2025 (2) TMI 1419 - AT - Income Tax

Cash sales during demonetisation: recorded in audited books and VAT returns, to be taxed as business income not penal unexplained credits

Assessee recorded cash sales of gold and silver during the demonetisation period in audited books, VAT returns and financial statements; VAT authority ... Addition of cash sales u/s. 68 r.w.s. 115BBE - unexplained credits - cash sales during the demonetisation period - Non rejection of books of accounts - assessee submitted that where the books of account of the assessee are audited, and assessee has offered the sale in demonstration period, which is included in audited balance sheet and profit and loss account and assessee paid taxes on such sales, therefore, the assessee should not be penalized to pay double tax HELD THAT:- We note that during the appellate proceedings, the assessee submitted before the CIT(A), the details regarding the sale of gold bars and silver bars. The assessee has filed copy of sale bills of gold and silver bars issued on 07 & 08.11.2016. The assessee also submitted, cashbook, stock register, balance sheet, profit and loss account and complete financial statements, including schedules and return of income, and VAT return etc. We find that the cash sales were duly recorded in the books of accounts and there was a complete tally of quantitative details of purchase, sales and stock. Books of account were duly audited. The cash sales were reported in the VAT Returns and the same were reduced from the inventory of goods. The VAT department also accepted the sale of the assessee. In this situation, before taking any adverse view, it was incumbent upon the assessing officer to reject the books of accounts under section 145(3) of the Act, before disbelieving the sales. However, the assessing officer has not done the same and directly proceeded to disbelieve the sales. This action of the assessing officer is patently incorrect and untenable in law. It is a settled position under the law that the assessing officer cannot question the book result without rejecting the same by invoking the section 145(3) of the Act. Since the cash sales of the assessee, were out of his core business activities, hence cash sales is assessable under the head business income, therefore we direct the assessing officer to tax the amount under the normal rate of income tax (and not under section 115BBE of the Act). Issues: Whether the addition of Rs. 2,99,87,180/- made as unexplained cash credit under Section 68 read with Section 115BBE of the Income-tax Act, 1961, in respect of cash sales during the demonetisation period, is sustainable where the assessee has produced audited books, sales invoices, stock records and VAT returns recording the sales.Analysis: The Tribunal examined the materials on record including audited cash book, stock register, sales invoices for 07/11/2016 and 08/11/2016, audited financial statements, VAT returns and acceptance by the VAT authority, and noted that total turnover was Rs. 542.72 crores while the impugned cash sales amounted to Rs. 2.99 crores (less than 1% of turnover). The Tribunal observed that the Assessing Officer did not invoke Section 145(3) to reject the books of account before disbelieving the recorded sales. Reliance was placed on authorities holding that department must show inherent weakness in evidence or rebut it with information in its possession before rejecting audited books. The Tribunal also took into account the contemporaneous context of demonetisation and various tribunal decisions regarding cash sales by jewellers during that period. The Tribunal concluded that the cash sales were recorded as business receipts and offered to tax in profit & loss account, corroborated by VAT returns and inventory reductions, and that treating the same amount as unexplained credit would result in double taxation. Acting within its discretion, the Tribunal limited the adverse treatment to a lump sum of Rs. 3,00,000/- and directed that amount be taxed as business income under normal rates rather than under Section 115BBE.Conclusion: The addition of Rs. 2,99,87,180/- under Section 68 read with Section 115BBE is not sustainable; the appeal is partly allowed by restricting the addition to Rs. 3,00,000/-, which shall be taxed as business income at normal rates (not under Section 115BBE), and the Tribunal's direction is subject to the rider that the order shall not be treated as a precedent.Ratio Decidendi: Where audited books, sales invoices, stock records and corroborative VAT returns are on record and the Assessing Officer has not rejected the books under Section 145(3) of the Income-tax Act, 1961, the Assessing Officer cannot disbelieve recorded sales and treat corresponding cash deposits as unexplained credits under Section 68 without first demonstrating inherent weakness in the evidence or adducing rebuttal material in its possession; treating admitted and taxed business receipts as unexplained credits would result in impermissible double taxation.