JAYKUMAR NEMICHAND JAIN, HUF,AHMEDABAD V. THE ITO, , WARD-5(2)(2), AHMEDABAD

ITA 944/AHD/2023

AI Insights

The case involves Jaykumar Nemichand Jain HUF, engaged in trading gold and silver, who faced scrutiny for large cash deposits during the demonetization period in India. The Assessing Officer (AO) added Rs. 55,00,000 to the assessee's income as unexplained money under Section 69A of the Income Tax Act, 1961, based on the suspicion that the cash sales were inflated to justify these deposits. The Commissioner of Income Tax (Appeals) upheld this addition. However, the Tribunal, after considering the detailed submissions and evidence provided by the assessee, including audited financial statements and VAT returns, concluded that the cash deposits were legitimate and recorded in the books, leading to the deletion of the addition.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472311 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-10-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 24-11-2023
• Other Referred Cases: Sobha Devi Dilipkumar Vs. ITO, ACIT Vs. Chandra Surana, ITO Vs. J.K.Wood India (P.) Ltd., ACIT, Central Circle-1 Vs. Hirapanna Jewellers, Anantpur Kalpana Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: DIVYANG SHAH
• Keywords: Business income; Onus to prove
• Section: 142(1); 208; 133(6); 69A

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “ A ” BENCH, AHMEDABAD सु\u0018ी सुिच\u001aा का \u001bले, \u0012ा ियक सद\u001d एवं \u0018ी मकरंद वसंत महा देवकर, लेखा सद\u001d क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.944/Ahd/2023 िनधा \u0010रण वष\u0010 /Assessment Year : 2017-18 Jaykumar Nemichand Jain HUF Jain Silver Palace 39, Chinubhai Towers Ashram Road Opp. Handloom House Ahmedabad – 380 009 (Gujarat) बनाम / v/s. The ITO Ward-5(2)(2) Ahmedabad \u0014थायी लेखा सं./PAN: AADHJ 7308 F अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Divyang Shah, AR Revenue by : Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 21/10/2024 घोषणा की तारीख /Date of Pronouncement: 30/10/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee arises from the order dated 25/10/2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] for the Assessment Year (AY) 2017-18, confirming the addition of Rs.55,00,000/- as unexplained money under Section 69A of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]. The addition was originally made u/s.143(3) of the Act by ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 2 the Assessing Officer [hereinafter referred to as “AO”] vide his order dated 26/12/2019. Facts of the case: 2. The assessee, Jaykumar Nemichand Jain HUF, is engaged in the business of trading gold, gold jewellery, silver, and silver jewellery under the firm name M/s. Jain Silver Palace. The assessee filed its return of income for the AY 2017-18 on 19.06.2017, declaring a total income of Rs.5,60,120/-. The case was selected for scrutiny under the Centralized Processing of Scrutiny Cases (CASS) due to large value cash deposits made during the demonetization period (09.11.2016 to 31.12.2016). During the assessment proceedings, the Assessing Officer (AO) issued several notices under Sections 143(2) and 142(1) of the Act, requiring the assessee to submit details regarding the source of the cash deposits amounting to Rs.55,00,000/- made during the demonetization period. The assessee responded that these cash deposits were the result of legitimate business receipts from cash sales made before demonetization. 2.1. The AO noted that the assessee’s cash sales during the period 01.11.2016 to 08.11.2016 amounted to Rs.22.88 lakhs, which was disproportionately high compared to the regular monthly average of Rs. 2.5 lakhs to 3.5 lakhs. Similarly, for the period from 01.10.2016 to 31.10.2016, the assessee recorded cash sales of Rs.33.31 lakhs, which was also unusually high. The AO found this pattern to be inconsistent with the assessee’s regular sales trend, concluding that these inflated sales were created to justify the large cash deposits made during the demonetization period. As observed by AO ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 3 all cash sales made during the period under scrutiny were conveniently structured below Rs.2 lakhs. This avoided the requirement to report customer details such as PAN, correspondence addresses, and other relevant information as per the provisions of Rule 114B of the Income Tax Rules, 1962. The AO questioned this trend and found it suspicious. 2.2. The AO also issued notices under Section 133(6) of the Act to third parties to verify the purchases claimed by the assessee. However, some parties did not respond, and those that did respond failed to provide the necessary quantitative details for cross-verification. The AO observed that the assessee made purchases of bullion and jewellery from vendors before the demonetization period but made payments only after demonetization. Additionally, despite having substantial cash in hand during October 2016 and on 08.11.2016, the assessee neither deposited this cash in the bank nor used it to pay its vendors, which was abnormal in a bullion/jewellery business where immediate cash flows are crucial. Based on these findings, the AO concluded that the cash deposits of Rs.55,00,000/- during the demonetization period were not satisfactorily explained. Therefore, the AO invoked Section 69A of the Act, treating the amount as unexplained money and adding it to the total income of the assessee. The AO further taxed the amount under Section 115BBE of the Act and initiated penalty proceedings under Section 271AAC(1) of the Act. 3. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). During the appellate proceedings, the assessee reiterated that the cash deposits were from legitimate business sales made during the festive ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 4 season of Diwali and Dhanteras, a period when sales generally increase. The assessee also provided comparative sales figures for the preceding and succeeding financial years in support of its claim. After considering the assessee’s submissions, the CIT(A) upheld the addition made by the AO. The CIT(A) agreed with the AO’s conclusion that the cash sales recorded by the assessee during the months of October and November-2016 were inflated to justify the large cash deposits made during the demonetization period. The CIT(A) noted that the assessee failed to furnish sufficient evidence, such as customer details, supporting documents for purchases, relevant VAT returns. The CIT(A) further observed that the sales trends provided by the assessee for the festive season did not justify the abnormally high cash sales during the relevant period. The CIT(A) confirmed the addition of Rs.55,00,000/- as unexplained money under Section 69A of the Act and dismissed the appeal. 4. Aggrieved by the CIT(A)’s order, the assessee has now filed the present appeal before us with following ground of appeal: 1. Whether, on facts and in circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition of Rs.55,00,000/- as unexplained money u/s 69A of the act? Further, appellant craves leave to add, amend, alter or withdraw all or any ground of appeal. 5. During the course of hearing before us, the Authorised Representative (AR) of the assessee reiterated the facts and stated that the assessee submitted entire cash book for the Financial Year (FY) 2016-17 to the AO which has not been doubted by the AO. The AR further stated that the along with details of tax audit report, the copies of VAT return and VAT audit report was also submitted to the AO. The AR also pointed out that the assessee has submitted ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 5 sales register for the FY 2016-17 along with daily stock register of gold, silver and diamond for the same period. The AR also submitted that the copies of purchase and sale bills as called by the AO were also submitted by the assessee. The AR also pointed out that more than 90% of payment against purchases were made through banking channel which can be verified from the bank statements. 5.1. The assessee also made a written submission on the AO’s observations. The AO had observed an abnormal increase in cash sales from Rs. 2.5–3.5 lakhs per month (regular business pattern) to Rs. 22.88 lakhs from 01.11.2016 to 08.11.2016, suggesting that the assessee had inflated sales to justify cash deposits during the demonetization period. The assessee argued that the spike in sales was due to the festivals of Navratri, Diwali, and the marriage season, all of which are major occasions in India where people traditionally purchase gold and silver. This increase in demand, coupled with a drop in gold and silver prices, led to a high volume of cash sales during this period. The assessee also explained that demonetization further increased the demand for precious metals as people rushed to convert their old currency into assets like gold and silver. 5.2. The AO also pointed out that the cash sales were consistently structured below Rs.2 lakhs, avoiding the need for providing customer details such as PAN or address, and termed this as an afterthought. The assessee maintained that cash sales below Rs.2 lakhs are a regular practice in their business. The appellant provided copies of cash books and cash sales invoices to show that the sales were genuine and duly recorded in their books ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 6 of account. The assessee highlighted that the VAT department accepted their quarterly VAT returns, and there were no queries raised regarding sales transactions or turnover. 5.3. The AO noted that although the assessee had substantial cash on hand during October 2016 and on 08.11.2016, the cash was not immediately deposited into the bank, which was abnormal for a bullion and jewellery business. The assessee explained that due to heavy customer rush during Dhanteras and Diwali, they could not find time to deposit the cash. Additionally, Diwali fell on a Sunday, which is a bank holiday. The assessee also highlighted that there were multiple reasons for holding higher cash during this period, including the festival season and the subsequent marriage season. Furthermore, they argued that merely holding higher cash for a short period should not lead to the conclusion that it was unaccounted. 5.4. We noted that the AO issued notices under Section 133(6) of the Act to various parties from whom the assessee claimed to have made purchases. Some parties did not respond, and the AO alleged that the purchases were not genuine. The assessee submitted contra-confirmation letters from several vendors, providing signatures and stamps of both parties to substantiate the genuineness of the transactions. Additionally, the assessee submitted item- wise daily stock details, which showed that the stock available during the relevant period was sufficient to support the sales made. The appellant argued that the AO did not dispute the stock records, and since both the stock and sales were verified, the cash deposits should not be treated as unexplained. ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 7 5.5. The AR contended that Section 69A was wrongly invoked since the cash deposits were recorded in their regular books of accounts. As the source of the cash was duly explained and backed by documentary evidence such as audited financial statements, sales registers, and bank statements, the provisions of Section 69A were not applicable. 