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Facts
The assessee company deposited a significant sum in cash during the demonetization period. The Assessing Officer (AO) treated a portion of this deposit as unexplained income and added it to the assessee's total income. The Commissioner of Income Tax (Appeals) deleted this addition.
Held
The Tribunal held that the assessee had provided sufficient evidence, including sales invoices and VAT returns, to explain the source of the cash deposits as genuine business sales. The AO's reliance on statistical assumptions and human probability was not sufficient to override documentary evidence. Therefore, the addition made by the AO was unjustified.
Key Issues
Whether cash deposits made during the demonetization period, claimed to be from genuine business sales, can be treated as unexplained income when supported by documentary evidence, despite a lack of complete third-party confirmations for all sales.
Sections Cited
143(3), 69A, 115BBE, 133(6), 68, 145(3), 271AAC(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
(ASSESSMENT YEAR: 2017-18) ACIT, SMA Goyal Jewellers Pvt. Ltd., Central Circle-29, I-45, Arya Samaj Road, New Delhi. Vs. Uttam Nagar, West Delhi-110059. PAN:AAJCS4890G (Appellant) (Respondent) Assessee by Shri Sanjeev Batra, Adv. and Shri Kailash Khemani, CA Department by Shri Narpat Singh, Sr. DR Date of hearing 24.06.2025 Date of pronouncement 12.09.2025 O R D E R
PER MANISH AGARWAL, AM:
1. This appeal is filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals)-30 in Appeal No. 08/10437/2019-20 dated 25.09.2024 for Assessment Year 2017-18 arising out of assessment order passed u/s 143(3) of the Income Tax Act, 1961 for Assessment Year 2017-18.
Brief facts of the case are that assessee is a company and e-filed its return of income on 23.10.2017 declaring total income at Rs.4,35,580/-. The case of the assessee was selected for complete scrutiny. Assessee has made cash deposit of Rs.98,00,000/- in specified bank notes (SBN) in Kotak Mahindra Bank Account. During the course of the assessment proceedings, details have been asked for time to time and the Assessing Officer has issued summons to the parties to whom sales stated to have been made in cash. Since, most of the parties has not responded to the notices issued by the Assessing Officer, he was of the opinion that cash deposited during 2 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. demonetization is unexplained money of assessee and made the additions of Rs.78,00,000/- u/s 69A r.w.s 115BBE of the Act.
Against this order, assessee preferred an appeal before the Ld. CIT(A) wherein Ld. CIT(A) after considering the submissions made by the assessee and facts of the case deleted the addition made.
4. Aggrieved by the said order, the Revenue is in appeal before us by taking following grounds of appeal: “i. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in granting relief of Rs 78,00,000/- in respect of the addition made u/s 68 of the Act on the ground that the cash deposits stood explained. ii. That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in accepting the sales made by the assesse during the year under consideration irrespective of the fact that four out of five notices issued u/s 133(6) of the Act for verification of sale invoices on sample basis remained unverified. iii. That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in ignoring the concept of 'human probability' of receiving and entering cash of Rs. 98 lakh within three and half hours in its business premises. iv. That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in disregarding the fact that acceptance of cash in SBNs (Specified Bank Notes) with such 'ceased legal tender cannot be treated as a legal business transaction in view of the special circumstances prevailing after announcement of demonetization. v. That the grounds of appeal are without prejudice to each other. vi. That the appellant craves leave to add, amend, alter or forgo any grounds(s) of appeal either before or at the time of hearing of the appeal.”
5. Since, all the grounds of appeal are with respect to the deletion of addition of Rs.78,00,000/- by Ld. CIT(A), therefore, they are taken together for consideration.
