DEVNGI JEWELLWERS PVT. LTD.,SURAT V. DCIT, CIRCLE-1(1)(1), SURAT

ITA 672/SRT/2024

AI Insights

The case involves Devngi Jewellers Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, for the assessment year 2017-18. The primary contention was regarding the addition of Rs.11,34,29,166 as unexplained cash credits under section 68 of the Income-tax Act, 1961, following substantial cash deposits during the demonetization period. The Assessing Officer had rejected the books of account under section 145 and made the addition under section 68, which was upheld by the CIT(A). The Tribunal examined the evidence and found that while some income could be estimated from the cash deposits, the entire amount could not be treated as unexplained, leading to a partial allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717694 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 12-06-2024
• Other Referred Cases: ITO vs. Prestige Marketing Pvt. Ltd., CIT vs. Vishal Exports Overseas Ltd., R S Diamonds India Pvt. Ltd. vs. ACIT, ACIT vs. Ramlal Jewellers Pvt. Ltd., ACIT vs. Chandra Surana, DCIT vs. Viswa and Devji Diamonds (P.) Ltd., ACIT vs. Hirapanna Jewellers, Shah Maganlal Gulabchand Choksi vs. ACIT, Vaishnavi Bullion (P.) Ltd. vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: SAPNESH R. SHETH; WAY OF
• Keywords: Corroborative evidences; Unexplained cash credit; Income from undisclosed sources; Source of fund; Bogus
• Section: 144; 142(1); 68; 69; 133(6); 145

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MMBER आयकरअपीलसं./ITA No.672/SRT/2024 Assessment Year: (2017-18) (Hybrid hearing) Devngi Jewellers Pvt. Ltd. 109 -110, Shreyas Diamond Centre, Mini Bazar, Varachha Road, Surat - 395006 Vs. DCIT, Circle – 1(1)(1), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: AABCD3227A (Appellant) (Respondent) Appellant by Shri Sapnesh R. Sheth, CA Respondent by Shri Ravi Kant Gupta, CIT-DR Date of Hearing 31/07/2025 Date of Pronouncement 13/08/2025 आदेश /O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (‘in short, the Act’) dated 27.04.2024 by the Commissioner of Income-tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi [in short “the CIT(A)”] for the assessment year (AY) 2017-18. 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A), NFAC has erred in confirming the action of assessing officer of passing order u/s.144 of the I.T. Act, 1961. Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 2 2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A), NFAC has erred in confirming the action of assessing officer in rejecting books of accounts by invoking provisions of section 145(3) of the I.T. Act, 1961. 3. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A), NFAC has erred in confirming the action of assessing officer in sustaining addition of Rs.11,34,29,166/- being the difference between cash on hand held on 09.11.2016 as per books and the opening cash balance as per books and further reduced by credits, whose identity has been provided as unexplained cash credits u/s.68 of the I.T. Act, 1961. 4. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of assessing officer in rejecting cash book and sales book and making the addition u/s.68 of the Act, of cash balance, which has been credited by the cash sales realization offered, as an income, without appreciating the fact that the sales realization only represents the price received by the appellant for sale of jewellery, for the acquisition of which the appellant has already incurred the cost, so, it is excess of realization over the cost incurred only forms part of profit and which has already been offered by the appellant. 5. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A), NFAC has erred in confirming the action of assessing officer in rejecting cash book and sales book without appreciating the fact that appellant had already offered sales realization received in cash in books of accounts as an income and addition once again u/s.68 of the IT Act on the same amount would tantamount to double taxation of the same income. 6. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A), NFAC has erred in confirming the action of assessing officer in invoking provisions of section 115BBE of the Act and in thereby taxing entire unexplained cash credits at 60 percentage and levying surcharge at 25 percentage which is not applicable on above amount. 7. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 3. Facts of the case in brief are that the assessee e-filed its return of income for the AY 2017-18 on 30.10.2017, declaring therein total income at Rs.31,12,100/-. The case of the assessee was selected for complete scrutiny Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 3 under CASS. The assessee had maintained five bank accounts during the year under consideration. There were cash deposits of Rs.11,17,71,000/- during the demonetization period in the three bank accounts. During the assessment proceedings, notices were issued by the Assessing Officer (in short, ‘AO’) u/s 142(1) and 133(6) of the Act, calling for various details regarding the cash deposit. The assessee was requested to furnish quantitative details of purchases/sales made during the year. In response, the assessee furnished ledger account of sales and purchases made during the year. In the ledger account of sales, entries were passed without mentioning the name of the customers. Cash sales bills were produced for verification, which contained the names of the customers only. Hence, the AO observed that the persons to whom cash sales were made remained unidentifiable and hence, the genuineness of the transactions could not be ascertained. Therefore, a detailed show cause notice was issued requesting the assessee to explain why the book result shown by the assessee should not be rejected and the cash deposits made during the demonetization period should not be added to the total income u/s 68 of the Act. In response, the assessee submitted that the sales registers contain the names of the customers. It was also submitted that as per Rule 114B of the Income-tax Rules, 1962, the company was not required to maintain such record of its customers, when sale amounts did not exceed Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 4 Rs.2 lakhs per individual. Moreover, assessee submitted that the sales could be reconciled from the VAT return. However, the AO on verification noticed that the assessee was not regularly filing the VAT returns. The AO also observed that the Rule 114B did not grant immunity to the assessee from not establishing the identity of the person to whom cash sales were made. Further, in the business of the jewellery, most of the sales were made over the counter and in cash only; but at the same time each assessee has its client base which could be identified. The AO further stated that the assessee could furnish the details in respect of 7 customers only to whom cash sales of Rs.10,79,677/- had been made. As against the above, the total cash sales during the period under consideration was Rs.23,43,78,298/-. Hence, the assessee was able to establish the identity only 0.5% of the customers. As regarding the reliance placed by the assessee on the VAT return, it was noted that the assessee was not regular in filing the VAT return; hence, the same could not be accepted as credible evidence for establishing the genuineness of the sales. The AO held that the so-called sale proceeds in cash deposited in bank accounts are cash credits in the books of the assessee, the source of which has not been satisfactorily explained by the assessee. Therefore, the onus of proof u/s 68 of the Act has not be discharged by assessee. The genuineness of these cash receipts could not be satisfactorily proved by the Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 5 assessee as no details of the said purchasers were filed by the assessee. Accordingly, the sales book and cash book of the assessee were rejected u/s 145 of the Act. The AO, therefore, treated cash deposit of Rs.11,34,29,166/- as unexplained u/s 68 of the Act and added the same to the total income of the assessee. He passed order u/s 144 of the Act on 31.12.2019, determining total income at Rs.11,65,41,266/- as against returned income of Rs.31,12,100/-. 4. Aggrieved by the order of the AO, appellant filed appeal before the CIT(A). The CIT(A) observed that the AO was justified in requiring the appellant to prove the identity of the buyers. He also observed that AO can make additions u/s. 68 of the Act without rejecting books of account. The appellant company did not provide item-wise details of the stocks, but instead provided quantitative details, which was not acceptable. The appellant failed to establish satisfactorily the source of credit appearing in his books of account before the demonetization period. Regarding the issue of addition u/s 68 of the Act, he observed that the appellant was unable to provide item-wise purchases, sales and stock data. Therefore, the stock register kept by the appellant cannot be considered as complete in all respects. The appellant’s way of maintenance of cash memos did not give the impression of genuine cash transaction, which suggested that cash books were tampered with to justify cash deposits during demonetization period. The excess sales during the Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 6 demonetization period were intended to conceal deposits of currency notes in the bank accounts. The appellant failed to provide item-wise quantitative details of stock and sales. The discrepancies raised by the AO were not adequately addressed by the appellant. The appellant’s inability to furnish item-wise quantitative details, coupled with facts that there was no material or evidence to verify the genuineness of sales, led the AO to infer that the books of account, particularly the cash book and stock register, were not complete and correct. It was further observed by the CIT(A) that section 68 of the Act required an assessee to prove three ingredients: the identity, creditworthiness of the creditors and the genuineness of the transaction. In the instant case, the assessee failed to prove the aforementioned ingredients. Resultantly, the credit in the appellant’s books of accounts was treated as unexplained cash credits. The CIT(A) also observed that the plethora of judgements of various Courts relied upon by the assessee are not applicable because facts of the assessee are different. Hence, the CIT(A) dismissed the appeal of the assessee. 