6. The Departmental Representative (DR), on the other hand, relied on the orders of the AO and the CIT(A) and pointed out that the cash book for AY 2016-17 was not submitted by the assessee and notices u/s.133(6) of the Act were not complied with. 7. The AR stated that the counter confirmations were submitted in case of some parties from whom purchases were made. The AR placed reliance on following judicial precedents: - Sobha Devi Dilipkumar Vs. ITO [2024] 160 taxmann.com 1249 (Vishakhapatnam Trib.). - ACIT Vs. Chandra Surana [2023] 149 taxmann.com 379 (Jaipur Trib.). - ITO Vs. J.K.Wood India (P.) Ltd. [2024] 158 taxmann.com 208 (Delhi Trib.). - ACIT, Central Circle-1 Vs. Hirapanna Jewellers [2021] 128 taxmann.com 291 (vishakhapatanan Trib.). - Anantpur Kalpana Vs. ITO [2022] 138 taxmann.com 141 (Banglore Trib.). 8. After carefully considering the submissions of both the parties, the relevant facts of the case, and the judicial precedents cited, the following observations emerge – ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 8 - The primary contention raised by the Assessing Officer (AO) was the significant surge in cash sales during the period from 01.11.2016 to 08.11.2016, which was claimed by the assessee to be due to festive seasons and marriage purchases. It was observed that the cash sales during this period amounted to Rs. 22.88 lakhs, far exceeding the regular monthly average of Rs. 2.5 to 3.5 lakhs. The AO doubted the genuineness of these sales, attributing them to an attempt to justify cash deposits made during demonetization. However, the assessee submitted that the rise in sales was not unusual, especially considering festivals like Diwali and Dhanteras, which are peak seasons for gold purchases. Additionally, the AR highlighted the reduction in gold prices during the said period, further explaining the increase in demand. - The assessee furnished a variety of supporting documents, including the audited financial statements, tax audit report, sales register, stock register, VAT returns, and purchase and sales bills, all of which had been duly recorded in the regular books of account. The AR pointed out that more than 90% of payments for purchases were made through banking channels and the VAT department accepted the returns without raising any queries. Importantly, the AO did not dispute the stock records, and no discrepancies were found in the books of account, which remained intact and were not rejected. - The AO invoked Section 69A of the Income Tax Act, claiming that the cash deposits represented unexplained money. However, the assessee contended that the cash deposits were duly recorded in the books of account and backed by legitimate sales, making the application of Section 69A inappropriate. It was emphasized that once the sales were recorded in the books and offered for tax, taxing the same under Section 69A of the Act would amount to double taxation. 8.1. The assessee relied on various judicial precedents, including Sobha Devi Dilipkumar vs. ITO, ACIT vs. Chandra Surana, ITO vs. J.K. Wood India (P.) Ltd., and ACIT vs. Hirapanna Jewellers. These decisions collectively emphasize that cash deposits during demonetization or ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 9 otherwise, if duly recorded and substantiated, cannot be taxed under Section 69A unless the revenue demonstrates the unreliability of the books or evidence provided. 8.2. It is pertinent to note that mere cash deposits during the demonetization period do not automatically trigger the provisions of Section 69A of the Act, if the transactions are supported by proper documentation and the cash has been accounted for in the books. In cases where cash sales or deposits are accounted for and recorded in the regular course of business, the provisions of Section 69A of the Act are not attracted. The revenue must find defects in the assessee’s books of accounts to invoke Section 69A of the Act. The existence of stock records, sales invoices, and proper tax filings (VAT returns in this case) are sufficient to substantiate the cash deposits. Demonetization-related cash deposits should not be treated as unexplained merely because they occur during a sensitive period. Where all supporting documents are provided, the burden of proof shifts back to the department to demonstrate that the deposits are unexplained. 8.3. In light of the facts and the documentary evidence presented, it is evident that the assessee maintained regular books of account, recorded all sales, and provided sufficient evidence to substantiate the cash deposits during the demonetization period. The AO did not bring any concrete evidence to counter the claims of the assessee, nor did he reject the books of account. The sales were duly reflected in the VAT returns, and no discrepancies were found in stock records. Accordingly, the addition of ITA No. 944/Ahd/2023 Jaykumar Nemichand Jain, HUF vs. ITO Asst. Year : 2017-18 10 Rs. 55,00,000 made by the AO under Section 69A is deleted, and the appeal of the assessee is allowed. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 30 October, 2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 30/10/2024 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)-(NFAC), Delhi 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 29.10.2024 2. Date on which the typed draft is placed before the Dictating Member. : 29.10.2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 30.10.24 7. Date on which the file goes to the Bench Clerk. : 30..10.24 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "