ACIT v Ramlal Jewellers Pvt. Ltd.

Case snapshot

Sections / provisions: 68; 115BBE; 133(6)

Questions before the Court / Tribunal

• Demonetisation cash sales of a jeweller: whether linked recorded sales and stock records can be treated as unexplained cash credits.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

ACIT-3(1)(1) Vs. M/s. Ramlal Jewellers Mumbai Private Limited 10, Jalaram Estate M.G. Road Mulund (W) Mumbai – 400 080 PAN/GIR No.AACCR9512K (Appellant) .. (Respondent)

M/s. Ramlal Jewellers Vs. ACIT-3(1)(1) Private Limited Mumbai 10, Jalaram Estate M.G. Road Mulund (W) Mumbai – 400 080 PAN/GIR No.AACCR9512K (Appellant) .. (Respondent)

Assessee by Shri Rahul Hakani Revenue by Smt. Mahita Nair

The aforesaid appeal has been filed by the Revenue and Cross Objection by the assessee against order dated 13/03/2023 passed by NFAC, Delhi for the quantum of assessment passed u/s.143(3) for the A.Y.2017-18.

1."On the facts and circumstances of the case and in law, the LA CITA) erred in deleting the addition of Rs. 2,57,59,680/- u/s 68 of the Act without appreciation that the assessee self admitted that out of cash deposited during demonetization period cash of Rs. 2,02,31,678/ was received from unidentified persons and further cash of Rs. 1,05,20,302/- was received from identifiable persons without PAN as pointed out by the AO. Therefore, the Ld.CIT(A) erred in not appreciating that much cash deposited during the said period was not proved to be received against regular sales"

Appellant / assessee submissions

7.16 Further, the appellant has also contended that provisions of section 68 of the Act cannot be stretched to 'source' of 'source of amount credited in the books of accounts' of the appellant. In this regard, it is a well settled position that the AO has to satisfy himself about the nature of amount credited and source of amount so credited in the books of the accounts of the appellant for the purpose of applying section 68 of the Act and that the appellant cannot be asked to prove the source of source of credit, when the appellant has provided detailed documentary evidences about the parties involved. It may be noted that at paragraph 8.1 of the impugned assessment order the AO has himself confirmed that parties to whom summons were issued have confirmed the purchase. Further, from the said para it is also clear that the AO has not relied on the replies giving reason that they were asked to furnish source of fund from which they purchased jewelry, whether they had cash in hand on the date of purchase of these jewelry items, but the said details are not provided in replies. This clearly reflects that AO has not doubted the 'source of funds but has doubted the 'source' of 'source…

7.20 The appellant has also further argued that rate of tax u/s 115BBE will be 30% and not 60%. The Taxation Laws (Second Amendment) Act, 2016 received the assent of the president on 15/12/2016. Hence, same cannot apply to transactions that have taken place prior to 15/12/2016. It was contended that the rate of tax cannot apply retrospectively. It i further stated that the cash deposits have to be taxed as business income and not as income from other sources. Since the addition u/s 68 is deleted, the additional arguments by the appellant has become infructuous.

11. On the other hand, ld. Counsel for the assessee submitted that, firstly, nowhere the ld. AO has rejected the sales or the quantity of purchase stock and the quantity of sales. Once the purchase and sales are verifiable, then such cash sales deposited in the bank account cannot be treated as undisclosed income. He thus, completely relied upon the order of the ld. CIT (A).

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

10. We have heard both the parties at length and also perused the relevant finding given in the impugned orders as well as the documents submitted in the paper book. The case of the ld. DR is that, here in this case it is clearly evident that immediately after the demonetization assessee had shown inflated cash sales and also made deposits in the bank account which is completely abnormal compared to the earlier year and also subsequent year. Apart from that, assessee could not substantiate cash sales made to different parties and some of them could not be identified. Even those persons who responded to notice u/s. 133(6) could not substantiate the source of funds. Therefore, the cash sales made during the demonetization period cannot be accepted and ld. AO has rightly taxed the cash deposits u/s.68.

12. We find that the only reason given by the ld. AO for treating the entire cash deposited in the bank account is that, there was abnormal growth on the cash sales in the month of November 2016 and corresponding cash deposits from the month of November to December, which alone cannot be the ground when deposits are directly linked with sale duly disclosed in the books. Another point raised by him was that, some of the cash sales made to different parties cannot be identified and the parties who responded were unable to explain the source of their funds. From the perusal of the material placed on record and also the explanation given by the assessee before the ld. AO, it is seen that assessee has maintained regular books of accounts which was subject to audit and has produced the entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock. The assessee has also demonstrated that there was a direct correlation of cash outflow from the books of accounts with cash deposit in the bank accounts and also produced day wise stock report, wherein the outflow of stock against sales has been clearly reflected. Apart from that, sales declared…

Operative decision and relief

2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in not taking note of the fact that there was an extraordinary jump in regular sales immediately before demonetization period and assessee was unable to substantiate such jump in sales during this period. In such circumstances, the Ld. CIT(A) ought to have called for a remand report from AO for further verification of the reasons shown by the assessee with reference to documentary evidences.

“7.19 As regards the addition of Rs. 2,57,59,680/- u/s 68 invoking the provisions of Section 115BBE is concerned, the order of the AO and the detailed submissions of the appellant has been thoroughly considered. The contention of the appellant had been that, it is not a case of unexplained deposits having been deposited in the bank account of the appellant and it is the sale of gold ornaments/jewellery which have deposited in the bank account and such entries have duly been recorded in the audited books of accounts. I have also considered the submissions of the appellant about the sales declared in the VAT returns and the remand of VAT through banking channel and the assessment for the year under consideration by the VAT Department. Whatever turnover has been disclosed by the appellant in the audited books of accounts are found to be in order. Hence, cash realised on account of sales of the stock cannot be held to be unexplained deposits and as such the addition of Rs.2,57,59,680/- is without valid ground. No case has been made out that the appellant is found to be owner of the money which is not recorded in the books of accounts rather the appellant has valid explanation that…

7.21 In view of the aforesaid findings, I hold that the present case is not a fit case applying the provisions of section 68 of the Act and consequently, the appeal filed by the Appellant is allowed.

16. In the result, appeal of the Revenue is dismissed as well as Cross Objection of the assessee is dismissed as infructuous. Order pronounced on 26th July, 2023.

Ratio and legal principle

• Recorded cash sales cannot be recharacterised as section 68 credits merely from timing/abnormal increase where purchases, stock movement, sales records and quantitative tally support the trading transaction and Revenue identifies no specific falsity.
• Failure of some retail customers to establish their source is not, without more, proof that the assessee's recorded sales are accommodation entries.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with demonetisation cash sales of a jeweller: whether linked recorded sales and stock records can be treated as unexplained cash credits. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 68 - apply the exact version considered in the judgment.
• 115BBE - apply the exact version considered in the judgment.
• 133(6) - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• SANJAY VRAJLAL KOTHARI V ITO 25(2)(3), MUMBAI - ITAT Mumbai - G Bench
• Ramachandra Kanu Mendadkar v. CIT(A) - ITAT Mumbai - D Bench
• Krishna D. Pawar v. ITO - ITAT Mumbai

Different outcome / possible distinction

• ACIT, Circle-9(2), New Delhi Vs. Four Star Constructions Pvt. Ltd. - Operative order controls

Full judgment and source control

Read / download packaged judgment record

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