M/s Shagun Jewellers (P) Ltd. vs. Dy. CIT
In a significant ruling that will bring relief to many genuine businesses, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in ITA No.3168/Del/2023 held that no addition under Section 68 of the Income Tax Act can be made for cash deposits during demonetization, when the sales have already been recorded in books of accounts and accepted by tax authorities.
Background:
The assessee, engaged in trading of gold, silver, and diamond jewelry, had deposited ₹20.59 crore in old currency (SBNs) during the demonetization window. The Assessing Officer accepted ₹15.06 crore as explained based on average cash balances but added ₹4.07 crore under Section 68 as unexplained cash credits.
The AO’s rationale: these cash deposits were unusually high and not in line with earlier year trends. The CIT(A) confirmed the addition.
⚖️ ITAT’s Observations:
The Tribunal disagreed strongly, observing:
-
Books of accounts were audited and no defect was pointed out either by the auditors or by the AO.
-
Cash sales were supported by stock register, VAT returns, and daily cash books, all produced during assessment.
-
The AO relied on faulty comparisons and made exaggerated claims, such as a 616% rise in cash sales, which was factually incorrect (sales had in fact declined YoY).
-
Once the AO has accepted the trading results and not rejected the books, it is unjustified to treat part of the cash as unexplained under Section 68.
-
The Tribunal emphasized the principle that taxing both the sale and the cash arising from the sale would amount to double taxation.
Key Case Law Relied Upon:
-
Kailash Jewellery House (Del HC) – Cash sales duly recorded in books and accepted cannot be taxed again.
-
Ramlal Jewellers (ITAT Mumbai) – Addition under Section 68 cannot be made just because SBN deposits were high.
-
Fine Gujaranwala Jewellers (ITAT Delhi) – Sale transactions below ₹2 lakh don’t ipso facto mean they’re bogus.
-
S. Balaji Mech-Tech Pvt. Ltd. (ITAT Delhi) – Cash sales declared in books cannot be taxed under Section 68 or 69A without rejecting books.
ITAT’s Final Ruling:
“…when the AO has accepted the entire sales, no addition could be made on account of cash deposits in the bank which is part of such sales and is tantamount to double taxation of income…”
The Tribunal accordingly deleted the entire addition of ₹4,07,89,150, allowing the assessee’s appeal.
Takeaway:
This ruling reinforces that genuine cash sales backed by verifiable documentation cannot be arbitrarily doubted during demonetization. The burden is on the department to prove otherwise. If the books are clean, sales are accepted, and no specific defect is found, then additions under Section 68 cannot stand.