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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition made by the AO on account of cash deposits during demonetization. The assessee, a dealer in gold and silver, had declared substantial cash sales in October 2016, which the AO suspected were out of undisclosed sources, leading to an addition under Section 68.
Held
The Tribunal held that the Assessing Officer failed to bring out specific facts and evidence to negate the genuineness of the turnover declared by the assessee. The CIT(A) had correctly noted that the assessee had sufficient stock and adequate paid stock was available, and that the sales figures were reflected in the books of account.
Key Issues
Whether the cash sales declared by the assessee during the demonetization period were genuine and sufficiently supported by stock, or if they represented undisclosed income added under Section 68.
Sections Cited
143(2), 142(1), 133(6), 68, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
(Assessment Year: 2017-18) DCIT, Central Circle 7, vs. Silver City, 28-12-2813, 1st Floor, New Delhi. Gali No.20, Beadon Pura, Karol Bagh, New Delhi – 110 005. (PAN :ACRFS7187F) (APPELLANT) (RESPONDENT) ASSESSEE BY : Ms. Ananya Kapoor, Advocate Shri Shashwat Bajpai, Advocate REVENUE BY : Shri Manish Gupta, Sr. DR Date of Hearing : 15.07.2025 Date of Order : 30.09.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-24, Delhi [“Ld. CIT(A)”, for short] dated 21.03.2023 for the Assessment Year 2017-18.
Brief facts of the case are, assessee filed its return of income on 30.10.2017 declaring total income of Rs.2,04,40,760/-. The case was selected for scrutiny through CASS. Notices under section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served through sped post as well as through email. The assessee filed its reply through ITBA portal. Subsequently, several notices u/s 142(1) were issued and served on the assessee. In response, assessee has submitted part information. The Assessing Officer collected the information from the bank by issue of notice u/s 133(6) of the Act. Based on the information, Assessing Officer observed that the assessee has deposited cash to the extent of Rs.3,57,60,000/- in Canara Bank having two accounts during demonetization period i.e. 09.11.2016 to 31.12.2016. Based on the information available with the Assessing Officer, the Assessing Officer observed that assessee has declared substantial sales during the month of October 2016 i.e. 11 times more than the cash sales declared by the assessee in the previous year. He observed that assessee has deposited cash from 10.11.2016 to 24.11.2016 of Rs.3,57,50,000/-. Since the assessee has deposited substantial amount during the demonetization period, assessee was asked to substantiate the same. In response, assessee has submitted as under :- “..it is submitted that the comparative figures given in your show cause notice that the cash sales in the preceding years are not equivalent to the year under assessment, are not justifiable an reasonable. It is indeed correct that in some months/period in the preceding year the cash sale were more in some period and less in Some periods as compare to the current year under assessment are lesser or more... It is for your kind submission that we have started our business in the month of Dec 2014 and did business worth Rs 73Tacs only. Hence financial year 2015-16 was practically our first year and FY. 2016-17 years under assessment is our second year of duly commencing business. Hence in the financial year 2015-16 the cash customers did not know us hence there was lesser cash sale in F.Y. 2015-16 as compared to the F.Y. 2016-17 Since the FY 2016-17,was the 2 years old firm hence cash customers start visited our shop. Accordingly out cash sales goes up... It is the month of October the festival season in-which Dussehra, Navratri, Durgapuja, Karvachauth, Dhanteras and) Diwali when the cash customers came out in the market. Moreover the wedding season started from10-11-2016 October. It is submitted accordingly to the newspaper The Economic Time publication 30% of the sales of the jewelers are held in the month of October Festive seasons only, copy of which is enclosed herewith. Since the total sales of my firm was Rs. 23 crores during the year accordingly the total sales of the October should not be less than Rs 7 crores whereas our sales in this period was only Rs.6.3 crores both cash and credit. Hence there is no unusual and disproportionate sale. Sometime cash sale may be more compared to the credit sale. We hereby further submitted that the above said cash deposited was made out of our genuine cash sales which are duly reflected in the sales bills/vouchers and the books of accounts regularly maintained in the normal course of business. The books of accounts have been duly audited and can be produced for verification.."
After considering the same, Assessing Officer rejected the submissions of the assessee and observed that there is substantial increase in the sale of gold during the period of demonetization compared to previous year. He has tabulated sales of current year with previous year and came to the conclusion that assessee has deposited the cash out of undisclosed sources and proceeded to add the same to the returned income u/s 68 of the Act and added the additional sales as bogus by adjusting the average cash deposit out of regular sales and cash-in-hand some sales from prior to demonetization as under :- Particulars Amount (in Rs.) Total cash deposited during demonetization 3,57,60,000/- period Less : Regular sales of 39 days (from 19,54,524/- 01.10.2016 to 08.11.2016) on the basis of average per day sale based on above table. (50,116 x 39) – Highest of the above 3 considered Less : Cash in hand as on 30.09.2016 20,66,511/- Remaining sales is on account of issue of 3,17,38,965/- bogus sale invoices 4. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A)-24, Delhi and filed several grounds of appeal and also filed detailed submissions vide letters dated 30.09.2021, 12,11.2021, 18.11.2021, 02.12.2021, 15.12.2021, 25.07.2022 and 03.11.2022 which are reproduced by the ld. CIT (A) in his order from pages 3 to 50 of the order. After considering the detailed submissions of the assessee, ld. CIT (A) adjudicated ground no.6 which is on merit in detail after considering the substantial details of comparative data of turnover and gross profit of last two years and also data of cash and total sales, after analyzing comparative data of credit and cash sales for the last two years and also analysed quantity details submitted by the assessee, accordingly he allowed the ground raised by the assessee by relying on the decision of ITAT, Chandigarh in the case of Smt. Charu Aggasrwal vs. DCIT (2022) 140 taxmann.com 588 (Chandigarh-Trib.) and ITAT Amritsar Bench in the case of Shri Balwinder Kumar vs. ITO with the following observation :- “4.2.23 This is a case of a firm engaged in trading of gold and silver articles. This is the third year of operation of firm and gross sales have been found increasing every year. The appellant deposited sizeable amount of cash in SBNs in his bank account subsequent to the demonetization. Demonetization has been an extra ordinary event which never happened in the recent past. The Assessing Officer observed that the sales figures for the month of October 2016 have been high and does not follow the past pattern. This can be at best a reason for suspicion for further investigation but cannot be alone considered as sufficient evidence for making addition. The Assessing Officer could have examined and verified the sales made and pointed out specific anomalies in the sales records. He could have verified purchases to prove that adequate stock was not available with the appellant to be sold during demonetization. But the Assessing Officer did not carry out any enquiries to find anomalies in the purchase and sale records. He did not reject the books of accounts and therefore, considered them as correct and complete. There is no debate about the sales prior to 30.09.2016 and subsequent to 08.11.2016. The books of accounts and the results have been considered as correct for the entire year 01.10.2016 to 08.11.2016. The purchases and the stock position was also verified during the course of appellate proceedings. The key issue in this case is whether the adequate stock was available with the appellant as on 01.10.2016 or not. It has been verified that adequate stock was available with the appellant as on 01.10.2016 and payment for such stocks have already been made through banking channels prior to 01.10.2016. Therefore, there is no justification to doubt the fact that adequate amount of paid stock was available with the appellant to be sold in the month of October 2016. Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the correctness of 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 appellant has included the sale of October 2016 in the gross sales made by him in the Profit & Loss accounts and the Assessing Officer did not reduce this amount from the sales while making an addition u/s 68 of Income Tax Act. Presumption that the amount deposited in bank in SBNs is not sale proceed should have resulted in reduction of sales figure and also increase in closing stock, while computing business income. Any addition u/s 68 without corresponding reduction in the sales figure and increase in closing stock figure would result into a double addition which can never be considered as appropriate. Therefore, this is a case where books of accounts have been considered as correct and complete, adequate paid stock was available to be sold during the festival season prior to demonetization and no specific anomalies in purchase sales and stock have been pointed out the Assessing Officer. The Assessing Officer did not dispute that the sum of Rs. 3,17,38,965/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. It is in these circumstances the cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. In view of the above, I am of the considered opinion that the Assessing Officer did not bring out any specific facts and evidence to negate the genuineness of the figure of sales. If the figure of sales has been considered as correct then there is no justification for making an addition of the same sales as unexplained cash credit u/s 68 of Income Tax Act. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, it is clear that the cash receipts represent the sales which the assessee has rightly offered for taxation. As per the books of accounts there was sufficient stock to affect the sales and adequate paid stock was available during October 2016. Further, the appellant has already included the amount of SBNs deposited in bank in sales figures in P&L Account; there is no case for making the addition u/s 68 r.w.s. 115BBE of Income Tax Act again. Therefore, the addition made by the Assessing Officer u/s 68 r.w.s 115BBE of Income Tax Act amounting to Rs. 3,17,38,965/- cannot be considered as correct and the same is not found to be sustainable. Accordingly, the addition of an amount of Rs. 3,17,38,965/- as appellant's income from undisclosed sources u/s 68 r.w.s 115BBE of Income Tax Act is deleted and the relief is allowed to the appellant. Accordingly, Ground Nos. 3 to 6 of appeal are allowed.”
