Cash Deposits from Sale of Goods cannot be treated as Unexplained when Stock Availability not Disputed: ITAT Deletes Addition [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of ₹22,00,000 for alleged cash deposits from sales made by the Assessing Officer (AO) under Section 68 and ruled that it cannot be treated as unexplained when stock availability was not disputed.

Harshvardhan Tejmal Soni (the assessee), a retail dealer in gold and silver ornaments operating as 'Sonika Jewellers,' filed a return for Assessment Year 2017-18. During scrutiny, the AO noted that the assessee deposited ₹1,10,00,000 in cash into his bank account following the demonetization announcement in November 2016.

The AO contended that the assessee had inflated sales to adjust for the cash deposits and failed to prove the genuine nature of these credits. The AO made an addition of 20% of the total deposits, amounting to ₹22,00,000, as unexplained cash credit.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals). The CIT(A) upheld the addition, noting that a sudden spurt in gold sales immediately following the demonetization announcement.

The CIT(A) stated the difference of cash deposits in months prior to and after the November period and also noted that lack of evidence regarding how gold purchased from Mumbai parties was transferred to the assessee just before the sales.

Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT. The assessee argued that the deposits were fully explainable through documented sales and available cash balances. The assessee further noted that the AO made an addition without rejecting the books of accounts under Section 145(3) of the Income Tax act.

The two-member bench, comprising Dr. B.R.R. Kumar (Vice-President) and Siddhartha Nautiyal (Judicial Member) observed that the cash sales for the year under consideration were comparable to earlier years.

The tribunal observed that the Revenue did not dispute the availability of stock with the assessee to effect such sales. The tribunal noted that If the existence of goods is not in dispute, cash receipts from the sale of those goods cannot be treated as unexplained.

The tribunal held that cash deposits in the form of sales can be treated as unexplained if the revenue proves that the assessee did not have sufficient stock of goods to affect such sales.

The tribunal concluded that the assessee had successfully explained the source of the deposits through his trading records. It set aside the orders of the AO and the CIT(A). The appeal of the assessee was allowed.

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