ITAT Delhi Deletes ₹5.60 Crore Demonetisation Addition, Says Recorded Business Receipts Not Unexplained

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹5.60 crore addition made against a Delhi jeweller over cash deposits during the demonetisation period. The bench found that the source of the deposits was recorded in the taxpayer's audited books of account and that the related business income had already been assessed.

The bench comprising Vice President Mahavir Singh and Accountant Member S. Rifaur Rahman allowed the appeal filed by Rakesh Kumar, proprietor of R.V. Gold Hallmark.

The case arose after the assessee deposited ₹5.60 crore during the demonetisation period. According to him, the money represented advances received in cash from customers before November 8, 2016, for the purchase of gold bullion. He claimed the cash was deposited into a bank account and later used to purchase gold from SS Bullion through RTGS payments. The bullion was subsequently supplied to customers.

The Assessing Officer rejected the explanation and treated the entire amount as unexplained money. The officer noted that summons issued to certain customers remained uncomplied with. The officer also pointed out that VAT returns had not been filed and concluded that the assessee had failed to establish the genuineness of the business activity.

The Commissioner (Appeals) upheld the addition. The appellate authority observed that the assessee had not demonstrated regular business activity. It further held that he had failed to furnish confirmations from persons who allegedly paid the cash advances.

Before the tribunal, the assessee contended that purchases were made from SS Bullion through banking channels. He submitted that the books of account were duly audited and that the cash deposits were reflected in those books. He further argued that the deposits represented customer advances received in the course of business.

Examining the record, the Tribunal noted that the assessee had produced details of purchases from SS Bullion. It also noted that he had maintained books of account, a cash book and cash memos. The Bench recorded that the assessee had declared the purchases and corresponding sales in his books. However, it noted that he had not substantiated the sales through VAT records. Nor had he placed on record details of VAT collection or relevant sales bills.

The Bench found it significant that the Revenue had assessed the income disclosed by the assessee under the head "business income".

Observing an inconsistency in the Revenue's approach, the Tribunal noted,

"One hand Assessing Officer accepts genuineness of the business income declared by the assessee and on the other hand, doubt the cash deposited by the assessee out of the same sales".

The tribunal also rejected the Revenue's reliance on alleged VAT violations for sustaining the addition.

The Bench observed, "In our considered opinion, if at all, there is any violation of provisions of VAT, it is for the VAT authorities to look into the same and the Revenue herein need not be concerned about it for determination of total income of the assessee."

Referring to the cash-flow details placed on record, the tribunal observed that the source of the cash deposits had been disclosed in the books of account. It noted that the books were audited. The bench further observed that the Assessing Officer had already considered the income declared from the business while framing the assessment.

Holding that the addition could not be sustained, the tribunal observed,

"The assessee had already proved the source of cash and already declared in the books of account, which is already audited. Therefore, the Assessing Officer had already considered the income declared by the assessee from the business and the income was determined based on the above cash movement and stock movement. Therefore, the addition under section 69A is unsustainable."

The tribunal consequently deleted the addition and allowed the appeal.

For Appellant: Shri Sumit Chawla, Advocate

For Respondent: Shri Mahesh Gupta, Sr. DR