Income Tax Appellate Tribunal - Delhi
Sumangal Diamonds Private ... vs Income Tax Department, Delhi on 26 May, 2026
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G", NEW DELHI
BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
and
SHRI VIMAL KUMAR, JUDICIAL MEMBER
ITANo.5913/DEL/2025
(Assessment Year : 2017-18)
Sumangal Diamonds Private Limited, vs. Income Tax Department,
94/IV, First Floor, Dariba Kalan, Delhi.
Chandni Chowk,
Delhi - 110 006.
(PAN: AANCS9711N)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Raghav Goel, CA
Ms. Aarushi Goel, CA
REVENUE BY : Shri Mahesh Gupta, Sr. DR
Date of Hearing : 05.03.2026
Date of Order : 26.05.2026
ORDER
PER S. RIFAUR RAHMAN, AM :
1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as 'ld. CIT(A)] dated 28.07.2025 for the Assessment Year 2017-18.
2 ITA No.5913/DEL/20252. Brief facts of the case are, assessee filed its return of income for AY 2017-18 on 25.10.2017 declaring total income of Rs.3,77,160/-. The case was selected for scrutiny under CASS and statutory notices under section 143(2) of the Income-tax Act, 1961 (for short 'the Act') has been issued and served on the assessee.
3. During assessment proceedings, the AO observed that pursuant to the announcement of the scheme of demonetization on 08.11.2016, assessee had deposited cash of Rs.72,80,000/- in its bank account with ICICI Bank.
Subsequently, notice u/s 142(1) was issued and served on the assessee through ITBA Portal. The assessee was asked to explain genuineness as well as source of cash deposited by it during demonetization period. In response, it was submitted that it is engaged in retail business of gold and diamond jewellery and business being carried from Delhi, in its two branches at Ghaziabad and Haryana. Assessee has submitted that it has deposited cash on 12.11.2016 of Rs.58,13,000/- and on 25.11.2016 of Rs.14,67,000/-. The sources of cash deposits were explained as received from unidentifiable customers of Rs.74,71,381/- and balance cash-in-hand. The AO, after analyzing the business of the assessee during the impugned year and preceding year at page 5 of the assessment order, observed that cash sales during the year under consideration was reported at Rs.73,63,447/- in contrast 3 ITA No.5913/DEL/2025 to Rs.7,66,822/- in the previous assessment order and further observed that assessee has recorded cash sales of Rs.66,74,019/- in the month of October and for the period 01.11.2016 to 08.11.2016. He further noticed the cash available in the business from April to March at page 6 of the assessment order. From the above table, he observed that only in the month of November, assessee had deposited such huge cash in its bank account.
Further the AO analyzed the cash book for the period 01.10.2016 to 08.11.2016 at pages 8 to 18 of the assessment order. He observed that the total cash sales of October 2016 at Delhi was shown at Rs.29,29,433/-
therefore, 100% of October 2016 sales were made during 27.10.2016 to 29.10.2016. Further sales were recorded from 01.11.2016 to 05.11.2016 of Rs.12,96,635/- recorded at Delhi. He observed that all the sales recorded by the assessee are below the limit of Rs.2,00,000/- where there is no requirement to quote PAN number. After analyzing the cash sales recorded in Haryana branch, he observed that cash sales is recorded at Rs.26,90,810/- in the month of October until 08.11.2016. The AO further analyzed Form No.F required to transfer goods from Delhi to other branches. He noticed that all the goods were transferred only on 07.02.2018 which is issued on 07.02.2018.Based on the Form F submitted by the assessee, he came to the conclusion that stock transferred from Delhi to Gurgaon and sale of such 4 ITA No.5913/DEL/2025 stock at Gurgaon is nothing but a cooked story. He further observed that during the year under consideration 91.56% of the cash sales were took place in October 2016 to 05.11.2016. Based on the above analysis, he observed that source of cash, which is deposited by the assessee pursuant to announcement of scheme of demonetization, the sale proceeds of cash sales made by the assessee in its Head Office at Delhi and the sales made at branches for which cash was transferred from branches to the Head Office are not believable.
The AO disputed the above submission of the assessee and based on the analysis done by him, the sales were effected subsequently and assessee has manipulated the same to record the same as earlier sales and further these transactions were recorded in the books below the limit of Rs.2,00,000/- in order to introduce unaccounted cash kept by it. Therefore, he rejected the submissions of the assessee and applied the principles of human probabilities based on the decision of Durga Prasad More vs. CIT and accordingly, he disallowed the cash deposit made u/s 68 of the Act.
4. Aggrieved with the above order, assessee preferred an appeal before the ld.
CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee, ld. CIT (A) sustained the addition.
5. Aggrieved with the above order, assessee filed an appeal before us raising following grounds of appeal :-
5 ITA No.5913/DEL/20251. That the order passed by the Ld. Commissioner of Income Tax (Appeals) is contrary to the facts of the case, against the principles of natural justice, and bad in law.
2. That the Ld. Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs. 72,80,000/- on account of cash deposits during the demonetization period by invoking section 68 of the Income Tax Act, 1961, even though the deposits represented recorded business receipts.
3. That the Ld. Commissioner of Income Tax (Appeals) failed to appreciate that the appellant's books of accounts were duly audited, never rejected by the Assessing Officer, and no defects were pointed out, yet adverse inferences were unjustly drawn regarding cash sales, infrastructure, and supporting documents.
4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in making various allegations against the assessee. The assessee had duly responded to each of the allegations with proper explanations and supporting documentary evidence; however, the Ld. CIT(A) failed to appreciate the same while passing the impugned order.
5. That the addition sustained amounts to double taxation, as the same represents cash sales already offered and accounted for in the appellant's income."
6. At the time of hearing, ld. AR of the assessee submitted as under :-
1. Business Activity The assessee is engaged in the business of trading and manufacturing of gold, diamonds, and gold jewellery, including gold and diamond-studded jewellery.
............
5. Manufacturing Process and Making Charges The assessee undertakes manufacturing of jewellery through artisans (Karigars). The process involves:
• Purchase of raw material (24 carat gold and diamonds).
• Supply of raw material (gold, diamonds, and alloy) to Karigars based on customer orders.
• Conversion of 24 carat gold into 14, 18, or 22 carats gold by Karigars. • Manufacture of jewellery as per specific customer designs. Making charges paid to Karigars are design-specific and not based on weight. Payments are made either at the time of crediting the Karigars account or at the time of actual payment, whichever is earlier. TDS is duly deducted on such payments in 6 ITA No.5913/DEL/2025 accordance with applicable income tax provisions.
...........
