Audited Books Alone Cannot Prove Disputed Cash Sales: ITAT Chennai

Challani Raanka Jewellers Vs DCIT (ITAT Chennai)

Audited Books and a Stock Register Did Not Explain ₹11.31 Crore Cash Deposits: Chennai ITAT Upholds Demonetisation Addition

Summary: Cash sales recorded in audited books may explain subsequent bank deposits when the sales, stock movement and cash trail are supported by credible evidence. In Challani Raanka Jewellers, however, the Chennai ITAT found that the jewellery trader had not established that its ₹11,31,05,600 deposited during demonetisation came from genuine sales of silver articles. It therefore upheld the addition under section 68. The decision did not rest on the increase in deposits alone. The Tribunal considered the absence of purchaser particulars for substantial cash sales, the inability to verify the corresponding stock through purchase invoices during remand proceedings, the unusual accumulation of cash and the pattern of subsequent withdrawals. It held that these circumstances, taken together, left the firm’s explanation unsubstantiated.

The Firm’s Explanation: Cash From Silver Sales

Challani Raanka Jewellers was a partnership firm trading in silver utensils, articles, leg chains and other silver items. It filed its return for AY 2017-18 declaring income of ₹3,55,020. During scrutiny, the AO found cash deposits of ₹11.31 crore in the firm’s bank account during the demonetisation period.