ITO Vs Shann Jewellers (ITAT Delhi)
Loan Repayments Explained from Stock Sales and Fresh Borrowings; Demonetisation Cash Sales Accepted as Genuine
The Assessing Officer made two major additions for AY 2017-18:
(i) ₹2.15 crore treating repayment of unsecured loans as unexplained under section 68, and
(ii) ₹1.74 crore treating part of demonetisation-period cash sales as unexplained cash deposits taxable under section 68 read with section 115BBE.
On the first issue, the CIT(A) analysed comparative balance sheets and cash flows and found that the firm had generated funds by reducing its closing stock by ₹1.98 crore and earning normal profit thereon (approx. ₹2.18 crore), besides receiving fresh unsecured loans of ₹3.36 crore. All repayments were made through banking channels, duly supported by confirmations, bank statements and tax audit report, and the AO had neither rejected the books nor shown any shortage of funds on the dates of repayment. Holding that the source of repayments stood fully explained, the CIT(A) deleted the addition of ₹2.15 crore, which the Tribunal affirmed.
On the demonetisation issue, the AO assumed that October–November 2016 sales should mirror the previous year and treated excess cash sales as fictitious, also suspecting invoice amounts were split to avoid KYC norms. The CIT(A), after verifying audited books, stock registers, purchase bills, VAT returns and quantitative records, found that sufficient stock was available and all sales were properly recorded. Historical comparisons also showed large natural fluctuations in monthly cash sales across years, disproving the AO’s uniform-pattern assumption. Since the AO found no defect in books and did not reject them, the entire addition of ₹1.74 crore was deleted.
The Tribunal upheld both deletions, holding that documented stock realisation and fresh borrowings explained the loan repayments, and that properly recorded, VAT-accepted cash sales could not be arbitrarily re-estimated or partly treated as unexplained merely on suspicion during demonetisation.
Accordingly, the Revenue’s appeal was dismissed in full.
FULL TEXT OF THE ORDER OF ITAT DELHI
