AO is unjustified in making addition U/S 68 in respect of cash receipts converted into sales: ITAT Chennai
AO is unjustified in making addition U/S 68 in respect of cash receipts converted into sales: ITAT Chennai
M/s.Sahana Jewellery- Exports Pvt. Ltd. Vs ITO (ITA No.999/Chny/2022)
Facts:
1. The taxpayer operates in the gold and jewellery trading sector, having filed income returns declaring the total income.
2. Assessee had deposited cash of Rs 48,80,73,000 in the accounts with SBI Bank. The assessee further claimed that assessee had a cash in hand in the books of Rs 48,82,75,750.
3. The assessee claimed that cash in hand is out of cash advances from customers made before demonetisation, which got converted into sales later on.
4. The AO believed that the taxpayer couldn’t fulfil the initial requirement to validate three crucial aspects—establishing the identity of investors, their financial credibility, and the legitimacy of the transactions. As the taxpayer couldn’t satisfactorily prove the credits in their bank account to the AO, the entire sum of cash receipts was considered unexplained and consequently subjected to taxation.
ITAT Chennai held as below:
1. There might be diverse reasons behind fluctuations in sales, tied to factors like seasonal, clearance, or year-end sales. Hence, the explanation provided by the taxpayer, stating that cash received from customers for jewellery sales is later converted into sales, seems genuine and plausible.
2. AO made an error in including cash receipts—originating from jewellery sales later converted into sales—in the assessment year’s unexplained cash credit.
3. The addition under section 68 of the Income Tax Act for the receipts of cash ought to be deleted.
You can reach out to the author on : info@asbanka.com
www.asbanka.com
- FAST-DS 2026 Valuation Rules: How to Value Each Foreign Asset for Form 1 (Bank Accounts, Shares and Property) - August 21, 2026
- RBI Loan Recovery Rules 2027: The Compliance Checklist Every NBFC, HFC and Fintech Must Finish Before January 1, 2027 - August 21, 2026
- GST Registration Cancelled After a Field Visit? Two 2026 High Court Rulings on Rule 25, REG-30 and Section 30 Revocation - August 18, 2026