Recently, the Income Tax Appellate Tribunal ( ITAT ) recently set aside an addition of Rs. 2.25 crore made by the Assessing Officer ( AO ) against one assessee/appellant, Tirupati Jewels, New Delhi, for unexplained cash deposits, noting that the addition was based on the AO’s mere suspicion.
The assessee, Tirupati Jewels, a firm engaged in trading gold, silver, and diamond jewelry, filed its income tax return for the 2017-18 assessment year, declaring an income of Rs. 4.5 lakh. Subsequently, the tax authorities flagged the firm for scrutiny due to cash deposits totaling Rs. 2.25 crore made in its HDFC Bank account during the demonetization period. The assessee contended that these deposits stemmed from legitimate cash sales of jewelry conducted during the busy festival season of October and early November, bolstered by the Dussehra and Diwali holidays. The assessee-firm provided its purchase and sale records, stock summaries, and details of festival sales as supporting documents to validate its claim.
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However, the AO dismissed the explanation, arguing that the evidence was inadequate and that the assessee had not provided enough documentation to verify the deposits as arising from legitimate business activities. Consequently, the AO treated the deposits as unexplained income under Section 69A of the tax legislature, which covers undisclosed assets. The case was then appealed to the Commissioner of Income Tax (Appeals), who upheld the AO’s decision.
Representing the assessee, the counsel argued before the ITAT that the AO had not issued a proper notice under Section 143(2) of the tax statute, required for jurisdiction, and had made the addition without fully considering the provided evidence. The counsel further pointed out that the assessee-firm had submitted sales and purchase details, including itemized and value-wise stock summaries, to illustrate that the cash deposits correlated with sales activity during the festive season, which traditionally sees a surge in jewelry sales.
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Upon review, the ITAT bench of Mr Rifaur Rahman and Mr Sudhir Kumar observed that the AO had failed to reject the assessee-firm’s book of accounts and had not proven that the transactions were fictitious. The tribunal noted that the AO’s addition relied heavily on suspicion and surmise, without robust factual backing.
Thus the ITAT ruled that the assessee had sufficiently explained the source of the cash deposits through sales documentation and festival-specific sales trends. Consequently, the tribunal deleted the Rs. 2.25 crore addition.
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