DCIT, CIRCLE 16(1), NEW DELHI V. MGV JAIN JWELLERS PVT LTD, NEW DELHI

ITA 112/DEL/2023

AI Insights

The case revolves around the appeal by the Revenue against the order of the CIT(A) which had allowed the appeal of MGV Jain Jewellers Pvt. Ltd., a company engaged in the business of trading jewelry. The primary contention was regarding the addition of Rs. 21,55,41,500 made under section 69A of the Income Tax Act, 1961, which pertained to unexplained cash deposits during the demonetization period. The Assessing Officer (AO) had made these additions based on the premise that the cash deposits were unexplained, as the assessee failed to produce certain cash sales bills and stock details for the assessment year 2017-18. However, the CIT(A) found that the assessee had maintained regular books of account, which were audited, and the sales had been accepted by the VAT department. The Tribunal, after considering the submissions and the precedents cited, upheld the CIT(A)'s decision, noting that the cash deposits were from disclosed sales and not from undisclosed sources.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315790 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Other Referred Cases: ACIT v. Ramlal Jewellers (P.) Ltd., CIT v. Kailash Jewellery House, S. Balaji Mech- Tech Private Ltd Vs. ITO, Fine Gujaranwala Jewellers Vs. ITO, M/S Godwin Tourism Pvt. Ltd. V. DCIT, ITO V. M/s J.K. Wood India Pvt Ltd, JCIT V. M/s Pari Agencies Pvt Ltd, Shagun Jewellers (P) Ltd. vs. DCIT, Hirapanna Jewellers And (Vice-Versa)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUJIT KUMAR
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Business income; Unexplained investment; Income from undisclosed sources; Bogus purchase; TDS; Bogus
• Section: 143(3); 68

Judgement Text

"ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.112/Del/2023 [Assessment Year : 2017-18] DCIT, Circle-16(1), New Delhi vs M/s. MGV Jain Jewellers Pvt.Ltd., 1st Floor, Shop No.1,2780/20, Karol Bagh, Bedonpura, New Delhi-110005. PAN-AAGCM3999K APPELLANT RESPONDENT Revenue by Shri Sujit Kumar, CIT DR Assessee by Shri Sudhir Sehgal, Adv. Date of Hearing 30.04.2025 Date of Pronouncement 16.05.2025 ORDER PER MANISH AGARWAL, AM : This is appeal filed by the Revenue against the order passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 24.11.2022 in Appeal No. CIT(A), Delhi-6/10574/2019-20 for Assessment Year 2017-18. 2. Brief facts of the case are that assessee is a company and is engaged in the business of trading of jewellery since inception. The return of income was e-filed on 31.10.2017 declaring total income at Rs. 59,10,496/-. The case was selected under CASS and the assessment was completed u/s 143(3) of the Act assessing the income of the assessee at Rs. 23,95,17,294/-. The AO invoked the provision of section 145(3) of the Act and made trading additions by applying the GP rate of 3.32% on the total turnover declared by the assessee at Rs. 72,14,75,371/- and further made addition of Rs. 21,55,41,500/- u/s 69A of the Act on account of cash deposit during demonetization as undisclosed investment. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 2 3. Against such order, assessee preferred an appeal before the ld. CIT(A) who vide order dated 24.11.2022 allowed the appeal of the assessee. Aggrieved by the said order, Revenue is in appeal before the Tribunal. 4. The Revenue has taken following grounds of appeal:- 1. “Whether in the facts and circumstances of the case, Ld. CIT(A) was justified in deleting the addition of Rs. 21,55,41,500/- made on account of unexplained cash deposits u/s 69A of the Act ignoring the fact that the assessee failed to furnish majority of cash bills (1218) raised on 08.11.2016 during the proceedings? 2. Whether in the facts and circumstances of the case, Ld. CIT(A) was justified in deleting the addition of Rs. 21,55,41,500/- made on account of unexplained cash deposits u/s 69A of the Act ignoring the fact that details of stock for A.Y 2018-19 was not produced/submitted by the assessee during assessment proceedings? 3. Whether in the facts and circumstances of the case, Ld. CIT(A) was justified in deleting the addition of Rs. 2,39,52,982/-made on account of gross profit by taking gross profit margin @ 3.32% of assessee's average figure of 3 years ignoring the fact that the assessee failed to furnish the supporting material to substantiate the transactions recorded in books of accounts? 4. That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing of the appeal.” 5. In grounds of appeal of appeal No. 1 & 2, Revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs. 21,55,41,500/- made by AO u/s 69A of the Act as undisclosed investment being cash deposited in Specified Bank Notes (SBN) during the demonstration period. 