The Income Tax Appellate Tribunal’s (ITAT) Bangalore bench ruled that the Assessing Officer (AO) erroneously regarded sales as fraudulent transactions without checking to see if the invoices had barcodes.
The appellant/assessee, Aura Jewels, is a partnership business that deals in jewels, gold, silver, and other ornaments at retail. A notice was sent on September 24, 2018, in accordance with Section 143(2) of the Income Tax Act, after the assessee’s case for the assessment year in question was chosen for examination under CASS.
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During the assessment process, the AO discovered that the assessee had cash sales of Rs. 11,64,59,923 and declared a gross receipt of ₹21.99 crores in its income return. A sale of cash was performed between November 1, 2016, and November 8, 2016, with ₹6,72,68,168/-being sold on November 8, 2016, the only day of the transaction.
The assessee reported making ₹6,72,68,168 in cash sales on the day of the demonetization announcement, which accounted for over 57% of the year’s total cash sales. Through a notice, the AO questioned the authenticity of the cash sales that took place in November 2016. The assessee responded by providing pertinent papers, such as Form VAT-40, purchase registers, information on various debtors and creditors, and confirmations from creditors including Mehta Gold (P) Ltd. and M/s Vijay Gems & Jewelry.
Based on supporting documentation, the assessee asserted that the cash sales documented in the books were authentic and that the profits of these cash sales were used to fund bank deposits during the demonetization period, which ran from November 9, 2016, to December 31, 2016. The AO, however, rejected the assessee’s argument and determined that the cash sales that were recorded the day before the demonetization period were either a sham transaction, a book entry, or a colorable tax evasion device.
The tribunal pointed out that the AO determined that the November 8, 2016, cash purchases were fraudulent based only on their abnormally high volume in comparison to the average monthly cash sales, ignoring the exceptional event of demonetization.
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A barcode on a tax invoice acts as a verification mechanism, guaranteeing that the sale is recorded in the system and adding a layer of legitimacy, according to the two-member bench of Keshav Dubey (Judicial Member) and Waseem Ahmed (Accountant Member). Businesses or tax authorities can scan the barcode to confirm transaction information, lowering the possibility of post-issuance change or tampering. A barcode improves accuracy and transparency in accounting and tax records, even though it does not automatically validate every sale.
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The bench observed that the AO mechanically characterized the sales as fraudulent and sham transactions without confirming this aspect or highlighting any particular flaws, which is, in our opinion, improper. According to the ITAT, it is improper to extrapolate a typical monthly cash sales average to a unique event such as demonetization. It is incorrect and unfair for the AO to classify cash sales that are higher than typical as fraudulent.
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