Sanjay Malhotra Vs ITO (ITAT Delhi)
Demonetisation Panic, Festive Sales Spike – ITAT Says That’s Normal- Cash Sales Already Taxed – Tribunal Stops AO from Taxing It Twice
Sanjay Malhotra, a jewellery trader, filed his return declaring ₹15,06,840. During demonetisation (09.11.2016 to 30.12.2016), he deposited ₹1,29,47,000 in cash in HDFC Bank. The AO asked for source of deposits. Assessee explained that he had regular cash sales & furnished details of opening cash, sales from 01.11.2016 to 08.11.2016 (₹1.28 crore), closing cash on 08.11.2016 (₹1.27 crore) & VAT returns. Books were audited u/s 44AB, stock register was maintained, & all purchases were through account-payee cheques from a known supplier (Manikaran International Pvt. Ltd.).
However, the AO compared average daily sales (₹60,817) with sales from 03.11.2016 to 08.11.2016 (₹16–29 lakh per day) & alleged that the sales were artificially inflated just before demonetisation. He also noted that most sales were between ₹1.8–2 lakh (to avoid buyer details), & that there were no sales from 09.11.2016 to 28.11.2016. He treated the cash deposits as unexplained income u/s 68.
Assessee countered that:
- The spike in sales was due to festive/wedding season.
- High cash sales are normal in jewellery business.
- Stock register & VAT returns corroborate sales.
- All purchases were accounted & payments made through bank only.
- Books were not rejected by AO, hence primary evidence stands.
- Cash sales already offered to tax in P&L – applying section 68/69 would lead to double taxation.
- Cited Hira Panna Jewellers (ITAT Vizag) & Vishal Exports (Guj HC) supporting that sales receipts cannot be treated u/s 68/69 when books are accepted.
- CIT(A) sustained the addition but changed the section from 68 to 69, claiming unexplained investment, without identifying any investment.
Tribunal’s Findings:
- AO acted on mere averages & assumptions, ignoring books.
- He never rejected books of accounts or stock register.
- He ignored cash in hand available on 08.11.2016.
- He found no discrepancy in stock movement or purchases.
- High sales during Diwali/demonetisation is a market reality, especially in jewellery trade.
- Cash sales were genuine, recorded, VAT-paid & audited.
- Once sales are recorded & profit offered to tax, cash deposits cannot be taxed again u/s 68 or 69.
- Applying section 68/69 would cause double taxation of the same income.
- CIT(A) switching from 68 to 69 without identifying any investment was legally incorrect.
Final Decision:
- Cash sales accepted as genuine.
- Source of cash deposit fully explained through books.
- Addition of ₹1,29,47,000 deleted in full.
- Assessee’s appeal allowed.
When books are audited, stock is reconciled, sales are recorded & VAT is paid, cash deposits during demonetisation cannot be treated as unexplained. Suspicion or averages cannot override documentary evidence.
