Diamond Cash Sales Duly Recorded in Books: ITAT upholds Deletion of Rs. 1 Cr Addition [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of a Rs. 1 Crore addition under Section 68 of the Income Tax Act, ruling that the Diamond cash sales were duly recorded in the books of accounts and supported by sufficient evidence.

Radhika Diamonds (assessee) engaged in the business of trading and manufacturing of diamond jewelry, loose diamonds and silver wholesale to customers. The assessee filed return of income for the assessment year 2017-18 on declaring a total income of Rs. 65,790.

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The Assessing Officer (AO), during scrutiny, observed a sharp increase in cash sales amounting to Rs. 81,10,987 in October 2016 and Rs. 1,08,870 in November 2016. The AO alleged that the cash deposits of Rs. 1 crore during the demonetization period were unexplained and added this income under Section 68 of the Income Tax Act.

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Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), deleted the addition of Rs. 1 Crore, though it partly confirmed an addition of Rs. 3,65,000 related to cash sales.

Aggrieved by the CIT(A)’s decision, the revenue filed an appeal before the ITAT. The Counsel for the Revenue, contended that the cash deposits were from unexplained sources, earned in old currency, and deposited during demonetization. The counsel also submitted that the assessee failed to explain the source of money properly.

On the other hand, the counsel for the assessee argued that the AO had not disputed the business activities, opening stock, purchases, sales, or closing stock, nor rejected the books of accounts.

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The two-member bench comprising Dr. BRR Kumar (Vice President) and Ms. Suchitra Kamble (Judicial Member) observed that the assessee’s cash receipts were generated from legitimate business activities, duly recorded in the books of accounts, and not doubted by the AO.

The tribunal observed that the AO had accepted the opening stock, purchases, and closing stock. The tribunal also observed that the CIT(A) had verified the cash flow chart and sales invoices during the festival period provided by the assessee.

The tribunal observed that there was no basis to interfere with the CIT(A)’s findings. The tribunal upheld the deletion of Rs. 1 Crore by the CIT(A). The appeal of the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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