ITAT Delhi: Demonetisation Period Cash Deposits from Jewellery Sales Not Unexplained – PMGKDS Declared Amount Exempt from Reassessment under Section 68
Overview of the Tribunal's Decision
The Delhi Bench of the Income Tax Appellate Tribunal rendered a significant decision in the case of DCIT Vs Radhika Mehra, dismissing the Revenue's appeal and confirming the deletion of additions that had been imposed under Section 68 read with Section 115BBE of the Income Tax Act, 1961 for the Assessment Year 2017-18. The core issue revolved around cash deposits amounting to ₹1.45 crore made during the demonetisation period, which the Assessing Officer had characterized as unexplained income. Additionally, a capital introduction of ₹50 lakh was disputed by the Revenue authorities.
The appellate authority, after conducting thorough independent inquiries and admitting additional evidence, concluded that the cash deposits were adequately explained as proceeds from recorded sales of jewellery. The Tribunal affirmed these findings, noting that the purchases, inventory records, sales transactions, VAT returns, and books of account had been accepted by the Assessing Officer without rejection. Consequently, treating the cash deposits as unexplained under Section 68 was deemed inappropriate.
Background Facts and Assessment Proceedings
Survey and Initial Assessment
A survey operation under section 133A of the Income Tax Act, 1961 was conducted on 18.03.2017 at the assessee's premises. The assessee declared income for the year under consideration, which was initially assessed under section 143(3) of the Income Tax Act, 1961 on 29.12.2019.
However, the Principal Commissioner of Income Tax, Noida, exercising revisionary powers under section 263 of the Income Tax Act, 1961, set aside the original assessment order dated 29.12.2019. The direction was to reassess the matter after conducting proper verification concerning cash deposits made in bank accounts and the authentication of purchases and sales transactions.
Scrutiny by the Assessing Officer
During the reassessment proceedings, the Assessing Officer raised concerns about cash deposits totaling ₹1,45,00,000 made during the demonetisation period and questioned the source of cash declared by the assessee as arising from cash sales during that period. While the assessee furnished purchase bills, the Assessing Officer noted that these bills did not pertain to the months of October and November 2016. Furthermore, the Assessing Officer observed that the assessee failed to provide confirmations from major suppliers from whom purchases were made, and questioned the authenticity of sales made during the demonetisation period.
Based on these observations, the Assessing Officer proceeded to make additions under Section 68 read with Section 115BBE of the Income Tax Act, 1961, treating the cash deposits as unexplained income.
Issue of Capital Introduction
In addition to the cash deposits issue, the Assessing Officer also scrutinized the introduction of additional capital amounting to ₹52.01 lakh during the year. The assessee clarified that capital of ₹50 lakh had been introduced and furnished Form 1 as evidence of a declaration made under the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 (PMGKDS).
The Assessing Officer noted that the declaration under PMGKDS was made on 30.03.2017, and the undisclosed income was deposited in the bank account during the period from 24.03.2017 to 29.03.2017. Form 2, in the form of a certificate against the declaration, was received by the assessee on 01.05.2017. The Assessing Officer questioned how capital could be introduced during the year against a declaration made on the last day of the financial year and accordingly made a disallowance of ₹50 lakh under Section 68 of the Income Tax Act, 1961.
Appellate Proceedings Before CIT(A)
Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A)-3, Noida and filed detailed submissions. The CIT(A) called for a remand report from the Assessing Officer and conducted independent inquiries to verify the facts.
Independent Verification and Enquiries
The CIT(A) directed the assessee to provide details of parties from whom major purchases had been made. Upon receipt of these details, enquiries under section 133(6) of the Income Tax Act, 1961 were initiated with the major creditors of the assessee. The responses to these enquiries were received and the results were shared with the Assessing Officer through an email dated 25.09.2024 to ensure natural justice.
The CIT(A) conducted enquiries with eight major creditors from whom purchases were made during the Financial Year 2016-17. All eight creditors confirmed the sales made to the assessee concern:
- HTC Jewellers Pvt. Ltd., 1170, Kucha Mahajani Chandni Chowk, Delhi-110006
- Jagannath Jewellers, 1167/1094, Shop No. 8, VI Floor, Kucha Mahajani, Delhi-110006
- KD Jewels Pvt. Ltd., 1174, 3rd Floor, Kucha Mahajani Chandni Chowk, Delhi-110006
- Laxmi Jewellery Export Pvt. Ltd., Laxmi House, Swagat Cross Road, CG Road, Ellis Bridge, Ahmedabad-380006
- Pankaj Jewellers, 1185/3, 4, 5, Kucha Mahajani, Chandni Chowk, Delhi-110006
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- P Ornaments, 21nd Brijwasi Complex, Gurahi Bazar, Mathura
- Radhika Jewellers, 1178, Kucha Mahajani Chandni Chowk, Delhi-110006
- Rhyming Diamonds, 1829 Gali Chira Khana, Chandni Chowk, Delhi-110006
Remand Report from Assessing Officer
The Assessing Officer was granted an opportunity to respond to the enquiries conducted by the CIT(A). The Assessing Officer submitted a report vide letter no. 1853 dated 13.11.2024, wherein he reiterated the contentions mentioned in the assessment order. However, no specific rebuttal to the enquiries conducted by the CIT(A) was provided.
Findings of the CIT(A) on Cash Deposits
The CIT(A) observed that the Assessing Officer had questioned the genuineness of sales made by the assessee concern by treating cash sales as unexplained money. However, a perusal of the assessment order revealed that the Assessing Officer had not given any finding to the effect that the purchases, opening stock, and closing stock of the assessee firm were questionable.
The CIT(A) noted that the Assessing Officer had reached the conclusion that cash sales were bogus based on the reasoning that cash sales were higher compared to the previous year. However, if the Assessing Officer had any doubts regarding cash sales being bogus, genuine efforts should have been made to prove the purchases to be bogus as well. In the present case, no such enquiries were conducted by the Assessing Officer.
The CIT(A) held that once the purchases of the assessee had been confirmed through independent verification, the stock register was well maintained, VAT returns had been filed, and the Assessing Officer had brought no evidence on record to prove that the sales were bogus, then treating the sales as bogus could not stand the test of law. Furthermore, the Assessing Officer had accepted the purchases, expenditure, and trading results of the assessee as the books of accounts had not been rejected.