ACIT v Hirapanna Jewellers [2021] 128 291 (Visakhapatnam – Trib.)

The ITAT deleted the addition made for cash deposited by assessee-jeweller in its bank account post demonetization, since assessee had explained source of said cash deposits as sales of jewellery, produced sale bills and admitted same as revenue receipt as well as offered it to tax and assessee also represented outgo of stocks, which was matching with sales.


The assessee, a firm, was engaged in the business of jewellery trading. A survey u/s 133A of the Act was conducted in the business premises of the assessee on 27-3-2017 by the DDIT(Inv) wherein it was found that the assessee had deposited the sum of Rs. 5,72,00,000/- in high denominations of specified bank notes (SBNs) post demonetization. The assessee has explained the sources of cash deposits as cash sales and the advances received on 8-11-2016 against the sales.

However, the DDIT was not satisfied with the assessee’s explanation of sales, since the assessee could not furnish proper KYC documents of the buyers and the average sales of the firm was not matching with peak and non-peak season. The DDIT observed that even on special occasions like Akshaya Tritiya, Dhanteras, Ugadi etc, the average sales of the assessee were Rs. 1.5 to 2.0 crores and whereas on 8-11-2016, on a single day, the sales were increased to Rs. 4.72 crores during 7.50 P.M to 12 A.M consisting of 270 bills and the cash was received only in high denomination notes which were hitherto banned by Govt. of India from 9-11-2016. Further, there were no details of the customers like phone number, address etc. and no signatures were obtained in sale acknowledgements of the ornaments. There were no tag number details for some bills and CCTV footage was also not available to support the entry of large number of customers on 8-11-2016. Since, the assessee was unable to produce the above details to support the sales of Rs. 4.72 crores increase, the DDIT(Inv.) opined that the assessee has taken shelter of sales to divert the black money of the assessee as well as his friends.

During the assessment proceedings, the AO conducted one more survey on 16-9-2019. Since the assessee failed to furnish the evidence of CCTV footage, KYC documents etc. for abnormal sales on 8-11-2016, the AO concluded that the sales stated to have been made between 8.15 p.m. to 11.58 p.m. amounting to Rs. 4.71 crores consisting of 270 bills are nothing but unexplained cash credits representing unaccounted money brought into the business in the guise of jewellery sales and the paper-work was done, merely to give the colour of authenticity of sales and accordingly made the addition of Rs. 4,71,31,500/-u/s 68 r.w.s.115BBE of the Act and taxed the same @60%.

Against the order of the AO, the assessee went on appeal before the CIT(A). The CIT(A) allowed the appeal of the Assessee and therefore Revenue filed appeal before ITAT.


The ITAT dismissed the appeal of Revenue and observed as follows:

Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or there must be defects in the stock registers/stocks. Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. Audit report u/s 44AB, the financial statements furnished in paper book clearly shows the reduction of stock position and matching with the sales which goes to say that the cash generated represent the sales. The assessee has furnished the trading account, P& L account in page No. 7 of paper book and we observe that the reduction of stock is matching with the corresponding sales and the assessee has not declared the exorbitant profits. Though certain suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the condition of the assessee. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence.

In the instant case the assessee has established the sales with the bills and representing outgo of stocks. The sales were duly accounted for in the books of accounts and there were no abnormal profits. In spite of conducting the survey the AO did not find any defects in sales and the stock. Therefore we do not find any reason to suspect the sales merely because of some routine observation of suspicious nature such as making sales of 270 bills in the span of 4 hours, non availability of KYC documents for sales, non writing of tag of the jewellery to the sale bills, non-availability of CCTV footage for huge rush of public etc. The contention of the assessee that due to demonetization, the public became panic and the cash available with them in old denomination notes becomes illegal from 9-11-2016 and made the investment in jewellery, thereby thronged the jewellery shops appear to be reasonable and supported by the newspaper clippings such as The Tribune, The Hindu etc. It is observed from the newspaper clippings that there was undue rush in various jewellery shops immediately after announcement of demonetization through the country.

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