DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 5(3), MUMBAI, MUMBAI vs. SANGHVI DHANRUPJI DEVAJI & CO., MUMBAI
Facts
The Revenue filed an appeal against the order of the CIT(A) who had deleted an addition of Rs. 2,62,84,000/- made by the AO under section 68 of the Income Tax Act, 1961. The addition was related to cash deposits made during the demonetization period. The Revenue also challenged the deletion of addition of Rs. 21,97,711/- made under section 40A(3)(a) for cash purchases above Rs. 20,000/-.
Held
The Tribunal held that the CIT(A) had rightly deleted the additions. For the addition under section 68, the assessee had provided sufficient evidence to explain the source of the cash deposits as sales. For the addition under section 40A(3)(a), the assessee's transactions were found to be covered by exceptions under Rule 6DD, as payments were made by way of adjustment against sales or were below Rs. 20,000/-.
Key Issues
Whether the CIT(A) was justified in deleting the additions made by the AO under sections 68 and 40A(3)(a) of the Income Tax Act.
Sections Cited
68, 115BBE, 40A(3)(a), 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH MUMBAI
per the format given by the AO, there was no column where amount received from the debtors and expenses incurred could be included resulting into inflated cash balance as per the observation made by the AO. It was further submitted that after including, columns of cash received from debtors and expenses incurred it in the format of the relevant month, cash balance at the end of the relevant month, as per the format, will match with Cash A/c Moreover, the said fact could also have been verified from the cash book submitted by the assessee along with letter dated 23.09.2019. 7. We noticed that assessee had shown turnover of Rs. 102,28,59,967/-. It is noticed that the assessee had deposited cash of Rs.2,62,84,000/- during the demonetization period in the bank account. It was submitted that the said cash was deposited in the bank account against the cash sales made by the assessee and the same had been recorded in books of the account. Further, to support the purchases and sales and more particularly cash sales during the period 01.10.2016 to 08.11.2016, the assessee had submitted the following details along with supporting documents to prove source of cash received and deposited during the assessment proceedings: a. Bank statements for the F.Y.2016-17.
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b. Online response made on e-filing portal of the department with regard to source of cash deposits. c. Cash book along with narrations for the F.Y.2016-17. d. Month wise details of Sales and Purchases as per the format. e. Month wise Cash Sales and Cash Deposits from 01-04- 2015 to 31-03-2016. f. Month-wise Cash Sales and Cash Deposits from 01-04- 2016 to 31-03-2017. g. Date wise details of stock register of all stock items in quantity. Details of quantity submitted alongwith tax audit report. h. Sample invoices of each party to whom sales above Rs.5,00,000/- made during the year. i. Sample invoices of each party from whom purchases (other than old gold ornaments) made during the year. j. Party wise sales above Rs.5,00,000/- along with address and PAN. k. Details of entire purchases along with address and PAN (above Rs.2,00,000/- ). 1. Details of Cash received from Debtors during the year under consideration are attached herewith. 8. Since the assessee had furnished all the requisite documents and the cash sales carried out were duly recorded into the books of accounts and no discrepancy was pointed out by the AO and in this regard reliance was being placed upon the decision of Hon'ble ITAT Vishakhapatnam in the case of ACIT vs. Heerapanna Jewellers, ITA No. 253/Viz/2020 wherein ITAT held that
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where AO made addition under section 68 on account of huge cash amount deposited by assessee-jeweler in its bank account post demonetization, since assessee had explained source of said cash deposits as sales of jewellery, produced sale bills and admitted same as revenue receipt as well as offered it to tax and assessee also represented outgo of stocks which was matching with sales, impugned addition was to be deleted. Relevant para of the judgment of the ITAT is reproduced hereunder:
"9. 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 tax the same u/s.115BBE 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." Apart from this, we also found that the Jurisdictional ITAT, Mumbai in the case of R.S Diamonds India(P) Ltd. Vs ACIT [2022 (145 taxmannn.com 545)] as well as in the case of Param Gold Vs ITO -42 (1) (4), Mumbai (ITA No. 2467/Mum/2023 A.Y.2017-2018 had followed the above referred decision and deleted the additions.
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Even no new facts or circumstances have been placed on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or to deviate from the lawful findings so recorded by Ld. CIT(A). Therefore, considering the entire facts and circumstances as discussed by us above we found that Ld. CIT(A) had rightly deleted the additions and thus we uphold the order of Ld. CIT(A), the ground Nos. 1 to 3 raised and by the revenue stands dismissed. 10. Ground No.4, this ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the addition of Rs. 21,97,711/- u/s 40A(3)(a) of the Act being cash purchase above Rs. 20,000/- 11. We have heard the counsels for both the parties, perused the material placed on record on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that additions u/s 40A(3)(a) of the Act was made by the AO on the ground that assessee had made cash purchases above Rs. 20,000/- amounting to Rs. 21,97,711/-. However, the same was deleted by Ld. CIT(A) by its detailed order by observing as under: 7.1 The AO has noted that the assessee has made cash purchases above Rs.20,000/- amounting to Rs.21,97,711/-
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during the year under consideration and hence the same has been disallowed by him u/s.40A(3) of the Act.
