ACIT, RANGE-1, LUCKNOW V. MOTOR FAB SALES PVT. LTD., LUCKNOW

ITA 431/LKW/2020

AI Insights

The case involves cross-appeals by the assessee, M/s Motor Fab Sales Pvt. Ltd., and the Revenue against the order of the Commissioner of Income Tax (Appeals)-2, Lucknow, for the Assessment Year 2017-18. The primary contention revolved around the additions made under section 68 of the Income Tax Act, 1961, which were based on alleged unexplained cash deposits and the treatment of certain sales as made at a premium. The Tribunal examined the validity of these additions in light of the audited books of account, the absence of discrepancies in stock and sales records, and the lack of substantial evidence to support the Revenue's claims of manipulation or bogus sales.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705756 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: R.B. Jessaram Fetehchand (Sugar) vs. CIT, ACIT vs Hirapanna Jewellers, Anantpur Kalpana vs. ITO, ACIT vs. Motisons Jewellers, ACIT vs. Mahendra Kumar Agarwal, Fine Gujaranwala Jewellers vs. ITO, Mahesh Kumar Gupta vs. ACIT, Mukesh Soni vs. ITO, ACIT-3(1)(1) vs. Ramlal Jewellers Pvt. Ltd., ITO-23(3)(6) vs. Swarnnsarita Jewellers, Neeraj Camellia Private Limited vs. DCIT, Diwan Sahib fashions Private Limited vs. ACIT, Anil Champalal Jain vs. ITO, Agsons Global Private Limited vs. ACIT, Mehta Parikh & Co. vs. CIT, Laxmi Rice Mills vs. CIT, Chunnilal Tikam Chand Coal Co. Ltd., Atish Singla vs. ITO Ward 43(7), Yash Ornaments (P) Ltd. vs. ACIT, Harisons Diamond Pvt. Ltd. vs. ACIT, DCIT vs. Bawa Jewellers Pvt. Ltd., DCIT vs. Dar Paradise Pvt. Ltd., ITO vs. Sahana Jewellery Exports Pvt. Ltd., Singhal Exim Pvt. Ltd. vs. ITO, Kishore Jeram Bhai Khaniya vs. ITO, ITO vs. Shri Parmanand Gupta, Kanpur Oganics Pvt. Ltd. vs. DCIT, CIT vs. Vishal Exports Overseas Ltd., Raj Kumar vs. ITO, Smt. Charu Aggarwal vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H. S. USMANI
• Assessee Lawyers: RAKESH GARG; DELETION OF ADDITION OF RS.; MADE UNDER SECTION
• Keywords: Set aside; Business income; Bogus
• Section: 143(3); 68; 69C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.351/LKW/2020 Assessment Year: 2017-18 M/s Motor Fab Sales Pvt. Ltd. 11, Mahatma Gandhi Marg Hazratganj, Lucknow v. The DCIT/ACIT-4 Lucknow TAN/PAN:AACCM5754E (Appellant) (Respondent) ITA No.431/LKW/2020 Assessment Year: 2017-18 TheACIT-1 Lucknow v. M/s Motor Fab Sales Pvt. Ltd. 11, Mahatma Gandhi Marg Hazratganj, Lucknow TAN/PAN:AACCM5754E (Appellant) (Respondent) Assessee by: Shri Rakesh Garg, Advocate Revenue by: Shri H.S. Usmani, CIT(DR) O R D E R PER SUDHANSHU SRIVASTAVA, J.M.: These are cross-appeals by the assessee as well as the Revenue against the order dated 15.09.2020, passed by the ld. Commissioner of Income Tax (Appeal)-2, Lucknow (ld. CIT(A)) for Assessment Year 2017-18. 2. The brief facts of the case are that the assessee- company is engaged in the business of Automobiles and ITA No.351 & 431/LKW/2020 Page 2 of 29 Jewellery. The assessee e-filed its return of income for the year under consideration on 31.10.2017, declaring total income at Nil. The case of the assessee was selected for scrutiny under CASS. During the assessment proceedings, the AO noticed that during the year under consideration, the assessee had shown total sales of Rs.3,29,07,38,340/- against which net profit had been shown at Rs.2,79,82,015/- and also that there was a substantial increase in cash sales during the period October & November, 2016. The AO further noticed that out of the total cash sales of Rs.39,63,18,783/- for the entire year of 2016-17, the assessee had shown cash sale of Rs.23,36,82,272/- only for the period from October, 2016 till 8th November, 2016, i.e., the assessee had shown cash sales of Rs.23,36,82,272/- in 38 days. After considering the submissions made on behalf of the assessee and the materials placed on record, he treated Rs.17,50,26,651/- as being unexplained cash deposit out of bogus cash receipts in the following manner: S.No. Particulars Amount (Rs.) A Average per day sale from April to September 1,83,461.00 B Accounting for percentage increase of around 100% on account of festivals, per day sale for festival month 3,66,922.00 C Average sale for 39 days on the 1,43,09,958.00 ITA No.351 & 431/LKW/2020 Page 3 of 29 basis of above per day sale (C*39) D Total cash sale shown from 01.10.2016 to 08.11.2016 21,18,46,609.00 E Excess cash sale treated as bogus receipts (D minus C) 19,75,36,651.00 F Less: PMGKY declaration 2,25,10,000.00 G Unexplained cash deposit out of bogus cash receipts 17,50,26,651.00 2.1 The AO, accordingly, completed the assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter called “the Act’) by making addition of Rs.17,50,26,650/- under section 68 of the Act . 