ASSISTANT COMMISSIONER OF INCOME TAX- 4(1)(1), MUMBAI V. CREATIVE GEMS AND JEWELLERY LIMITED, MUMBAI

ITA 2821/MUM/2024

AI Insights

The case involves Creative Gems and Jewellery Limited, which faced scrutiny over unexplained cash deposits amounting to Rs. 5,98,78,500 during the demonetization period in India. The Assessing Officer (AO) rejected the company's books under Section 145 of the Income Tax Act and added the amount as unexplained under Section 68. The CIT(A) partly allowed the appeal, estimating the profit at 4% of turnover instead of accepting the entire addition. Both the Revenue and the Assessee appealed to the ITAT. The ITAT upheld the CIT(A)'s estimation method but agreed with the Revenue on the application of Section 68, treating the deposits as unexplained income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 112275 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Other Referred Cases: CIT v. P. Mohanakala, Vijay Kumar Talwar v. CIT, Sumati Dayal vs CIT, Amitabh Construction Pvt. Ltd. Vs. ACIT, ISMT Limited vs. ACIT, Gian Chand Labour Contractors vs. CIT, K.Y Pilliah & Sons vs. CIT, Dabros Industrial (P) Ltd. Vs. CIT, Shri Venkteshwar Sugar Mills Vs. CIT(Appeals)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AASIFA KHAN
• Assessee Lawyers: MAHESH PAMNANI
• Keywords: Business income; Corroborative evidences; Unexplained cash credit; Rejection of books of accounts; Income from undisclosed sources; Onus to prove
• Section: 143(3); 68; 22; 133(6); 69C; 13; 145; 133A; 145(3); 20

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA 2053/MUM/2024 (A.Y. 2017-18) Creative Gems and Jewellery Limited, A-327, Virwani Industrial Estate, 3rd Floor, Western Express Highway, Goregaon East, Mumbai-400063, Maharashtra v/s. बनाम Assistant Commissioner of Income Tax, Circle – 4(1)(1), Room No.678, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai - 400 020, Maharashtra \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACCC6889Q Appellant/अपीलाथ\u0007 .. Respondent/\b तवाद ITA 2821/MUM/2024 (A.Y. 2017-18) Assistant Commissioner of Income Tax, Circle – 4(1)(1), Room No.678, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai - 400 020, Maharashtra v/s. बनाम Creative Gems and Jewellery Limited, A-327, Virwani Industrial Estate, 3rd Floor, Western Express Highway, Goregaon East, Mumbai-400 063, Maharashtra \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACCC6889Q Appellant/अपीलाथ\u0007 .. Respondent/\b तवाद Appellant by : Ms.AasifaKhan,AR Respondent by : Shri Mahesh Pamnani (Sr. DR) Date of Hearing 20.02.2025 Date of Pronouncement 15.04.2025 P a g e | 2 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The above captioned appeals have been filed by the assessee as well as cross appeal by Revenue against the orders of even date as passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2017-18. Since some of the issues are common and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up appeal of the Revenue first as under: ITA 2821/MUM/2024 (A.Y. 2017-18)REVENUE 1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the addition made u/s 68 of the Income-tax Act, 1961 for unexplained cash amounting to Rs. 5,98,78,500/- and instead making estimation of net profit of 4% of turnover (i.e. 4% of Rs. 21,82,76,474) without appreciating the fact that the assessee failed to discharge the onus to prove the identity, creditworthiness and genuineness of the parties to whom cash sales were made during the year?” 2. “Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the addition made u/s 68 of the Income- P a g e | 3 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai tax Act, 1961 for unexplained cash amounting to Rs. 5,98,78,500/- and instead making estimation of net profit of 4% of turnover (i.e 4% of Rs 21,82,76,474) without appreciating the fact that from the statement of the Director of the Company, Siri Priyank Shah, recorded on 20.12.2019 it is evident that the argument of cash sales put forth by the assessee company as the source of cash which was deposited after demonetization is non- genuine, false and has no credibility and is liable for rejection?” 3. “Whether on the facts and circumstances of the case and in Law, the Ld. CIT (A) has erred in ignoring the findings, as has been brought on record by the AO with regards to addition made u/s 68 of the Income- tax Act, 1961 in respect of the structured transactions in the course of according relief?” 4. “Whether on the facts and circumstances of the case and in Law, the Ld. CIT (A) has erred in not appreciating the fact that the findings of the AO were also in harmony with statements of the directors, in the course of making the addition in the assessment order?” 3. The brief facts of the case are that the assessee, a limited company, is engaged in business of manufacturing of gold studded diamond jewellery, silver and precious metal thereof.A Survey action under section 133A of the Actwas conducted at the assessee’s premises. The Assessee filed its return of income for the year on 29.10.2017 declaring total income at Rs 67,41,040/-. The case was subsequently selected for scrutiny and after several hearings,the ld.AO rejected the books of account of the assessee invoking the provisions of section 145 of the Act and added the cash deposit of Rs. 5,98,78,500/- as unexplained under section 68 of the Act to the total income of the Assessee. This cash pertained to bank deposits post demonetization made only in old currency notes. It preferred appeal which was partly allowed by the P a g e | 4 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai ld.CIT(A) who upheld the invocation of the provisions of section 68 of the Act with certain observations which would be discussed in later part of the order.However, he held that once the AOrejected the books of account of the assessee under section 145 of the Act, he could not have relied on the rejected books of account for making addition u/s 68 of the Act but was left with the only option to estimate the profit. Therefore, considering the past profits shown by the assessee, the ld.CIT(A) made an estimation of net profit of 4% on the total turnover of Rs.21,82,76,474/-. Therefore, the profit of the assessee worked out at Rs.87,31,059/- (i.e.4% of Rs.21,82,76,474/-) was upheld and the balance of the addition made by the AO was deleted. 4. Being aggrieved by the appellate order, the Revenue as well as the aAssessee have both filed appeals before ITAT. The Department has filed appeal against the deletion of the addition amounting to Rs.5,98,78,500/- under section 68 of the Act; and the Assessee has filed appeal against the addition on account of estimation of business income @4% of the total turnover of 21,82,76,474/-i.e. Rs.87,31,059/-.The assessment order has been very exhaustive and therefore,relevant parts thereof are reproduced as below for the sake of brevity and easy reference: “ Theassessee company is primarily engaged in the business of manufacturing of precious gold, silver & diamond jewellery. During the course of assessment proceedings, it was observed that a large cash deposit was made in its bank accounts after the demonetization period. Accordingly, notice u/s. 133(6) of the Income Tax Act was issued to SBI, Goregaon (East) branch asking to furnish the bank statement of the assessee for the year under consideration. The bank statement was perused and it was found that the assessee had indeed deposited cash to the tune of Rs.5,98,78,500/- in its State Bank of India account No. 32883046667 and 32864877991.The assessee company was asked to give details regarding the cash deposits P a g e | 5 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai made after demonetization and the source of the same from where the said amount was generated. In response, the assessee submitted that the cash deposits to the tune of Rs. 5,98,78,500/- were made from thecash sales executed by the company from the period of 28.10.2016 to 08.11.2016. It is to be noticed here that the assessee company is primarily engaged in the business of manufacturing of precious gold, silver & diamond jewellery. The assessee company primarily caters to jewellers or suppliers who are engaged in the business of retail selling of jewellery. That is to say assessee company is primarily engaged in ‘B to B’ i.e. Business to Business model. The cash sales as claimed by the assessee company are made to retail customers who are the end users of the jewellery products. This shows that the assessee company has claimed to have made ‘B to C’ i.e. Business to Customer model and that too for only a short span of 10 days from 28.10.2016 to 08.11.2016. This was a clear departure from the assessee’s routine course of business, is unprecedented and has never been repeated again. This raises a serious doubt on the claim of the assessee that the cash deposited were generated from cash sales made to end users i.e. the retail customers.This doubt is further enhanced by the fact that such type of sales were never recorded by the assessee earlier or after this event. This shows that the cash deposits made by the assessee company is nothing but the undisclosed income of the assessee. To verify the claim of the assessee, statement of the Director of the Company, Shri Priyank Shah, son of Shri Ketan Shah was recorded on 20.12.2019. It can be clearly seen from the statement of the Director, Shri Priyank Shah that the argument of cash sales put forth by the assessee company as the source of cash which was deposited after demonetization is non-genuine, false and has no credibility and is liable for rejection. The director, Shri Priyank Shah was evasive to the pointed questions raised and his answers defies any logic which a prudent business man would follow. He was unable to substantiate the claim of the company regarding cash sales made as the assessee company possessed no logistical infrastructure to execute such humongous sales in a short span of time of ten days i.e. from 28.10.2016 to 08.11.2016. Shri Priyank Shah offered no cogent reply why the company stopped its venture into B to C model despite it generating revenue. Shri Priyank Shah failed to give any details as to how hundred of transactions were executed and then the same were delivered door to door by the assessee company. This aspect is further highlighted by the fact that the assessee company has shown no manpower to deliver hundred of products were booked by the assessee company in the profit & loss accounts which again lends credence to the fact that no actual sales were made and consequently no deliveries were made. The cash deposited is nothing but the unaccounted P a g e | 6 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai income of the assessee company which it has stashed and was forced to deposit after demonetization. 3.5 In light of the above findings, a show cause notice was issued to the assesseecompany.After considering its reply,point wise rebuttal of assessee’s reply is as follows: 3.6.3 The assessee’s claim regarding that there is no bar on business model of the company is unacceptable in the light of the facts that such type of B to C business involving hundreds of high value cash transactions was never ever seen again in assessee’s case. Such a lucrative and already rewarding business was discontinued by the assessee. This clearly shows that the cash sales as claimed by the assessee are not genuine and in fact an effort to bring in undisclosed income in the books of accounts. Such cash sales were never recorded even earlier by the assessee, i.e. barring this sales which is recorded just before demonetization for a period of ten days. The assessee’s reference to Flipkart & Amazon is outright incorrect, misplaced and illogical. The assessee itself has stated that cash sales is cream yet assessee did not like the cash sales after demonetization. This amply shows that the cash deposited by the assessee company is nothing but the undisclosed income of the assesee. Therefore, the assessee has failed to give any cogent reply to the question raised. Thus, the reply of assessee in this regard is rejected 3.6.4 The assessee’s claim that the business of the company is run by a board of directors, who are prudent business men is not acceptable as it can be seen that the company stopped venturing into a business model which yielded them a revenue close to 6 Crore Rupees in a short span of ten days from 28.10.2016 to 08.11.2016. The assessee’s reply with regard to cash sales never happening again lacks any merit. No prudent business men would discontinue a business which is yielding such high revenues. This clearly shows that this claim of assesssee regarding cash sales just before demonetization is false, non-genuine and lacks any credibility. Thus the assessee has failed to reply to this question asked in the show cause notice. 