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Facts
The assessee, engaged in the jewellery business, reported cash sales of Rs. 1,43,31,051/- during October 2016, which were deposited in the bank after demonetisation. The Assessing Officer (AO) compared these sales with October 2014 sales and estimated genuine sales at Rs. 56,00,000/-, treating the balance of Rs. 87,31,051/- as unexplained cash credit under Section 68 of the Income Tax Act.
Held
The Tribunal held that the addition under Section 68 of the Act could not be sustained because the sales were recorded in regular books of account, accepted as part of turnover, supported by VAT returns, and the books were not rejected by the AO. The Tribunal also noted that the revenue failed to provide evidence to disprove the sales or demonstrate bogus purchases.
Key Issues
Whether the addition of Rs. 87,31,051/- as unexplained cash credit under Section 68 of the Income Tax Act is sustainable when the amount represents recorded sales and the books of account have not been rejected.
Sections Cited
68, 143(3), 145
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, vide order dated 17.02.2025.
The assessee has raised the following grounds of appeal:
1. The assessing officer and commissioner of income tax (appeals) erred in law and in the facts of the case in disbelieving sales recorded in the books of accounts as excessive in comparison with earlier years, especially when the sales are seasonal in jewellery business as accepted by Commissioner (Appeals) and invoking section 68 of Income tax Act. 2.The commissioner of Income tax (Appeals) failed to appreciate that the VAT return filed in the name of SV Gold, the trade name for jewellery business of :-2-: ITA. No:811/Chny/2025 the appellant belongs to appellant and is a valid document for vouching the sales.
3. The assessing officer and commissioner of income tax (appeals) failed to make proper appreciation of sales data for the year 2016-17 and hence the addition has been made prejudicially by telescoping demonetisation provisions of law 4. The addition of Rs.87,31,051/- u/s.68 is unjustified and bad in law especially when the same amount has been included in sales and offered to tax and separate addition u/s.68 is a double taxation which is not acceptable and against the law.
The assessee is an individual engaged in the business of jewellery at Tirunelveli as proprietrix of M/s.Sivagami Jewellery. The return of income for AY 2017-18 was filed declaring total income of Rs.19,16,850/-. The case was selected for complete scrutiny. During the course of assessment proceedings u/s.143(3) of the Act, the Assessing Officer (AO) noticed that the assessee had recorded cash sales of Rs.1,43,31,051/- during the period 01.10.2016 to 28.10.2016. The said cash was deposited in the bank on 12.11.2016, i.e., immediately after demonetisation of Specified Bank Notes (SBNs).
The AO compared the October 2016 sales with October 2014 sales of Rs.56,43,176/- (October 2015 being excluded due to renovation) and estimated that only Rs.56,00,000/- could be considered genuine cash sales. The balance of Rs.87,31,051/- was treated as unexplained cash credit u/s.68 of the Act and added to the returned income.
Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). The ld.CIT(A) confirmed the addition holding that the assessee failed to substantiate the unprecedented increase in sales and failed to establish the genuineness of the transactions. Further, the ld.CIT(A) also observed that the assessee had furnished the VAT returns of ‘Sabapathi Chettiar Velammal’ and not of the entity ‘SV Gold’.
Aggrieved, the assessee is in appeal before the Tribunal.
:-3-: ITA. No:811/Chny/2025 7. The learned Authorised Representative (ld.AR) for the assessee submitted that the October 2016 was a festival month (Navaratri and Deepavali) and hence the sales of the assessee was more. Furthermore, the shop was reopened after renovation with promotional offers and substantial purchases were made in August 2016 anticipating higher seasonal sales. The ld.AR also argued that the sales were duly recorded in the books and declared in VAT returns, which was very much before both the authorities. The ld.AR also submitted that the books of account were produced, which are duly audited before the authorities and the AO has neither rejected u/s.145 of the Act nor found defective. Further, the ld.AR contended that the section 68 cannot be invoked for recorded sales forming part of turnover. The ld.AR submitted that the addition results in double taxation as the amount of additions made forms part of business receipts, which has already credited to Profit & Loss Account. Further, the ld.AR contended that the ld.CIT(A) erred in treating “Sabapathi Chettiar Velammal” as distinct from “SV Gold,” whereas the latter is merely the trade name of the assessee’s proprietary concern. In view of the above arguments, the ld.AR prayed for deleting the additions, by setting aside the impugned order of the ld.CIT(A).
The ld.DR supported the orders of the lower authorities and submitted that the abnormal increase in sales just prior to demonetisation justified the addition and hence prayed for dismissing the appeal of the assessee.
We have heard the rival submissions and perused the materials available on record and gone through the orders of the authorities along with the paper book filed. Section 68 of the Act applies where any sum is found credited in the books of an assessee and no satisfactory explanation about the nature and source thereof is offered. In the present case the impugned amount represents sales recorded in the regular books. These sales are credited to the trading account as revenue receipts of the assessee duly shown in the audited books of accounts. We find that the books of accounts furnished by the assessee have not been rejected u/s.145 of the Act by the AO. It is also noted that the Assessing Officer has not found any defect in quantitative tally or stock register has been pointed out during
:-4-: ITA. No:811/Chny/2025 the assessment proceedings. Further, no material has been brought on record by the revenue to demonstrate the existence of bogus purchases or accommodation entries.
Further, when sales are recorded in regular books and accepted as part of turnover, the same cannot simultaneously be treated as unexplained cash credit unless the sales themselves are proved to be fictitious. The Assessing Officer has merely estimated sales based on comparison with October 2014. In the present scenario, such estimation, without rejection of books, is unsustainable in law and facts of the case.
We find that the Assessing Officer has adopted October 2014 as benchmark and arbitrarily restricted sales to Rs.56,00,000/-. However, as argued by the ld.AR the jewellery business is seasonal in nature and festival sales fluctuate year to year. Further, in the present case, the assessee explained renovation and promotional schemes and also substantial purchases were made in August 2016. It is also noted that no material was brought by the revenue to show that sales were impossible or fictitious. It is a trite law that the suspicion, however strong, cannot take the place of evidence.
We note that the assessee has produced VAT returns showing turnover corresponding to the recorded sales. To disprove the sales the authorities below have not brought any material from the VAT department to discredit the same. Further, as argued by the ld.AR, we find that the ld.CIT(A) has wrongly understood that M/s.SV Gold is a separate entity instead of treating it as a trade name of the assessee. It is also pertinent to state that once the sales are declared to indirect tax authorities and form part of business turnover, the burden shifts to the department to establish falsity. The addition of Rs.87,31,051/- represents part of recorded sales already credited to the Profit & Loss Account and subjected to profit taxation. Treating the same amount again as unexplained cash credit results in taxing gross receipts instead of profit, which is impermissible in absence of rejection of books.
:-5-: ITA. No:811/Chny/2025
The mere fact that cash was deposited after demonetisation does not ipso facto render the sales ingenuine. The law does not prohibit holding cash-in-hand from business receipts. In absence of any evidence that the sales were fabricated entries introduced post facto, addition u/s.68 of the Act cannot be sustained.
In the present facts and circumstances of the case and the reasoning give above, since the books of accounts are not rejected, the sales were recorded in regular course of business and filed VAT returns in support the turnover, the addition cannot be sustained. Further, no material evidence disproving sales was brought by the Revenue and the addition has been made purely based on estimation and suspicion. Therefore, we hold that the addition of Rs.87,31,051/- u/s. 68 of the Act is unsustainable and hence deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 17th February, 2026 at Chennai.