5. Aggrieved by the order of CIT(A), the assessee filed appeal before this Tribunal. The learned Authorized Representative (ld. AR) of the appellant submitted paper book containing written submissions filed by the appellant before CIT(A) on 20.07.2023, 16.11.2023 and 19.03.2024, replies/submissions filed by the appellant before AO, other details, viz., name & addresses of all Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 7 the suppliers of gold bar and ornaments, quantity-wise & rate-wise purchase register, sample copies of purchase bills, bank statements, details of opening stock, purchases, sales in cash, closing stock in quantity and amounts, VAT audit report, ITR acknowledgement along with computation of income, relevant portions of tax audit report evidencing quantity details and audited profit & loss and balance sheet. The ld. AR submitted that all the above documents and details were submitted before CIT(A) and AO. He submitted that all cash deposits were duly reflected in the books as sale proceeds and no separate unexplained cash credit was recorded. The cash book and sales register matched with stock records and were supported by VAT and tax audit reports. The ld. AR submitted that all purchases have been accepted by the AO but he is not accepting the corresponding sales. Once purchases are genuine, sales cannot be doubted and there is no prohibition for sales in cash. The ld. AR relied on the decision of Hon’ble Gujarat High Court in case of ITO vs. Prestige Marketing Pvt. Ltd., Tax Appeal No.479 of 2008, dated 08.09.2008 wherein it was held that there is no prohibition in law as regards making of cash sales nor is there any prohibition which obligates a person making cash sales to keep record of the names and address of the persons to whom such cash sales have been made. That once the sales account was credited, the same could not be treated as cash credit u/s 68 of the Act. He also relied on Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 8 the decision of Hon’ble Gujarat High Court in case of CIT vs. Vishal Exports Overseas Ltd., Tax Appeal No.2471 of 2009, dated 03.07.2012, where it upheld the Tribunal’s finding that when the assessee had already offered sales realization and such income is accepted by the AO, addition of the same amount once again u/s 68 would tantamount to double taxation of same income. The ld. AR relied on the decision in case of R S Diamonds India Pvt. Ltd. vs. ACIT, 145 taxmann.com 545 (Mum.) where it was held that where assessee deposited cash during demonetization period, since deposit was made from cash balance available in the books of account, there was no question of treating same as unexplained cash credit. He also relied on the decision of ITAT, Mumbai in case of ACIT vs. Ramlal Jewellers Pvt. Ltd., (2023) 154 taxmann.com 584 wherein it was held that addition u/s 68 on account of cash deposit could not be made simply on the reason that during demonetization period, cash deposit vis-à-vis cash sales ratio was higher when it was established that cash sales representing outflow of stock was duly accounted in the books of account. The ld. AR also relied on the decisions in cases of ACIT vs. Chandra Surana, 149 taxmann.com 379 (Jaipur – Trib.), DCIT vs. Viswa and Devji Diamonds (P.) Ltd., 171 taxmann.com 474 (Chennai – Trib.) and ACIT vs. Hirapanna Jewellers, 128 taxmann.com 291 (Vizak – Trib.). Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 9 6. On the other hand, learned Commissioner of Income-tax - Departmental Representative (ld. CIT-DR) relied upon the orders of lower authorities. He submitted the cash-in-hand was abnormally high during demonetization period. The assessee is also not able to explain why it withdrew cash when there was substantial cash in hand. There are huge unidentified cash sales before demonetization. The VAT return was filed only after demonetization. The CIT(A) had also issued questionnaire u/s 250(4) of the Act, which was not satisfactorily explained. The impossibility of conduct by the assessee has not been satisfactorily explained. The VAT return does not put fetters on the AO to make addition, if the conditions of section 68 are satisfied. The labour charges were also minimal. The CIT(A) relied on the decisions in cases of Shah Maganlal Gulabchand Choksi vs. ACIT, 171 taxmann.com 178 (Surat – Trib.) and Vaishnavi Bullion (P.) Ltd. vs. ACIT, 145 taxmann.com 197 (Hyd – Trib.). 