7.1.1 During the course of appellate proceedings, the assessee contended that it has made purchases of old gold ornaments against the sales made to the same person on the same day. The assessee further submitted that against the said sale, only the difference is received after setting off the price towards the purchase of old gold ornaments and similarly, if sale value is lower than the purchase cost of old gold ornaments, the net payment is made and which is always below Rs.20,000/-. The assessee stated that this is a common practice followed in the industry by the retail gold jewellers wherein the old gold ornaments is exchanged against the new gold ornaments and the difference amount is paid or received to/from the customer. The assessee also submitted that it has not made payment exceeding Rs.20,000/- to a customer in a day and thus, there is no contravention of provisions of Section 40A(3)(a) of the IT Act. The assessee has also submitted the details of corresponding sales made against purchases of old gold ornaments of 44 items as per the list given by the AO in the assessment order. Further, the assessee has relied on the judgment of Hon'ble ITAT Chennai in the case of Deputy Commissioner of Income- tax, Company Circle 1(3) vs Kirtilal KalidasJewellers (P.) Ltd. reported in [2012] 27 taxmann.com 341.
7.1.2 Facts of the case and submission of the assessee have been examined. From the details filed by the assessee, it is seen that the assessee has not made payment exceeding Rs.20,000/- to a customer in a day. It is seen that the purchases made of old gold ornaments are against the sales made by the assessee to the same person on the same day and against the said sale, only the difference received by the assessee after setting of the price towards the purchase old gold ornaments. Further, I found that the case of the assessee is covered by exceptions provided in Clause (d) of Rule 6DD
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which gives the alleviating circumstances where rigours of Section 40A(3) are not attracted. The same is read as under:
d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;
7.1.3 Further, the Hon'ble ITAT, Chennai in case of Deputy Commissioner of Income- tax, Company Circle I(3) vs Kirtilal Kalidas Jewellers (P.) Ltd. reported in [2012] 27 taxmann.com 341 has held that "where the payments were effected to a customer on account of adjustment resulting out of an exchange of old jewellery with new Jewellery, then it does get covered under the exception clause (d) of Rule 6DD."
7.1.4 In view of the facts of the case and decision of Hon'ble ITAT, Chennai referred above, disallowance of Rs.21,97,711/- made by the AO u/s.40A(3) of the IT Act is deleted.
After having heard the counsels for both the parties and on perusal of the material placed on record, we find that as per the assessee, it had made purchases of old gold ornaments against the sales made to the same person on the same day. The assessee further submitted that against the said sale, only the difference is received after setting off the price towards the purchase of old gold ornaments and similarly, if sale value is lower than the purchase cost of old gold
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ornaments, the net payment is made and which is always below Rs.20,000/-. The assessee stated that this is a common practice followed in the industry by the retail gold jewellers wherein the old gold ornaments is exchanged against the new gold ornaments and the difference amount is paid or received to/from the customer. The assessee also submitted that it has not made payment exceeding Rs.20,000/- to a customer in a day and thus, there is no contravention of provisions of Section 40A(3)(a) of the IT Act. The assessee had also submitted the details of corresponding sales made against purchases of old gold ornaments of 44 items as per the list given by the AO in the assessment order. Further, reliance was also placed upon the judgment of Hon'ble ITAT Chennai in the case of Deputy Commissioner of Income-tax, Company Circle 1(3) vs Kirtilal Kalidas Jewellers (P.) Ltd. reported in [2012] 27 taxmann.com 341. 13. We found that since it was common practice followed in the retail business of gold jewel wherein the gold is exchange against new gold ornaments and difference amount is paid by the customers and in the case in hand no payment exceeding Rs. 20,000/- was made and assessee had submitted the details of corresponding sales made against purchases of old gold ornaments of 44 items
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as per the list mentioned by the AO in the assessment order. Further, reliance was also placed upon the judgment of Hon'ble ITAT Chennai in the case of Deputy Commissioner of Income-tax, Company Circle 1(3) vs Kirtilal Kalidas Jewellers (P.) Ltd. reported in [2012] 27 taxmann.com 341. 14. Since, the case of the assessee is covered by exceptions provided in Clause (d) of Rule 6DD which gives the alleviating circumstances where rigours of Section 40A(3) are not attracted. The same reads as under: d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; 15. Moreover, Coordinate Bench of ITAT, Chennai in the case of Deputy Commissioner of Income- tax, Company Circle I(3) vs Kirtilal Kalidas Jewellers (P.) Ltd. reported in [2012] 27 taxmann.com 341 has held that "where the payments were effected to a customer on account of adjustment resulting out of an exchange of old jewellery with new Jewellery, then it does get covered under the exception clause (d) of Rule 6DD." 16. Even no new facts or circumstances have been placed on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or to deviate from the lawful
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findings so recorded by Ld. CIT(A). Hence, this ground raised and by the revenue stands dismissed.
In the result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 10.03.2026
Sd/- Sd/- (BIJAYANANDA PRUSETH) (SANDEEP GOSAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 10/03/2026 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. संबंधित आयकर आयुक्त / The CIT(A) 3. 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधिधि, आयकर अपीलीय अधिकरण,मुम्बई/ DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy//
उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai
