Lala Kashi Nath Seth Jewellers Private Limited Vs ACIT (ITAT Lucknow)
Lucknow ITAT: Abnormal Spike in Demonetisation Sales Alone Cannot Justify Section 68 Addition or Estimated Extra Profit Without Evidence
The Lucknow ITAT allowed the assessee’s appeal and held that an abnormal increase in cash sales during the demonetisation period, by itself, cannot justify an addition under Section 68 or an estimated addition towards extra profit when the books of account are audited, stock is available, purchases are accepted, and no defect is found in the records. The Tribunal deleted additions aggregating to ₹18.81 crore made on account of alleged unexplained cash deposits and estimated extra profit.
The Assessing Officer treated ₹15.87 crore deposited during the demonetisation period as unexplained cash credit under Section 68 on the premise that cash sales immediately before demonetisation were abnormally high and beyond human probability. He also estimated an additional ₹2.94 crore as extra profit by assuming that jewellers were earning a gross profit of 20% on sales made on 8 November 2016, instead of the declared 6.65%.
The Tribunal found that the assessee had maintained duly audited books of account, established the availability of sufficient cash in hand, and correlated the cash deposits with recorded cash sales. The Assessing Officer himself had accepted that sufficient stock was available and that purchases were properly recorded, yet rejected the explanation solely on the basis of an abnormal increase in sales. The Tribunal held that suspicion, human probabilities and surmises cannot replace evidence, particularly when no defect is found in the books, stock or purchases.
The Tribunal further held that Section 68 was inapplicable because the impugned cash represented recorded sales already credited to the Profit & Loss Account and offered to tax. Taxing the same amount again as unexplained cash credit would amount to double taxation. It also relied on the principle that where purchases, stock and sales are interlinked and remain undisputed, the Revenue cannot reject sales merely because of a sudden increase in volume during demonetisation without bringing any contrary evidence on record.
The Tribunal also deleted the addition towards extra profit, observing that the assumption that jewellers earned 20-22% profit during demonetisation was unsupported by any evidence and was based purely on conjecture. Accordingly, it directed deletion of both the Section 68 addition of ₹15.87 crore and the estimated extra profit addition of ₹2.94 crore, allowing the assessee’s appeal in full.
Cases Discussed
- ACIT vs. Hira Panna Jewellers (ITAT Visakhapatnam), (2021) 189 ITD 608
- Dhakeshwari Cotton Mills Ltd vs. CIT (SC), (1954) 26 ITR 775 (SC)
- Seth Gurmukh Singh v. CIT, [1944] 12 ITR 393
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
This appeal has been preferred by the Assessee against the order dated 23.12.2024, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2017-18.