6. Before us, Ld. Sr. DR supports the order of the Ld. AO and submits that assessee has disclosed the sales of cash Rs. 97.42 lacs on a single date i.e., on 08.11.2016 and confirmation of only Rs.2.57 lacs of the sales were received and remaining sales had remained unverified. This raised serious doubts about the genuineness of the entire day’s sales. Ld. Sr. DR further submits that notices were issued by the AO u/s 133(6) of the Act which were not complied with by most of the buyers. He further submits that there was average daily cash sales of Rs.91,571/- during the period from 01.11.2016 to
3 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. 07.11.2016. However, on 8.11.2016 the sales of Rs.97.42 lacs was made which is very abnormal looking to the daily average sales just before 8.11.2016. He further submits that it is almost impossible to make this huge sales in short period of around three hours after the announcement of demonetization by the Hon’ble Prime Minister on 8.11.2016. He therefore, prayed for confirmation of the addition made by the AO. The Ld. Sr. DR also filed written submissions and requested for consider the same. The written submissions so filed is reproduced as under: “Sub: Written Submission in the above case-reeg. Brief Facts of the case:- Assessment Order
1. The assessee is engaged in the business of retail trading of jewellery, with showrooms in Uttam Nagar and Dwarka, New Delhi. It filed its return of income declaring income of Rs. 4,35,580/- for A.Y. 2017-18.
2. The case was selected for complete scrutiny under CASS on the issue of abnormal increase in cash deposits during the demonetisation period."
3. During the period 09.11.2016 to 30.12.2016, the assessee deposited Rs. 98,00,000/- in its Kotak Mahindra Bank account. This was almost entirely deposited on 10.11.2016, immediately after demonetisation was announced. 4. A significant portion-Rs. 97,42,130/ was claimed to be cash sales dated 08.11.2016, which constituted more than 100 times the average daily cash sales of the earlier week. This sale spike lacked sufficient third-party corroboration. 5. Based on principles of human probability, lack of confirmation in 4 out of 5 sample verification notices under section 133(6), and other circumstantial deficiencies, the AO treated Rs. 78,00,000/- as unexplained money under section 69A of the Act and taxed it under section 115BBE. CIT(A) order:- The assessee preferred an appeal challenging the reassessment order passed under section 143(3) of the Income-tax Act, 1961, for A.Y. 2017-18. The Ld. CIT(A) vide appellate order dated 25.09.2024, deleted the entire addition of Rs. 78,00,000/- made by the Assessing Officer under section 69A. The gist of the findings of the Ld. CIT(A) is as under: (i) That the assessee had explained the spike in sales on 08.11.2016 as arising from public behaviour post-demonetisation, and that it was in line with broader market sentiment and media reports of panic buying. (ii) That although 4 out of 5 notices under section is remained unverified, I customer for a sale of Re 2.57 lakhej did confirm, and this partial confirmation along with VAT records and audit reports was sufficient to accept the genuineness of the sales (iii) That the source of cash deposit was duly recorded in the audited books of account and reflected in VAT returns, thereby precluding application of section 691. (iv) That the AO's use of statistical averages and principle of human probability was insufficient to override documentary evidence. (v) That the provisions of section 115BBE could not be invoked where income had already been offered to tax through declared sales in audited books.
4 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd.
7. Aggrieved with the above, the department has filed appeal against the order of Ld. CIT(A) in ITAT. Grounds of Appeal i) That on the facts and in the circumstances of the case, the Id. CIT(A) erred in granting relief of Rs. 78,00,000/- in respect of the addition made u/s 68 of the Act on the ground that the cash deposits stood explained. ii) That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in accepting the sales made by the assessee during the year under consideration irrespective of the fact that four out of five notices issued u/s 133(6) of the Act for verification of sale invoices on sample basis remained unverified. iii) That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in ignoring the concept of human probability' of receiving and entering cash of Rs. 98 lakh within three and half hours in its business premises. iv) That on the facts and in the circumstances of the case, the Ld. CIT(Appeal) erred in disregarding the fact that acceptance of cash in SBNs (Specified Bank Notes) with such 'ceased legal tender cannot be treated as a legal business transaction in view of the special circumstances prevailing after announcement of demonetization. Revenue's appeal (i) The Ld. CIT(A) erred in granting blanket relief despite clear evidence that out of Rs. 97.42 lakhs of cash sales claimed on 08.11.2016, confirmations were received only for Rs. 2.57 lakhs (2.64% of total). The remaining 97.36% stood unverified despite issuance of section 133(6) notices. This raises serious doubts on the genuineness of the entire day's sales. (ii) The reliance by the CIT(A) on market sentiment and public behaviour lacks evidentiary value in the absence of corroborative confirmations from buyers. In fact, the unusually high sales of Rs. 97.42 lakhs recorded on a single day-more than 106 times the average daily cash sales of Rs. 91.571/-warranted deeper scrutiny, not such an easy acceptance. (iii) The CIT(A) failed to address the core issue of whether such a large quantity of goods could realistically have been sold, invoiced, recorded, and cash collected all on the same day in a lawful manner, particularly when most of it involved SBNs, which had ceased to be legal tender by midnight of 08.11.2016. (iv) The inference that accounting entries and VAT filings by themselves are sufficient to establish genuineness of transaction is legally untenable. The burden of proof lies squarely on the assessee under section 69A, which requires not only a recorded entry but a credible explanation of the nature and source of the money. The failure to secure independent third-party confirmations undercuts the reliability of the sales claim. (v) The principle of human probability, upheld by the Hon'ble Supreme Court in cases such as Durga Prasad More and Sumati Dayal, is squarely applicable in the present case. The CIT(A) overlooked that these precedents were invoked by the AO specifically because the surrounding circumstances volume, timing, and verifiability-pointed to a fabricated transaction. (vi) Furthermore, the CIT(A)'s assumption that the sales recorded in books preclude application of section 69A is fallacious. Section 69A applies where the source of money is not satisfactorily explained even if book entries exist. In this case, the cash deposit of Rs. 98 lakh was made on 10.11.2016, purportedly arising from 08.11.2016 sales, the majority of which were not verified independently.
5 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. (vii) The relief granted by the CIT(A) ignores the legislative purpose of sections 69A and 115BBE, which is to tax unexplained money irrespective of its accounting treatment when the surrounding facts do not corroborate the stated source Prayer:-It is most respectfully prayed that the Hon'ble ITAT may be pleased to set aside the order of the Ld. CIT(A) dated 25.09.2024 and restore the addition of Rs.78,00,000/- made by the Assessing Officer under section 69A of the Income-tax Act, 1961.”
On the other hand, the Ld. AR of the assessee vehemently supported the orders of the Ld. CIT(A). He submits that assessee has made sales which were duly recorded in the books of accounts and Assessing Officer has not invoked the provisions of Section 145(3) of the Act while holding the cash deposited during demonetization out of such cash sales as unexplained. The Ld. AR further submits that assessee has filed details of persons to whom sales were made on 08.11.2016. However, AO made enquiries from only five parties, out of which one party has responded. It is further submitted that the trading results declared by the assessee were accepted and sales made was not doubted which includes cash sales made and deposited in SBN during demonetization in the bank account. Thus, holding the same as unexplained is double addition of an income, firstly as profit on cash sales and secondly by making addition of entire amount as unexplained. Ld. AR submits that Ld. CIT(A) appreciated these facts and deleted the addition made. He, therefore, prayed for confirmation of the order of Ld. CIT(A). Ld. AR also filed details submission which is reproduced as under: “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in aunting relief of Rs. 78,00,000/- in respect of addition made u/s 68 of the Act on the around that the cash deposits stood explained. As per the Assessment Order (page no. 8 of the order), the Ld. A.O has made addition to income u/s 69A of the Income Tax Act. (however the Ld. ACIT has mentioned sec 68 at point #1of grounds of appeal). Section 69A comes into play in case the following two conditions are satisfied: If the assesse is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in books of account if any maintained by him for any source of income, and the assesse offers no explanation about the nature and source of acquisition of the money. bullion, jewellery or other valuable article, or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory; the money and the value of the bullion, jewellery or other valuable article may be deemed to be income of the assesse of such financial year.
6 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. On the other hand, section 68 which deals with cash credits makes the sum so credited may be charged to income as the income of the assesse of that previous year.
The Ld. A.O has not recorded any findings in the Assessment Order as to how the cash deposit of Rs. 78,00,000/- after giving an arbitrary relief of Rs.20,00,000/-into the bank account was guised as unexplained money. The A.O disregarded the fact that sufficient explanation and evidences like cash flow statement, month-wise break up of revenue, comparative data and copy of invoices raised on the date of demonetization substantiating cash deposit were submitted during the course of assessment u/s 143(3). II. The assesse has deposited cash during demonetization period from sale of jewellery which represents an ordinary business transaction and it was duly recorded in books of account and is therefore beyond the purview of section 69A the assesse has also discharged tax thereon under normal Income tax provision related to business income. Any addition would result into taxing income afresh under section 115BBE Further, cash-sales is a regular business phenomenon and two-year comparative data tabulated below explains anomalies observed by the Ld. A.O.
