchases and the stock in hand were duly verified by the survey party from the purchase registers and the stock registers impounded at the time of survey operation. vii. The ld. AO has stated in his order that the area of the shop is just 600sq. ft. and space was not enough to accommodate so many customers. In response, the appellant has stated that the total area of the Karol Bagh showroom is about 3,600 sq. ft. which is spread over two floors. The stated area pertains only to the showroom at Karol Bagh and excludes all other area such accounts office, administration and common passage. The partner of the assessee firm, Shri Hemant Chawla in his statement dated 03-01-2018 had inadvertently mentioned the area of the showroom as 600 sq. ft. viii. The appellant has also submitted that it had the cash counting machines at each of its showroom operated during the F.Y. 2016-17 and the process of counting the cash was very fast. The survey party has erred in not mentioning this fact. ix. The number of invoices raised by each showroom of the assessee firm on 08-11-2016 were 757 (Karol Bagh: 178, Rajouri Garden: 222 and Greater Kailash: 357). The ld. AO has concluded that all these invoices were issued only after 8 pm i.e. time at which demonetization was announced but ld. AO could not substantiate his conclusion with any evidence. As per appellant these invoices were issued during the full day and he had sufficient time to issue these invoices. x. This is also not the case of the ld. AO that there was any back dating of invoices as survey party had thoroughly checked the work stations of the assessee firm and fond no change in logs of the computers which could establish that there had been back dating of invoices. xi. Ld. AO has stated in the assessment order that 4 employees have mentioned in their statements that the Karol Bagh showroom was closed at 08:00 P.M. on 08-11-2016. But out of these 4 employees, 3 had left before 8 pm and therefore their statement lacks credibility. Further, there are employees like Smt. Monika Sahwney who hasstated that the showroom was closed at 12 o'clock on 08-11-2016. Similarly, on this issue, statement of some more employees is as under:
P a g e | Chawla Jewellers (AY: 2017-18)
Thus, it can be concluded that show room was opened till 12 midnight on 08.11.2016. xii. The unusual increase in salecannot be inferred as bogus sales until and unless there is some supporting evidence. Generally, sales vary from month to month and year to year. A comparison with previous periods may raise suspicion but it can not be the sole criteria to treat the unusual increase in sales as bogus sales. xiii. On 8.11.2016, after announcement of demonetization scheme, the purpose behind purchase of jewellery was not for personal use. The main purpose was to convert the SBNs into some tangible assets which can again be converted to cash at an appropriate time. These customers were generally known to the jewellers. Therefore, strict norms of business like choosing the jewellery, bargaining the price, counting the cash, etc. were actually not applicable during this period i.e. from 8pm to 12 midnight. xiv. With regard to cash sales to un-identifiable parties, it is important to understand that in case of over-the-counter cash sales, within the limit permissible by law in any trade or business, the customer can not be forced to submit proof of identification. In case of jewellery business, transaction up to Rs.2 lacs in cash have been permitted by the Government without any proof of identification and therefore, no proof of identification was required to be taken from the customers to whom cash sales up to Rs.2 lacs were made.
P a g e | Chawla Jewellers (AY: 2017-18) xv. Lastly, the ld. AO could not identify any defect in sales register, stock register, purchase register and cash book prepared as on date of survey i.e. 03.01.2018 and more particularly as on date of demonetization. Once the books of account for F.Y. 2016-17 are accepted by the Id. AO and the cash sales recorded therein were considered in arriving at the assessed income of the Assessee for the financial year under consideration, then treating the cash deposited in banks against such cash sales as undisclosed income of the Assessee is not sustainable.
We have considered the intentions of both the sides, and we find that Ld. DR has primarily relied the assessment order and the grounds as raised submitting that the circumstances and rules of prudence indicate that the concocted story has been framed else it was not humanly impossible to cater to such a sales in such a short period. Ld. DR specifically relied the statements of the employees recorded at the time of survey to submit that none of the employees corroborated the case of assesse of exceptional sales.
5.1 Ld. Counsel however, heavily relied the findings of the Ld. CIT(A).
Giving thoughtful consideration to the matter on record, we find that in the assessment order, Assessing Officer has recorded the part of statements and we find that in the statement of Sh. Chiranjeev Roy who was working as Account Assistant since 2001, is reproduced and he in his statement had stated that the books of accounts were updated till 02.01.2018. In question No.15,he mentioned that the details of stock lying as on the date on both the P a g e | Chawla Jewellers (AY: 2017-18) showrooms is being provided. In his statement he also provides supporting vouchers and stock registers of sales. In response to question No. 24, he deposes that, there are 14 sales persons and in the question No. 27 he specifically explained the system of issuing the stock to sales person in regard to the group concerns.
Ld. CIT(A) has dealt with his statements and particularly the fact that without pointing out any deficiencies in sales register and cash book prepared as on the date of survey, merely on general suspicion arising out of surroundings circumstances, the Assessing Officer could not have made the additions.
7.1 We find that in fact, assessee has sufficiently demonstrated that the VAT Returns were duly filed and the cash sales comparison made available at Page 1046 of the paperbook and cash summary for FY-2015-16 & FY 2016-17, which are immediately preceding years provided at page Nos.1047 & 1048 establish that in fact in present year, there was less cash sales.
7.2 The circumstances or statements relied by ld. DR can only help as case built on factual foundation by analyzing the purchase, inventory and sales,
P a g e | Chawla Jewellers (AY: 2017-18) but instead of finding any discrepancy in the substantive evidences of assesse, on broad assumptions and surmises the cash sales were doubted.
Thus, we are of considered view that the findings of Ld. CIT(A) require no interference. The grounds raised by the department have no substance and the appeal of revenue is dismissed.
Order pronounced in the open court on 04.02.2026