J.K Jewel Craft Vs ITO (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT) Chennai ruled in favor of J.K. Jewel Craft in an appeal against the addition of Rs.53.02 lakh as unexplained investment by the Assessing Officer (AO) for the assessment year 2017-18. The AO had questioned cash deposits made during the demonetization period, arguing that the firm’s recorded cash balance of Rs.26.97 lakh as of November 8, 2016, did not justify the total deposit of Rs.80 lakh. The firm explained that Rs.7.59 lakh came from cash sales and Rs.45.43 lakh was reintroduced by partners from prior withdrawals meant for land purchase. However, the AO rejected this explanation, citing impracticality in keeping large sums of cash idle. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed relief by accepting sales-related deposits but upheld the addition of Rs.45.43 lakh, concluding that the withdrawals lacked credibility due to their staggered nature.
The ITAT reviewed the firm’s financial records and found that all withdrawals and redeposits were documented in bank statements and cash books. The Tribunal held that suspicion alone could not discredit the transactions, especially since similar entries had been accepted in prior assessments. The ruling emphasized that the application of human probability theory by tax authorities was insufficient grounds for rejecting documented financial transactions. Consequently, the Tribunal ordered the deletion of the Rs.45.43 lakh addition, allowing the appeal in favor of J.K. Jewel Craft.