2.2 The AO invoked the provisions of section 115BBE of the Act and also initiated penalty proceedings und 271AAC of the Act. 2.3 Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A)-2, Lucknow, vide her impugned order, directed the AO to delete the addition made under section 68 of the Act, but add 20% as being premium on sale, which according to her was in the range of 15-20%, to the income of the assessee, treating the same as the profit earned by the assessee, and also directed to allow credit for the surrendered amount of Rs.2,25,10,000/-. ITA No.351 & 431/LKW/2020 Page 4 of 29 2.4 Aggrieved by the order of the ld. CIT(A), the assessee as well as the Revenue are in appeal before us. 2.5 The grounds of appeal raised by the assessee in ITA No.431/LKW/2020 are as under: 01. Because the CIT(A) has erred on facts and in law in holding that the sales to the extent of Rs.16.31 crores has been made on premium of 20% which is unjustified and hence has treated the profit on the same as unexplained to be added to the income of the appellant, which order is bad in law and be quashed.. 02. Because the CIT(A) has failed to appreciate that the entire sales of Rs.23.36 crores includes the sales of Rs.16.31 crores on which profit has been earned and declared and hence treating part of the profit as unexplained and adding to the income again is contrary to the facts, bad in law and be deleted. 03. Because the books of account as maintained and as produced having being accepted, there being no defect nor discrepancy, neither have they been rejected, the trading results as declared having been accepted, the finding of the CIT(A) is erroneous and the addition directed to be made is out of context besides being bad in law, be deleted. 04. Because the entire profit earned on the sales declared being duly accounted for, the accounts have been tax audited, there was no reason to disbelieve the same and hold that the part of the profit is excessive and is unexplained, itself is self-contradictory in as much as whatever profit has been earned the same forms part of the ITA No.351 & 431/LKW/2020 Page 5 of 29 profit & loss account; the addition ordered to be made is bad in law, unsustainable, be deleted. 05. Because there being no discrepancy or defects in the books of account, nor there having being pointed out any, the addition directed to be made based on mere conjectures, surmises and suspicion, be deleted being totally unjustified and unwarranted. 06. Because the CIT(A) has erred on facts and in law in partly upholding the order passed by the AO, making the addition of Rs.17,50,26,650/- u/s.68 read with section 115BBE which order passed by the AO and CIT(A) are bad in law, the addition made by the AO and partly upheld by the CIT(A) be deleted. 2.6 The grounds of appeal raised by the Revenue in ITANo.351/LKW/2020 are as under: 1.The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.17,50,26,651/- made u/s 68 of the I.T. Act r.w.s 115BBE made on account of unexplained cash deposit during demonetization period due to sales credited to its books of account to extent unsupported by past trend. 2.Appellant craves leave to add as amend any one or more of the ground of appeal as stated above as and when need of doing so arises with the prior permission of the Hon'ble ITAT. 3.0 The Ld. CIT(DR) submitted that the Department was in appeal challenging the deletion of addition of Rs.17,50,26,651/- by the ld. CIT(A), because undisputedly the sales of the assessee ITA No.351 & 431/LKW/2020 Page 6 of 29 had increased abnormally during the demonetization period. It was submitted that the AO has pointed out in paragraph 15 of his order that the assessee had not provided the list of customers to whom the impugned sales were made and, therefore, in absence of such details having been provided, it was highly probable that the sales were not genuine in nature. While supporting the order of the AO, the Ld. CIT(DR) submitted that at page 18 of the assessment order, the AO has also mentioned that although the sales had increased by almost 12 times as compared to previous year, but there was no increase in remuneration to staff or any other substantial increase in other business related expenditure to justify the increased sales. It was argued by the Ld. CIT(DR) that it is impossible to believe that the assessee was able to increase its sales substantially without increasing the infrastructure facilities. The Ld. CIT(DR) also submitted that the opening stock of the assessee, as per the Chart reproduced by the AO, would show that the opening stock in hand was more than sales, which again would point out to there being some kind of manipulation in the books of account. 4.0 In response, the Ld. A.R. submitted that the assessee was in the business of Jewellery, Automotive and Ancillary products during the year under consideration and had deposited an amount of Rs.19,03,98,000/- during the demonetization ITA No.351 & 431/LKW/2020 Page 7 of 29 period. It was submitted that the cash deposited during the course of demonetization period comprised of opening cash balance as well as turnover of the assessee. It was submitted that the assessee had duly submitted a comparative chart of month-wise sales and purchases during the year as well as that of the previous year along with the details of cash deposited, before the AO. It was further submitted that the books of account of the assessee were duly audited and no discrepancy either in the books of account or in the stock was pointed out by the AO either during the course of assessment proceedings or in the assessment order. The Ld. A.R. further submitted that the books of account were also not rejected by the AO, which would imply that the sales and purchases made by the assessee were not in doubt. It was further submitted that the assessee had duly filed VAT Returns in time and even the VAT Department had not pointed out any discrepancy in the VAT Returns. Our attention was drawn to the copy of monthly VAT Return for October, 2016 and it was pointed out that this Return had been filed on 21.11.2016, i.e., on the due date of filing of the Return, which would demonstrate that the bona fide of the assessee was not in doubt. Our attention was also drawn to the assessment order passed by the VAT Department in respect of assessment year 2016-17 and it was submitted that the VAT Assessing ITA No.351 & 431/LKW/2020 Page 8 of 29 Officer also had accepted the sales and purchases as disclosed in the VAT Returns for assessment year 2016-17. The Ld. A.R. also invited our attention to the Charts appearing at pages 5, 6 and 7 of the assessment order and pointed out that the opening cash in hand as on 01.04.2016 was Rs.1,10,74,812/- and as on 01.10.2016, it stood at Rs.9,62,84,327/-. It was submitted that the assessee had duly submitted cash-in-hand position during the year under consideration as well as during the previous year, which have been reproduced by the AO in his order and a perusal of the same would show that it is not the case of the Department that the assessee did not use to have substantial cash-in-hand in his books of account. It was further submitted that even the stock details were duly submitted before the AO and are appearing at pages 618 to 776 of the paper book and these were also produced before the AO and no discrepancy has been pointed out by the AO in this regard. It was submitted that in view of this, it can be safely concluded that the assessee had sufficient stock to make the impugned sales during the period of demonetization and, therefore, the allegation of inflated sales for the purpose of depositing cash was ill-founded. 4.1 The Ld. A.R. further submitted that the amount of sales had already been included in the books of account and, therefore, making an addition again of the same under section 68 ITA No.351 & 431/LKW/2020 Page 9 of 29 of the Act would tantamount to double taxation, which would be against the very fabric of the Income Tax Act and was not legally permissible. It was also submitted that the AO had duly accepted the figures of sales as well as the gross profit and, therefore, there was absolutely no occasion for the AO to have made the impugned addition under section 68 of the Act. 4.2 The Ld. A.R. also drew our attention to a compilation of case laws in support of his arguments and submitted that these case laws may be duly considered while adjudicating the issue. The list of case laws relied upon by the Ld. A.R. is as under: Sl. No. Details of case law 1 R.B. Jessaram Fetehchand (Sugar) vs. CIT - [1970] 75 ITR 33 (Bombay), order dated 19.01.1967. 2 ACIT vs Hirapanna Jewellers in ITA No 253/Viz/2020, order dated 12.05.2021, ITAT Vishakhapatnam. 3 Anantpur Kalpana vs. ITO in ITA No. 541/Bang/2021, Order dated 13.12.2021, ITAT Bangalore. 4 ACIT vs. Motisons Jewellers in ITA No. 161/Jp/2022, order dated 29.09.2022, ITAT, Jaipur. 5 ACIT vs. Mahendra Kumar Agarwal in ITA No. ITA No.351 & 431/LKW/2020 Page 10 of 29 172/Jp/2022, order dated 22.11.2022, ITAT, Jaipur. 6 ACIT vs. Chandra Surana in ITA No. 166/Jp/2022, order dated 15.12.2022, ITAT, Jaipur. 7 Fine Gujaranwala Jewellers vs. ITO in ITA No. 1540/Del/2022, order dated 27.03.2023, ITAT, Delhi. 8 Mahesh Kumar Gupta vs. ACIT in ITA No. 149/Jp/2022, order dated 23.03.2023, ITAT, Jaipur. 9 Mukesh Soni, Jaipur vs. ITO in ITA No. 46/Jp/2023, order dated 26.04.2023, ITAT, Jaipur. 10 ACIT-3(1)(1) vs. Ramlal Jewellers Pvt. Ltd. in ITA No. 1600/Mum/2023, order dated 26.07.2023, ITAT, Mumbai. 11 ITO-23(3)(6), Mumbai vs. Swarnnsarita Jewellers in ITA No. 1420/Mum/2023, order dated 23.08.2023, ITAT, Mumbai. 12 Neeraj Camellia Private Limited vs. DCIT in ITA No. 14/Rpr/2024, order dated 18.03.2024, ITAT, Raipur. 13 Diwan Sahib fashions Private Limited vs. ACIT in ITA No. 3247/Del/2023, order dated 01.05.2024, ITAT, Delhi. 