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TMI Blog2025 (3) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... SS, and notices under Sections 143(2) and 142(1) of the Act were issued. During the assessment proceedings, the AO observed that the assessee deposited Rs. 5,61,85,000/- in cash into its bank account during the demonetization period (November 2016). The assessee claimed the deposits represented cash sales, primarily on 08.11.2016, the day demonetization was announced. 3. The AO observed that the assessee recorded more than 350 cash sales on 08.11.2016, with each transaction ranging between Rs. 1.75 lakh and Rs. 1.99 lakh. The structured nature of these transactions, where all sales were below the PAN disclosure threshold of Rs. 2 lakh, was found to be highly suspicious. The AO noted that there is no instance of sale in cash after 08.11.2016, making it unusual that such a high volume of cash sales occurred on a single day. Further, the assessee failed to provide any details of the buyers, such as names, addresses, or PANs, despite being specifically asked to furnish them. Based on these observations, the AO issued a Show Cause Notice on 23.12.2019, requiring the assessee to substantiate the source of cash deposits. The assessee requested an adjournment until 27.12.2019 but failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income. The assessee also submitted that the AO, while doubting the genuineness of the sales, made presumptive observations in the assessment order, particularly regarding the feasibility of conducting 350 sales transactions within 3.5 hours. The AO's assumption that each jewellery purchase would take approximately 45 minutes per customer was arbitrary and unrealistic, as the customers were already prepared to make quick purchases, selecting available items within minutes. The assessee strongly refuted the AO's conclusion that it was "humanly impossible" to conduct such a volume of sales within the given timeframe. The assessee submitted that both showrooms were operational until midnight, with full staff and additional family members assisting in sales transactions. Customers were aware of the PAN threshold limit and structured their purchases, accordingly, limiting their individual purchases below Rs. 2 lakh. Customers were not allowed to remain in the shop for more than ten minutes, ensuring quick transactions and immediate billing. The surge in sales on the night of demonetization was a nationwide phenomenon, as reported by multiple media sources. To substantiate this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem through independent inquiry. Since the AO had failed to do so, the addition was not sustainable. 4.1. The CIT(A) relied on various judicial precedents, including - - ACIT v. Hirapanna Jewellers (ITAT Vishakhapatnam, ITA No. 253/Viz/2020), where it was held that once cash sales are recorded in books, they cannot be treated as unexplained income under Section 68 or 69A of the Act. - DCIT v. Bawa Jewellers Pvt. Ltd. (ITAT Delhi), where it was held that if purchases are accepted, corresponding sales must also be accepted unless proved otherwise. - CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146 (Cal.), where it was held that cash balances recorded in books cannot be treated as undisclosed income under Section 69A of the Act. - Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.), where it was held that when books of accounts are not rejected, and cash deposits align with business operations, they cannot be treated as unexplained money. 4.2. These rulings reaffirmed that cash sales cannot be disbelieved without proper evidence. 4.3. The CIT(A) observed that the AO's approach effectively resulted in double taxation, as the sales were already offered to tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) in deleting the addition, arguing that the CIT(A) failed to consider the AO's findings and unexplained aspects of the assessee's books of accounts, yet the CIT(A) did not record any independent findings on these issues. Instead, the CIT(A) merely relied on the fact that the cash sales were recorded in the books, without considering whether these entries actually reflected genuine transactions or were merely made to justify the cash deposits. The DR submitted that recording a transaction in the books does not automatically establish its authenticity, especially in cases involving large unexplained cash deposits during the demonetization period. To strengthen the Revenue's case, the DR relied on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Namdeo Arora (389 ITR 434), where the assessee failed to provide credible evidence to substantiate a loan of Rs. 30 lakh, allegedly received from a third party. The High Court upheld the addition made under Section 69A of the Act, holding that the assessee had not discharged the burden of proving the source of funds and that the addition was justified, regardless of whether the AO had inadvertently mentioned Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce new arguments at the appellate stage that were never part of the AO's reasoning for making the addition. 7.2. The AR then addressed the AO's presumption that completing over 350 sales transactions between 8:30 PM and midnight on 08.11.2016 was humanly impossible. It was argued that the AO had failed to appreciate the ground reality of how businesses, particularly jewellery shops, operated during the demonetization period. The assessee had two shops, not one, and both showrooms were operational till midnight. Due to the unprecedented rush of customers, all staff members were engaged in sales, and relatives were also assisting in managing the crowd and processing transactions efficiently. These facts were communicated to the AO during the assessment proceedings, but the AO failed to give due consideration to this aspect and arbitrarily concluded that the sales were fictitious. 7.3. With respect to the DR's contention regarding the non-maintenance of a stock register, the AR categorically stated that the assessee had duly maintained a stock register and submitted it to the AO for verification. The stock details were also reported by the auditor in Annexure to Form 3CD (Tax Audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es during demonetization. In that case, the Bench held that when sales are recorded in books and reflected in tax returns, the AO cannot arbitrarily treat cash deposits as unexplained income. The AR emphasized that the present case was on similar footing, and the same principle should apply. 7.7. In conclusion, the AR contended that the Revenue's appeal lacked merit, as the AO's addition was based purely on suspicion and conjecture rather than any tangible evidence. 8. After considering the submissions of both parties, the findings of the AO, the decision of the CIT(A), and the judicial precedents cited, we note that the Revenue has challenged the deletion of the addition of Rs. 5,61,85,000/- made under Section 69A of the Act by the CIT(A), contending that the cash deposits made by the assessee during demonetization were unexplained and not supported by genuine sales transactions. The DR argued that the assessee failed to provide sufficient details to establish the authenticity of sales, particularly pointing out that the invoices did not contain buyer details such as PAN and addresses. The DR further contended that the assessee structured all transactions below Rs. 2 lakh to avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 68 of the Act if the source of money remains unexplained. The DR contended that since the genuineness of cash sales was doubtful, the AO was justified in making the addition under Section 69A of the Act, and alternatively, the addition could also be sustained under Section 68 of the Act. However, we find that the Namdeo Arora case is distinguishable from the present case. In the case of Namdeo Arora, the assessee failed to provide any documentary evidence to substantiate the receipt of a loan, and therefore, the Hon'ble High Court upheld the addition. In contrast, in the present case, the assessee has recorded cash deposits as sales in its books, duly supported by stock registers, purchase and sales records, VAT returns, and cash books. The transactions are accounted for, disclosed in tax records, and were subjected to audit. Unlike, in the case of Namdeo Arora, where the transaction was found to be inherently improbable, the present case involves a business reality where there was a significant surge in gold jewellery sales post-demonetization, a fact corroborated by media reports and industry trends. Thus, the reliance on Namdeo Arora is misplaced, as it does not apply to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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