Fine Gujaranwala Jewellers Vs ITO (ITAT Delhi)
In a significant ruling for businesses impacted by the 2016 demonetization, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has deleted an addition of Rs. 1,37,95,040 made against Fine Gujaranwala Jewellers for assessment year 2017-18. The addition, initially made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, as unexplained cash credit and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] / National Faceless Appeal Centre (NFAC), was challenged by the assessee. The ITAT’s decision, pronounced on March 27, 2023, emphasized that genuine sales, even if unusually high during the demonetization period, cannot be dismissed without concrete evidence of their non-genuineness, especially when books of accounts are maintained and not rejected.
Background of the Dispute
Fine Gujaranwala Jewellers, engaged in the jewellery business, filed its income tax return for Assessment Year 2017-18 declaring Nil income. The case was selected for scrutiny, and the AO subsequently made an addition of Rs. 1,37,95,042, treating cash deposits in the assessee’s bank account as unexplained cash credit under Section 68 read with Section 115BBE of the Act.
The core of the dispute revolved around substantial cash sales recorded by the assessee during the demonetization period (specifically from October 1, 2016, to November 8, 2016). The AO and subsequently the CIT(A) found these sales suspicious for several reasons:
- The assessee allegedly structured invoices below the Rs. 2,00,000 limit to avoid reporting requirements under Section 285BA read with Rule 114E.
- Cash sales during the 39-day period (October 1 to November 8, 2016) constituted an abnormally high 90.59% of the total cash sales for the entire subsequent financial year (FY 2017-18).
- The average daily cash sale during this period was Rs. 20.87 lakhs, a stark contrast to Rs. 53,514 per day in FY 2017-18.
- Despite specific queries, the assessee reportedly failed to provide an item-wise stock statement with quantities sold each month for the relevant previous year, leaving the cash-in-hand position unexplained.
The lower authorities inferred that the assessee had introduced unaccounted cash into its books by inflating sales to “astronomically very high and unusual levels.”
