The Delhi Bench of Income Tax Appellate Tribunal (ITAT), held that the cash deposited out of sales cannot be treated as unexplained income under Section 68 of the Income Tax Act once the sales are not disputed by the revenue.
The assessee, Manuvel Malabar Jewellers is a private limited company engaged in retail trading of gold and diamond jewellery operating from rented premises at Sarojini Nagar Market, New Delhi during the year under consideration. The modus operandi adopted by the assessee in its business is that it used to buy stock for trading from registered dealers and make payments through account payee cheques.
The company also used to buy used old jewellery from its customers mostly as exchange against sale and also against outright payment. The return of income for the Asst Year 2017-18 was filed by the assessee company declaring total income of Rs 9,40,380.
The Assessing Officer (AO) observed that the assessee could not provide complete details of purchasers and sellers i.e name, address, PAN etc in respect of parties from whom old gold was purchased and new gold was sold. The AO also observed that the assessee had cash purchases of old gold to the tune of Rs 2,51,70,461 and disallowed the same under Section 40A(3) of the Income Tax Act in the assessment.
The assessee vide questionnaire was asked to explain the cash deposits made during demonetization period and also directed to furnish details of sales, purchases made, cash book and supporting documents. The assessee was asked to explain the source of those cash deposits made during demonetization period, accordingly assessee submitted it.
The AO disbelieved the explanations offered by the assessee and proceeded to treat the cash deposits of Rs 3,43,50,000 as unexplained cash credit under Section 68 read with Section 115BBE of the Income Tax Act.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] examined the same and deleted the disallowance under Section 40A(3) of the Income Tax Act.
Against the order of CIT(A), the Revenue filed an appeal before the Tribunal.
The Bench comprising of C.M. Garg, Judicial Member and M. Balaganesh, Accountant Member observed that as long as existence of stocks with the assessee is not doubted by the AO and cash sales made by the assessee is accepted by the AO, the entire cash deposits made in the sum of Rs 3,43,50,000 stands duly explained and there is no case for making any addition under Section 68 read with Section 115BBE of the Income Tax Act.
The Tribunal relied on the decision of in the case CIT vs Kailash Jewellery House in where it was held that the cash deposited out of sales cannot be treated as income under Section 68 of the Income Act once the sales are not disputed by the revenue.
Thus, the Bench found no ground to interfere with the order of the CIT(A) and upheld the decision and the appeal filed by the Revenue was dismissed.
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