7. Sales as per VAT and Audited Financial Statements The appellant company, M/s Sumangal Diamonds Private Limited, reported a total turnover of ₹7,93,57,595.65 during the Financial Year 2016-17, as per its audited financial statements. The turnover comprises sales from both manufacturing and trading activities carried out through its branches located in Delhi, Gurgaon, and Ghaziabad. A detailed bifurcation of sales is as under:
Total Outward Branch Inter Branch Sales Total sales Sales 2,59,23,293.46 Delhi 4,74,82,715.19 7,34,06,008.65 2,50,42,373.00 0.00 Gurgaon 2,50,42,373.00 2,83,91,929.19 0.00 Ghaziabad 2,83,91,929.19 7,93,57,595.65 Total Sales 4,74,82,715.19 12,68,40,310.84 It is pertinent to highlight that the Delhi Head Office recorded inter-branch stock transfers amounting to ₹4,74,82,715.19, which included ₹2,17,57,921.24 transferred to the Gurgaon Branch and ₹2,57,24,793.95 to the Ghaziabad Branch. Accordingly, the total sales reported in the VAT returns for the year amounted to ₹12,68,40,310.84, which includes the inter-branch transfers. However, the actual turnover from external sales, as reflected in the audited financial statements, stands at ₹7,93,57,595.65, excluding inter-branch transfers. We have attached the Audited Financial statements for your reference on the page no.100-120 of the paper book submitted and the sales figure of Rs. 7,93,57,595.65 can be cross verified from the page no. 107.
The appellant has consistently maintained a record of timely filing of statutory returns, including Income Tax Returns and VAT Returns, and has duly paid all applicable taxes within prescribed timelines.
The details of VAT returns filed for the FY 2016-17 are as follows: VAT Returns Summary:
Online Return ID/ Ack
Quarter/ Month Gross Total Turnover
No.
Q1 206110056 48,25,229.00
Delhi Q2 206232880 1,06,11,251.00
Q3 206795386 3,41,97,872.00
7
ITA No.5913/DEL/2025
Q4 207677458 2,37,71,656.00
Total Turnover 7,34,06,008.00
Q1 RF17103160868497 10,47,203.00
Q2 RF17103161084830 55,12,719.00
Gurgaon Q3 RF17103170144407 1,26,32,129.00
Q4 RF38103170402962 58,50,322.00
Total Turnover 2,50,42,373.00
April 16119990322778 -
May 16119990500085 5,04,138.25
June 16119990655071 -
July 16119990933864 3,35,643.94
August 16119991142156 4,17,380.00
September 16119991287789 31,56,877.00
Ghaziabad October 16119991553805 42,01,588.00
November 16119992333281 57,42,572.00
December 17119992547701 33,90,101.00
January 17119992843157 5,04,950.00
February 17119993039991 76,61,267.00
March 17119990080551 24,77,412.00
Total Turnover 2,83,91,929.19
All the VAT returns were duly accepted by the respective State VAT Departments, as per the following assessment orders:
Delhi Branch - Assessment Order No. 150082427109, dated 26.02.2018 Gurgaon Branch - Assessment Order No. 189, dated 24.08.2018 Ghaziabad Branch - Assessment Order No. 19307937300031, dated 15.05.2019 VAT Returns of the Delhi, Gurgaon and Ghaziabad Branches are attached for reference on Page Nos. 323-379of the paper book along with their respective assessment orders.
8. Acceptance of Sales Across Statutory Authorities:
The appellant respectfully submits that the sales figures declared in the VAT returns are fully reconciled with the sales reported in the audited financial statements and Income Tax returns. The consistency of these figures across all statutory platforms establishes the accuracy and transparency of the appellant's disclosures. The audited financial statements and Income Tax returns are enclosed for your reference on Page no.100-132 of the paper book.
The VAT returns filed for the relevant financial year were duly accepted by the VAT authorities after appropriate scrutiny, and no discrepancies or adverse findings were noted. Simultaneously, the financial statements, audited by an independent Chartered Accountant in accordance with the provisions of the Income Tax Act and the 8 ITA No.5913/DEL/2025 Companies Act, also reflect the same turnover. The Assessing Officer (AO), during the course of assessment, has not raised any objections or identified any mismatch in the reported sales.
In view of this, when the same sales have been accepted by both the VAT department and the Income Tax authorities, and no discrepancy has been pointed out in the quantum or genuineness of sales, it is wholly unjustified to treat the corresponding cash deposit in bank as unaccounted money. The sales proceeds, having already been disclosed, recorded, and subjected to taxation under both direct and indirect tax laws, cannot be classified as unexplained income.
In Smt. Charu Aggarwal v. DCIT [2022] 140 taxmann.com 588 (Chandigarh - Trib.), it was held that cash deposits post-demonetization, arising from cash sales accepted by the VAT/Sales Tax Department and not disputed by the AO, could not be treated as undisclosed income. The appellant's case stands on similar footing.
In view of the above, the cash deposit represents genuine, recorded business transactions supported by audited books, tax returns, and verifiable inventory records. Treating such deposits as unaccounted income would be contrary to the facts on record and the well-settled legal position.
We are additionally attaching another stock summary below for the period August to November, which includes the months of October and November--the period allegedly found suspicious by the Assessing Officer. This stock summary clearly demonstrates that the appellant had sufficient stock available to support the sales made during these months, thereby reaffirming the genuineness of the transactions and the accuracy of the recorded inventory movement.
Total
Total
Opening Opening Outward Total
Inward Total Inward
stock Qty stock value Qty Outward
Items Qty during Value during
as on as on during value during
Aug- Aug-Nov'16
01/08/2016 01/08/2016 Aug- Aug-Nov'16
Nov'16
Nov'16
14kt. Diamond
0 - 344.123 6,95,484.00 344.123 8,30,210.71
Jewellery (T)
18Kt. Gold
51.908 1,03,478.27 530.67 12,07,276.04 582.578 12,97,443.50
Jewellery (J)
22KT Gold
325.66 8,91,397.92 745.087 19,85,878.25 661.287 18,86,189.94
Jewellery (J)
Diamond@ 5000 (J) 47.28 2,36,400.00 0 - 47.28 2,36,400.00
Diamond@11000-
588.78 64,76,580.00 0 - 588.78 64,76,580.00
12000(R)
Diamond@12000
25.48 3,06,850.00 305.95 36,71,400.00 233.3 28,09,734.12
(R)
Diamond@12500 25.29 3,11,345.00 151.9 18,98,750.00 25.29 3,11,344.94
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ITA No.5913/DEL/2025
(R)
Diamond@14000 (J) 0 - 195.37 27,35,180.00 34.46 4,91,204.00
Diamond@15183
112.21 17,03,507.00 0 - 112.21 17,03,507.14
(R)
Diamond@16001-
0 - 11.84 1,95,417.00 11.84 1,94,752.89
17000 (T)
Diamond@30538
4.78 1,45,972.62 0 - 4.78 1,95,980.00
(R)
Diamond@70000 (J) 0.04 2,800.00 0 - 0.04 2,800.00
Diamonds@11000
6.21 68,310.00 525.83 57,84,130.00 532.04 60,34,678.00
(J)
Diamonds-13000-
5.2 70,200.00 32.62 4,40,370.00 37.82 5,19,669.00
14000 (J)
Gold 14Kt Dia.
