ZIVA JEWELLERY PRIVATE LIMITED ,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(3)(1) (EARLIER 11(3)(2), MUMBAI

4. The Ld. CITA has erred in confirming the action of the Ld. AO in invoking the provision of section 115BBE of the Act by levying tax at special rates of 77.25% including Surcharge and Cess.

5. The Ld. CITA has erred in law and in facts of the case in confirming the action of the Ld. AO in rejecting the books of account u/s 145(3) of the Act.

6. The Appellant craves leave to add to, amend, alter and/or delete any of the forgoing grounds of appeal.”

3. The brief facts of the case are that the assessee is a dealer of diamond studded jewellery, filed its return of income on 29/10/2017 U/s 139 of the Act declaring total income at Rs.57,77,270/- whereas the total income was determined by the ld. AO at Rs.3,74,74,267/- and the deemed total income under section 115JB at Rs.56,79,449/- by making addition of Rs.3,16,97,000/- under section 115BBE on account of deposit of specified notes during demonetization period. 3.1 It emerges that while in the assessment proceedings, the ld. AO noticed from the audited financials that assessee has reported closing cash balance of specified notes of Rs.3,16,97,000 as on 08/11/2016. The entire amount was deposited in bank account as below:- Axis Bank, Borivli Branch A/c No.914020023712465 Deposited on 11.11.2016 1,52,26,500 Deposited on 13.11.2016 99,00,000 ---------------- 2,51,26,500 Axis Bank Borivali Branch A/c No.914030026018172 deposited on 13.11.2016 65,70,000 ---------------- Total 3,16,97,000 ========== When asked for the details of the month-wise cash sales, the assessee submitted the following details:- Month Cash sales Credit sales Total sales Purchase Cash deposited in bank April, 2016 1,13,90,235 1,13,90,235 1,69,64,844 - May 2016 - - 18,19,665 - June,2016 7,63,000 18,50,34,035 1,92,97,035 1,34,29,456 - July,2016 1,59,43,258 1,59,43,258 1,91,17,678 10,05,000 August,2016 - 2,75,05,988 2,75,05,988 43,56,044 6,70,000 September,2016 - 1,86,23,559 1,86,23,559 3,19,11,014 - October, 2016 66,10,900 2,91,64,593 3,57,75,493 1,27,38,801 9,87,000 November, 2,61,49,909 7,54,20,410 10,15,70,319 7,45,08,095 3,17,97,100 2016 December, 2016 - 3,265,79,182 3,265,79,182 1,60,07,490 - January, 2017 1,51,000 1,48,69,285 1,50,28,285 2,36,98,010 81,242 February, 2017 11.06,530 1,57,32,851 1,68,39,381 2,64,55,108 12,57,530 March, 2017 10,23,000 3,72,91,011 3,83,14,011 2,97,44,381 2,40,000 3,58,04,339 29,71,54,407 33,29,58,746 27,07,50,586 3,60,37,872 Ziva Jewellery Private Limited The above details furnished by the assessee was not found acceptable to the ld. AO. According to him, the trend shown by the assessee was abnormal; there is no cash sales in the months of April & May, 2016 as also in the months of July, August &September, 2016. And there is a nominal cash sale in the months of January, February & March. The ld. AO also observed that the cash sales shown in the months of October 2016 and November, 2016 are Rs.66,10,900/- and Rs.2,61,49,909, respectively, which is not as per assessee’s business trend. The ld. AO also noticed that the November sale is only for eight dates, i.e. upto the date of declaration of demonetization. With regard to the further query, the assessee replied that the assessee had not maintained the details of persons to whom the sales were made as the sales were below the permissible limit. The ld.AO finally noticed that the majority of the cash sales were made on dates closer to the declaration of demonetization and that this cannot be coincidence. Therefore, he held that this is nothing but introduction of specified notes in books through fictitious sales by manipulating books. Finally finding fault with comparison of sales during the first six months of the year, verification of sales bills issued for cash sales, the Ld.AO rejected the books of accounts of the assessee under section 145(3) of the Act and carried out the addition of Rs.3,16,97,000/- being the cash deposit of specified notes during demonetization. The aggrieved assessee filed an appeal before the ld. CIT(A), which did not find favour with the ld.CIT(A), who dismissed the appeal. Further aggrieved, the assessee has filed appeal before the Tribunal.

in the books of account. The impugned deposits have been made from cash balance available with books of account. I also notice that the Assessing Officer has not rejected the books of account. When cash deposits have been made from the cash balance available in the books of account, in my view, there is no question of treating the said deposits as unexplained cash deposit as opined by the Assessing Officer.

tender. Since the cash sales proceeds/receipts received from the customers are reflected in the Audited Profit & Loss account as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. The AO has not pointed out any specific adversity but made a generalize addition without considering the factual aspects and primary evidence. The A.O has failed to make further enquiries on the information filed and the assessee has discharged the initial burden placed by submitting the information and details. We find the CIT(A) has dealt on the facts, provisions of law, notes and judicial decisions. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent material or information on the disputed issues to take different view. We considered the facts, circumstances, submissions and ratio of judicial decisions as discussed above are of the view that the CIT(A) has passed a reasoned and conclusive order. Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue.”

5. The ld.DR vehemently argued and relied on the order of the ld.CIT(A) page 65. The relevant paragraph 6.1.2 is reproduced as below:-

“6.1.2 I have gone through the addition made by the Assessing Officer seating the entire cash deposits of Rs.3.16,57,000 as unexplained credits uls.68 of the Act and the submissions of the appellant have been perused. it is seen from the assessment order that the appellant just in two days made huge cash deposits to the tune of Rs.3.16.97.000/-in its two bank account maintained with Axis Bank that there were no cash sales in the months of April & May 2016 and nominal cash sales in the month of June, January, February and March and no cash sales in the month of July, August & September, 2016. The Assessing Officer brought out the analysis of cash sales and cash deposits excellently in the assessment order The AO has also brought out the sales made on the date of notification of demonetization ie on 08.11.2016 time 23:51:04, 23.51.23 23:51:40, 23.51.52, which are less than Rs 2 lakhs. It is impossible to have purchases in the late night as mentioned above Il clearly shows that the appellant has accepted demonetised currency in Specified Rank Notes (SBNs) contrary to RBI notification. As per the notification, the appellant not an authorized person to collect SBNs The AD also verified the bills submitted by the appellant that the bills do not contain authentic details of sales and description of jewellery sold. The appellant failed to explain the trends of cash sales made during November, 2016 Reliance is placed on the decision of Hon'ble ITAT Hyderabad in the case of Vashnavi Bullion (P) Ltd v. ACIT in & 501 of 2220 and 58 & 59 (Hyd) of 2021 (2022) 145 tawmann.com 197 (Hyderabad Tribunal) held as follows-“

5.3 Only in the month of October 2016 and November 2016 assessee has shown cash sales of Rs. 66,10,900 and Rs. 2,61,49,909 respectively which is not as per assessee's business trend. There is an abnormal increase in cash sales during the month of October & November 2016. These months are just before the date of demonetization declared on 08.11.2016. It is pertinent to mention here that in November Sale is for only eight dates upto date of declaration of demonization.”

We find that the assessee had made the sales in the same ratio of cash & credit sales. The cash sales are below the value of Rs. 2,00,000/-. We note there is a corresponding increase in credit sales during the months of October and in November which are actually the festive season. The ld. AO assumed that on festive dates the shops would remain closed, and KYC of the buyers were not submitted. In this relation the ld. AR placed that considering Rule 114B of the Income Tax Rule, 1962 w.e.f. 01/01/2016 wherein KYC of the buyers of the jewellery in case of transaction amount to Rs. 2,00,000/- or more were required to be maintained. Observation of cash book of the assessee, in APB pages 124 to 138 there is no cash sales more than Rs. 2,00,000/-. We note there is no adverse finding on purchase and the purchase was made through banking channel. The details of purchase for impugned financial year are annexed in APB pages 104 to 107. We observed that if purchase is not in dispute, then the stock is not in question. The details of quantitative and value of items sold in cash sales for Ziva Jewellery Private Limited impugned assessment year are annexed in APB pages139 to 144 and monthly quantitative summary of stock for impugned assessment year in APB pages 158 TO 159. We further note that in the Excise &MVAT assessment order there is no adverse finding and it is placed before the bench that the assessee declared the entire sales for impugned assessment year in indirect tax returns and paid the tax accordingly. In case of rejection of books of account under section 145(3), we find that the business income of the assessee is not disputed nor the purchase. Respectfully relied on the order of coordinate bench of ITAT-Mumbai in the case of ACIT vs. Ramlal Jewellers (P) Ltd (2023) 154 taxmann.com 584 held that addition U/s 68 on account of cash deposit could not be made simply on reason that during demonetization period cash deposits vis-à-vis cash sales ratio was higher. It is established that sales representing outflow of stock was duly accounted in the books of account and there was no abnormal profit during the year, then there is no justification to treat deposits made in bank account out of cash sales to be income from undisclosed source. We note that the assessee is maintaining a consistent GP ratio. There is no finding of the ld. AO for cash purchase by the assessee. The reliance was also placed in the order of Coordinate Bench of ITAT Mumbai SMC Benchin Pukhraj Nathmal Jain vs. ITO 25(3)(2), Mumbai ITA No- 2815/Mum/2023 date of pronouncement 26/02/2024, held that. “10. Considering the facts of the present case and applying the ratio of the above decision of the coordinate bench we are of the view that the assessee has discharged the onus of substantiating the source for the deposits made in SBN during demonetisation period and that the addition made by the revenue without disputing the business income of the assessee is not Ziva Jewellery Private Limited tenable. In view of the above discussion, we are of the considered view that the addition of Rs 33,40,327/- made under section 68 of the Act cannot be sustained and is therefore deleted.” The ld.AO was not satisfied with the representation of books of account of the assessee. But no specific lacuna was found for rejection of Books of accounts of the assessee. The submitted all the relevant documents before the ld. AO and the submissions are annexed in APB pages 116 to 123. We respectfully relied on the orders of ITAT-Mumbai Bench in the cases of M/s Kandan Jewellers Pvt Ltd(supra),Ramlal Jewellers (P) Ltd(supra) and Pukhraj Nathmal Jain(supra). We setaside the impugned appeal order and the addition amount to Rs. 3,16,97,000/- is quashed.