The assessee, an individual engaged in the business of trading in gold and diamond jewellery under the name and style of M/s Pankaj Chain & Jewellers, filed his return of income for Assessment Year 2017-18 declaring total income of ₹73,64,740. The assessment was completed under section 143(3) of the Income-tax Act, 1961, wherein the total income was assessed at ₹2,90,18,740 after making, inter alia, an addition of ₹1,93,48,000 on account of cash deposits made during the demonetisation period and a further disallowance of ₹23,06,000 under section 40A(2)(b).

The Assessing Officer observed that during the demonetisation period, the assessee deposited cash aggregating to ₹1,93,48,000 in bank accounts and sought to explain the same as proceeds of cash sales. The Assessing Officer noted several discrepancies, including abnormal cash sales immediately preceding demonetisation, purchases and sales structured just below statutory thresholds, non-production of cash book and supporting vouchers, and failure to satisfactorily establish opening stock and genuineness of transactions. The books of account were accordingly rejected under section 145(3), and the cash deposits were treated as unexplained money under section 69A, taxable under section 115BBE.

The Commissioner (Appeals) upheld the assessment, holding that the alleged cash sales were a device to legitimise unaccounted cash in the form of specified bank notes and that the explanation offered by the assessee was not supported by reliable evidence.

Before the Tribunal, the assessee contended that the cash deposits represented genuine business receipts from jewellery sales, supported by VAT returns, prior years’ records, and stock registers, and that the addition resulted in double taxation since sales had already been credited to the profit and loss account. The assessee also challenged the rejection of books of account and the invocation of sections 69A and 115BBE.

The Tribunal, after detailed examination of the assessment order, appellate order, written submissions, and material on record, held that the Assessing Officer had brought on record cogent reasons to disbelieve the assessee’s explanation. It was observed that the assessee failed to establish the genuineness of sales, purchases, and stock with credible evidence and did not produce complete books of account. Applying the doctrine of human probabilities as laid down by the Hon’ble Supreme Court in CIT v. Durga Prasad More and Sumati Dayal v. CIT, the Tribunal held that the assessee’s explanation was beyond the realm of normal commercial conduct.

The Tribunal further held that once the books of account were rejected under section 145(3), the book results could not be relied upon to explain the cash deposits. Accordingly, the addition of ₹1,93,48,000 as unexplained income under section 69A read with section 115BBE was upheld.

With regard to the disallowance under section 40A(2)(b), the Tribunal held that the Assessing Officer had made a reasonable estimate of excessive salary paid to specified persons after partly allowing the claim. In the absence of any material to demonstrate that the allowance granted was inadequate or unreasonable, the disallowance of ₹23,06,000 was confirmed.

Consequently, the appeal of the assessee was dismissed.

Source Link- https://itat.gov.in/public/files/upload/1767928936-r5pJxm-1-TO.pdf

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