2025 (8) TMI 1731 - AT - Income Tax

Appeal allowed: Section 68 additions deleted where assessee's audited books, registers and explained demonetisation cash deposits

ITAT allowed the appeal, deleting additions made under section 68. The tribunal found no specific findings or evidence by the AO to rebut the assessee's ... Unexplained cash deposits u/s 68 - cash deposit in SBN during the demonetization - allegation of doubtful sales - HELD THAT:- From the perusal of the orders of the lower authorities, we do not find any findings given or the observations made with respect to the any entry contained therein which was doubted by the lower authorities. Nor any evidence was brought on record to support the allegation that unexplained cash was deposited during demonetization. AO has not only accepted the trading results and the sales declared but also accepted cash sales declared by the assessee in the month of October, 2016 to the extent of 75% of the total cash deposits in SBN during demonization and no reasons is given as to why he has accepted the 75% of the cash as genuine. It is also seen that the AO has made the addition by invoking the provision of section 68 of the Act. The realization of cash sales is duly recorded in the cash book maintained on day to day basis The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the sales and cash deposited in SBN during the demonetization period. AO had not doubted the availability of stock with the assessee prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and by holding the sales of two months as unexplained without reducing the same from the total sales declared. Whenever Appellant provides explanation, before rejecting the same ld. AO has to record dissatisfaction as to why the explanation furnished by Appellant is not acceptable. As is evident that assessee not only offered explanation regarding nature and source of such credits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book. No specific defects whatsoever has been brought out on record by the ld. AO in those evidences and books of accounts so furnished. Therefore, addition so made u/s 68 without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified. Thus provisions of section 68 of the Act are not applicable. AO has not doubted the trading results declared by the assessee which are duly supported by the audited books of accounts comprising of ledger register, stock inventory, relevant details and for the years, duly audited by the auditors and therefore, we find no reason to doubt the cash sales made during the month of October, 2016. Accordingly, the total cash deposit during the demonetization is held as out of the cash available with the assessee in the books of accounts and therefore, no addition could be made for the same. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED p1: Whether additions under section 68 read with section 115BBE can be sustained in respect of specified bank note (SBN) deposits made during demonetization when the assessee has recorded corresponding cash sales in audited books of account and has furnished sales registers, stock register, purchase invoices and other supporting records. p2: Whether the Assessing Officer (AO) may invoke section 68 where the assessee offers an explanation and produces contemporaneous documentary evidence, absent any specific finding of defect, discrepancy or satisfactory rebuttal by the AO. p3: Whether a deemed addition under section 68 can be made on an estimate basis (e.g., presuming 25% of SBN deposits to be unexplained) without pinpointing deficiencies in the books or adducing independent contrary material. p4: Whether deposits in bank accounts arising from recorded cash sales can be treated as unexplained cash credit within the meaning of section 68, or whether section 68 applies only where sums are credited in the books without satisfactory explanation as to nature and source. p5: The evidentiary value and weight to be attached to audited accounts, stock reconciliation, VAT/GST/VAT acceptance and other corroborative material when assessing genuineness of cash sales and related bank deposits during demonetization; and the extent to which coordinate/High Court/Tribunal precedents govern the issue. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of additions under section 68/115BBE where cash sales are recorded and supported by books Legal framework: Section 68 permits charging to tax any sum found credited in the books where the assessee offers no explanation as to nature/source or where the explanation is unsatisfactory. Section 115BBE (invoked by AO) penalizes income in certain circumstances. Precedent treatment: The Court relied on multiple coordinate Tribunal and High Court decisions which have deleted additions under section 68 where cash deposits represented sales already recorded in audited books and no defect in books was pointed out. These authorities were followed rather than distinguished. Interpretation and reasoning: The Tribunal emphasized that the assessee had recorded cash sales in the cash book, produced audited financial statements, sales/purchase ledgers and stock registers, and the AO had not pointed out any specific defects in those records. The AO had accepted trading results and profits. Given the books already included the cash sales and profits were taxed, treating the same receipts as unexplained and taxing them again under section 68 lacked justification. The Tribunal held that once sales are admitted and substantiated, corresponding bank deposits from those sales cannot be treated as unexplained without contrary material. Ratio vs. Obiter: Ratio - Where contemporaneous books, audited accounts and stock reconciliation establish that deposits arose from recorded sales and no specific defects are pointed out, additions under section 68/115BBE cannot be sustained. Obiter - Observations on commercial explanations for timing of deposits (e.g., queues during demonetization) as context. Conclusions: Addition deleted; AO's invocation of section 68/115BBE was unjustified in absence of any specific rebuttal to the documentary evidence showing sales and corresponding stock reduction. Issue 2 - Obligation of AO to record dissatisfaction and to point out specific defects when explanation is furnished Legal framework: Section 68 contemplates either absence of explanation or an explanation found unsatisfactory by the AO; statutory requirement to record reasons for rejecting an explanation. Precedent treatment: Tribunal relied on prior Tribunal/High Court decisions holding that AO must record why explanation is unsatisfactory and identify defects; mere conjecture or comparison with past years is insufficient. Interpretation and reasoning: The Tribunal held that where the assessee furnishes full details (sales register, stock, purchase invoices, ledger, audited accounts), the AO must specifically identify why such documentary evidence is unacceptable. In this case no such specific defects were noted; instead AO relied on circumstantial comparison (abnormal increase in sales) and made an estimate. The Tribunal found this to be arbitrary and contrary to statutory requirement. Ratio vs. Obiter: Ratio - The AO must articulate reasons and point to specific defects or inconsistencies if he finds the explanation unsatisfactory; generalized disbelief or reliance on surmise is inadequate for invoking section 68. Obiter - References to natural justice/quasi-judicial duty in framing assessments. Conclusions: AO's failure to specify deficiencies in the supplied records or to record precise reasons for dissatisfaction rendered the addition unsustainable. Issue 3 - Legality of making additions on an estimate basis (specific 25% presumption) Legal framework: Taxing additions based on estimates must be grounded in evidence; section 68 requires absence or unsatisfactory explanation rather than mechanically applying a percentage presumption over deposits. Precedent treatment: Tribunal cited multiple coordinating benches which rejected sales-based additions made on presumptive percentages during demonetization where books and corroborative evidence were furnished. Interpretation and reasoning: The Tribunal criticized the AO's approach of presuming 25% of SBN deposits as unexplained without rebutting the documentary evidence. It described such reliance on circumstantial evidence, conjecture and statistical comparison without direct contrary material as impermissible. The AO had accepted 75% of deposits as genuine without explaining that acceptance, making the residual estimate arbitrary. Ratio vs. Obiter: Ratio - Additions based solely on arbitrary percentage estimates, absent evidential basis or pinpointed defects, are untenable. Obiter - Observations on business variation (month-to-month sales fluctuations) do not justify mechanistic estimates. Conclusions: The estimate addition of 25% was illegal and deleted. Issue 4 - Applicability of section 68 to bank deposits arising from recorded cash sales Legal framework: Section 68 applies to sums found credited in the books of the assessee. Question arises whether bank deposits (SBN deposits) independent of books can be treated as cash credits under section 68. Precedent treatment: Tribunal followed earlier decisions holding that where deposits are out of receipts already recorded in books as sales, section 68/69A cannot be invoked merely because bank deposits occurred; the statutory language requires sums credited in books without satisfactory explanation. Interpretation and reasoning: The Tribunal observed that the assessee's books already recorded the cash receipts; the AO did not demonstrate that the bank deposits were not reflected/credited suitably in the books or that the books were deficient. Where the money is shown as sale in books and taxed as profit, the same amount cannot be treated as unexplained cash credit under section 68 or separately taxed under section 115BBE. Ratio vs. Obiter: Ratio - Deposits in bank accounts that are traceable to sales recorded in books and supported by stock movement/purchase invoices cannot be treated as unexplained cash credits under section 68. Obiter - Distinction between sums 'found credited in the books' and mere bank credits when books are not challenged. Conclusions: Section 68 could not be validly invoked in respect of SBN deposits which were reflected as cash sales in the books; no separate addition sustainable. Issue 5 - Evidentiary weight of audited books, stock reconciliation and other corroborative material; role of concurrent acceptance by other departments Legal framework: Contemporaneous books, audited statements, stock reconciliations and acceptance by other governmental wings (VAT/GST) are relevant corroboration for genuineness of transactions. Precedent treatment: The Tribunal relied on multiple precedents where courts/tribunals gave decisive weight to audited books, stock movements and other reconciliatory material in similar demonetization deposit cases, leading to deletion of additions. Interpretation and reasoning: The Tribunal noted that the assessee produced sale/purchase ledgers, stock summary, auditors' reports, GST/VAT returns and other documents. No contrary evidence or rejection of books was recorded by the AO. The Tribunal held that when stock movement tallies with sales and audited records exist, the presumption of bogus sales to camouflage unaccounted cash cannot be sustained merely on patterns of month-wise sales changes. Where other authorities accepted sales (e.g., VAT), the AO's adverse conclusion becomes harder to justify. Ratio vs. Obiter: Ratio - Audited records, stock reconciliation and corroborative statutory filings (VAT/GST) are material and, if unchallenged, defeat revenue's presumption of unexplained deposits. Obiter - Practical commercial reasons (advertising, new registrations, trade fairs) may explain sales spikes and need consideration. Conclusions: The corroborative documentary matrix tipped the evidentiary balance in assessee's favour; additions were therefore unsustainable. Overall Conclusion p: The Tribunal allowed the appeal, holding the addition of INR 43,50,250 (25% of SBN deposits) to be unjustified. The AO's invocation of section 68/115BBE failed because the assessee had recorded and substantiated cash sales in audited books, no specific defects were identified by the AO, estimates were made without evidentiary basis, and persuasive coordinating precedents were followed to delete the addition.