DCIT, CENTRAL CIRCLE-01, NEW DELHI vs. MANUVEL MEZHUKANAL, NEW DELHI

Ld. DR has primarily relied the findings of Ld. AO while ld AR has relied the findings of CIT(A) and has further relied the decision of coordinate bench in the case of Manuvel Malabar Jewelers (P) Ltd. ITA 1011/Del/2022 order dated 18.08.23, to contend that the facts and circumstances are similar and the appeal of revenue was dismissed.

We find that the Assessing Officer treated part of the cash sales claimed to have been made by the appellant in the night of 8th November 2016 (the day of announcement of demonetization) as unexplained cash credit in his books u/s 68 and added Rs.3,06,92,049/ in its income. The AO in his order has stated that appellant has claimed cash sale of Rs.3,24,71,745/- on 8th November from 8 pm to midnight (the "window period" after the announcement of demonetization to the midnight when specified bank notes (Rs.500 and Rs.1000) were legal to more than 200 customers with cash sale less than Rs.2 lacs. The AO asserted that it is humanly impossible to cater more than 200 customers in a span of three hrs. AO allowed cash sales of Rs. 17,79,636/- which was the cash sale made by the appellant on Dhanteras (28.10.2016) and disallowed the balance cash sales of Rs.3,06,92,049/- and added as unexplained credit u/s 68. The AO also noted that the appellant was not able to provide details including PAN of the customers whom so called cash sales were made on the 8th Nov. The AO also pointed out that stock register was not maintained by the appellant and therefore sales shown by the appellant could be manipulated as well.

The assessee had submitted to the CIT(A) that there was a huge rush on 08.11.2016 for purchase of jewellery throughout the country, since people were in hurry to dispose off SBN s in view of the announcement of demonetisation of these notes after the midnight of 08.11.2016 i.e. 09.11.2016. The assessee further submitted that he had grabbed the opportunity as a businessman and made cash sales to the willing customers. The sales so made have been offered as revenue receipt and the taxes were duly paid. The assessee emphasized that since, the sale proceeds were offered and admitted as income hence AO is legally not correct to add same amount u/s 68 of the Act, resulting into double addition once as sales and secondly as unexplained credit. Assessee relied on the decision of Hon'ble High Court of Delhi in the case of Kailash Jewellery House on this issue. The assessee has argued that as he is in the jewellery business and there was huge rush on the jewellery shops allover India after demonetisation announcement for the purchase of jewellery on 8th November in the window period. He made money by selling the jewellery legally and it was not barred by law. As the income so earned was offered to tax, it shall not be treated adversely.

Regarding the capacity of the assessee to cater large number. of customers, the assessee submitted detailed analysis of invoices issued on 8th November. Assessee stated that total no. of 195 invoices were issued on 08.11.2016 out which 175 invoices were issued after the announcement of demonetisation and till midnight. Assessee also stated that 221 invoices were issued by him on the day of Dhanteras on 28.10.2016. The assessee has further claimed that the shop has multiple billing points and has record of successfully handling huge crowds (like on Dhanteras). The assessee also claimed that issuing 195 invoices on 8th November was not impossible for him considering the past records. He further stated that all the contentious invoices of sales were submitted to AO and no doubts on genuineness of any invoice were raised by him.

The CIT(A) was satisfied with the plea and allowed the appeal with following observations and findings; “After careful perusal of the submissions of the appellant I find that catering of 175 customers in the window period of 3 to 4 hrs with multiple billing points is not impossible specially when the customers came to the shop with a mindset to buy jewellery or gold and to get rid of SBNs which were becoming illegal after midnight. 9.3 With regard to details of customers who bought the jewellery, the appellant stated that PAN of customers, buying goods for less than Rs.2 Lakhs, were not collected by him as it was neither legally mandatory nor practically advisable/possible. The appellant cannot be expected to do things which are legally not mandated. I find that, non-supply of detailed list of customers who bought jewellery of value less than Rs. 2 Lakhs on 8th November cannot be held against appellant. 9.4 Regarding qualification of the auditor in the from 3CEB regarding the quantitive movement of inventory and stock register as noted by AO in para 5

We have considered the submissions and perused the material placed on record. In the instant case, the assessee has admitted the receipts as sales and offered for taxation. The assessing officer made the addition u/s 68 as unexplained cash credit of the same amount which was accounted in the books as sales. In this regard, it is worthwhile to look into section 68 which reads as under: 6

This section 68, of the Act provides that the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. The explanation from a business entity should be on the basis of facts supported by some evidences which will establish that in due course of business, such income could have been generated by the assessee. It is not a case of survey or search, but scrutiny. Thus AO, could have only relied the financials or other evidences supporting the financials to see if the onus is duly discharged.

