2022 (12) TMI 750 - AT - Income Tax

Cash deposits recorded as sales not income; ITAT upholds deletion of addition under Section 68

The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 2,90,93,500/- made by the AO under Section 68 of the Income Tax Act. The ITAT agreed ... Unexplained cash credits u/s 68 - amount of cash deposited by the assessee in his bank account during the demonetization period - nature and source of the cash deposits being proceeds arising out of cash sales etc. was evident from the entries in the audited books of accounts of the assessee - HELD THAT:- AO neither brought any material on record to establish that the sale bills are bogus nor provided any evidence that such sales are bogus. It is also an open fact that the demonetization of Rs.500/- and Rs.1000/-note was declared by the Hon’ble Prime Minister at 8 PM on 8-11-2016 and after this announcement the persons reached the jewellery shop to buy jewellery in exchange of notes. Thus all such scenario indicates that the assessee had duly substantiated its claim from the documentary evidences and also with the facts. As also observed from the assessment order that the AO had not rejected the books of account of the assesee as no contrary material was available with him to reject the books of account of the assessee. As regards the addition made by the AO by applying the provisions of Section 68 it is noted that provisions of Section 68 are not applicable on the sale transactions recorded in the books of accounts as sales are already part of the income which is already credited in P&L account. There is no occasion to consider the same as income of the assessee by invoking the provisions of Section 68 of the Act. In view of the above deliberations and case laws relied upon by both the parties, we find that the AO was not justified in making an addition u/s 68 of the Act which has rightly been deleted the ld. CIT(A) and we concur with his findings. Thus the appeal of the Revenue is dismissed. Issues Involved:1. Justification of CIT(A) in deleting the addition of Rs. 2,90,93,500/- made by the AO on account of unexplained cash credits under Section 68 of the Income Tax Act.2. Validity of AO's findings regarding the non-maintenance of a day-to-day stock register and its impact on the assessment.3. Examination of whether the CIT(A) ignored vital facts in granting relief to the taxpayer.Detailed Analysis:Issue 1: Justification of CIT(A) in Deleting the Addition of Rs. 2,90,93,500/-The Revenue challenged the deletion of the addition made by the AO, who had added Rs. 2,90,93,500/- to the assessee's income, treating it as unexplained cash credits under Section 68 of the Income Tax Act. The AO's stance was that the cash deposited during the demonetization period was undisclosed income disguised as cash sales and thus taxable under Section 115BBE at 60%.The CIT(A) observed that the entire amount was already recorded as sales in the books of accounts and credited in the Profit & Loss account. The CIT(A) relied on multiple judgments, including the Hon'ble Supreme Court's decision in CIT vs Devi Prasad Vishwanath Prasad, which held that income already taxed cannot be taxed again. The CIT(A) also referenced the ITAT Visakhapatnam's decision in Asst. Commissioner of Income Tax vs M/s Hirapanna Jewellers, which supported the view that cash sales recorded in books cannot be treated as unexplained cash credits.The CIT(A) concluded that the AO's action resulted in double taxation, as the sales were already part of the income. Therefore, the addition under Section 68 was deleted.Issue 2: Validity of AO's Findings Regarding Non-Maintenance of Stock RegisterThe AO had noted that the assessee did not maintain a day-to-day stock register, which was not subject to audit, and thus the quantitative sales could not be verified. However, the CIT(A) found that the assessee maintained complete regular books of accounts, including a manual item-wise stock register, which was produced during the assessment proceedings. The CIT(A) highlighted that the AO did not find any discrepancies in the stock and sales records.The CIT(A) pointed out that the AO did not reject the books of accounts under Section 145(3) of the Act, indicating that the AO was satisfied with the correctness of the accounts. The CIT(A) emphasized that the AO's findings were based on statistical analysis rather than concrete evidence of bogus sales or purchases.Issue 3: Examination of Whether CIT(A) Ignored Vital FactsThe Revenue argued that the CIT(A) ignored vital facts in granting relief to the taxpayer. However, the CIT(A) provided a detailed analysis, considering the audited books of accounts, stock registers, and sales invoices. The CIT(A) also considered the context of demonetization and the resultant spike in sales due to public rush to buy gold.The CIT(A) found that the AO's addition was not based on a correct appreciation of facts and that the sales were genuine and supported by documentary evidence. The CIT(A) concluded that treating the cash sales as unexplained cash credits would lead to double taxation, which is impermissible in law.Conclusion:The ITAT upheld the CIT(A)'s order, agreeing that the AO was not justified in making the addition under Section 68. The ITAT found that the CIT(A) correctly deleted the addition of Rs. 2,90,93,500/- as it would result in double taxation. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 15/12/2022.