7. The ld. AR in the rejoinder submitted that in the above decisions, there were advances received by the assessee and the cash was not out of sale proceeds. It was also submitted that there was substantial cash in hand before demonetization, which was deposited by the assessee in his bank account. In the alternative, the ld. AR submitted that the revenue could estimate profit on the sales but it cannot make addition of the entire sale proceeds. Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 10 8. We have heard both the parties and perused the materials available on record. We have also deliberated upon the decisions relied upon by both sides. There is no dispute that assessee has deposited cash of Rs.11,17,71,000/- during the demonetization period. The appellant submitted that the said deposit was out of the sale proceeds prior to demonetization period. The AO did not accept contention of the assessee by observing that appellant was not able to identify the customers who purchased gold bar and ornament in cash. The appellant was also unable to prove the identity of the customers. Further, the three ingredients of section 68 of the Act, i.e., identity, creditworthiness and genuineness of the transaction are not established. The AO rejected the sales book and cash book of the assessee u/s 145 of the Act. Out of the total amount of cash in hand as on 08.11.2016 at Rs.11,60,01,738/-, the AO allowed (i) peak cash in hand of Rs.14,92,895/- of the preceding year and (ii) sales of Rs.10,79,677/- in respect of which identity was established by the assessee. The remaining amount of Rs.11,34,29,166/- was added u/s 68 of the Act. The CIT(A) has considered the assessment order, written submissions of the assessee and also the reply of the assessee in response to the inquiry made by him u/s 250(4) of the Act. He has upheld rejection of the books of account u/s 145(3) of the Act and confirmed the addition made by the AO. Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 11 8.1 We have again perused the records. It is seen that the AO had called for various details during the assessment proceedings, in response to which the assessee had filed explanation and details before the AO. The assessee had also earlier filed reply in response to the notice u/s 133(6) of the Act issued by the ITO, Ward – 1(1)(2), Surat enclosing therein the trial balance as on 07.11.2016, 08.11.2016 and 09.11.2016, well before the case was taken up for scrutiny. In its replies, the appellant pointed out that it had maintained complete quantitative details, but no defects have been pointed out. The AO had made inquiry regarding the suppliers of the appellants. The assessee filed reply and the suppliers have independently confirmed the transactions with the appellant. There is no finding in the assessment order that the suppliers have not confirmed the purchases made by the appellant. Therefore, it is clear that the appellant had purchased the gold for which payments were made through banking channels. The ld. AR contended that since the genuineness of the purchases are established, the corresponding sale of gold and gold jewellery cannot be doubted only on the ground that the sales were made in cash and the said cash was deposited during demonetization period. We also find that the appellant had furnished various details before the CIT(A) vide submissions dated 20.07.2023, 16.11.2023 and 19.03.2024. It is also seen that the CIT(A) had made inquiry u/s 250(4) of the Act during the appellate Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 12 proceedings and the appellant had filed the necessary details. Except the quantum of labour expenses, which was not commensurate with the sale of gold bar and jewellery, no adverse finding was made by the CIT(A). It is also seen that the AO had made inquiry as per the SOP guidelines issued by the CBDT in respect of cash deposits during demonetization period. In response to the said queries, the assessee had filed replies to the AO, which are at pages 67 to 78 of the paper book. The assessee had filed provisional trading and profit & loss account as well as balance sheets as on 07.11.2016, 08.11.2016 and 09.11.2016. In the said provisional balance sheet, there was cash in hand of Rs.11,60,01,742/- as on 08.11.2016 (Page 76 of PB). The reply also contains comparative details of cash deposits made in the preceding financial year with the cash deposit made during the year under consideration. The total cash deposited in bank in FY 2015-16 (AY 2016-17) was Rs.70,14,93,000/-, whereas the same in FY 2016-17 (AY 2017-18) was Rs.24,12,10,600/-. The total cash deposited in bank from 01.04.2015 to 08.11.2015 (part of AY 2016-17) was Rs.54,54,53,500/-, whereas the same amount prior to the demonetization period, i.e., 01.04.2016 to 08.11.2016 was Rs.12,35,12,000/- (Page 67 of PB). It is evident therefrom that both cash deposit and turnover of the subject AY 2017-18 are lower than the corresponding amounts of the preceding AY. The CIT(A) observed that the sales were made during demonetization; however, Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 13 from the facts on record there is no basis for making such observation because the impugned sales were made prior to the demonetization period. The revenue has failed to bring on record any evidence which indicates that the cash balance stated above was not from sale proceeds but from some other unexplained sources. In view of the above facts, there was no basis for rejecting the contention of the appellant that the cash deposit was made out of cash sales. The ld. AR has relied on the decision in case of Vishal Exports Overseas Ltd. (supra) where it was held that addition of cash deposit cannot be made u/s 68 of the Act when the same was part of the sales and was shown as income in the profit and loss account. 