Ghost of demonetisation haunts traders of Zaveri Bazaar

MUMBAI: The ghost of demonetisation returned to haunt Zaveri Bazaar, India’s gold and jewellery hub, on New Year’s Eve.In the past few days, the Income tax department has spurned claims of bullion traders that there were huge jewellery sales on the night of November 8, 2016, when the Modi government banned currency notes of Rs 500 and Rs 1,000 denominations.Dealers in the congested Zaveri Bazaar remember the night when panic-struck cash hoarders and the well-heeled with unexplained money dumped currency bills to buy gold till early morning — temporarily driving up the price of the yellow metal.The latest tax office orders — which kept pouring in even on Monday and Tuesday — were slapped just before the December 31 deadline, after which assessments for the financial year FY17 become time-barred.73053245 “The department has invoked Section 159BBE of the I-T Act in rejecting the claims of jewellers and gold dealers’ claim of cash deposit (in banks) represented by cash sales post demonetisation. It has levied tax of 60% even if such sales were out of their stock of gold and happened at the prevailing price. Cash sales are permitted under law and profits from sale of gold were also offered for tax... This will lead to a series of litigations,” said senior chartered accountant Dilip Lakhani.I-T Doubts Surge in Cash SalesSection 115BBE of the I-T Act deals with levying tax at 60% on unexplained cash deposits and investments.The tax office is questioning the authenticity of the midnight surge in cash sales where the names of gold buyers were not recorded and most transactions were kept below the threshold of Rs 2 lakh for cash deals.The jewellers came under the taxman’s lens after the banks where they deposited the cash reported the inflows to the government and the tax office.“Prima facie, cash deposit claim could be considered as justifiable due to the special circumstances where people panicked and rushed to buy gold,” said Lakhani.Besides jewellers, several businesses dealing in cash have also received such assessment orders. However, on November 8, 2016, jewellery stores had become obvious destinations for many trying to quickly get rid of undisclosed cash that had suddenly ceased to be legal tender.“It’s not surprising the I-T department is questioning jewellers about these sales. Whether or not the department is able to prove that the sales were bogus or genuine will depend on facts,” said Ameet Patel, chairman of the taxation committee of the Bombay Chartered Accountants’ Society.“If a jeweller made genuine sales, then stock records maintained as per normal practice would help him win in appeal if any addition is made at the assessment stage,” said Patel.After demonetisation, many businesses had filed revised returns for FY16 to show a higher cash balance as on March 31, 2016 — a ploy to shift some of the November 2016 cash sales to the previous financial year.Anticipating this, the government had, in November 2017, directed the I-T department to accept only those revised returns where there is ‘bona fide inadvertent error’ or a ‘mistake’ on part of the assessee.The Central Board of Direct Taxes (CBDT) had told its officials to watch out for any unsubstantiated reduction in closing stock in the revised returns vis-àvis the original returns, higher sales in revised returns, increase in cash-in-hand as on March 31, 2016, or March 31, 2015, among other things.

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