2024 (6) TMI 1449 - AT - Income Tax

Unexplained cash credits from old currency deposits cannot be added under Section 68 when sales already taxed

The ITAT Ahmedabad allowed the assessee's appeal against additions made under Section 68 for unexplained cash credits from old currency deposits. The ... Addition u/s 68 - cash deposited/ old currency as unexplained cash credits - quantum of cash sales was abruptly on higher side on a single day - HELD THAT:- As we find that the assessee has maintained consistent stock levels and recorded all transactions in the books of accounts. No discrepancies were found in the cash book, bank book, purchases, monthly stock, or audited books of accounts by the AO. We have also noted the facts that the cash deposit in question is part of the sale which is explained by the assessee. AO has not doubted corresponding purchases and quantitative details. The profit element of such sale is already offered for taxation by the assessee. Income so declared by the assessee is also accepted by the AO. AO's additions were based on presumptions and assumptions without any cogent material evidence. The judicial pronouncements relied upon by assessee highlight that once the underlying amount forms part of the sales duly accounted for in the books and the income element embedded therein has been accepted by the AO, the same amount cannot be added again u/s 68 of the Act as it would amount to double taxation. We hold that the Ld. CIT(A) was justified in deleting the impugned additions. Assessee appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment revolve around the following issues:1. Whether the Ld. CIT(A) was justified in deleting the addition of cash sales of Rs. 75,00,000/- made by the AO, given the context of significant cash sales occurring immediately after demonetization.2. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 8,50,000/- made by the AO on account of unexplained credits.3. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 34,49,794/- made by the AO on account of disallowance under section 37(1) of the Act for job work expenses.ISSUE-WISE DETAILED ANALYSIS1. Deletion of Addition of Cash Sales of Rs. 75,00,000/-Relevant legal framework and precedents: The main legal provision involved is Section 68 of the Income Tax Act, which deals with unexplained cash credits. The Tribunal also considered judicial precedents such as ACIT v. Hirapanna Jewellers and CIT vs. Kailash Jewellery House, which emphasize that once sales are recorded and offered for tax, they cannot be added again as unexplained income.Court's interpretation and reasoning: The Tribunal noted that the cash sales in question were duly recorded in the books of accounts and the income element had been offered for taxation. The AO's action of adding Rs. 75,00,000/- as unexplained income was based on assumptions without substantive evidence.Key evidence and findings: The assessee provided comprehensive documentation, including cash books, bank books, and stock registers, which showed no discrepancies. The AO did not find any errors in these records.Application of law to facts: Since the sales were accounted for and the profit was already taxed, the Tribunal concluded that adding the same amount again under Section 68 would result in double taxation.Treatment of competing arguments: The Revenue argued that the cash sales were unusually high post-demonetization, but the Tribunal found the explanation provided by the assessee satisfactory and supported by evidence.Conclusions: The Tribunal upheld the Ld. CIT(A)'s decision to delete the addition, as the AO's action lacked substantive evidence.2. Deletion of Addition of Rs. 8,50,000/- for Unexplained CreditsRelevant legal framework and precedents: Section 68 is again relevant here, along with precedents like R. S. Diamonds India P. Ltd. vs. ACIT, which stress the necessity of evidence for additions.Court's interpretation and reasoning: The Tribunal found that the AO's addition was based on assumptions without any cogent evidence to support the claim of unexplained credits.Key evidence and findings: The assessee's records, including cash books and bank books, were consistent and showed no discrepancies.Application of law to facts: The Tribunal concluded that the AO's addition was not justified as the credits were explained and accounted for.Treatment of competing arguments: The Revenue's argument lacked substantive evidence, which was crucial for sustaining the addition.Conclusions: The Tribunal agreed with the Ld. CIT(A) in deleting the addition, as the AO's assumptions were unsupported by evidence.3. Deletion of Addition of Rs. 34,49,794/- for Disallowance of Job Work ExpensesRelevant legal framework and precedents: Section 37(1) of the Income Tax Act, which deals with the allowability of business expenses, is pertinent. Precedents like Balwinder Kumar vs. ITO were considered, emphasizing that disallowances should not be based on mere assumptions.Court's interpretation and reasoning: The Tribunal noted that the job work expenses were supported by documentary evidence and that the AO had not found any discrepancies in the records.Key evidence and findings: The assessee provided detailed records of job work transactions, which were consistent with their business operations.Application of law to facts: The Tribunal found that the expenses were genuine and incurred wholly for the purpose of business, thus allowable under Section 37(1).Treatment of competing arguments: The Revenue's argument that the stock register lacked details was countered by the assessee's submission of evidence and the Ld. CIT(A)'s consideration of the remand report.Conclusions: The Tribunal upheld the Ld. CIT(A)'s decision to allow the job work expenses, as they were substantiated by evidence.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include:- 'The AO's additions were based on presumptions and assumptions without any cogent material evidence.'- 'Once the underlying amount forms part of the sales duly accounted for in the books and the income element embedded therein has been accepted by the AO, the same amount cannot be added again under section 68 of the Act as it would amount to double taxation.'- The Tribunal emphasized the importance of evidence over assumptions in tax assessments, aligning with the principles of natural justice.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decision to delete the impugned additions, as they were unsupported by substantive evidence and contrary to established legal principles.