In Deputy Commissioner of Income Tax v. JMK Jewels Private Limited, the Delhi Bench of the Income Tax Appellate Tribunal adjudicated cross-appeals arising from additions made on account of cash deposits during the demonetisation period for Assessment Year 2017–18.

The assessee, engaged in the business of trading and manufacturing jewellery, had deposited cash aggregating to ₹8.50 crore during October–November 2016, claimed to be sourced from regular cash sales. The Assessing Officer treated the entire amount as unexplained cash credit under Section 68, citing abnormal spike in cash sales, lack of customer-wise KYC details, and revised VAT returns. The CIT(A), while accepting that Section 68 could not be applied to disclosed sales credited to the profit and loss account, nevertheless sustained addition of ₹5.99 crore by applying a proportionate trend analysis.

The Tribunal, after examining the material on record, observed that although the assessee had maintained books of account, stock registers, VAT returns, and quantitative records, the unusual and disproportionate increase in cash sales during the demonetisation window could not be ignored when tested on the principle of human probabilities as laid down by the Supreme Court in Sumati Dayal v. CIT and CIT v. Durga Prasad More. At the same time, the Tribunal noted that no specific defects were pointed out in the books of account and the sales were duly recorded and offered to tax.

Balancing these considerations, the ITAT held that complete addition under Section 68 was not justified. Instead, it directed a lump-sum gross profit estimation at 5% on the impugned cash deposits, clarifying that such estimation was warranted only in the peculiar facts of the case and should not be treated as a precedent. The Tribunal further held that Section 115BBE was not applicable to the relevant assessment year, following the Madras High Court ruling in S.M.I.L.E. Microfinance Ltd., and directed assessment under normal provisions of the Act.

On the Revenue’s cross-appeal, the Tribunal upheld deletion of additions relating to bogus purchases and closing stock, noting that suppliers had confirmed transactions, no adverse findings were recorded in the remand report, and detailed reconciliation of stock was furnished.
Consequently, the assessee’s appeal was partly allowed and the Revenue’s appeal was dismissed.

Source Link- https://itat.gov.in/public/files/upload/1767783257-ZDW5Mf-1-TO.pdf

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