2025 (2) TMI 1374 - AT - Income Tax

Unexplained cash credits in vehicle exchanges: accepted sales with buyer identity established cannot be treated as unexplained; addition set aside

Addition under unexplained cash credit was contested in relation to amounts paid by customers in vehicle exchange transactions. The reasoning emphasises ... Addition u/s 68 - unexplained cash credit - amount of cash received from customers for which no details such as PAN, address, Aadhaar card or any such vital documents which proves the identity of the buyers - HELD THAT:- There is no dispute that the assessee was selling old cars which were purchased by exchange of old cars with new vehicles and the difference was paid by the customers. Credit entries are not loan credits for which the assessee has to explain the creditworthiness of the creditors. We are of the considered view that once the AO has accepted the sales, taking a part of it for making addition u/s 68 of the Act is uncalled for. AO himself has accepted that the assessee has furnished complete details of exchange of vehicles. Merely because PAN details were not furnished, would not make them unexplained especially when the identity of the sellers of the old vehicles have been established as the vehicles have been registered with the RTO. The genuineness of the creditors cannot be doubted as the impugned sales have been accepted by the AO and insofar as creditworthiness of the creditors are concerned, the AO cannot expect the assessee to prove the creditworthiness of the purchasers of the vehicles. Appeal of the assessee is allowed. Issues: Whether the addition of Rs. 15,01,57,610 treated as unexplained cash credit under Section 68 of the Income-tax Act, 1961, arising from sale of old cars (purchased on exchange), was justified.Analysis: The assessing officer accepted the sales of old cars and the assessee furnished details of the exchange transactions including names and records; the amounts represented consideration in exchange transactions and not loan or credit entries requiring proof of creditworthiness of parties. The identity of the sellers of old vehicles was established by vehicle registration records with the RTO. Merely lacking PAN details does not convert accepted sales into unexplained credits where the sales are recorded and ownership documents and physical delivery substantiate the transactions.Conclusion: The addition of Rs. 15,01,57,610 as unexplained cash credit under Section 68 is deleted and the appeal is allowed in favour of the assessee.Ratio Decidendi: Where the assessing officer has accepted sales and the identity of transacting parties is established (for example, by RTO registration) amounts received in exchange transactions cannot be treated as unexplained cash credits under Section 68 merely for lack of PAN or similar documents, and the AO cannot require proof of creditworthiness of purchasers in such cases.