3.6.5 The claim of assessee with regard to cash sales being result of participation in various exhibitions lacks any merit and no cogent reply is furnished by the assessee. As can be seen from the submissions filed by the assessee, there is a big timing gap between the exhibition and the alleged cash sales claimed by the assessee. It is unrealistic and beyond the realms of probability that the sales were three-four months back numbering into hundreds and were billed delivered and paid for in cash just before demonetization. All these transactions took place with entities who are not known to the assessee company and these entities came to the premise of assessee with their pockets stuffed with notes of Rs.500 and Rs.1000 to buy P a g e | 7 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai jewellery. This is nothing but blatant resort to lies and falsification on the part of the assessee. The list of customers furnished by the assessee is misplaced because this list does not provide any proof whether these cash sales as claimed by the assessee were made to these entities. The list provided by you at best appears to be a copy of visitors book which is maintained by the assessee. Thus, again assessee has failed to give a valid and credible reply to the questions raised. Therefore the claim of assessee with regard to cash sales is hereby rejected 3.6.6 The assessee company has failed to disclose the identity of the alleged cash sales. The assessee company has stated that goods were delivered to customer at their place but failed to give any submission regarding their verification. Delivering goods door to door is not your regular business practice and it is not a industry practice that hundreds of products delivered manually in a short span of ten days. Everything right from manufacturing to delivery all happened in a span of ten days and concluded just before demonetization. No expenses with regard to delivery of alleged sales is recorded. Delivering goods costs money and non recording of cost pertaining to delivery amply shows that the claim of assessee is hollow. This clearly shows that your claim of cash sales is not genuine and it is just an effort to bring undisclosed income in the books of account. Had there been no demonetization no such cash sales would have happened. The assessee company, therefore has failed to substantiate its claim regarding cash sales coming from exhibitions and is thus rejected 3.6.7 The Claim of assessee regarding ‘karigars’ delivered goods is false and non genuine. ‘Karigars’ are skilled workers and no skilled worker which is below his skill set more so in the case of jewelry ‘karigar’. More over when these karigars were busy in making hundreds of pieces of precious jewellery they would have no time to go door to door to hundreds of people delivering jewellery. Thus the assessee has failed to reply to point 5 of show cause notice. Thus the reply of the assessee is rejected. 3.6.8 In this regard the claim of assessee is incorrect and full of stories and anecdotes and lacks any merit or credibility. There is a huge time gap of 4 months between the exhibition and the cash sales claim. Such time gap is nothing but a discrepancy in the claim of assessee. The delivery and invoicing starting just before demonetization is nothing but aneffort to bring undisclosed income in the books of account. Neither such exhibitions nor such sales were ever recorded by the assessee. This leaves no doubt that by way of cash sales assessee has tried to bring its undisclosed income in the books of accounts. P a g e | 8 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 3.6.8.1 It is not a matter of discounting the efficiency and accuracy of company rather this is an exercise to prove that the assessee company has tried to bring its undisclosed income in it books of accounts by showing it as cash sales which are unprecedented and never to be repeated again. In Indian society or it may be any other society, precious jewellery has a carries an emotional and sentimental value. Jewellery is passed on from one generation to another generation. The jewellery buying is a time consuming and exhausting exercise and is not bought in a matter of minute as has been claimed by the assessee. The assessee is primarily engaged in manufacturing and not in retail sales. No evidence were brought why this event happened only once just before demonetization. Therefore the reply of the assessee is not acceptable and is therefore rejected. 3.6.9 No valid response is given by assessee in this regard and no evidence was brought regarding the delivery of the alleged cash sales thus the reply of the assessee is considered but not acceptable. 3.6.10 No valid reply is given in this regard therefore assesee has failed to reply to a pointed question. Therefore the claim of assessee with regard to cash sales is rejected. 3.6.11 ………… 3.6.12 The reply of the asssessee in this regard is full of stories. The proximity of assessess’s premise to western express highway was useful to assessee only once to the assessee as far as cash sales are concerned that to just before demonetization. This lends no credibility to the claim of the assessee. ……………Therefore the claim of assessee with regard to cash sales is rejected. 3.6.14 The assessee has again failed to give reply to this query regarding huge cash in hand held. …………. 3.7 The assessee company has claimed to made cash sales just before demonetization. The cash sales as claimed by the assessee are made with a clear departure from its regular course of business. These sales were made to end consumers and not to business entities which is the normal course of assessee’s business. Nothing on record was brought despite why such sales never happened again or earlier. The assessee company failed to explain why the company stopped venture in to B to C business despite having tremendous response. The asseesse company has shown all cash transaction to be less than 2 lacks rupees but it is not possible that items only below Rs. 2 lacks would be present…………... P a g e | 9 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 3.9.1 Section 68 of the Income Tax Act, 1961 provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, inthe opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It is a settled law that the assessee is required to prove the identity and creditworthiness of the shareholders and also the genuineness of the transactions in order to discharge its onus u/s.68 of the Income Tax Act, 1961. ……… 3.9.2 IDENTITY – As discussed in the above paragraphs, nothing was brought on record to establish the source of cash. Hence, no Confirmation has been received from those persons. So, the identity of the entities was not proved by the assessee in the garb of cash sales less than Rupees two lakhs. 3.9.3 CREDITWORTHINESS - In this case, the assessee company had failed to prove this fact that the Cash deposited during demonetization period are normal business receipts and therefore, I hold that the amount of Deposits made in the bank accounts, including Cash deposited during demonetization period, represented income from undisclosed sources. …………….. 3.9.4 GENUINENESS OF TRANSACTIONS : Each cash sales entry of amount is less than two lakhs which seems to be that this money is assessee’s own money. In light of the findings above it is clearly established that the cash sales as claimed by the assessee company are non genuine .Therefore, the genuineness of the transaction is in doubt…………… 3.10 In view of the facts, material and the evidences gathered and detailed hereinabove, it is held that the assessee has failed to prove the nature and source of the cash depositedduring demonetization. Therefore, in term of Section 68 of the Act, the same is treated as unexplained cash credit and hence deemed to be the assessee’s income eligible to tax which is supported by the view of Hon'ble Apex Court in various judgements which are discussed in succeeding paragraph. (I) In the case of CIT v. P.Mohanakala[2007] 161 Taxman 169 / 291 ITR 278 (SC) ) Further, the Hon'ble Supreme Court in the case of Vijay Kumar Talwar v. CIT [2011] 330 ITR 1, has made observation which is reproduced as below 3.11 As held by the Hon’ble Supreme court in the case of Sumati Dayal vs CIT (1995AIR 2109) the fact should be examined by considering the surrounding circumstances and applying the test of human probability. So considering the surrounding circumstances and facts/trend of business as stated above and also applying the test of human probability, I am of view that the account of assessee does not represent the true state of affair and books of P a g e | 10 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai account have been manipulated to inflate cash sales and also to suppress cash expenses to cover up its unexplained cash.So in the light of these facts the books of accounts of the assessee are hereby rejected u/s 145 of the Income-tax Act, 1961, and the income of the assessee is computed in the succeeding para. 3.12. The assessee, despite being provided a number of opportunities in this case, has not provided details of parties to whom cash sales were made during the year.………….. The assessee has provided no details of the parties to whom it has claimed to made cash sales during the year. Therefore, onus to prove the identity, creditworthiness and genuineness of cash transactions has not been discharged by the assessee during the assessment proceedings. Therefore, cash deposit during demonization of Rs. 5,98,78,500/- is treated as unexplained……………..is added to the total income of the assessee u/s 68 of the I.T. Act, 1961. Since the addition is made u/s 68 of the Act, tax is to be charged u/s 115BBE of the Act.” 5. In the subsequent appeal by the asseessee, the ld.CIT(A) adjudicated in detail and the relevant extracts of the operative part of the order are reproduced as under: “I find that the appellant has submitted that the AO has issued notice u/s 133(6) of the Act to 19 parties from whom the appellant has made purchases and it has been confirmed by these parties. However, I find that mere confirmation does not mean that the purchases are all genuine. There may be collusion between the appellant and the seller. One has to look at other evidences. I find that the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs.2 lakhs as per Rule 114B of Income Tax Rules, 1962. But that does not mean that no details needs to be collected of the buyer. The name and address are generally collected in all cases. It is seen that the appellant has not been able to provide any details of the name and address of buyers. It may be noted that the appellant is primarily a manufacturer of precious jewellery and primarily engaged in ‘Business to Business’ (B2B) model and does not have any retail store. Therefore it is not a case where the buyers just came into the shop and purchased the jewellery and left withoutgiving any details. Here, the P a g e | 11 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai appellant claimed to have participated in exhibitions etc where sales were affected in July/August/Sept but delivery made only from 28.10.2016 to 08.1.2016. Therefore, then if it was genuine sales, the appellant would have surely collected the Name, contact no and address, so that the delivery could be made. But the fact that the appellant could not provide any Name, contact no and address of the purchases of jewellery shows that what the appellant is claiming is not correct. Therefore, I am of the considered view that the appellant has not satisfactorily discharged onus cast upon to furnish name and address of the persons. Therefore, the observation of the AO in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is warranted and has merits. The AO cannot dispute sales declared by the appellant because no details of purchaser in cash of jewellery was submitted by the appellant. I find that there is abnormal deviation in business model of the appellant when compared to earlier periods. The appellant has made deposit of cash amounting to Rs 5,98,78,500 during the demonetization period in his bank account and the cash deposits were made from the cash sales executed by the company from the period of 28.10.2016 to 08.11.2016. The appellant has shown cash sales only just before demonetization period for 10 days and that even though such type of business to customer was lucrative, the appellant had not given any cogent reason why it discontinued it. The appellant is primarily only into B2B model and not business to customer model. This business to customer model was not seen in earlier assessment years nor seen after demonetization period. The claim of the appellant that the business to customer model was not lucrative after demonetization does not hold much water as when the appellant has not shown any such sales after demonetization, it could not have known whether it was lucrative or not. If the appellant was normally into sale of jewellery to customers in earlier years also or if that was its regular business practice, then even if there was sudden rise in sales in one month then it could have been assumed that it is a case of exception to the rule. But such is not the case here as the appellant was never into direct sales in years to customers prior to demonetization P a g e | 12 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai period and even after it also. It is too much of a coincidence that the appellant had cash sales only from 28.10.2016 to 08.11.2016 and that all cash sales and manufacturing and deliveries against it were completed by 08.11.2016. 