PCIT Vs Aura Jewels (Karnataka High Court)
Karnataka High Court Upholds ITAT Order on Demonetisation-Day Cash Sales
The Karnataka High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (PCIT), thereby upholding the Income Tax Appellate Tribunal (ITAT) order in the case of PCIT Vs Aura Jewels. The controversy centered on an addition of ₹6.61 crore made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, following a surge in cash sales on November 8, 2016, the day the demonetisation of high-value currency notes was announced.
The Assessee, Aura Jewels, a retail jeweler, had reported gross receipts of ₹99 crore for the Assessment Year (A.Y.) 2017-18, which included total cash sales of over ₹11.64 crore. The AO specifically focused on cash sales of approximately ₹6.72 crore made on November 8, 2016, noting that this amount constituted over 57% of the total cash sales for the entire year. The AO concluded that the Assessee failed to satisfactorily explain the sudden, large cash receipts and, after accounting for a negligible amount of normal cash sales, made an addition of ₹6.61 crore, treating it as unexplained cash credit under Section 68.
The Assessee appealed the order, arguing that the demonetisation announcement created an abnormal market situation, leading to a rush of customers making cash purchases, including jewellery. To substantiate the genuineness of these sales, the Assessee presented comprehensive documentation, including detailed purchase records, stock statements, and individual invoices for all the sales made. The Assessee contended that the sales were made from existing, verifiable stock, a fact confirmed by the invoices being linked to the stock records via a bar code system.
