The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) restored the matter to the Assessing Officer (AO) for fresh verification of books of accounts and cash sales of Diamond and Gold Dealer in the dispute involving cash deposit during demonetization.
V.N. Exports (assessee), a dealer in diamond, gold jewellery, and bullion, filed its return of income for the Assessment Year 2017-2018 declaring a total income of Rs. 38,61,982. The AO observed during the demonetization period in November 2016, the assessee deposited Rs. 1.24 crore in cash in its bank account.
The assessee submitted that the cash was from legitimate cash sales made on 8th November 2016, between 8:30 PM and midnight. The Assessing Officer treated the cash deposits as unexplained income under Section 69A of the Income Tax Act, 1961.
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The AO rejected the assessee’s claim of making 68 jewellery sales each below Rs. 2 lakhs in a narrow time frame of 3.5 hours terming the explanation improbable and lacking evidence. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) observed that the assessee made a claim Rs. 1. Crore in a span of just 3 hours and 30 Minutes which was improbable. The addition was confirmed by the CIT(A), who also applied Section 115BBE and taxed the amount at 60%.
Aggrieved by the order of the CIT(A), the assessee filed an appeal before the ITAT. The assessee submitted that the cash sales were duly recorded in the books of accounts and that there were no adverse remarks by auditors.
The assessee argued that the AO did not reject the books of accounts and made the addition solely on conjectures and surmises. The assessee also placed reliance on several Tribunal decisions where similar sales during demonetization were accepted as genuine.
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The two-member Bench comprising T.R. Senthil Kumar (Judicial Member) and Annapurna Gupta (Accountant Member) observed that the AO had not carried out a proper verification of the sales, stock register, or books of accounts.
The tribunal relied on the Tribunal’s earlier ruling in the case of Zinzuwadia & Sons, where high cash sales on the day of demonetization were accepted after verification of records.
The Tribunal observed that the AO had merely rejected the assessee’s version without examining the actual evidence. The tribunal observed that the CIT(A) failed to address the submissions made by the assessee and summarily confirmed the addition.
The Tribunal restored the matter to the file of the Assessing Officer for fresh adjudication. The AO was directed to examine the books of accounts, stock details, and supporting documents and pass a fresh order after providing a reasonable opportunity of hearing to the assessee.
The appeal filed by the assessee was allowed for statistical purposes.
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