4.10 It may also be noted that no jewelersoffers door delivery service to all its customers. There is too much of risk involved in transporting such costly and valuable items through delivery boys. It may also be noted that in exhibitors or events, customers can be from different states and towns or far off places. How deliveries were made in such cases are not clear. The appellant has also failed to give satisfactory reply to the query regarding huge cash in hand held. The appellant had huge bank loans and keeping such huge cash in hand without paying it to creditors and repayment of bank loans or interest raises doubts about its genuineness. The Hon'ble Bombay High Court in BastiramNarayandas v. CIT [1994] 210 ITR 438/74 Taxman 454 held that rejection of books of account justified under section 145 and best judgment assessment under section 144' needed. 11.1.3 The Hon'ble Madras High Court in Abdul Khadar (P.) v. CIT 36 ITR 341 (sic.) held that presence of unexplained cash credits may justify rejection of books of account. 4.11 Therefore, I find merit in the finding of the AO that the account of the appellant does not represent the true state of affairs and that books of the appellant have been manipulated to introduce its unexplained cash. Therefore, I uphold the rejection of the books of the appellant u/s 145 of the Act by the AO. I find that it is a settled law that where the AO had rejected the books of accounts of an assessee under Sec. 145(3) of the Act, then he cannot rely upon the said books of accounts (rejected) while assessing the income. The Hon’ble High Court of Jharkhand in the case of Amitabh Construction Pvt. Ltd. Vs. ACIT, Tax appeal No.16 of 2010, dated 10.05.2011 had observed, that once the A.O had rejected the books of accounts, then, he could not have held the P a g e | 13 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai profit which is supported by the books of accounts to be correct. The Hon’ble ITAT, “B” Bench, Pune in the case of ACIT, Central Circle-2(1), Pune Vs. M/s ISMT Limited, ITA Nos. 2751 & 2752/Pun/2016; dated 06.12.2021observed by drawing support from a host of judicial pronouncements, that once the books of accounts of an assessee are rejected by the A.O under Sec. 145(3) of the Act, then he cannot rely upon on the same books of account for the purpose of making any addition, and the only course of action available with him is to determine the income by application of a flat rate of profit by taking into consideration the business conditions of the assessee as in comparison to profits disclosed by other assessee’s in thesimilar line of business. Similar views have been followed by the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Gian Chand Labour Contractors, 316 ITR 127 (P&H), the Hon’ble Supreme Court in the case of CIT Vs. K.Y Pilliah& Sons (1967) 63 ITR 411 (SC), the Hon’ble High Court of Calcutta in the case of Dabros Industrial (P) Ltd. Vs. CIT (1977) 108 ITR 424 (Cal).The Hon’ble High Court of Allahabad in the case of Shri Venkteshwar Sugar Mills Vs. CIT(Appeals), (2012) 20 taxmann.com 650 (All), had observed, that once the books of accounts are rejected, then there is no option before the Assessing Officer except to estimate the sale and G.P rate which in the case before them was determined by taking comparative figures of the assessee for the previous assessment year. In view of the above facts and respectfully following the judicial decisions as cited above, I am of the considered view that once the AO rejected the books of the appellant u/s 145 of the Act, he could not have relied on he rejected books of the appellant for making an addition of Rs 5,98,78,500. The only option left was to estimate the profit. Therefore, considering the past profits shown by the appellant, I am of the considered view that an estimation of net profit of 4% of turnover would meet the ends of justice. Therefore, the profit of the appellant is worked out to Rs 87,31,059 (i.e 4% of Rs 21,82,76,474). The appeal on Ground No 1 to 3 are thus partly allowed.” Ground No 4 is directed against the AO applying provisions of Section 115BBE of the Act. I have carefully considered the facts of the case, the submission of the appellant and evidences on record. Section 115BBE of the P a g e | 14 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai Act is applicable only when the total income of an assessee includes (a) 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 (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). As in the above ground No 1 to 3, it has been held that once the AO rejected the books of the appellant u/s 145 of the Act, the only option left was to estimate the profit and thus addition u/s 68 of the Act is also found not sustainable, the provisions of Section 115BBE of the Act are No more applicable in the case of the appellant. The appeal on this ground is allowed.” 6. The ld.AR has made oral as well as written submission inter alia stating that the assessee company had deposited cash of Rs.5,92,78,500/- representing cash sales between 10th November, 2016 to 26/11/2016 in the Bank post demonetization.It submitted that various account books and other related details were filed before the AO including Cash Book,BankBooks,StockRegister,Cash sales vouchers,Purchaseand sales Register,Excise Register, details of VAT,Salary,Labour Charges Paid,Debtors and Creditors,Exhibitions conducted during the last five years and vouchers thereof, justification of Cash sales as well as various supporting evidences,Bank Certificate Declaring the cash deposited was part of cash sales, etc. 6.1 It is further submitted that the all purchases of the assessee were accepted. In fact, enquiry was conducted by the Assessing Officer P a g e | 15 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai by sending a notice under section 133(6) of the Act to the purchase parties and all of them has responded.Without Purchases sales cannot take place.All cash sales and credit sales are entered in the books of account of the assessee company which has maintained books of account in form of computerised Ledger, Cash Book, Bank Book, Sales register, purchase register and stock book.Assessee company’s accounts are duly Audited by Tax Auditor and VAT Auditor. The books of account were submitted to the ld. AO and there were no adverse remarks of theauditors in the said Report. Therefore, the transaction entered into by the assessee could not be doubted. 6.2 The ld.AR has also submitted details of Gross Profit & Net Profit Ratio of last 3 years and the current year as below: Sr.No. Α.Υ. Total Turnover (Rs) Gross Profit (Rs) GP Ratio Net Profit (Rs) NP Ratio Last 3 years 01 2014-15 18,67,28,000 1,01,58,000 5.44 38,52,000 2.06 02 2015-16 13,84,11,000 94,93,000 6.86 32,98,000 2.38 03 2016-17 18,82,06,835 52,37,021 2.78 36,20,982 1.92 Current Year 04 2017-18 21,82,76,474 66,47,505 3.05 46,22,328 2.12 P a g e | 16 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 6.3 It is argued that from the above statistics,it is evident that the GP Ratio has increased from 2.78% during the A.Y. 2016-17 to 3.05% in year A.Y.2017-18 and the Net profit ratio has increased from 1.92% to 2.12%.The average GP Ratio for 4 years is 4.53% and the average NP Ratio 4 years is 2.12%.It is further submitted there is no requirement / compulsion as per Rule 114B to submit the PAN and address of the sales or purchase by any person below Rs. 2 lakhs.However, it may be pointed out that in the details of transaction wise Cash Sales for the period 01.04.2016 to 31.03.2017 the PAN of the buyers of the jewellery wherever availablehave been mentioned although the sales made to each party is below Rs.2,00,000/-. The Assessing Officer has neither pointed out any defect or discrepancies in the books of account of the assessee company neither have brought any material evidence or any incriminating documents found at the time of survey for rejecting the books of account of the company. The Assesseeis into the business since many years and is consistently showing the gross profit and net profit. Alleged supplier of goods are duly registered under Value Added Tax Act. Payment weremade through banking channel. Quantity maintained in the alleged bills are part of quantitative records maintained by the assessee. There is no drastic change in the gross profit and net profit rate. Since the Purchases have not been doubted there ought to be P a g e | 17 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai corresponding Sales. However, some of the ingredients for testing the genuineness of Sales are missing but for this reason itself total Sales cannot be disallowed else abnormal and distorted profits will appear in the profit and loss account. Hence, it was submitted that that the disallowance of entire disputed Sales could not be made.Further, on perusal of the provisions of Section 145(3) of the Act, it is submitted that the correctness of Sales cannot be challenged without pointing out any specific mistake or deficiency in the books of account or without recording a firm finding that the profits and gains cannot be properly deduced from such books of accounts. In this regard, the Assessee have correctly shown sale transactions as revenue from operation in the book of accounts as per notified accounting standards prescribed. Further, the same sale is being reduced from inventory in the books of accounts. The same books are audited andtax audit report have been uploaded with the Department. The inventory details are also matching in between tax audit and books of accounts. Further, the amount received in bank account against sale of gold is also duly recorded in the books of accounts. The assessee has duly explained that it had received cash against sale of gold and consequently, the sale bills is properly issued against the sale. P a g e | 18 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 6.4. It is also contented that there is no cash trail or any material vis-a-vis trail of money. Sales were recorded in the books of accounts as well as statutory audit and tax audit report along with quantitative details of stocks, hence it clearly shows that the books of accounts are properly maintained by the company per prescribed method in section 145.Thus, it is submitted that the assessee had rightly included the amount of cash sales in the sale account and offered the income arising out of it as business income and therefore, section 115BBE was not applicable. The Assessee company has discharged its onus of proving nature and source of cash deposits which are duly recorded in the books of account and disclosed in its return and tax has been paid on it. 6.5 Per contra, the ld. DR has relied on the detailed findings of the AO more specifically his findings that the assessee was in business of direct sale to customers but B2B only and was not into retail businessand that too only in the relevant year. Cash sales were established to be not genuine. Moreover, the assessee could not produce any evidence of exhibition. Therefore, entire sales were liable to be added u/s 68 of the Act as unaccounted income of the assessee itself. It was also pointed out that there are no cash sales in previous years. The assessee did not submit names,addresses and PAN of the purchasers. P a g e | 19 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 7. We have carefully considered all the relevant facts of the case, perused the records and also considered rival submission. It may be stated here that from the respective grounds of appeal, it is apparent that the Revenue has agitated the deletion of addition made u/s 68 of the Act. Detailed analysis of the case deposit has been discussed and analysed in the assessment order. The ld.AO has brought out various inconsistencies in assessee’s stand which has not been able to conclusively rebut the findings of the AO that impugned cash deposit could not prove to be sales of the assessee. In this regard, he rightly observed that the assessee is a wholesaler and all transactions neither in the relevant year or in any other yearsare by way of cash sales but for the transactions in question made for the first and last time. The ld. CIT(A) has duly acknowledged these findings of the ld.AO which are being reproduced for the sake of clarity and easy reference as below: “1. I find that the appellant has submitted that the AO has issued notice u/s 133(6) of the Act to 19 parties from whom the appellant has made purchases and it has been confirmed by these parties. However, I find that mere confirmation does not mean that the purchases are all genuine. There may be collusion between the appellant and the seller. One has to look at other evidences. 2. I find that the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs.2 lakhs as per Rule 114B of Income Tax Rules, 1962. But that does not mean that no details needs to be collected of the buyer. The name and address are generally collected in all cases. P a g e | 20 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai It is seen that the appellant has not been able to provide any details of the name and address of buyers. 3. It may be noted that the appellant is primarily a manufacturer of precious jewellery and primarily engaged in ‘Business to Business’ (B2B) model and does not have any retail store..Therefore it is not a case where the buyers just came into the shop and purchased the jewellery and left withoutgiving any details. 4. Here, the appellant claimed to have participated in exhibitions etc where sales were affected in July/August/Sept but delivery made only from 28.10.2016 to 08.1.2016. Therefore, then if it was genuine sales, the appellant would have surely collected the Name, contact no and address, so that the delivery could be made. But the fact that the appellant could not provide any Name, contact no and address of the purchases of jewellery shows that what the appellant is claiming is not correct. 5. Therefore, I am of the considered view that the appellant has notsatisfactorily discharged onus cast upon to furnish name and address of the persons. Therefore, the observation of the AO in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is warranted and has merits. 6. I find that there is abnormal deviation in business model of the appellant when compared to earlier periods. The appellant has made deposit of cash amounting to Rs 5,98,78,500 during the demonetization period in his bank account and the cash deposits were made from the cash sales executed by the company from the period of 28.10.2016 to 08.11.2016. The appellant has shown cash sales only just before demonetization period for 10 days and that even though such type of business to customer was lucrative, the appellant had not given any cogent reason why it discontinued it. 7. The appellant is primarily only into B2B model and not business to customer model. This business to customer model was not seen in earlier assessment years nor seen after demonetization period. 8. The claim of the appellant that the business to customer model was not lucrative after demonetization does not hold much water as when the P a g e | 21 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai appellant has not shown any such sales after demonetization, it could not have known whether it was lucrative or not. 9. If the appellant was normally into sale of jewelry to customers in earlier years also or if that was its regular business practice, then even if there was sudden rise in sales in one month then it could have been assumed that it is a case of exception to the rule. 10. But such is not the case here as the appellant was never into direct sales in years to customers prior to demonetization period and even after it also. It is too much of a coincidence that the appellant had cash sales only from 28.10.2016 to 08.11.2016 and that all cash sales and manufacturing and deliveries against it were completed by 08.11.2016.It may also be noted that no jewelersoffers door delivery service to all its customers. There is too much of risk involved in transporting such costly and valuable items through delivery boys. It may also be noted that in exhibitors or events, customers can be from different states and towns or far off places. How deliveries were made in such cases are not clear. 11. The appellant has also failed to give satisfactory reply to the query regarding huge cash in hand held. The appellant had huge bank loans and keeping such huge cash in hand without paying it to creditors and repayment of bank loans or interest raises doubts about its genuineness.” 7.1 From the foregoing paras, we therefore, observe that the ld.CIT(A) has admitted that the assessee did not satisfactorily discharge onus cast upon it to furnish names and addresses of the persons and admitted that the observation of the AO in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is warranted and has merits.Thus, he upheld the findings of the AO in so far as the application of provisions of section 68 of the Act are concerned. It is also worth stating here that the assessee in the various P a g e | 22 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai grounds of appeal in its appeal in ITA 2053/MUM/2024 has not contested this concurrent finding of the lower authorities but has mainly contested the application of higher net profit rate applied on the said cash deposit. 7.2 In view of the above facts,we do not find any reason to interfere in the matter and hold that on the peculiar facts and the circumstances of the case, since the assessee failed to prove the identity,creditworthiness and genuineness of the impugned bank deposits,the ld.AO was justified in invoking the provisions of section 68 of the Act. 7.3 Now in so far as the quantification of the addition is concerned, the ld.CIT(A) held that once the book results have been rejected by the AO, only the profit elementtherein could be added. Accordingly, he applied a flat rate of 4% of the total turnover during the year i.e. Rs 87,31,059 (i.e 4% of Rs 21,82,76,474/-.He placed relied on several decisions of various High Court and also Tribunal in support of his observations.The Hon’ble High Court of Jharkhand in the case of Amitabh Construction Pvt. Ltd. Vs. ACIT, Tax appeal No.16 of 2010, dated 10.05.2011 had observed, that once the A.O had rejected the books of accounts, then, he could not have held the profit which is supported by the books of accounts to be correct. He also relied on P a g e | 23 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai Hon’ble ITAT, “B” Bench, Pune in the case of ACIT, Central Circle- 2(1), Pune Vs. M/s ISMT Limited, ITA Nos. 2751 & 2752/Pun/2016; dated 06.12.2021wherein it wasobserved that once the books of accounts of an assessee are rejected by the A.O under Sec. 145(3) of the Act, then he cannot rely upon on the same books of account for the purpose of making any addition, and the only course of action available with him is to determine the income by application of a flat rate of profit by taking into consideration the business conditions of the assessee as in comparison to profits disclosed by other assessee’s in the similar line of business. Similar view was taken by the Hon’ble High Courts in thecasesof Indwell Constructions Vs. CIT (1998) 232 ITR 77 (AP)and Shri Venkateshwar Sugar Mills Vs. CIT(Appeals), (2012) 20 taxmann.com 650 (All). 8. In our considered opinion, the ld.CIT(A) has taken a very pragmatic view of the entire matter.His conclusion as stated above is based on correct appreciation of facts of the case which are in consonance with judicial findings as well. We therefore, hold that he has correctly appreciated the facts and his conclusion and application of the net profit on the total turnover being the addition, does not need any interference and is accordinglyupheld.The grounds of appeal of the P a g e | 24 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai revenue in so far as related to application of flat rate for making addition are therefore dismissed. 9. In the result,appeal of the Revenue is partly allowed. In ITA 2053/MUM/2024 (A.Y. 2017-18), 10.In the above captioned appeal,the assesse has taken following grounds of appeal: 1. The NFAC erred in making an estimation of net profit @ 4% of the total turnover of Rs.21,82,76,474/- (1.e. Rs.87,31,059/-) inspite of the fact that the said cash sales had already been included in the total sales turnover of the Assessee company. 2. The NFAC erred in estimating the net profit @4% of the total turnover instead of considering the gross profit percentage as the assessee company is in the business of manufacturing. 3. Without prejudice to the above, the NFAC failed to appreciate that the Assessing Officer had doubted the cash sales of Rs. 5,98,78,500/-only and not the entire turnover, thus, even if the profit had to be estimated it ought to consider only the amount of cash sales. 4. Without prejudice to the above, the NFAC ought to have considered the fact that the Assessee company has already declared a gross profit ratio 3.05% on the total turnover of Rs.21,82,76,474/- and therefore, the Assessee company may be given credit of the gross profit already declared on the total turnover. 11. Before us,the ld.AR has submitted that cash sales of Rs.5,98,78,500/- had already been included in the total sales turnover of Rs.21,82,76,474/ of the assessee and the same has been offered to tax by P a g e | 25 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai considering the cash sales while computing the computation of income and tax thereon. Also appropriate Income Tax has been paid on the same. Therefore, no addition ought to have been made regarding the cash sales as this would amount to double taxation. Where the assessee is carrying on business regularly, the natural inference is that all the receipts relates to business and the cash deposits in the banks have emanated from the business activities based on which no addition is sustainable in law.Without prejudice to the above, the Assessee company submitted that if at all any estimation of profit is to be done the gross profit ratio needs to be considered as it is in the business of manufacturing and not on the basis of the net profit ratio.Without prejudice further, it is submitted that the Assessing Officer had doubted the cash sales of Rs.5,98,78,500/- only and not the entire turnover, thus, even if the profit has to be estimated it ought to consider only the amount of cash sales and not the entire turnover.Further submitted that the company has already declared a gross profit ratio 3.05% on the total turnover of Rs.21,82,76,474/ and therefore, the Assessee company may be given credit of the gross profit already declared on the total turnover. 12. On careful consideration of the all the relevant facts of the case,it is evident that the AO had rejected the book results u/s 145(3) of the Act since the impugned cash deposits claimed to be unaccounted P a g e | 26 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai sales were not fully supported with necessary evidences.The concurrent finding of both the lower authorities regarding application of the provisions of section 68 of the Act to the facts of the case ,as stated earlier, has not been appealed against by the assessee. Therefore, such deposits could not be treated as genuine sales in essence and higher rate of profit embedded therein has to be presumed as rightly done by the ld.CIT(A). Though he also treated the same as unexplained cash credit,he correctly pointed out that the book results having been rejected, only the profit element could be added to the income and not the entire cash deposits. Even the assessee has admitted that it could not bring on record sufficient evidence to prove a part of the sales.Therefore, in such a situation the gross profit rates of other years could not be applied.The conclusion drawn by the ld.CIT(A) is quite reasonable and judicious in the light of above facts and we do not find any infirmity therein.Accordingly,the grounds of appeal of the assessee are dismissed. P a g e | 27 ITA No. 2053, 2821/Mum/2024 A.Y. 2017-18 Creative Gems And Jewellery Ltd., Mumbai 13. In the result, Revenue’s appeal inITA 2821/MUM/2024 is partly allowed while assessee’s appeal inITA 2053/MUM/2024is dismissed. Order pronounced in the open court on 15/04/2025. Sd/- Sd/- SANDEEP GOSAIN PRABHASH SHANKAR (\u0014ाियकसद\u0017 /JUDICIAL MEMBER) (लेखाकारसद\u0017/ACCOUNTANT MEMBER) Place: मुंबई/Mumbai \bदनांक /Date 15.04.2025 Lubhna Shaikh / Steno आदेश की \u0018ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\b / The Appellant 2. थ\b / The Respondent. 3. आयकर आयु\u0011 / CIT 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, Mumbai 5. गाड\u001b फाईल / Guard file. स ािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण/ ITAT, Bench "