6. Before us, Ld. CIT. DR vehemently supported the order of the AO and stated that assessee has made cash deposit during demonetization in SBN in two bank accounts with Yes Bank and HDFC bank totaling to Rs. 21,55,41,500/-. It is submitted by ld. CIT. DR that the AO has made threadbare analysis of the cash deposited into bank and sales made by the assessee during the year under appeal and immediately preceding year. He further submitted that the assessee has declared cash sales of Rs. 22,27,95,150/- from October 2016 till 08-11-2016. He further stated that assessee during the period from 01.11.2016 to 08.11.2016, the assessee made ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 3 total cash sales of Rs. 14.71 cr. and on 08.11.2016 has raised 1218 invoices which was very abnormal looking to the normal business practice. He further submits that the assessee has failed to produce all the invoices raised during the month of November 2016 before the AO for examination. Ld. CIT DR further argued that the assessee has made total purchases of Rs. 40.99 crore from one party M/s Ram Lal Kimat Rai in the month of October and November which is around 58.39% of total purchases. According to ld. CIT. DR, the ld. CIT(A) has failed to appreciate the fact that the AO has not relied upon the books of account of the assessee and thus, availability of stock for making such a huge sale is also in doubts. He thus prayed for the restoration of the additions made by the AO. 7. Per contra, the Ld. AR of the assessee submitted that during the year under appeal, assessee was trading in jewellery on retail basis. The assessee has maintained regular books of account which were duly audited and no defect whatsoever was pointed out by the AO except stating that the certain bills of cash sales made on 08.11.2016 were not produced. Ld. AR further submitted that even after invoking the provisions of section 145(3) of the Act, the AO has not doubted the sales declared thus the cash deposit out of the such cash sales could not be held as unexplained investment. Ld. AR argued that when sales have already been offered for tax, the cash generated out of such sales could not be doubted and if the such cash deposits out of such cash sales is taxed, it would tantamount to double taxation. The Ld. AR further submitted that the AO has rejected the explanation of the assessee without bringing on record any material to hold that the assessee has made cash deposit out of unexplained sources. Only allegation of the AO was that majority of cash sales was in the month of October and November, 2016. It was further submitted that there was no ban to accept the SBN upto the closing hours of 08/11/2016 and the assessee has duly declared such sales in the VAT return which were also duly accepted. Ld. AR further submitted that the AO has made independent enquiries from the suppliers and their statements were also recorded behind the back of the assessee however, the AO found no ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 4 discrepancy in the purchases declared by the assessee. Ld.AR further made written submission which is extracted hereunder for ready-reference: 4. “Further, the Assessing Officer on one hand doubting the sales and on other hand have been relying on the same sales as per books of accounts for making the addition on account of gross profit. 5. We had submitted that there were large number of sale bills as per our reply and only sample copies were uploaded, which reply was furnished to the AO during the course of assessment proceedings. Thus, non-acceptance of sales as per books of accounts, which have been accepted by the VAT depart, which is a Govt. department, is not a correct observation by the Assessing Officer. It is a settled law that that when the sales have been accepted by one Govt. department, it does not give license to other department, not to accept such sales. 6. Complete quantitative stock is being maintained, which is a part of the submissions made to the AO and no defects have been pointed out and the reliance on case laws has been quoted at page 10 of the order of CIT(A). 7. Even, complete stock register vide reply 23.12.2019 have been filed and also day to day stock register was produced and filed and no adverse has been drawn by the AO. 8. The only submission of the Assessing Officer that the details not filed in a prescribed manner is devoid of any valid consideration and complete stock register, sale register and purchase register, were also filed before the Assessing Officer and no defects have been pointed out. 9. All purchases made through banking channels and sufficient stock of \"Bullion and gold and diamond jewellery\" was available in the books of accounts. It is a case, where existing stock is sold and cash has been realized and that cash has been deposited in the bank account and disclosed in the books of accounts of assessee. 10. At page 12 of the order, we have mentioned that the AO has verified the purchases made from 'M/s Ram Lal Kimat Rai' and only on account of the fact that last year, the purchases were not made from M/s Ram Lal Kimat Rai, there is no justification that the AO can form a conclusion of any adversity in the hands of assessee. 11. There is no allegation that no purchases have been made from the above party and even the statement of Sh. Raj Kumar of M/s Ram Lal Kimat Rai have been recorded at the back of assessee and no adverse view have been pointed out in the assessment order and, in fact, no statement was confronted to the assessee and, thus, the purchases stood confirmed. Even, the statement of Sh. Mangat Rai Jain, the main Director was also recorded and no adverse view has been drawn by the AO. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 5 12. We have provided the detail of the parties from whom, the purchases have been made alongwith copies of accounts and no adverse conclusions has been drawn. 13. Even, the confirmed copy of account from whom, the purchases have been furnished to the Assessing officer and no adverse view has been drawn. 