Bullion Trader’s Demonetisation Cash Deposits Found Genuine: ITAT Deletes ₹9.24 Crore Addition u/s 68 of the Income Tax Act [Read Order]
The Tribunal relied upon documentary evidences submitted by the appellant for its adjudication.
Demonetisation - Cash Deposits - ITAT - ncome Tax Act - taxscan
Demonetisation - Cash Deposits - ITAT - ncome Tax Act - taxscan
The bench of the Income Tax Appellate Tribunal (ITAT), Lucknow, has held that cash deposits made during the demonetisation period, which were duly recorded as cash sales in the assessee’s books of account, cannot be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961. Accordingly, the Tribunal deleted the addition of ₹9.24 crore made by the Assessing Officer.
The appellant, Kashi Nath Seth Sarraf Private Limited, is a private limited company engaged in the business of wholesale and retail trading in gold, silver bullion, and ornaments. For the Assessment Year 2017-18, the company filed its return declaring an income of ₹1.21 crore. During the scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) observed that the appellant had deposited ₹10.28 crore in cash during the demonetisation period.
While accepting ₹75.99 lakh of the deposits as genuine, the AO treated the balance ₹9.24 crore as unexplained cash credits under Section 68 of the Income Tax Act, alleging that the spike in sales on 8 November 2016, immediately after the demonetisation announcement, was abnormal and unverifiable.
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition on the grounds that the sales were not genuine and represented an attempt to introduce unaccounted money into the banking system. The assessee, aggrieved by the order, preferred an appeal before the Tribunal.
Appearing on behalf of the appellant, Akshay Agarwal contended that the cash deposits were proceeds from genuine sales duly recorded in the company’s audited books of account. It was argued that the books were audited under Section 44AB of the Income Tax Act, 1961, and under the Companies Act, 2013, and that the AO had not rejected them under Section 145(3).
It was further argued that the company had provided complete records, including sales invoices, purchase registers, stock details, and VAT returns, which had also been accepted by the VAT authorities without any discrepancy. It was further submitted that the cash sales were supported by adequate stock and that tax was duly paid on the profits derived therefrom.
It was contended that invoking Section 68 in such circumstances amounted to taxing the same income twice, which is legally impermissible. Reliance was placed on several judicial precedents, including Tirupati Proteins Pvt. Ltd. v. ACIT (2020), which held that recorded sales cannot be treated as unexplained cash credits.
It was further contended that the provisions of Section 115BBE, which prescribe a 60% tax rate for such additions, were inapplicable for the relevant assessment year.
Appearing on behalf of the Revenue, Neeraj Kumar defended the addition and argued that the surge in sales on 8 November 2016 was abnormally high and the AO had specifically expressed dissatisfaction with the genuineness of the cash sales.
It was submitted that the appellant had failed to establish the identity of customers and the genuineness of such sales, thereby failing to discharge the onus under Section 68 of the Income Tax Act, 1961. Reliance was placed upon Supreme Court judgments including Sumati Dayal v. CIT (1995), Revenue authorities must consider surrounding circumstances, human conduct, probabilities, and the overall nature of the evidence available on record.
It was further argued that under the Uttar Pradesh Dookan Aur Vanijya Adhishthan Adhiniyam, 1962, the assessee was not permitted to keep its shop open beyond prescribed business hours or employ women staff beyond normal time. Further, contended that the assessee had accepted cash sales exceeding ₹2 lakh in violation of Section 269ST of the Income Tax Act, 1961, inviting potential penalty under Section 271DA for over 70 transactions. Thus, the assessee was aware of the implications of large cash dealings.
The bench of Accountant Member, Anadee Nath Misshra and Judicial Member, Sudhanshu Srivastava held that the addition of ₹9.24 crore could not be sustained. The Tribunal observed that the assessee’s books of account were duly audited and accepted by the AO, who had not pointed out any defects in purchases, sales, or stock records.
The Tribunal noted that the sales were supported by invoices, stock registers, VAT assessments, and tax payments, all of which corroborated the genuineness of the transactions. The bench held that once the receipts are recorded as sales and offered to tax as part of business income, the provisions of Section 68 cannot be invoked, as it would amount to double taxation.
The Tribunal reiterated that mere suspicion, however strong, cannot substitute for factual evidence, particularly when documentary proof establishes the source of funds. The Tribunal observed that the Revenue has failed to substantiate not even one transaction as bogus.
With respect to Section 115BBE of the Income Tax Act, the Tribunal observed that the higher tax rate of 60%, introduced by the Taxation Laws (Second Amendment) Act, 2016, was applicable only from Assessment Year 2018-19, however restricted itself to further expound.
Therefore, directed the AO to delete the addition.
Accordingly, the appeal was allowed.
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