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Facts
The assessee, a jewellery dealer, faced scrutiny due to a significant increase in cash sales and deposits during the demonetization period. The Assessing Officer (AO) rejected the assessee's books of accounts under Section 145(3) and made an addition of ₹1,52,18,034/- for unexplained cash credit.
Held
The Tribunal held that the rejection of books of account and the subsequent addition by the AO and confirmed by the CIT(A) were incorrect. The Tribunal noted that the assessee had disclosed sales in its profit and loss account and that most suppliers had confirmed the transactions. The Tribunal found no specific defects in the assessee's books of account.
Key Issues
Whether the rejection of books of account under Section 145(3) and the consequential addition of ₹1,52,18,034/- by the AO, confirmed by the CIT(A), was justified given the facts and evidence.
Sections Cited
68, 145(3), 133(6), 69A
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Income Tax Appellate Tribunal, “PATNA” BENCH, PATNA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 08.04.2025 for the AY 2017-18.
The only issue raised by the assessee in the various grounds of appeal is against the confirmation of addition is against of ₹1,52,18,034/- by the ld. CIT(A) as made by the ld. AO u/s 68 of the Act by rejecting the books of accounts u/s 145(3) of the Act.
The facts in brief are that the assessee company is engaged in the business of sale of jewellery, Gold Article, Silver, Diamond etc. and filed the return of income during the year on 31.10.2017, declaring “1.3 I have perused the assessment order written submission of appellant as well as the various case laws relied upon. Hon'ble Apex Court in Kale Khan Moh. Haneef V/s CIT, Bhopal (50 ITR 1) held that- it is well established that the onus of proving the source of a sum of money from to have been received by the assessee, is on him. If he disputes liability for tax it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proves, the ITO is entitled to treat it as taxable income." Where the assessee is unable to prove that in his normal business or otherwise, he was possessed of so much cash, the assessee started under a cloud and must dispel that cloud to the reasonable satisfaction of the assessing authorities and that if he did not, then, the department was free to reject his explanation and to hold the amount represented as income from undisclosed source. This was decided in the case of ManinderNath Das V/s CIT, Bihar and Odisa. It is clear that several reasonable opportunities were provided during course of assessment proceedings to explain the source of cash deposit during the demonetisation period, but the appellant failed to submit documentary evidences like sale vouchers, details of stock purchase, closing stock month wise and various other details. On perusal of the details of cash sales made during the demonetisation period, it is clear that the assessee has miss-utilised the provisions of the scheme, the appellant was supposed to maintain the details of purchasers, sale vouchers as black money/unaccounted money of various persons were routed through specific business like jewellery, petrol pump etc. on the payment of the handsome commission. The appellant cannot simply produce the annual Central Excise/VAT returns as a proof for sale of jewellery ornaments. The details of the stock purchase was called by the AO several times which the appellant has failed to submit. These are the classic cases were the assessee gets involved into converting the unaccounted cash income of various people by issuing sale bills under the monetary limit so that TDS is not deducted and even does not maintain any identity proof of these purchasers. The only method to verify whether the actual transactions have been conducted by the jeweller is to check the availability of the stocks during the days of huge cash sales. The appellant during the course of assessment proceedings as well as appellate proceedings did not produce any such documentary evidence and hence ground of appeal is rejected and the addition made by the AO u/s 68 of the IT Act, 1961 amount to Rs. 1,52,18,034 is sustained. 2.3 I have gone through the assessment order as well as the written submission submitted by the appellant. The AO have asked the appellant to submit item wise stock register, name and address of parties to whom cash sale was made. But the appellant could not produce various bills and vouchers hence, the AO was well within his right to reject the books u/s 145(3) of the IT Act Section 145(3) states that-
6. We have perused the facts on record and also the submissions made before us by the rival parties and noted that the assessee has duly disclosed the sales made in the profit and loss account and offered the income to tax. Therefore, if the addition is allowed to be sustained, it would result in double taxation of the same income. Moreover, notice issued to the 13 suppliers were duly responded except two meaning thereby that 11 parties have confirmed to have supplied the materials to the assessee. Therefore, mere fact that the assessee has made huge sales on 08.11.2016, cannot be a ground for making the addition in the hands of the assessee. In our opinion, the rejection of books of account by the ld. AO and confirmation of the same by the ld. CIT (A) is also wrong as there was no defect pointed out in the books of account of the assessee, either by the ld. AO or by ld. CIT (A). Under these circumstances, we are not inclined to uphold the order of the ld. CIT (A). The case of the assessee find support from a series of decisions. In the case of Md Umer Vs CIT (1975)101ITR 525(Patna ) it has been held that books of accounts cannot be rejected on the ground of non-production of cash memos. In the case of Lakshmi Rice Mills Vs CIT (1974) 97 ITR 258(Patna) it has been held that where the deposits of high value denomination notes have been made out of the cash available in the cash book. The matter was relating to earlier demonetization. The coordinate
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 26.02.2026.