Particulars FY 2016-17 FY 2015-16 Sales 5,08,24,448 6,43,57,557 Cash Sales 2,49,11,940 5,29,87,783 % of Cash Sales/Sales 49% 82% Cash Deposited 2,63,40,000 6,13,23,600 % of Cash Deposited Sales 52% 95% There was a dip in cash sales and % of cash deposited to total sales despite the fact that the FY 2016-17 witnessed the demonetization period. iii. The appellant has also reported the revenue in its quarterly VAT returns required to be submitted under DVAT rules, 2004. (Please refer to page #7 showing month wise break up of revenue and DVAT return tying up revenue reported during Q3 of FY 2016- 17). iv. The Ld. A.O. relied on the following judicial precedents and applied section 69A nevertheless in the given case the assessee has already offered the income to tax and earned such income from normal business transaction backed by sufficient documentary evidence. a. The Hon'ble Supreme Court in the case of Chuharmal Vs CITc while affirming the view of the Madhya Pradesh High Court has held that 'the expression 'INCOME' asused in Section 69A of the Act, 1961 had a wide meaning which meant anything which came in or resulted in gain and on this basis, concluded that the assessee had income which he had invested in purchasing article and he could be held to be owner and the value could be deemed to be his income by virtue of Section 69A of the Act.' b. The Hon'ble Supreme Court in the case of Smt. Srilekha Banerjee and others v. CIT, Bihar & Orissa, held that the source of money not having been satisfactorily proved, the Department was justified in holding it to be assessable income of the assessee from some undisclosed source. c. In the case of Sajjan Dass& Sons v. CIT Their Lordships of the High Court of Delhi, while considering a case in which gifts were received by the assessee through banking channels laid Importance on the capacity of the donor for 7 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. making the gift and his Identity as well as Importance of relationship between the donor and donee in determination of genuineness of gift. d. The Hon'ble Delhi High Court in the case of Rajiv Jain vs ITO it has been held that the assessee has not linked the transactions of deposit made in cash out of available balance. Further, in connection with sale of wearing apparels and silver utensils, the contention of the assessee has not been substantiated by any proof of sale. Favorable Judicial Precedents Supporting the CIT(A) Order ITAT Delhi Bench-Subhash Chand Gupta v. ACIT (Page#10) ITAT Hyderabad-MeenaJewellers Extension (P) Ltd. v. ACIT (Page#15) ITAT-Hyderabad-Shyam Sunder Baheti v. ITO (Page #23) ITAT-Pune-ACIT v. Nathmal Rupchand Jain (Page #27) ITAT-Surat Bench-Govind Gopal Goyalv.ITO (Page #35) 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in accepting the sales made by the assessee during the year under consideration irrespective of the fact that four out of five notices issued under section 133(6) of the Act for verification of sale invoices on sample basis remained unverified. a. The assesse has adequately maintained invoices raisedduring the year and sales register for the FY 2016-17 and there is nothing adverse brought on record under statutory audit. The assesse, being Delhi Value Added Tax, 2004 (DVAT) compliant has also submitted invoice level summary and quarterly returns without any objection from the VAT office. b. Out of five cash sales invoices selected for verification, four invoices are below Rs. 2,00,000/-. In this connection a reference is drawn to a change brought in Rule 1148 of Income Tax Rules effective 01 January 2016 where quoting of PAN has been made mandatory in case a cash sale/purchase of any goods or services exceeds Rs.2,00,000/- per transaction. c. Moreover, in case of cash sales a trader neither maintains nor is legally mandated to maintain the name, address and other details of the buyer unless there is a specific requirement to that effect. The fifth invoice raised on Disha Sachdeva for Rs. 2,57,650/- was duly confirmed by her in response to notice issued u/s 133(6) of the Income Tax Act as the assesse maintained adequate details to comply with Rule 114B.
3. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in ignoring the concept of "human probability" of receiving and entering cash of Rs. 98,00,000 within three and half hours in its business premises. a) The Ld. A.O. in his order (on page #3, para 3.11) has conceded that there was a mad rush to the jewellery stores as soon as demonetization was announced. In view of such circumstances the A.O hasv factored in phenomenal sale of gold jewelleryand granted a lump sum benefit of Rs.20,00,000 also for two retail outlets of the assessee. However, exemption of Rs. 20,00,000lacks rationality and is unjustified in view of sudden rushon 8th November 2016 as soon as demonetization was announced around 8 P.M. There was a panic in the market and customers sought to convert their old currency into gold and jewellery swiftly. Cash Sales of Rs. 98.00.000 on 8th November, 2016 can be corroborated with purchases and inventory maintained by the assessee and there is no adverse finding to that effect by the A.O in his order. b) The Ld. A.O relied on the judgments dealing with the concept of "preponderance" delivered, by the Supreme Court in the case of CIT v. Durga 8 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. Prasad More and SumatiDayal v. CIT wherein it upheld that "the taxing authorities were not required to put on blinkers while looking at documents and they were entitled to look into the surrounding circumstances to find out the reality of the recitals made in the documents, to find out whether the appeal is real or not and to take a decision in the light of human probabilities". c) In view of gold being a precious commodity and two outlets of the assessee at Dwarkaand Uttam Nagar respectively, the factor of human probability is not doubted with the help of below summary: Outlets Cash Sales No. of No of Invoices > Avg, Invoice (Ex. VAT) Invoices 2,00,000 Value Dwarka 40,50,062 37 01 1,09,462 Uttam Nagar 58,08,405 39 - 1,48,933 Total 98,55,467 76 01
That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in disregarding the fact that acceptance of cash in SBN (Specified Bank Notes) with such 'ceased legal tender' can't be treated as a legal business transaction in view of the special circumstances prevailing after announcement of demonetization. The assesse had reported cash sales of Rs. 97.42.130/- as business transaction on 08-11-2016, the date on which demonetization was announced. a. The Honorable Prime Minister of India on 8 November 2016, announced the demonetization in a live national address at 20:15 and declared circulation of all 500 and 1,000 banknotes of the Mahatma Gandhi Series as invalid effective from the midnight of the same day i.e. 08th November, 2016. b. Pursuant to demonetization announced, SBNs (Specified Bank Notes) ceased to be legal tender and treated as illegal for business transaction from 09th November, 2016 (12:00 A.M onwards). c. The assessee company duly complied with directions issued on 08 November, 2016 and accepted SBN Specified Bank Notes till 11:59 PM of the day demonetization was announced which can be corroborated with invoices raised on that day.” 8. Heard both the parties and perused the materials available on record. In the instant case, the AO has made the addition of Rs. 78 lacs out of 98 lacs deposited in the bank account for demonetization in SBN as unexplained money and invoked the provisions of section 69A r.w.s. 115BBE of the Act. However, in the grounds of appeal
taken by the Revenue, the Revenue has challenged the action of CIT(A) in the deleting the same as considering it as addition u/s 68 of the Act which was not invoked by the Assessing Officer, thus, the grounds of appeal taken by the Revenue to this extent is not emanated from the orders of the lower authorities. With respect to other grounds taken, wherein Revenue has challenged the deletion of the addition of Rs.78 lacs. We find that assessee has made total sale of Rs.5,08,24,448/- in the year under appeal as compared to sales of Rs.6,43,57,557/- in 9. IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. immediate proceeding years. Further in the instant year cash sales was of Rs.2,49,11,940/- as against corresponding cash sales of Rs.5,29,87,783/- in preceding year and cash deposited in the bank was of Rs.2,63,40,000/- in the year under appeal as against 6,13,23,600/- in preceding year. These comparative data of two years clearly shows that as against the cash sales of 82% in preceding year, in the year under appeal, assessee has made cash sales of 49% of the total sales, thus, the comparative data is rather favouring the assessee. Only issue remained is with respect to the sales made on the date of demonetization announced by the Hon’ble Prime Minister. It is a well known fact that immediately after the announcement of demonetization by the Hon’ble Prime Minister, there was surge of customers in the shops of valuable items like jewellery stores, garments outlets, electronic goods stores, households goods stores etc. Assessee is a the dealer of the jewellery made of precious metals and, it had also experienced sudden heavy footfall of the customers who intend to purchase jwellery in exchange of their old currency as the same was legal