14 Anil Champalal Jain vs. ITO in ITA No. ITA No.351 & 431/LKW/2020 Page 11 of 29 213/Mum/2024, order dated 09.07.2024, ITAT, Mumbai. 15 Agsons Global Private Limited vs. ACIT, 115 Taxman.com 342 (Delhi Tribunal). Order of the Tribunal has been upheld by the Hon'ble Delhi High Court in the case of PCIT vs. Agson Global Pvt. Ltd. in ITA No. 68-73/2021, order dated 19.01.2022. 16 Mehta Parikh & Co. vs. CIT, 30 ITR 181 (SC). 17 Laxmi Rice Mills vs. CIT, 97 ITR 258 (Patna). 18 Chunnilal Tikam Chand Coal Co. Ltd., 27 ITR 602 (Patna). 19 Atish Singla vs. ITO Ward 43(7) in ITA No. 1185/Del/2021, order dated 06.04.2022, ITAT, Delhi. 20 Yash Ornaments (P) Ltd. vs. ACIT in ITA No.353/LKW/2020, order dated 23.07.2024, ITAT, Lucknow. 21 Harisons Diamond Pvt. Ltd. vs. ACIT in ITA No.1426/Del/2021, order dated 23.02.2024, ITAT, Delhi. 22 DCIT vs. Bawa Jewellers Pvt. Ltd. in ITA No. 352/Del/2021, order dated 09.06.2023, ITAT, Delhi. 23 DCIT vs. Dar Paradise Pvt. Ltd. in ITA No.1106/CH/ 2023, order dated 21.03.2024, ITAT, Chennai. ITA No.351 & 431/LKW/2020 Page 12 of 29 24 ITO vs. Sahana Jewellery Exports Pvt. Ltd. in ITA No. 999/CH/2022, order dated 12.12.2023, ITAT, Chennai. 25 Singhal Exim Pvt. Ltd. vs. ITO in ITA No. 6520/Del/2018, order dated 12.04.2019, ITAT, Delhi. 26 Kishore Jeram Bhai Khaniya vs. ITO in ITA No. 1220/Del/2011, order dated 13.05.2014, ITAT, Delhi. 27 ITO vs. Shri Parmanand Gupta in ITA No. 82/RPR/2017, order dated 04.08.2022, ITAT, Raipur. 28 Kanpur Oganics Pvt. Ltd. vs. DCIT in ITA No. 675/LKW/2018, order dated 10.01.2020, ITAT,, Lucknow. 29 CIT vs. Vishal Exports Overseas Ltd., Tax Appeal No. 2471 of 2009, order dated 03.07.2012 (Gujarat HC). 30 Raj Kumar vs. ITO in ITA No. 195/AMR/2022, order dated 11.04.2023, ITAT, Amritsar. 31 Smt. Charu Aggarwal vs. DCIT in ITA No. 310 and 311/CHD/2021, order dated 25.03.2022, ITAT, Chandigarh. ITA No.351 & 431/LKW/2020 Page 13 of 29 4.3 The Ld. A.R. supported the findings of the ld. CIT(A) while arguing against the appeal of the Department. 5.0 With respect to the appeal of the assessee in ITA No.351/LKW/2020, the Ld. A.R. submitted that the assessee was challenging the action of the ld. CIT(A) in holding that the sales to the extent of Rs.16.31 crores had been made at a premium of 20%, which was without any evidence or fact on record. It was submitted that the ld. CIT(A) had failed to appreciate that the entire sales declared by the assessee (Rs.23.36 crores) included sales of Rs.16.31 crores, on which profit had been earned and had already been declared in the return of income and, therefore, making another addition of 20% on account of alleged premium earned was contrary to the facts of the case. It was argued that the entire profit earned on the sales had been duly declared and the books of account have been duly audited and no discrepancy, whatsoever, had been pointed either in the Audit Report nor has there been any other allegation by the AO with respect to the undisclosed profits having been earned by the assessee and, therefore, this action of the ld. CIT(A) was entirely baseless and without any substance. 6.0 In response, Ld. CIT(DR) placed reliance on the observations of the ld. CIT(A), in this regard, and submitted that ITA No.351 & 431/LKW/2020 Page 14 of 29 since the entire sale proceeds were deemed to be bogus by the AO and added under section 68 of the Act, the ld. CIT(A) was perfectly justified in treating part of the sales as having been made on a premium and the assessee having earned undisclosed profit on the same. 7.0 We have heard both the parties and have also perused the material on record. First we take up the appeal of the Department, which is against the relief allowed to the assessee by deletion of addition of Rs.17,50,26,651/- made under section 68 of the Act. 7.1 The facts of the case are not in dispute. There was substantial increase in the sales of the assessee during the period of demonetization and it was the contention of the AO that these sales were bogus sales, which had been introduced in the books of account with an aim to bring on record undisclosed/unexplained cash lying with the assessee. However, as the facts of this case would show, the assessee was having substantial cash in hand right from April, 2016 onwards and it is not the Department’s case that there was sudden jump in cash in hand which was generated by alleged bogus sales during the period of demonetization. This is evident from the Chart ITA No.351 & 431/LKW/2020 Page 15 of 29 appearing at page 5 of the assessment order itself. This Chart is being reproduced hereunder for ready reference: Month Op. Cash In hand Cash Sales other recipts Cash deposited in Bank Cash Withdrawn from Bank expenses Inter Closing Cash in hand April 2016 11,074,812 18,552,976 19,193,872 42,350,762 5,040,000 2,555,880 (402,291) 9,357,309 May, 2016 9,357,309 27,687,902 21,830,028 50,420,447 80,000 2,273,976 (290,028) 6,550,844 June, 2016 6,550,844 22,065,174 17,646,256 35,533,536 90.000 2,679,486 954,586 7,184,666 July. 2016 7,184.666 13,536,542 15,580,663 25,459,484 50,000 2,441,067 763,190 7,688,130 August. 2016 7,688,130 16,245,217 16,902,941 29,970,641 25,000 2,547,509 (124,136) 8,467,275 September,2016 8,467,275 13,766,826 16,519,639 27,564.013 110,000 4,159,047 402,524 6,738,156 October, 2016 6,738,156 112,613,255 15,483,975 36,584,522 50,000 2,418,119 (401,582) 96,284,327 November till 08/11/2016 96,284,327 121,069,017 2,380,134 6,330,534 30.000 1,020,063 894,874 211,518,007 09-11-2016 to 30/11/2016 211,518.007 4,733,798 3,253,167 210,763,527 100,000 1,017,835 140,400 7,683,209 December,2016 7,683,209 4,513,202 2,881,668 1,933,770 100,000 2,695,472 189,365 10,359,472 31- December,2016 10,359,472 249,418 819,725 89,380 - 17,992 (83,950) 11,405,194 January. 2017 11,405,194 6,830,846 10,441,312 12,717,792 50,000 2,627,722 309,538 13,072,300 February, 2017 March, 2017 13,072,300 11,108,353 10,378,239 16,218,325 425,000 1,937,037 (629,066) 17,457,596 17,457,596 23,346,256 12,157,218 25,737,187 50,000 8,137,462 (1,723,424) 20,859,846 7.2 Apart from this, the assessee had substantial stock with him even on the first day of the financial year, which is evident from the observation of the AO at 16 of the assessment order, wherein, it has been stated that the assessee had opening stock of Rs.23 crores whereas the entire turnover of previous year was only Rs.13.66 crores, which, according to AO, was not digestible. Thus, the AO found it hard to believe that the assessee had stock of Rs.23 crores in its books. However, this suspicion of the AO is ITA No.351 & 431/LKW/2020 Page 16 of 29 again without any basis, as no defects have been pointed out either in the books of account or in the stock details, which were submitted by the assessee during the course of assessment proceedings. It is also worthwhile to mention here that the book results declared by the assessee have been accepted by the AO and the sales and purchases have also been accepted without any defect having been pointed out and the only suspicion of the AO is that the assessee could not have made such huge sales during the demonetization period. However, since there is nothing on record to suggest that the assessee had made bogus sales, we are of the considered view that the AO has proceeded on mere assumption and presumption while treating the sales as bogus and making the impugned addition under section 68 of the Act. 7.3 In this regard, while allowing relief to the assessee, the ld. CIT(A) has observed as under: “However the fact remains that the books of the accounts of the appellant are audited and manipulations if any, can be made in the books of the period under consideration but not in the case of any previous years. The opening stock for the current year is carried from the closing value of the previous year. The Value as disclosed by the appellant in the previous year, is tallied. It would be a farfetched idea to conclude that the appellant started to manipulate his books from previous ITA No.351 & 431/LKW/2020 Page 17 of 29 years in anticipation of demonetization and subsequent introduction of cash through bogus sales. The appellant had opening stock of more than Rs.23.40 crores. The AO has not made any worthwhile enquiries in this regards, The enquiries made by the AO, if any, in this regard have not resulted in any discrepancy or variation that could have been reported in the assessment order. Once, the purchases are not doubted nor there is any doubt on the stock register of the appellant addition made only on the basis of comparison of sales, that too of totally unrelated period of business, is unsustainable. The AO has not made any enquiries with regards to the sale bills raised by the appellant and recorded in the books of account. She has simply brushed aside them as bogus and deliberately made below Rs.2,00,000/-, just to escape the TCS provisions. It is pertinent to note here that there is no provision in any law which could have forced the appellant to maintain the ID records of such sales, had it been the case that advances were taken by the appellant for future sales then it was duty bound to substantiate the same. The AO has failed to distinguish the difference between the cash sales and credit sale. There are no such provisions in other business in this regards either. the sales are properly vouched and reflected in the books of accounts of the appellant. The appellant has submitted that he maintains a cash balance of around Rs. five crore a cash balance of Rs 49521133/- was available on 31/03/2016 is verifiable from audited balance sheet filed. The A.O. has not considered the aforesaid facts and instead compared the sales from 01/04/2016 to 30/09/2016 i.e ITA No.351 & 431/LKW/2020 Page 18 of 29 sale of 183 days with sales of 39 days ie from 01/10/2016 to 08/11/2016.The assessment order does not mention reason for the same. The appellant has submitted that there is always a sharp rise in sales during the months of October and November as these are the months of festive season and marriage. It is pertinent to note here that no two years are identical or same due to a variety of reasons, which are beyond the control of any businessman. The AO has not compared the sale of same period last year. The A.O failed to justify incremental upward revision of100%. The AO has not considered the rise in price of gold and silver, which is a major component of the appellant's turnover. The average price of gold increased from Rs.25,000/10 gms.