ITO Vs Raj Kumar Nowal (ITAT Jaipur)
The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, adjudicated an appeal filed by the Revenue (ITO) against the order dated February 10, 2022, passed by the Commissioner of Income Tax (Appeals)-4, Jaipur [CIT(A)] for Assessment Year 2017–18.
Material Facts & Procedural History
The assessee is an individual carrying on the business of jewellery under two sole proprietorship concerns, M/s D.N. Diamonds (Jaipur) and M/s Dinanath Raj Kumar (Kanpur).
The assessee filed a return of income on October 16, 2017, declaring a total income of ₹40,11,520.
During the scrutiny assessment under Section 143(3), the Assessing Officer (AO) observed that the assessee deposited ₹91,00,000 in demonetised currency during the demonetisation period (November 9, 2016 to December 31, 2016) and ₹12,00,000 in non-demonetised currency on March 28, 2017.
The ₹12,00,000 deposit made on March 28, 2017 had already been declared and offered to income by the assessee under the Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY-2016).
The AO treated the entire ₹1,03,00,000 (₹91,00,000 + ₹12,00,000) as unverified/non-genuine cash sales and added it to the income under Section 68 as unexplained cash credits, completing the assessment on December 30, 2019 at a total income of ₹1,43,11,520.
On appeal, the CIT(A) deleted the entire addition of ₹1,03,00,000. Aggrieved, the Revenue appealed to the ITAT.
Legal Issues & Statutory Provisions
Section 68 of the Income Tax Act, 1961: Applicability of cash credit additions to cash deposits arising out of recorded business sales credited in trading accounts.
Section 145(3) of the Income Tax Act, 1961: Rejection of books of account where sales, stock registers, and tax audit reports are accepted without disturbance.
Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY-2016): Taxability of non-demonetised cash deposits already declared under the scheme.
Parties’ Submissions
Revenue’s Submissions:
The Departmental Representative supported the AO’s assessment order, arguing that the CIT(A) erred in deleting the ₹1,03,00,000 addition made under Section 68, as the demonetisation cash deposits remained unverified during assessment proceedings.
Assessee’s Submissions:
The ₹12,00,000 deposit was in non-demonetised currency on March 28, 2017 and was fully offered under PMGKY-2016, supported by Form 1 and Form 2.
The ₹91,00,000 cash deposits in demonetised currency were generated from regular, accounted cash sales of jewellery accumulated primarily during the festive season (Dhanteras/Diwali in October 2016).
Annual turnover increased from ₹1,15,92,702 (FY 2015–16) to ₹2,77,05,253 (FY 2016–17) because the Kanpur firm started in 2015 and expanded in 2016. The AO erred factually in claiming overall sales decreased by 138.98%, when sales actually increased by 138.98%.
The books of account were audited, supported by serially numbered bills and stock registers, and were accepted without rejection under Section 145(3).
Sales declared were accepted by the VAT/Commercial Taxes Department.
Section 68 is inapplicable to trade sales credited to the trading/P&L account, as treating accounted sales as cash credits amounts to double addition.
Tribunal Observations & Findings
The Tribunal considered the detailed factual findings of the CIT(A) and the submissions of both parties.
The source of the demonetised cash deposits was duly accounted cash sales credited in the trading account, supported by daily stock registers and audited financial statements.
The AO accepted the sales credited to the trading account without rejecting the books under Section 145(3) or proving any bills to be bogus, fabricated, or back-dated.
The ₹12,00,000 component was non-demonetised cash properly offered to tax under PMGKY-2016.
The AO’s addition under Section 68 proceeded on suspicion, assumptions, and factual errors regarding sales growth without bringing any adverse material on record.
Directions & Final Decision
The ITAT upheld the order of the CIT(A) deleting the addition of ₹1,03,00,000 made under Section 68.
The Revenue’s appeal was dismissed
Cases Discussed
- Principal Commissioner of Income-tax vs. Aditya Birla Telecom Ltd. (Bombay High Court), [2019] 105 taxmann.com 206
- Principal Commissioner of Income-tax vs. Meenakshi Overseas (P.) Ltd (Delhi High Court), [2017] 82 taxmann.com 300
- Rustagi Engineering Udyog (P.) Ltd vs. Deputy Commissioner of Income-tax (Delhi High Court), [2016] 382 ITR 443
- Commissioner of Income-tax vs. Kapil Nagpal (Delhi High Court), DBITA 609/2014
- Commissioner of Income-tax vs. Neel Giri Krishi Farms (P.) Ltd. (Allahabad High Court), [2013] 218 Taxman 95
- Smt. Harshila Chordia vs. Income-tax Officer (Rajasthan High Court), [2008] 298 ITR 349
- Goyal Gases (P.) Ltd vs. Commissioner of Income-tax (Delhi High Court), [1997] 94 TAXMAN 57
- Umacharan Shaw & Bros vs. Commissioner of Income-tax (Supreme Court), [1959] 37 ITR 271
- Dhakeswari Cotton Mills Ltd vs. Commissioner of Income-tax (Supreme Court), [1954] 26 ITR 775
- CIT vs. Shri Jawahar Lal Oswal (Punjab & Haryana High Court), DBITA 49/1999
FULL TEXT OF THE ORDER OF ITAT JAIPUR
