TaxTMI 
TaxTMI 
2026 (6) TMI 668
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....cash of Rs. 72,80,000/- in its bank account with ICICI Bank. Subsequently, notice u/s 142(1) was issued and served on the assessee through ITBA Portal. The assessee was asked to explain genuineness as well as source of cash deposited by it during demonetization period. In response, it was submitted that it is engaged in retail business of gold and diamond jewellery and business being carried from Delhi, in its two branches at Ghaziabad and Haryana. Assessee has submitted that it has deposited cash on 12.11.2016 of Rs. 58,13,000/- and on 25.11.2016 of Rs. 14,67,000/-. The sources of cash deposits were explained as received from unidentifiable customers of Rs. 74,71,381/- and balance cash-in-hand. The AO, after analyzing the business of the assessee during the impugned year and preceding year at page 5 of the assessment order, observed that cash sales during the year under consideration was reported at Rs. 73,63,447/- in contrast to Rs. 7,66,822/- in the previous assessment order and further observed that assessee has recorded cash sales of Rs. 66,74,019/- in the month of October and for the period 01.11.2016 to 08.11.2016. He further noticed the cash available in the business from A....
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....iled submissions. After considering the detailed submissions of the assessee, ld. CIT (A) sustained the addition. 5. Aggrieved with the above order, assessee filed an appeal before us raising following grounds of appeal :- 1. That the order passed by the Ld. Commissioner of Income Tax (Appeals) is contrary to the facts of the case, against the principles of natural justice, and bad in law. 2. That the Ld. Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs. 72,80,000/- on account of cash deposits during the demonetization period by invoking section 68 of the Income Tax Act, 1961, even though the deposits represented recorded business receipts. 3. That the Ld. Commissioner of Income Tax (Appeals) failed to appreciate that the appellant's books of accounts were duly audited, never rejected by the Assessing Officer, and no defects were pointed out, yet adverse inferences were unjustly drawn regarding cash sales, infrastructure, and supporting documents. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in making various allegations against the assessee. The assessee had duly responded to ea....
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....ch and Rs.2,57,24,793.95 to the Ghaziabad Branch. Accordingly, the total sales reported in the VAT returns for the year amounted to Rs.12,68,40,310.84, which includes the inter-branch transfers. However, the actual turnover from external sales, as reflected in the audited financial statements, stands at Rs.7,93,57,595.65, excluding inter-branch transfers. We have attached the Audited Financial statements for your reference on the page no.100-120 of the paper book submitted and the sales figure of Rs. 7,93,57,595.65 can be cross verified from the page no. 107. The appellant has consistently maintained a record of timely filing of statutory returns, including Income Tax Returns and VAT Returns, and has duly paid all applicable taxes within prescribed timelines. The details of VAT returns filed for the FY 2016-17 are as follows: VAT Returns Summary: Quarter/ Month Online Return ID/ Ack No. Gross Total Turnover Delhi Q1 206110056 48,25,229.00 Q2 206232880 1,06,11,251.00 Q3 206795386 3,41,97,872.00 Q4 207677458 2,37,71,656.00 Total Turnover 7,34,06,008.00 Gurgaon Q1 RF17103160868....
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....th the VAT department and the Income Tax authorities, and no discrepancy has been pointed out in the quantum or genuineness of sales, it is wholly unjustified to treat the corresponding cash deposit in bank as unaccounted money. The sales proceeds, having already been disclosed, recorded, and subjected to taxation under both direct and indirect tax laws, cannot be classified as unexplained income. In Smt. Charu Aggarwal v. DCIT [2022] 140 taxmann.com 588 (Chandigarh - Trib.), it was held that cash deposits post-demonetization, arising from cash sales accepted by the VAT/Sales Tax Department and not disputed by the AO, could not be treated as undisclosed income. The appellant's case stands on similar footing. In view of the above, the cash deposit represents genuine, recorded business transactions supported by audited books, tax returns, and verifiable inventory records. Treating such deposits as unaccounted income would be contrary to the facts on record and the well-settled legal position. We are additionally attaching another stock summary below for the period August to November, which includes the months of October and November-the period allegedly fou....
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....15,63,300.00 32.62 4,40,370.00 Diamond@14000 (R) 75.02 10,50,280.00 120.35 16,84,900.00 195.37 27,35,180.00 Diamond@17000-18000 (R) 0 - 25 4,25,000.00 0 - Diamond@21000-22000 (T) 0 - 27.86 5,96,352.00 27.86 6,58,894.51 Diamond@250000 (R) 0 - 1.2 3,00,000.00 1.2 3,30,000.00 Diamond@50000-55000 (R) 0 - 2.61 1,34,707.00 0 - Diamond@59000-60000 (R) 0 - 7.02 4,15,598.00 7.02 5,63,855.00 Diamond@8000-9000 (J) 0 - 123.34 11,10,060.00 123.34 11,48,029.00 Diamond@8000-9000 (R) 0 - 198.21 17,83,890.00 123.34 11,10,060.00 Diamonds@12500 (J) 0 - 25.29 3,11,344.94 25.29 3,11,344.94 Diamonds@15001-16000 (J) 0 - 112.21 17,03,507.14 65.44 11,51,758.60 Diamonds-14000-15000 (T) 0 - 42.5 5,95,000.00 42.5 5,97,520.00 Grand Total 1559.678 1,18,80,873.59 15290.651 6,22,79,516.92 13408.716 5,98,18,387.48 10. On Alleged Deviation in Sales Pattern and Validity of Cash Sales: The Assessing Officer (AO) has alleged a significant deviatio....
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....ally acceptable and lawful practice in the jewellery trade. We have attached the sales ledgers of all the branches on page nos. 158-168 and the cash books of all the branches on page nos. 135-157 of the paper book. The AO has further alleged that the assessee had extremely low cash purchases during AY 2017-18 while effecting cash sales during the year. In this regard, it is respectfully submitted that low cash purchases cannot, by itself, lead to any adverse inference against the genuineness of cash sales. There is no provision under the Income Tax Act which prescribes that cash sales must necessarily be supported by corresponding cash purchases. The mode of purchase and the mode of sale are independent commercial decisions governed by business expediency. Merely because the assessee predominantly made purchases through banking channels does not prohibit the assessee from effecting sales in cash, particularly when such sales are otherwise lawful and within the prescribed statutory limits. Even if the ratio of cash sales is assumed to be on the higher side, all such sales are duly recorded in the books of account, reported as part of turnover, supported by stock records, an....
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....he audited books of account of the appellant, and the same have been offered to tax in the normal course. It is also pertinent to note that the Assessing Officer has not pointed out any discrepancy either in the quantitative stock records or in the corresponding purchase documentation. In the absence of any defect in the books of account or adverse material on record, no separate or further addition on account of such recorded sales is legally sustainable and deserves to be deleted. Lastly, additions under Section 68 of the Act cannot be made merely on account of a higher ratio of cash sales during the demonetization period. Where the cash sales are fully supported by verifiable entries in the books, correspond with the stock records, and there is no evidence of suppression of income or inflation of profits, the AO has no justifiable basis to treat such deposits as unexplained or undisclosed income. In the present case, the AO has not made any adverse findings regarding the availability or correctness of stock, nor has he found any inconsistency between the sales and the quantity of items shown in the stock register. Therefore, the addition made lacks legal merit and deser....
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....pany. Since no toll booths are situated enroute, there are no toll receipts. Moreover, no statutory requirement has been cited that mandates additional documentation for intra-company transport using owned vehicles. The burden lies on the Assessing Officer to establish that goods were not transported using the company's vehicle, and no such evidence has been brought on record. It is further alleged that the appellant initially denied the statutory requirement of filing declarations before the DVAT authorities and later accepted that Form-F was mandatory for stock transfers. This allegation is factually incorrect. The appellant never made any such contradictory statement. Thereafter, copies of all relevant Form-F declarations were submitted promptly when requested by the Assessing Officer. There is no evidence to support any change or inconsistency in the appellant's stand. 13. Form-F Declarations - Statutory Framework and Legal Validity At the outset, it is submitted that Form-F is governed by section 6A of the Central Sales Tax Act, 1956, read with the relevant State VAT Rules. Section 6A provides that where goods are transferred otherwise than by way of....
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....aryana Branch during the FY 2016-17 especially during the period prior to the period of demonetization. Perusal of the above F Form reveals that not in a single Form exact description of items purported to be transferred to Haryana is clearly mentioned. Against each column, it is mentioned as per Annexure 'A'. And in Annexure A, the item proposed to be transferred is simply mentioned as 'jewellery'. Though value is mentioned, but it is of no use in the absence of corresponding correct weight and description of goods. In not a single Form there is mention of mode and manner of transfer of stock, date of such actual transfer as all the relevant columns are left blank." The above observations form the sole basis for the adverse inference drawn by the Assessing Officer with respect to the genuineness and timing of stock transfers and Form-F declarations. Each of these observations is factually incorrect, legally unsustainable and contrary to the statutory provisions of section 6A of the Central Sales Tax Act, 1956, as well as the documentary evidence placed on record, as demonstrated hereinbelow. Timing of Issuance of Form-F and Its Relevance to AY 2017-18 Th....
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....tain to the demonetisation time" and therefore stock transfers during demonetisation were not proved is factually incorrect and made without appreciating the documentary evidence placed on record. During appellate proceedings, the appellant had furnished all Form-F issued by the Haryana VAT Department, along with a detailed month-wise table showing stock transfers from Delhi branch to Gurgaon and Ghaziabad branches, which clearly reconciled with Form-F numbers, voucher numbers and values. The finding of the CIT(A) ignores these reconciliations and proceeds merely on the issuance date of Form-F, which is legally irrelevant under section 6A of the CST Act. 14. Justification of Cash Deposit From the foregoing, it is evident that all sales effected by the assessee are genuine, duly reported, and taxed under both VAT and the Income-Tax Act. Supporting documents-including cash books for all branches (Page no. 135-157), invoice copies (Page no. 169-227), Relevant pages of VAT returns (Page No. 323-379), and day-wise stock registers (Page No. 228-322)-have been attached for verification. These records clearly establish that the alleged "suspicious" cash deposit of Rs.72,8....
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.... (iv) Nirankari Sons Jewllers Pvt. Ltd. vs. ITO - ITA No.2818/Del.2024 AY 2017-18. 8. On the other hand, ld. DR of the Revenue brought to our notice page 28 of the assessment order and page 18 of the first appellate order to submitt that he relies on the detailed findings of the lower authorities and further relied on the decision of Hon'ble Orissa High Court in Pankaj Gupta vs. Pr.CIT (2025) 477 ITR 387 (Orissa) and Hon'ble Supreme Court in Sanjay Kkapur vs. ACIT (2022) 287 taxman 225 (SC). 9. Considered the rival submissions and material placed on record. We observed that assessee has deposited cash immediately after announcement of demonetization. After analyzing cash book and sales pattern of the assessee, the AO came to the conclusion that assessee has recorded majority of the sales from October 2016 to 08.11.2016 and majority of the sales were recorded only in Delhi, it was observed that majority of the sales were recorded for the value less than Rs. 2,00,000/-. Since assessee has recorded majority of the sales during October 2016 to 08.11.2016 and most of the transactions were for the value of less than Rs. 2,00,000/-, the AO had applied principles of human probabiliti....
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.... the Ld.CIT(A) held that the assessee failed to discharge its onus of providing item-wise sale for each invoice especially for the month of November, 2016 and the fact that average per day sale in these 39 days(01.10.2016 and the fact that average per day sale in these 39 days(01.10.2016 to 08.11.2016) was Rs. 20.87 lakhs as compared to Rs. 53,514/-only in FY 2017-18 points to the fact that claim of cash sales is an afterthought to justify huge cash deposits in Bank of India account during the demonetization period. 17. It is the specific case of the assessee is that the sale proceeds of jewellery were the source of cash deposited in the bank and of the entries are supported by books of accounts, purchase vouchers, sales invoice, stock register, VAT records, bank statement etc. at no point of time books of accounts of the assessee was rejected and the same has been accepted in VAT. It is not the case of the Revenue authorities that the invoice are more than 2,00,000/- but it is the specific case of the Department that all the invoices are Rs. 2,00,000/- or below Rs. 2,00,000/- but total cash sale-invoices for diamond items during 01/10/2016 to 08/11/2016 was Rs. 20.87 lakh....
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....ame are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. Audit report u/s 44AB, the financial statements furnished in paper book clearly shows the reduction of stock position and matching with the sales which goes to say that the cash generated represent the sales. The assessee has furnished the trading account, P& L account in page No. 7 of paper book and we observe that the reduction of stock is matching with the corresponding sales and the assessee has not declared the exorbitant profits. Though certain suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the condition of the assessee. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence. 7.1. In the case of CIT Vs. Assolciat....
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....and the said deposits have been duly recorded in the books of account are not disputed. It is the submission of the assessee that it had received advance money from walk in customers for sale of jewellery over the counter and the amount so received was duly recorded in the books of account. The said amount along with other cash balance available with the assessee was deposited into the bank account after announcement of demonetization by the Government of India. He also submitted that the assessee has raised sale bills against the said advances in the name of respective customers. Since the transaction was less than Rs. 2.00 lakhs, it was stated that the assessee did not collect complete details of the customers. Thus, it is seen that the advance amount collected from customers, the sales bill raised against them etc., have been duly recorded in the books of account. The impugned deposits have been made from cash balance available with books of account. I also notice that the Assessing Officer has not rejected the books of account. When cash deposits have been made from the cash balance available in the books of account, in my view, there is no question of treating the said deposit....
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....palal Shah Vs. ITO (Mumbai) in ITA No.1295/Mum/2014 dated 03.10.2017, in the said case, there was huge purchase mainly from one concern, such concern's capital was in the negative. Each invoices were exceeded Rs. 3 crores, identity of purchaser not disclosed, there was no proof of delivery of gold bars, assessee therein with petty capital. Those fact are not found in the present appeal and the facts and circumstances of the case cited above are contrary to the present casein hand. Further insofar as the case laws cited by the Revenue i.e. Ravinder Kumar Vs. ITO in ITA No. ITA.No.196/Del./2019 dated 02.09.2019, in the said case no material adduced to authenticate the contention that each ofdeposits were out of sales. But in the present case each of the deposit was made out of sales and books of account was maintained. In the case relied by the ld DR i.e. Rajiv Jain Vs. ITO (2013) 410 ITR 179 (Del), there was no evidence to show that cash collection through sale of wearing apparels and the inherited silver utensils. In the instant case, the facts clearly support that the assessee has made the sales and there were sufficient stocks to meet the sales. Thus, the facts of the Assessee's ....
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....in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous. 23. In view of the above discussion we are of the considered opinion that the ld CIT(A) has committed error in upholding the addition made by the AOu/s 68 of the Act. Accordingly, we allow the grounds of appeal of the assessee." The other decision relied upon by the assessee is coordinate Bench decision in the case of Nirankari Sons Jewellers Private Limited wherein the coordinate Bench held as under :- "12. We have heard the rival contentions made by the respective parties and have also perused the material....
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....been accepted by the Income Tax Department and also the VAT and GST Department too. Further that, the books of accounts were neither refuted by the AO or CIT(A) neither has it been said to be ingenuine. Particularly, when the balance in cash is matching with the books the assessee, explanation to the nature and sources of such deposits deserved to be accepted. The books of accounts of the assessee were duly audited by the independent Chartered Accountant under Section 44AB of the Act, the recording of sales, purchase and stock therein not been doubted by the authorities below neither specific defect was pointed out in the books of account maintained by the assessee and having regard to this aspect of the matter, the additions made on ad-hoc basis doubting sales of the assessee in the case in hand is found to be arbitrary, erroneous. The book result shown by the assessee had been accepted by the department in the current year and preceding years. The finding of the AO that the sales made by the assessee is his unaccounted income would certainly disturb the trading results of the company and would also change the GP ratio which is neither permissible without the books of account havi....