- in October 2015 to Rs.30,000/-in October 2016. Thus, 20% increase was recorded in the average sale price of gold alone, same was the case of silver too. The AO has not considered the same and has not bifurcated the sale made in these categories. Furthermore, the very basis allowing the mark-up of 100%, precisely, has not been discussed in the assessment order. It is not known as to what prompted the AO to allow the mark-up at 100% only. it goes to show that the AO has only made estimates to arrive at a figure of sales. This is incorrect approach, particularly when the books of accounts are audited and the disclosed results pertaining to purchases and stock have been accepted. ITA No.351 & 431/LKW/2020 Page 19 of 29 AO made the above addition on the assumption that the appellant made abnormal sales disclosed in the books in the months of October and November, 2016. Again the AO has not brought anything on record except for the comparison made on the monthly sales figure, to substantiate her assumption. The AO has not doubted the books of account of the appellant and has accepted the same as such. The addition is not backed by evidence or enquiry. It is pertinent to note here that the amount of sales disclosed by the appellant have been accepted by the VAT Department also which is a separate quasi-judicial authority. The contention of the appellant that the cash sale of Rs.211846609/- is a part of the total turnover declared in the books of account and making addition on the same amount tantamount to double taxation is also correct. it was incumbent upon the AO to reduce such sales from the gross sales before making addition on this account. This has resulted in double taxation of the same amount of sales, the addition is required to be reduced from gross sales being incorrect. The AO has made the addition on bogus receipts u/s 68 r.w.s. 115BBE of the Act. The Income Tax Act was amended in the year 2017 in this regard. Section 115BBE is reproduced below:- 115BBE. (1) Where the total income of an assessee, - (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or ITA No.351 & 431/LKW/2020 Page 20 of 29 (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1). Section 68 of the Act provides inter alia that if where any sum is found credited in the books of an assessee maintained for any previous year, and the assesse offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of Assessing Officer, then such sum can be taxed as his income for such financial year. Under such circumstances, it is clear that the Assessing Officer may now apply the provisions of Section 115BBE of the Act read with relevant sections of the Act. This means that such income, though already offered to tax by the taxpayer, would be taxable at flat rate of 60 per cent on gross basis (i.e., without any deduction / allowance). ITA No.351 & 431/LKW/2020 Page 21 of 29 However, the AO is not vested with unfettered powers to reject any explanation, being not to his satisfaction. The Assessing Officer is bound under law to act reasonable and just while framing any satisfactory opinion surrounding the explanation offered by the taxpayer. The taxpayer is nevertheless saddled with the primary obligation to demonstrate the nature and source of any sum credited in books. In this case the appellant has submitted that the receipts were part of his disclosed turnover and the AO has disbelieved it only on presumptions. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx While doing business if an opportunity of sales arises appellant cannot decline the same for the reason that the similar amount of sales has not taken place in previous years. Finally, the provisions of section 68 of the Act cannot be applied in respect of cash deposits which have been duly recorded in the books of account and have already been considered as income in the return of income filed by the assessee. There cannot be double addition of the same amount. AO has not brought on record any evidence to prove these cash sales being fictitious sales before arriving at a conclusion in this regard. The AO has analysed the approach of the appellant on the basis of circumstantial evidences and preponderance of probabilities as emphasized for the purpose of Income Tax Act, 1961. The AO relied upon various case law in this regard. However, the judgment in these cases were ITA No.351 & 431/LKW/2020 Page 22 of 29 made in different circumstances and it is not the case of any extra ordinary human behavior but the same relates to an audited books of account and analysis of the result declared there into. In view of the above I find that the addition made by the AO is not based on any cogent reason but the same is based on assumption only. As discussed above, it is also a case of double addition. It has been held through a number of judgments that the addition to the income shall be made only on cogent evidences and proper reasoning. Additions made on assumption and presumptions are not sustainable in the eyes of law.” 7.4 Thus, a perusal of the order of the ld. CIT(A) would show that the ld. CIT(A) has rubbished the theory of the AO on the following counts: (1) Since the books of account of the assessee were audited, manipulation, if any, could not have been made in any of the previous year and, therefore, the opening stock of this year could not have been manipulated, as it was the closing stock of the previous year’s audited financial statement. (2) The AO had not made any worthwhile enquiry before disbelieving the contention of the assessee regarding sales. ITA No.351 & 431/LKW/2020 Page 23 of 29 (3) No discrepancies have been pointed out in the Stock Register. (4) There is no mandatory requirement to maintain details of customers where the value of cash sales is less than Rs.2 lakhs. (5) Cash balance of around Rs.4,95,21,133/- was available in the books as on 31.03.2016, which was verifiable from the audited balance sheet. (6) There is no basis for adding a markup of 100% on sales by the AO. (7) The sales disclosed before the VAT Department are also tallied with the sales as per the financial statement and the same has also been accepted by the VAT Department. (8) The cash sales of Rs.21,18,46,609/- was already part of the turnover and, therefore, adding the same under section 68 of the Act as bogus sales would tantamount to double taxation. (9) The provisions of section 68 of the Act cannot be applied in respect of cash deposits which have been duly recorded in the books of account and have already been ITA No.351 & 431/LKW/2020 Page 24 of 29 considered as income in the return of income filed by the assessee. (10) The additions made on assumptions and presumptions are not sustainable in the eye of law. 7.5 The above observations of the ld. CIT(A) could not be refuted by the Ld. CIT(DR) during the course of arguments before us. We also do not find any infirmity in the aforesaid observations of the ld. CIT(A) and are of the considered view that on the facts and circumstances of the present case, the observations of the ld. CIT(A), while allowing relief to the assessee, are correct and to the point. 7.6 The Vishakhapatnam Bench of the ITAT in the case of ACIT vs. Hirapanna Jewellers in ITA No.253/VIZ/2020, vide order dated 12.05.2021 was dealing with identical issue, i.e., deposit of cash during the course of demonetization by the assessee, who was in jewellery business and the AO had made addition under section 68 of the Act. While holding that the addition under section 68 of the Act was not in order, the ITAT Vishakhapatnam Bench went on to observe that in terms of section 68 of the Act, wherein the sum found credited in the books of account, for which the assessee offers no explanation, such sum is to be deemed to be the income of the assessee ITA No.351 & 431/LKW/2020 Page 25 of 29 whereas in the appeal before the Vishakhapatnam Bench, the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee was engaged in jewellery business and was maintaining regular Stock Registers and no difference was found in the Stock Register or the stocks of the assessee. The Purchases, sales and the stocks are interlinked and inseparable and, therefore, to disbelieve the sales, either the assessee should not have sufficient stocks or there must be defects in the Stock Register. Once there is no defect in the purchases and sales, there is no reason to disbelieve the sales. The Vishakhapatnam Bench further noted that the Departmental authorities did not find any defect in the books of account and trading account, profit and loss account and the financial statements and failed to disprove the contention of the assessee and further observed that suspicion howsoever strong, it should not be decided against the assessee without disproving the sales with tangible evidence. The Vishakhapatnam Bench further observed that once the AO accepts the books of account and the entries in the books of account are matched, there is no case for making addition as unexplained. In this regard, the Vishakhapatnam Bench placed reliance on the judgement of the Hon'ble Patna High Court in the case of Lakshmi Rice Mills vs. CCIT [1974] 97 