Case Law Details
PCIT Vs Aura Jewels (Karnataka High Court)
Karnataka High Court Upholds ITAT Order on Demonetisation-Day Cash Sales
The Karnataka High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (PCIT), thereby upholding the Income Tax Appellate Tribunal (ITAT) order in the case of PCIT Vs Aura Jewels. The controversy centered on an addition of ₹6.61 crore made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, following a surge in cash sales on November 8, 2016, the day the demonetisation of high-value currency notes was announced.
The Assessee, Aura Jewels, a retail jeweler, had reported gross receipts of ₹99 crore for the Assessment Year (A.Y.) 2017-18, which included total cash sales of over ₹11.64 crore. The AO specifically focused on cash sales of approximately ₹6.72 crore made on November 8, 2016, noting that this amount constituted over 57% of the total cash sales for the entire year. The AO concluded that the Assessee failed to satisfactorily explain the sudden, large cash receipts and, after accounting for a negligible amount of normal cash sales, made an addition of ₹6.61 crore, treating it as unexplained cash credit under Section 68.
The Assessee appealed the order, arguing that the demonetisation announcement created an abnormal market situation, leading to a rush of customers making cash purchases, including jewellery. To substantiate the genuineness of these sales, the Assessee presented comprehensive documentation, including detailed purchase records, stock statements, and individual invoices for all the sales made. The Assessee contended that the sales were made from existing, verifiable stock, a fact confirmed by the invoices being linked to the stock records via a bar code system.
The AO had initially rejected these invoices primarily because they lacked the PAN number and full name/address of the retail customers. The Assessee countered that since no individual sale exceeded the statutory limit of ₹2,00,000, there was no legal requirement to record the customer’s PAN. Furthermore, the Assessee explained the difficulty in obtaining full personal details from retail customers and pointed out that cash sale invoices from other months (which were not questioned) also lacked these full details.
Both the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT meticulously examined the records. They found that the Assessee had successfully discharged its onus by providing sufficient explanations, books of accounts, and corresponding records to prove that the cash receipts genuinely represented sales from existing stock. The CIT(A) and the Tribunal thus gave concurrent findings of fact in favor of the Assessee, deleting the addition of ₹6.61 crore.
The Revenue, challenging this concurrent finding before the Karnataka High Court, failed to convince the court that the lower authorities’ decisions were perverse or lacked cogent reasoning. The High Court affirmed that the question of whether the sales were genuine was fundamentally a question of fact, which had been conclusively answered in the Assessee’s favor by two appellate authorities. Consequently, the High Court held that the appeal raised no substantial question of law and dismissed the Revenue’s appeal.
The core principle applied is that an assessee can discharge the burden of proof under Section 68 by providing satisfactory evidence regarding the source, nature, and genuineness of the cash credit, and in this case, the supporting invoices and verifiable stock records were accepted as sufficient evidence to explain the abnormal cash sales volume observed immediately following the demonetisation announcement.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 [the Act] impugning an order dated 24.02.2025 passed by the learned Income Tax Appellate Tribunal [the Tribunal] in ITA.No.684/Bang/2023 in respect of the Assessment Year [Y.] 2017-18.
2. The principal controversy before the Tribunal was regarding an addition of `6,61,00,000/- (Rupees Six Crores Sixty One Lakhs Only) made under Section 68 of the Act.
3. The respondent [Assessee] is engaged in the business of retail trading of jewelry, gold, silver and other ornaments. The Assessee had furnished its return of income for A.Y.2017-18, inter alia declaring gross receipts of Rs. 99 Crores. The same included cash sales amounting to Rs. 11,64,59,923/-. On examining the books of accounts, the Assessing Officer [AO] found that cash sales of Rs. 6,72,68,168/- were made on a single day, that is, on November 8, 2016 on the eve of declaration of demonetization of high value currency notes. The cash sales made on the single day amounted to more than 57% of the total cash sales made during the previous year relevant to AY 2017-18. On the basis of the analysis of cash sales, the AO made an addition of Rs. 6,61,00,000/- after accounting for normal cash sales of `0.61 Crores in conformity with the pattern of cash sales during other months. The AO concluded that the Assessee had failed to explain the cash receipts and therefore, the same are liable to be taxed under Section 68 of the Act.
4. The Assessee appealed the Assessment Order dated 24.12.2019 before the Commissioner of Income Tax (Appeal) [CIT(A)]. The Assessee’s case is that demonetization of five hundred rupees currency notes had brought an abnormal situation where large number of persons had rushed to make purchases in cash, including jewellery. In order to establish that the sales were genuine, the Assessee had produced all records including details and evidence of purchases, the stock statements and all invoices, which evidence that the sales were made from existing stocks. The Assessee also pointed out that the invoices contained a bar code, which were linked to the stocks available with the Assessee and the same established that the sales corresponded to reduction of the stocks available with the Assessee. As noted above, the Assessee also produced invoices of sales made.
5. The Assessee challenged the decision of the AO rejecting the invoices on the ground that they did not mention the PAN number and full name and address of the customers. The Assessee explained that the sales made to a customer were below `2,00,000/- and there was no requirement for the Assessee to mention the PAN number of the retail purchaser. The Assessee also explained that retail purchasers were reluctant to give their full details. Additionally, the Assessee also pointed out that invoices of cash sales in respect of other months (which were not in question) also did not include the full details of the names and addresses or PAN numbers of various customers. The CIT(A) examined the question whether the records duly authenticated the cash sales as claimed by the Assessee and accepted the Assessee’s contentions. The CIT(A) found that the Assessee had duly explained its cash sales on the basis of its records and its stock statements. Accordingly, the addition of `61 Crores made by the AO under Section 68 of the act was deleted in terms of an order dated 27.03.2023.
6. Aggrieved by the CIT(A)’s order dated 27.03.2023, the Revenue preferred an appeal before the Tribunal, which was dismissed in terms of the impugned order.
7. Both the appellate authorities namely, the CIT(A) and the Tribunal have concurrently found that the Assessee had duly explained the cash receipts and had produced the books of accounts and records to establish that it had made cash sales as declared. The question whether the Assessee had in fact made sales in cash as declared is clearly a question of fact and this question has been answered in favour of the Assessee by concurrent findings of the learned CIT(A) and the Tribunal.
6. We note that the decisions of the CIT(A) and the Tribunal are supported by cogent reasons and we are unable to accept that the said decision can be faulted as being perverse.
7. In view of the above, no substantial question of law arises for consideration of this Court in this appeal. The appeal is accordingly dismissed.
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