2024 (3) TMI 475 - AT - Income Tax

ITAT deletes additions for suppressed cash sales and unexplained deposits under sections 68 and 115BBE after assessee provides customer PAN details

The ITAT Ahmedabad allowed the assessee's appeal regarding additions made for suppressed income on cash sales and unexplained cash deposits under sections ... Addition as suppressed income on cash sales - unexplained cash deposit which is brought into the assessee’s books in guise of sales before demonetization period u/s. 68 r.w.s. 115BBE - AO made addition on protective basis in respect of the cash given to cash handlers during demonetization period which was deposited in the bank account - A.R. submitted that the cash deposits in respect of sale of bullions were accepted in the preceding years by the Revenue, in fact, during demonetization period, the assessee has not sold gold but it was buyer to the demonetization period specially in the period of festivities that of Dussehra and Diwali has sold the bullions. HELD THAT:- As the assessee has given required PAN details of the customers from the stock register entry, these details were as per the guideless of the Revenue in cases of the transactions related to the bullion where the mandatory form has been filed stating therein that the assessee is not required to prove the identity and creditworthiness of purchasers who have purchased the goods below 2 lakhs. Thus, the ground of the Revenue is dismissed but through this observation the ground contested by the assessee in assessee’s appeal that of ground nos. 1 to 5 is allowed. As regards assessee’s ground related to confirmation of addition on protective basis from the perusal of the records, it appears that the Assessing Officer has taken cognizance of the submission recorded by Tejus Desai is not co-related the same with the assessee’s transaction as from the records it can be seen that the assessee has not dealt with these parties i.e. M/s. Tejus Enterprises and that of M/s. Shy Bullion. Thus, the addition does not sustain. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cash sales recorded in books and supported by sales/purchase registers and daywise stock position can be treated as explained receipts for the purpose of disallowing additions under section 68 read with section 115BBE where identity of purchasers for transactions below Rs.2 lakhs is not established on record. 2. Whether an addition of Rs.10,00,000 as suppressed income from cash sales (sales below Rs.2 lakhs) could be sustained where the assessee produced daily registers, stock positions and PAN/details as per applicable procedural guidance for bullion transactions. 3. Whether an addition of Rs.1,14,00,000 made by the Assessing Officer as unexplained cash deposit under section 68 read with section 115BBE is maintainable in view of the material produced during assessment and findings of the first appellate authority. 4. Whether a protective addition of Rs.50,00,000 relating to alleged cash handed over to cash-handlers and subsequent transfers to other entities can be sustained where there is no direct connection established between the assessee and the recipients/transferors. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of cash sales as explained receipts where purchasers' identity for transactions below Rs.2 lakhs is not fully established Legal framework: The Assessing Officer proceeded under section 68 read with section 115BBE to treat certain cash deposits/sales as unexplained where identity/creditworthiness of parties could not be established. Procedural requirements and guidance for bullion dealers concerning collection of purchaser details and PAN for transactions may impose different evidentiary burdens for sales below Rs.2 lakhs. Precedent Treatment: The order contains no reliance on specific judicial precedents; the Tribunal applied statutory and administrative guidance relevant to bullion transactions as interpreted by the first appellate authority. Interpretation and reasoning: The Tribunal accepted the CIT(A)'s finding that cash sales of Rs.55,48,434 were supported by daywise registers, purchases/sales registers and daily stock position, and that requisite PAN/details were maintained for the transactions. The Tribunal noted that for bullion transactions the Revenue's guidance does not require proof of identity/creditworthiness for purchasers below Rs.2 lakhs where statutory forms and registers are maintained. The forensic observation regarding post-dated or back-dated entries was considered insufficient to displace the regular books when the assessee consistently maintained stock registers and provided contemporaneous records. Ratio vs. Obiter: Ratio - Where an assessee dealing in bullion produces consistent purchases/sales registers, daywise stock positions and PAN/details as per relevant procedural guidance, cash sales below Rs.2 lakhs may be accepted as explained and cannot be treated as unexplained deposits merely because the Assessing Officer could not separately identify purchasers. Obiter - Observations on the insufficiency of the forensic report are ancillary to the primary finding. Conclusion: The addition treating cash sales as unexplained on account of unidentified purchasers for transactions below Rs.2 lakhs was not sustainable; the cash sales were rightly accepted as explained receipts. Issue 2 - Sustenance of specific addition of Rs.10,00,000 as suppressed income from cash sales Legal framework: Assessing Officer's power to make additions as unexplained income must be exercised on available material and consistent with evidentiary standards; first appellate authority's power under section 250 to reappraise those materials is constrained by records before the AO. Precedent Treatment: No precedents were cited; the Tribunal relied upon factual analysis of documentary records and administrative guidance for bullion dealers. Interpretation and reasoning: The Tribunal accepted the CIT(A)'s conclusion that the assessee had produced daywise registers and stock positions establishing the sales. Given that PAN/details and statutory forms were filed and registers maintained, the CIT(A)'s reduction of the unproved portion to Rs.10,00,000 (and acceptance of the balance) was supported by the record. The Tribunal found the CIT(A)'s approach consistent with the nature of bullion transactions and with the absence of a requirement to identify purchasers for sub-Rs.2 lakh transactions when proper registers and statutory forms exist. Ratio vs. Obiter: Ratio - The Assessing Officer cannot sustain additions for suppressed income when the assessee produces contemporaneous books, stock records and PAN/details consistent with administrative guidance for bullion trades. Obiter - The precise quantum adjustment to Rs.10,00,000 discussed in the litigious context is a fact-specific outcome. Conclusion: The addition of Rs.10,00,000 as suppressed income was not tenable to the extent challenged and was correctly addressed by the CIT(A); the assessee's grounds 1-5 were allowed to the extent reflected in the order. Issue 3 - Validity of addition of Rs.1,14,00,000 as unexplained cash deposit under section 68 r.w.s.115BBE Legal framework: Section 68 and section 115BBE permit taxation of unexplained cash deposits where the assessee fails to satisfactorily explain the nature and source; however, explanation must be evaluated in light of documentary evidence and statutory guidance applicable to the trade. Precedent Treatment: No authoritative judicial precedents were invoked; the Tribunal deferred to the factual findings of the CIT(A) where supported by records. Interpretation and reasoning: The Tribunal found that the CIT(A) gave categorical findings accepting a significant part of cash sales as proved based on registers and stock reconciliation. The forensic report's suggestion of post facto preparation was held not decisive against contemporaneous daybook entries and stock records. Because the assessee produced details and registers required in bullion transactions and the CIT(A) accepted those records, the AO's addition of Rs.1.14 crore as unexplained deposits could not be sustained in full. The Tribunal therefore dismissed the Revenue's appeal seeking restoration of the full addition. Ratio vs. Obiter: Ratio - An AO's classification of cash deposits as unexplained under section 68/115BBE must yield where contemporaneous and consistent bookkeeping, stock reconciliations and statutory filings for the trade satisfactorily explain the receipts. Obiter - Comments regarding non-working CCTV or the completeness of third-party statements are incidental. Conclusion: The addition of Rs.1,14,00,000 was not maintainable to the extent disallowed by the CIT(A); the Revenue's appeal against that reduction was dismissed. Issue 4 - Maintainability of a protective addition of Rs.50,00,000 where no nexus established between assessee and alleged recipients/transferors Legal framework: Protective additions may be sustained only where there is material connecting the assessee to the alleged unexplained receipts or transactions; mere references in third-party statements without corroboration and linkage to the assessee are insufficient. Precedent Treatment: No prior rulings were cited; the Tribunal evaluated the linkage on record between the assessee and M/s. Tejus Enterprises/M/s. Shy Bullion and found it lacking. Interpretation and reasoning: The Tribunal observed that the AO's basis for the protective addition relied on statements recorded in search/survey but failed to correlate those statements to the assessee's transactions. The record showed no dealings between the assessee and the named entities, and no evidence that the assessee received the amounts alleged. Consequently, the addition lacked evidentiary foundation. Ratio vs. Obiter: Ratio - A protective addition cannot be confirmed absent a demonstrable connection between the assessee and the transactions/persons forming the basis of the addition. Obiter - Remarks on the adequacy of AO's cross-referencing of third-party statements are ancillary. Conclusion: The protective addition of Rs.50,00,000 did not survive scrutiny and was deleted; the assessee's grounds 6 and 7 were allowed. Overall Conclusion The Tribunal upheld the first appellate authority's acceptance of a substantial portion of the cash sales as explained on the basis of contemporaneous registers, stock positions and statutory details, dismissed the Revenue's challenge to the reduction of the unexplained deposit addition, and deleted the protective addition where no nexus to the assessee was established.