192.669 3,10,837.96 2054.804 37,43,191.20 1228.823 22,53,810.78
Jewellery (J)
Gold 18Kt Dia.
99.151 2,02,914.82 1963.667 44,64,399.23 1278.105 31,21,317.39
Jewellery (J)
18kt. Diamond
0 - 206.5 5,55,485.00 206.5 5,55,547.46
Jewellery (T)
22 KT Gold
0 - 398.9 11,52,821.00 398.9 11,54,403.03
Jewellery (T)
24kt Gold(R) 0 - 6792.07 2,03,64,857.00 6313.93 1,90,93,036.95
Diamond@12000 (J) 0 - 229.93 27,61,219.12 122.65 16,02,765.58
Diamond@13000-
0 - 115.8 15,63,300.00 32.62 4,40,370.00
14000 (R)
Diamond@14000
75.02 10,50,280.00 120.35 16,84,900.00 195.37 27,35,180.00
(R)
Diamond@17000-
0 - 25 4,25,000.00 0 -
18000 (R)
Diamond@21000-
0 - 27.86 5,96,352.00 27.86 6,58,894.51
22000 (T)
Diamond@250000
0 - 1.2 3,00,000.00 1.2 3,30,000.00
(R)
Diamond@50000-
0 - 2.61 1,34,707.00 0 -
55000 (R)
Diamond@59000-
0 - 7.02 4,15,598.00 7.02 5,63,855.00
60000 (R)
Diamond@8000-9000
0 - 123.34 11,10,060.00 123.34 11,48,029.00
(J)
Diamond@8000-9000
0 - 198.21 17,83,890.00 123.34 11,10,060.00
(R)
Diamonds@12500 (J) 0 - 25.29 3,11,344.94 25.29 3,11,344.94
0 - 112.21 17,03,507.14 65.44 11,51,758.60
Diamonds@15001-
10
ITA No.5913/DEL/2025
16000 (J)
Diamonds-14000-
0 - 42.5 5,95,000.00 42.5 5,97,520.00
15000 (T)
Grand Total 1559.678 1,18,80,873.59 15290.651 6,22,79,516.92 13408.716 5,98,18,387.48
10. On Alleged Deviation in Sales Pattern and Validity of Cash Sales:
The Assessing Officer (AO) has alleged a significant deviation in the pattern of cash sales by the appellant, noting cash sales of ₹73,63,447/- in AY 2017-18 as compared to ₹7,66,828/- in AY 2016-17. In this regard, it is respectfully submitted that mere variance in the pattern or ratio of cash deposits to cash sales during the demonetization period, when compared with earlier periods, cannot form a valid basis for making additions under the Income Tax Act. Such comparisons are inherently flawed, especially when the appellant has substantiated the genuineness and authenticity of the cash sales through proper books of accounts. Further, the Assessing Officer has alleged that the cash sales made during the year remained unverified, primarily on the ground that the corresponding invoices were below ₹2,00,000/-, thereby not mandating the collection of PAN details under the prevailing legal provisions. In this regard, it is respectfully submitted that the Appellant had effected cash sales amounting to ₹70,36,724/- during the relevant financial year, as against ₹7,93,57,595/- of total turnover which is only 8.8% cash sales as against total turnover. It is also pertinent to clarify that the correct figure of cash sales during the year is ₹70,36,724/- and not ₹73,63,447/- as incorrectly noted in the assessment.
That the festival of Dhanteras was on 28.10.2016 and Diwali was on 30.10.2016 due to which there was huge rush of cash sales to walk-in retail customers in the normal course of business, and in every instance, the individual invoice value remained below the statutory threshold of ₹2,00,000/-, thereby not attracting the requirement of PAN disclosure under Rule 114B of the Income Tax Rules. The assessee made cash sales of Rs. 2900428/- at Delhi Branch and Rs. 11,51,242/- at Haryana Branch during festive period. Accordingly, the absence of PAN details does not render these transactions unverifiable or non-genuine, particularly when they are fully recorded in the books of account and supported by corresponding stock movements and VAT disclosures.
Customers in the jewellery business are generally well-informed about the requirement of furnishing PAN for transactions exceeding ₹2,00,000/-. Accordingly, where the purchase value exceeded the threshold, customers opted for banking channels; whereas in cases where the amount was lower, they preferred the cash mode, which is a commercially acceptable and lawful practice in the jewellery trade. We have attached the sales ledgers of all the branches on page nos. 158-168 and the cash books of all the branches on page nos. 135-157 of the paper book.11 ITA No.5913/DEL/2025
The AO has further alleged that the assessee had extremely low cash purchases during AY 2017-18 while effecting cash sales during the year. In this regard, it is respectfully submitted that low cash purchases cannot, by itself, lead to any adverse inference against the genuineness of cash sales. There is no provision under the Income Tax Act which prescribes that cash sales must necessarily be supported by corresponding cash purchases. The mode of purchase and the mode of sale are independent commercial decisions governed by business expediency. Merely because the assessee predominantly made purchases through banking channels does not prohibit the assessee from effecting sales in cash, particularly when such sales are otherwise lawful and within the prescribed statutory limits. Even if the ratio of cash sales is assumed to be on the higher side, all such sales are duly recorded in the books of account, reported as part of turnover, supported by stock records, and offered to tax.
It is further submitted that there is no prohibition under law on effecting sales below ₹2,00,000/-, and the assessee is well within its rights to manage its business affairs in a lawful manner. Merely because the sales invoices were raised below the threshold limit, the Assessing Officer cannot presume that such sales are bogus or fictitious, or that they were structured only to give colour to non-genuine transactions. Such an inference is unwarranted and contrary to the principles of law and settled commercial practice.
It is well recognized that no business operates in a fixed or linear pattern. Commercial activity is subject to fluctuations arising from various external factors, including seasonal demand, market dynamics, and socio-cultural events. Business inherently involves uncertainty, as it operates within a dynamic environment influenced by unpredictable factors. In the present case, the appellant has duly explained the reasons for the spike in cash sales during the relevant period-- specifically citing factors such as the Diwali festival, Dhanteras, Bhai Dooj, Karwa Chauth, and the marriage season. These explanations were placed on record and were not rebutted or disproved by the AO in the assessment proceedings. This view is supported by the decision of the Hon'ble Delhi Tribunal in the case of AGSONS GLOBAL P. LTD. v. Asstt. CIT [2020] 115 taxmann.com 342 (Delhi - Trib.), wherein it was held that additions solely on the ground of deviation in the ratio of cash sales and cash deposits during the demonetization period vis-à-vis earlier years are neither proper nor legally sustainable.