ITR 258 (Patna) ITA No.351 & 431/LKW/2020 Page 26 of 29 and another judgement of the Hon'ble Delhi High Court in the case of PCIT vs. Akshit Kumar [2021] 124 taxmann.com 123 (Delhi). It was also observed by the ITAT, Vishakhapatnam Bench that the sales could not be suspected merely because of some routine observation of suspicious nature such as making sales through 270 bills in the span of four hours, non-availability of KYC documents for sales, non-writing of tag of the jewellery on the sale bills, non-availability of CCTV footage to establish rush of public, etc. The ITAT, Vishakhapatnam Bench also did not accept the reliance placed by the Department in the case of Sumati Dayal vs. CIT, 1995 AIR 2105 (SC) and CIT vs. Durga Prasad More, 82 ITR 540 (SC) by observing that these two cases were related to circumstantial evidences in the absence of direct evidence, whereas, in the instance case, the facts clearly supported that the assessee had made sales and there were sufficient stocks to make the sales. 7.7 We respectfully following the order of the ITAT, Vishakhapatnam Bench in the case of ACIT vs. Hirapanna Jewellers (supra), uphold the action of the ld. CIT(A) in deleting the addition made under section 68 of the Act in the present appeal on identical set of facts. ITA No.351 & 431/LKW/2020 Page 27 of 29 7.8 Similar view was taken by the Jaipur Bench of ITAT in the case of ACIT vs. Mahendra Kumar Agarwal in ITA No.172/Jp/2022, vide order dated 29.09.2022. 7.9 Another case in point is the case of ACIT vs.Ramlal Jewellers Pvt. Ltd. in ITA No.1600/MUM/2023, vide order dated 26.04.2023, wherein, the ITAT Mumbai Bench observed that the only reason given by the AO for treating the entire cash deposits in the bank account was that there was abnormal growth in cash sales in the month of November, 2016 and corresponding cash deposits in the months of November to December. The ITAT Mumbai Bench further observed that this alone cannot be a ground for not accepting the sales when deposits were directly linked to the sales duly disclosed in the books of account. It was further observed by the ITAT Mumbai Bench that no discrepancy was found in stocks and nowhere had the AO pointed out that the assessee did not have sufficient stocks in its possession or otherwise found any defect in the Stock Register. The ITAT Mumbai Bench held that if that finding has not been given and no discrepancy has been pointed out, the corresponding sales of the same stock cannot be treated as undisclosed income of the assessee. It was further observed that addition under section 68 of the Act of cash deposits cannot be made simply for the reason ITA No.351 & 431/LKW/2020 Page 28 of 29 that during the demonetization period, cash deposits vis-a-vis cash sales ratio was higher. 7.10 Therefore, in view of the above judicial precedents and our observations in the previous paragraphs, we are of the considered view that the ld. CIT(A) has rightly deleted the addition made under section 68 of the Act and accordingly we uphold the order of the ld. CIT(A) in deleting the addition under section 68 of the Act and dismiss all the grounds raised by the Department. 7.11 Since the addition under section 68 of the Act does not stand, the provisions of section 115BBE also cannot be invoked. 8.0 In the result, Departmental appeal bearing ITA No.431/LKW/2020 stands dismissed. 9.0 As far as the appeal of the assessee in ITA No.351/LKW/2020 is concerned, we are of the considered view that adjudication by the ld. CIT(A) of holding that certain percentage of sales were made at a premium of 20% is entirely against the facts on record. Once the ld. CIT(A) has herself accepted the contentions of the assessee regarding acceptance of the books of account, no discrepancy having been found in the books of account, the books of account having been duly audited, no discrepancy being found in the stock details, etc., the ld. ITA No.351 & 431/LKW/2020 Page 29 of 29 CIT(A) cannot take a U-turn on her stand and return a finding that certain percentage of sales were made at a premium of 20%. The ld. CIT(A) has also not disclosed the reason for taking premium percentage as 20%. In our considered view, this action of the ld. CIT(A) is bereft of any sound reasoning and again is mere assumption based on conjectures and surmises without there being any evidence to substantiate the same and, in our considered view, the same cannot be sustained. Accordingly, we set aside the order of the ld. CIT(A) on the issue and direct that this addition be also deleted. 10.0 In the result, the appeal of the assessee stands allowed. 11.0 In the final result, appeal of the Department stands dismissed and the appeal of the assessee stands allowed. Order pronounced in the open Court on 30/06/2025. Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:30/06/2025 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar "