CUSTOMER ADVANCES ADJUSTED AGAINST SALES ARE NOT UNEXPLAINED CASH CREDITS (SECTION 68)

By | December 19, 2025
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CUSTOMER ADVANCES ADJUSTED AGAINST SALES ARE NOT UNEXPLAINED CASH CREDITS (SECTION 68)

 

ISSUE

Whether advances received from customers for the sale of jewelry can be treated as “unexplained cash credits” (loan creditors) under Section 68 merely because the assessee did not furnish detailed creditworthiness proof like a loan creditor, even though the advances were adjusted against actual sales.

FACTS

  • Nature of Business: The assessee is a retailer of gold and jewelry.

  • The Transaction: The assessee received advances from customers. These amounts were subsequently adjusted against the sale of jewelry, and the sales were recorded in the books of account.

  • AO’s Action: The Assessing Officer (AO) treated these customer advances as “Loan Creditors.” He invoked Section 68, arguing that the assessee failed to prove the creditworthiness of these customers.

  • Defense: The assessee submitted evidence proving that these were trade advances for sales, not loans, and that the sales actually took place in subsequent periods.

DECISION

  • Nature of Receipt: The Tribunal held that trade advances received in the ordinary course of business for the sale of goods are distinct from financial loans.

  • Evidence: Since the assessee proved that the amounts were adjusted against sales recorded in the books, the source was explained as “Business Receipts.”

  • No Section 68 Addition: The strict test of creditworthiness applicable to loan creditors (financiers) cannot be mechanically applied to retail customers paying advances for goods.

  • Verdict: The addition was deleted. [In Favour of Assessee]

II. REFUND OF EXCESS LABOUR ADVANCE IS NOT CASH CREDIT

SUITABLE TITLE

Refund of Excess Advance from Goldsmith is Not Unexplained Cash Credit

ISSUE

Whether a small cash refund (Rs. 0.57 Lakhs) received from a goldsmith (laborer), representing the unspent portion of a cheque advance given earlier for making jewelry, can be taxed as unexplained cash credit under Section 68.

FACTS

  • The Advance: The assessee gave Rs. 3.00 Lakhs by cheque to a goldsmith as an advance for labor charges to make gold jewelry.

  • The Refund: After the work was done and the bill was adjusted, the goldsmith returned the excess amount of Rs. 0.57 Lakhs in cash.

  • AO’s Action: The AO added this cash receipt under Section 68, demanding proof of the goldsmith’s creditworthiness.

DECISION

  • Return of Own Money: The Tribunal held that this was merely the return of the assessee’s own funds (originally paid by cheque) which were unutilized. It was a “Trade Advance” settlement, not a fresh credit or loan.

  • Verdict: The addition was deleted. [In Favour of Assessee]

III. NON-COLLECTION OF TCS DOES NOT RENDER SALES “BOGUS” U/S 68

 

ISSUE

Whether the AO can make an addition under Section 68 for a cash sale of jewelry solely on the ground that the assessee failed to collect Tax Collected at Source (TCS) under Section 206C(1D), particularly when the assessee was not liable to audit under Section 44AB.

FACTS

  • The Transaction: The assessee sold gold jewelry worth Rs. 9.88 Lakhs and received part payment of Rs. 6.92 Lakhs in cash. Sales invoices were produced.

  • AO’s Logic: The AO did not doubt the genuineness of the documents but made an addition because the assessee did not collect 1% TCS on cash sales exceeding Rs. 2 Lakhs (as per Section 206C(1D)).

  • Assessee’s Defense: The assessee argued that for the relevant year, the TCS provision applied only if the seller’s turnover exceeded the Section 44AB (Tax Audit) limit in the preceding year, which was not the case here.

DECISION

  • TCS Applicability: The Tribunal noted that since the assessee’s turnover in the preceding year was below the audit limit, the provisions of Section 206C(1D) were not applicable to her for the year under consideration.