14. No defects pointed out in the books of accounts for rejection u/s 145(3) and on the other hand, the books are duly audited. All purchases and sales are vouched. 15. The G.P. rate is higher than the earlier year and the finding of the AO is contradictory in the sense that on one hand, he has rejected the sales and on the other hand applied an average G.P. rate on the same sale figures as per books of account. 16. The method of averaging of the last three years G.P. is not correct method of applying gross profit rate. 17. We rely on various case laws at pages 14 to 16 of the order of CIT(A) and under such circumstances, the books of accounts cannot be rejected. 18. At page 17, we had submitted that no case could be made out by the AO on account of unexplained cash deposits in the bank account, which were out of the sales of the assessee and invoking of section 69A is not in order as the nature of source have been duly explained as per our submissions at page 17 to 19 and such facts in the order of CIT(A) are being relied upon. The information and details furnished to the AO, have been summarized at page 19 of the order of CIT(A). 19. Even, the cash sale is modus operandi of business and we had relied upon the case laws on this issue at page 20 of 'R.B. Jassa Ram' & Other High Courts at pages 20 to 23 of the order of CIT(A). 20. We have also relied upon on various case laws at page 24 that when the sales as per books of accounts have been accepted alongwith the opening stock purchases, closing stock and there is reduction of stocks on account of sales and consequent cash has been realized and that cash has been deposited in the bank account of the assessee, any further addition would amount to double addition as per page 23, 24 of the submissions before the CIT(A). 21. We have also relied upon on the binding judgment of 'Delhi High Court' in the case of Sh. Akshit Kumar, in which, similarly, there were cash deposit of substantial amount during the demonetization period and addition was made on the similar facts and circumstances, the said addition was deleted by the Hon'ble Tribunal and confirmed by the Hon'ble Delhi High Court and as per facts stated at pages 25 to 28 of the order of CIT(A) and another judgment of Delhi ITAT in the case of 'Agson Global'. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 6 22. The facts about judgment of 'Agson Global' have been dealt from pages 28 to 39 of the order of CIT(A). 23. The fact about the double addition alongwith case laws on account of above said addition have been discussed at pages 40 to 42 of the order and also some other case laws as per pages 43 to 46 of the order and at page 46, there is summary of arguments. 24. Another submission have been reproduced at page 46 of the order of CIT(A), wherein again, we have relied upon certain judgment of 'Vaisakhapatnam Bench' of the ITAT on the similar issue of cash deposits during demonetization period and also again reliance was placed on the judgment of 'Delhi High Court' in the case of Akshit Kumar at pages 46 to 48 of the order. 25. Another submissions were made vide our submissions, dated 04.10.2022 and it was contended on the basis of various case laws at page 50 of the order of the Chandigarh Bench of the ITAT and there are other similar cases at pages 51 to 55 of the order and under such circumstances, no addition could be made of the unexplained deposits. 26. Further consolidated submissions on the same issues were made vide submissions, dated 27.10.2022 from pages 55 to 108 of the order, which are, in fact, repetition of earlier submissions. FINDING OF CIT (APPEALS) 27. The finding of CIT(A) starts from page 106 and at page 106 to 108, first paragraph, he has discussed the basis of addition by the AO and then from para 4.8, he has given his finding. 28. Para 4.8 He has discussed that no specific defects pointed out in the audited books of accounts and purchases from \"M/s Ram Lal Kimat Rai' have not been doubted and rather that party had appeared before the AO and confirmed the transaction with the assessee concerned and complete purchase and sale invoices have been furnished and such sales have been declared in the VAT returns and VAT assessment have been completed, for which, evidence has been filed. 29. PARA 4.9 Regarding the average G.P., the Assessing Officer has accepted the sales and substantial number copies of sales bills have been placed in the 'paper book' and day to day stock register was uploaded and it was stated that due to voluminous record, all such sale bills could not be uploaded and there is no requirement to furnish all the sale bills. 30. Statement of Sh.Mangat Rain Jain, main partner was also recorded and no adverse view drawn. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 7 31. Para 4.10 There is substantial stock of bullion and Gold and Diamond jewellery and entire sales have been made out of the available stock and such stock has been reduced from the books of accounts and cash realized and cannot be treated as unexplained deposit' and the sales amount have been credited in the books of accounts and with no doubt on the purchases, the addition made by the Assessing Officer was not in order. 32. Para 4.11 Purchases from 'M/s Ram Lal Kimat Rai' had been verified. His statement recorded at the back of the assessee and he has confirmed the sales made to assessee and even the job work has got done from outside parties and TDS have been decuted and, thus, the rejection was not proper. 33. Para 4.12 & 4.13 The various case laws and Delhi High Court & Others have been discussed. 34. Рага 4.14 The finding has been given by CIT(A) based on various case laws and above facts and there is judgment of Chandigarh Bench of the ITAT in the case of Kalaneedhi Jewellers and even finding in bold word has been given at page 112 of the order of CIT(A) as under:- \"Purchases, sales and the stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or there must be defects in the stock register/stocks. Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of the stock, there is no reason to disbelieve the sales. The Assessing Officer accepted the sales and the stock. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchases and the sales.\" 35. Then again at page 113 of the order of CIT(A), the following finding has been given:- \"10.13 In the present case also the cash deposited post demonetization by the assessee was out of the cash sales which had been accepted by the Sales Tax/VAT Department and not doubted by the AO, there was sufficient stock available with the assessee to make cash sales and there was festive season in the month of October 2016 prior to the making of the cash deposit in the bank account out of the sales. So, respectfully following the aforesaid referred orders by the various Hon'ble High Courts and the Coordinate ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 8 Benches of the ITAT, we are of the view that the impugned addition made by the AO And sustained by the Ld. CIT(A) was not /justified, accordingly, the same is deleted.\" 8. In view of the above submission, it is prayed by ld AR that ld. CIT(A) has rightly deleted the addition made on account of cash deposit in SBN during demonetization and requested for the confirmation of the said order on this issue. 9. We have heard the rival submissions and perused the materials available on record. The ld. CIT (A) has deleted the addition by making following observations in para 4.17 as under: 4.17. “I have also gone through the various other case laws as cited during the course of submissions made before me and I am in agreement with that the source of the deposit in the bank account is adequately explained being sale of the gold ornaments and the same having been recorded in the regular books of accounts and thus Section 69A is not applicable at all and no case has been made out that the assessee is found to be owner of money, which is not recorded in the books of accounts and rather the assessee has valid explanation that there was available cash in hand, out of the sale of gold/diamond articles/bullions and the various judgments in the written submissions of the assessee. I am of the considered opinion that the invoking of Section 69A r.w.s.115BBE by the AO is not correct. Further, I am also in agreement with the contention of the assessee based on the Hon'ble High Court in the case of President Industries & others as cited 'supra’ that when sales have already been recorded on the credit side of the sales accounts in the audited books, then making further addition of same sales would amount to double addition and which additions, thus, both on merits and otherwise not called for.” 10. In the instant case, the books of accounts of the assessee are subject to audit and from the perusal of the financial statements, it is seen that except non production of sales bills, there was no major allegation of the AO with regard to the mode and manner in the maintenance of the books of accounts. It is also seen that assessee had filed complete stock records but AO has not pointed out any error in the day to day stock records maintained by the assessee. The AO compare the annual purchases and sale with the purchases and sales made in the months of October and November, 2016. It is further seen that the independent enquiries were made from the suppliers and their statements were also recorded but nothing contrary was found nor it is the allegation of the revenue that the purchases declared by the assessee was not ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 9 genuine. The assessee has also filed the copies of VAT return which were accepted by the VAT authorities who are independent Government agency and found no error in the VAT returns filed by the assessee. It is a known fact that after the announcement of demonetization, people rushed to the market and bought many items in exchange of old currency. Assessee has raised 1218 invoices on 08.11.2016 is not an exception under these circumstances. The Assessing Officer failed to find any error in the details and evidences filed by the assessee. 11. The assessee has deposited cash during the demonetization out of the cash available as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the Hon’ble Prime Minister and was the last day upto which the SBN could be accepted as valid currency. The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the cash deposited in SBN during the demonetization period. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and other when the sale consideration was realised and deposited in the bank account which is doubted on conjectures and surmises. 12. At this juncture, provisions as contained in section 69A is reproduced as under: 69A. “Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 10 13. From the perusal of the provisions of section 69A of the Act, it is very clear that Assessing Officer can make addition u/s 69A only under following circumstances, i.e. (i) the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income; (ii) No explanation is offered about the nature and source of the same; (iii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO. 14. Thus the primary condition for invoking the provisions of section 69A is that there must be existence of books of accounts and such money, bullion, jewellery or valuable article was recorded in the same, than the question of the explanation by the assessee arose. If the assessee provides the explanation with regard to the sources thereof, before rejecting the same, ld. AO, has to express his opinion as to why the explanation furnished by Appellant is not acceptable. 15. In the instant case, it is not the allegation of the AO that the assessee has not maintained any books of account or the cash deposited in SBN in bank was not recorded in the books of account maintained. He rather accepted the turnover declared by the assessee which is inclusive of the amount of cash sales which was made in SBN and deposited into bank. Further it is seen that the assessee not only offered explanation regarding nature and source of deposits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book. It is not understood as to how the AO could invoke the provisions of section 69A for making addition when the source of such cash deposits, being cash sales, was duly recorded in the books maintained in regular course. Even no discrepancy was pointed out by the VAT department in respect of purchases and sales made by the assessee. Therefore, addition so made u/s 69A of the Act is unjustified and be deleted. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 11 16. The Co-ordinate Bench of ITAT, Mumbai in the case of ACIT v. Ramlal Jewellers (P.) Ltd. Reported in [2023] 154 taxmann.com 584 (Mumbai - Trib.) under similar circumstances, deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization into bank by making following observations: “Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee-company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 - It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock - Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]” 17. The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under: “In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.” ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 12 18. The Co-ordinate Bench of ITAT, Delhi in the case of S. Balaji Mech- Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dt. 25.09.2024 has observed as under: 18. Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases. 19. In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal. 20. Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression \"explanation is found not satisfactory to the AO\" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under: \"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11- ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 13 2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68.\" 19. Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022 dated 27.03.2023, wherein it was held as under: 22. “In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give colour to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 14 ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous. 23. Respectfully, following the above decisions, we are inclined to allow the grounds raised by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked. 24. In the result, appeal filed by the assessee is allowed.” 20. The Co-ordinate Benches of ITAT, in the following case laws has held as under: [i] M/S Godwin Tourism Pvt. Ltd. V. DCIT 2024 (8) TMI 1173 (ITAT, Delhi), dated- August 21, 2024, held that- 19. “Considered the rival submissions and material placed on record, we observed that the assessee has submitted cash book in the Paper Book wherein assessee has received share application money on various dates and received the same by way of cash on verification of the cash book submitted before us. We observed that on various dates, the assessee has maintained sufficient cash which are out of share k withdrawals and it is substantiated that sufficient source application money and some bank of cash available with the assessee to make the bank deposit of Rs. 8 lacs. After considering the facts on record, we observed that assessee has sufficient cash in hands to make above said dash deposit. Accordingly, additions made by the Assessing Officer is deleted.\" [ii] ITO V. M/s J.K. Wood India Pvt Ltd, 2024 (1) TMI 1262, dated 03.01.2024, Hon'ble ITAT Delhi held that- 14. “We have given thoughtful consideration to the factual matrix discussed hereinabove The undisputed fact is that there is not even ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 15 a whisper of any defect, error or infirmity in the books of account maintained by the assessee which were audited both under the Companies Act and under the Income tax Act. The books of account have been maintained in the regular course of business and cash deposits in the books of account are duly reflected in the books of account 15. Sales made by the assessee and shown in the regular books of account have been accepted as such by VAT authorities while framing the VAT assessment. The assessee was having sufficient stock in hand for making the impugned sales during the demonetization period and it is not the case of the Assessing Officer that the assessee has shown bogus purchases to show bogus sales to cover up cash deposited during the demonetization period\" JCIT V. M/s Pari Agencies Pvt Ltd. ITA No. 2006/DEL/2023, dated 14.12.2023, Hon'ble ITAT Delhi heid that- 11. Nowhere in the assessment order the Assessing Officer has mentioned that after inflating the alleged cash sales the assessee has frequently revised its VAT returns. It is not the case of the Assessing Officer that the assessee has shown alleged cash sales without having sufficient stock in hand during that period. Not a single instance of defect is pointed out in the audited books of account. The entire assessment is based on assumptions/presumptions, surmises and conjectures de hors of the facts on record.