Cash Sales Already Offered As Income Can't Be Taxed In Garb Of Inflation Sales To Cover Up Demonetization Currency: Delhi ITAT

The New Delhi ITAT recently clarified that the cash sales already been offered as income, cannot be taxed in the garb of inflation sales to cover up demonetization currency. The Bench of N.K. Billaiya (Accountant Member) and Astha Chandra (Judicial Member) observed that “Merely because there was a minor variation in the cash sales during the alleged period compared to previous year would not mean that the assessee has inflated its sales to cover up demonetized currency”. (Para 22) As per the brief facts of the case, the assessee, engaged in the business of trading and manufacturing of jewellery, had electronically filed return declaring income of Rs. 15,07,573/-. During assessment proceedings, the assessee was asked to provide month-wise comparative chart of cash/credit sales of current year and previous two years. The Assessing Officer observed that in F.Ys. 2014-15 and 2015-16, cash sales in comparison to total sale was less than 5%, which, in F.Y. 2016-17, increased to 10% on total sale of the year, and hence the assessee was asked to justify the increase. The AO further pointed out that in every cash sale entry, name of the purchaser and PAN is not mentioned. The AO formed a belief that cash sales during the demonetization period has been inflated to cover up unaccounted money in the form of demonetized currency, which were deposited in the bank account. The AO thus, added amount of Rs. 4,73,58,629/- as unexplained cash credit u/s 68 of the Act. The Bench found that the entire quarrel revolves around the period Oct 01, 2016 to Nov 08, 2016 and cash sales during this period have been held to be unexplained credit u/s 68. The Bench failed to understand as to how the cash sales for the above-mentioned period be treated as inflated sales pursuant to demonetization, as not a single soul was aware that on Nov 08, 2016, the higher currencies will be demonetized. The only return which was revised was for the period July 01, 2016 to Sep 30, 2016 in which period there was no question of anybody being aware of demonetization, added the Bench. The Bench noted that the most peculiar fact is that on Dec 23, 2016, a survey operation u/s 133A was carried out at the business premises of the assessee company and not a single defect/ discrepancy was found in the physical stock vis a vis book stock of the assessee. “If the allegation of the Assessing Officer is accepted that the assessee has inflated its sales during Oct 01, 2016 to Nov 08, 2016, then there has to be some discrepancy in the book stock vis a vis physical stock, but no such discrepancy was found because no such sales were inflated by the assessee”, added the Bench. In so far as the allegation of non-mentioning of names of the purchasers is concerned, the Bench observed that it is not only baseless but without any backing of law as the assessee is not required to keep the names of purchasers for cash sales less than Rs. 2 lakhs and not even one instance has been pointed out by the Assessing Officer where cash sales were more than Rs. 2 lakhs. Hence, the ITAT directed the AO to delete the addition of Rs. 4,73,58,629/-. Counsel for Appellant/ Department: Sapna Bhatia Counsel for Respondent/ Assessee: Gautam Jain & Lalit Mohan Case Title: ACIT verses Harisons Diamonds Pvt Ltd Case Number: ITA No. 2012/DEL/2021 Click here to read/download the Order

Cash Sales Already Offered As Income Can't Be Taxed In Garb Of Inflation Sales To Cover Up Demonetization Currency: Delhi ITAT

Pankaj Bajpai

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