11. Double Addition Not Permissible When Sales Are Already Recorded:
Furthermore, the appellant's case finds strong support from the judgment of the Hon'ble Gujarat High Court in CIT v. President Industries [2002] 258 ITR 654, wherein it has been clearly held that sales constitute turnover and not income per se, and therefore the entire sale proceeds cannot be brought to tax as undisclosed income. The Hon'ble Court further observed that where the sales have already been duly credited in the books of account, any further addition of the same amount would result in double taxation of the same receipt, which is impermissible in law. In the 12 ITA No.5913/DEL/2025 present case, the impugned sales have been duly recorded in the audited books of account of the appellant, and the same have been offered to tax in the normal course. It is also pertinent to note that the Assessing Officer has not pointed out any discrepancy either in the quantitative stock records or in the corresponding purchase documentation. In the absence of any defect in the books of account or adverse material on record, no separate or further addition on account of such recorded sales is legally sustainable and deserves to be deleted.
Lastly, additions under Section 68 of the Act cannot be made merely on account of a higher ratio of cash sales during the demonetization period. Where the cash sales are fully supported by verifiable entries in the books, correspond with the stock records, and there is no evidence of suppression of income or inflation of profits, the AO has no justifiable basis to treat such deposits as unexplained or undisclosed income. In the present case, the AO has not made any adverse findings regarding the availability or correctness of stock, nor has he found any inconsistency between the sales and the quantity of items shown in the stock register. Therefore, the addition made lacks legal merit and deserves to be deleted.
12. Existence and Functionality of Gurgaon Branch:
The appellant was specifically asked to provide the cash sale invoices relating to its Haryana (Gurgaon) Branch, which were duly submitted during the course of the assessment proceedings. It has been alleged by the Assessing Officer that the appellant failed to provide credible evidence to demonstrate that it had adequate infrastructure at the Gurgaon branch. This allegation is unfounded. The appellant was registered under the Haryana VAT Act, regularly filed VAT returns for sales effected from the Haryana branch, and underwent VAT assessments duly completed by the Haryana VAT Officer. Furthermore, Form-F declarations were submitted to Delhi branch for stock transfers, and the Delhibranch reversed the corresponding Input Tax Credit (ITC) in respect of goods transferred to the Gurgaon. These facts clearly establish that the Gurgaon branch was fully operational and functioning within the framework of the law. The reversal of ITC in Delhi branch can be cross checked from the Delhi Branch VAT returns. Relevant pages of the VAT returns, considering the voluminous nature of the records, have been enclosed for your reference at pages 323-379 of the paper book. Copies of Form F are placed at pages 383-423, and the inter-branch sales ledger is enclosed at pages 380-382.
It has also been alleged that the appellant failed to provide evidence regarding how the cash proceeds from sales made at the Gurgaon branch were brought back to Delhi. In response, it was explained that the appellant used its own personal car registered in the company's name to facilitate both the stock transfer and the transport of sale proceeds. Furthermore, it is clarified that due to the highly valuable and sensitive nature of the goods involved--namely, gold and diamond jewellery-- the stock was personally carried by company's authorised person from the Delhi branch to the Haryana branch. Goods of such high value cannot be entrusted to any third-party transporter, and therefore, as a matter of prudence and security. Similarly, the cash collected from the branch's sales was carried back to Delhi in the same secure manner.13 ITA No.5913/DEL/2025
The claim that there is no documentary evidence to prove the use of the vehicle is misplaced. The vehicle used for transporting goods is registered in the name of the company. Since no toll booths are situated enroute, there are no toll receipts. Moreover, no statutory requirement has been cited that mandates additional documentation for intra-company transport using owned vehicles. The burden lies on the Assessing Officer to establish that goods were not transported using the company's vehicle, and no such evidence has been brought on record. It is further alleged that the appellant initially denied the statutory requirement of filing declarations before the DVAT authorities and later accepted that Form-F was mandatory for stock transfers. This allegation is factually incorrect. The appellant never made any such contradictory statement. Thereafter, copies of all relevant Form-F declarations were submitted promptly when requested by the Assessing Officer. There is no evidence to support any change or inconsistency in the appellant's stand.
13. Form-F Declarations - Statutory Framework and Legal Validity At the outset, it is submitted that Form-F is governed by section 6A of the Central Sales Tax Act, 1956, read with the relevant State VAT Rules. Section 6A provides that where goods are transferred otherwise than by way of sale from one State to another, the burden to prove such stock transfer lies on the dealer, which is discharged by furnishing Form-F duly issued by the VAT authorities of the receiving State, along with supporting stock transfer invoices. Form-F, however, is not evidence of physical movement of goods; it is merely a statutory declaration to establish that an interstate movement of goods is not a sale but a stock transfer. The physical movement of goods is evidenced by primary documentary evidence such as stock transfer invoices, delivery records, stock registers and VAT returns, all of which were duly produced and accepted by the VAT authorities.
Importantly, the statute does not mandate contemporaneous issuance of Form-F at the time of physical movement of goods. The law only requires that Form-F be furnished during or before completion of assessment for the relevant period. In the present case, Form-F issued on 07.02.2018 for FY 2016-17 was much prior to the completion of the VAT assessment on 24.08.2018 for the said year and is fully in accordance with the statutory scheme. Therefore, the inference drawn by the Assessing Officer that issuance of Form-F on 07.02.2018 indicates a backdated cash trail or artificial book entries is wholly misconceived, legally untenable and contrary to section 6A of the CST Act. Form-F neither creates nor validates movement of goods nor does it have any nexus with the timing of accounting entries or generation of cash. Once the Form-F declarations and the underlying stock transfers have been accepted by the competent VAT authorities after due verification, the Income-tax authorities cannot disregard the same in the absence of any independent contrary material on record.At this stage, it is relevant to reproduce the exact allegations made by the Assessing Officer in the assessment order with respect to Form-F, which are being specifically rebutted hereinbelow:
"It is important to mention that all 'F' Forms have been issued on 07.02.2018. This is a date which is posterior to the FY we are dealing with. Thus, these 'F' Forms does 14 ITA No.5913/DEL/2025 not relate to the period 1.4.2016 to 31.03.2017 at all. Even if it is presumed that these Forms have been obtained subsequently, then also these Forms cannot be said to be convincingly prove that pure gold/gold and jewellery of 22, 18 or 14 carat or loose diamonds were indeed transferred to Haryana Branch during the FY 2016-17 especially during the period prior to the period of demonetization. Perusal of the above F Form reveals that not in a single Form exact description of items purported to be transferred to Haryana is clearly mentioned. Against each column, it is mentioned as per Annexure 'A'. And in Annexure A, the item proposed to be transferred is simply mentioned as 'jewellery'. Though value is mentioned, but it is of no use in the absence of corresponding correct weight and description of goods. In not a single Form there is mention of mode and manner of transfer of stock, date of such actual transfer as all the relevant columns are left blank."
The above observations form the sole basis for the adverse inference drawn by the Assessing Officer with respect to the genuineness and timing of stock transfers and Form-F declarations. Each of these observations is factually incorrect, legally unsustainable and contrary to the statutory provisions of section 6A of the Central Sales Tax Act, 1956, as well as the documentary evidence placed on record, as demonstrated hereinbelow.
Timing of Issuance of Form-F and Its Relevance to AY 2017-18 The allegation that Form-F issued on 07.02.2018 does not pertain to AY 2017-18 or the demonetisation period is factually and legally untenable. The VAT assessment order for the relevant year was passed on 24.08.2018, and the Form-F declarations were issued by the Haryana VAT Department prior to such assessment, which is precisely what section 6A of the CST Act envisages. It is a settled position that Form-F is issued post-verification of records by the VAT authorities, including invoices, stock registers and returns, and therefore its issuance date cannot be equated with the date of stock transfer. Consequently, the finding of the AO that Form-F issued in February 2018 is "not related" to FY 2016-17 or demonetisation period is contrary to statutory provisions and commercial practice. Acceptance of Form-F in Regular VAT Assessments It is further submitted that the appellant was subjected to VAT assessments year after year, and in the assessment order dated 24.08.2018, the Form-F declarations were duly accepted by the Haryana VAT Officer without any adverse finding. This acceptance conclusively establishes that the stock transfers from Delhi to Gurgaon were genuine, lawful and supported by contemporaneous invoices. Once a statutory authority under the VAT law, after due verification, accepts the stock transfers and Form-F declarations, the Income-tax authorities cannot disregard such findings without bringing any independent contrary material on record. Matching of Form-F Values with Stock Flow Statements The allegation that Form-F declarations were fabricated to create a backdated trail is wholly baseless. The tables placed in the paper book clearly demonstrate that the value of stock transfers as per Form-F exactly matches the values reflected in the 15 ITA No.5913/DEL/2025 month-wise stock flow statements and inter-branch ledgers. No discrepancy whatsoever has been pointed out by either the Assessing Officer or the CIT(A). The supporting stock transfer invoices were generated and carried at the time of movement of goods and are verifiable from records. In fact, even the CIT(A) has not identified a single numerical mismatch between Form-F, stock statements and VAT returns, rendering the allegation of fabrication entirely speculative. Incorrect Findings of the CIT(A) on Form-F The observation of the CIT(A) that "Form-F does not pertain to the demonetisation time" and therefore stock transfers during demonetisation were not proved is factually incorrect and made without appreciating the documentary evidence placed on record. During appellate proceedings, the appellant had furnished all Form-F issued by the Haryana VAT Department, along with a detailed month-wise table showing stock transfers from Delhi branch to Gurgaon and Ghaziabad branches, which clearly reconciled with Form-F numbers, voucher numbers and values. The finding of the CIT(A) ignores these reconciliations and proceeds merely on the issuance date of Form-F, which is legally irrelevant under section 6A of the CST Act.
14. Justification of Cash Deposit From the foregoing, it is evident that all sales effected by the assessee are genuine, duly reported, and taxed under both VAT and the Income-Tax Act. Supporting documents--including cash books for all branches (Page no. 135-157), invoice copies (Page no. 169-227), Relevant pages of VAT returns (Page No. 323-379), and day-wise stock registers (Page No. 228-322)--have been attached for verification. These records clearly establish that the alleged "suspicious" cash deposit of ₹72,80,000 in the bank was sourced entirely from cash available with the assessee, as reflected in the cash book. The summarised table annexed below corroborates the cash book balances and the corresponding cash transactions throughout the year, demonstrating a consistent nexus between the cash on hand and the bank deposits. Therefore, the impugned addition under Section 68 is wholly unjustified, as there is no unexplained credit--every receipt has been itemised, recorded, and supported by contemporaneous documentation, in line with statutory and judicial benchmarks.
Particulars Delhi (HO) Haryana UP Total Opening Cash Balance as on 01.04.2016 7,95,434.08 45,075.00 1,52,579.35 9,93,088.43 Inflow Cash Sales 44,20,723.00 26,87,910.00 - 71,08,633.00 Cash Received from Debtors 3,33,689.00 2,900.00 1,704.00 3,38,293.00 Repairing Charges Received 24,455.00 - - 24,455.00 16 ITA No.5913/DEL/2025 Bank Withdrawal 5,70,000.00 - - 5,70,000.00 Cash Received from Delhi - 2,20,000.00 1,00,000.00 3,20,000.00 Cash Received from HR 26,90,942.00 - - 26,90,942.00 Cash Received From UP 76,000.00 - - 76,000.00 Total Inflow 81,15,809.00 29,10,810.00 1,01,704.00 1,11,28,323.00 Outflow Cash Sent to Delhi - 26,90,942.00 76,000.00 27,66,942.00 Cash Sent to HR 2,20,000.00 - - 2,20,000.00 Cash Sent to UP 1,00,000.00 - - 1,00,000.00 Cash Expense 9,70,208.00 2,13,175.00 1,30,360.00 13,13,743.00 Other Cash Payments 30,850.00 - - 30,850.00 Purchase from Unregistered Dealer 36,710.00 - - 36,710.00 Bank Deposit (including Rs. 72,80,000/-) 73,09,000.00 - - 73,09,000.00 Total Outflow 86,66,768.00 29,04,117.00 2,06,360.00 1,17,77,245.00 Closing Cash Balance as on 31.03.2017 2,44,475.08 51,768.00 47,923.35 3,44,166.43
7. Ld AR further relied on the following decisions and pleaded to allow the appeal :-
(i) ACIT vs. Ramlal Jewellers Pvt. Ltd. - ITA No.1600/Mum/2023 AY 2017-18
(ii) R.S. Diamonds India Pvt. Ltd. vs. ACIT - ITA No.2017/Mum/2021 AY 2017-18
(iii) Fine Gujranwala Jewellers vs. ITO - ITA No.1540/Del/2022 AY 2017-18
(iv) Nirankari Sons Jewllers Pvt. Ltd. vs. ITO - ITA No.2818/Del.2024 AY 2017-18.17 ITA No.5913/DEL/2025
8. On the other hand, ld. DR of the Revenue brought to our notice page 28 of the assessment order and page 18 of the first appellate order to submitt that he relies on the detailed findings of the lower authorities and further relied on the decision of Hon'ble Orissa High Court in Pankaj Gupta vs. Pr.CIT (2025) 477 ITR 387 (Orissa) and Hon'ble Supreme Court in Sanjay Kkapur vs. ACIT (2022) 287 taxman 225 (SC).
9. Considered the rival submissions and material placed on record. We observed that assessee has deposited cash immediately after announcement of demonetization. After analyzing cash book and sales pattern of the assessee, the AO came to the conclusion that assessee has recorded majority of the sales from October 2016 to 08.11.2016 and majority of the sales were recorded only in Delhi, it was observed that majority of the sales were recorded for the value less than Rs.2,00,000/-. Since assessee has recorded majority of the sales during October 2016 to 08.11.2016 and most of the transactions were for the value of less than Rs.2,00,000/-, the AO had applied principles of human probabilities and rejected the submissions of the assessee by further observing that Form F to transfer the goods from Delhi to its branches were issued subsequent year not during the year of sale recorded by the branches. The AO also not believed the fact that such huge sales were recorded between October and 08.11.2016. After considering detailed 18 ITA No.5913/DEL/2025 submissions, we observed that the assessee has submitted cash book from 01.04.2016 to March 2017. Based on the cash book, we observed that assessee has sufficient cash sales to support the cash deposit made during the year. Further we observed that assessee has enough stock with them to make cash sales and stock movement from Delhi to Haryana and assessee also filed stock movement including purchases made during the year.
