2025 (11) TMI 324 - AT - Income Tax

Appeal allows deletion of additions under s.68; cash sales found genuine and turnover supports assessee

ITAT upheld the CIT(A)'s deletion of additions under s.68, allowing the assessee's appeal. The Tribunal found no justification for treating all cash sales ... Unexplained cash credit u/s.68 - excess cash deposit in bank account in SBN Notes - AO was not convinced with the explanation that there were cash sales during the period from 01.04.2016 to 08.11.2016 and he treated the entire cash sales as bogus - CIT(A) deleted addition - HELD THAT:- We do not find any rationale to treat the entire cash sales of the assessee during this period as bogus. It is not that the assessee had shown cash sales only during the current year. AO had admitted in his order that the cash sales were made in the corresponding period of the preceding year as well. It is true that the cash sales during the year was much higher than the cash sales during the corresponding period of the earlier year. But, this cannot be taken as a basis to disallow the entire cash sales of the current year as bogus. In fact, the total sales of the assessee during the year was also much higher at Rs. 91.03 crores as against sales of Rs. 59.52 crores only in the preceding year. AO has referred to discrepancies in the cash book submitted by the assessee company during the enquiry before the Investigation Wing and during the assessment proceeding. However, exact difference in the cash book has not been discussed and brought on record. AO should have worked out the exact difference in the two cash books and addition should have been made on that specific basis rather than disallowing the entire cash sales. As regards complete address of the parties to whom goods were sold in cash, as per business practice, such details are normally not maintained and this cannot be adversely considered in the case of the assessee. The Assessing Officer has also pointed out certain discrepancies in the invoices, weigh bridge receipts and delivery challans which have been duly considered by the CIT(A) in his order. The entire cash sales can’t be held as bogus due to these few discrepancies, even if they existed. CIT(A) had also directed the AO, in the remand proceeding, to examine the availability of stock to justify the cash sales disclosed by the assessee CIT(A) had considered all the discrepancies and the issues flagged by the Assessing Officer and, thereafter, allowed relief to the assessee. The Revenue has been unable to controvert the findings of the Ld. CIT(A). Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer was justified in treating the entirety of alleged cash sales as unexplained cash credit under Section 68 of the Income Tax Act when substantial cash deposits were made during the demonetisation period and the assessee explained those deposits as cash sales of a by-product (khol) of its trading operations. 2. Whether discrepancies noted in cash books, invoices, weighbridge receipts, delivery challans and stock records, and the absence of complete addresses of cash customers, warranted rejection of the assessee's books and sustaining additions for the entire disputed cash receipts. 3. Whether remand enquiry findings regarding stock availability and market-consistent sale prices for the by-product sufficiently corroborated the assessee's explanation so as to negate the Section 68 addition. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Section 68 to alleged cash sales explaining demonetisation-period bank deposits Legal framework: Section 68 permits treating unexplained cash credits as income where the assessee fails to satisfactorily account for amounts credited in its books. The principle requires the AO to be convinced that the source of credit is genuine and adequately proven. Precedent treatment: The Tribunal relied on the principle that entries in trading account consistent with books, stock and business operations, and accepted turnover/profit undermine a wholesale treatment of sales as undisclosed income. Reference was made to the approach in authorities recognizing that trading entries properly corroborated by records cannot be treated as Section 68 unexplained credits without positive contrary material. Interpretation and reasoning: The Tribunal observed that the assessee had a history of cash sales and that the AO accepted overall turnover and profit while disputing only specific cash receipts. The Tribunal found no rational basis for treating the entire cash sales as bogus solely because cash sales were higher than in an earlier period; overall sales had also increased substantially. The AO did not quantify the precise discrepancy in cash books or identify specific unexplained amounts; instead the AO disallowed the entire cash sales. The Tribunal held that Section 68 could not be invoked to wipe out the whole item where the books, stock and legitimate business processes (production of khol as a by-product) supported the receipts. Ratio vs. Obiter: Ratio - where cash receipts are recorded in trading accounts and are supported by consistent books, stock availability and market-rate invoices, the