8.2 The ld. CIT-DR has relied on the decision of the Hyderabad Tribunal in case of Vaishnavi Bullions (P.) Ltd. (supra). The decision is not applicable to the facts of the present case because in the said case no sale of gold was made prior to 08.11.2016 and the SBNs were received by the said assessee by way of advance against sale of goods vide cash receipts dated 08.11.2016 and 09.11.2016. Hence, there was no cash on hand before the date of demonetization in the said case whereas there was substantial cash in hand in the case of the appellant, which we have discussed earlier. The ld. CIT-DR has also relied on the decision of the Surat Tribunal in case of Shah Maganlal Gulabchand Choksi (supra). The decision is not applicable because facts are Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 14 different. In that case, the revenue has not even followed the SOP guidelines issued by the CBDT for making assessment in respect of demonetization cases. In the present case, the source of funds are direct cash sales made by appellant to retail customers whereas in case of Shah Maganlal Gulabchand Choksi (supra), the funds were routed through third party bank account and received via RTGS. In the present case, cash was deposited directly by the appellant in its own bank account whereas in the case of Choksi (supra), deposits were made in accounts of unrelated parties, which were later on transferred to the assessee. In the present case, there is no intermediary or accommodation entry involved whereas in case of Choksi (supra) there were alleged structured transactions using third party entities. In case of the appellant, there are supporting evidence in the form of cash sales register, purchase bills, stock register etc. whereas in case of Choksi (supra), there was no independent verification of sales and stock movement and actual transactions were not substantiated. In case of Choksi (supra), the Tribunal observed that structured transactions involving bogus entities such as Nirav & Co. and S R Traders. The AO had also not followed the SOP in case of Choksi (supra) while passing the assessment order, meaning thereby the AO had not verified all details and evidences before making the addition. In contrast, in case of the appellant, there were over the counter sales, which are duly Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 15 recorded in the books of account, reported in the VAT return and were subjected to statutory audit. No intermediary entities are involved in the case. Hence, the decision in case of Shah Maganlal Gulabchand Choksi (supra) is not applicable to the facts of the present case. 8.3 The other issue in the instant appeal is regarding non-maintenance of details of the addresses of the buyers. In this regard, the ld. AR has placed relied on the decision of the Hon’ble Gujarat High Court in case of Prestige Marketing Pvt. Ltd. (supra). The appellant is under no legal obligation to keep record of the name and address of the persons to whom sales have been made below Rs.2,00,000/-. Once the sales account was credited, the same could not be treated as cash credits u/s 68 of the Act. In view of the above facts and the decisions cited supra, there is no basis for treating the entire cash deposits during the demonetization period as unaccounted income of the assessee. However, considering the fact that the expenses debited in the books are on the lower side and to take care of possible leakage of revenue, it will be fair and reasonable if income of the assessee is estimated at 2% of the cash deposit during the demonetization period. Resultantly, the AO is directed to add Rs.22,68,584/- and delete the remaining amount. The ground is partly allowed. Printed from counselvise.com ITA No.672/SRT/2024/AY.2017-18 Devngi Jewellers Pvt. Ltd. 16 9. The merit of ground is application of provisions of section 115BBE of the Act. Section 115BBE of the Act applies only when the income is otherwise assessed as unexplained u/s 68 or 69 of the Act. Since, we have held that the impugned receipts are not unexplained, the provisions of section 115BBE of the Act do not apply. 10. In the result, the appeal of the assessee is partly allowed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 13/08/2025. Sd/- Sd/- (DINESH MOHAN SINHA) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 13/08/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat Printed from counselvise.com "