2025 (9) TMI 1611 - AT - Income Tax

Income-tax section 69A: Demonetisation deposits explained by cash balances and sales; some purchase additions sustained

ITAT upheld deletion of addition under section 69A, holding deposits of specified banknotes during demonetization were explained by pre-existing cash ... Addition u/s 69A - Cash deposits in specified currency notes during the period of demonetization - HELD THAT:- AO has made the addition solely basis certain assumption that cash so deposited in SBN notes during the demonetization period is out of sales effected during the demonetization period and there is nothing on record to support such a position and stand so taken by the AO. As against that, the assessee has demonstrated through the cash book placed on record that he has sufficient cash balance as on the date of demonetization which has thereafter been deposited over the next few days. The factum of cash sales in the assessee's line of business is well known and in any case, not disputed by the AO and the individual sale entries in the cash book has not been disputed. Therefore, in such a situation, where the sales are duly reflected in the books of accounts and reported to tax and the books of accounts stand accepted, the cash realization from such sales even though in SBN notes as on the date of demonetization stand explained and cannot be held as unexplained and the addition so made is hereby directed to be deleted. Excess purchases - AO basis reporting in Form 26AS has held that the assessee has booked excess purchases as against the figures reported in Form 26AS by four suppliers. During the appellate proceedings, the assessee has submitted its ledger account in the books of two suppliers namely, Himachal Beverages Ltd. and Royal Wines and submitted that as against the actual sale by these suppliers to the assessee as so reflected in their respective books of accounts, while reporting the transactions as part of TCS compliance, they have reported a lower figure and where the actual sale as per books of accounts of the suppliers and actual purchases from these suppliers in the books of accounts of the assessee is compared, no excess purchases have been accounted and claimed by the assessee. Thus, find merit in the submissions so made on behalf of the assessee and find that the CIT(A) has failed to appreciate the same. The addition cannot be sustained solely basis reporting in Form 26AS where the assessee has duly demonstrated that actual purchases as per books of accounts of the supplier is higher than what has been reported in Form 26AS which shall therefore take precedence in support of actual transactions and therefore, the addition so made and sustained by the ld CIT(A) in respect of these two suppliers is hereby deleted. In respect of HPGICS Country Liquor Bottling Plants, there is clearly excess figure of purchases as so accounted for in its books of account as compared as sales as accounted for in books of the supplier and addition deserve to be sustained. In respect of fourth supplier, in absence of necessary explanation and corroboration to reconcile the differences, the addition so made is hereby sustained. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits of specified banknotes (SBN) made after 08.11.2016 can be treated as unexplained cash credits and brought to tax under section 68 where the assessee's books (cash book) show sufficient cash-in-hand as on the date of demonetization and sales are recorded in the books. 2. Whether alleged excess purchases shown in the assessee's books (discrepancy between purchases in books and amounts reflected in Form 26AS / TCS reporting) can be disallowed as inflated purchases where supplier ledger/accounts demonstrate higher sales to the assessee than reported in Form 26AS, and what is the effect where supplier corroboration is absent or shows shortfall. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: TREATMENT OF CASH DEPOSITS (SBN) POST-DEMONETIZATION Legal framework: Section 68 (cash credits) permits taxing unexplained cash credits where the assessee fails to satisfactorily explain the nature and source of such credits; acceptance of books of account in assessment proceedings and scrutiny under section 143(3) and non-rejection under section 145(3) are relevant to evaluation of source evidence. Demonetization context created factual inference issues as to origin of SBN deposits made after 08.11.2016. Precedent treatment: No judicial precedent was invoked or applied by the Tribunal in the impugned order; the decision is founded on assessment facts and statutory provisions rather than reliance on prior case law. Interpretation and reasoning: The Assessing Officer treated specified currency note deposits made after 08.11.2016 as unexplained on the premise that there was 'no possibility of cash sales in specified currency notes' after demonetization, and therefore certain deposits aggregating Rs.10,20,000 were treated as cash credits under section 68. The assessee produced the cash book showing cash-in-hand of Rs.44,42,128 as on 08.11.2016, and sales entries in the cash book corresponded to cash realizations. The Tribunal found the AO's conclusion rested on assumption without evidentiary support and that where (i) sales are duly reflected in the books and reported to tax, (ii) books of account are accepted after scrutiny, and (iii) the assessee furnishes contemporaneous cash book showing sufficient cash balance, the cash deposits (even in SBN) are adequately explained as realizations from recorded business and cannot be characterized as unexplained cash credits under section 68. Ratio vs. Obiter: Ratio - where books of account are accepted and the assessee demonstrates sufficient cash-in-hand on the date of demonetization with corresponding recorded sales, deposits of SBN into bank accounts made thereafter are explained and not amenable to being taxed as unexplained cash credits under section 68 absent contrary evidence. Obiter - factual observations about timing of deposits and possible sources where records are absent. Conclusion: The Tribunal deleted the addition of Rs.10,20,000 made under section 68, holding the source adequately explained by the cash book and accepted books; the AO's assumption that SBN deposits post-demonetization necessarily arose from undisclosed sources was rejected. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: VARIATION BETWEEN PURCHASES IN BOOKS AND FORM 26AS / TCS REPORTING Legal framework: Assessing additions based on mismatch between purchases recorded by the assessee and amounts reflected in Form 26AS / TCS returns requires verification of genuineness of transactions; corroborative evidence (supplier ledger, purchase bills, response to notices u/s 133(6)) is material to sustain an addition. Where supplier books show higher sales to the assessee than reflected in Form 26AS, the assessee's books may prevail. Precedent treatment: No precedents were cited; the Tribunal applied settled factual and evidentiary principles that Form 26AS is a source of information but not conclusive where supplier records contradict it. Interpretation and reasoning: The AO compared purchases per assessee's books with amounts in Form 26AS and identified excess purchases totalling Rs.3,65,132, making additions. The assessee produced supplier ledger/accounts for two suppliers (Himachal Beverages Ltd. and Royal Wines) showing higher sales to the assessee than reported in Form 26AS, thereby explaining the discrepancies as under-reporting of TCS by suppliers rather than inflation of purchases by the assessee. For one supplier (HPGICS Country Liquor Bottling Plants), the supplier's ledger corroborated a shortfall (small excess in assessee's books), supporting sustainment of addition to the extent of that discrepancy. For the fourth supplier (Triloksons/Triloksons Brewery & Distillery), there was no adequate corroboration initially to reconcile differences until the assessee produced purchase bills during assessment, but reconciliation was incomplete for one supplier leading to part sustainment of addition. Ratio vs. Obiter: Ratio - Form 26AS discrepancies alone do not justify disallowance where the assessee produces supplier books/ledgers/purchase invoices showing higher amounts and thereby satisfactorily explaining purchases; supplier books may take precedence over Form 26AS in establishing actual transactions. Obiter - procedural remarks on initiation of penalty proceedings for under-reporting and the use of s.133(6) notices as fact-gathering tools. Conclusions: The Tribunal deleted Rs.3,33,385 of the Rs.3,65,132 addition after accepting supplier ledger evidence for two suppliers and held the balance Rs.31,747 sustained where supplier corroboration showed shortfall or reconciliation was not satisfactorily completed. The ground of appeal on purchases was allowed partly and disallowance reduced accordingly. Separate penalty proceedings initiated by assessing authority were noted but considered distinct from the correctness of the additions.