  • Wrong Assumption: The AO proceeded on a legally incorrect assumption regarding TCS liability. Even otherwise, a violation of TCS provisions (Chapter XVII-BB) attracts separate consequences (interest/penalty) but does not automatically convert a genuine sale receipt into “Unexplained Cash Credit” under Section 68.

  • Verdict: The addition was deleted. [In Favour of Assessee]

IV. DEMONETIZATION CASH DEPOSITS: “ABNORMAL VARIATION” IN SALES NOT GROUND FOR ADDITION IF STOCK TALLIES

 

ISSUE

Whether cash deposits made during the demonetization period can be taxed as Unexplained Money (Section 69A) solely due to an “abnormal increase” in cash sales compared to other periods, when the sales are backed by books of account, sales bills, and corresponding reduction in stock-in-hand.

FACTS

  • The Deposit: The assessee deposited Rs. 38.42 Lakhs in cash during the demonetization period.

  • The Source: She explained the source as “Opening Cash Balance” generated from recorded cash sales and debtor receipts.

  • AO’s Rejection: The AO rejected the sales figures, citing “abnormal variation” (spike in sales during demonetization) and alleged that VAT returns were filed late to accommodate backdated sales.

  • Evidence: The assessee produced the cash book, sales bills, and stock registers showing that for every sale, stock was reduced.

DECISION

  • Stock is Key: The Tribunal held that once sales are recorded in the books and supported by a corresponding depletion of stock-in-hand, the sales cannot be treated as bogus.

  • Variation is Business: A mere spike in sales during a specific period (demonetization) is not sufficient evidence to treat the sales as “Unexplained Money,” provided the quantitative tally of stock matches the sales.

  • Verdict: The addition under Section 69A was deleted. [In Favour of Assessee]

KEY TAKEAWAYS

  • Stock Tally Defense: In any “Bogus Sales” or “Cash Deposit” case, the strongest defense is the Stock Register. If you can prove that goods left your shop (Stock Out) corresponding to the cash that came in (Cash In), the Revenue finds it very hard to sustain an addition u/s 68 or 69A.

  • Advance vs. Loan: Always classify receipts correctly in your ledger. “Advance from Customer” requires proving the identity of the customer and the subsequent sale. “Unsecured Loan” requires proving identity, creditworthiness, and genuineness. Don’t mix them up.

  • TCS Default != Undisclosed Income: Failing to collect TCS is a compliance lapse, not an income concealment issue. The penalty for TCS default cannot be the addition of the entire sale amount to your income.

IN THE ITAT HYDERABAD BENCH ‘B’
Ms. Lalitha Padmaja Thallapalli
v.
Income-tax Officer*
Ravish Sood, Judicial Member
and G. Manjunatha, Accountant Member
IT APPEAL No. 1243 (Hyd) OF 2025
[Assessment year 2017-18]
DECEMBER  3, 2025
Hari Agarwal, C.A. for the Appellant. Dr. Sachin Kumar, Sr. A.R. for the Respondent.
ORDER
Manjunatha G., Accountant Member.- This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 05.06.2025 08.10.2024, pertaining to the assessment year 2017-18.
2. The brief facts of the case are that, the assessee is an individual, engaged in the business of retail trade in gold, jewellery, and silver articles, under the name and style of M/s. Shri Aabharanalu and filed her return of income for the assessment year 2017-18 on 29.10.2017, declaring total income of Rs. 3,21,660/-. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. called upon the assessee to file relevant evidences in support of books of account and also a month-wise summary of cash book, purchases and sales, details of stock summary for diamonds, gold ornaments, and silver, supporting evidences for expenditure, etc. In response, the assessee has furnished books of account, bank statements, VAT returns, stock register, and also details of cash deposits into the bank account during the demonetization period. The A.O., after considering the submissions of the assessee and also taking note of various facts, completed the assessment under Section 143(3) of the Income-tax Act, 1961 (for short “the Act”) on 23.12.2019 and determined the total income at Rs. 87,76,417/-by making various additions including addition towards loan creditors of Rs. 36,37,100/- under Section 68 of the Act, cash advances received from customers for Rs. 64,223/- under Section 68 of the Act, cash deposits of Rs. 38,42,000/- under Section 69A of the Act towards cash deposited into the bank during the demonetization period, and addition of Rs. 6,92,285/- under Section 68 of the Income-tax Act, 1961 towards amount received from M/s. Om Santhosh Ranga Jewellers.
3. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and challenged the additions made by the A.O. towards loan creditors, advances from customers, and also additions towards cash deposits into bank accounts during the demonetization period. During the appellate proceedings, the assessee has filed relevant facts of the issue and supporting evidences in respect of various additions made by the A.O. towards loan creditors and cash deposits into bank account. During the appellate proceedings, the Ld. CIT(A) had given number of opportunities to the assessee to substantiate her case with relevant evidences, however, there was no response from the assessee. Therefore, the Ld. CIT(A) disposed of the appeal filed by the assessee and upheld the additions made by the A.O. towards loan creditors, advances from customers and also cash deposits into bank account during the demonetization period.
4. Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before us.
5. The first issue that came up for our consideration from Ground Nos. 2 and 3 of the assessee’s appeal is the addition towards loan creditors and advances from customers under Section 68 of the Income-tax Act, 1961 as unexplained cash credit. The A.O. made addition towards loan creditors being the amount received from customers as advance for sale of gold jewellery under Section 68 of the Income-tax Act, as unexplained cash credit on the ground that, the assessee has not discharged her onus regarding the genuineness of the transactions and also failed to furnish documentary evidence regarding the creditworthiness of the alleged loan creditors. Similarly, the A.O. has made addition towards advance received from customers in cash towards sale of gold jewellery on the ground that, the evidences furnished by the assessee, including subsequent sales bills issued to the customers, are not specifying the details of specific items of gold jewellery sold to the alleged sundry creditors from whom the cash is received by the assessee. Further, the creditworthiness of the sundry creditors was also not proved. Therefore, the A.O. opined that, the assessee has failed to prove the transactions with relevant evidences and therefore, made addition under Section 68 of the Act as unexplained cash credit.
6. The learned counsel for the assessee, Shri Hari Agarwal, C.A. submitted that, the assessee is in the business of retail trading of gold jewellery and received advances from various customers for sale of jewellery and the said advances have been received mostly by cheque except in two cases where the assessee has received the cash for which the assessee has issued sales bills in the same financial year or in the subsequent financial year. Although evidences have been furnished before the A.O. including relevant sales bills to prove the genuineness of the transactions, but the A.O. has made additions towards advances from customers as loan creditors only on the ground that, the creditworthiness of the parties are not proved, ignoring the fact that, in respect of sale advances, the question of proving the creditworthiness does not arise. Therefore, he submitted that, the additions made by the A.O. should be deleted. In this regard, he relied upon certain judicial precedents, including the decision of Hon’ble Delhi High Court in the case of Pr. CIT v. Montes Enterprises Pvt. Ltd. , and also the decision of the Hon’ble Bombay High Court in the case of Pr. CIT v. SB Investment and Trading Company [2008] 306 ITR 31 (Bombay).