tender upto the Zero hours till midnight. In this process assessee has achieved the substantial sales as on the date of demonetization. During the course of assessment proceedings every precise details of such sales were filed before the AO who has not pointed out any defect in the sales and sales declared by the assessee was accepted. AO made enquiries fromonly 5 parties. It is also a ,atter of fact that sale was duly accepted by the VAT authorities. Ld. CIT(A) considering these facts, deleted the addition by observing in para 9 of its order as under : “9. Ground nos.2 and 3: This appeal arises from the assessment order dated 30.12.2019 passed by the Assessing Officer (AO), ITO Ward-24(1), New Delhi, under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year (A.Y.) 2017-18. The AO made an addition of Rs. 78,00,000/- to the total income of the appellant, M/s SMA Goyal Jewellers Pvt. Ltd., treating cash deposits made during the demonetization period as unexplained money under section 69A of the Act. The appellant has filed this appeal challenging the addition. 9.1. The appellant is engaged in the business of retail trading of jewelry. During the demonetization period (09.11.2016 to 30.12.2016), the appellant deposited Rs. 98,00,000/- in its Kotak Mahindra Bank account. The case was selected for scrutiny under the CASS system, citing "abnormal increase in cash deposits during the demonetization period" as a primary reason. The appellant provided sales invoices, ledger entries, and VAT returns to support its claim that the cash deposited was from genuine business sales. However, the AO, citing the "Principle of Human Probability, rejected the appellant's explanation for a significant portion of the cash deposits. The AO allowed a relief of Rs. 20,00,000/- but added Rs. 78,00,000/- to the income,
10. IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. invoking section 69A of the Act, treating it as unexplained money. The AO also invoked section 115BBE and initiated penalty proceedings under section 271AAC(1). 9.2. The AO observed that the appellant reported average daily sales of Rs.91,571/- during the first seven days of November 2016, but on 08.11.2016, the appellant recorded cash sales of Rs. 97,42,130/- a significant increase. The AO deemed such a spike in cash sales as improbable under normal circumstances, using statistical assumptions and human probability. The AO issued notices under section 133(6) to confirm the sales, receiving responses for only a small portion of the total sales, which led the AO to question the overall genuineness of the cash sales. The AO made an addition of Rs. 78,00,000/- under section 69A, concluding that the cash deposits during demonetization were unexplained money. 9.3. The appellant, in its submission, argued that Cash sales have been a regular feature of its business in previous years, and the increase in sales on 08.11.2016 was due to a market-wide rush for gold and jewelry post-demonetization. The VAT returns and financial records for the relevant period were consistent with the cash sales reported during the demonetization period, and no discrepancies were found. The AQ's reliance on statistical analysis and assumptions ignored the realities of the retail jewelry business during demonetization, where the sudden surge in demand was well- documented. Section 69A cannot be applied as the appellant has adequately explained the source of the cash deposits with documentary evidence. 9.4. For Genuineness of Cash Sales, the appellant provided sales invoices and VAT returns, demonstrating that cash sales have always been a regular feature of the business. The appellant's total sales for FY 2016-17 amounted to Rs. 5.08 crores, with a significant portion in cash. The cash sales reported during the demonetization period were in line with the overall sales pattern for the financial year, and the sharp spike on 08.11.2016 was not unusual given the extraordinary circumstances surrounding demonetization. As per media reports and industry trends, there was indeed a rush to jewelry stores after the demonetization announcement, as customers sought to convert their old currency into gold. The appellant's cash sales on 08.11.2016 reflected this market behavior. It was seen from records that the AO never doubted purchases and stock register. For sales, it is also to be appreciated that for cash sales of less than Rs.2 lakh, assesse is not legally mandated to maintain name, addresses and PAN of clients. AO has sent notices u/s 133(6) of act to some customers on sample basis but could not get response for sales under Rs. 2 lakh which cannot be conclusively held against assessee on the basis of above discussion. However, Cash sales of more that 2 lakh have been confirmed by customers as accepted by AO. 9.5. It is noticed that the appellant's cash sales pattern in previous years was consistent with the sales reported during the demonetization period. In FY 2015-16, the appellant reported total sales of Rs. 6.43 crores, with a significant portion in cash. The sales in FY 2016-17, though lower at Rs. 5.08 crores, followed the same pattern of cash transactions, indicating that cash sales were a normal feature of the appellant's business. The VAT returns filed by the appellant for both FY 2015-16 and FY 2016-17 further corroborate the consistency in sales, with no discrepancies noted. This consistency across different financial documents supports the appellant's claim that the cash deposits during demonetization were from legitimate business activities. 9.6. AO has applied section 69A which is when the assessee fails to satisfactorily explain the source of cash deposits or assets. In this case, the appellant has provided detailed sales invoices, VAT returns, and ledger entries to explain the source of the cash deposited during the demonetization period. The AO's reliance on statistical assumptions and the principle of human probability does not suffice to reject the appellant's explanation when documentary evidence has been provided. In CIT v. K. Y. Pilliah & Sons, the Hon'ble Supreme Court held that suspicion or conjecture alone cannot be the basis for making additions. The revenue authorities must provide concrete
11. IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. evidence to disprove the assessee's explanation, which the AO has failed to do in this case. 9.7. The appellant's VAT returns for the relevant period corroborate the cash sales reported during demonetization. The AO has not identified any discrepancies in the VAT filings, which indicates that the sales were genuine and properly accounted for. The consistency between the VAT and income tax returns further supports the appellant's claim that the cash deposits were part of normal business operations. 9.8. The AO invoked section 115BBE, which applies to unexplained income referred to in sections 68, 69, and 69A. However, since the cash deposits were from business receipts and were adequately explained, section 115BBE is not applicable. The appellant has sufficiently demonstrated that the cash sales were genuine, and there is no reason to invoke section 115BBE in this case. 9.9. In view of the above discussion, I find that the addition of Rs.78,00,000 made by the AO under section 69A is unjustified. The appellant has provided sufficient evidence to substantiate that the cash deposits during the demonetization period were from genuine business sales. The invocation of section 115BBE is also not warranted. The addition of Rs. 78,00,000 made by the AO is hereby deleted.
As a result, the appeal is allowed.”
The realization of cash sales is duly recorded in the cash book maintained on day to day basis which is evident from the perusal of the cash book submitted before the lower authorities. Assessee has deposited SBN during the demonetization on various dates out of the cash available with assessee as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the Hon’ble Prime Minister and was the last day upto which the SBN could be accepted as valid currency. The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the cash deposited in SBN during the demonetization period. No such adverse observations were made by the AO and trading results declared were accepted. The AO had not doubted the availability of stock with the assessee prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and other when the sale 12 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. consideration was realized and deposited in the bank account which is doubted on conjectures and surmises.
10. The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House in (Delhi High Court) has held as under: “In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.”
The Co-ordinate bench of ITAT Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in vide order dt. 25.09.2024 has observed as under: “18. Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO"
13 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under: "At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68." Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022 dated 27.03.2023, wherein it was held as under: 22. In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give colour to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the 14 IT No.5583/Del/2024 ACIT vs. SMA Goyal Jewellers Pvt. Ltd. Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous.
Respectfully, following the above decisions, we are inclined to allow the grounds raised
by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked.
22. In the result, appeal filed by the assessee is allowed.”
12. Before us, the Revenue has reiterated the allegation made by the AO in the Assessment Order and no new fact/material was placed on record to controvert the finding given by Ld. CIT(A). It is further seen that the Ld. CIT(A) also appreciated the fact that there was sufficient stock available with the assessee before making the sales and no defects whatsoever were pointed out by the AO in the books of accounts including the stock records and, therefore, no addition could be made.
In view of the above facts and by respectfully following the judgement of Hon’ble Jurisdictional High Court (supra) and of Co-ordinate Benches of the Tribunal, in our considered view, there is no error in the order of Ld. CIT(A) in deleting the addition which is hereby upheld. Accordingly all the grounds of appeal of the revenue are dismissed.