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Judgment
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 26.09.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-17/10812/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 28.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the assessee is an individual and is proprietor of Balaji Diamond, engaged in the business of trading of gold and silver jewellery. The return declaring total income of INR 5,62,150/- was filed on 01.11.2017. The case of the assessee was selected for scrutiny under CASS for the reason cash deposited during demonetization period I Specified Bank Notes (SBN). Thereafter, the AO observed that the assessee has deposited total cash of INR 69,75,000/- during the demonetization period and the source of which was explained as out of cash sales made during the month of October, 2016 to 08.11.2016. The AO held the cash sales and cash balance of INR 17.00 Lakhs as fair and reasonable looking to eh past history of the assessee and made the addition of the differential amount of INR 52,75,000/- u/s 68 of the Act as unexplained credits and further invoked the provisions of section 115BBE for charging special rates of tax. Besides this, deduction claimed u/s 80C of the Act of INR 1,08,034/-and under section 80G of INR 22,250/- were disallowed for want of supporting evidences.
Against the said order, the assessee is in appeal before Ld.CIT(A) who vide impugned order dated 26.09.2025 though has confirmed the addition of INR 52,75,000/- made u/s 68 r.w.s.115BBE of the Act however, directed to reduce the said amount from the total turnover declared and to recompute the trading results accordingly. Regarding the disallowance made of the deduction claimed u/s 80C & 80G of the Act, Ld. CIT(A) has directed the AO to verify the claim from the evidences submitted and allow as per law.
Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Ground of appeal No.1 raised by the assessee is general in nature hence, not adjudicated.
Ground of appeal Nos.2, 4 & 5 raised by the assessee are with respect to the addition of INR 52,75,000/- u/s 68 of the Act therefore, they are taken together for consideration.
Before us, Ld. AR for the assessee submits that the assessee is a trader in jewellery and all the sales have duly been recorded in the books of accounts maintained in the regular course of business and were duly audited. The assessee also produced the books of accounts containing the cash books, sales invoices, sales and purchase register, stock register, VAT returns, audited financial statements etc. before the AO who has failed to point out any defect therein and on assumptions and presumptions estimated the cash sales of INR 10.00 Lakhs and estimated the cash balance as on 08.11.20216 at INR 7.00 Lakhs though the provisions of section 145(3) were not invoked and trading result were accepted. Ld. AR submits that the assessee has declared better results as compared to previous years where on the sales of INR 5.30 crores, G.P. rate @ 3.48% was declared as against the sales of INR 5.02 crores, G.P. rate @ 3.76% was declared for the year under appeal. Likewise, as against the NP rate of 1.04%, the NP rate @ 1.65% was declared in the year under appeal. Ld. AR submits that the addition made on the basis of suspicion without having any basis for holding so. Ld. AR submits that though the ld. CIT(A) has directed to recompute the trading results after reducing the amount of addition made u/s 68 out of total sales, however, books of accounts maintained were not rejected. Ld. AR thus submitted that when books of accounts were not doubted and all the necessary details were filed by the assessee, no addition should be made u/s 68 of the Act for the cash deposited in SBN during the demonetization period and requested for the deletion of the addition made.
On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that there was an abnormal increase in the sale in the month of October, 2016 as compared to preceding AY which clearly shows that the assessee has shown the cash sales to justify the source of cash deposits during the period of demonetization in the bank account in SBN. He therefore, submits that the AO has rightly allowed the deduction of INR 17.00 Lakhs and requested for the confirmation of the orders of the lower authorities.
Heard the contentions of both the parties at length and perused the material on record. In the instant case, assessee has made cash deposits of INR 69,75,000/-in SBN during the demonetization period for which the immediate source was explained as made out of the cash accumulated from the sales made during the month of October, 2016 to 08.11.2016. IN support of the claim, assessee had produced the books of accounts and other particulars before the AO which includes cash book, stock register, VAT returns etc. and no defects whatsoever were pointed out in the same either by the AO or by Ld. CIT(A). However, the source of cash deposited during the demonetization period was doubted and sales was estimated at INR 10.00 Lakhs and further availability of cash in hand of INR 7.00 Lakhs was held as reasonable and balance amount of INR 52,75,000/- was added u/s 68 r.w.s. 115BBE of the Act. It is observed that during the year under appeal assessee has declared progressive results where the G.P. rate was increased from 2.37% to 3.48% as compared to immediately preceding year and corresponding net profit was increased from 1.04% to 1.65%. It is also a matter of facts that the AO has not invoked the provision of section 145(3) of the Act and accepted the trading results. Ld. CIT(A) though had confirmed the addition however, has directed the AO to reduce the amount of cash addition of INR 52,75,000/- from the declared turnover and further directed to recompute the trading profits. While doing so, the Ld.CIT(A) neither invoked the provisions of section 145(3) nor any opportunity was provided to the assessee to show cause about such action. The assessee has also filed quarterly AVT returns where the turnover declared was matched with the turnover declared in ITR and was accepted by VAT authorities without any doubts. Once the fact of cash sales has been accepted and there was no allegation that the assessee has shortage of stock when such cash sales was made, the same cannot be doubted on mere assumptions without brought on record any contrary material.
Further, when the cash was duly recorded in the shape of sales therefore, the provisions of section 68 cannot be invoked for sales more particularly when it is backed by the availability of stock. Therefore, addition so made u/s 68 of the Act without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified. Thus, provisions of section 68 of the Act are not applicable.
The Hon’ble Delhi High Court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under:
“In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.”
The Co-ordinate bench of Mumbai ITAT in the case of ACIT v. Ramlal Jewellers (P.) Ltd. Reported in [2023] 154 taxmann.com 584 (Mumbai -Trib.) under similar circumstances has deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization period by making following observations:
“Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)-Assessment year 2016-17- Assessee-company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 -It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock - Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]”
The Co-ordinate Bench of ITAT Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dt. 25.09.2024 has observed as under:
18.“Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
19.In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
20.Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under:
"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68."
Under these circumstances, by respectfully following the judgement of hon’ble jurisdictional high court and of the coordinate benches of Tribunal, we are of the considered view that the lower authorities have wrongly made the addition of IRN 52,75,000/- on account of cash deposited during the demonetization period as unexplained credit in the books of accounts and accordingly, the same is deleted.
Regarding the Ground of appeal No.3 raised by the assessee towards the observations of ld. CIT(A) directing the AO to verify the deductions claimed under sections 80C and 80G, despite of the fact that the complete evidences including the housing loan repayment schedule issued by Edelweiss Housing Finance Ltd. and valid donation receipts were already available on record. It is observed that the AOI has disallowed the same in absence of the evidences filed which were filed before the ld. CIT(A). Further the ld. CIT(A) has though has held that the assessee is eligible for the deductions claimed and for determination of correct amount of deduction gave directions to the AO which in our view are not in violation to the provisions of section 250(6) of the Act. We find that with such directions no prejudiced is caused to the assessee as after verification, the Ao ought to have allowed the deduction as claimed. Thus, this ground of appeal is dismissed.
In the result, appeal of the assessee is partly allowed.