Income Tax Appellate Tribunal - Chennai
Sulaiman Imtiaz Ahamed,Chennai vs Acit, Non Corp. Circle 3(1) Che, Chennai on 11 May, 2026
आयकर अपीलीय अधिकरण, 'बी ' न्यायपीठ, चेन्नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
श्री एस एस विश्िनेत्र रवि, न्याययक सदस्य एिं श्री एस. आर. रघन
ु ाथा, लेखा सदस्य के समक्ष
BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND
SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं/.ITA No.4013/Chny/2025
यनिाारण िर्ा / Assessment Year: 2017-2018
Sulaiman Imtiaz Ahamed The Assistant Commissioner of
No.35, Cathedral Road vs. Income-tax, Non-Corp.Cir.3(1)
Gopalapuram Chennai.
Chennai - 600 086.
[PAN:AACPA7322H]
(अपीलाथी/ Appellant) (प्रत्यथी/Respondent)
अपीलाथी की ओर से/Appellant by : Shri. N.Arjun Raj, Advocate
प्रत्यथी की ओर से/Respondent by : Shri .Shiva Srinivas, CIT
सुनिाई की तारीख/Date of Hearing : 17.02.2026
घोर्णा की तारीख/Date of Pronouncement : 11.05.2026
आदे श/ O R D E R
PER S. R. RAGHUNATHA, AM :
The present appeal is filed by the assessee against the order dated 17.12.2025 passed by the learned Commissioner of Income Tax (Appeals)-20, Chennai, (hereinafter referred to as "ld.CIT(A)"), dismissing the appeal filed by the assessee against the assessment order dated 31.12.2019 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), passed by the ACIT, Non-Corp. Circle 3(1), Chennai (hereinafter referred to as "AO") pertaining to Assessment Year (A.Y.) 2017-18.
:-2-: ITA. No.4013/Chny/2025
2. The brief facts of the case emanating from the records are that the assessee is an individual and proprietor of LKS Gold Paradise, filed his return of income for the assessment year 2017-18 on 18.10.2017 admitting total income of Rs.3,12,99,790/-. The case was selected for scrutiny under CASS and accordingly the statutory notices were issued to the assessee. After verifying the details and records submitted, the AO noticed that the assessee has booked cash sales to the tune of Rs.25,22,98,115/- on 08.11.2016. The assessee furnished the bill books (38 Nos.) which contained the invoices handwritten raised by the assessee's entity against customer, for sales made on 08.11.2016. On perusal of the same, the AO found that the six invoices exceeded Rs.2 lakh per bill did not contain the PAN of the customers. Further, the AO also observed that most of the invoices did not have the basic details like address and signature of the customer, item description etc. Later the AO issued summons u/s.131 of the Act to 22 customers requesting to furnish the copy of invoices relating to purchase of jewellery in LKS Gold Paradise on 08.11.2016. The AO noted that out of the summons issued to 22 customers, only 3 were served and 19 customers could not be served due to either wrong or insufficient addresses.
3. Further, a survey was also conducted u/s.133A of the Act in the case of LKS Gold Paradise on 07.03.2017. It was observed from the records that the assessee booked cash sales of about Rs.25 crore in 3 hours and 30 minutes on 08.11.2016 up to 12 midnight, i.e. the date of announcement of demonetization by the Central Government. The sworn statement recorded during the course of survey proceedings that the assessee has stated that about 1,200 customers had purchased jewellery in 3 hours 30 minutes managing the huge crowd of 1200 customers means that minimum six customers were disposed off in just one minute completing the formalities of sales, which is humanly impossible particularly when only 28 employees were at the premises, as stated by the assessee in his sworn statement recorded u/s.133A of the Act :-3-: ITA. No.4013/Chny/2025 on 07.03.2017. In view of the above observation, the AO decided to make an estimated addition of 50% of the cash deposits made during the demonetisation period of Rs.25,22,98,115/- minus Rs.2,50,00,000/- being the amount already admitted by the assessee as undisclosed income under IDS and PMGKY scheme, (50% of cash deposit Rs.12,61,49,057/-(-) Rs.2,50,00,000/- ) i.e., Rs.10,11,49,057/- u/s.68 as unexplained credit.
The AO also concluded that Rs.83,000/- excess stock of diamond, deficit stock of gold of Rs.1,38,281/- and silver of Rs.27,570/- as undisclosed income and made an addition u/s.69A of the Act. In view of the above observations, the assessment was concluded by the AO u/s.143(3) of the Act dated 31.12.2019 by making the following additions:-
(i) Unexplained credit u/s.68 r.w.s. 115BBE of the Act Rs.10,11,49,057/-. (ii) Unaccounted sales of Rs.1,65,851/-.
(iii) Unaccounted income u/s.69A r.w.s.115BBE of the Act Rs.83,000/-
4. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A), Chennai-20. The assessee submitted that the treatment of Rs.10.11 crores of recorded cash sales as unexplained credits u/s.68 of the Act is factually incorrect and legally unsustainable as the said sales has already been duly recorded in the books of account backed by sales invoices, inventory deduction and supporting stock records. Further, the total cash sales reported of Rs.25.22 crores on 08.11.2016 in the regular books of account includes 10.11 crores, which has now been treated as unexplained credit by the AO. These sales were recorded as part of the total turnover for the financial year 2016-17, the corresponding stock was also duly reduced and the profit thereon has been declared in the financials and offered to tax in the return of income filed on 18.10.2017. The same sales considering it as unexplained credit u/s.68 of the Act, which has already been taxed under the head income from business amounts to double taxation, which is impermissible in law. Further the assessee :-4-: ITA. No.4013/Chny/2025 submitted that the AO has not found any defects or inconsistency in the books of account of the purchase by the assessee nor the AO has rejected the books of account u/s.145(3) of the Act. The assessee submitted that the audited financials along with the detailed supporting documents such as sales register, stock movement, VAT return, original invoices were available to the AO during the assessment proceedings and hence in the absence of any adverse findings in these records, invocation of sec.68 of the Act is not justified.
5. Further, the AO also submitted that when the cash sales were made and goods are delivered against immediate payment where the value of the invoices etc. exceeds Rs.2 lakhs, there is no statutory obligation for the sellers to collect customer details. Since the sales made on 08.11.2016 following the announcement of demonetization at 8 pm by the Hon'ble Prime Minister an unprecedented crowd gathered at the assessee's showroom and the same is exceptional circumstances where the appellant faced considerable difficulty in managing the volume of customers. Nonetheless every possible efforts were made to collect relevant customers' particulars under such circumstances also.
6. Further, the assessee stated that in response to notice u/s.131 of the Act, two customers appeared and their inability to produce invoices due to passage of time does not detract from the genuineness of the transactions. On the contrary, their acknowledgement supports the assessee's version and undermines the AO's suspicion. Further, the assessee submitted that such minor deficiencies in documentation cannot be ove4rride the substantive fact these were genuine retail sales duly recorded in the books supported by stock movement and inventory records.