\" 17 ITA No.3168/Del/2023 Shagun Jewellers (P) Ltd. vs. DCIT.” 21. Further reliance in this regard is being placed on the Judgment of ITAT Visakhapatnam in the case of ACIT, CC-1 Visakhapatnam V. M/S Hirapanna Jewellers And (Vice-Versa), 2021 (5) TMI 447, dated: 12-5- 2021 held as under:- \"9. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to the sales and we do not find any defect in ccoun effect the stock as well as the sales. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishel Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld.\" ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 16 22. Thus, by respectfully following the ratio laid down in above cases and also looking to the facts that Assessing Officer has tried to support his finding merely on the basis of incorrect comparison of daily cash sales and cash deposits in the bank accounts in the year before us as well as in preceding year and such observations have already been answered by the assessee and not controverted by Revenue. In view of these facts, we find no infirmity in the order of ld. CIT(A) deleting the addition of Rs.21,55,41,500/- made u/s 69A of the Act towards cash deposited in the bank account during demonetization and such order is hereby upheld on this issue. The grounds of appeal No.1 & 2 of the Revenue are dismissed. 23. In Ground No.3 raised by the Revenue, action of Ld.CIT(A) in deleting the addition of Rs.2,39,52,982/- made by applying G.R. rate @ 3.2% based on the assessee’s average G.P. rate of last three years is challenged. 24. Before us, the ld.CIT DR for the Revenue supported the order of the AO and submits that during the course of assessment proceedings, the assessee has failed to produce the copies of cash invoices raised during the month of October and November 2016, which is the sole basis for claiming the availability of cash in hand. He further submits that as per Table 7 of the assessment order, it could be seen that around 58.39% of the purchases was made from M/s. Ram Lal Kimat Rai in the month of October and November 2016 and further observed that the assessee has failed to provide the details of stock for AY 2018-19. The Ld.CIT DR submitted that in view of these facts, the AO was of the opinion that the assessee has shown bogus sales or back dated sales and it is nothing but a colourable device scripted and executed for the purpose of legitimacy to the assessee’s unaccounted money in the form of alleged sales and for evading tax. He thus submits that the AO has rightly invoked the provision of section 145(3) of the Act and applied G.P margin of 3.32% by taking the average of assessee’s own G.R. rate for three years including year under appeal which deserves to be restored. He prayed accordingly. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 17 25. On the other hand, the Ld.AR for the assessee vehemently supported the order of the Ld.CIT(A) and submits that the AO on conjectures and surmises has invoked the provision of section 145(3) by ignoring the fact that the assessee has provided all the information as called for from time to time. It is further submitted that day to day stock register for year under appeal in support of the sales claimed was submitted. He further submits that the AO for the reason that stock register for subsequent year was not filed, doubted books of accounts of the year under appeal. The AR of the assessee further submitted that the AO has also made enquiry from the suppliers by issuing summons where nothing contrary was found. Therefore, there is no occasion to hold that the books of accounts maintained by the assessee in regular course of business are incorrect so as to invoke the provisions of section 145(3) of the Act. He further submits that the assessee has declared progressive results where the turnover has increased from Rs. 49 crores in AY 2015-16 to Rs.72 crores in AY 2017-18 with an increase in G.P. percentage from 2.91 % to 3.24 %. He further submits that in immediately preceding year i.e. in AY 2016-17, the G.P. rate was 3.32% on a turnover of Rs.45 crores however, in the year under appeal, turnover has increased by Rs.72.14 crores with G.P.5 of 3.24%. According to Ld.AR, it is accepted business principal that every increase in turnover would be a result of compromise in the profits margins. As is evident from the results, the turnover has increased by more than 150 % however, the reduction in G.P. rate is very insignificant. In the last, the Ld.AR for the assessee submits that the Ld.CIT(A) has appreciated these facts and thereafter, rejected the action of the AO invoking the provision of section 145(3) of the Act and further deleting the additions made which order deserves to be accepted. 