In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. Purchases, sales and the Stock are interlinked and inseparable. We find that primarily the AO has not doubted the sales on the basis of suspicious sales through 221 invoices and that no stock register was maintained. It will be beneficial to reproduce the relevant part of the order of AO in para 4.8, which runs as follows:- “4.8 The figures claimed by the assessee becomes even more suspicious due to the following qualification of the Auditor in the Form No.3CB “We have not been in a position to ascertain the quantitative movement of inventory and hence relevant data in 3CD could not be provided. Closing stock is recognised in the Financials on the basis 7

Now to every purchase increases the stock and every sale decreases the stock. We find that auditors mentioned assessee was maintaining the aforesaid mentioned six set of books. However, the assessing officer has not examined them show any defect or inconsistency. Especially with regard to the purchases vouchers the assessing officer should have made some attempt to examine them and show that as the stock register is not maintained the purchaser vouchers reveal a different picture than as canvassed by assessee for the sales and cash 8 book. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or there must be defects in the stock registers/ stocks. This was very much possible to be established by examination of whatever books assessee had made available. Merely for no maintaining stock register, a suspicious circumstance to say that assessee has failed to discharge the onus of cash sales supported by invoices. Without showing defect in the purchases and sales AO cannot allege that inflow and the outflow of stock may not be matching so to disbelieve the sales. The assessing officer accepted the sales and the purchses. He has not examined the closing stock which has direct nexus with the sales. The AO did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the contention of the assessee. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence.

In the case of CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146 (Cal.) the Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, therefore, held that there was no reason to treat this amount as income from undisclosed sources and it was not a fit case for treating the said amount as concealed income of the assessee. The revenue moved to Calcutta High Court against the order of the tribunal and the Hon’ble High Court has confirmed the order of the Tribunal while deleting the penalty, Hon’ble Calcutta high court held as under: “8. The Tribunal was of the view that the assessee had sufficient cash in hand. In the books of account of the assessee, cash balance was usually more than Rs. 81,000. There is no reason to treat this amount as income from undisclosed sources. It is not a fit case for treating the amount of Rs. 81,000 as concealed income of the assessee and consequently imposition of penalty was also not justified in this case.”

In the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC), the Hon’ble Apex Court decided the matter in favour of assessee of the ground that it was clear on the record that the assessee maintained the books of accounts according to the mercantile system and there was sufficient cash balance in its cash books and the books of account of the assessee were not challenged by the Assessing officer. If the entries in the books of accounts are genuine and the balance in cash is matching with the books, it can be said that the assessee has explained the nature and source of such deposit.

In the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) Hon’ble Patna High court held as under: “It is, in my view, a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law.”

The reasons to suspect the sales merely because of some routine observation of suspicious nature such as making sales of 270 bills in the span of 4 hours, non availability of KYC documents for sales, non writing of tag of the jewellery to the sale bills, non-availability of CCTV footage for huge rush of public etc., were not found to be good enough to make addition u/s 68 of the Act, in ACIT Vs Hirapanna Jewellers (ITAT Visakhapatnam), I.T.A.No. 253/Viz/2020 order dated 12/05/2021. Also, the contention of the assessee that due to demonetization, the public became panic and the cash available with them in old denomination notes becomes illegal from 09.11.2016 and made the investment in jewellery, thereby thronged the jewellery shops appear to be reasonable, and deserved due consideration, as done by the Ld. CIT(A).

Thus we do not find any case of erroneous conclusion drawn by the Ld. CIT(A) requiring our interference. The grounds raised have no substance. The appeal of Revenue is dismissed.