7. Further, the assessee in good faith and under pressure during the survey proceedings, made a voluntary disclosure of Rs.2 crores under PMGKY on 08.03.2017 to settle any doubts relating to sales documentation or discrepancies. However this was a precautionary move and not an admission of concealment as clearly stated in the sworn statement recorded on :-5-: ITA. No.4013/Chny/2025 07.03.2017 (Question and Answer No.23). Further, the assessee submitted that the statistics of the turnover, gross profit, net profit for the three financial years is detailed below.
Financial Year Turnover (Rs. In Gross Profit (%) Net Profit (%)
Cr.)
2014-15 72.02 2.97% 0.17%
2015-16 70.71 3.50% 0.09%
2016-17 57.78 10.08% 4.61%
8. In respect of arbitrary estimation of 50% of cash deposits treating it as unexplained income u/s.68 of the Act, the assessee submitted that the entire amount of Rs.25.22 crores had already been credited in the sales ledger forming part of the assessee's gross turnover for the financial year 2016-17. Treating 50% of the same receipts as unexplained income u/s.68 of the Act results in impermissible double taxation in law. Since the assessee has filed VAT returns to the indirect tax authorities, which was never revised, there is no evidence of post facto fabrication or back dating, which supports the genuine nature of the sales. In support of the above arguments, the assessee relied on the following case laws:-
(i) CIT v. Kailash Jewellery House (Delhi HC, ITA No.613/2010)
(ii) ACIT v. Hirapanna Jewellers (ITAT Vizag, ITA No.253/Viz/2020)
(iii) ITO v. Smt.Harshila Chordia (2008) 298 ITR 349 (Raj.)
9. In respect of deduction of Rs.83,000/- made u/s.69A of the Act, the assessee submitted that the marginal excess in stock of diamond of Rs.83,000/- is not a major discrepancy detected and also the books and inventories were physically verifiable. Since the assessee had already declared Rs.2 crores under the PMGKY on the presumption that some lapses might exists in the course of post survey interaction and also estimating Rs.50 lakh as deposit under PMGKY scheme will cover the discrepancy.
10. In response of Rs.1,65,851/- as unexplained sales found during the survey proceedings a marginal deficit in physical stock. However, the AO has :-6-: ITA. No.4013/Chny/2025 not found any unrecorded sales or suppression of income. The discrepancy of shortage of stock is more appropriately attributable to routine operation losses such as wastage, melting loss, weighing errors, display shrinkage, or misclassification, which are common in jewellery trade. Hence, these cannot be treated as conclusive evidence of sales or suppression of income. In support of the above arguments, the assessee relied on the following judicial precedents:-
(i) CIT v. A.Krishnaswami Mudaliar (1964) 53 ITR 122 (SC)
(ii) CIT v. President Industries (2002) 258 ITR 654 (Guj.) Further, in support of the sales made on 08.11.2016, the assessee filed the movements of jewellery stock from 07.11.2016 to 08.11.2016 as detailed below:-
The movement of jewellery stock on 07.11.2016 and 08.11.2016 is explained here below:-
Particulars Jewellery in gms.
Opening stock as per books on 7.11.2016 59510.600
Add : Purchase made on 07.11.2016, entry
erroneously passed in the books on
08.11.2016. 6691.260
Physical opening stock as on 08.11.2016 66201.860
Add : Purchases made on 08.11.2016 17537.030
Total stock available for sales on 08.11.2016 83738.890
Less : Stock sold on 08.11.2016 77601.290
Closing stock 12 on 08.11.2016 6137.600
11. In light of the above submissions, the assessee pleaded for deleting the additions made by the AO by allowing the grounds of appeal raised.
12. On perusal of the various submissions, documents and case laws, the ld.CIT(A) dismissed the appeal of the assessee by holding as under:-
"From the above, it can be seen that the gold purchases by the appellant for the entire AY 2016-17, AY 2017-18 & AY 2018-19 was 1,32,402.20 gms, 1,70,144.95 gms & 1,19,317.04 gms respectively. Further, it can be seen that :-7-: ITA. No.4013/Chny/2025 the highest purchases for a month in AY 2016-17 & AY 2018-19 was around 14,000 gms (except 22,353.77 gms in Jan 2016), whereas the purchases in Nov 2016 & December 2016 are 39,820.10 gms & 33,697.42 gms respectively. Similarly, the gold sales made by the appellant for the entire AY 2016-17, AY 2017-18 & AY 2018-19 was 1,25,753.58 gms, 1,75,278.90 gms & 1,06,594.62 gms. Further, it can be seen that the highest gold sales for a month in AY 2016-17 & AY 2018-19 was around 12,000 gms (except 22,461.63 gms in Jan 2016), whereas the gold sales in Nov 2016 is 79,827.10 gms. This analysis shows an abnormal pattern of gold purchases & sales for the month of November 2016 when compared to the preceding year and the next year.
7.1.8. Further the appellant has also furnished the stock flow as on 08.11.2016 as under:-
Particulars In Grams In Carats
Gold Gold Platinum Silver Silver Diamond
Jewellery jewellery - jewellery kolusu Vessels
Diamond
Opening stock as on 59,510.60 3,702.69 543.88 16,778.03 23,281.29 529.74
08.11.2016
Add : Purchases made
on 07.11.2016 and entry
passed in the books on
08.11.2016 :-
M/s.Nayan Jewellers 1,300.51
M/s.Harsh Creations 5,390.75
Add : Purchases made
on 08.11.2016
M/s.Arihanth Jewellers 9,680.56
Private Limited
M/s.Nayan Jewellers 2,943.40
M/s.Harsh Creation 4,645.68
Other Purchases (Old 267.39
Gold)
Total Stock Available 83,738.89 3,702.69 543.88 16,778.03 23,281.29 529.74
Less : Sales on 77,601.29 107.05 -- -- -- 16.41
08.11.2016
Closing Stock as on 6,137.60 3,595.64 543.88 16,778.03 23,281.29 513.33
08.11.2016
From the above, it is noted that the appellant had purchased 24,228.29 grms of gold jewellery on 08.11.2016 and sold 77,601.29 gms on the same day. It is also peculiar to note that out of the total sales of 79,827.10 gms for the month of November 2016, 77,601.29 gms was sold on a single day i.e. 08.11.2016.