26. After considering the arguments put forth by the parties, we find that the AO himself has accepted that the assessee has filed stock records for AY 2017-18 and merely for the reason that there was substantial increase in sales in the month of October and November, 2016 for which the cash invoices generated were not produced before the AO, the provision of section 145(3) of ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 18 the Act were invoked. We find that the Ld.CIT(A) has dealt with this issue at length and has observed as under:- 4.18. “Assessment Order shows that the AO has accepted the sales as declared in the audited books of accounts and applied an average gross profit rate and made an addition of Rs. 2,39,52,982/-. No specific defect pointed out in the books or audit report by the AO hence without a valid reason book of account was rejected u/s 145(3) of the Act. By rejecting the books of accounts u/s 145(3), without any valid reasons has applied an average gross profit rate and made an addition of Rs. 2,39,52,982/- and while doing so, he has not considered any of the expenses as claimed by the assessee in the audited books of accounts. Thus, having accepted the sales 'turnover' as per the books of accounts and without any noting in the assessment order of the AO, regarding the non-allow-ability of any of expenses as claimed in the profit & loss account, this action of the AO cannot be upheld. I have held that no case have been made out with regard to the rejection of the books of accounts, the application of the average gross profit rate as per the order of the AO and not allowing of the expenses as per the audited books of accounts by the AO is also not justified and accordingly, it is held that the action of the AO in applying the average gross profit rate and not allowing the expenses as claimed as per the audited books of accounts against the facts and the same is order to be deleted. Therefore, the action of the Assessing Officer in rejecting the books of accounts u/s 145(3), applying the gross average rate and addition of Rs. 21,55,41,500/- is not justified and same is therefore deleted and therefore, the book results as declared by the assessee deserves to be accepted. 4.19. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, It appears that cash deposits in bank account represent the sales which the assessee has rightly offered for taxation. I have gone through the trading account and find that there was sufficient stock to affect the sales and 1 do not find any defect in the stock as well as the sales. AO has also not spotted any specific defects in the books of account, sales, purchase and stock. Only the AO doubted and presumed and accordingly made addition. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 69A or tax the same u/s 115BBE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishal Exports Overseas Ltd. (supra), Hence, I do not get any reason for not accepting the result of audited books of accounts of the assessee. Hence, the action of the Assessing Officer in rejecting the books of accounts u/s 145(3), applying the gross average rate and addition of Rs. 21,55,41,500/- is not justified and same is therefore deleted.” ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 19 27. Before us, the Revenue has failed to controvert the findings given by the Ld.CIT(A) and reiterated the observations made by the AO in the assessment order. 28. On the contrary, the Ld. Counsel for the assessee submitted that all the evidences were filed with regard to the availability of the stock and to establish genuineness of the purchases made. The Ld.AR for the assessee further drew our attention at page 47 to 56 of the Paper Book which are copies of some invoices submitted by the assessee before the AO raised during the month of the November, 2016 in which no error was found by the AO. It is also seen that AO has made direct enquiries from the suppliers and their statements were also recorded. However, the AO do not find any discrepancy with regard to the purchases declared by the assessee and simply alleged that the purchases in the month of October & November, 2016 were abnormally high. Such allegations could not be accepted looking to the fact that during these two months there were substantial sales made by the assessee and since the assessee is a trader in jewellery without making purchase of stocks, sales could not possible. This fact was ignored by the AO. 29. Under these circumstances, we find no infirmity in the order of the Ld.CIT(A) in accepting the trading results declared by the assessee and deleting the addition made by applying 3.32% profit rate as against 3.24% declared by the assessee. It is also relevant to state that the AO on the one hand doubted the cash sales during the month of October & November and on the other hand, has applied the G.P.rate on declared sales of INR 72.14 crores which further established that AO has no material to doubt the correctness of the books of account of the assessee. In view of these fact, we find no infirmity in the order of Ld.CIT(A) in accepting the trading results declared by assessee and further deleting the additions made by AO. Accordingly, the order of Ld.CIT(A) is upheld on this issue. Ground No.3 of the Revenue’s appeal is thus dismissed. ITA No.112/Del/2023 DCIT vs MGV Jain Jewellers Pvt.Ltd. Page | 20 30. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 16.05.2025. Sd/- Sd/- (MAHAVIR SINGH) VICE PRESIDENT *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "