Petroleum dealer wins case against unexplained cash credit addition under Section 68 during demonetization period

ITAT Ahmedabad ruled in favor of the assessee in a case involving unexplained cash credit under Section 68 during demonetization. The assessee, a petroleum dealer, deposited cash from sale of petrol and diesel. The AO incorrectly applied a circular meant for purchases, not sales, of petroleum products. The tribunal found the AO's position contradictory - accepting the source of cash deposits while simultaneously treating them as unexplained credits. The assessee provided complete documentation including purchase registers, sales records, VAT returns, and bank statements. No defects were found in the books, and sales figures during demonetization were not drastically higher than normal periods. The invocation of Section 68 was held invalid.

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Issues Involved:
1. Deletion of addition of Rs. 1,24,59,500/- under Section 68 of the Income Tax Act.
2. Applicability of Government notification dated 08.11.2016.
3. Factual discrepancies and inconsistencies in the books of account.

Summary:

Issue 1: Deletion of Addition under Section 68
The Revenue challenged the deletion of an addition of Rs. 1,24,59,500/- under Section 68 of the Income Tax Act by the Commissioner of Income Tax (Appeals). The assessee, a company trading in petroleum products, deposited Specified Bank Notes (SBN) during the demonetization period, which the Assessing Officer (A.O.) added as unexplained cash credit under Section 68. The CIT(A) deleted the addition, observing that the sales were accepted by the A.O., the books of account were not rejected under Section 145(3), and genuine purchases were allowed. The CIT(A) emphasized that the real income should be taxed, and the sales receipts were part of the books of account. The Tribunal upheld this view, noting that the A.O. accepted the source of cash deposits as sales and found no defects in the books of account. The invocation of Section 68 was deemed invalid as the cash deposits were explained to have originated from sales.

Issue 2: Applicability of Government Notification Dated 08.11.2016
The A.O. relied on a notification dated 08.11.2016, which permitted only public sector oil marketing companies to accept SBN during demonetization. The CIT(A) and the Tribunal found this notification inapplicable to the assessee, a private dealer, as the notification pertained to purchases of petrol and diesel, not sales. The Tribunal cited various case laws supporting the view that contraventions of the notification did not attract the provisions of Section 68.

Issue 3: Factual Discrepancies and Inconsistencies in Books of Account
The Revenue argued that the CIT(A) ignored factual discrepancies and inconsistencies in the books of account. However, the Tribunal found that the A.O. did not identify specific defects in the books, and the sales during the demonetization period were consistent with sales in other months. The Tribunal noted that the assessee provided comprehensive details, including purchase and sales registers, cash book, bank statements, and VAT returns, which the A.O. did not dispute.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition of Rs. 1,24,59,500/- under Section 68, and upheld the CIT(A)'s order. The Tribunal emphasized that the real income should be taxed, and the assessee's sales receipts were duly recorded in the books of account. The Tribunal also found that the government notification dated 08.11.2016 did not apply to the assessee's case.

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