DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-1, COIMBATORE, COIMBATORE vs. MS DAR PARADISE PVT. LTD., COIMBATORE

This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 21.03.2023 and pertains to assessment year 2017-18.

At the time of hearing, we find that the appeal has been filed with a delay of 136 days, for which petition for :-2-: ITA. No: 1106/Chny/2023 condonation of delay, along with affidavit explaining reasons for filing of appeal beyond the prescribed limit has been filed.

The ld. DR, referring to petition filed by the Assessing Officer submitted that, the order of the ld. CIT(A) in the instant case is received on 21.03.2023 and last date for filing of further appeal before the Tribunal was on or before 20.05.2023. The appellant has filed appeal on 03.10.2023 with a delay of 136 days and reasons of such delay was due to technical glitch in ITBA portal, the order passed by the ld. CIT(A) did not appear till 31.03.2023 and because of this, the order could not be downloaded. Further, the Assessing Officer was busy with time barring assessments and in the process missed his attention to the order passed by the ld. CIT(A), which resulted in delay of 136 days. But, said delay is neither intentional nor for wanton of any benefit. Therefore, in the interest of justice, delay may be condoned.

The Ld. Counsel for the assessee, on the other hand fairly agreed that the delay in filing of appeal may be condoned.

The brief facts of the case are that, the appellant M/s. DAR Paradise Pvt Ltd., is engaged in the business of trading in gold jewellery and bullion. The assessee has filed its return of income for the assessment year 2017-18 on 04.11.2017, declaring a total income of Rs. 31,74,020/-, under normal provisions of Income-tax Act, 1961 and Rs. 17,32,330/- under provisions of section 115JB of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The case was selected for complete scrutiny under CASS to verify large cash deposits during demonetization period and other issues. During the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish certain details including audited financial statements for the relevant assessment year, details :-4-: ITA. No: 1106/Chny/2023 of bank account, tax audit report etc. In response, the assessee has filed books of accounts, bank account details, tax audit report etc. Further, during the course of assessment proceedings the Assessing Officer called information from various banks u/s. 133(6) of the Act and ascertained from the details furnished by the bank that, the assessee has deposited cash into bank accounts maintained with Oriental Bank of Commerce and Axis Bank amounting at Rs. 90,80,86,500/- during demonetization period. Therefore, issued notice u/s. 142(1) of the Act, dated 18.11.2019 and called upon the assessee to furnish necessary evidences including nature of deposits found in bank account during demonetization period, source for cash deposits and breakup of advances received during financial year 2016-17. The Assessing Officer, further noted that an enquiry u/s. 131(1A) of the Act was conducted by the DDIT (Investigation), Unit-2 and sworn statement was recorded from Shri. D.R. Raghunath, Managing Director of the assessee company, to verify the nature and source of cash deposits into bank account during demonetization period. In response, the assessee submitted that source for cash deposits during demonetization period is out of opening cash in hand as on 08.04.2016, which was at Rs. 90,75,10,005/- :-5-: ITA. No: 1106/Chny/2023 and said cash balance is as per cash book maintained by the assessee for the financial year 2016-17. The assessee further submitted that, the cash balance has been accumulated out of previous cash withdrawals from bank account, cash sales made during the financial year 2016-17 and trade advances received from customers and converted into sale during financial year 2016-17. The assessee has also furnished list of customers from whom trade advances has been collected towards gold scheme.

During the course of assessment proceedings, in order to verify the claim of the assessee, the Assessing Officer issued summons u/s. 131(1) of the Act, to 28 persons. The Assessing Officer, had also called for information u/s. 133(6) of the Act, from 37 persons. The Assessing Officer, further noted that the summons issued to various persons u/s. 131(1) of the Act, were returned unserved with a reason, insufficient address, address cannot be located, no such address etc. The notices issued u/s. 133(6) of the Act also returned unserved with similar remarks. Further, in response to summons issued u/s. 131(1) of the Act, few persons appeared and deposed before the Assessing Officer and stated that they did not know :-6-: ITA. No: 1106/Chny/2023 any gold scheme promoted by the assessee and also not paid advance to the assessee. Further, one or two persons came and deposed before the Assessing Officer and admitted to have subscribed to gold scheme and payment of advances. The Assessing Officer, on the basis of enquiries conducted during the course of assessment proceedings, opined that the assessee could not able to furnish any evidences to prove receipt of trade advances from various persons for gold scheme and thus, issued show cause notice dated 23.12.2019 and called upon the assessee to explain as to why cash deposits made during demonetization period amounting to Rs. 90,85,62,000/- should not be treated as unexplained cash credits u/s. 68 of the Act. In response, the assessee vide letter dated 25.12.2019, submitted that source for total cash deposits of Rs. 90,80,86,500/- is explained out of opening cash in hand of Rs. 90,75,10,005/-. The assessee further submitted that, the cash balance as per books of accounts as on 08.11.2016 is out of cash drawn from bank before the date of demonetization at Rs. 39,33,30,165/-, direct cash sales without any advances at Rs. 15,58,58,464/- and balance amount of Rs. 32,43,85,989/- is out of advances received from :-7-: ITA. No: 1106/Chny/2023 customers for gold scheme and subsequently converted into sales and reported in GST/VAT returns.

The ld. CIT(A), after considering relevant submissions of the assessee and also by considering certain judicial precedents including the decision of Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs CIT (Supra), opined that the assessee could able to explain source of cash :-11-: ITA. No: 1106/Chny/2023 deposits into bank account during demonetization period out of opening cash balance in hand as on 08.11.2016 as per cash books maintained for the assessment year 2017-18. The Ld. CIT(A) further observed that, the Assessing Officer tries to build up a case on the presumption that the so-called advances claims to have been received by the assessee as cash credits which needs to be examined in light of provisions of Sec.68 of the Act, ignoring the legal position settled by various courts, including the Hon’ble Supreme Court that trade advances which has been subsequently accounted as sales in the books of accounts of the assessee, cannot be treated as cash credits in light of provisions of Sec.68 of the Act. The Ld. CIT(A), has discussed the issue at length in light of various evidences filed by the assessee, including books of accounts, purchase bills, sale bills, and stock registers maintained by the assessee for the business, and opined that the Assessing Officer has not pointed out any discrepancy in books of accounts maintained by the assessee with regard to purchase and sales declared for the relevant period. The Assessing Officer failed to make out any irregular movement of stock in trade or deficit stock in trade when the assessee has declared sales for the relevant period. In fact, there is no iota of :-12-: ITA. No: 1106/Chny/2023 evidence in the order passed by the Assessing Officer with regard to discrepancy in books of accounts and stock details maintained by the assessee. In fact, the assessee has declared purchase and sales to GST authorities and the same has been accepted without any deviation. In absence of any findings with respect to incorrectness in books of accounts maintained by the assessee, the Assessing Officer cannot simply bring trade advance received by the assessee as cash credits which falls under the mischief of sec.68 of the Act, more particularly, when the assessee has declared said advances as sales and also offered to tax. The Ld. CIT(A) had also negated observation of the Assessing Officer with regard to certain judicial precedents, including the decision of the Hon’ble Supreme Court in the case of Sumati Dayal v. CIT(Supra) and CIT v. Durga Prasad More reported in 82 ITR 540 and also the decision of the Hon’ble Supreme Court in the case of CIT v. Kale Khan Mohammad Hanif reported in 50 ITR 1 (SC) and argued that those case laws are rendered in the context of the theory of human probability and not applicable to the facts of the present case. On the other hand, the assessee has relied upon the decision of the Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT :-13-: ITA. No: 1106/Chny/2023 (supra), where the Hon’ble Supreme Court held that when the assessee maintained the books of accounts and there was sufficient cash balance in its books and the books of accounts of the assessee were not challenged by the Assessing Officer, then, the entries in the books of accounts, needs to be considered as genuine. This principle is supported by the decision of the Hon’ble Patna High Court in the case of Lakshmi Rice Mills v. CIT reported in [1974] 97 ITR 258 (Patna). Therefore, the Ld.CIT(A) opined that the Assessing Officer is erred in making additions towards cash deposits u/s.68 r.w.s.115BBE of the Act, and thus, directed the Assessing Officer to delete addition made towards cash deposits u/s.68 of the Act. The relevant findings of the ld.CIT(A) are as under: 6.4 After going through the specific findings of the AO in the assessment order, remand report and appellant's submissions, following conclusions can be derived: 6.5 During the appellate proceedings, the appellant has submitted that appellant had received advance against gold product. The gold products were delivered after a certain period at a discounted price. All the trade advance have been transferred to Sales Account and formed part of the profit and loss account and offered for taxation. The moment they were shown as sales and offered as income, onus part is completely discharged. The appellant has further submitted that the total gold advances received before demonetization and which were converted into gold sales a sum of Rs.32,43,85,989/- was deposited as cash into the Bank. Further there were cash sales of Rs. 19,08,45,846/- before the demonetization date whch was deposited into Bank. Also a sum of Rs.39,33,30,165/- was withdrawn from the Bank and re deposited and net balance was available in the hands and the total aggregating to :-14-: ITA. No: 1106/Chny/2023 Rs.90,85,62.000/- was deposited after 08/11/2016 into the Bank. The /Assessing Officer not only brought to tax the advance received under the gold scheme whiCT were subsequently converted into gold sales but also the cash sales made before the demonetisation and also the net withdrawals of the cash from the Bank and brought the entire cash deposits of Rs.90,80,86,500/- as addition u/s 68 of the Act. The entire cash deposit has been taxed as unexplained cash credit even the same has been supported by the cash bills, stock, purchase, sales register and VAT return. 6.6 As regards various adverse comments in the assessment order, the appellant has submitted point by point rebuttal of the A.O.s comments. The A.O observed that the customers remained unverifiable and the onus lies with the assessee to prove the genuineness of the transactions, the appellant has submitted before the A.O, that due to absence of law in this regard, the assessee could not insist upon the proof of identification and/or address from the customers and recorded whatever names and addresses were declared by them. Further, the AO has not disputed the fact that the cash sales were duly accounted for and were part of the credit side of the trading account and tax was duly paid therein. The increase in Cash Sales as compared to the earlier period seems normal in light of the circumstances prevailing due to demonetization wherein the public largely purchased the jewelry as alternative for exchange of currency. It is observed that the appellant had maintained stock register and produced before the AO. The AO has nowhere pointed out any discrepancy in that not questioned that sufficient quantity of stock was not available at the time of Sales. It is also observed that the availability of stock is determined on the basis of purchase, which was not disputed by the AO. Where there is sufficient stock available on the record, there cannot be any question of holding recorded sales as bogus. 6.7 During the appellate proceedings, the appellant has submitted that the advances received in pursuance of the gold scheme floated by the assessee. It was widely advertised by way of pamphlets and through Insertions in newspapers circulated to the people. The scheme was also approved in a board meeting conducted by the company on 08/02/2016 and the same was filed with the register of companies, Coimbatore. All the trade advances have been transferred to the sales account and formed part of the profit and loss account and offered for taxation. The same amount cannot be taxed again u/s 68 of the Income tax act. All the advances have been only trade advances in nature. The delivery of goods have been reflected in the stock register. The stock register have been twice verified by the income tax officials. If AO suspects the sales then AO has to show that either assessee should not have the sufficient stock in their possession or there must be :-15-: ITA. No: 1106/Chny/2023 defect in the stock register/stock. Once there is no defect in purchase and sales and the same are matching with in-flow and out-flow stock, there is no reason to disbelief the same. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. There is no requirement / compulsion as per Rule 114B to submit the PAN and address of the sales or purchase by any person below Rs. 2 lakhs. AO has also not doubted the purchases made which were duly recorded in the books of accounts. The main thrust of the AO is that notices sent to creditors were returned. However when the sales are below Rs 2 lakh the appellant is not expected to keep complete addresses of the buyers. Suspicion howsoever strong cannot become the basis for addition to income. Though certain suspicious features were noticed by the AO but he did not find any defect in the books of accounts and financial statement. Assessee had sufficient stock in hand. AO has not questioned the same. AO could not find any discrepancy in the stock when the goods were delivered against the amounts received from customers. When the sale volumes have not been suspected, the raising of suspicion on the basis of receipt of cash and deposit of same immediately after 8.11.2016 is not valid. 6.8 The assessee maintains regular books of account, which are audited by auditor. The cash sales and the corresponding cash deposits in banks are duly reflected in books of the assessee in the respective years. The audited financial statements form part of the regular returns filed by the assessee. The trend of cash sales and cash deposits existed in the past years as well as in the months subsequent to the demonetization period. The entries pertaining to cash sales and corresponding cash deposits in banks were duly reflected in the books of account of the assessee. The audited books of account and the tax audit report for the F. Y. 2016- 17 were also filed before the AO in course of the assessment proceeding and the sale for the other periods was accepted by the department. Sales, Purchases/ Stock shown by the assessee are fully backed with bills, duly recorded in books of accounts and also in the stock register. 6.9 The AO has not brought any material on record to establish that the Purchase bills are bogus nor any evidence indicating that such sales was bogus. Further, the assessee has submitted that the books of accounts of assessee are audited and no defect has been pointed out by the auditor in the maintenance of books of accounts. Further, the books of accounts have not rejected by the Assessing Officer. The total sales as reflected in the Sales Register tally with the VAT :-16-: ITA. No: 1106/Chny/2023 return. Commercial Taxes Department had accepted the sales of the assessee declared in its VAT returns as genuine. Therefore there remains no reason to doubt the genuineness of part of such sale by the AO. It is admitted position of law that no addition can be made in the income of the assessee only on the basis of suspicion. Suspicion howsoever strong but cannot partake the character of evidence. The appellant claims that such addition results into double taxation of the same income in the same year. This view has been held by the Hon 'ble Supreme Court in the case of CIT vs Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) "it is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed. The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income cannot be taxed again." 6.10 The assessee has submitted that cash sales and corresponding cash deposits into bank Account have been a regular feature of the appellant's business since its inception. Considering the nature of business, turnover happened in the relevant assessment year and previous year comparisons will prove that cash turnover is in fact reduced as % of total turnover. It was also submitted that the same trend has also continued during the relevant Assessment Year both before and after the demonetization period. This implies that there was no unusual trend in the cash sales or cash deposited in the banks by the appellant during demonetization. Details are as under: AY 2016- Description AY 2017-18 17 (in (in Crore) Crore) Total Turnover 78.38 227.53 Cash Turnover 40.53 99.16 51. 71% 43.58% Percentage Total sales/Cash 6.11 The increase in the total turnover in the assessment year 2017-18 over the assessment year 2016-17 was due to advance scheme promulgated to avail interest free sale :-17-: ITA. No: 1106/Chny/2023 advance for utilization in the business. As a whole the cash sale is reduced compared to previous year and cheque/RTGS sale has increased. The GP ratios are the past year, current year and future assessment year are also comparable and are as under: S A.Y. Sales GP G . ratio 1 2016-17 783877063 12171232 1.5 2 2017-18 2275331698 39913515 1.75 3 2018-19 781703649 24007233 3.07 6.12 Further, the assessee has submitted that there was rise in the turnover and that there is natural tendency of people to utilize their cash holdings in purchasing gold due to such unusual and sudden phenomenon like demonetization leading to sudden surge in sales, total cash sales reported in the instant year cannot be said be unreasonable. In the year 2016, October was the festive season since Navratri was on I" to 9'h of October, Dhanteras was on 28t October and Diwali was on 30'" October. Thus the peak time within the whole year foe sale of jewellery being this festise season which was in October for the F.Y. 2016-17, it is obsious that maximum sales would take place during this month Moreover the festive season in October was followed by the approaching wedding season because of which jewellery purchase had again increased during October, 2016. As a result during the relevant F.Y., maximum sale of jewellery (both cash sales and credit sales/non cash sales) took place in the month of October/ November 2016; 6.13 The expression "nature and source" in section 68 has to be understood together as a requirement of identification of the source and the nature of the source, SO that the genuineness or otherwise could be inferred. The Law on the subject has been illustrated in a number of decisions prior to 1968. Hon. Supreme Court, in Kale Khan Mohd. Hanif vs CIT (supra), pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference draw form the facts. The law after section 68 is not different If the prima facie inference on the fact is that the assessee's explanation is probable, the onus will shift to the :-18-: ITA. No: 1106/Chny/2023 Revenue. Proper enquiry must be made by AO before making any addition u/s 68: The AO must make proper enquiry before making any addition u/s 68. In Khandelwal Constructions,. CIT 227 ITR 900 (Gau.) it has been held that section 68 of Income Tax, Act, 1961 empowers the assessing officer to make enquiry regarding cash credit. If he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation AO must make proper enquiries and In the absence of proper enquiries, addition cannot be sustained, As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, element of credit worthiness and satisfaction of AO is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order. 6.14 Power of the AO u/s 68 of the Income Tax, Act is not absolute - It is legally well settled that the power of the Assessing Officer under section 68 is not an absolute one. Its subject to his satisfaction where an explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to the explanation is in effect an in-built safeguard in section 68 protecting the interest of the assessee. It provides /or an opportunity to the assessee explain the nature and source of the fund. Once it is explained, it is incumbent on the Assessing Officer to consider the same and form an opinion whether the explanation is satisfactory or not The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless an explanation is offered, the Assessing Officer is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once an explanation is offered by the assessee, the assessing Officer is bound to consider the same such consideration is guided by sound principles of Jaw. The opinion so formed must be reasonable and based on materials and shall not be perverse, The extent of the power of the Assessing Office, while considering the materials produced by the Assessee is very wide. It is a question of examining as to whether the apparent is real. The Assessing Officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, he may exercise his power of examining the materials. He may require the assessee to produce further materials if so required. He may seek information from the sources on the basis of material produced. In the process of enquiry, the assessee has no right of hearing, but the assessee has a right to challenge the :-19-: ITA. No: 1106/Chny/2023 conclusion arrived at on the basis of inquiry made. The assessee may point out the perversity in the finding [Hindusthan Tea Trading Co. Ltd. V. CIT, (2003) 263 ITR 289, 293 (Cal)]. While assessing a partnership firm, the AO can go behind the source of income, but he cannot go to the source of source as per section 68 [Prayag Tendu Leaves Processing Co. v. CIT, (2018) 400 /TR 120, 133 (Jharkhand)}. 6.15 As per the provisions of Section 68 of the Act, before invocation of the said section, proper enquiry is needed. In the case of the appellant, no proper enquiries were conducted by the AO, which is clearly evident from the assessment records. Section 68 empowers the Assessing Officer to make enquiry specifically to be satisfied regarding the cash credit. If he is satisfied that these entries are not genuine, he has every right to add these amounts as income from other sources. The satisfaction of the Assessing Officer is the basis of invocation of the powers under section 68 and the satisfaction must be derived from relevant factors on the basis of proper enquiry [Rajshree Synthetics Pvt. Ltd. v. CIT, (2002) 256 ITR 331, 335 (Raj)]. The enquiry envisaged under section 68 is an enquiry which is reasonable and just [Khandelwal Constructions v. CIT, (1997) 227 ITR 900, 904 (Gauh)]. In the facts of that case, it has been held that the amount of cash credits could not be included in the total income of the assessee because the enquiry was not properly made. 6.16. The provisions of sec.68 can be invoked only in cases of receipts shown as cash credits, which are not explainable in terms of requirement of Under sec.68 of the Act, a legal fiction is created in order to assess certain receipts shown as cash credits and not as income, i.e., when a taxable receipt is camouflaged as cash credit (non-taxable item of receipt), then the AO could invoke the provisions of sec.68 of the Act. In the instant case, the assessee has declared cash sales as its income in its profit and loss account and hence, it is not a case of showing receipts as cash credits and camouflaging the said receipt not as income, which would attract the provisions of sec.68 of the Act. The assessment order could not disprove the appellant's claim as per books of accounts and other documentary evidences that the advances from Gold deposit scheme were not converted into sales. In fact, one of the director's statement on 30.03.2017 narrated the Gold deposit scheme floated by the appellant and the enquires u/s 131(1A) could not disprove this claim by bringing out any discrepancies :-20-: ITA. No: 1106/Chny/2023 in the purchases, sales and closing Stock as on the dates of enquiries 6.17 Further, the cash deposited in the demonetized currency added as income of the assessee by applying the provisions of section 68 of the Act while the provisions of 68 as such are not applicable on the sale transactions recorded in the books of accounts because the sale transaction are already part of the income which is already credited in statement of profit & loss, therefore there is no occasion to again consider the same as income of the assessee by applying the provisions of section 68 of the Act. It is further relevant to mention here that if the intention of the legislature would be to apply the provisions of section 68 of tile Act on the sale transactions also, then in such case as per law it would be mandatory to have the identity, genuineness and creditworthiness of each buyer. But the law is not so and in case of sale below to certain limit, the assessee was not required to prove all these ingredients of section 68 of the Act and even also in case of sale exceeding to certain limit the assessee is not required to prove the creditworthiness of buyer. Thus, this also strengthen the contention of the assessee that the provisions of section 68 are not applicable on the transaction which are already credited in the P&L and the same can only made applicable on the cash credits such as loans, share application etc. It is an admitted fact that in the case of transactions of sales/purchases of goods/investments/assets, the creditworthiness of the payer is not relevant for the receiver as the amount was received against the something sold to him, therefore such transactions cannot be examined with point of view of cash credits. 6.18 The AO accepted cash deposit in bank against all other cash sales except cash deposited in demonetization period: - It is also pertinent to note that while the A.O. has accepted the cash deposited in the bank accounts in the previous financial years, cash deposited in banks during the impugned F.Y. 2016- 17 in the pre demonetization period and cash deposited in banks from the sales made after 08.11.2016. The AO did not accept the same modus operandi with respect to the cash deposited in demonetized currency merely on the pretext that the same was deposited in demonetized currency and hence, was suspicious in nature. Thus, the AO is blowing hot and cold in same stream accepting and rejecting the explanations offered by the assessee with respect to the transactions of identical nature. In the instant case, sale of jewellery in cash is :-21-: ITA. No: 1106/Chny/2023 explained and it is not an unusual activity. Further, the said sales are duly supported by the stock register. The books of accounts and stock registers were verified twice over during the inquiry conducted under Section 131 (1A) of the Act and the enquiry teams did not find any deficiency therein. The auditors, who audited the accounts also did not find any fault therein. 6.19 The real question that arises in this case is whether the cash deposits made by the assessee into its bank account have been properly explained or not. The assessee has claimed the trade advances received as sources to be cash sales effected by it and the sales have been duly recorded in the books of accounts and stock register. The AO did not consider such submission and documents in right perspective and by brushing aside all the submission and settled principal of law. This fact is apparent from the assessment order which was framed without considering the submission as well as facts of assessee in right perspective. The amount deposited in demonetized currency out of cash balance as on 08.11.2016 is entirely added as income of the assessee presuming that as on this date the assessee did not holding any single legitimate SBN (Specified Bank Note) at the end of 08.11.2016. SBN (Specified Bank Note) was deposit out of the funds realized during the period from 03.11.2016 to 08.11.2016 against cash sales, realization from sundry debtors and advance from customers and the same was entirely added as income of the assessee by presuming that during these days the showroom of the assessee was not functioning and there was no regular cash sales of single penny on these days. 6.20 The AO has treated the cash deposited in the banks during the demonetization period in demonetized currency as unexplained cash credits u/s 68 of the Act although the nature and source of the cash deposits being proceeds arising out of cash sales etc. is patently evident from the entries in the audited books of account of the Assessee. It is not the case of the Department that the cash deposited in the banks during the demonetization period was in excess of what was available in the cashbooks. The fact that the cash deposits in banks were sourced out of cash sales-Trade Advances is evident from the entries in the cashbooks. The books of account of the Assessee have been audited by auditor. The cash sales & receipts are duly supported by relevant bills, which were produced before the AO in course of the assessment proceedings, and nothing :-22-: ITA. No: 1106/Chny/2023 adverse in connection therewith was noted by the A.O. The fact that cash sales and corresponding cash deposits in banks have been regular feature of the assessee's business over the past several years has not been denied by the A.O. 6.21 The appellant submits that all the trade advances have been transferred to the sales account and formed part of the profit and loss account and offered for taxation. The same amount cannot be taxed again u/s 68 of the Income tax act. The moment they were shown as sales and offered as income, onus on our part is completely discharged. All the advances have been only trade advances in nature. Only the sales have been effected and goods delivered to them. The delivery of goods have been reflected in the stock register. When trade advances are converted into sales, the provisions of section 68 cannot be invoked - CIT vs Devi Prasad Vishwnath Prasad (Supreme Court) ( 1969) 72 ITR 194. Reliance is further placed on the decision of Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordia Vs. ITO 298 ITR 349 in which it was held that addition u/s.68 could not be made in respect of the amount which was found to be cash received from the customers against which delivery of goods was made to them. The provisions of sec.68 can be invoked only in cases of cash credits, which were not offered as income, i.e., a legal fiction has been created in sec.68 of the Act to assess certain cash credits, which were not otherwise shown as income. In the instant case, the assessee has declared the cash sales as its income in the profit and loss account. Hence it is not a case of cash credits, which were not shown as income, in order to attract the provisions of sec.68 of the Act. 6.22 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 :-23-: ITA. No: 1106/Chny/2023 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 demonetized 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." 6.23 The above decisions cited supra suggest that once, the assessing officer accepts the books of accounts and the entries in the books of accounts are matched, there is no case for making the addition as unexplained. Hon'ble Delhi High court considered the issue of taxing the opening stocks in the case of CIT v. Akshit Kumar [2021] 124 taxmann.com 123/277 Taxmnan 423 (Delhi), and upheld the order of the ITAT in deleting the addition related to sales The Hon'ble High Court has extracted the relevant part of the order of the ITAT which reads as as under; "17. Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as 'income from other sources'; firstly, the stock was available with the assessee in his books of account and trading; such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted by the department year after year and in some years under scrutiny proceedings, therefore, non existence of stock or business c:e,;not be upheld; secondly, the sale of stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disturbed, then to hold that no stock was sold in this year and remained with the assessee will be difficult proposition: thirdly, inquiry and inspection by the AO done such after the closure of business may not be persuasive for the past events especially in wake of facts as discussed above; and lastly, once neither any item in the trading account, nor gross profit has been rejected, then one part of credit side of the trading account. that is, sales cannot be discarded completely so as to hold that it is unexplained money." 6.24 The appellant has submitted NFAC decision of sister concern/ Associated entity M/s Sahana Jewelry Private Limited :-24-: ITA. No: 1106/Chny/2023 pertaining to the same Assessment Year , wherein on similar issues, the Hon'ble CIT(A) has decided in favour of the appellant. The relevant part of the decision are as under: As can be seen the facts discussed in the above order of the /TAT Vishakhapatnam are same in the case of the assessee. Assessee is engaged in the business of jewellery trading. Assessee has deposited the sum of Rs.8,97,50,000/- in high denominations bank notes (SBNs) post demonetisation bank notes (SBNs) post demonetization. The assessee has explained the sources of cash deposits as cash sales received on 08.11.2016 against the sales. In support of its explanation, the assessee also produced the sale bills and books of accounts before the AO. There was a survey u/s 133A by investigation wing where also the assessee explained its purchase sales and stock. These explanation were given before the AO also. However, the AO was not satisfied with the assessee's explanation of sales citing the reason that the assessee could not furnish proper KYC documents of the buyers during the course of survey, the average sales of the firm was not matching with peak and non-peak season. In the present case there was no survey or any other development. AO had do document except the suspicion that assessee must have manipulated the sales as the quantum of sales is extraordinary. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case and considering the decisions in similar cases by various courts as discussed above, I have no hesitation to hold that the cash receipts represent the sales which the assessee has admitted as income. When there was sufficient stock to effect the sales and no defect has been found in the stock as well as the sales and purchases and since, the assessee has already admitted the sales as revenue receipt, there is no case for considering cash deposit as not explained and adding the same u/s68. The addition of cash deposit as income of the assesse is hereby deleted. Consequent to provisions of Section 68 not found applicable, provisions relating the charge of tax u/s 11 SBBEE do not arise.

The Ld.DR placed reliance on various decisions. In the case of SumatiDayal (supra), Durga Prasad More (supra), Durga Prasad More (supra) both the cases are related to the circumstantial evidences in the absence of direct evidence. In the instant case, the facts clearly support that the assessee has made the sales and there were sufficient stocks to meet the sales. Thus, the facts of the assessee's case are clearly distinguishable. The Ld.DR further relied on the decisions of Kale Khan Mohammad Hanif (supra), wherein, the Hon'ble Supreme Court held that the AO is permitted to make addition of unexplained cash credits even though the income is estimated on sales. In the instant case, the AO had accepted the sales and no unexplained cash credits :-29-: ITA. No: 1106/Chny/2023 were found, thus, the case law relied upon by the Ld.DR is also distinguishable on the facts of the case. The Ld.DR relied on the decision of P. MohanaKala (supra), Devi Prasad Vishwanath Prasad (supra) both the cases refer to the sums found credited in the books of account but not offered as income, whereas in the instant case the assessee admitted the same as sales and offered for taxation, hence, the case Jaws has no application in the assessee's case. The Ld.DR also relied on the decision in Naresh Kumar Tulshan (supra), the decision was related to the addition u/s 69A representing huge deposit of cash in bank for which the initial source was declared as past profits and subsequently explained as withdrawal from partnership firm without relevant matching entries in the banks, therefore, the coordinate bench of /TA T held that withdrawal of such huge amount in high denomination was not practicable. The Ld.DR also relied on the decision of J.M.J. Essential Oil Company (supra) in the cited case, the assessee effected large sales in one month of each year continuously for two years and the assessee is eligible for deduction u/s 80/C and the AO observed that the assessee was inflating the sales and claiming the huge deductions. No such cash inflow is involved due to demonetization. Whereas in the assessee's case there were no such deduction or the exempt income and the profits were also not abnormal. The assessee explained the reason for huge sales with evidence and thus the case law relied up on by the DR is distinguishable. The Ld.DR relied on various case laws and all the case laws more or Jess are related to the additions made u/s 68 as unexplained cash credit and in none of the cases the assessees have admitted the same as income. Therefore, we find that the case Jaws relied up on by the Ld.DR has no application in the instant case and the same are distinguishable.

