Note ban ghost comes to haunt jewellers as I-T dept passes recovery orders

 The income-tax (I-T) department has passed recovery orders against thousands of jewellers across the country on their cash deposits after demonetisation of high-value currency in November 2016. Tuesday (December 31) was the last day to pass orders for the accounting year 2016-17 in which such deposits were made.

This has brought fresh worries in the industry, about whether jewellers will be in a position to pay that money when jewellery demand has been low for the last six months. Sources say many of them may have to shut shop. 

Surendra Mehta, national secretary, Indian Bullion and Jewellers Association, said, “In view of the reports of additional demand orders of income tax following cash deposits during demonetisation by retail jewellers, we have advised all manufacturers and wholesalers to do proper KYC (know your client) of retail jewellers, including their tax demand, before delivering any fresh material to them.”

According to sources, in Mumbai alone, the I-T department has sent orders to around 500 jewellers, raising tax demand. The figure is higher for New Delhi. There are over 300,000 jewellers in the country and many of them were quite active in accepting old currencies for gold sales. 

When Prime Minister Narendra Modi announced demonetisation of Rs 500 and Rs 1,000 notes on November 8, 2016, traders were allowed to accept old currency notes against cash sales only till midnight. However, many jewellers continued to accept the banned notes for several days, selling gold at a 30-40 per cent premium, and making a quick buck. 

For jewellers, the current I-T orders come as a double whammy — the demand order includes tax, penalty and interest to date, which works to almost 100 per cent of the cash deposited, said a source. Besides this, the value of the gold that was sold will also be a loss for the jeweller. 

Facing the heat

• Around 500 recovery orders issued to Mumbai jewellers
• In New Delhi, the number of such orders is even more
• Trade body issues advisory to wholesalers, jewellery makers
• 20 per cent of demand should be deposited to appeal against the order 
• I-T demand including interest and penalty equals cash deposited

There is no information on the total number of orders issued across the country and the amount of recovery, though sources maintain that several thousands of jewellers have received these demand orders, and the recovery amount along with penalty and interest is very high. 

An industry veteran said that after demonetisation, there were reports that some jewellers in Jaipur and Gujarat had deposited over Rs 100 crore each in cash.

Jewellers who have received such orders will have to cough up at least 20 per cent of the demand before they can file an appeal. Dilip Lakhani, a senior chartered accountant, said, “The demand raised by the tax department against jewellers, rejecting their claim of cash deposits, can be contested by filing an appeal before the Commissioner of I-T – Appeal. In such cases, they have to deposit 20 per cent of the levy of tax and interest.”  

The assessee can also file a writ petition in a high court, seeking a waiver for not depositing the 20 per cent with the I-T department to file the appeal. Legal experts say the court will grant the waiver only if it is convinced that the grounds for the cash deposits were genuine and supported with stock records and others circumstantial evidence.

Soon after demonetisation, I-T officials in major cities including Mumbai and New Delhi had carried out several raids and surveys. The department had also issued notices to jewellers, seeking clarifications on such cash deposits when their returns came under scrutiny.

The jewellers had responded that their sales were genuine and they sold from the stock they had. However, tax officials had found that the sales in the note-ban period were significantly higher than previous periods and were also not in tandem with the overall demand trend. Hence, in most cases, I-T officials had rejected their explanations.