2025 (9) TMI 629 - AT - Income Tax

Addition under s.68 set aside as cash sales documented, books accepted, no unexplained income during demonetisation period

M/s Vijay Jewellers Versus Assistant Commissioner of Income-tax-19 (3), Mumbai / Deputy Commissioner of Income-tax 19 (3), Mumbai,

ITAT MUMBAI set aside the addition under s.68, holding that the firm's sales were fully disclosed with receipts realized through cash and bank, books were ... Addition u/s 68 - assessee-firm introduced unaccounted money into the business during the demonetization period through an increase in sales - HELD THAT:- We note that the assessee disclosed its entire sales, with receipts being realised through both cash and banking channels. The assessee derived no undue benefit from the said transactions. The stock of goods and purchases was duly accepted in the assessment order, and the books of accounts of the assessee were not rejected. The assessee also submitted copies of quarterly VAT returns filed under the Maharashtra VAT Act and an item-wise stock register, which were placed on record before the AO. No objections were raised regarding the veracity of the evidence submitted. Out of the total sales of Rs. 86.52 crore for the relevant financial year, the cash sales component amounted to Rs. 3.58 crore, forming only 4.19% of the total turnover. Reliance is placed on the order of case of Nita Taneja [2019 (3) TMI 1855 - ITAT DELHI] wherein it was held that documents neither rebutted nor rejected cannot serve as the basis for addition merely because the sales were affected during the demonetisation period. The books of accounts demonstrate that the assessee had an opening balance of cash in the relevant financial year and that the sales were adequately supported by sufficient purchases and stock-in-trade. We respectfully rely on the findings in Nita Taneja (supra) as applicable to this appeal. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits made during the demonetisation period can be treated as unexplained cash and added to income under section 69A read with taxation under section 115BBE where the assessee maintained audited books, disclosed cash sales in accounts, and produced supporting vouchers/records. 2. Whether the Assessing Officer's presumption of unaccounted cash, made without independent corroborative evidence and based on comparison with preceding years, is sufficient to sustain an addition under section 69A when purchases, sales, stock records and returns were accepted and books were not rejected u/s 145(3). 3. The evidentiary value of contemporaneous books, cash books, serially numbered tax invoices, bank statements, VAT returns and item-wise stock registers in rebutting the AO's presumption of unexplained cash during demonetisation. 4. Whether reliance on a coordinate bench decision holding that un-rebutted and un-rejected documents cannot be the sole basis for addition during demonetisation is appropriate and binding on the Tribunal's reasoning in the appeal. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Legality of additions under section 69A/115BBE for cash deposits during demonetisation where books are audited and cash sales disclosed Legal framework: Section 69A permits additions where cash credits are unexplained in the hands of the assessee; section 115BBE prescribes taxation of income from undisclosed sources. Books of account audited u/s 44AB and not rejected u/s 145(3) carry evidentiary weight. Precedent Treatment: The Tribunal relied on a coordinate bench decision that documents which are neither rebutted nor rejected cannot justify an addition merely because transactions occurred during the demonetisation period. Interpretation and reasoning: The Court examined whether the cash deposits were reflected as cash sales in audited books and whether those sales were supported by matching purchases and stock reductions. The assessee's audited financials, cash book, serial tax invoices, VAT returns, bank statements and stock registers demonstrated: (a) opening cash balances; (b) cash sales recorded in accounts and reconciled with VAT returns and invoices; (c) purchases accepted by the AO; and (d) cash sales forming a small percentage (4.19%) of total turnover. Absent rejection of books or challenged vouchers, the cash deposits were explained as part of disclosed business receipts. Ratio vs. Obiter: Ratio - where audited books are maintained, purchases and sales are accepted and supporting contemporaneous records are furnished and not discredited, cash deposits recorded as cash sales cannot be treated as unexplained merely because they occurred during demonetisation. Conclusion: The addition under section 69A and taxation under section 115BBE cannot be sustained on the facts presented; the deposit amounts explained as cash sales in audited books are not unexplained cash. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sufficiency of AO's presumption and need for corroborative evidence Legal framework: The Assessing Officer's power to make additions requires that unexplained credits be shown to be not arising from disclosed or acceptable sources; mere suspicion or comparison with prior years is insufficient without independent corroboration. Precedent Treatment: The Tribunal applied the principle that arbitrary presumptions without corroborative material are inadequate to sustain an addition; reliance on comparable decisions where documents were neither rejected nor disproved supports this approach. Interpretation and reasoning: The AO premised addition on an assumed surge in sales attributable to introduction of unaccounted money, and on an asserted discrepancy with prior years' cash patterns. The Tribunal found no independent evidence of falsity: books were audited, purchases and sales accepted, invoices continuous and verifiable, VAT returns and stock registers produced, and no rejection under section 145(3). Given acceptance of core records, the AO's presumption lacked probative support. Ratio vs. Obiter: Ratio - an AO's assumption of unaccounted cash must be supported by corroborative evidence; absence of such evidence and acceptance of books precludes sustaining additions based solely on presumption or year-to-year comparison. Conclusion: The AO's unexplained-cash addition is not legally tenable without corroborative material; the presumption alone cannot override accepted audited records. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Evidentiary weight of contemporaneous books, invoices, returns and stock registers Legal framework: Contemporaneous accounting records, tax invoices, statutory returns (VAT), bank statements and stock registers are primary evidence to explain business receipts; rejection under statutory provision is prerequisite to treat such records as unreliable. Precedent Treatment: The Tribunal followed existing approach that where such records are produced and neither disproved nor rejected, they constitute adequate explanation for cash receipts. Interpretation and reasoning: The assessee produced extensive documentation (audited financials, cash ledger, bank statements, month-wise and day-wise sales breakups, stock registers, invoices and VAT returns). The AO raised no specific infirmity in these records and did not reject the books under section 145(3). The Tribunal found that the documents demonstrated consistent and verifiable nexus between purchases, stock reduction and sales, and showed opening cash balances that permitted the recorded cash transactions. The fact that cash sales were concentrated in a festival period (Dhanteras/Diwali) and incentivisation/marketing decisions were advanced as business explanations was a plausible commercial reason, not a ground for treating receipts as unexplained. Ratio vs. Obiter: Ratio - contemporaneous, unchallenged records accepted in assessment rebut presumption of undisclosed cash; such records must be specifically shown to be false or unreliable before being ignored. Conclusion: The contemporaneous records produced competent evidence to explain the cash deposits; their unchallenged status negates the basis for addition. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Reliance on coordinate decision and its applicability Legal framework: Tribunal may follow relevant coordinate bench precedents where legal and factual principles align; such precedents guide treatment of demonetisation-period additions where records are produced and not discredited. Precedent Treatment: The Tribunal expressly relied on a coordinate bench decision holding that un-rebutted and un-rejected documents cannot serve as sole basis for addition merely because receipts were during demonetisation. Interpretation and reasoning: The Tribunal found factual similarity: availability of supporting records, acceptance of purchases and sales by the AO, audited books not rejected, and absence of specific findings of falsity. Given these parallels, the coordinate bench's reasoning was held applicable and persuasive. Ratio vs. Obiter: Ratio - where factual matrix mirrors the precedent (unrejected, unchallenged contemporaneous records explaining receipts), the precedent's refusal to sustain additions during demonetisation binds the Tribunal's decision. Conclusion: Reliance on the coordinate bench decision was appropriate and supported setting aside the addition. FINAL CONCLUSION On the facts and documents placed on record-audited books, cash ledger, serial tax invoices, bank statements, VAT returns and item-wise stock registers-and in the absence of any rejection of books or independent corroborative evidence of falsity, the Assessing Officer's presumption that cash deposits during the demonetisation period were unexplained is unsustainable. The addition under section 69A (and consequential taxation) was quashed.