AO must identify and quantify specific unexplained entries before invoking Section 68; general suspicion or comparative increase in cash sales alone does not justify treating entire receipts as unexplained income. Obiter - observations regarding the inappropriateness of relying solely on increase in sales as a basis for disallowance. Conclusion: The Tribunal concluded that treating the entire cash sales as unexplained under Section 68 was not justified; the assessee's explanation that the deposits were proceeds of cash sales of khol was adequately supported and the Section 68 addition could not be sustained. Issue 2 - Weight to be given to alleged discrepancies in books, vouchers and customer details Legal framework: An AO may reject books or disbelieve entries if material discrepancies or false documentation are established; however, adverse inferences require specific, demonstrable inconsistencies and quantification of variance that affect the claimed receipts. Precedent treatment: Courts/tribunals require that rejection of accounts or imposition of additions be founded on tangible, assessed differences rather than mere conjecture; where acceptance of turnover and profit coexists with selective disallowance, reasoning must be cogent and particularised. Interpretation and reasoning: The Tribunal examined the AO's reliance on discrepancies in cash books, invoices, weighbridge receipts and delivery challans and noted that the AO failed to demonstrate the exact quantum of difference in cash books or to show how alleged discrepancies rendered the khol sales fictitious. The Tribunal accepted the assessee's explanation that the preliminary cashbook submitted earlier was unaudited and that some corrections (e.g., vehicle numbers) could be ascribed to human error. Regarding omission of complete customer addresses, the Tribunal held that such practice is common in the trade and cannot, by itself, prove falsity of transactions. The CIT(A) had considered these discrepancies and, after remand, found corroboration for the khol sales; the Tribunal found no basis to overturn that conclusion. Ratio vs. Obiter: Ratio - discrepancies and documentary defects do not ipso facto render transactions bogus if the assessee furnishes corroborative material (stock records, production capability, market prices) and the AO does not quantify the discrepancies or identify specific unexplained sums. Obiter - comments attributing some discrepancies to human error as a permissible explanation in absence of contrary material. Conclusion: The Tribunal held that the alleged discrepancies were insufficient to sustain a blanket addition; the AO should have isolated and quantified specific inconsistencies before disallowing the entire cash sales figure. Issue 3 - Sufficiency of remand enquiry findings on stock availability and market-rate pricing to uphold the assessee's explanation Legal framework: Independent verification (remand reports) assessing stock sufficiency and market prices can corroborate the genuineness of sales and explain bank deposits; such corroboration, if uncontradicted by the AO, weakens an unexplained credit case under Section 68. Precedent treatment: Where remand enquiries substantiate physical availability of goods and the pricing aligns with market trends, tribunals have treated such findings as strong evidence supporting the assessee's case absent affirmative adverse material. Interpretation and reasoning: The remand report established that the assessee had sufficient khol stock arising from cotton processing and that invoice rates matched market trends. The Tribunal noted that although some discrepancies in raw cotton and bales quantities were pointed out, these did not undermine the specific finding that khol output and sales claimed were plausible. The CIT(A) examined the remand report and concluded the cash deposits were explained; the Tribunal found no contrary adverse material produced by the Revenue to negate those findings. Ratio vs. Obiter: Ratio - remand findings confirming stock availability and market-consistent prices constitute valid corroboration of cash sales and, in absence of specific rebuttal, justify deletion of Section 68 addition. Obiter - recognition that discrepancies in other stock metrics, if materialised and quantified, could affect conclusions but did not do so on the record before the Tribunal. Conclusion: The Tribunal upheld the appellate authority's acceptance of remand findings as sufficient corroboration of the cash sales explanation and held that the AO's addition was unsustainable. Overall Conclusion The Tribunal sustained the deletion of the Section 68 addition in respect of the disputed cash deposits, finding that (a) the assessee's explanation that deposits represented cash sales of khol was supported by books, stock and remand verification; (b) the AO did not quantify alleged discrepancies or identify specific unexplained amounts; and (c) mere increase in cash sales vis-à-vis a prior period, or absence of certain customer details as per business practice, did not justify treating the entire receipts as unexplained income. Accordingly, the revenue appeal was dismissed.