ACIT vs Vikas Chain And Jewellery Private Limited

Per Kavitha Rajagopal, JM:

This appeal is filed by the Revenue, challenging the order of the Learned Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], passed u/s 250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.

The Revenue has raised the following grounds of appeal:-

Brief facts of the case are that the assessee filed its return of income dated 11.08.2017 declaring total income at Rs.84,62,500/- and the same was processed u/s 143(1) of the Act. The assessee’s case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The Ld. AO observed that the assessee has deposited cash amounting to Rs.3,32,50,000/- during demonetization period in specified bank notes (SBN) for which details were sought for from the assessee. The assessee, vide its submission stated that the source of cash deposit was majorly from sales made in cash from 01.11.2016 to 08.11.2016 aggregating to Rs.3,24,75,505/- and furnished details pertaining to the cash sales made during the said period. The Ld. AO, after duly considering the assessee’s submissions, passed the assessment order dated 16.12.2019 under Section 143(3) of the Act determining the total income at Rs.4,03,97,757/-, after making an addition of Rs.3,19,35,257/- u/s 68 r.w.s. 2 115BBE of the Act towards cash deposited, as ‘unexplained cash credit.’ Aggrieved, the assessee was in appeal before the First Appellate Authority, who, vide order dated 10.11.2025, allowed the appeal filed by the assessee, thereby deleting the impugned addition made by the ld. AO. Aggrieved, the Revenue is in appeal before us challenging the order of the Ld.CIT(A).

We have heard the rival submissions and perused the material available on record. The moot issue that requires adjudication is whether the assessee has explained the source of credit in its bank account during demonetization period with relevant documentary evidences, thereby discharging its onus cast upon it as per Section 68 of the Act. It is observed that the assessee is stated to have furnished details such as copy of sample sales bill, month-wise cash details, VAT returns for the whole year, copy of purchase bills from May to March, purchase register, party-wise purchases and copy of the stock register before the lower authorities. The Ld. AO rejected the same stating that in majority of the bills, there was no complete address of the purchaser and that most of the sums were below Rs.2 lakhs and, further, there were no details of the PAN of the purchasers. The Ld. AO further held that the sales were considerably high during the month of October and November and thereby making an addition on the cash deposits and held that the cash book and cash sales have been manipulated as alleged by the Ld. AO that it was not the regular pattern of business of the assessee. Further, since the assessee has already filed VAT returns for the first two quarters from 01.04.2016 to 30.09.2016, the assessee had no option, but, to back date the cash sales bill before October, thereby manipulating its cash book by introducing the alleged unexplained cash credit in the month of November to October.

The ld. CIT(A), on the other hand, observed that the AO has not doubted the sales, purchases and closing stock thereby accepting the sales made by the assessee along with audited books of account, sales prior to demonetization and, sales post-demonetization. The Ld.CIT(A) further held that the audit reports have not been disputed, thereby implying that the assessee has explained the cash deposit made in its account as warranted by the provisions of Section 68 of the Act. The Ld. CIT(A) relied on various decisions of the Tribunal where, on identical facts, the Tribunal had decided this issue in favour of the assessee holding that in the absence of any finding disputing the books of account of the assessee to be not genuine, then, the source of income cannot be held to be an unexplained cash credit. Identical view was taken by the Hon’ble Patna High Court in the case of Laxmi Rice Mills, 97 ITR 258, which was relied upon by the Tribunal in the case of Smt. Charu Aggarwal vs. CIT, 140 taxmann.com 588 relied upon by the Tribunal wherein it was reiterated that when the AO has not disputed the sales, neither the availability of stock, then, the assessee’s explanation with regard to the source being from cash sales ought to have been accepted by the Revenue. The Ld.CIT(A) had relied on a catena of decisions reiterating the said proposition and held that the assessee has substantiated the source of cash deposit to be out of the cash sales made by the assessee and that the AO has failed to disprove the same by cogent reasoning. The Ld.CIT(A) thereby deleted the impugned addition on the above observation.

From the above factual matrix of the case, it is evident that the assessee has been depositing cash out of its cash sales even prior to demonetization which the Ld. AO in his order has tabulated as the opening balance of cash, cash sales and cash deposited in bank. The Ld. AO has also made a comparative analysis of the details pertaining to the year under consideration along with the earlier years, i.e., for AY 2016-17 where there is only a difference in the quantum and not with regard to the pattern of business carried out by the assessee with regard to the cash sales and corresponding cash deposits made in its bank account. The Ld. AO while making the impugned addition has recorded only a general observation regarding the cash deposits made by the assessee during demonetization period and has not undertaken any specific examination of the corresponding stock position, quantitative details, purchase records, sales invoices or movement of stock. This aspect assumes significance in the present case, especially when the assessee is engaged in the jewellery business and has also effected cash sales in the immediately preceding year albeit to a lesser extent. The mere fact that the quantum of cash sales during the year under consideration was much higher than that of the preceding year cannot by itself lead to a conclusion that the corresponding sales were fictitious or that the cash deposits represent unexplained income. We are also conscious of the fact that the substantial increase in the cash sales during demonetization period warranted a specific and cogent examination of the underlying stock and sales transaction and, in the absence of any finding of the Ld. AO regarding any discrepancy in stock, purchases, quantitative records or the genuineness of the individual sales, the impugned addition appears to have been made primarily on the basis of the timing and the quantum of cash deposits without examining the very source claimed by the assessee. It is a settled proposition of law that such a general finding without confronting with any specific discrepancy in the stock or books of account does not adequately establish the cash deposit to be an undisclosed income. We, therefore, find no infirmity in the order of the Ld.CIT(A) in deleting the impugned addition which is founded on conjecture and surmises basis which the same is liable to be deleted. Hence, the ground of appeal raised by the Revenue is hereby dismissed.

In the result, the appeal filed by the Revenue is hereby dismissed.