10. Further we observed that ld. AR of the assessee relied on the decision of M/s.
Fine Gujaranwala Jewellers (supra) wherein the coordinate Bench of ITAT decided the issue as under :-
"8. We have heard the parties perused the material available on record and gave our thoughtful consideration. It is found that a Notice u/s. 142(2) of the Act dated 24-06-2018 has been issued to the Assessee along with the questionnaires and in reply the Assessee produced the following Documents:
...............
15. During the appellate proceedings, the Ld.CIT(A) was of the opinion that assessee in order to avoid the provision of Section 285BA read with Rule 114E, which casts a responsibility on the person covered under the rule to furnish such records within the time specified, the appellant has shown invoices below the limit of Rs.2,00,000/- each in most of the cash sale invoices for diamond items from 01.10.2016 to 31.12.2016. Further observed that, the cash sales during the period 01.10.2016 to 08.11.2016constituted 90.59% of the cash sales for entire period of next financial year. The CIT(A) was of the opinion that the inference made by the AO was based on concrete circumstantial evidence and despite specific query, no item-wise stock statement with item-wise quantities sold each month was provided for the relevant previous year and thus, the cash in hand position remained unexplained by the Assessee. Thus, it is clear that the appellant brought in unaccounted cash in the books of account by inflating the sales abnormally at astronomically very high and unusual levels.
16. Further, the Ld.CIT(A) held that the assessee failed to discharge its onus of providing item-wise sale for each invoice especially for the month of November, 2016 and the fact that average per day sale in these 39 days(01.10.2016 and the fact 19 ITA No.5913/DEL/2025 that average per day sale in these 39 days(01.10.2016 to 08.11.2016) was Rs.20.87 lakhs as compared to Rs.53,514/-only in FY 2017-18 points to the fact that claim of cash sales is an afterthought to justify huge cash deposits in Bank of India account duringthe demonetization period.
17. It is the specific case of the assessee is that the sale proceeds ofjewellery were the source of cash deposited in the bank and of the entriesare supported by books of accounts, purchase vouchers, sales invoice, stockregister, VAT records, bank statement etc. at no point of time books ofaccounts of the assessee was rejected and the same has been accepted inVAT. It is not the case of the Revenue authorities that the invoice are morethan 2,00,000/- but it is the specific case of the Department that all theinvoices are Rs. 2,00,000/- or below Rs. 2,00,000/- but total cash saleinvoices for diamond items during 01/10/2016 to 08/11/2016 was Rs.20.87 lakh compare to Rs. 53,514/- only in the Financial Year 2017-18,which ultimately resulted in making the addition.
18. We should keep in mind that the fact for Assessment Year 2016-17cannot be comparable with the fact of Financial Year 2017-18 or any otheryear because the extraordinary incident of demonization was unique toFinancial Year 2016-17, the abnormal increase in the cash sale and theirdeposit in the bank account consequent to demonization could not be basis for the rejection of account and addition u/s 68 of the Act. The TribunalBench at Vishakhapatnam in the case of ACIT Vs. Hirapanna Jewellers(2021) 189 ITD 608 (Visaks) held as under:-
"7. We have heard both the parties and perused the materialplaced on record. In the instant case, the assessee has admittedthe receipts as sales and offered for taxation. The assessing officer made the addition u/s 68 as , unexplained cash credit ofthe same amount which was accounted in the books as sales. Inthis regard, it is worthwhile to look into section 68 which readsas under:
"68. Where any sum is found credited in the books of anassessee maintained for any previous year, and theassessee offers no explanation about the nature and sourcethereof or the explanation offered by him is not, in theopinion of the [Assessing] Officer, satisfactory, the sum socredited may be charged to income-tax as the income of theassessee of that previous year:
From the perusal of section 68, the sum found credited in thebooks of accounts for which the assessee offers no explanation,the said sum is deemed to be income of the assessee. In theinstant case the assessee had explained the source as sales,produced the sale bills and admitted the same as revenue receipt.The assessee is engaged in the jewellery business andmaintaining the regular stock registers. Both the DDIT (Inv.) andthe AO have conducted the surveys on different dates,independently and no difference was found in the stock register or the stocks of the assessee.20 ITA No.5913/DEL/2025
Purchases, sales and the Stock are interlinked and inseparable.Every purchase increases the stock and every sale decreases thestock. To disbelieve the sales either the assessee should not havethe sufficient stocks in their possession or there must be defectsin the stock registers/stocks. Once there is no defect in thepurchases and sales and the same are matching with inflow andthe outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He hasnot disturbed the closing stock which has direct nexus with thesales. The movement of stock is directly linked to the purchaseand the sales. Audit report u/s 44AB, the financial statementsfurnished in paper book clearly shows the reduction of stockposition and matching with the sales which goes to say that thecash generated represent the sales. The assessee has furnishedthe trading account, P& L account in page No. 7 of paper book and we observe that the reduction of stock is matching with thecorresponding sales and the assessee has not declared theexorbitant profits. Though certain suspicious features werenoticed by the AO as well as the DDIT (Inv.), both the authoritiesdid not find any defects in the books of accounts and tradingaccount, P&L account and the financial statements and failed todisprove the condition of the assessee. Suspicion however strongit may be, it should not be decided against the assessee withoutdisproving the sales with tangible evidence.
7.1. In the case of CIT Vs. Assolciated Transport (P.) Ltd. 1996]84 Taxman 146/[1995] 212 ITR 417 (Cal). The Tribunal foundthat the assessee had sufficient cash in hand in the books ofaccount of the assessee, therefore, held that there was no reasonto treat this amount as income from undisclosed sources and itwas not a fit case for treating the said amount as concealedincome of the assessee. The revenue moved to Calcutta HighCourt against the order of the tribunal and the Hon'ble High Courthas confirmed the order of the Tribunal while deleting thepenalty, Hon'ble Calcutta high court held as under:
"8. The Tribunal was of the view that the assessee hadsufficient cash in hand. In the books of account of theassessee, cash balance was usually more than Rs.81,000. There is no reason to treat this amount as incomefrom undisclosed sources. It is not a fit case for treatingthe amount of Rs. 81,000 as concealed income of theassessee and consequently imposition of penalty wasalso not justified in this case."
In the case of Lal chand Bhagat Ambica Ram v. CIT [1959] 37 ITR288 ISC), the Hon'ble Apex Court decided the matter in favour ofassessee of the ground that it was clear on the record that theassessee maintained the books of accounts according to themercantile system and there was sufficient cash balance in its cash books and the books of account of the assessee were notchallenged by the Assessing officer. If the entries in the books ofaccounts 21 ITA No.5913/DEL/2025 are genuine and the balance in cash is matching withthe books, it can be said that the assessee has explained thenature and source of such deposit.
19. In the present case, the department has not rejected the books ofaccounts of the Assessee accepted in VAT. The regular books of accountswere maintained in the normal course of business in which no flaw, fallacyor deficiency was pointed out by the AO. It is well settled law that once the assessing officer accepts the books of accounts and the entries in the booksof accounts are matched, there is no case for making the addition asunexplained. In the assessee case of R S Diamond India Pvt. ltd. Vs. ACIT,I.T.A. No. 2017/Mum/2021 (A.Y. 2017-18) the Income Tax Tribunal Benchat Mumbai has held as under:-
"4. I have heard the parties and perused the record. The factsthat the deposit made into the bank account is from out of thebooks of accounts and the said deposits have been duly recordedin the books of account are not disputed. It is the submission ofthe assessee that it had received advance money from walk incustomers for sale of jewellery over the counter and the amountso received was duly recorded in the books of account. The saidamount alongwith other cash balance available with theassessee was deposited into the bank account afterannouncement of demonetization by the Government of India. Healso submitted that the assessee has raised sale bills against thesaid advances in the name of respective customers. Since thetransaction was less than Rs.2.00 lakhs, it was stated that theassessee did not collect complete details of the customers. Thus,it is seen that the advance amount collected from customers, thesales bill raised against them etc., have been duly recorded in thebooks of account. The impugned deposits have been made fromcash balance available with books of account. I also notice thatthe Assessing Officer has not rejected the books of account. Whencash deposits have been made from the cash balance available inthe books of account, in my view, there is no question of treatingthe said deposits as unexplained cash deposit as opined by theAssessing Officer.
5. The Ld A.R relied on certain case laws which are relevant tothe issue under consideration. In the case of Lakshmi Rice Mills(1974) 97 ITR 258 (Patna), it has been held that, when books ofaccount of the assessee were 3 R. S. Diamonds India PrivateLimited accepted by the revenue as genuine and cash balanceshown therein was sufficient to cover high denomination notesheld by the assessee, then the assessee was not required toprove source of receipt of said high denomination notes whichwere legal tender at that time. In the case of M/s. HirapannaJewellers (ITA No. 253/Viz/2020 dated 12.5.2021), it was heldthat when the cash receipts represented the sales which hasbeen duly offered for taxation, there is no scope for making anyaddition under section 68 of the Act in respect of deposits madeinto the bank account.
6. I notice that the decision rendered in both the above said casessupport the case of the assessee. Accordingly, in the facts andcircumstances of the case, I am of the view that the addition ofRs. 45 lakhs made in the hands of the assessee is not justified,since the said deposits have been made from the cash balanceavailable in the books of account. Accordingly, I set aside theorder passed by learned CIT(A) on this issue and direct theAssessing Officer to delete the addition of Rs. 45 lakhs."22 ITA No.5913/DEL/2025
20. Further, in the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258(Pat.) Hon'ble Patna High court held as under:
"It is, in my view, a fundamental principle governing the taxationof any undisclosed income or secreted profits that the income orthe profits as such must find sufficient explanation at the handsof the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notessubsequently demonetised and even more, in the absence of anyfinding that the books of account of the assessee were notgenuine, the source of income is well disclosed and it cannotamount to any secreted profits within the meaning of the law."
Thus, considering the above ratio, when the Assessee's books of accountwere not rejected, the Lower authorities ought not to have made additions.
21. The ld DR also placed reliance on various decisions, the case lawscited by the ld DR insofar as Champalal Shah Vs. ITO (Mumbai) in ITA No.1295/Mum/2014 dated 03.10.2017, in the said case, there was hugepurchase mainly from one concern, such concern's capital was in thenegative. Each invoices were exceeded Rs. 3 crores, identity of purchaser notdisclosed, there was no proof of delivery of gold bars, assessee therein withpetty capital. Those fact are not found in the present appeal and the factsand circumstances of the case cited above are contrary to the present casein hand. Further insofar as the case laws cited by the Revenue i.e. RavinderKumar Vs. ITO in ITA No. ITA.No.196/Del./2019 dated 02.09.2019, in thesaid case no material adduced to authenticate the contention that each ofdeposits were out of sales. But in the present case each of the deposit wasmade out of sales and books of account was maintained. In the case reliedby the ld DR i.e. Rajiv Jain Vs. ITO (2013) 410 ITR 179 (Del), there was noevidence to show that cash collection through sale of wearing apparels andthe inherited silver utensils. In the instant case, the facts clearly supportthat the assessee has made the sales and there were sufficient stocks tomeet the sales. Thus, the facts of the Assessee's case are clearlydistinguishable from the above case laws.
22. In the case in hand the reason for disbelieving the cash deposit is thatthe assessee has been deposited below Rs. 2 lakh in every transactions thatlead to the conclusion of the Assessing Officer that the same has been doneto avoid the application of provision of section 285BA read with Rule 114E ofthe Act. The said observation made by the Assessing Officer without anymaterial in his hand. There is no prohibition under law to make saletransaction below Rs. 2 lakhs as such the assessee had at liberty to managehis own affairs. From the action of the assessee in raising the sales billbelow Rs. 2 lakhs the Assessing Officer cannot interpret as the sale arebogus only to give color to non-genuine transaction as genuine transaction.The evidence brought on record by the Assessing Officer are not enough tohold that sales were not genuine. More so, the other wing of the Govt hasalready accepted the sale transaction under VAT, hence, the AssessingOfficer is precluded from making contrary findings on the issue when thesales are not doubted. The other contention of the ld DR is that the assesseehas not maintaining stock register properly and date wise stock position arenot given. The Assessing Officer made the said observation without rejectingthe books of account form which true profit and 23 ITA No.5913/DEL/2025 loss accounts could beascertained and there is no quarrel on this issue. The lower authoritiescannot place reliance on the circumstantial evidence which is onlyconjectures and surmises and the said approach of the ld CIT(A) is devoid ofmerit it deserves to be rejected. Further, the income of the assessee has tobe computed by the Assessing Officer on the basis of available material onrecord and it is very important to have a direct evidence to make an additionrather than circumstantial evidence. When the assessee gives any reply orsubmission or any documents to the Assessing Officer, it is duty of theAssessing Officer to examine the same in the light of the available evidence.In the present case the Assessing Officer and the ld CIT(A) have concludedthe findings on the basis of conjectures and surmises. The Assessing Officerhas to establish the link between the evidence collected by him and theaddition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits arefrom cash sales. The Assessing Officer proceeded to disbelieve theexplanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to actfairly as reasonable person and not arbitrarily capriciously. The assessmentshould have been made based on the adequate material and it should standon its own leg. The Assessing Officer without examining any parties to whomthe goods are sold by the assessee, came to conclusion that the sales are notgenuine, without even rejecting the books of account which is in our opinionis erroneous.
23. In view of the above discussion we are of the considered opinion thatthe ld CIT(A) has committed error in upholding the addition made by the AOu/s 68 of the Act. Accordingly, we allow the grounds of appeal of theassessee."
The other decision relied upon by the assessee is coordinate Bench decision in the case of Nirankari Sons Jewellers Private Limited wherein the coordinate Bench held as under :-
"12. We have heard the rival contentions made by the respective parties and have also perused the materials available on record. We find the following documents annexed to the paper books filed by the assessee before us :-
.............
13. It appears from the above documents that cash sales increased from Rs. 2.9 crores in FY 2015-16 to Rs. 5.1 crores in FY 2016-17, i.e. by 77%. Cash sales from 01.04.2015 to 08.11.2015 were Rs. 1.9 crores and from 01.04.2016 to 08.11.2016 were Rs. 4.4 crores i.e. increase of 131.23%.
14. The assessee further filed the following documents :- a. Details of Cash deposit for FY 2015-16 and FY 2016-17; cash deposit from 01.04.2015 to 24 ITA No.5913/DEL/2025 08.11.2015 and from 09.11.2015 to 31.12.2015, from 01.04.2016 to 08.11.2016 and from 09.11.2016 to 31.12.2016 appearing at page 270 of PBK1.
15. It can be seen that cash of Rs. 61,30,000 was deposited from 09.11.2015 to 31.12.2015 whereas cash of Rs. 2,28,00,000 was deposited from 9.11.2016 to 31.12.2016.
16. Further, following documents were also available on record, which have been duly considered.
.........
17. Most importantly the Sale invoices containing invoice No., date, party name, party address, contact of purchasers, description of good such as quantity, rate, amount, labor, hallmarking charges, VAT and mode of receipt of payment in respect of sales made from 01.11.2016 to 08.11.2016 are appearing at pages 366- 425 of the PBK2.
18. It is relevant to mention that the Ld. DR has not been able to raise any objection in regard to the above details annexed to the paper book filed by the assessee which was duly submitted before the First Appellate Authority and duly confronted to the Ld.AO during remand proceedings. These documents clearly establishes that the cash deposit was made out of cash sales duly recorded in the books of account which was further audited under Section 44AB of the Act. In that view of the matter without referring any defect in the evidences so produced by the assessee in support of claim, the sales cannot be disregarded as contended by the Ld. AR is found to be acceptable. We have considered the fact that such cash deposit made out of cash sales duly accepted by the VAT/GST department; there was no revision in those returns neither any difference or defect was pointed out in these references which further establishes the fact of stock available with the assessee in the form of opening stock and purchases been accepted by the Income Tax Department and also the VAT and GST Department too. Further that, the books of accounts were neither refuted by the AO or CIT(A) neither has it been said to be ingenuine. Particularly, when the balance in cash is matching with the books the assessee, explanation to the nature and sources of such deposits deserved to be accepted. The books of accounts of the assessee were duly audited by the independent Chartered Accountant under Section 44AB of the Act, the recording of sales, purchase and stock therein not been doubted by the authorities below neither specific defect was pointed out in the books of account maintained by the assessee and having regard to this aspect of the matter, the additions made on ad-hoc basis doubting sales of the assessee in the case in hand is found to be arbitrary, erroneous.
The book result shown by the assessee had been accepted by the department in the current year and preceding years. The finding of the AO that the sales made by the assessee is his unaccounted income would certainly disturb the trading results of the company and would also change the GP ratio which is neither permissible without 25 ITA No.5913/DEL/2025 the books of account having being rejected. The authorities below did not doubt the trading results of the assessee. Thus, treatment of sales as unexplained cash credit tantamount to disregarding the audited accounts; if sales is disregarded, it must be followed by rejection of books of accounts under section 145(3) of the Act. It is never the case of the revenue that the cash was utilized elsewhere and not deposited and that sales were not made out of existing stock. The cash in hand in the present facts of the case, cannot be ascribed to bogus sales in absence of cogent evidence in the hands of the revenue, particularly when sales and purchases register, invoices, Stock Register were though furnished, the AO failed to make any further enquiry on this. Moreso, only cash credit was considered under Section 68 of the Act and not the trading receipts.
19. Sales were offered as revenue receipt and the same has been admitted as income and therefore, addition on the same amount as un-explained cash credit under Section 68 of the Act tantamount to double taxation, as argued by the learned AR, is also found to be acceptable. There is no statutory bar in making cash sales in A.Y. 2017-18. Section 269 ST bars receiving money in cash over and above of Rs. 2 lacs against sale was introduced only in F.Y. 2017-18 w.e.f. 01.04.2017 i.e. A.Y. 2018-
19. Neither there is any legal bar in keeping its money in the Bank Account. Then, considering the entire aspect of the matter, we find that the assessee has discharged the initial burden cast upon him to prove the credit entries in the books of accounts and thus, the burden shifted to Revenue to conclusively prove that the credit entries appearing in the books of accounts are unexplained in terms of the provision of Section 68 of the Act which is completely absence in the case in hand. We note that the sale are backed by documentary evidences cannot be rejected arbitrarily; the above disallowance is, thus, also found to be without any basis. Upholding the addition made by the Ld. AO by the Ld. CIT(A) merely on the premises that the purchasers did not respond to the notices issued by the Ld. AO or that the assessee failed to produce confirmations from the purchasers only because letters were issued by the AO (though without mentioning any section of the statute) remained un- answered cannot lead to the conclusion that sales are bogus when there are documents galore brought on record by the assessee in support of his case, in the form of audited books of accounts / stock register item wise purchase and sales, VAT returns to demonstrate that the assessee indeed has affected the sales, the addition made by the Ld. AO further confirmed by the First Appellate Authority is found to be complete non application of mind, erroneous, arbitrarily and, therefore, not sustainable in the eyes of law. Thus, the additions made by the authorities below are deleted."
11. With regard to case laws relied by the ld. DR of the Revenue, we observed that the same is distinguishable to the facts in the present case. With regard to 26 ITA No.5913/DEL/2025 decision of Pankaj Gupta (supra), Hon'ble High Court dismissed the appeal of the assessee on the basis that assessee did not explain nature and source of acquisition of money whereas in the present case, the cash sales are already recorded in the books of account. Further with regard to the decision in the case of Sanjay Kapur vs. ACIT (supra), Hon'ble Supreme Court dismissed the appeal of the assessee for the reason that no supporting evidences were available to prove source of such deposit leading to reason to believe. In this case, there was no supporting evidence to prove the source of cash deposited to record the reasons to reopen the case whereas in the present case, the issue involved is cash deposited supported by cash sales and all the cash was already in the books. Therefore, these cases are distinguishable to the present case.
12. Accordingly, in view of our above findings and respectfully following the above decisions relied upon by the ld. AR of the assessee, we allow the grounds of appeal raised by the assessee.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 26th day of May, 2026.
Sd/- sd/-
(VIMAL KUMAR) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 26.05.2026/TS
27
ITA No.5913/DEL/2025
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI