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2025 Supreme(Online)(ITAT) 2736
INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(2)(1) BANGALORE – Appellant
Versus
AURA JEWELS BANGALORE – Respondent
ITA 684/BANG/2023
The provisions of Section 68 cannot apply to cash sales that are duly recorded as income, and the Assessing Officer must conduct proper inquiries before making additions based solely on assumptions.
Headnote:(A) Income Tax Act, 1961 - Section 68 - Cash sales during demonetization period - Additions made by the Assessing Officer under Section 68 were deleted by CIT(A) on grounds of extraordinary circumstances surrounding the period of demonetization - Assessee's explanation and supporting documents were found sufficient - AO failed to consider the true nature of cash sales, treating them as unexplained cash credits without proper enquiry. (Paras 2, 4, 16, 20.7)
(B) Appeal - Assessing Officer's powers under Section 68 are not absolute but require proper enquiry and justification for any additions to income - Failure to corroborate claims with credible evidence may result in unjustified assumptions. (Paras 6.12, 20.4)
Facts of the case:
The assessee, a partnership firm engaged in jewelry retailing, saw unusually high cash sales during the demonetization period, which the AO deemed suspicious due to lack of detailed buyer information. However, the CIT(A) noted that the sales were legitimate responses to a sudden economic event.
Findings of Court:
The court upheld findings that cash sales were reported correctly, existing in the company's records and supported by invoices.
Issues: Did the AO conduct a proper inquiry under Section 68 and was the treatment of cash sales by the Assessing Officer justified?
Ratio Decidendi: The court observed that the AO's assumptions regarding cash sales were not based on factual discrepancies in the records. The application of Section 68 was inappropriate as the AO accepted valid sales.
Result: Revenue appeal dismissed, and addition under Section 68 deleted.
| Table of Content |
|---|
| 1. grounds of appeal raised by revenue. (Para 1 , 2 , 3) |
| 2. context of cash sales during demonetization. (Para 4 , 6 , 10 , 12) |
| 3. court observations on the genuineness of sales. (Para 7 , 8 , 16 , 18) |
| 4. court emphasizes the need for factual inquiries. (Para 9 , 19) |
| 5. conclusion and dismissal of revenue's appeal. (Para 20 , 21 , 22 , 23 , 24) |
ORDER
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the order passed by the NFAC, New Delhi dated 27/03/2023 vide DIN No.ITBA/NFAC/S/250/2022-23/1051404289(1) for the assessment year 2017-18. The assessee has filed cross objection.
2. The Revenue has raised the following grounds of appeal;
“1. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 6,61,00,000/- made by the AO u/s 68 of the IT Act, 1961
2. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the above mentioned addition as the assessee has never produced the details of the persons including PAN and address either before the assessing officer or before the Ld. CIT(A)
3. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the above mentioned addition as the assessee was not able to produce the confirmation of sales from third party either before the assessing officer or before the Ld. CIT(A).
4. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the above mentioned addition as section 68 of the IT Act, 1961 states that in failure of satisfactory explanation of the nature and source of cash credits in the bank account, the assessing officer can invoke section 68 of the IT Act, 1961. In this case, the assessee failed to discharge the onus of proving the nature and source of cash credits made during the month of ' Nov.]6 and thereby unexplained cash credits were added as Income by the assessing officer by invoking the section 68 of the Fl Act, 1961. 1lence. Ld. CIT(A) ought not to have deleted the addition made under section 68 of the IF Act, 1961.”
3. The interconnected issue raised by the revenue is that the Learned CIT-A erred in deleting the addition of Rs. 6,61,00,000/- made by the Assessing Officer (AO) under Section 68 of the Act.
4. The relevant facts are that the assessee, a partnership firm, is engaged in the retail trading of jewelry, gold, silver, and other ornaments. The assessee's case for the assessment year under consideration was selected for scrutiny under CASS, and accordingly, a notice under Section 143(2) of the Act, dated September 24, 2018, was issued. During the assessment proceedings, the AO found that the assessee had reported a gross receipt of ₹21.99 crores in its return of income, with cash sales amounting to ₹11,64,59,923/- only. Out of such cash sales, a sale worth of ₹6,85,43,098/- was made between November 1, 2016, and November 8, 2016, out of which ₹6,72,68,168/- was transacted on a single day, i.e., November 8, 2016 only. Thus, on the day of the demonetization announcement, the assessee claimed to have made cash sales of ₹6,72,68,168/-, accounting for more than 57% of the total cash sales made during the year. Further, the assessee claimed that during November 2016, total cash sales amounted to ₹7.23 crores, out of which:
• ₹12,74,930/- was made between November 1 and November 7, 2016,
• ₹6,72,68,168/- was made on a single day, November 8, 2016, and
• The remaining cash sales for the month of November 2016 amounted to ₹38 lakh.
5. Accordingly, the AO raised a question regarding the genuineness of the cash sales made during November 2016, through a notice dated December 9, 2019.
6. In response, the assessee furnished relevant documents, including Form VAT-40, details of sundry debtors and creditors, purchase registers, and confirmations from creditors such as M/s Vijay Gems & Jewelry and Mehta Gold (P) Ltd. The assessee, relying on documentary evidence, claimed that the cash sales recorded in the books were genuine and that the
