Cash Sales Substantiated During Demonetization: ITAT Upholds ₹1.32 Cr Deletion of Cash Deposit Addition [Read Order]

Ankur Jain (assessee), an individual engaged in the retail trading and remaking of old jewellery through his proprietorship firm M/s Prem Diamonds, filed an income tax return declaring an income of Rs. 5,29,070.

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During scrutiny, the AO observed cash deposits of Rs. 1,32,31,000 in the assessee’s bank accounts during the demonetization period. The AO treated these deposits as unexplained cash credits under Section 68, assessing the income at Rs. 1,37,60,070.

Aggrieved by the AO’s order, the assessee appealed to the CIT(A). The assessee submitted that the cash deposits originated from cash sales, duly recorded in the books of accounts, and supported by invoices, sale and purchase registers, VAT returns, tax-audited annual accounts, and cash books.

The CIT(A) deleted the addition, finding the AO’s conclusions based on suspicion rather than evidence, as no defects were identified in the assessee’s books. Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT.

The assessee’s counsel argued that the cash sales were genuine, supported by comprehensive documentation. The assessee further contended that the addition under Section 68 was inappropriate, as the source of the deposits was recorded as sales, and the application of Section 115BBE was invalid for transactions before 15.12.2016.

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The two-member bench, comprising Mahavir Singh (Vice President) and Amitabh Shukla (Accountant Member), observed that the assessee had provided substantial evidence, including tax-audited books, VAT returns, and sale registers, to substantiate the cash sales.

The Tribunal observed that the AO did not reject the books of accounts or identify any specific defects, and the sales were corroborated by VAT authorities. It further observed that the AO’s addition was based on a comparison with lower cash sales in the preceding year, which the assessee explained was due to ill-health, supported by medical records.

The Tribunal held that suspicion cannot substitute for evidence, citing precedents like Kalaneedhi Jewellers and Goel Jewelers Overseas Corp. It also noted that the festive season during demonetization likely contributed to higher sales.

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The Tribunal concluded that the cash deposits were adequately explained as arising from cash sales, and the addition under Section 68 resulted in double taxation, as the sales were already offered for tax. It also held that the AO’s reliance on Section 115BBE was misplaced, as it was not applicable to the relevant period.

The bench upheld the deletion of Rs. 1.32 Crore. The appeal filed by the Revenue was dismissed.

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