2025 (5) TMI 885 - AT - Income Tax

Cash Deposits of Rs. 56 Lakhs Validated as Genuine Sales Under Section 69A, Blocking Revenue's Unsubstantiated Claims

The SC/Tribunal examined cash deposits of Rs. 56,00,000 under Section 69A of the Income Tax Act. After detailed analysis, the Tribunal found the cash ... Unexplained money u/s 69A - Assessee submitted that the authorities below have accepted cash sales and taxed the income thereon - HELD THAT:- We have considered the nature of the business of the Assessee and also past history of cash sales and the cash deposit in the bank account. The entire sales made by the Assessee are reflected in the cash book and sales account which are supported by documentary evidence maintained in ordinary course by the Assessee and at no point of time, the stock register maintained by the Assessee has been disputed. The audited books of account of the Assessee were accepted and sales which are duly reflected in the books of account are offered for taxation by reflecting the same in the trading and profit and loss account of the Assessee. Thus, in our considered opinion the Lower authorities committed error in making/ addition on account of cash deposit arising out of the sale proceeds and the same will amounts to double taxation. We find no reason to sustain the addition made by the A.O. which has been upheld by the Ld. CIT(A). Accordingly the impugned addition is hereby deleted. Appeal of the Assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether the cash deposits amounting to Rs. 56,00,000/- made by the Assessee during the year under consideration can be treated as unexplained money under Section 69A of the Income Tax Act, 1961, thereby justifying an addition to the Assessee's income.Whether the sales recorded in the books of account, supported by invoices, VAT payments, and stock registers, can be accepted as genuine and sufficient to explain the source of the cash deposits.Whether the addition made on account of cash deposits results in double taxation, given that the cash sales have already been taxed.Whether the invoices produced by the Assessee are genuine or bogus, as alleged by the Revenue, especially in light of the findings regarding the absence of party details in certain invoices.The relevance and impact of prior assessment year findings, especially the treatment of cash sales and deposits for Assessment Year 2016-17, on the current assessment year 2017-18.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Treatment of Cash Deposits as Unexplained Money under Section 69ARelevant Legal Framework and Precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to treat unexplained cash credits or deposits as income of the Assessee if the source is not satisfactorily explained. The principle is that if the Assessee fails to explain the nature and source of such deposits, they are liable to be added to income.Court's Interpretation and Reasoning: The Tribunal examined whether the Assessee satisfactorily explained the source of the cash deposits. The Assessee claimed that the deposits arose from cash sales made during the financial year, supported by sales invoices, VAT returns, and stock registers. The Tribunal noted that the sales were reflected in the books of account and corroborated by documentary evidence.Key Evidence and Findings: The Assessee produced sales invoices, sale receipts, and VAT payment records. The stock availability was not disputed by the Revenue. The cash sales were recorded in the cash book and sales account, and these were accepted in the audited accounts. The Tribunal also noted that cash sales and deposits for the current year were significantly less than those for the previous year.Application of Law to Facts: Since the Assessee provided adequate documentary evidence and the stock register was undisputed, the Tribunal found that the source of cash deposits was satisfactorily explained. Therefore, the addition under Section 69A was unwarranted.Treatment of Competing Arguments: The Revenue argued that the cash deposits were unexplained and supported by bogus invoices. However, the Tribunal found that the Revenue did not dispute the availability of stock or the genuineness of the recorded sales beyond the alleged bogus invoices for two specific dates.Conclusion: The Tribunal concluded that the cash deposits were explained by genuine cash sales, and thus the addition under Section 69A was not justified.Issue 2: Genuine Nature of Sales Invoices and Allegation of Bogus BillsRelevant Legal Framework and Precedents: The Income Tax authorities have the power to reject invoices if they are found to be fabricated or bogus, especially if they lack essential details such as party name, address, PAN, etc. Such rejection can lead to additions under Sections 69A and related provisions.Court's Interpretation and Reasoning: The Revenue pointed to 59 invoices dated 05/11/2016 and 07/11/2016, alleging they were bogus due to missing party details and the improbability of identical sales on those dates. The CIT(A) upheld this view, confirming the addition.Key Evidence and Findings: The Tribunal reviewed the evidence and found that the stock register was maintained and undisputed, and the sales were reflected in the books. The Tribunal also noted that the cash sales for the year under consideration were much lower than the prior year, undermining the Revenue's argument of fabricated sales to justify large cash deposits.Application of Law to Facts: The Tribunal distinguished between specific invoices alleged to be bogus and the overall sales recorded. It found that the general sales and stock availability supported the genuineness of the cash sales and did not justify treating the entire cash deposit as unexplained money.Treatment of Competing Arguments: While the Revenue emphasized the suspicious nature of invoices on specific dates, the Tribunal balanced this against the overall documentary evidence and accepted the Assessee's explanation for the cash deposits.Conclusion: The Tribunal did not uphold the Revenue's contention that the entire cash deposit was supported by bogus invoices and found the sales genuine for the purpose of explaining the cash deposits.Issue 3: Double Taxation on Cash Sales and Cash DepositsRelevant Legal Framework and Precedents: Taxation principles prohibit double taxation of the same income under the Income Tax Act. If cash sales are taxed as income, subsequent taxation of cash deposits arising from those sales would amount to double taxation.Court's Interpretation and Reasoning: The Tribunal observed that the cash sales were accepted and taxed by the authorities. Since the cash deposits represented proceeds of these sales, taxing the deposits again would be impermissible double taxation.Key Evidence and Findings: The sales were recorded in the books and VAT was paid, indicating that the income was already subjected to tax. The Tribunal also noted that the cash deposits for the year were consistent with the sales figures.Application of Law to Facts: The Tribunal held that once the cash sales are taxed, the corresponding cash deposits cannot be treated as unexplained income and taxed again.Treatment of Competing Arguments: The Revenue did not provide sufficient evidence to separate the cash deposits from the taxed cash sales, and the Tribunal found the Revenue's double taxation approach untenable.Conclusion: The Tribunal concluded that the addition on account of cash deposits amounted to double taxation and was therefore unsustainable.Issue 4: Impact of Prior Assessment Year FindingsRelevant Legal Framework and Precedents: Decisions in earlier assessment years, especially by appellate authorities, can be relevant for consistency and to understand the Assessee's business practices.Court's Interpretation and Reasoning: The Revenue referred to the prior year (2016-17) where a large addition was made on account of bogus sales. However, the Tribunal clarified that for AY 2016-17, the cash deposits were accepted and treated as sales, and no addition was made on account of cash deposits.Key Evidence and Findings: The Tribunal reviewed the prior year order and found that the cash deposits were accepted, which supported the Assessee's contention that the deposits in the year under consideration were genuine.Application of Law to Facts: The Tribunal relied on the acceptance of cash deposits in the prior year to support the genuineness of the deposits in the current year.Treatment of Competing Arguments: The Revenue's reliance on prior year additions was countered by the Tribunal's finding that the prior year deposits were accepted, weakening the Revenue's argument.Conclusion: The prior year findings did not support the Revenue's case for addition under Section 69A in the current year.3. SIGNIFICANT HOLDINGSThe Tribunal held:'Considering the above facts and circumstances, we find no reason to sustain the addition made by the A.O. which has been upheld by the Ld. CIT(A). Accordingly the impugned addition is hereby deleted.'Core principles established include:Cash deposits arising from genuine cash sales, duly recorded and taxed, cannot be treated as unexplained money under Section 69A.Double taxation of the same income, first as cash sales and then as cash deposits, is impermissible.Documentary evidence such as sales invoices, VAT returns, and undisputed stock registers are critical to establishing the genuineness of cash sales and deposits.Allegations of bogus invoices must be considered in the context of the entire evidence and cannot justify blanket additions without substantiation.Final determinations:The addition of Rs. 56,00,000/- under Section 69A was deleted.The appeal filed by the Assessee was allowed.