ITO Vs Sunita Gold and Diamonds Pvt. Ltd. (ITAT Delhi)
The Revenue appealed against the order of the National Faceless Appeal Centre (NFAC), which had deleted an addition of ₹3,72,69,265 made under Section 68 of the Income Tax Act for Assessment Year 2017-18. The dispute arose from cash deposits made by the assessee, a jewellery trader, during the demonetization period.
The assessee had deposited ₹3,54,70,000 into its bank accounts between 9 November 2016 and 31 December 2016. It explained that the deposits originated from cash sales of ₹2,06,55,451 and cash advances of ₹1,29,19,190 received on 8 November 2016, along with cash already available from regular business operations. The Assessing Officer (AO) rejected this explanation, holding that the alleged cash sales and advances were sham transactions created to introduce unaccounted money into the books. The AO relied on the unusually high volume of sales on a single day, the issuance of 206 sale invoices below ₹2 lakh, and the test of human probabilities, treating ₹3,72,69,265 as unexplained cash credit under Section 68.
Before the appellate authority, the assessee produced its income tax return, cash book, bank statements, VAT returns, stock records, purchase invoices, and assessment records. It contended that the books of account had not been rejected, cash sales and stock records had been accepted, and VAT authorities had accepted the reported sales. The assessee also submitted that cash sales formed a substantial and consistent part of its business in preceding and succeeding years and that jewellery sales naturally increased during the Diwali and wedding season. It further explained that customer advances were received under monthly business schemes and were subsequently offered to tax as sales in later years.
