Windlas Jewellers Vs ITO (ITAT Chandigarh)
The assessee, a partnership firm engaged in trading silver, gold and diamond jewellery, filed its return for AY 2017-18 declaring income of Rs.5,56,474/-. The case was selected for scrutiny because of cash deposits during the demonetization period. The Assessing Officer noted that the assessee deposited Rs.1,94,30,000/- in its Punjab National Bank account between the evening of 08.11.2016 and 31.12.2016 in demonetized old currency notes.
The assessee explained that the deposits represented cash sales and furnished its cash account and details of cash sales. The Assessing Officer observed that cash sales in October 2016, bank deposits in November 2016 and cash in hand during November 2016 were disproportionately higher compared with other months in FYs 2015-16 and 2016-17. The assessee, however, submitted that it had sufficient stock, purchases had been made through banking channels, its books were audited, VAT returns had been filed and accepted, and the higher sales were attributable to festivals, Diwali and the wedding season. It also pointed to increased demand for designer jewellery.
The Assessing Officer accepted estimated genuine cash sales and cash in hand aggregating to Rs.48,22,474/- and, after deducting that amount from the cash deposits of Rs.1,94,30,000/-, made an addition of Rs.1,46,07,526/- under Section 68 of the Income Tax Act.
The CIT(A) estimated genuine sales at Rs.90,14,351/- and made a rectification in the calculation. The supplied order records that the CIT(A) treated Rs.87,13,878/- as explained and restricted the addition to Rs.1,09,16,122/-. The assessee challenged the sustained addition before the Tribunal.
Before the ITAT, the assessee submitted that it had furnished an audited balance sheet and audit report, bank statements, quantity-wise trading account, VAT returns, VAT assessment order, bill-wise cash-sales details, month-wise sales and cash receipts and party-wise purchase summaries. It contended that purchases and availability of stock had not been doubted, the books of account had not been rejected and there was no evidence that the sales were made against demonetized currency. According to the assessee, the Revenue’s case was based only on suspicion arising from the timing and volume of sales.
The Revenue, on the other hand, contended that November 2016 sales had suddenly increased and that the assessee’s explanation regarding festivals and auspicious wedding dates did not adequately justify the rise. It was also argued that non-rejection of books by itself did not require acceptance of all sales and that the assessee had failed to furnish concrete evidence establishing genuineness.
The Tribunal examined the rival contentions and found that the Revenue’s entire case rested on the assumption that the assessee had made sales during the demonetization period by accepting demonetized currency. Against this, the assessee’s case was that the sales were genuine, duly recorded in audited books, and the bank deposits represented cash generated from those sales. The Tribunal noted that the assessee had furnished stock register, cash book, bank statements, quantity-wise trading accounts, VAT returns, month-wise sales and cash receipts and party-wise purchase summaries.
Crucially, the Tribunal observed that the books of account had not been rejected and that there was no evidence on record establishing that the cash sales were not genuine. It held that the addition could not be confirmed merely on suspicion where the assessee had furnished sufficient supporting documents.
The Tribunal found the issue to be covered by coordinate Bench decisions, including ACIT vs. Goel Jewellers Overseas Corp, DCIT Central Circle-1, Ludhiana vs. M/s Roop Fashion, Gulshan Kumar vs. DCIT, Smt. Tripta Rani vs. ACIT, Ludhiana and, in particular, Madan Lal Aggarwal HUF vs. DCIT. The Tribunal reproduced the relevant portion of the latter decision.
In Madan Lal Aggarwal HUF, the coordinate Bench had considered circumstances involving cash deposits during demonetization and cash sales recorded in books that had not been rejected. The reproduced reasoning noted, among other things, that no evidence of back-dated sales was found, no stock difference was detected, sufficient stock was available, VAT returns had been filed and accepted, and the recorded sales were not shown to be false by independent evidence.
The reproduced decision also referred to the Punjab and Haryana High Court decision in M/s S.V. Auto Industries, Phagwara v. Commissioner of Income Tax, Jalandhar and another and the Supreme Court decision in Mehta Parikh and Company vs. CIT, (1956) 30 ITR 181 (SC), concerning the evidentiary value of accepted books and the impermissibility of relying merely on suspicion without legal evidence. The coordinate Bench further referred to several decisions concerning demonetization-period cash sales, including Roop Fashion, Gulshan Kumar, Tripta Rani, Raj Kumar (M/s Radhika Sales Corp), Fine Gujranwala Jewellers, Subodh Chandra Seth and Sita Ram Rastogi.
The ITAT Chandigarh ultimately held that the lower authorities were not justified in making the impugned additions. It ordered the additions to be deleted and allowed the assessee’s appeal.
As the assessee’s appeal was allowed, Stay Application No.01/CHD/2024 became infructuous and was disposed of without adjudication. The order was pronounced in the Open Court on 01 April 2024.
Cases Discussed
- ACIT vs. Goel Jewellers Overseas Corp, ITA No.1597/Del/2022 — cited by the assessee as a coordinate Bench decision concerning the issue of cash sales and demonetization-period deposits.
- DCIT Central Circle-1, Ludhiana vs. M/s Roop Fashion, [2022] 98 ITR (Trib) 419 [ITAT Chandigarh] — cited and later reproduced in the coordinate Bench discussion concerning cash deposits during demonetization arising from recorded cash sales.
- Gulshan Kumar vs. DCIT, ITA No.488/Chd/2022 — cited as a coordinate Chandigarh Bench decision concerning similar circumstances.
- Smt. Tripta Rani vs. ACIT, Ludhiana, ITA No.135/Chd/2021 — cited as a coordinate Chandigarh Bench decision concerning cash deposits during demonetization and recorded cash sales. The TaxGuru-hosted order records the appeal as ITA No.135/Chd/2021 and pronouncement on 13.06.2022.
- Madan Lal Aggarwal HUF vs. DCIT, ITA No.28/CHANDI/2023, dated 18.12.23 — followed by the Tribunal as directly covering the issue and relied upon for the proposition that recorded cash sales could not be rejected merely on comparative figures or suspicion when books and supporting documentation had not been shown to contain defects.
- M/s S.V. Auto Industries, Phagwara v. Commissioner of Income Tax, Jalandhar and another, ITA No.194 of 1999, dated 21.02.2014 — referred to in the reproduced Madan Lal Aggarwal HUF decision concerning treatment of books of account and stock records that had neither been doubted nor rejected.
- Mehta Parikh and Company vs. CIT, (1956) 30 ITR 181 (SC) — referred to in the reproduced coordinate Bench decision concerning the requirement that an evidentiary conclusion rest on legal testimony rather than mere suspicion.
- Raj Kumar (M/s Radhika Sales Corp) Dhab Wasti Ram, Amritsar vs. ITO, Ward 3(3), Amritsar, I.T.A. No.195/Asr/2022 — referred to in the reproduced coordinate Bench decision as a similar demonetization-period cash-sales matter.
- M/s. Fine Gujranwala Jewellers Vs. Income Tax Officer, Delhi, I.T.A. No.1540/DEL/2022, dated 27.03.2023 — referred to in the reproduced coordinate Bench decision as another similar matter.
- Subodh Chandra Seth, ITA No.352/Lkw/2020, dated 22.08.2022 — referred to in the reproduced coordinate Bench decision as a similar demonetization cash-sales matter.
- Sita Ram Rastogi, ITA No.23/LKW/2022, dated 08.09.2022 — referred to in the reproduced coordinate Bench decision as a similar demonetization cash-sales matter.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeal has been preferred by the assessee against the order dated 22.12.2023 of the National Faceless Appeal Centre [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
2. The assessee in this appeal has agitated against the action of the CIT(A) in confirming the addition of Rs.1,07,16,122/- out of addition made of Rs.1,46,07,526/-by the Assessing Officer treating the said amount to be as unexplained income of the assessee u/s 68 of the Act.
3. The brief facts of the case are that the assessee is a partnership firm which is engaged in the business of trading in silver, gold and diamond jewellery. The assessee e-filed its return of income on 27.09.2017 declaring an income of Rs.5,56,474/-. However, the case was selected for scrutiny for the reasons, “cash deposit during demonetization period”. During the assessment proceedings, the Assessing Officer noted that during the demonetization period from evening of 08.11.2016 to 31.12.2016, the assessee had deposited huge cash. amounting to Rs.19430000/- in its bank account with Punjab National Bank. The said amount was deposited in demonetized old currency notes. The assessee was asked to verify the nature and source of such cash deposits and provide complete details regarding the same. In response, the assessee submitted that the source of the aforesaid cash deposits was from its cash sales. The assessee filed its cash account and details of cash sales before the Assessing Officer. The Assessing Officer after analyzing the documents furnished by the assessee observed as under:
(i) The cash sales in the month of October 2016 were disproportionally higher to any other months’ cash sales in the year 2015-16.
(ii) Deposit in bank account during month of November 2016 was disproportionally higher to cash deposit in any other month during Financial Years (in short F.Ys.) 2015- 16 & 2016-17.
(iii) Cash in hand during month of November 2016 was disproportionally higher to cash in hand in any other month during F.Ys. 2015-16 & 2016-17.
3.1 The assessee however, submitted that the assessee had sufficient stock in respect of impugned sales. That all the purchases by the assessee were made through banking channel. That the books of account of the assessee were duly audited. That VAT returns relating to the sales were also filed which were accepted by the concerned authorities. It was further explained that the higher sales during the month of November were due to festivals and wedding seasons. It was further explained that sales had seen upward trend during F.Y 2016-17 as compared to last year due to high demand for designer jewellery in which the assessee specializes. That there was increased sales during Diwali seasons i.e. in the month of October, November 2016. It was further submitted that there were 12-13 wedding auspicious days in October, November 2016 period due to which there was steep rise in sales during that period. However, the Assessing Officer did not agree with the above submissions of the assessee. However, giving benefit to the assessee of estimated genuine cash sales, cash in hand on the date of demonetization period etc. totalling to Rs.48,22,474/- and deducting the same from the total cash deposits of Rs.1,94,30,000/-, made the addition of Rs.1,46,07,526/-.
4. In first appeal, the ld. CIT(A) however estimated the genuine sales at Rs.90,14,351/-. He also made some rectification in the calculation made by the Assessing Officer and treated the amount of Rs.87,13,878/- as explained and restricted the addition to Rs.1,09,16,122/-. Being aggrieved by the said order of the CIT(A), the assessee has come in appeal before us.
5. At the outset, the ld. Counsel for the assessee has reiterated the submissions as were made before the Assessing Officer and CIT(A) and further submitted that the assessee before the Assessing Officer had furnished the following documents:
i. Audited balance sheet and audit report.
ii. Bank A/c statements for A.Y 2017-18
iii. Quantity wise trading A/c for A.Y 2017-18
iv. VAT returns for A.Y 2017-18
v. VAT assessment order for F.Y 2016-17
vi. Bills no. wise details of cash sales
vii. Month wise sales for the A.Y 2016-17 and 2017-18
viii. Month wise cash receipts A.Y 2016-17 and 2017-18
ix. Party wise purchases summary
5.1 The ld. Counsel has further submitted that it was undisputed that the assessee had purchases/stocks of which sales were made and that the purchases were not doubted by the Assessing Officer. That the books of account of the assessee were not rejected. He has further submitted that the Assessing Officer has compared the sales of the Diwali season for the year 2016 with that of the sales during the year 2015 and noted that the sales during the year 2016 were comparatively high. He doubted that the alleged sales were made during demonetization period against banned currency notes. That, however, purchases were not doubted. That only the period of sales was doubted which was purely a suspicion of the Assessing Officer and there was no evidence available to the Assessing Officer that the sales were made against demonetized currency notes as alleged.
