ITAT Upholds Cash Jewellery Sales During Demonetisation; Rejects Revenue’s Appeal

The Income Tax Appellate Tribunal (ITAT), Delhi, held that cash deposits arising from recorded jewellery sales cannot be treated as undisclosed income when the books of account are audited and no errors are found.

The assessee, Chawla Gems Pvt. Ltd, is in the sale and purchase of gold, silver, and diamonds. The company’s sales turnover for the AY 2017-18 was Rs 22,67,85,231, out of which cash sales were Rs 12,48,34,060. The company had reorganised its business by transferring Rs 7.41 crore worth of stock from its sister concern, Chawla Jewellers, after getting a heavy tax refund.

The assessment was reopened to examine the cash deposits made during the demonetisation period. The AO relied on the statements of employees and the surrounding circumstances and treated the cash deposits as unexplained. The assessee approached the CIT(A), which ruled in favour of the assessee and deleted the addition. Therefore, the revenue filed an appeal before the ITAT.

The Tribunal noted that no defects were found in the sales register, stock register, purchase register and cash book. It upheld the findings of CIT(A) that mere suspicion due to the sudden increase in sales is insufficient without defects in the books. Further, it was held that the AO’s claim that no sales were made, based on the statements of the employee recorded 14 months after demonetisation, was not justified.

The ITAT held that since the purchase records and stock in the books of both entities have not been questioned, the transfer of stock to a dormant entity by itself does not make the cash sales suspicious. Therefore, the ITAT upheld the CIT(A)’s order and rejected the revenue’s appeal.