7.1.9. It is also noted that the appellant had disclosed 2.5 crores in IDS 2016 and PMGKY. The appellant has tried to explain that the said disclosure was made to settle any doubts relating to sales documentation or discrepancies. However, no businessman would make such huge disclosure if there is no fault on his part. The disclosure made by the appellant also indicates that the appellant had booked bogus sales in the year under consideration. Further, the deciding factor in this case is that the AO had not made the addition by simply relying on comparison of sales & purchases for the year under consideration with the sales & purchases for :-8-: ITA. No.4013/Chny/2025 the earlier year and the next year. Instead, the AO had made verification with regard to the sales invoices submitted by the appellant and found that the sales invoices were fabricated and did not contain even the basic details such as address of the customer, description of the item sold, etc. When the above findings are seen in conjunction with the enquiries made by the AO with regard to the sales invoices, it is apparent that the appellant has booked bogus sales in its books to accommodate the source for the cash deposits made during the demonetization period. Further, it is noted that the appellant would have also made some genuine sales also as a result of announcement of demonetization. In this regard, the AO has already allowed 50% of the sales made on 08.11.2016 as genuine sales, which works out to Rs. 10,11,49,057/-. In view of the same, I am of the opinion that the appellant has used the increase in sales during demonetization period as an excuse to bring his unaccounted cash into its books in form of sales receipts. Therefore, it is held that no relief can be allowed to the appellant in respect of this issue. Accordingly, the addition made by the AO of Rs.10,11,49,057/- is confirmed and these grounds of appeal are dismissed."
.........................
"7.2.5 Similarly, there are plethora of judgments wherein it has clearly been held that the disclosure on account of excess stock found mixed with the regular stock has to be treated as business income. The deeming provisions are to be interpreted strictly. In this case, the excess stock was mixed with the regular stock and it was a part and parcel of the stock in trade. Therefore, the same cannot be considered as an investment for the purposes of section 69 of the Act. On the basis of the above discussion and respectfully following the above cited decisions, I am of the view that the AO was not justified in treating the excess stock u/s 69A of the Act and levying the tax u/s 115BBE of the Act. Therefore, the AO is directed to treat the said excess stock of Rs.83,000/- under the head 'Profits and gains of business or profession'. Accordingly, this ground raised by the appellant is partly allowed."
.........................
"7.3.2. In the appeal proceedings, the appellant has submitted that a marginal deficit of physical stock valued at Rs.1,65,851/- was observed in gold and silver items, however, no unrecorded sales or suppression of income were established by the survey team. The appellant has also explained that the discrepancy in physical stock is more appropriately attributable to routine operational losses such as wastage, melting loss, weighing errors, display shrinkage, or misclassification. Alternatively, the appellant has also submitted that even if such variation is treated as a notional sale, the correct method would be to bring to tax only the profit margin embedded in the alleged sale value, not the full value of inventory.
7.3.3. I have perused the assessment order and the submissions made by the appellant. It is noted that during the course of survey, the appellant had accepted the deficit physical stock. The appellant has tried to explain that the same is attributable to wastage, melting loss, weighing errors etc. However, this is only a general explanation furnished by the appellant without any corroborative evidence to support the same. It is also noted that the appellant is operating a large business and these factors would obviously have already been accounted by the appellant. Further, with regard to the claim of the appellant for addition of :-9-: ITA. No.4013/Chny/2025 only the gross profit on the unaccounted sales, it is noted gross profit can be added in those cases where the purchases as well as the sales are unaccounted. However, in the appellant's case, the purchases as well as all other expenses have already been accounted in the books of account, whereas, only the sales were not recorded. Therefore, the entire unaccounted sales have to be added to the total income of the appellant. dismissed."
13. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the ld.CIT(A) submitted that the ld.CIT(A) erred in confirming the order of the AO inspite of the assessee furnishing the entire details of cash deposits along with the supporting evidences. In support of the grounds of appeal filed by the assessee, the ld.AR submitted three volumes of paper book of 1075 pages containing the details of cash flow, cash deposits made during the demonetisation period, sales ledger in the books of LKS Gold Paradise, reconciliation of gross turnover in ITR and Service Tax return, financial transaction details, cash book, purchase ledger account of gold jewellery, diamond jewellery, diamond, platinum, silver vessels, monthly extract of quantity movement of old gold, platinum, silver, VAT returns filed for April 2016 to March 2017 along with the invoice copies of purchases. Further, the ld.AR argued that the sales declared in the books of account has been properly reported in the monthly VAT returns filed and the proceeds collected has been deposited to the bank account, hence the source of cash deposit has been clearly demonstrated before the lower authorities and hence the action of the AO and also the ld.CIT(A) in making the addition of cash deposit as unexplained cannot be sustained both under law on facts. Further, the ld.AR brough to the notice of the fact that the huge crowd standing in the queue before jewellery shops on the night of 08.11.2016 across the town of Chennai for purchase of valuable jewelleries. The ld.AR also furnished a paper cutting dated 09.11.2016 showing particularly the photo of the LKS Gold Paradise, wherein huge cluster of customers waiting in the counter for making the purchases of jewellery. Therefore, it is evident that the sales declared on 08.11.2016 along with support of VAT returns, cash book, sales register cannot be brushed aside by the authorities by relying purely on the human :-10-: ITA. No.4013/Chny/2025 improbabilities for achieving such huge sales on the basis of assumptions and surmises.
14. Further, the ld.AR took us through the stock movement of inwards and outwards of closing balance for all the twelve months of the gold, diamond and silver during that period, wherein the assessee had a clear stock balance to make such huge sales on that day. Further, the ld.AR argued that the authorities have not rejected the books of account before making the alleged sales as unexplained money u/s.69A of the Act. The assessee had established that the transactions are genuine and recorded in the books of account by providing the supporting of stock registers, purchase invoices, sales invoices along with VAT returns filed for the entire year. Therefore, the assumption of the authorities that the source of cash deposit has not been explained cannot be countenanced and hence the ld.AR prayed for setting aside the order of the ld.CIT(A) by deleting the additions made by the AO. The ld.AR also brough to our notice to the directions issued by the Joint Commissioner of Income Tax to the AO (page No.792 of paper book volume-2), wherein the Joint Commissioner has clearly stated to verify whether sufficient stock was available for the stock declared and also to check the genuineness of the sales done along with conducting enquiries relating to purchases. Therefore, the ld.AR submitted that the assessee has proved the complete stock details before the AO by providing the stock held inwards during the year and outwards during the year along with the sufficient closing balance, even after showing the huge sales on 08.11.2016. Hence, the ld.AR submitted that the action of the AO in rejecting the claim of the assessee and making the additions u/s.69A of the Act, is not warranted. The ld.AR also argued hat the additions cannot be sustained merely on the ground that only a limited number of customers responded to the summons without recording any findings that the sales were fictitious or that the corresponding stock movement was false.
