No additions if cash deposits during demonetization was actual cash sales of assessee supported with bills: ITAT

Case details: ACIT v. Hirapanna Jewellers - [2021] 128 taxmann.com 291 (Visakhapatnam - Trib.)

Judiciary and Counsel Details

• • N.K. Choudhary, Judicial Member and D.S. Sunder Singh, Accountant Member.
  • D.K. Sonowal, CIT DR for the Appellant.
  • G.V.N. Hari, Adv. for the Respondent.

Facts of the Case

Assessee was a firm engaged in the business of jewellery trading. During a survey conducted in assessee’s premises, Deputy Director of Income-tax (Investigation) [DDIT] found that assessee had deposited a sum in high denominations of specified bank notes (SBNs) post demonetization. Assessee explained the sources of cash deposits as cash sales and the advances received against the sales. In support of its explanation, assessee also produced the sale bills and books of accounts before the DDIT.

Since assessee could not furnish proper KYC documents of the buyers during the survey, DDIT was not satisfied with assessee’s explanation. The average sales of the firm were not matching with peak and non-peak seasons. Even on special occasions like Akshaya Tritiya, Dhanteras, Ugadi, etc., the average sales were less than the sales made on a single day, i.e., 08-11-2016. Further, cash received was only in high denomination notes banned by Govt. of India from 9-11-2016. Further, there were no details of the customers like phone number, address, etc., and no signatures were obtained in sale acknowledgments of the ornaments. There were no tag number details for some bills, and CCTV footage was also not available to support the entry of many customers. Since the Managing Partner was unable to produce the above details to support the sales increase, the DDIT(Inv.) viewed that assessee had taken shelter of sales to divert the black money of assessee and his friends.
Assessee contended that it had made sales, and the same was offered as revenue receipt in the return of income. Since the sale proceeds were offered and admitted as income, Assessing Officer (AO) was not permitted to make the same amount as an addition under Section 68. This which amounted to double addition once as sales and secondly as unexplained cash credit. Assessee further submitted that the day 8-11-2016 was exceptional because of the demonetization of old notes. Therefore, the public was in a fanatic move and was anxious to convert the SBNs into some other form and felt wiser to invest in jewellery. Being one of the reputed shops with a long-time presence, customers had stepped into assessee’s showroom in large numbers.

ITAT Held

On appeal, Visakhapatnam ITAT held that purchases, sales, and stock are interlinked and inseparable. Every purchase increases the stock, and every sale decreases the stock. To disbelieve the sales, either the assessee should not have sufficient stocks in their possession, or there must be defects in the stock registers/stocks. Once there was no defect in the purchases and sales, and the same matches inflow and the outflow of stock, there was no reason to disbelieve the sales.

Tribunal had gone through the trading account and find that there was sufficient stock to affect the sales, and it didn’t find any defect in the stock and the sales. Since assessee had already admitted the sales as revenue receipt, there was no case for making the addition under Section 68 or tax the same under Section 115BBE again.

Case Review

• • CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146/[1995] 212 ITR 417 (Cal.) (para 7.1)
  • Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC)
  • Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) (para 7.1)
  • Pr. CIT v. Akshit Kumar [2021] 124 taxmann.com 123/277 Taxman 423 (Delhi) (para 7.1) followed.
  • Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC)
  • CIT v. Durga Prasad More [1971] 82 ITR 540 (SC)
  • Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC)
  • CIT v. P. Mohanakala [2007] 161 Taxman 169/291 ITR 278 (SC)
  • CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)
  • J.M.J. Essential Oil Company v. CIT [2018] 100 taxmann.com 181/259 Taxman 546/[2019] 415 ITR 17 (HP) (para 8) distinguished.

List of Cases Referred to

• • CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) (para 3)
  • Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) (para 3)
  • CIT v. Vishal Exports Overseas Ltd. [IT Appeal No. 2471 of 2009, dated 3-7-2012] (para 4)
  • CIT v. Kailash Jewellery House [IT Appeal No. 613 of 2010, dated 9-4-2010] (para 4)
  • Naresh Kumar Tulshan v. Fifth ITO [1985] 11 ITD 537 (Bom.) (para 5)
  • J.M.J. Essential Oil Company v. CIT  [2018] 100 taxmann.com 181/259 Taxman 546/[2019] 415 ITR 17 (HP) (para 5)
  • Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) (para 5)
  • CIT v. P. Mohanakala [2007] 161 Taxman 169/291 ITR 278 (SC) (para 5)
  • CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) (para 5)
  • CIT v. Sadiq Sheikh [2021] 276 Taxman 292/[2020] 122 taxmann.com 39/429 ITR 163 (Bom.) (para 5)
  • Oceanic Products Exporting Co. v. CIT [2000] 241 ITR 497 (Kar.) (para 5)
  • Anil Kumar Singh v. CIT [1972] 84 ITR 307 (Cal.) (para 5)
  • CIT v. Associated Transport (P. Ltd.)  [1996] 84 Taxman 146/[1995] 212 ITR 417 (Cal.) (para 7.1)
  • Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) (para 7.1)
  • Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) (para 7.1)
  • Pr. CIT v. Akshit Kumar [2021] 124 taxmann.com 123/277 Taxman 423 (Delhi) (para 7.1).