ITO Vs Swarnsarita Jewellers (ITAT Mumbai)
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)/NFAC deleting an addition of ₹98 lakh made under Section 68 of the Income-tax Act, 1961. The assessee was engaged in the business of trading in gold and diamond jewellery and precious stones. During search proceedings in the case of another entity on 13 November 2016, cash of ₹2.50 crore was seized, which included ₹98 lakh found in the possession of an employee of the assessee. According to the Investigation Wing and the employee’s statement recorded under Section 132(4), the cash belonged to the assessee.
During assessment proceedings, the Assessing Officer required the assessee to explain the source of the ₹98 lakh. The assessee produced its cash register, sales register, stock register, books of account, sale bills and other records, explaining that the cash represented proceeds from cash sales of bullion and jewellery. It stated that following the announcement of demonetisation on 8 November 2016, many customers purchased jewellery using old currency notes, with each transaction remaining below ₹2 lakh.
The Assessing Officer considered the explanation unsatisfactory. The assessment order noted that the jewellery stock purchased on credit had subsequently been adjusted against sales to the same supplier, regarded such credit purchases as suspicious, observed that most sales in November 2016 occurred on the day of demonetisation and were below ₹2 lakh, and concluded that the purchases and sales constituted artificial transactions intended to introduce unaccounted money into the books. Despite these observations, the Assessing Officer accepted the books of account, sales turnover of ₹4,51,77,586 and the business profits declared by the assessee, but separately added ₹98 lakh under Section 68 as unexplained cash credit.
