ITAT Lucknow Deletes ₹1,72,49,000 Addition Under Section 68 Where Cash Sales Were Corroborated by Stock Movement and Purchase Records
Background and Nature of the Dispute
The Lucknow Bench "B" of the Income Tax Appellate Tribunal recently ruled in favour of Balaji Shakti Bullions & Jewellers Pvt. Ltd. for Assessment Year 2017–18, directing the deletion of an addition of ₹1,72,49,000 made under Section 68 of the Income Tax Act, 1961. The company operated in the wholesale and retail segment dealing in gold bullion, silver bullion, ornaments and jewellery. It had been incorporated on 16 June 2015 and filed its return of income for the year declaring total income of ₹93,84,568.
The case was selected for scrutiny through Computer-Assisted Scrutiny Selection (CASS). During assessment proceedings, the Assessing Officer issued statutory notices and questionnaires, and the assessee responded through the online portal of the Income Tax Department.
Facts Noticed by the Assessing Officer
On examining the submissions, the Assessing Officer observed the following:
- The assessee had reported total turnover of ₹1,51,80,31,359 for the year, comprising sale of goods of ₹1,51,73,02,942 and sale of services of ₹7,28,417
- Gross profit stood at ₹1,46,06,684 and net profit at ₹89,82,850
- As per the Statement of Financial Transactions (SFT) data maintained in departmental records, cash deposits of ₹2,12,49,000 had been made in bank account No. 259335917856 maintained with IndusInd Bank during the demonetisation period
- Compared to the corresponding periods of the preceding year, sales had risen by 180% in October 2016 and by 138% during 1 to 8 November 2016
The Assessing Officer noted that the gold bullion and jewellery sector operated heavily on cash transactions, making it difficult to independently verify and monitor account entries. He further observed that account books in such businesses were susceptible to manipulation.
How the Assessment Was Framed
After evaluating all the material on record, the Assessing Officer concluded that the sales recorded on 7 and 8 November 2016 were bogus to the extent of the cash deposited during the demonetisation window. He granted a set-off of ₹40,00,000 that the assessee had declared under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), and treated the remaining balance of ₹1,72,49,000 (i.e., ₹2,12,49,000 minus ₹40,00,000) as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
The total assessed income was consequently fixed at ₹2,66,33,568. Separately, the Assessing Officer invoked Section 115BBE and initiated penalty proceedings under Section 271AAC of the Act.
The assessee preferred a first appeal before the Commissioner of Income Tax (Appeals), who upheld the assessment order in its entirety and dismissed the appeal.
Submissions Made Before the Tribunal
Assessee's Position
Before the Tribunal, the Authorised Representative laid out a detailed factual narrative supported by documentary evidence:
Monthly records submitted without any objection: Month-wise purchase details, sales details, and opening and closing stock particulars were filed before the Assessing Officer. No discrepancy was pointed out in any of these documents.
Cash book remained uncontroverted: The cash book covering 1 October 2016 to 8 November 2016 was placed before the Assessing Officer, and he found no irregularity in it.
All purchases from registered dealers via banking channels: The assessee had made no purchases from unregistered dealers during FY 2015–16 or FY 2016–17, and all purchase payments were routed through bank accounts.
Stock position clearly supported the sales claimed: