The Delhi Bench of Income Tax Appellate Tribunal(ITAT) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]’s decision to delete the addition of ₹3.24 crore under Section 68 of Income Tax Act, 1961,concerning cash sales made post-demonetization.
The Revenue–appellant,appealed against the order passed by CIT(A) dated 31.01.2022. In this case,Manuvel Mezhukanal,respondent-assessee,claimed cash sales of ₹3,24,71,745 on November 8, 2016, between 8 PM and midnight after the demonetization announcement. The Assessing Officer (AO) found it unrealistic to have over 200 customers in three hours and allowed only ₹17,79,636, based on Dhanteras sales on October 28, 2016.
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The remaining ₹3,06,92,049 was added as unexplained cash credit under Section 68. The AO also noted the lack of customer details and a stock register, raising doubts about the sales’ authenticity.
The assessee told the CIT(A) that jewellery sales spiked on November 8, 2016, as people rushed to use old currency before demonetization. Cash sales were made legally, reported as income, and taxes were paid. It was argued that adding the same amount under Section 68 led to double taxation. The assessee cited the Delhi High Court ruling in Kailash Jewellery House.
To address concerns about handling many customers, it was stated that 195 invoices were issued on November 8, 2016, including 175 after the demonetization announcement. On Dhanteras, 221 invoices were issued. With multiple billing counters and experience handling crowds, the assessee maintained that the sales were genuine. All invoices were submitted to the AO, who did not dispute their authenticity.
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The CIT(A) allowed the appeal, finding the cash sales on November 8, 2016, genuine. It was noted that handling 175 customers was feasible with multiple billing points and high demand. Since collecting PANs for purchases below ₹2 lakh was not required, the absence of details could not be held against the assessee.
With no discrepancies in sales or stock, the CIT(A) ruled that the AO had no basis to treat the sales as bogus. Relying on rulings in Kailash Jewellery House and Hirapanna Jewellers, the addition of ₹3,06,92,049 under Section 68 was deleted, and ₹4,17,411 was added back to correct the profit calculation.
The two member bench comprising Anubhav Sharma(Judicial Member) and Brajesh Kumar Singh(Accountant Member) considered the submissions and reviewed the records. It noted that the assessee had accounted for the receipts as sales and offered them for taxation. However, the AO treated the same amount as unexplained cash credit under Section 68.
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The appellate tribunal observed that Section 68 applies when an amount is credited in the books without a satisfactory explanation. In this case, the assessee had explained the source as sales, produced invoices, and admitted the amount as revenue. While the AO highlighted the absence of a stock register and auditor’s qualification, no defects were found in the purchases, sales, or books of accounts.
Read More: Addition of ₹1.22 Crore for Cash Deposits During Demonetization: ITAT Upholds CIT(A)’s Deletion
Citing rulings in Associated Transport (P.) Ltd., Lalchand Bhagat Ambica Ram, and Lakshmi Rice Mills, the tribunal stated that when cash balances align with book entries, the source is considered explained. It also referred to Hirapanna Jewellers, which held that suspicion alone, without concrete evidence, is insufficient for an addition under Section 68 of the Act.
The tribunal upheld the CIT(A)’s decision, concluding that the AO failed to disprove the sales with tangible evidence.
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In conclusion,the appeal filed by the revenue was dismissed.
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