6. The ld. DR, on the other hand, has submitted that the sales during the month of November 2016 suddenly increased and that it was apparent that the sales were made by the assessee during demonetization period. He has further submitted that merely because the books of account were not rejected, that itself, was not a criteria to accept the entire sales of the assessee, which was made during demonetization period. The ld. CIT(A) went on further to even doubt the purchases made. So far as the argument of the assessee that there were auspicious days during the month of October, November 2016 and further it was Diwali festivals that is why the sales increased was concerned, the ld. DR in this respect has submitted that the Assessing Officer in this respect has rightly observed that the jewellery for marriage occasion etc. are generally purchased one or two months in advance and not on the day of marriage. That there was a steep rise in the sales in the month of November 2016 as compared to sales in the Month of November 2015. That the sales made by the assessee during October and November 2016 were totally out of normal pattern of business and even the bills were not issued over the amount of Rs.2 lakh so as to avoid verification. That the assessee has failed to furnish concrete evidence to justify the genuineness of its claim. He has submitted that the facts and circumstances of the case show that the assessee has manipulated the books of account and had made efforts to show ingenuine sales as genuine sales.
7. We have considered the rival contentions and gone through the record. The entire case of the revenue is on the basis of assumption that the assessee during the demonetization period had made sales accepting demonetized currency which was deposited in the bank account of the assessee. However, the case of the assessee is that the assessee has made genuine sales and that the sales were duly recorded in the books of account and books of account were duly audited and that the deposits in the bank account were made out of cash sales. The assessee has duly furnished the relevant documents including stock register, cash book, bank account statements, quantity-wise trading accounts, VAT returns, month-wise sales and cash receipts and party-wise purchases summary etc. The books of account of the assessee in this case have not been rejected. The case of the revenue is based merely on suspicion. There is no evidence brought on record that the cash sales made by the assessee were not genuine. The burden is upon the Assessing Officer in this respect who alleges sales to be ingenuine. The additions cannot be confirmed in this case merely on the basis of suspicion when the assessee proved his case and has furnished sufficient documents. The issue is squarely covered by various decisions of the Coordinate Benches of the Tribunal. The ld. Counsel for the assessee in this respect has relied upon the following case laws:
i) ACIT vs. Goel Jewellers Overseas Corp in ITA No.1597/Del/2022 (ITAT Delhi)
ii) DCIT Central Circle-1, Ludhiana vs. M/s Roop Fashion reported in [2022] 98 ITR (Trib) 419 [ITAT Chand)]
iii) Gulshan Kumar vs. DCIT in ITA No.488/Chd/2022 (ITAT Chandigarh)
iv) Smt. Tripta Rani vs. ACIT, Ludhiana in ITA No.135/Chd/2021 (ITAT Chandigarh)
v) Madan Lal Aggarwal HUF vs. DCITin ITA No.28/CHANDI/2023 (ITAT Chandigarh) dated 18.12.23
7.1 We find that the issue involved in this case is squarely covered by the decision of the Coordinate Chandigarh Bench of the Tribunal in the case of ‘Madan Lal Aggarwal HUF vs. DCIT’ (supra), the relevant part of the order is reproduced as under:
“11. It was further submitted that a complete set of books of accounts were maintained and audited by a Chartered Accountant and these books are not rejected by AO but at the same time, part of the sales were held to be bogus and cash received against such sales added as Income u/s 68 ignoring that sales has already been declared as income by assessee. It was submitted that post deposit of cash, a survey was conducted to verify the deposit on 21-3-2017 and following undisputed facts are as per records:
a. no evidence of any back dating of Sales were found.
b. No difference in stock was found.
c. There was sufficient stock available with assessee to make the sales.
d. Assessee was regular in filing VAT returns and the same were never revised.
e. If cash sales of Rs. 18,41,619/- is bogus then such stock must have been found in excess on the date of survey at the business premises.
f. Further, VAT @ 12% is paid to Government on such sales. The regulatory authority i.e Sales Tax department had accepted the recorded sales for the year and copy of Assessment order is lying at page 83.
11.1 It was submitted that the basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side -in this case the revenue to contend that that which is shown by the entries is not the real ‘state of affairs.
11.2 Our attention was invited to decision of the Hon’ble Punjab and Haryana High Court in ITA No. 194 of 1999 dated February 21, 2014 in case of M/s S.V. Auto Industries, Phagwara v. Commissioner of Income Tax, Jalandhar and another wherein it was held that “Concededly, books of accounts including stock register maintained by the assessee in the course of manufacturing process and business operations, have neither been doubted in their correctness nor have been questioned much less rejected under Section 145 of the Act. Once the books of accounts have not been doubted in their correctness and much less are rejected, there is absolutely no explanation coming forth from the revenue as to why the Assessing Officer as also the appellate authorities including the Tribunal went on to substitute their own judgment for the actual figures of wastage emerging from stock register and from the books of accounts of the assessee? When the books of accounts including stock register etc. have neither been rejected nor are doubted, accounts could not be bye passed merely on the whims and fancies of the authorities.”
11.3 Further, reference was drawn to the decision of the Hon’ble Supreme court in case of Mehta Parikh and Company vs. CIT (1956) 30 ITR 181 (SC) wherein it was held as under:
“It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Assistant Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. The Tribunal also fell into the same error. It could not negative the possibility of the appellant being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the appellants to have had 61 such notes in the cash balance in their hands on 12th January, 1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the appellants. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings.
To put the matter in a nut-shell, the accounts of the appellant have been accepted by the Tribunal as genuine, and it is impossible to say, having regard to the cash balance as shown therein, that the notes in question could not have been included therein. The Tribunal observes that it is unlikely that so many high denomination notes would have been held as part of the cash on hand for a such a large number of days. That, no doubt, is highly suspicious; but the decision of the Tribunal must rest not on suspicion but on legal testimony.
11.4 Our attention was further invited to the following decision of Coordinate Bench Chandigarh & a few others where under similar circumstances cash deposited during demonetization out of cash sales without rejection of books of accounts was held not justified:
a. [2022] 98 ITR (Trib) 419 (ITAT [Chand]) THE DCIT CENTRAL CIRCLE-1, LUDHIANA VERSUS M/S ROOP FASHION AND (VICE-VERSA)
b. 2023 (3) TMI 755 – ITAT CHANDIGARH, SH. GULSHAN KUMAR VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2,LUDHIANA ITA No. 488/Chd/2022, Dated: – 31-10-2022
c. ITAT CHANDIGARH [2022] 97 ITR (Trib) 389 (ITAT [Chand]) SMT. TRIPTA RANI VERSUS THE ASSISTANT. COMMISSIONER OF INCOME TAX LUDHIANA.
d. 2023 (4) TMI 529 – ITAT AMRITSAR RAJ KUMAR (M/S RADHIKA SALES CORP) DHAB WASTI RAM, AMRITSAR VERSUS ITO, WARD 3 (3),AMRITSAR. I.T.A. No.195/Asr/2022, Dated: – 11-4-2023
e. 2023 (3) TMI 1196 – ITAT DELHI M/S. FINE GUJARANWALA JEWELLERS VERSUS INCOME TAX OFFICER, DELHI, I.T.A. No. 1540/DEL/2022 Dated: – 27-3-2023
f. 2022 ITAT Lucknow Subodh Chandra Seth ITA 352/Lkw/2020 dated 22/8/22
g. 2022 ITAT Lucknow SITA RAM RASTOGI ITA 23\LKW\2022 dated 8/9/2022
12. The Ld. DR has relied on the order of the AO as well as that of the Ld. CIT(A). We have already taken note of the findings of the AO, hence the same are not reproduced for the sake of brevity. As far as the findings of the Ld. CIT(A) is concerned, the same are contained at para 5 of the impugned order and the same reads as under:
“5. The appellant submitted during the appellate proceedings that it is part of CM jewellers group and therefore it is covered by the declaration of Rs.3,00,00,000/- made by the group under PMGKY. Further, it was submitted that the cash of Rs.21,00,000/- was deposited out of day to day cash sales. The appellant submitted that there was no justification to make addition u/s 68 of the Act on account of cash sales recorded in books of accounts. The Ld. AR also questioned retrospective applicability of section 115BBE of the Act. After taking into consideration the above facts, the opportunities vide letter dated 24.08.2021 and 17.09.2021 were granted to the appellant to produce complete sale bill books and complete books of accounts for the year under consideration in order to verify the grounds of appeal and to verify the above contention. In response, the appellant submitted only copy of sales account, however, failed to produce the complete sale bill books for the period under consideration. Upon perusal of the submission of the appellant, it is noted that the cash sales shown by the appellant during the months of October and November, 2016 are considerably higher than the respective months of F.Y. 2015-16 and F.Y. 2014-15.The onus to substantiate the cash sales was on the appellant which it has failed to discharge both during the assessment and appellate proceedings. The appellant has failed to furnish documentary evidence sought during the appellate proceedings thereby failing to establish genuineness of the cash sales and therefore, has failed to explain source and nature of such cash deposits in the bank account/ books of accounts. In view of the fact that the cash sales made by the appellant could not be verified and the genuineness of the same could not be established during the assessment as well as appellate proceedings, the addition made by the AO is justified and the same is hereby sustained. After going through the facts of the case it has been observed that unexplained cash sales is deemed income u/s 68 of the Act as the appellant could not establish the genuineness of the same and the income assessed u/s 68 is liable to be taxed as per the provisions of section 115BBE of the Act. Therefore, this case falls squarely under the ambit of section 115BBE of the Act as applicable w.e.f. from 01.04.2017 i.e. for the year under consideration. Thus, it is not a case of retrospective application of section 115BBE of the Act. In this case, the AO has not considered the amount of Rs.17,00,000/- as genuine sales and therefore, reduced the total sales by the same amount, therefore, no double addition on this account has been made. Thus, it is found that the case laws relied upon by the appellant have no bearing on the instant case. Regarding the submission of the appellant that it’s case is covered by declaration of Rs.3,00,00,000/- made by M/s CM Jewellers group under PMGKY, it is held that the declaration was made in the case of M/s CM Jewellers and not the appellant. Therefore, no credit out of the same can be allowed to the appellant.”
13. We have heard the rival contentions and purused the material available on record. The assessee has deposited a sum of Rs 20 lacs on 10/11/2016, Rs 50,000/- on 6/12/2016 and Rs 50,000/- on 20/12/2016 in its bank account maintained with SBI, Ambala City. The source of such cash deposits has been explained by the assessee as out of its cash sales so undertaken from time to time and it has also been explained that such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury. In support of its explanation, the assessee has furnished the cash book containing the entries towards the cash sales, cash deposits with bank, complete sale and purchase ledgers, sundry creditors, VAT returns, copy of trading and profit/loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts. Therefore, merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits to tax u/s 68 of the Act. The comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis alone and without any further examination which points out any defect or manipulation in the documentation so submitted or in terms of availability of requisite stock in the books of accounts, the sales so undertaken by the assessee which is duly recorded in the books of accounts cannot be rejected and treated as bogus. In view of the same, we find the explanation of the assessee as genuine and reasonable duly supported by the documentation and books of accounts and the addition so made by the AO and confirmed by the ld. CIT(A) is directed to be deleted.”
8. In view of the above observations, we do not find any justification on the part of the lower authorities in making the impugned additions and the same are accordingly ordered to be deleted.
9. In the result, the appeal of the assessee stands allowed.
10. Since the appeal of the assessee stands disposed of, therefore, the Stay Application No.01/CHD/2024 filed by the assessee becomes infructuous and needs no adjudication. Accordingly, the same stands disposed off.
Order pronounced in the Open Court on 01 April,2024.