7. The Ld. Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee has failed to prove the creditworthiness of the so-called advances received from customers for sale of gold jewellery, and further, the assessee has also failed to substantiate the sales with relevant evidences, including sales bills issued to the customers, which is evident from the findings of the A.O., where the A.O. doubted the genuineness of the sales bills issued by the assessee. Therefore, there is no error in the reasons given by the A.O. to make addition towards advances claimed to have been received from the customers as loan creditors under Section 68 of the Act. The Learned Senior A.R. for the Revenue further referring to the order of Ld. CIT(A) submitted that, before the Ld. CIT(A), the assessee did not appear and furnish relevant evidences in support of her case, and therefore, the Ld. CIT(A) dismissed the appeal for non-prosecution. Therefore, if it all the issues needs to be considered on the basis of evidences submitted by the assessee, then the matter may be remanded back to the file of the Ld. CIT(A) to decide the issue in accordance with law.
8. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the A.O. to make additions towards advances received from customers under Section 68 of the Income-tax Act, 1961 as loan creditors. Admittedly, the assessee has received advances from six customers towards sale of gold jewellery, and on subsequent dates, the assessee has issued sales invoices with particulars of jewellery sold to them and also adjusted the advances received from the parties in the final sales bills, which is evident from the relevant tabular statement submitted by the assessee, which is available at page number 10 of the paper book filed by the assessee. We further note that, from the tabular statement submitted by the assessee, except in two cases, in all the remaining cases, the assessee has received the advances through bank by RTGS or cheque, and against advances, had issued sales invoices either immediately after receipt of advances or within a reasonable time of one or two months and from the above, it is clear that, the assessee has received advances from customers for sale of gold jewellery, and the same has been adjusted against the sales recorded in the books of account. Since the assessee has filed relevant evidences to prove the sales advances received from customers and also made sales in subsequent periods, in our considered view, the A.O. has erred in making additions towards sale advances from customers as loan creditors under Section 68 of the Act, on the ground that, the creditworthiness of the parties is not proved. In our considered view, once it is proved that, the credits relates to trade advances, then the question of examination of creditworthiness of the advance received from customers does not arise, and also additions cannot be made towards sale advances under Section 68 of the Act, as unexplained cash credit, as held by the Hon’ble Delhi High Court in the case of Montes Enterprises Pvt. Ltd. , (supra) and the decision of Hon’ble Bombay High Court in the case of SB Investment and Trading Company (supra). A similar view has been taken by the Hon’ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Rajasthan) and also the Hon’ble Kerala High Court in the case of CIT v. Puran Chand Mittal (Punjab & Haryana)/[2012] 347 ITR 565 (Punjab & Haryana). Therefore, in our considered view, the A.O. has erred in making additions towards advances from customers as loan creditors under Section 68 of the Act. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the additions made towards advances received from customers for Rs. 36,37,100/-and also for Rs. 64,223/- and made additions under Section 68 of the Income-tax Act, 1961.
9. The next issue that came up for our consideration from Ground No. 4 of the assessee’s appeal is addition of Rs. 57,439/-made by the A.O. under Section 68 of the Act as unexplained cash credit. The assessee has received a sum of Rs. 57,439/- from Mr. Noor Ahmed Sheikh (Goldsmith) towards refund of advances given towards labour charges for making gold jewellery. The assessee had given a sum of Rs. 3,00,000/- to Mr. Noor Ahmed Sheikh by cheque number 766748 on 31.08.2016 towards advance for labour charges for making gold jewellery. Mr. Noor Ahmed Sheikh refunded the excess amount of labour charges paid for making gold jewellery in cash after adjusting the advance amount against the bill submitted for the year under consideration. The A.O. made additions towards refund of advance from Mr. Noor Ahmed Sheikh on the ground that, the assessee has not furnished a copy of the ledger account to prove the creditworthiness of the party. It was the argument of the learned counsel for the assessee that, in this kind of business, it is customary to pay advances to the goldsmith for making gold jewellery and the same has been adjusted against the bill submitted for making charges of gold jewellery, which is evident from the relevant ledger account submitted before the A.O. The A.O., without appreciating the relevant details, simply made addition towards refund of advance, as unexplained cash credit.
10. The learned Senior A.R. for the Revenue, on the other hand, supported the order of the A.O.
11. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We also considered the relevant reasons given by the A.O. for making addition towards the sum of Rs. 57,439/- under Section 68 of the Act as unexplained cash credit in light of various evidences furnished by the assessee and, we ourselves do not subscribe to the decision of the A.O. for the simple reason that the assessee has maintained regular books of account for her business. In the books of account, the advances paid to Mr. Noor Ahmed Sheikh have been recorded against the bill submitted by the party for making charges of gold jewellery and the excess amount paid to the party has been received in cash. The details submitted by the assessee clearly show that, it is a trade advance given to the goldsmith for making gold jewellery and the same has been received in cash. Therefore, in our considered view, the reasons given by the A.O. to make addition towards refund of advance of Rs. 57,439/- under Section 68 as unexplained cash credit are not in accordance with law, going by the trade practice and the evidence furnished by the assessee. Therefore, we direct the A.O. to delete the addition of Rs. 57,439/- made towards refund of advance from Mr. Noor Ahmed Sheikh under Section 68 of the Income Tax Act, 1961.
12. The next issue that came up for our consideration from Ground No. 5 of the assessee’s appeal is addition of Rs. 6,92,285/- made by the A.O. under Section 68 of the Act, towards cash received against credit sale of goods as unexplained cash credit. The assessee has received a sum of Rs. 6,92,285/- on 31.03.2017 from M/s. Om Santhosh Ranga Jewellers. The assessee claims that, she has sold 349.740 grams of gold jewellery valued at Rs. 9,88,285/- to Shri T. Ramakrishna Reddy on 01.12.2016, and further against the said sales, she has received a sum of Rs. 6,92,285/- on 31.03.2017 from M/s. Om Santhosh Ranga Jewellers, and the same has been recorded in the books of account, for which necessary evidences, including sales invoices and cash receipt has been furnished to the A.O. The A.O. made additions towards the amount received in cash from M/s. Om Santosh Ranga Jewellers on the ground that, the assessee has failed to collect TCS under Section 206C(1D) of the Act from the buyer of the gold jewellery and therefore, the genuineness of the transactions between the assessee and M/s. Om Santosh Ranga Jewellers cannot be accepted.
13. The learned counsel for the assessee submitted that, the A.O. has erred in making addition towards amount received in cash against sale of goods as unexplained cash credit, even though, the assessee has furnished relevant details of cash receipt against sales by furnishing sales invoices. The learned counsel for the assessee further submitted that, the A.O. never disputed the fact that, the assessee has received cash against sale bills, however, made addition only on the ground that, the assessee has not collected TCS as per Section 206C(1D) of the Income-tax Act, 1961, even though, the said provision is not applicable to the assessee. Therefore, he submitted that, the additions made by the A.O. should be deleted.
14. The Learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee could not substantiate cash receipt of Rs. 6,92,285/-from M/s. Om Santosh Ranga Jewellers by filing relevant evidences. Although the assessee claims to have received cash against sale of goods, but the evidence filed by the assessee could not prove the genuineness of the transactions, which is evident from the findings of the A.O. with regard to non-collection of TCS as required under Section 206C(1D) of the Act. Since the assessee has failed to prove the cash receipt with relevant evidences, the A.O. has rightly made addition under Section 68 of the Act.
15. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the A.O. to make addition of Rs. 6,92,285/- being cash received from M/s. Om Santosh Ranga Jewellers against sale of goods to Sri T. Ramakrishna Reddy. There is no dispute with regard to the fact that, the assessee has sold 349.740 grams of gold on 01.12.2016 to one Sri T. Ramakrishna Reddy and in lieu of the sale, the amount of Rs. 6,92,285/- was received in cash on 31.03.2017. The A.O. never disbelieved the documents submitted by the assessee, however, made additions only on the ground that the assessee has not collected TCS under Section 206C(1D) of the Income-tax Act, 1961 from the buyer of the gold jewellery. In our considered view, going by the facts of the present case, the provisions of Section 206C(1D) of the