2025 (8) TMI 617 - AT - Income Tax

Tax Authorities Must Accept Assessee's 15% Addition Offer Under Section 68 for Demonetized Currency Deposits

The ITAT Delhi held that the tax authorities failed to properly analyze the assessee's financial statements and VAT returns before making additions under ... Addition u/s 68 - deposits of cash in the demonetized currency - HELD THAT:- We find that the assessee’s evidences in the form of financial statements and the VAT returns have not been analysed in any manner and on broad proposition alone the ld. tax authorities have made and sustained the additions. We are of the considered view that when assessee’s stock-in-trade and VAT returns have not been disputed by any discrepancy or falsehood, then, merely on assertion that the assessee’s attempt to take benefit of cash sales could not have been doubted. At the same time, when the assessee does not dispute the fact of 15% of the cash sales were offered for addition, then, without retracting from the same on substantive evidence and justification the assessee cannot alleged that once 15% offer was rejected, the AO could not have made ad hoc disallowance of 30%. We are of the considered view that if the ld. tax authorities did not intent to dispute the assessee’s claim on the basis of the books of account and stock, then, they should have accepted the assessee’s offer that 15% may be considered to be unaccounted sales. Accordingly, the appeal of the assessee is allowed partly. 1. ISSUES:1. Whether addition under section 68 by treating cash deposits during the demonetisation period as 'unexplained cash' is justified where books of accounts have not been rejected and no specific 'defects' in the books were pointed out.2. Whether an ad hoc estimation of '30% of the total cash deposits' as unexplained is permissible absent confrontation of the assessee with the basis of estimation and where electronic/statutory records (VAT returns, stock records) remain undisputed.3. Whether making an addition under section 68 on cash receipts that have been offered to taxation results in double taxation, and how such double taxation should be addressed.4. Whether an assessee's contemporaneous offer/admission to treat '15% of the cash deposits as unexplained cash' is binding or otherwise limits the quantum of addition that may be sustained.2. RULINGS / HOLDINGS:1. The addition under section 68 treating part of the cash deposits as 'unexplained cash' cannot be sustained on broad proposition alone where 'books of accounts' and supporting VAT returns and stock position 'have not been disputed by any discrepancy or falsehood'; therefore ad hoc estimation without rejecting records is impermissible. 2. An ad hoc estimation of '30% of the total cash deposits' was not justified in the absence of analysis of the assessee's evidences and without pointing out specific defects in the 'books of accounts'; the addition is therefore restricted. 3. Where the assessee had offered to treat '15% of the cash deposits as unexplained cash', and the revenue did not dispute the books/stock, the appropriate course is to accept that offer; accordingly the addition is limited to the admitted amount (reduction of the impugned addition to Rs. 37.5 lakhs representing 15% of deposits). 4. The concern of double taxation arising from treating already-taxed sales as unexplained must be mitigated by adjustments to sales/stock and recomputation of profit where appropriate; authorities should avoid apportionments that lead to duplication of tax on the same receipts. 3. RATIONALE:1. Legal framework applied: assessment additions under section 68 were examined in the light of the evidentiary value of 'books of accounts', sales invoices and statutory returns (VAT), with the principle that estimation or treatment as 'unexplained' requires either rejection of books or identification of specific defects; mere suspicion (including reference to 'test of human probability') is insufficient to sustain ad hoc disallowances. 2. The tribunal noted that 'stock-in-trade and VAT returns have not been disputed by any discrepancy or falsehood', and that the assessing officer's conclusion rested on the asserted improbability of the volume/timing of sales rather than on analysis or rebuttal of records; accordingly, where records are not contested, the revenue should have accepted the assessee's offer that '15% may be considered to be unaccounted sales.' 3. The decision applies the doctrine that an assessee's admission in the course of proceedings can bind the quantum of addition when the revenue does not otherwise establish defects in the accounts; simultaneously, the court recognizes the obligation to prevent 'double taxation' by appropriate adjustments (reduce sales and add corresponding stock to closing stock and re-compute profit where directed). 4. No dissenting or concurring opinion was recorded; the outcome represents an application of established evidentiary principles limiting ad hoc estimations in the absence of rejection of books or demonstrable misstatement in statutory records.