15. The ld.AR also submitted that the ld.CIT(A) has erred in confirming the addition without prejudice that the department's own physical verification of :-11-: ITA. No.4013/Chny/2025 stock during the survey proceedings revealed only a negligible excess and deficit without any material discrepancies, which is in consistent with the allegation that the unaccounted cash was introduced through non-genuine sales. The ld.AR further submitted that the ld.CIT(A) erred in confirming the addition u/s.68 of the Act, despite the statutory conditions for invoking sec.68 not being satisfied, inasmuch as, the nature and source of the impugned credits stood fully explained as recorded business receipts arising from sales duly accounted for in the regular books of account, supported by quantitative stock records and other documentary evidence, rendering the invocation of sec.68 unsustainable. The ld.AR further submitted that the ld.CIT(A) erred in drawing adverse inference from the voluntary disclosure under the IDS / PMGKY Scheme, without correlating it to ay undisclosed income or discrepancy in the books for the relevant assessment year, and also erred in treating the voluntary disclosure under a statutory scheme as evidence of non-genuine sales or unexplained credits. The ld.AR also submitted that the ld.CIT(A) erred in confirming the addition resulting in double taxation of the same receipts, once as business turnover and again as unexplained credit u/s.68 of the Act.
16. The ld.AR in support of his above arguments, relied on various judicial precedents wherein the Hon'ble Courts have held that once the source has been explained with the corroborating evidences and audited books of account, the additions cannot be sustained u/s.69A of the Act.
(i) CIT v. Kailash Jewellery House (ITA 613/2010), wherein the Hon'ble Delhi High Court held that the AO cannot treat cash sales as undisclosed income and no addition u/s.68 can be made in respect of that sales as it had already been offered for taxation and held that it is tantamount to double taxation.
(ii) Shree Sanad Tex Industries Ltd. V. DCIT (ITA No.1166/Ahd/2014), wherein it was held that provision of sec.68 cannot be applied in :-12-: ITA. No.4013/Chny/2025 relation to the sales receipt shown by the assessee in its books of account. Once the purchases have been accepted, then correspondingly sales cannot be disturbed without giving any adverse findings. Accordingly, the order was set aside with the direction to the AO to delete the addition made by him.
(iii) TamilNadu State Marketing Corporation Ltd v. ACIT, (ITA No.431/Chny/2023 dated 07.10.2024).
17. Further, the ld.AR submitted that the disclosure of income voluntarily made by the assessee under IDS and PMGKY Scheme during the survey proceedings was only to buy peace and not because of any undisclosed income or unaccounted transactions. The ld.AR also stated that the discrepancy found during the survey proceedings to the tune of 83,000 of excess stock and 1,65,851 of shortage of stock is only account of normal wastages or misplacement only. This cannot be treated as undisclosed income or undisclosed sales of the assessee. Further, he also argued that the lumpsum amount of Rs.2.5 crores disclosed as income at the time of survey conducted on 07.03.2016 and the corresponding taxes also has been paid should cover all these miniscule discrepancies in the stock compared to the over all turnover and transactions of the assessee. Therefore, the ld.AR prayed for setting aside the order of the ld.CIT(A) and delete the additions made by the AO in the assessment proceedings.
18. Per contra, the ld.DR strongly supported the orders of the authorities below and submitted that the assessee has booked cash sales to the tune of Rs.25,22,98,115 on a single day, i.e., 08.11.2016 by raising 38 books of invoices, which is practically impossible. As the Hon'ble Prime Minister of India announced the demonetisation on 08.11.2016 at 8 PM, from there before 12 midnight the assessee has stated to be managed to book cash sales of Rs.25.22 crores cannot be accepted and hence the action of the AO as well as :-13-: ITA. No.4013/Chny/2025 the ld.CIT(A) needs to be upheld by dismissing the appeal of the assessee. Further, the ld.DR argued that the reliance placed by the AO on the decision f the Hon'ble Supreme court in the case of CIT v. Sumati Dayal 214 ITR 801 (SC) on the human probabilities. Further, the ld.DR argued that the AO has already given a concession of 50% of the alleged sales as acceptable turnover and only the balance amount of Rs.12,61,49,057 has been disallowed and further provided credit of Rs.2.5 crores being amount already admitted by the assessee as undisclosed income under IDS and PMGKY Scheme by bringing Rs.10.11 crores to tax as unexplained credit of the assessee u/s.68 of the Act.
19. We have heard the rival submissions, perused the assessment order, the impugned order of the ld.CIT(A), the extensive paper books filed by the assessee and the judicial precedents relied upon by both sides. The principal issue for adjudication before us is whether the cash sales of Rs.25,22,98,115/- recorded by the assessee on 08.11.2016 and the corresponding cash deposits made during the demonetisation period could be treated as unexplained cash credits under section 68 of the Act.
20. It is an undisputed fact that the impugned sales were duly recorded in the regular books of account maintained by the assessee and formed part of the total turnover disclosed in the return of income. The assessee had furnished before the lower authorities complete quantitative details including stock registers, sales registers, purchase invoices, VAT returns, cash book and reconciliation statements evidencing movement of stock and corresponding reduction in inventory. The Revenue has not disputed the existence of stock available with the assessee for effecting the impugned sales. Further, the purchases recorded by the assessee have also been accepted by the Department.
21. We find that neither the AO nor the ld.CIT(A) has rejected the books of account maintained by the assessee by invoking the provisions of section :-14-: ITA. No.4013/Chny/2025 145(3) of the Act. In the absence of rejection of books and without disproving the quantitative records maintained by the assessee, the sales entered in the regular books cannot be selectively treated as non-genuine merely on the basis of suspicion or surrounding circumstances. The AO proceeded mainly on the premise that the assessee could not have effected such huge volume of sales within a short period of time immediately after the announcement of demonetisation on 08.11.2016 and therefore invoked the theory of human probabilities by placing reliance on the decision of the Hon'ble Supreme Court in CIT v. Sumati Dayal. However, the theory of human probabilities cannot be applied in isolation disregarding direct documentary evidences available on record. The assessee has placed contemporaneous evidences including newspaper reports and business records demonstrating extraordinary rush in jewellery shops across Chennai immediately after the demonetisation announcement. The abnormal surge in jewellery purchases during the relevant period is a matter of public knowledge and therefore the mere quantum of sales cannot by itself lead to the conclusion that the transactions were fictitious.
22. We further note that the AO has not brought any material on record to establish that the cash deposited in the bank account emanated from sources outside the books of account. The corresponding sales have already been credited in the profit and loss account as business receipts and the profit element embedded therein has been offered to tax. Once the sales receipts are treated as part of business turnover, the same amount cannot again be assessed as unexplained cash credit u/s.68 of the Act, as it would result in double taxation of the very same receipt.
23. The Hon'ble Delhi High Court in CIT v. Kailash Jewellery House held that where sales are duly recorded in the books of account and accepted as turnover, no addition under section 68 could be made in respect of the same receipts. Similar view has been taken by the Coordinate Bench in Shree Sanand Textiles Industries Ltd. v. DCIT wherein it was held that once purchases and :-15-: ITA. No.4013/Chny/2025 quantitative details are accepted, the corresponding sales cannot be disregarded without bringing adverse evidence on record.
24. Moreover, we note that the sole reason for making the addition by the AO was on the presumption that assessee could not have made such abnormal sales on a single day and even such theory is assumed to be accepted, there is no prohibition for the assessee to receive SBNs after 08.11.2016 also. In this regard, the issue involved in the appeal is covered by the decision of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd. v. ACIT, (ITA No.431/Chny/2023 dated 07.10.2024) wherein it has been categorically held that once the assessee satisfactorily explains the nature and source of cash deposits made during the demonetisation period, no addition u/s.69 or 69A of the Act can be sustained merely on the ground that the deposits were made in Specified Bank Notes (SBNs). The Tribunal further held that acceptance of SBNs during the demonetisation window, though governed by RBI notifications and Government directions, would not automatically render the deposits unexplained for the purposes of the Act, particularly when the sales, books of account, and source of receipts remain undisputed by the Revenue. The relevant paragraph of the decision is extracted below:
"8. We have heard rival contentions and gone through facts and circumstances of the case. The admitted facts are that the assessee is a company wholly owned by Government of Tamil Nadu and is conducting its retail business of IMFS and Beer through 6200 retail vending shops located all over Tamil Nadu (till November, 2016). These shops functioned under the control of 38 district managers. Admittedly, sale per day was ranging from Rs.80 crores to Rs.110 crores approximately and these shops are located across Tamil Nadu from remote villages to corporate areas. The shop personnel of the retail vending shops located in other areas are depositing the previous day sale proceeds on the following day into non operative collection accounts of designated bank branches. The assessee before AO and before CIT(A) and even now before us in its paper-book consisting of 238 pages filed complete details giving the branch-wise cash deposits, date-wise deposits of SBNs. Admittedly, during demonetization period from 09.11.2016 to 30.12.2016, all retail vending shops throughout the state have deposited a sum of Rs.3506 crores including closing balance as on 08.11.2016. These deposits are consideration received for sale of IMFS and beer sold to the ultimate customers as contended by assessee but contested by revenue. During the period 09.11.2016 to 30.12.2016, the assessee found to have exchanged for value by deposit of Specified Bank Notes or demonetized currency notes totaling :-16-: ITA. No.4013/Chny/2025 to Rs.145.21 crores in its bank account during the permitted window period for such exchange commencing from 10.11.2016 to 30.12.2016. The assessee found to have been in possession of cash balance of Rs.81.57 crores (including demonetized currency and regular currency) at close of 08.11.2016. The balance sum of Rs.57.29 crores, the assessee claimed that such SBNs have been obtained from its customers in exchange of liquor sold to them during demonetization period i.e., 09.11.2016 to 30.12.2016. Admittedly, the Revenue has not rejected the books of accounts produced before the AO and CIT(A) and accepted the sales made by assessee including the sales made in demonetized currency from 09.11.2016 to 30.12.2016 and received demonetized currency of Rs.57.29 crores, which was added by AO u/s.69 of the Act as unexplained investment. Admittedly, the amount of Rs.57.29 crores is received by assessee on account of sale of liquor as no contrary evidence was produced by Revenue except a simple allegation that the assessee is unable to substantiate its claim with valid verifiable evidence that it had indeed sold its goods to customers in exchange of SBNs during the period between 09.11.2016 to 30.12.2016. The assessee has produced complete evidence giving the branch-wise and date-wise deposit of SBNs, even now before us which are enclosed in assessee's paper-book at pages 19 to 238.
8.1 Now the question arises whether the demonetized currency received by assessee on account of sale of IMFS and beer to the customers and accepted demonetized currency in return is to be assessed u/s.69 of the Act or not as unexplained investment. The ld.Senior DR has raised a question on this that when there was an express bar by Government on transacting business from 09.11.2016 in SBNs in view of Question No.2 of FAQ issued by RBI on 08.11.2016 vide Circular No.DCM(Plg) No.1226/10.27.00/2016-17. The ld.Senior DR has argued that vide this very circular, the Government of India has declared the SBNs as not a legal currency w.e.f. 09.11.2016 except only from few notified business transactions were permitted to transact in SBNs and that too for a limited period upto 24.11.2016 as far as demonetized currency of Rs.1000/- and Rs.500/- and then it was extended upto 15.12.2016. The ld.Senior DR has also argued that the assessee's nature of business is not covered under the notification of the Government of India exempting certain categories. We noted that the ld.counsel for the assessee in reply to the same referred to Ordinance issued by the Ministry of Law & Justice, Government of India in the Gazette of India, wherein the SBNs were declared or ceased to be liability of RBI or Central Government and penal provisions were incorporated in the same for holding the demonetized currency as well as transacting in the same. The relevant Ordinance No.10 of 2016, The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was brought in on 30.12.2016. We noted that vide this Ordinance dated 30.12.2016 i.e., Specified Bank Notes (Cessation of liabilities) Ordinance, 2016, No.10 of 2016 dated 30.12.2016, has clearly held the demonetized currency to have ceased to be legal tender as pointed out by ld.counsel, the provision of Section 5 very categorically states that no person shall knowingly or voluntarily hold or transfer any Specified Bank notes on or from the appointed day of 31.12.2016. The relevant provisions of section 5, 6, 7 & 8 reads as under:-
5. On and from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note:
Provided that nothing contained in this section shall prohibit the holding of specified bank notes.
(a) by any person-
(i) up to the expiry of the grace period; or :-17-: ITA. No.4013/Chny/2025
(ii) after the expiry of the grace period, (A) not more than ten notes in total, irrespective of the denomination; or (B) not more than twenty-five notes for the purposes of study, research or numismatics;
(b) by the Reserve Bank or its agencies, or any other person authorised by the Reserve Bank;
(c) by any person on the direction of a court in relation to any case pending in that court.
6. Whoever knowingly and wilfully makes any declaration or statement specified under sub-section (1) of section 4, which is false in material particulars, or omits to make a material statement, or makes a statement which he does not believe to be true, shall be punishable with fine which may extend to fifty thousand rupees or five times the amount of the face value of the specified bank notes tendered, whichever is higher. Penalty for contravention of section 5
7. Whoever contravenes the provisions of section 5, shall be punishable with fine which may extend to ten thousand rupees or five times the amount of the face value of the specified bank notes involved in the contravention, whichever is higher. Offences by companies
8. (1) Where a person committing a contravention or default referred to in section 6 or section 7 is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default.
(2) Notwithstanding anything contained in sub-section (l), where an offence under this Ordinance has been committed by a company and it is proved that the same was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary, or other officer or employee of the company, such director, manager, secretary, other officer or employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Explanation.-For the purpose of this section,-
(a) "a company" means anybody corporate and includes a firm, trust, a co-operative society and other association of individuals;
(b) "director", in relation to a firm or trust, means a partner in the firm or a beneficiary in the trust.
This was further explained by the Central Government i.e., RBI vide Circular dated 26.05.2017 and the relevant reads as under:-
Why was the Scheme of Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 introduced?
:-18-: ITA. No.4013/Chny/2025 The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw legal tender character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 was introduced.
2. What is this scheme?
The legal tender character of the bank notes in denominations of ₹ 500 and ₹ 1000 issued by the Reserve Bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes (SBNs) were allowed to be exchanged for value at RBI Offices till December 30, 2016 and till November 25, 2016 at bank branches/Post Offices and deposited at any of the bank branches of commercial banks/Regional Rural Banks/Co-operative banks (only Urban Co- operative Banks and State Co-operative Banks) or at any Head Post Office or Sub-Post Office during the period from November 10, 2016 to December 30, 2016.
3. What is the Specified Bank Notes (Cessation of Liabilities) Act 2017?
On February 27, 2017 Government of India notified the Specified Banknotes (Cessation of liabilities) Act 2017. The Act repealed the Specified Banknotes (Cessation of liabilities) Ordinance 2016 providing for cessation of liabilities for the Specified Banknotes (SBNs) and for matters connected therewith and incidental thereto, with effect from December 31, 2016. The SBNs cease to be the liabilities of the Reserve Bank under Section 34 of the RBI Act and cease to have the guarantee of the Central Government.
8.2 The ld.counsel explained that till 31.12.2016, these notes i.e., SBNs in demonetized currency was not held to be illegal tender and there is no provision that holding these notes or transacting the same will amount to violation of any law. Before us, the ld.counsel compared the earlier demonetization scheme of 1978, i.e., The High Denomination Bank Notes (Demonetization) Act, 1978 with the present Demonetization Scheme, whereby the scheme was announced on 16.01.1978 wherein the high demonetization notes of value Rs.500/-, Rs.1000/- or Rs.10000/- was withdrawn from circulation and there was a clear bar in the Act for transfer or receipt of high denomination notes and that demonetized bank notes was ceased to be legal tender vide section 3 & 4 from 16.01.1978 only, which reads as under:-
"3. High denomination bank notes to cease to be legal tender.--On the expiry of the 16th day of January, 1978, all high denomination bank notes shall, notwithstanding anything contained in section 26of the Reserve Bank of India Act, 1934 (2 of 1934), cease to be legal tender in payment or on account at any place.
:-19-: ITA. No.4013/Chny/2025
4. Prohibition of transfer and receipt of high denomination bank notes.--Save as provided by or under this Act, no person shall, after the 16th day of January, 1978, transfer to the possession of another person or receive into his possession from another person any high denomination banknote."
The ld.counsel for the assessee also relied on one decision of Hon'ble Bombay High Court in the case of Narendra G. Goradia (HUF) vs. CIT reported in (1998) 234 ITR 571 and stated that the Hon'ble Bombay High Court has categorically held that where the assessee is required to prove source of money, in such case and once, he is successful in proving that source, he could not be asked to produce proof of acquisition of such amount in currency notes of particular denominations. The ld.counsel for the assessee relied on para 9 of the decision, which reads as under:-
"10. We have also perused the decision of A. Govindarajulu Mudaliar v. CIT, on which reliance is placed by learned counsel for the Revenue. We, however, fail to understand how the above decision helps the Revenue in the instant case. In that case, certain amounts appeared in the account books of a firm of which the assessee was a partner as credits for him. The assessee was asked for an explanation as to how he came to possess this amount. His explanation in regard to the source of this amount in part was not accepted. It was in that context that the Supreme Court observed that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. That is not the position in the case before us. In this case, the assessee could prove satisfactorily the source and nature of the amounts. Addition was made not for that reason. The assessee was further required to prove the receipt of the amount of Rs. 2 lakhs therefrom in high denomination notes. In other words, the assessee was asked to prove as to when and from whom he received the amount in high denomination notes. The assessee gave reasonable explanation for his inability to give detailed account of receipts and disbursements of amounts from time to time in currencies of various denominations including high denomination notes. He could, however, satisfy the authorities about the fact that he was often in possession of Rs. 1,000 denomination notes and the probability of high denomination notes of the value of Rs. two lakhs being included therein. In fact, the Revenue itself was satisfied about the inclusion of 96 notes of Rs. 1,000 each therein. The amount of Rs. 1,04,000 was added as income from undisclosed sources only because, according to the Revenue, the assessee failed to discharge the onus cast on him to prove the acquisition of each and every high denomination note encashed by him. This approach, as earlier indicated, is not correct. The assessee having proved the source and shown satisfactorily the possibility of the inclusion of Rs. 1,000 high denomination notes of the value of Rs. 2 lakhs therein, the addition of Rs. 1,04,000 to his income for his failure to furnish detailed particulars of the receipt of such notes each of the 200 notes of Rs. 1,000 denomination tendered by him for encashment, is not in accordance with law."
:-20-: ITA. No.4013/Chny/2025 This judgment was referred by the ld.counsel for meeting the argument made by ld. Senior DR that the demonetized currency received by assessee in the present case is not out of sale proceeds of liquor. We have gone through the scheme and noted that the Specified Bank Notes (cessation of liabilities) Ordinance 2016 (subsequently this was passed as an Act), was towards cessation of liability of RBI in respect of SBNs with effect from 31.12.2016. The Government of India vide Gazette of India Notification dated 8.11.2016 notified that the SBNs of Rs.500 and Rs.1,000 notes is not a legal tender w.e.f. 9.11.2016. We noted that even the Revenue admitted that the Government has not declared the SBNs as an illegal tender and even possessing of SBNs was not an offence till 31.12.2016. Between the period from 9.11.2016 to 31.12.2016,all the public, who were holding such SBNs were permitted to exchange such holdings against valid currency notes but the scheme itself does not render the SBN as illegal or declaration does not bar in receiving or paying through the SBNs in the course of business like other documents i.e., through cheques, promissory notes, Government securities, which are not legal tender can be freely exchanged so can the SBNs. The Ordinance of December 2016 clearly specifies that on or from 31.12.2016, it is illegal for any person to hold, transfer or receive SBNs. This would mean that prior to 31.12.2016 there is no bar on any person holding, transferring or receiving SBNSs prior to 31.12.2016 was not illegal. If a currency is not a legal tender, only the recipient may refuse or cannot force to receive currency which is not legal tender. When both parties to the transaction agrees, there is no prohibition for one party to transfer and the other party to receive SBNs in the course of a legal transactions prior to 31.12.2016. We noted that with the notification of ''The Specified Bank Notes (Cessation of Liabilities) Act, 2017", even this liability to honour such exchange, transact, transfer or hold SBNs ceased to be operative from 31.12.2016, the appointed date.
8.3 In view of the above provisions, as in the present case, once the receipt of SBNs by assessee is not illegal or barred by any legal provisions the receipt of SBNs cannot be put on a different footing for the purpose of Section 68 or Section 69 of the Act from other currency as the source of SBNs are same as the source of other currency. The SBNs though are not legal tender, is of no consequence for determination of source, because the SBNs can be encashed for the face value with the bank without any question being raised. We further noted from the RBI circulars or CBDT circulars that neither the RBI circulars nor any CBDT circulars including any instructions on demonetization requires any person to disclose the source of SBNs. We noted from the facts of the case placed before us that out of total deposits of Rs.2635.35 Crores were in cash for the month of November 2016, which has been accepted as the value of liquor sold for a sum of Rs.2582.56 Crores, hence it can be easy presumed, unless disproved by Revenue, that the balance sum of Rs.52.79 Crores is out of sale of liquor. There is no basis or evidences or examination of any person for reaching a conclusion that this sum of Rs.52.79 Crores received by assessee has been substituted in demonetized currency. We noted from the evidences placed before us that the observation of the AO that branch wise details of deposits made in SBNs was not available is not correct for the reason that the complete details of deposits of SBNs account-wise, branch-wise was submitted before the AO as well as before the CIT and also before us.
8.4 We have gone through the notifications issued by the RBI and Government of India, to deal with specified bank notes. The only premise of the Revenue is mainly on the issue of notification issued by the RBI to deal with the :-21-: ITA. No.4013/Chny/2025 specified bank notes and argument is that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 have been withdrawn from circulation from 09.11.2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31.12.2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31.12.2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31.12.2016. Therefore, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes.
8.5 We further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales etc. In this case, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits, there is negligible amount in demonetized currency. Therefore, we are of the considered view that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank notes in violation of circular/notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected. Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s.69 or 69A of the Act. Because, the mandate of the provisions of Section 69 & 69A of the Act, i.e., unexplained investments and unexplained money etc., may be deemed to be the income of the assessee for the financial year relevant to assessment year concerned, in which the assessee is found to be the owner of such money, bullion, jewellery or valuable article or unexplained expenditure, if, the such expenditure or such money etc., are not recorded in the books of accounts, if any, maintained by assessee for any source of income and the assessee offers no explanation about the nature and source of such expenditure or acquisition of such money, etc., or the explanation offered by him, in the opinion of AO is not satisfactory. For violation of any RBI notification, etc., can have any civil or criminal liability and can be dealt :-22-: ITA. No.4013/Chny/2025 with under any other provision of law by the concerned authority but for the purpose of bringing the amount under Income-tax, the provisions are very clear i.e., 69 & 69A of the Act. In our considered view, to bring any amount u/s. 69 or 69A of the Act, the nature and source of investment, needs to be examined. In case the assessee explains the nature and source of investment, then the question of making addition towards unexplained investment u/s. 69 of the Act does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 115BBE of the Act towards cash deposits made to bank account of demonetized cash in SBNs."
25. We also find merit in the contention of the assessee that minor deficiencies in invoices such as absence of PAN details, incomplete addresses or non-response by certain customers to summons issued u/s.131 of the Act cannot be the sole basis for treating the sales as bogus, particularly in the case of retail cash sales carried out under exceptional circumstances prevailing on the date of demonetisation. Significantly, the Revenue has not demonstrated that the stock allegedly sold continued to remain in possession of the assessee or that the quantitative stock records were manipulated.
26. We further find from the material placed on record that the assessee had furnished exhaustive quantitative and documentary evidences before the lower authorities to substantiate the genuineness of the impugned sales effected on 08.11.2016. The assessee had produced detailed stock movement summaries reflecting opening stock, inward movement of stock through purchases, quantity-wise sales and corresponding closing stock for gold, diamond, platinum and silver jewellery. The stock movement statement clearly demonstrated that adequate physical stock was available with the assessee to effect the sales recorded on 08.11.2016 and the corresponding reduction in inventory was duly reflected in the books of account. The Revenue has nowhere disputed the correctness of the quantitative tally maintained by the assessee nor brought any material on record to establish that the stock allegedly sold remained physically available with the assessee subsequent to the date of sale.
:-23-: ITA. No.4013/Chny/2025 Further, the purchases recorded by the assessee from various suppliers including M/s.Arihanth Jewellers Private Limited, M/s.Nayan Jewellers and M/s.Harsh Creations were fully supported by purchase invoices, ledger accounts and corresponding entries in the books of account. The Department has not doubted either the genuineness of the purchases or the identity of the suppliers. The ledger accounts of the suppliers, copies of invoices and inward stock records furnished by the assessee clearly established the continuous flow of stock into the business and corresponding availability of inventory for sale. Once the purchases and stock position stand accepted, the consequential sales recorded in the regular books cannot be selectively disbelieved without disproving the quantitative records maintained by the assessee.
27. We further note that the sales disclosed by the assessee formed part of the monthly VAT returns regularly filed before the Commercial Tax Department and the turnover declared therein has not been disturbed or rejected by the indirect tax authorities. The VAT returns for the period from April 2016 to March 2017, along with reconciliation statements, sales registers and cash book, were produced before the Assessing Officer. The contemporaneous filing of VAT returns much prior to commencement of assessment proceedings lends substantial credibility to the assessee's claim that the impugned sales were genuine business transactions duly accounted for in the regular course of business. In the absence of any material to establish manipulation or post facto fabrication of books, the statutory VAT records maintained by the assessee constitute strong corroborative evidence supporting the genuineness of the sales.
28. We also find considerable force in the contention of the assessee that the Revenue authorities have proceeded merely on suspicion and human probabilities without disproving the core documentary evidences maintained in the ordinary course of business. The AO has neither rejected the books of account u/s.145(3) of the Act nor pointed out any discrepancy in the quantitative :-24-: ITA. No.4013/Chny/2025 stock records, VAT filings, purchase ledger accounts or audited financial statements. The entire edifice of the addition rests upon presumptions arising out of the volume of sales effected during the demonetisation period. However, suspicion, however strong, cannot substitute legal proof, particularly when the assessee has discharged the primary onus cast upon it by furnishing complete books of account, stock registers, purchase details, VAT records and banking trail evidencing the source of cash deposits.
29. The stock verification conducted during survey proceedings also assumes significance. Despite extensive verification by the Department, only negligible discrepancies in stock involving minor excess and shortage were noticed when compared with the enormous volume of business carried on by the assessee. This factual position itself demolishes the allegation that the assessee had introduced unaccounted money in the guise of fictitious sales. Had the sales been merely accommodation entries without actual movement of goods, substantial mismatch in stock position would have inevitably surfaced during physical verification. On the contrary, the quantitative reconciliation furnished by the assessee substantially tallied with the physical stock found during survey proceedings, thereby reinforcing the genuineness of the recorded sales transactions.
30. The voluntary disclosure made by the assessee under IDS/PMGKY Scheme also cannot automatically lead to an inference that the entire sales recorded on 08.11.2016 were fictitious. A disclosure made under a statutory scheme for buying peace with the Department cannot, in the absence of independent corroborative evidence, be treated as conclusive proof of undisclosed income for the year under consideration.
31. We further find considerable merit in the contention of the assessee that even the supervisory directions issued by the ld.JCIT to the AO during the course of assessment proceedings support the case of the assessee rather :-25-: ITA. No.4013/Chny/2025 than the Revenue. The records placed before us reveal that the ld.JCIT had specifically directed the AO to verify the genuineness of the sales with reference to availability of sufficient stock, stock movement records, purchase details and supporting evidences relating to inward and outward movement of jewellery. Pursuant to such directions, the assessee had furnished exhaustive documentary evidences including quantitative stock registers, month-wise stock movement summaries, purchase invoices, supplier ledger accounts, VAT returns, sales registers and reconciliation statements establishing availability of adequate stock for effecting the impugned sales on 08.11.2016.
32. However, despite such specific directions from the supervisory authority, neither the AO nor the ld.CIT(A) has recorded any categorical finding disproving the quantitative stock reconciliation furnished by the assessee. No adverse material has been brought on record to demonstrate that the purchases reflected in the books were fictitious or that the stock allegedly sold continued to remain available with the assessee. On the contrary, the purchases from various suppliers stood duly supported by invoices, ledger accounts and inward stock entries and the same have admittedly not been doubted by the Department at any stage of proceedings. Once the availability of stock and genuineness of purchases remain accepted, the consequential sales effected out of such stock cannot be selectively treated as bogus merely on conjectures and surmises.
33. It is also pertinent to note that the ld.JCIT had specifically emphasized verification of stock availability and genuineness of sales before drawing any adverse inference in respect of demonetisation cash deposits. The assessee, in compliance with such verification requirements, demonstrated through contemporaneous records that sufficient stock was physically available as on 08.11.2016 and that the impugned sales resulted in corresponding depletion of inventory duly reflected in the books of account. Therefore, in our considered view, once the assessee has satisfactorily complied with the very parameters :-26-: ITA. No.4013/Chny/2025 directed to be examined by the supervisory authority, the Revenue authorities were not justified in disregarding such evidences and sustaining the addition merely on the basis of perceived improbabilities.
34. The failure of the AO to rebut the stock movement summary, VAT disclosures, supplier ledger confirmations and quantitative reconciliation assumes greater significance particularly in the absence of rejection of books of account u/s.145(3) of the Act. The documentary evidences furnished by the assessee thus clearly establish the nexus between purchases, stock availability, sales effected and corresponding cash deposits made during the demonetisation period. Consequently, the addition made u/s.68 of the Act lacks factual as well as legal foundation and therefore cannot be sustained.
35. Considering the totality of facts and circumstances and respectfully following the judicial precedents referred to supra, we hold that the AO was not justified in treating the recorded business receipts as unexplained cash credits u/s.68 of the Act. Accordingly, the addition of Rs.10,11,49,057/- made u/s.68 r.w.s.115BBE of the Act is directed to be deleted.
36. With regard to the addition of Rs.83,000/- towards excess stock of diamonds noticed during survey proceedings, we find that the excess stock admittedly formed part of the regular stock-in-trade of the assessee and was physically available at the business premises. The discrepancy is negligible having regard to the scale and volume of business carried on by the assessee. The Coordinate Benches of the Tribunal in several decisions have consistently held that where excess stock is found intermingled with regular business stock, the same partakes the character of business income and cannot be separately brought to tax u/s.69A of the Act.
37. In this regard, we derive support from the decisions wherein it has been held that excess stock detected during survey, being part of circulating capital :-27-: ITA. No.4013/Chny/2025 and business inventory, has to be assessed only under the head "Profits and Gains of Business or Profession" and not as unexplained investment under deeming provisions. The deeming provisions contained u/s.69, 69A and 69B being harsh in nature are required to be construed strictly.
38. In the present case, the assessee had already offered a sum of Rs.2.5 crores under IDS/PMGKY Scheme during survey proceedings. Considering the insignificant nature of the discrepancy and the absence of any material establishing independent unexplained investment, no separate addition is warranted on account of excess stock of Rs.83,000/-. Accordingly, the addition sustained by the ld.CIT(A) is directed to be deleted.
39. Coming to the addition of Rs.1,65,851/- towards alleged unaccounted sales arising from shortage of stock, we find that the discrepancy is marginal considering the overall scale of business operations of the assessee. The explanation offered by the assessee that such shortages could occur on account of wastage, melting loss, weighing variations and handling discrepancies in jewellery trade appears plausible and has not been disproved by the Revenue through any cogent material.
40. Even otherwise, in cases involving alleged unrecorded sales, only the profit element embedded in such sales could be subjected to tax and not the entire value of stock. In the absence of any evidence establishing suppression of turnover outside the books, the addition sustained by the ld.CIT(A) cannot be upheld. Accordingly, the addition of Rs.1,65,851/- is directed to be deleted.
41. In the present case, the assessee had already offered a sum of Rs.2.5 crores under IDS/PMGKY Scheme during survey proceedings. Considering the insignificant nature of the discrepancy and the absence of any material establishing independent unexplained investment, no separate addition is warranted on account addition of Rs.1,65,851/- towards alleged unaccounted :-28-: ITA. No.4013/Chny/2025 sales arising from shortage of stock. Accordingly, the addition sustained by the ld.CIT(A) is directed to be deleted.
42. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 11th May, 2026 at Chennai.
Sd/- Sd/-
(एस एस विश्िनेत्र रवि) (एस. आर. रघुनाथा)
(S.S. VISWANETHRA RAVI) (S. R. RAGHUNATHA)
न्याययक सदस्य/Judicial Member लेखा सदस्य/Accountant Member
चेन्नई/Chennai,
ददनांक/Dated, the 11th May, 2026.
Devadas
आदे श की प्रयतललवप अग्रेवर्त/Copy to:
1. अपीलाथी/Appellant
2. प्रत्यथी/Respondent
3.आयकर आयक्
ु त/PCIT-3 Chennai
4. विभागीय प्रयतयनधि/DR
5. गार्ा फाईल/GF
DEVADAS Digitally signed by DEVADAS
GOPALANACHARY
GOPALANACHARY Date: 2026.05.15 10:17:51 +05'30'