Income-tax Act, 1961 are not applicable for the year under consideration, because the turnover of the assessee from her business for the preceding financial year 2015-16 relevant to assessment year 2016-17 is less than the turnover limit fixed for getting accounts audited under Section 44AB of the Act, and once the turnover is less than the monetary limit as per Section 44AB of the Income-tax Act, 1961, then the question of collection of TCS under Section 206C(1D) of the Act does not arise. Since the A.O. made additions only on wrong assumption of application of provisions of Section 206C(1D) of the Act, and has not disputed the evidences submitted by the assessee in support of the transactions, in our considered view, the additions made by the A.O. cannot be upheld. Thus, we direct the A.O. to delete the addition of Rs. 6,92,285/- under Section 68 of the Income-tax Act, 1961.
16. The next issue that came up for our consideration from Ground No. 6 of the assessee’s appeal is addition of Rs. 38,42,000/- made by the A.O. under Section 69A of the Incometax Act, 1961 towards cash deposit into the bank account during the demonetization period as unexplained money. The assessee has made cash deposits of Rs. 38,42,000/- on various dates during the demonetization period in her bank account. The assessee has explained the source for cash deposit out of opening cash balance available as on 08.11.2016 from sales and receipts from debtors, for which the assessee has furnished relevant cash book extracts to prove the availability of cash balance. The A.O. made addition towards cash deposits into the bank account under Section 69A of the Income-tax Act on the ground that, the cash balance claimed to have been shown as on 08.11.2016 in the cash book maintained for the year under consideration is not substantiated with supporting relevant evidences. The A.O. has discussed the issue and also has analyzed the sales made by the assessee for the year under consideration, when compared to the earlier financial years and claimed that, there are abnormal variations in the sales declared by the assessee for the previous months when compared to the sales declared for the period from 01.11.2016 to 08.11.2016 and therefore, opined that, the sales declared and reported in the books of account are not genuine. Therefore, the A.O. rejected the explanation of the assessee and made addition of Rs. 38,42,000/- towards cash deposits into the bank account during the demonetization period as unexplained money under Section 69A of the Income-tax Act, 1961.
17. The learned counsel for the assessee submitted that, the A.O. has erred in making addition towards cash deposits of Rs. 38,42,000/- under Section 69A of the Act, even though the assessee has furnished the relevant details, including the cash book to show that, sufficient cash balance was available as on 08.11.2016 to explain the cash deposited into the bank account during the demonetization period. The learned counsel for the assessee further referring to various evidences, including the books of account maintained by the assessee, sales bills issued to the customers, submitted that, the A.O. disbelieved the sales made during the demonetization period and more particularly, from 01.11.2016 to 08.11.2016, and claimed that, the assessee has reported abnormal sales during the above period when compared to the earlier months and subsequent months to disbelieve the explanation of the assessee, but fact remains that, it was an established fact during the demonetization period that, there was a mad rush for buying gold jewellery out of demonetized currency. Therefore, the allegation of the A.O. that, the sales declared by the assessee are not genuine is incorrect going by the evidence available on record. Although the A.O. has discussed the issue in light of VAT returns submitted by the assessee and claimed that, the assessee has submitted VAT returns for particular months beyond the due date, but fact remains that the assessee has been regularly filing the VAT returns beyond the due date, which is evident from the VAT returns filed for the period from April, 2016 to March, 2017. Therefore, he submitted that, the A.O. made additions towards cash deposit only on the basis of suspicion by disbelieving the evidence filed by the assessee and therefore, the additions made by the A.O. should be deleted.
18. The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the opening cash balance shown by the assessee as on 08.11.2016 is not a genuine one going by the unaccounted sales declared for the month of November, 2016 and earlier months of the same financial year and corresponding financial years. Further, the assessee claimed to have made sales during the demonetization period for which necessary stock details have not been submitted to the A.O. Since there is abnormal deviation in sales declared by the assessee for the above period, the A.O. has rightly disbelieved the genuineness of the sales declared by the assessee which is the source for cash deposit into bank account during the demonetization period. Therefore, he submitted that, the additions made by the A.O. should be upheld.
19. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposits into her bank account during the demonetization period and the explanation of the assessee with regard to source for cash deposits out of opening cash balance available as on 08.11.2016 as per the cash book maintained for the relevant financial year. In fact, the A.O. never disputed the fact that the assessee has explained the cash deposit into the bank account out of cash balance available as per books of account. The A.O. disbelieved the arguments of the assessee with regard to source for cash deposits out of sales declared from 01.11.2016 to 08.11.2016 and claimed that, there is abnormal deviation in the sales declared by the assessee for the above period when compared to the earlier months and subsequent months. The A.O. further noted that, the assessee has furnished VAT returns belatedly to cover up the backdated sale bills issued to the customers to show sufficient cash balance in the books of account to explain cash deposits into the bank account. Therefore, he disbelieved the evidences filed by the assessee and assessed the cash deposits as unexplained money under Section 69A of the Income-tax Act, 1961.
20. There is no dispute with regard to the fact that, the cash balance shown in the books of account as on 08.11.2016 is supported by necessary sales bills issued towards sale of jewellery from 01.11.2016 to 07.11.2016. It is also not in dispute that, the assessee was having sufficient stock in hand to explain the sale bills issued to the customers between 01.11.2016 to 08.11.2016. The sales declared by the assessee are recorded in the books of account and also part of the turnover declared for the year under consideration which suffered taxation. Once the assessee has recorded sales in the books of account, which is supported by necessary sales bills with a corresponding stock-in-hand, in our considered view, the A.O. ought not to have made additions towards cash deposits as unexplained money only on the ground that, there is abnormal variation in cash sales during the demonetization period when compared to earlier or subsequent periods. In our considered view, it was a well-known fact during the demonetization period that, there was a mad rush in jewellery shops for purchasing gold jewellery out of demonetized currency when the demonetization was announced on 08.11.2016. In the present case, going by the facts available on record, the assessee has reported major sales on 07.11.2016, which is the previous day of the demonetization was announced, and from the details furnished by the assessee, it is very clear that, the assessee has made sales of gold jewellery in cash which is the source for cash deposit into the bank account during the demonetization period on 14.11.2016. Since the cash deposited into the bank account is supported by necessary cash balance available as per books of account maintained by the assessee which was further supported by necessary sales bills, in our considered view, the reasons given by the A.O. to make addition towards cash deposits under Section 69A of the Act as unexplained money cannot be sustained. Although the A.O. has disbelieved the sales on the basis of VAT returns submitted by the assessee for the month of November, 2016 and claimed that, the assessee has filed belated VAT returns to cover backdated sales, but going by the history of the assessee in filing the VAT returns, it is evident that, for all the months in the financial year 2016-17, the assessee has filed VAT returns belatedly and from the above, it is very clear that, the argument of the A.O. that, the assessee has filed belated VAT returns to cover up backdated sales, is contrary to the evidence available on record and cannot be accepted. Therefore, we are of the considered view that, the A.O. has erred in making addition towards cash deposit into the bank account during the demonetization period under Section 69A of the Act. Thus, we direct the A.O. to delete the addition of Rs. 38,42,000/- made under Section 69A of the Act.
21. The next issue that came up for our consideration from Ground Nos. 7 to 9 of the assessee’s appeal is application of higher rate of tax as per the provisions of Section 115BBE of the Act, in respect of additions made towards loan creditors, advances from customers, cash receipts against sales, and cash deposits during the demonetization period into bank account. We find that, the additions made by the A.O. towards loan creditors, advances from customers, cash receipts against sales, and cash deposits during the demonetization period into bank account under Sections 68 and 69A of the Income-tax Act, 1961 have been deleted in the preceding paragraphs. Therefore, in our considered view, the grounds raised by the assessee from Ground nos.7 to 9 challenging the application of higher rate of tax as per the provisions of Section 115BBE of the Act, become academic in nature. Thus, Ground Nos.7 to 9 of the assessee’s appeal are dismissed as ‘infructuous’.
22. In the result, the appeal filed by the assessee is allowed.