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 :-30-: ITA. No: 1106/Chny/2023 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 KailashJewellery House (ITA No.613/20109) and the Hon'ble Gujarat High Court in the case of Vishal Exports Overseas Ltd. (/TA 2471 of 2009), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld." 6.26 The Hon'ble Bang/ore /TAT in dt. 13.12.2021 in the matter of Anantpur Kalpana has decided similar issue in the favour of the assessee wherein it was held as under: "9. I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. Since the sale proceeds for which cash was received from the customers was already admitted 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. It is also on record that the assessee was having only one source of income from trading in beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. Hon'ble Kolkata Tribunal in the case of CIT Vs. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 on identical facts took the view that when cash sales are admitted and income from sales are declared as income, wherein the Hon'b/e Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, that there was no reason to treat the cash deposits as income from undisclosed sources. The Hon'ble Vishakapatnam Tribunal in the case of ACIT Vs. Hirapanna Jewelers in /TA No. 253Niz/2020 on identical acts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading account shows sufficient stock to effect the sales and when no defects are pointed out in the books of account, it was held that :-31-: ITA. No: 1106/Chny/2023 when Assessee 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. I am of the view that in the light of the facts and circumstances of the present case, the addition made is not sustainable and the same is directed to be deleted." 6.27 Recently, the Hon'ble Delhi ITAT in dt. 26.04.2022 in the matter of Ramesh Kochar has decided identical issue in the favour of the assessee wherein it was held as under: I have heard the rival submissions made by both the parties and perused the material on record. The dispute before the Tribunal is with respect to addition at Rs.34,99,500/- made on account of cash deposits during the demonetization period. It is an admitted fact that asses see is engaged in the business of trading of electrical wires and trading in electrical equipments, products etc. I find assessee has placed on record the details of cash sales made [a copy of which is placed in paper book] and it contains the details namely the date of sale, the voucher number, the name of the party, the amount of sales. It is also an undisputed fact that on the aforesaid sales, VAT as per the applicable rates has been paid by the assessee and the payment of VAT is a/so reflected in the VAT returns filed by the assessee with the Department of Trade and Tax, Government of Delhi. Before me, Revenue has not placed any material on record to demonstrate that the details of cash sales filed by the assessee are fictitious or bogus. Further, the Revenue has also not placed any material on record to demonstrate that the VAT return filed by the assessee before the Appropriate Authorities have been rejected by the Authorities. It is also a fact that the assessee is having only one source of income which is also not in dispute. Further the purchase of goods from which the alleged sales have been made by the assessee has also not been rejected by the Revenue. I find that the Bangalore Bench of the Tribunal, on similar facts, in the case of Anantpur Ka/pana, Gangavathi, Karnataka vs., /TO, Ward- 1, Koppal in /TA.No.541/Bang/2021 order dated 13.12.2021 and after considering the decision of Ko/kata Bench of the Tribunal and Visakhapatnam Bench of the Tribunal in the case of ACIT vs., M/s. Hirapanna Jewellers, Visakhapatnam in ITA.No.253Nizagl 2020 :-32-: ITA. No: 1106/Chny/2023 order dated 12.05.2021 has held that when the sales have been accepted as revenue receipt, the same could not have been again added as income. I find the issue in the present case is also covered by the aforesaid two decisions relied on by the Learned A.R. of the assessee. In such circumstances and in absence of any contrary material brought on record by the Department, I am of the view that in the present case no addition is called for I, therefore, direct for deletion of the addition made by A. 0. and upheld by the Ld. CIT(A). Thus. the ground raised by the assessee is allowed. 6.28 After considering the above discussion, I am of the view that appellant has furnished necessary documents in support of sales transaction before the assessing officer during the assessment proceedi1g. There was sufficient stock to effect the sales and no defect has been found in the stock as well as the sales and purchases. Therefore, I do not find c1ny reason to suspect the sales. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case and considering the decision on similar issue by various Courts. I have no hesitation to hold that the cash receipt represent the sales which the assesse has rightly offered for taxation. 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. Therefore. the action of the Assessing Officer is not justified. Hence, the addition u/s 68 cannot be upheld. Accordingly, the Assessing Officer is directed to delete the addition of Rs. 90,80,86,500/-. Hence, the grounds of appeal no. 2 to 6 and ground no. 8 to 12 are allowed.”

The Ld. DR, Shri R. Clement Ramesh Kumar, CIT, submitted that, the Ld. CIT(A) failed to appreciate the fact that the assessee has failed to prove the identity of the creditors, creditworthiness of the creditors and genuineness of the transactions which is pre-requisite for accepting the entries made in the books of accounts. The Ld. DR, further submitted :-33-: ITA. No: 1106/Chny/2023 that the Ld. CIT(A) failed to appreciate the fact that the assessee has not furnished the details like purchase bills, sales bills, etc., which is evident from the observations of the Assessing Officer in his assessment order, where the Assessing Officer records categorical findings that the assessee has failed to file necessary evidences. The Ld. CIT DR, further submitted that the assessee has made huge deposits into his bank account after demonetization and to cover up source for said cash deposit, introduced cash into its books of accounts in the form of cash receipts from various persons. But, fact remains that when the Assessing Officer conducted necessary enquiries by issuing summons u/s.131(1) of the Act, except three persons, no other persons has responded to summons issued by the Assessing Officer. In fact, summons issued to various persons have been returned un-served with a remark ‘no such person’ or ‘insufficient addresses’. The Assessing Officer called upon the assessee to furnish confirmation letter from the persons from whom the assessee claims to have been received trade advances, but the assessee neither submitted any confirmation nor complete name and address of the persons with their PAN to discharge onus cast upon the assessee as per the provisions of Sec.68 of the Act. Although, the :-34-: ITA. No: 1106/Chny/2023 assessee could not justify source for cash deposits made during demonetization period, but the Ld. CIT(A) simply accepted the submissions of the assessee and directed the Assessing Officer to delete additions made u/s.68 of the Act.

Be that as it may. The fact remains that, the assessee has furnished name and address of the customers from whom it has received advances for sale of jewellery. The assessee need not obtain confirmation and submit to the Assessing Officer, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs.2 lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as compliance of KYC norms, it is mandatory under Prevention of Money Laundering Act, 2002, w.e.f. 04.05.2023 onwards and not applicable for the impugned assessment year. Therefore, in our considered view, when the :-45-: ITA. No: 1106/Chny/2023 assessee has furnished name and address of the persons from whom it has received trade advances for sale of jewellery, the assessee has satisfactorily discharged onus cast upon to furnish name and address of the persons. Therefore, the observation of the Assessing Officer in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is unwarranted and devoid of merits.

Having said so, let us come back whether the assessee could able to explain source for cash deposits made during demonetization period or not. It is an admitted fact that the assessee was having sufficient cash balance as per cash book maintained for the relevant period. In fact, cash in hand as on the date of demonetization i.e. 08.11.2016 was at Rs.90,75,10,005/- and said cash balance is backed by cash receipts recorded in the books of accounts before the date of demonetization. Further, cash receipts from various persons have been further substantiated with sales made to them before the date of demonetization. In fact, the assessee has filed various evidences, including sales bills to support its arguments. The Assessing Officer never disputed sales declared by the assessee nor pointed out any discrepancy in :-46-: ITA. No: 1106/Chny/2023 purchase or stock in trade held in the business of the assessee before the date of demonetization. In fact, the assessee has filed comparative sales for the month of April, 2016 to November, 2016 and corresponding April-15 to November, 2015 and we find that there is no abnormal deviation in sales declared for the month of November, 2016 when compared to earlier periods. It is not a case of the Assessing Officer that the assessee has declared sales without purchases. In fact, sale declared by the assessee is backed by corresponding purchases, and is supported by necessary purchase bills. The Assessing Officer could not point out any discrepancy in stock register maintained by the assessee nor made out a case that the assessee has declared sales without there being any stock in hand. Therefore, in absence of any contrary findings to the effect that the sales declared by the assessee is not backed by corresponding purchase or supported by stock in hand, in our considered view, simply sales cannot be rejected on the ground that sale for the particular month or period is higher when compared to corresponding previous period. In our considered view, there cannot be any reason for uniform sales in all days or month or year. There may be various reasons for increase or decrease in sales which depends upon various :-47-: ITA. No: 1106/Chny/2023 factors, including festival sales, clearing sales, yearend sales, etc. Therefore, in our considered view, the explanation of the assessee that it has received cash from various customers towards sale of jewellery and subsequently the advances have been converted into sales, appears to be bona fide and reasonable.

Coming back to second observation of the Assessing Officer in rejecting explanation of the assessee with regard to source for cash deposits. In addition to trade advances received in cash from various persons, the assessee explained that, it has sufficient cash withdrawal aggregating to Rs. 39.33 crores from very same bank account on various dates before the date of demonetization and after utilization of the cash for the purpose, for which, it has been drawn the balance was available with assessee as cash in hand. The assessee was carrying cash balance in books and once demonetization was announced, the available cash balance in Specified Bank Notes, has been deposited into bank account. We have perused relevant cash book and bank statements which are available in paper book and after considering relevant materials, we find force in the arguments of the assessee for :-48-: ITA. No: 1106/Chny/2023 simple reason that as per the details furnished by the assessee like bank statements, cash book, it is undoubtedly clear that assessee was having sufficient withdrawals from very same bank accounts before the date of demonetization which was recorded in the books of accounts of the assessee. Further, the cash balance maintained by the assessee as per books of accounts as on 08.11.2016 was much higher than the amount of cash deposited to bank account during demonetization period. Therefore, when the assessee is able to file necessary evidences to prove that there was sufficient cash withdrawal from very same bank account which is further backed by bank statements, where it has been clearly evident that there are sufficient cash withdrawals, in our considered view, there is no reason for the Assessing Officer to reject explanation of the assessee that cash deposit is out of cash withdrawals from very same bank account.

The assessee has relied upon the decision of ITAT, Chennai Benches in the case of ITO vs M/s. Sahana Jewellery Exports Pvt. Ltd., in order dated 20.12.2023. The coordinate bench of ITAT, Chennai Benches has considered an identical issue of cash deposits during :-49-: ITA. No: 1106/Chny/2023 demonetization period and after considering relevant submissions has held that trade advances received from customers and subsequently converted as sales cannot be treated as unexplained cash credit u/s. 68 of the Act. The relevant findings of the Tribunal are as under:

During the course of assessment proceedings, the AO called upon the assessee to file details of name and address of the persons from whom it has received trade advances for sale of jewellery. The assessee has filed a list of persons from whom it has received trade advances for sale of jewellery. Out of list submitted by the assessee, the AO has issued summons u/s.131(1) of the Act, to 50 persons to verify the genuineness of the assessee claim of receipt of cash from them. Out the above 50, summons issued to 40 persons returned by the Postal Authorities citing ‘addressee cannot be located’ or ‘no such person’ or ‘no such address’ or ‘insufficient address’ or ‘no such address at the above place’. In response to summons, three persons were responded and out of three, two persons namely, Shri N.Armugam and Smt.B.Deepa denied having any kind of transactions with the assessee. Further, one person namely Shri A.M.Vargies confirmed having paid advance to the assessee company and also :-50-: ITA. No: 1106/Chny/2023 purchased jewellery from them. The Assessing Officer, on the basis of enquiry conducted u/s.131(1) of the Act, came to the conclusion that the assessee could not substantiate cash receipts received from various persons towards sale of jewellery before the date of demonetization. Therefore, vide letter dated 24.12.2019 called upon the assessee to file confirmation from all the parties and also called upon the assessee to show cause ‘as to why’ the credits should not be considered as unexplained cash credit u/s.68 of the Act. In response, the assessee submitted that as per law, it is not required to collect complete address and PAN from the persons to whom it has sold jewellery. Further, as per Rules 114B of the Income Tax Rules 1962, if sale value of jewellery is in excess of Rs.2 lakhs to a single person, then, it is required to collect PAN. Since, there is no requirement of collecting PAN, the assessee does not having details of PAN and correct postal address of the persons from whom it has received trade advances for sale of jewellery. Therefore, assessee submitted that the question of filing confirmation letter from the parties, from whom, it has collected advance for sale of jewellery does not arise, and consequently, cash receipts cannot be assessed u/s.68 of the Act. The assessee had also explained the AO that it has sufficient cash balance as on 08.11.2016 as per books of accounts maintained for that assessment year and argued that the total cash deposits into bank account is explained out of cash in hand. The assessee has also made an alternative submission that it has sufficient cash withdrawal from very same bank account on various dates, which has been recorded in books of accounts of the assessee and source for cash deposits is also out of cash withdrawal from very same bank account. The assessee had also filed necessary books of accounts, including cashbook, sales register, sale bills, purchase details along with bills and stock details to prove that there is no discrepancy in books of accounts and also the assessee has reported sales made before the date of demonetization to GST authorities.

In light of above factual matrix, if one examines the issue, the AO has rejected the contention of the assessee on two grounds. The first and foremost reasons given by the AO to reject the explanation of the assessee is that persons from whom assessee claims to have been received advance are not responded to summons issued u/s.131(1) of the Act, and in few cases, they have denied any kind of transactions with the assessee. According to the AO, the assessee could not discharge its onus cast upon as per the provisions of Sec.68 of the Act, in respect of cash receipts, and thus, opined that cash receipts claimed to have been received by the assessee from various persons is unexplained cash credits taxable u/s.68 of the Act. The second reason given by the AO was that there is a contradiction in the claim of the assessee in so far as source for cash deposits are concerned in as much as initially, the assessee claims to have explained cash deposits out of cash receipts from various persons towards sale of jewellery and subsequently changed its stand and :-51-: ITA. No: 1106/Chny/2023 argued that source for cash deposits is out of cash withdrawals from very same bank account. In so far as the first and foremost reason given by the AO to assess cash receipts u/s.68 of the Act, we find that there is a distinction between cash credits and cash receipts towards sales. If assessee claims certain cash credits in his books of accounts and not able to explain credits to the satisfaction of the AO, then, such cash credits need to be examined in light of provisions of Sec.68 of the Act. In case, the assessee claims that it has received trade advances in cash and the same has been subsequently converted into sales by issuing sale bills, then, said trade advance cannot be examined in light of provisions of Sec.68 of the Act, because, trade advances have been subsequently converted into sales and sales has been accounted in the books of accounts of the assessee. Therefore, in our considered view, the AO has committed a fundamental mistake in examining the cash receipts claimed to have been received by the assessee towards sale of jewellery in light of provisions of Sec.68 of the Act.

Be that as it may. The fact remains that, the assessee has furnished name and address of the customers from whom it has received cash for sale of jewellery. The assessee need not obtain confirmation and submit to the AO, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs.2 lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as compliance of KYC norms, it is mandatory under Prevention of Money Laundering Act, 2002, w.e.f.04.05.2023 onwards and not applicable for the impugned assessment year. Therefore, in our considered view, when the assessee has furnished name and address of the persons from whom it has received trade advances for sale of jewellery, the assessee has satisfactorily discharged onus cast upon to furnish name and address of the persons. Therefore, the observation of the AO in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is unwarranted and devoid of merits.

Having said so, let us come back whether the assessee could able to explain source for cash deposits made during demonetization period or not. It is an admitted fact that the assessee was having sufficient cash balance as per cash book maintained for the relevant period. In fact, cash in hand as on the date of demonetization i.e. 08.11.2016 was at Rs.48,84,03,169/- and said cash balance is backed by cash receipts recorded in the books of accounts before the date of demonetization. Further, cash receipts from various persons have been further substantiated with sales made to them before the date of demonetization. In fact, the assessee has filed various evidences, including sales bills to support its arguments. The AO never disputed sales declared by the assessee nor pointed out any discrepancy in purchase or stock in trade held in the business of the assessee before the date of demonetization. In fact, the assessee has filed comparative sales for the month of April, 2016 to :-52-: ITA. No: 1106/Chny/2023 November, 2016 and corresponding April-15 to November, 2015 and we find that there is no abnormal deviation in sales declared for the month of November, 2016 when compared to earlier periods. It is not a case of the AO that the assessee has declared sales without purchases. In fact, a sale declared by the assessee is backed by corresponding purchases, and is supported by necessary purchase bills. The AO could not point out any discrepancy in stock register maintained by the assessee nor made out a case that the assessee has declared sales without there being any stock in hand. Therefore, in absence of any contrary findings to the effect that the sales declared by the assessee is not backed by any corresponding purchase or supported by stock in hand, in our considered view, simply sales cannot be rejected on the ground that sale for the particular month or period is higher when compared to corresponding previous period. In our considered view, there cannot be any reason for uniform sales in all days or month or year. There may be various reasons for increase or decrease in sales which depends upon various factors, including festival sales, clearing sales, yearend sales, etc. Therefore, in our considered view, the explanation of the assessee that it has received cash from various customers towards sale of jewellery and subsequently the advances have been converted into sales, appears to be bona fide and reasonable.

Coming back to second observation of the AO in rejecting explanation of the assessee with regard to source for cash deposits. Initially, assessee claims that source for cash deposits is out of trade advances received in cash from various persons. However, during the course of assessment proceedings itself, the assessee claimed that it was an error in making a submission that it has received trade advances from various persons before the date of demonetization, but fact remains that authorized representative who appeared and made submissions before the AO made an inadvertent error of copying submission made in another group case which is also pending for assessment. Further, immediately after noticing the above inadvertent error, the assessee has submitted details of cash book along with bank statements and explained that it has sufficient cash withdrawal aggregating to Rs.150 Crs. from very same bank account on various dates before the date of demonetization and after utilization of the cash for the purpose, for which, it has been drawn the net withdrawal was at Rs.136.85 Crs. The assessee was carrying cash balance in books and once demonetization was announced, the available cash balance in Specified Bank Notes, has been deposited into bank account. We have perused relevant cash book and bank statements which are available in paper book and after considering relevant materials, we find force in the arguments of the assessee for simple reason that as per the details furnished by the assessee like bank statements, cash book, it is undoubtedly clear that assessee was having sufficient withdrawals from very same bank accounts before the date of demonetization which was recorded in the books of :-53-: ITA. No: 1106/Chny/2023 accounts of the assessee. Further, the cash balance maintained by the assessee as per books of accounts as on 08.11.2016 was much higher than the amount of cash deposited to bank account during demonetization period. Therefore, in our considered view, when the assessee is able to file necessary evidences to prove that there was sufficient cash withdrawal from very same bank account which is further backed by bank statements, where it has been clearly evident that there are sufficient cash withdrawals, in our considered view, there is no reason for the AO to reject explanation of the assessee that cash deposits are out of cash withdrawals from very same bank account.

At this stage, it is necessary to consider certain judicial precedents on this issue. The assessee has relied upon the decision of the Hon’ble Delhi High Court in the case of PCIT v. Agson Global (P) Ltd., reported in [2022] 441 ITR 550 (Delhi) (19-01-2022). The Hon’ble Delhi High Court under identical set of facts, has deleted the additions made by the AO towards cash deposits during demonetization u/s.68 of the Act. The relevant findings of the Hon’ble Delhi High Court are as under: • A careful perusal of the extract of the statement made by managing director of the assessee (as recorded in " the assessment orders in-issue) would show that all that he had stated was that it was the assessee's own money, given in the form of loan and/or bogus sales or purchases, that had been routed back to the assessee in the form of share capital/share premium, albeit, through banking channels. [Para 10.3] • The Tribunal, in this context, records a finding of fact that "no unaccounted income of the assessee" had been introduced in its books of account in the form of share capital. Based on this, the Tribunal concluded that there was 'no confession' made by the managing director that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under section 132(4) did not constitute incriminating material. [Para 10.4] • The Tribunal, has correctly analyzed the statement of the managing director. The statement does not allude to the fact that the assessee had introduced 'unaccounted money' in the form of share capital/share premium through investor entities. The retraction letter, as noted by the Tribunal, also did not advert to the introduction of investment of money in the assessee in the form of share capital/share premium. [Para 11.1] • The trail of the money received from various entities in the form of share capital/share application money, concluded that :-54-: ITA. No: 1106/Chny/2023 the assessee had been able to place before the Assessing Officer sufficient documentary evidence which established that the money which the assessee had paid to the investor entities was routed back to it in the form of share capital/share premium. [Para 11.4] • That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of section 68. [Para 11.5] • In instant case, insofar as the assessee is concerned, it placed the evidence on record, which established the trail of the money, the mode through which the money had travelled from the assessee to the investor entities and back to the assessee, and the fact that each of the investor entities was in existence. Therefore, once the assessee claimed (and it was found as a fact) that it was its own money which was routed back to it in the form of share capital/share premium, the traditional test which is sought to be applied by the revenue, for triggering the provisions of section 68, which is, that the assessee had to establish the creditworthiness, genuineness and identity of the transactions would have to adapt to the circumstances obtaining in the instant case. [Para 12.1] • Therefore the addition made under section 68 needed to be sustained as untenable, in view of the finding recorded by the Tribunal. [Para 14.4] • The entire purchase and sales had been duly recorded in the regular books of account of all parties; the transactions were routed through regular banking channels; the purchase and sales were duly supported by quantitative details; copies of bank statements showing sales and purchases were placed before the Assessing Officer, and no incriminating documents concerning sales and purchases were found in the course of search and seizure actions. [Para 15.1] • Tribunal also found that in respect of assessment years 2012-13, 2013-14 and 2014-15, sale and purchase transactions were verified and assessment orders were framed under section 143(3). The books of account were duly audited, both, under the Companies Act, 2013 and the Income-tax Act; no defects concerning books were found either by the Assessing Officer or the Commissioner (Appeals). Thus, according to it, no incriminating evidence was found. [Para 15.1] • Insofar as the abated assessment years were concerned i.e., assessment years 2015-16, 2016-17 and 2017-18, it :-55-: ITA. No: 1106/Chny/2023 was, apparent that the assessee had purchased goods, which were in value less than the sum for which they were sold. Therefore, as held by the Assessing Officer, in the deviation report, if the purported bogus purchases were to be disallowed then necessarily the sales shown in the assessee's regular books of account would also have to be excluded which would result in the assessee's income falling below the returned/declared income. [Para 15.1] • Furthermore, the Assessing Officer had not placed on record any material to justify the disallowance of 25 per cent of the purchases on the ground that they were bogus without carrying out any inquiry or investigation. In particular, the Tribunal also flagged the issue that the purported shortage of stock was based on a reference made qua that aspect in the appraisal report of Investigation Wing which, as noted above, did not find mention in the remand report, as during the search it was found that the stock worth the aforementioned value was lying at the assessee's warehouse, something which was completely ignored. This position, was fortified by the fact that no addition in respect of any excess or shortage of stock had been made in the assessment orders of any of the years. In effect, according to the Tribunal, the stock found in the books reconciled with the stock which was found physically. [Para 15.3] • It appears, that the Commissioner (Appeals) did not call for the books of account i.e., to examine the same. Furthermore, the Tribunal records that the Assessing Officer, in the remand report, did not advert to the fact that the books of account were either incorrect or incomplete. According to the Tribunal, the books of account could not have been rejected till such time the revenue found "patent, latent and glaring defects in the books of account". The revenue, according to the Tribunal, made no such attempt and simply relied upon the statement of the managing director, which was retracted and in any event, did not relate to the booking of bogus expenditure'. Therefore, insofar as the Tribunal was concerned, the rejection of books of account by the Commissioner (Appeals) did not meet the legal standards. [Para 15.6] • Thus, in effect, the Tribunal held that the books of account were rejected without crystalizing the defect in the books of account, which could have been done only after examining the same. Furthermore, according to the Tribunal, even if it is assumed that the books of account could be rejected, the profit had to be estimated based on proper material. As noted above, the Tribunal recorded the inconsistent approach adopted by the Commissioner (Appeals) in applying the gross profit ratio concerning non-related parties to purported bogus :-56-: ITA. No: 1106/Chny/2023 transactions i.e., those involving related parties, resulting in unsustainable conclusions. [Para 15.7] • Accordingly, the observations made by the Tribunal are pure findings of fact, which cannot be interdicted by the Court in appeal. The inconsistency in the approach adopted by the Assessing Officer, while preparing the deviation report and framing the assessment order with regard to purported bogus purchases is an aspect, which cannot be ignored and has been correctly highlighted by the Tribunal. [Para 15.8] • If the revenue chooses to disallow bogus purchases, it would necessarily have to ignore the corresponding sales recorded against the very same parties. As pointed out by the Tribunal, the Commissioner (Appeals) could have rejected the books of account only, after it had examined and come to the conclusion that he was not satisfied as regards their correctness or completeness. The finding of fact returned by the Tribunal is that books of account were not examined by the Commissioner (Appeals). If that be so. then, section 145(3) could not have been triggered by the Commissioner (Appeals), based on the mere statement of the managing director of the assessee. Besides this, as noted by the Tribunal, the Commissioner (Appeals) had attempted to quantify the profit by resorting to a methodology, which was incomprehensible. [Para 15.9] • The average cash deposited by the assessee with its bankers before demonetization was, approximately, Rs.42.35 crores, whereas the actual sum deposited during the demonetization period was Rs.180.53 crores. The assessee's explanation was, broadly, that deposits were made out of cash sales and, during Diwali, cash sales increase; especially in the business in which the assessee is i.e.. dry fruits. [Para 16.2] • The assessee. in support of its plea that cash deposits were made by the assessee in respect of sales which were duly accounted for, reliance was placed on the following material:- audited books of account; bank-wise summary of cash deposits; copies of bank statements; and details of monthly cash sales and cash deposits made in earlier financial years. [Para 16.2] • In this context, the Tribunal analyzed the data pertaining to cash sales and cash deposits made in the financial year in issue. The analysis made by the Tribunal showed that, in the three financial years, the total cash deposits more or less corresponded with the cash sales. [Para 16.6] :-57-: ITA. No: 1106/Chny/2023 • Based on the data, the Tribunal concluded that, in the year in which demonetization kicked in i.e., financial year 2016-17, the increase in sales in percentage terms was less than the earlier year. The Tribunal, thus, held that it could not be said that the assessee had booked non-existing sales in its books post-demonetization. [Para 16.6] • In sum, it was the Tribunal's assessment of the material placed on record that cash deposits made by the assessee with its bankers, more or less compared with the cash sale transactions entered into by it with its - customers. The Tribunal's view was that given the fact that there was no allegation made by the revenue that the assessee had backdated its entries to enhance its cash sale figures, one could only conclude that there was a growth in the assessee's business. [Para 16.9] • Having regard to the extensive material which has been examined by the Tribunal, in particular, the trend of cash sales and corresponding cash deposited by the assessee with earlier years, it is opined that there was nothing placed on record—which could have persuaded the Tribunal to conclude that the assessee had, in fact, earned unaccounted income i.e., made cash deposits which were not represented by cash sales. Therefore, in the Tribunal correctly found in favour of the assessee and deleted the addition made under section 68. [Para 17.6] 18. The assessee had also relied upon the decision of the ITAT Visakhapatnam Bench in the case of M/s.Hirapanna Jewellers, Visakhapatnam, in and CO No.02/Viz/2021, AY2017-18, wherein, the ITAT Visakhapatnam Bench, under identical set of facts has held as under: " We have heard both the parties 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: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year; :-58-: ITA. No: 1106/Chny/2023 From the perusal of section 68, 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. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is engaged in the jewellery business and maintaining the regular stock registers. Both the DDIT (Inv.) and the AO have conducted the surveys on different dates, independently and no difference was found in the stock register or the stocks of the assessee. Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. 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. Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. Audit report u/s.44AB, the financial statements furnished in paper book clearly shows the reduction of stock position and matching with the sales which goes to say that the cash generated represent the sales. The assessee has furnished the trading account, P& L account in page No.7 of paper book and we observe that the reduction of stock is matching with the corresponding sales and the assessee has not declared he exorbitant profits. Though certain suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities 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 condition of the strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence. Provisions or section 68 are applicable in case or unexplained cash credit. Looking at the discussion at the foregoing paragraphs and the Judicial Precedents presented, I find that with sufficient stock in record for which excise duty was paid and vat taxes were paid, the sales could not be treated as unexplained cash credit u/s.68 of the Income Tax Act. It must be appreciated that an unexplained credit would imply credit which has unexplained source which is not so. The addition made on account of bogus sale thus failed that test of being unexplained as envisaged u/s 68 of the Income Tax Act. In view these of the addition of Rs.51,39,39,100/- stands deleted.

The appellant has also relied upon the decision of Hon’ble Delhi High Court in the case of PCIT vs Agson Global (P) Ltd [2022] 441 ITR 550 (Delhi). The Hon’ble Delhi High Court under identical set of facts, has deleted the additions made by the AO towards cash deposits during demonetization u/s.68 of the Act. The relevant findings of the Hon’ble Delhi High Court are as under:

In this view of the matter and by considering facts and circumstances of the case and also by respectfully following the decision of coordinate bench of ITAT, Chennai in the case of ITO vs M/s. Sahana Jewellery Exports Pvt Ltd (Supra), we are of the considered view that the assessee has satisfactorily explained source for cash deposits into bank account during demonetization period, out of cash balance in hand as on 08.11.2016 and further, said cash in hand has been explained out of known source of income. The Assessing Officer, without appreciating relevant facts simply made additions towards cash deposits u/s. 68 of the Act and also brought to tax u/s. 115BBE of the Act. The ld. CIT(A), after considering relevant facts, has rightly deleted additions made by the Assessing :-64-: ITA. No: 1106/Chny/2023 Officer. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.