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
1. That the Ld. CIT (AS) has erred in law and on facts in deleting the addition u/s 68 of the Act on account of cash deposit of Rs.3,17,38,965/- accepting the vague arguments of the assessee for depositing huge cash during demonetization period.
2. That the Ld. CIT (A) failed to appreciate that the AO in para AO in para 5 & 6 of the assessment order u/s 143(3) of the Act, 1961 dated 26.12.2019 had categorically discussed all the three ingredients of section 68 of the Income Tax Act i.e. (i) identity of the credits (ii) creditworthiness of the credits and (ii) The genuineness of the transaction.
3. That the Ld. CIT (A) failed to appreciate that the AO in para 5.5 of the assessment order u/s 143 (3) of the Act, 1961 dated 26.12.2019 discussed how the assessee failed to prove genuineness, creditworthiness and identity of the buyers. The copy of the sales bills/vouchers furnished by the assessee reveal that in most of the bills absolutely no identifiers of the purported buyer are mentioned. Accordingly, the genuineness, creditworthiness and identity of the buyers remain unverified.
4. That the Ld. CIT (A) did not appreciate that the entries made in the books of account to the extent of cash sales made just before demonetization period i.e. from 01.10.2016 to 08.11.2016 and cash sales shown just before demonetization period are bogus/non-genuine cash sales and were used as a device to introduce unaccounted money lying with the assessee before demonetization in its books of account.
5. That the Ld. CIT (A) has erred in law and on facts by accepting the claims of the assessee without appreciating that the assessee had not furnished proper explanation in order to prove genuineness of sales and cash deposit. Thus, the AO was not satisfied with the claim of assessee and addition was made u/s 68 of the Act.”
6. At the time of hearing, ld. DR of the Revenue brought to our notice brief facts of the case and specifically brought to our notice page 5 of the assessment order wherein assessee has deposited Rs.3,57,50,000/- only during demonetization period and also he brought to our notice substantial increase in sales only in the month of October compared to previous assessment year for the same period. He heavily relied on the findings of ld. Assessing Officer.
7. Ld. AR of the assessee submitted that assessee is dealing in gold and silver articles and the firm is only three years old and sales were increasing every year. He submitted that assessee has submitted detailed submissions before the ld. CIT (A) and ld. CIT (A) appreciated the facts on record and gave relief, relied on the order of ld. CIT (A).
Considered the rival submissions and material placed on record. We observe that assessee is engaged in trading of gold and silver articles. The current assessment year being third year of operation and the sales were increasing year on year basis. It is fact on record that assessee has deposited cash in SBNs in his bank account subsequent to demonetization period. On analysing the data submitted by the assessee, Assessing Officer observed that in the month of October, assessee has achieved huge cash sales compared to previous year on the same month. The Assessing Officer suspected that assessee had deposited huge cash out of undisclosed source based on the data available before him. We observe that even ld. CIT (A) observed that there could be reasons for suspicion on the basis of data available before him. However, the Assessing Officer should have further investigated by asking for further information. After considering the detailed submissions of the assessee, we observe that the assessee has demonstrated that its sales were growing every year considering the fact that the firm was established only two years back and not only in the month of October, the sales were increased through out the year compared to previous year for the same period. It is also brought to our notice that there is substantial stock movement observed during the period. We are in agreement with ld. CIT (A) that Assessing Officer did not bring out any specific facts and evidence to negate the genuineness of the turnover declared by the assessee. Without properly verifying the books of account nor rejecting the books of account, the Assessing Officer proceeded to make the addition u/s 68 of the Act. We observe that assessee has declared the sales in the books of account and paid the due tax as per the return of income. Further we observe that there is sufficient stock in the business and merely analysing sales in the month of October, does not justified the addition. Therefore, we do not see any reason to disturb the findings of the ld. CIT (A) who have dealt with the issue in detail and adjudicated with a speaking order. Accordingly, grounds raised
by the Revenue are dismissed.
9. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 30th day of September, 2025.