Pranav B Prem

The Lucknow Bench of the Income Tax Appellate Tribunal (ITAT) has set aside an order of the National Faceless Appeal Centre (NFAC) which had deleted an addition of ₹2.75 crore made on account of cash deposits during the demonetisation period, and has remanded the matter back to the Assessing Officer for a fresh examination. The Tribunal held that the issue could not be conclusively decided without proper factual verification, particularly in view of the apparent mismatch between the stock available and the sales claimed by the assessee during the relevant period.

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A Bench comprising Kul Bharat (Vice President) and Anadee Nath Mishra (Accountant Member) was hearing the Revenue’s appeal for Assessment Year 2017–18 against the appellate order dated August 3, 2023 passed by the NFAC in the case of a jewellery firm, Mallicks Jewels.

The assessment in the case was completed under Section 143(3) of the Income Tax Act, 1961, by order dated December 28, 2019. During the assessment proceedings, the Assessing Officer treated cash deposits of ₹2.75 crore, made in specified bank notes during the demonetisation period in November 2016, as unexplained cash credits under Section 68 of the Act. The Assessing Officer held that the assessee had failed to satisfactorily explain the source of the cash deposits. According to the assessee, the deposits represented proceeds from cash sales of jewellery during the demonetisation period.

The assessee’s explanation was accepted by the first appellate authority, which deleted the addition. Aggrieved by this, the Revenue approached the Tribunal.

Before the ITAT, the Revenue contended that the assessee did not possess sufficient stock to justify the quantum of sales claimed on a single day during demonetisation. It was argued that the sales reported by the assessee exceeded the available stock, rendering the explanation of cash sales implausible. The Department relied on stock details and vouchers to demonstrate that the so-called sales were higher than the stock available with the assessee as on November 8, 2016, the date of demonetisation.

On the other hand, the assessee fairly admitted before the Tribunal that it did not have adequate own stock to fully account for the sales claimed during the demonetisation period. However, it sought to justify the sales by contending that they were made out of “display items” belonging to its franchisor, M/s Gitanjali Jewellery Retail Ltd., which were lying in its showroom. According to the assessee, these display items were sold when demonetisation was announced, and the proceeds were recorded in its books.

The Tribunal examined the material on record and noted that the claim regarding sale of franchisor-owned display stock was not supported by verifiable evidence. It observed that there was no material to conclusively establish that such display items existed in the showroom, that they belonged to the franchisor, or that they were in fact sold by the assessee during the demonetisation period. The Bench agreed with the Revenue that this claim required factual verification at the level of the Assessing Officer.

The Tribunal also took note of the Department’s submission that the total sales claimed on November 8, 2016 were significantly higher than the stock available with the assessee, even after considering purchases claimed shortly before demonetisation. In the absence of proper verification and reconciliation of stock, sales and cash deposits, the Tribunal held that the deletion of the addition by the first appellate authority was premature.

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In these circumstances, the ITAT set aside the impugned appellate order and restored the issue of the ₹2.75 crore addition to the file of the Assessing Officer. The Assessing Officer was directed to carry out a de novo assessment in accordance with law, after granting reasonable opportunity of being heard to the assessee and after examining the claim relating to sale of display stock and availability of inventory. The Revenue’s appeal was accordingly partly allowed for statistical purposes, with the Tribunal making it clear that the matter required fresh factual examination before a final conclusion could be reached.

Appearance

Appearance for Appellant: Shri G.S. Walia, CA

Appearance for Respondent: Shri Amit Kumar, D.R.

Cause Title: ACIT Vs. Mallics Jewels

Case No: I.T.A No. 312/Lkw/2023 A.Y. 2017-2018

Coram: Kul Bharat (Vice President) , Anadee Nath Mishra (Accountant Member)