2024 (9) TMI 1817 - AT - Income Tax

Section 68: Cash deposits from jewellery sales during demonetisation not treated as unexplained credits; additions deleted

Pradeep Kumar Versus The ACIT-1 Lucknow

ITAT Lucknow (AT) held that additions under section 68 for cash deposits during the demonetisation period were unsustainable where the assessee had ... Addition u/s 68 - cash deposits during the demonetisation period - as per revenue cash sales/receipts shown just before demonetization period was bogus/non-genuine cash sales/receipts and was used as a device to legalize unaccounted money lying with the assessee before demonetization - HELD THAT:- Since the assessee had already admitted the sales as revenue receipt, there was no case for making the addition u/s 68 of the I.T. Act. We are of the considered view that the AO is erred in making addition towards cash receipts received for sale of jewellery, which was deposited in the bank accounts of the assessee, as unexplained cash credits taxable u/s 68. As such, the addition made by the AO and confirmed by the CIT(A) is not sustainable in the eyes of law. Accordingly, we delete the same and allow Grounds no.1 to 5 taken by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 68 of the Income-tax Act are sustainable where cash deposits during the demonetisation period are explained by the assessee as cash sales already recorded in books and accepted by VAT/Sales Tax authorities and not disbelieved by the Assessing Officer. 2. Whether treating cash deposited in bank accounts as unexplained cash credits under section 68 results in double taxation where the same amounts have been offered to tax as revenue receipts (cash sales). 3. Whether section 68 can be invoked in the absence of any defect pointed out in the books of account, or where the Assessing Officer has examined and accepted purchases, sales, stock and related documentary material. 4. Whether an addition/disallowance under section 37 (PMGKY claim) requires active prosecution by the appellant or is liable to be treated as not pressed if not pursued before the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Invocation of section 68 where cash deposits are explained as recorded cash sales Legal framework: Section 68 operates where any sum is found credited in the books and the assessee offers no explanation, or the explanation is, in the opinion of the Assessing Officer, not satisfactory; such sum may be charged as the income of the assessee. Precedent Treatment: Coordinate benches of the Tribunal and some High Court decisions have held that where cash deposits are traceable to cash sales recorded in books, accepted by VAT/Sales Tax authorities, supported by stock and invoices, and not disputed by the AO, additions under section 68 are not sustainable. The Tribunal relied on those precedents in analogous demonetisation-period contexts. Interpretation and reasoning: The Tribunal examined the material actually placed before the AO - sale bills, month-wise sales/purchases, stock summaries, VAT returns, daily cash summaries and ledger evidence - and noted the AO had not pointed to any defect in books or specifically discredited the sales. The assessee had offered the amounts as revenue receipts in return of income and those sales were reflected in VAT assessments. The Tribunal emphasised that section 68 presupposes either no explanation or an unsatisfactory explanation; where the source is satisfactorily explained and corroborated by books and external records, the legislative trigger for charging the sum as income under section 68 is not engaged. The Tribunal found the AO's action to be conjectural, predicated on a presumption that deposits were old SBNs without contrary evidence, and thus not a permissible basis to invoke section 68. Ratio vs. Obiter: Ratio - Where cash deposits are supported by sales invoices, stock adequacy, VAT acceptance, and no adversarial finding on books exists, section 68 cannot be invoked to treat those deposits as unexplained income. Obiter - Observations on the variety of reasons for sales fluctuations (seasonal/festival) are illustrative but not essential to the holding. Conclusions: Addition under section 68 in respect of cash deposits held to be unsustainable; deletion directed for the amount added on that basis. Issue 2 - Double taxation concern when cash sales already declared Legal framework: Tax principles bar taxing the same receipt twice in different heads without lawful basis; section 68 targets unexplained credits distinct from admitted revenue receipts. Precedent Treatment: Tribunals have held that taxing cash deposits under section 68 where those deposits represent cash sales already offered to tax amounts to double taxation (sales once and again as unexplained credit) and is not justified when sales are prima facie genuine and supported. Interpretation and reasoning: The Tribunal noted that the assessee had included the cash sales in returned income and the AO had accepted trading results and sales (and VAT had accepted sales in its assessment). Imposing an addition under section 68 on amounts already disclosed and taxed as sales would amount to taxing the same receipts twice. The Tribunal accepted precedent reasoning that section 68 cannot be used to levy a second charge in such circumstances absent cogent evidence of fabrication or non-genuineness. Ratio vs. Obiter: Ratio - Addition under section 68 cannot be sustained where it creates double taxation on amounts already accounted for as sales and accepted by revenue authorities without contrary evidence. Obiter - Application to section 115BBE was mentioned as inapplicable on the facts but is not central to the holding. Conclusions: Addition under section 68 in effect causing double taxation is impermissible; deletion warranted. Issue 3 - Requirement of 'found credited in books' and proof burden where books not discredited Legal framework: Section 68 is triggered by sums found credited in books; satisfaction of the AO on adequacy of explanation is a subjective opinion but must be grounded in material pointing to unsatisfactory explanation or inaccuracy of books. Precedent Treatment: Where books are maintained, audited and not specifically impugned, judicial authorities have required positive evidence of falsity or discrepancy before concluding sums are unexplained. Interpretation and reasoning: The Tribunal emphasised that the AO had examined the books and documentary material and did not point to defects; VAT authorities had accepted sales/purchases and stock; entries were found genuine by the AO in parts. The AO's reliance on a presumption that the deposits were old SBNs - absent independent evidence (e.g., contradiction in records, clandestine entries, bogus bills, third-party denials) - amounted to conjecture. The Tribunal applied the principle that the burden of establishing unexplained credits rests on the revenue to show that the explanation is unsatisfactory; a mere assertion or suspicion is inadequate. Ratio vs. Obiter: Ratio - In the absence of any defect being pointed out in books or cogent material to discredit entries, sums recorded and offered as revenue cannot be taxed under section 68. Obiter - Detailed lists of documents produced are factual background supporting the ratio. Conclusions: The AO's addition failed the required threshold of proof; deletion of the section 68 addition appropriate. Issue 4 - Ground relating to addition/disallowance under section 37 (PMGKY claim) not pressed Legal framework: A ground not pressed before the Tribunal is ordinarily treated as abandoned. Precedent Treatment: Basic appellate practice acknowledges abandonment where a party elects not to pursue a ground at hearing. Interpretation and reasoning: The assessee did not press the ground concerning the Rs.40,00,000 addition under section 37; the Tribunal accordingly treated that ground as not pressed and rejected it on that basis. Ratio vs. Obiter: Ratio - A ground not pressed at hearing is deemed abandoned and no adjudication on merits is required. Obiter - None. Conclusions: Ground relating to the Rs.40,00,000 addition is rejected as not pressed. Cross-references Issues 1-3 are interlinked: the correctness of invoking section 68 hinges on whether the deposits were credibly shown to be recorded cash sales (Issue 1), whether taxing them under section 68 would impermissibly duplicate taxation of admitted sales (Issue 2), and whether the AO pointed to defects in books to justify rejecting the assessee's explanation (Issue 3). The Tribunal's conclusions on each issue are mutually reinforcing and form the basis for deleting the section 68 addition.