A P Jewellers Vs DCIT (ITAT Agra)
The ITAT Agra considered the assessee’s appeal against the order dated 11.03.2026 passed by the CIT(A)/NFAC under Section 250 of the Income Tax Act, 1961, for A.Y. 2017-18. The CIT(A) had dismissed the assessee’s appeal and confirmed an addition of Rs.2,40,29,635/- under Section 68 read with Section 115BBE.
The assessee firm was engaged in trading and manufacturing gold and silver ornaments and followed the mercantile system of accounting. It filed its return on 28.10.2017 declaring total income of Rs.2,07,39,850/-. After processing under Section 143(1), the case was selected for complete scrutiny through CASS. Notices under Sections 143(2) and 142(1) were issued concerning cash deposits of Rs.2,40,29,635/- during the demonetisation period, particularly from 09.11.2016 to 30.12.2016.
The assessee explained that the deposits represented cash sales from its jewellery business and furnished supporting records. The Assessing Officer was not satisfied and considered cash sales of Rs.2,40,29,635/- during October and November 2016 to be inflated, artificial and unexplained. The amount was added to the assessee’s total income under Section 68 read with Section 115BBE.
Before the ITAT, the assessee contended that it had produced its books of account, stock register, cash book, ledger, sales and purchase registers, bank statements, VAT returns, audit report and details of SBN and non-SBN deposits. It submitted that the revenue authorities had neither rejected the books nor invoked Section 145(3), identified discrepancies in purchases, stock or sales invoices, nor found excess or shortage of stock. The assessee also pointed out that the relevant cash sales were recorded in its books and that the resulting receipts and profits had already been included in the returned income.
The assessee stated that cash sales for October and November 2016 amounted to Rs.3.13 crore, compared with Rs.5.52 crore during the corresponding period of the preceding year. It also submitted that cash deposits during F.Y. 2016-17 were Rs.8,13,50,000/-, compared with Rs.24,93,69,000/- in F.Y. 2015-16, and that cash sales during the demonetisation period were Rs.85,77,581/-, compared with Rs.7,77,41,417/- during the corresponding preceding-year period. The assessee also referred to festive and marriage seasons as factors affecting jewellery sales.
The ITAT observed that the entire cash sales in question were recorded in the regular audited books and that the corresponding receipts and profits had been offered to tax. It noted that the Assessing Officer had not pointed out defects in purchases, sales, quantitative records, stock records, closing stock or other details furnished by the assessee.
The Tribunal relied on the decision of the Jurisdictional Allahabad High Court in Bipin Babu Agarwal, which, on similar facts involving a gold and silver jewellery trader and demonetisation-period cash sales, found the sales supported by sale invoices, books, stock register and VAT returns. The High Court had held that the findings were factual and that suspicion, without supporting evidence, was insufficient to sustain the revenue’s conclusion.
Following that decision, the ITAT held that the assessee’s recorded cash sales, supported by corresponding stock and reflected in the audited books and VAT records, could not be treated as unexplained cash credits merely because the Assessing Officer considered the sales volume excessive. The Tribunal therefore determined the issue in favour of the assessee and held that the impugned addition could not be sustained.
The ITAT further addressed the applicability of the enhanced 60% rate under Section 115BBE for A.Y. 2017-18. Relying on S.M.I.L.E Microfinance Ltd v. ACIT, it held that the enhanced rate could apply only from A.Y. 2018-19 onwards. The Tribunal noted that this ground had become academic in view of its principal finding but decided it accordingly.
The assessee’s appeal was allowed. The order was pronounced in the Open Court on 07.08.2026.
Assessee was Represented by Shri. Anil Verma, Adv & Shri Dheeraj Kathpal, Adv.
FULL TEXT OF THE ORDER OF ITAT AGRA
This appeal is directed against the impugned order dated 11.03.2026 passed in appeal No CIT(Appeal) 2, Agra/10719/2019-20 by the ld. Commissioner of Income Tax/ NFAC(Delhi) (hereinafter referred to as the “CIT(A) u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2017-18, wherein ld CIT(A) has dismissed assessee’s appeal.
2. The brief facts state that appellant assessee firm was engaged in the business of trading and manufacturing of gold and silver ornaments and follows mercantile system of accounting. The assessee e-filed its return of income on 28.10.2017, declaring total income of Rs. 2,07,39,850/-. The return was processed u/s 143(1) of the Act. Subsequently the case was selected for complete scrutiny through CASS. Statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee, seeking the source of Rs. 2,40,29,635/- deposited in cash in bank accounts during the demonetization period especially from 09.11.2016 to 30.12.2016. The assessee firm submitted its reply along with supportive documentary evidence through e-filing portal, stating that the firm was engaged in the trading and manufacturing of gold and silver ornaments and the cash deposit was on account of cash sales of the assessee’s business. The assessing officer, however, was not satisfied with the reply of the assessee and observed that during 01.10.2016 to 30.11.2016, cash sale of Rs. 2,40,29,635/- was inflated, artificial and unexplained and added in the total income of the assessee u/s 68 r.w.s. 115BBE of the Act.
3. Aggrieved assessee, preferred an appeal before ld CIT(A), who confirmed the assessment order and dismissed assessee’s appeal.
4. Appellant assessee has filed this second appeal on the following grounds:-
“1. That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in dismissing the appeal vide order u/s 250 of the Income Tax Act, 1961 bearing DIN & Order No. ITBA/NFAC/S/250/2025-26/1087181045(1) dated 11.03.2026 without properly considering the submissions filed by the Appellant.
2. That the Ist Appellate Authority has arbitrarily confirmed the addition made by the Assessing Officer u/s 68 read with section 115BBE of the Income Tax Act, 1961 amounting to Rs. 2,40,29,635/- without properly contradicting the material facts brought on record by the Appellant.
2(a). That the Authorities below have erred in Law and on Facts in making/confirming addition of Rs 2,40,29,635/- (Rs 3,13,62,109 – Rs 73,32,474/-) by ignoring actual sales of October & November 2016 of Rs 3,13,62,109/- treating it inflated, artificial and unexplained cash and has estimated sales of these months at Rs 73,32,474/-without any cogent reason/evidence.
2(b) That the sales estimated at Rs 73,32,474/- instead of actual sale of Rs.3,13,62,109/- for the month of October and November, 2016 are arbitrary, ignoring the fact that the Books of Accounts and Stock Register are Audited by a Chartered Accountant, without invoking provisions of Section 145(3) of the Income Tax Act, 1961.
3. That the Authorities below have grossly erred in invoking provisions of section 68 of the Income Tax Act, 1961 in respect of alleged unexplained source of cash deposits in bank account even when section 68 can only be invoked for a cash credit found in the books of account whereas a deposit in Bank account cannot be said to be a cash credit in the books of account.
4. That the learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts in alleging that the Appellant has not produced the identity of the purchasers or confirmation from buyers which is neither required in law nor any such query was raised by the lower authorities.
5. That the Ist Appellate Authority has erred in law and on facts in alleging that entire cash deposits have been claimed to be based on internal records such as Cash Book, Sales Register and Ledger Accounts which are self-generated documents and they cannot establish the genuineness of the underlying transactions ignoring the fact that the books of account are audited by Chartered Accountant and the book results are accepted by the Assessing Officer.
6. That both the lower Authorities have grossly erred in law and on facts in holding that there was abnormal and disproportionate increase in cash in hand immediately before the demonetization announcement which is contrary to the facts and figures already provided by the Assessee in its written submissions.
7. That the Appellant craves to leave, add, alter, amend, delete, modify or substitute any or all the grounds of appeal before or during hearing of the appeal under reference.”
5. Perused the records and heard ld representative for the appellant assessee and ld Sr DR for the respondent revenue.
6. On the basis of all the aforesaid grounds of appeal, the main point for determination remains as to whether ld CIT(A) has erred in confirming the addition of Rs. 2,40,29,635/- as unexplained cash credits u/s 68 r.w.s. 115 BBE of the Act made in the total income of the assessee, ignoring assessee’s material evidence on record?
7. Ld representative for the assessee has submitted that it produced complete books of accounts, stock register, cash book and ledger, sales register, purchase register, bank statements, VAT returns, audit report and details of SBN & Non SBN deposits along with cash sales and cash deposits chart before the assessing officer. Ld AR has further submitted that the revenue authorities have neither rejected books of accounts nor invoked section 145(3) of the Act nor found any discrepancy in purchases, stock records and sales invoices, nor detected any excess or shortage of stock rather, accepted the entire trading results. The cash balance emerging from such books cannot thus be disregarded. Nothing was brought on record to establish that either sales were bogus or stock was insufficient or sales invoices/ cash book were fabricated/ manipulated. The October 2015 and November 2015 cash sales were 5.52 crores as against the cash sale of 3.13 crores of October 2016 and November 2016. The deposits were fully explained. Ld AR further submits that cash deposits during F.Y. 2016-17 amounting to Rs. 8,13,50,000/- were substantially lower than deposits made during F.Y. 2015-16 amounting to Rs. 24,93,69,000/-. Ld AR further submits that cash sales of Rs. 85,77,581/- during the demonetization period from 09.11.2016 to 31.12.2016 were significantly lower as against cash sales of Rs. 7,77,41,417/- during the preceding year’s period from 09.11.2015 to 31.12.2015. The sales during October and November were also influenced by festive and marriage seasons, which is a recognized feature of the jewellery trade. Ld AR, thus, submits that the impugned addition is purely based on the presumption. The sales receipts already formed part of turnover and profits disclosed in the profit and loss account. The revenue has taxed the said amount twice, once as business income and again as unexplained cash credit. Ld AR has referred order dated 15.05.2026 passed by Hon’ble Jurisdictional Allahabad High Court in PCIT vs. Bipin Babu Agarwal, (2026) 1 CTOCTR 778 (All-H.C.) in support of his arguments and prayed to allow assessee’s appeal.
8. Ld Sr DR for the respondent revenue has supported the impugned order.
9. The main grievance of the appellant assessee is that the revenue has arbitrarily reduced actual sales of Rs. 3.13 crores of October and November 2016 to an estimated figure of Rs. 73.32 lakhs and has wrongly treated the balance of Rs. 2.40 crores as unexplained income. We notice that undisputedly, the entire cash sales in question were duly recorded in regular books of accounts and the same were audited. All the corresponding revenue receipts and profits thereon were offered to tax by the assessee in the return of income. The assessing officer has not pointed any defect in purchase, sales, quantitative, stock, record closing register stock or the details which were furnished by the assessee.
10. The Jurisdictional Allahabad High Court on similar facts in Bipin Babu Agarwal (supra) has held as under:
“3. Having heard learned counsel for revenue and having perused the record, we find no good ground to offer any interference in the present appeal. The assessee is a trader in gold and silver jewellery and ornaments. At the time of demonetisation, it disclosed cash sales amounting to Rs. 9,00,04,277, on 8th Nov 2016. That was disbelieved by the Assessing Authority. The CIT (A) and the Tribunal had examined the issue and returned categorical finding that the cash sales were supported by sale invoices duly recorded in its books of accounts. The stock register supported the sales disclosed by the assessee. The returns were filed under UP VAT Act, 2008. The entire sales were recorded therein. In short, no adverse material was found by the appeal authority to disbelieve the explanation furnished by the assessee.
11. The above are findings of fact based on material and evidence on record and may not call for interference by this Court. Merely because suspicion may exist, it may not be sufficient for the revenue authorities to base their conclusions thereon. In absence of evidence to support the grounds being pressed, the appeal lacks merit and is accordingly dismissed. No order as to costs.”
12. In the instant case, it is not disputed that the assessee deals in gold and silver ornaments. In such business, the business fluctuations, seasonal demand, market behaviour on festive and marriage seasons etc. are such factors which may lead to sharp variation in sales and the Income Tax Act, does not authorize the assessing officer to substitute actual record of sales with hypothetical or estimated figures based on perception of business trends. Assessee also filed the copies of VAT returns, reflecting the said sales. The VAT returns are part of assessee’s paper book at page no. 222 to 233 along with the acknowledgement receipt no. 16119992242914 dated 20.11.2016 and acknowledgement receipt no. 16119992420310 dated 20.12.2016 relating to the month of October 2016 and November 2016. Ld AR has further explained that the records of sales under the value of two lakhs could legally be conducted in cash.
13. The entire cash sales were credited in the sale account and the profit derived there from has been included in the income declared by the assessee in its return. The cash sales are part of regular business transactions recorded in the audited books of accounts. The sales by the assessee were duly credited in the profit and loss account. The details of cash sales are entered in the books and supported by corresponding stock cannot be treated as unexplained cash credit merely because the assessing officer considers the declared volume of sales to be excessive.
14. Respectfully following the binding decision of Hon’ble Jurisdictional Allahabad High Court in Bipin Babu Agarwal (supra), the impugned order cannot be sustained. The aforesaid point is accordingly determined in positive in favour of the appellant assessee and against the respondent revenue. The appeal is liable to be allowed.
15. We, further observe that the assessee cannot be charged with the enhanced rate @ 60% u/s 115BBE of the Act for A.Y. 2017-18. Hon’ble Madras High Court in S.M.I.L.E Microfinance Ltd v. ACIT, held that the enhanced rate of tax @ 60% as provided u/s 115BBE could be made applicable only from 2018-19 onwards. Even though the ground now in view of above findings becomes merely academic, is decided accordingly.
In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on- 07.08.2026
