ITAT deletes additions under section 68 and 115BBE for cash sales already included in audited books

The ITAT Delhi held that additions under section 68 read with section 115BBE for cash sales proceeds from metal scrap were unjustified. The tribunal ruled that amounts already included in audited sales figures cannot be taxed again without rejecting the books of accounts. Since the assessee provided supporting documents for cash sales without any pointed defects, and the same sales figures were accepted under VAT/GST assessments, the addition based on surmises was deleted. The tribunal emphasized that dual treatment of identical amounts is impermissible when books remain unrejected.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the cash deposits amounting to Rs. 1.22 crore during the demonetization period, claimed to be proceeds from cash sales of metal scrap, were rightly treated as unexplained cash under section 68 read with section 115BBE of the Income Tax Act, 1961.
• Whether the Assessing Officer (AO) was justified in making additions despite the assessee's submission of books of account, cash book, stock register, sales invoices, VAT returns, and other documentary evidence to substantiate the cash sales.
• Whether the addition under section 68 was sustainable when the amount in question was already included in the declared sales turnover and the books of account were not rejected.
• Whether the provisions of section 115BBE of the Act were applicable to the cash deposits in question for the assessment year 2017-18.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of Cash Deposits as Proceeds of Cash Sales and Applicability of Section 68 and Section 115BBE

Relevant legal framework and precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits, allowing the AO to treat such credits as income if the assessee fails to satisfactorily explain the nature and source of the cash. Section 115BBE imposes a special rate of tax on unexplained cash credits. The legal principle is that if the assessee satisfactorily explains the source and genuineness of the cash credits, no addition can be made. Furthermore, it is established law that if the books of account are accepted and turnover declared is not disputed, additions cannot be made on the same amount without rejecting the books.

Court's interpretation and reasoning: The AO made additions on the ground that the cash deposits during demonetization were unexplained, as the assessee failed to produce adequate supporting documents such as cash book, stock register, and verifiable details of parties to whom scrap was sold. The AO also noted the absence of prior history of such cash sales and the unverifiable nature of the list of parties.

However, the Tribunal noted that the amount deposited was already reflected in the audited books of account under sales and was included in the declared turnover. The books of account were not rejected by the AO. The Tribunal emphasized the settled legal position that once books are accepted and turnover is declared, the same amount cannot be subjected to addition under section 68 without rejecting the books.

Key evidence and findings: The assessee had submitted cash book, cash sale invoices, VAT returns, stock register, and sales register before the CIT(A) and the Tribunal. The VAT returns and sales tax assessments had accepted the sales figures. The AO did not point out any defect or forgery in the documents submitted. The remand report from the AO also did not highlight any discrepancy in the documents.

Application of law to facts: The Tribunal held that since the cash deposits were already offered as sales income in the books and accepted by the tax authorities, the addition under section 68 was not justified. The absence of rejection of books of account meant the AO could not make additions on surmises and conjectures. The Tribunal relied on precedents where similar facts led to deletion of additions, emphasizing that mere suspicion or unverifiable lists without tangible evidence cannot sustain additions.

Treatment of competing arguments: The AO and CIT(A) relied on the lack of documentary evidence and unverifiable parties to justify additions. The assessee argued that the documents were filed but not considered due to procedural issues with the faceless assessment portal and that the sales were genuine and reflected in audited accounts and VAT returns. The Tribunal accepted the assessee's submissions and found no adverse material against the genuineness of the sales.

Conclusions: The addition of Rs. 1.22 crore under section 68 read with section 115BBE was not sustainable as the amount was already included in declared sales, books of account were not rejected, and no adverse material was brought on record to discredit the documents submitted by the assessee.

Issue 2: Applicability of Section 115BBE for the Assessment Year 2017-18

Relevant legal framework and precedents: Section 115BBE imposes a special tax rate on unexplained cash credits, unexplained investments, and unexplained money or bullion held by the assessee. The applicability of this provision to transactions prior to 1.4.2017 has been a subject of judicial scrutiny.

Court's interpretation and reasoning: The Tribunal referred to a recent ruling by the Madras High Court which clarified that section 115BBE applies only to transactions on or after 1.4.2017. Since the demonetization period and the relevant cash deposits pertained to the assessment year 2017-18, the applicability of section 115BBE was considered in light of this ruling.

Key evidence and findings: The Madras High Court's decision in the cited case settled the issue against the department's claim of applicability of section 115BBE to transactions prior to 1.4.2017.

Application of law to facts: The Tribunal held that the special provisions of section 115BBE could not be invoked against the assessee for the cash deposits in question, as the transactions predated the effective applicability of the section.

Treatment of competing arguments: The department relied on section 115BBE to justify the addition and levy of special tax. The assessee contested the applicability based on judicial precedent. The Tribunal accepted the assessee's contention.

Conclusions: Section 115BBE was not applicable to the cash deposits made during the demonetization period for the assessment year 2017-18, and thus, the addition under this section was not sustainable.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"It is a trite law that when the amount is already included under the sales figure the same cannot be taxed again. Books of account duly audited and the same has not been rejected. It is a trite law that when the amount is included in the sales and the Assessing Officer thinks otherwise, then he is required to reject the books of accounts. Once the turnover declared by the assessee is accepted by the Revenue, there can be no further additions."

"The addition has been made and thereafter sustained only on surmises and conjectures. No adverse material/no independent enquiry made."

"The figures accepted under VAT/GST assessment. The same very figure of sales has been duly depicted in the VAT returns, which is duly accepted and assessment in this regard has already been made by the sales tax authorities. Hence, there cannot be two different treatments in regard to the same amount."

"In view of Hon'ble Madras High Court in SMILE Microfinance Ltd. vs. ACIT ... has already settled the issue against the department that the law applies to the transaction on or after 01.04.2017 only."

Core principles established include:

• The prohibition against double taxation of the same income once accepted in audited books and returns.
• The requirement that additions under section 68 can only be made if the books of account are rejected or the explanation is found unsatisfactory with supporting adverse material.
• The inadmissibility of additions based solely on surmises, conjectures, or unverifiable lists without tangible evidence.
• The temporal applicability of section 115BBE limited to transactions occurring on or after 1.4.2017.

Final determinations:

• The addition of Rs. 1.22 crore under section 68 read with section 115BBE was deleted.
• The cash deposits were held to be genuine proceeds of cash sales of metal scrap, duly recorded in books and accepted by VAT authorities.
• The provisions of section 115BBE were held not applicable to the cash deposits for AY 2017-18.
• The appeal of the assessee was allowed accordingly.

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