Cash sales already taxed cannot be re-added as unexplained cash credits u/ss 68 and 115BBE

ITAT Delhi-AT allowed the assessee's appeal, deleting additions made u/s 68 r.w.s. 115BBE on account of alleged unexplained cash credits. The Tribunal held that the AO, having accepted the returned income which already included the cash sales in question, could not again treat corresponding cash deposits and cash sales from specified parties as unexplained, as this would amount to impermissible double addition. It further found that the assessee had satisfactorily established the source of cash deposits from regularly maintained books and cash book, which were neither rejected nor found unreliable, and that sales were supported by contemporaneous documentation. Consequently, no separate addition was sustainable.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits of Rs. 39,30,000/- in the bank account could be treated as "unexplained cash credit" under section 68 read with section 115BBE of the Act, when the assessee had recorded corresponding cash sales in its regularly maintained books of account and offered the same as part of its total turnover.

1.2 Whether receipts aggregating to Rs. 1,22,00,000/- from two identified purchasers, recorded as sale proceeds in the books of account and subjected to tax as part of turnover, could be treated as "unexplained cash credit" under section 68 read with section 115BBE of the Act on the basis of investigation wing information and third-party statements.

1.3 Whether separate additions under section 68 in respect of the aforesaid cash deposits and sale proceeds, when the corresponding sales already formed part of declared turnover, resulted in impermissible double addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 3: Addition of Rs. 39,30,000/- towards cash deposits as unexplained cash credit and allegation of double addition

Interpretation and reasoning

2.1 The Tribunal recorded that the assessee is engaged in manufacturing excisable products, has disclosed total sales of Rs. 101.81 crores in the audited profit and loss account, and has shown cash sales as part of that turnover. The Assessing Officer accepted the returned income including these sales.

2.2 The assessee had made total cash deposits of Rs. 48,00,000/- in its bank account during the year and explained the source as cash sales duly recorded in the books. In support, it furnished: complete details of cash transactions; month-wise and day-wise cash and total sales; stock details; cash book; revised VAT returns with reasons; purchase bills; and excise returns. The products being excisable, corresponding excise and VAT records supported the turnover.

2.3 The Tribunal noted as undisputed that: (a) cash sales were part of the declared total sales; (b) purchases were not doubted; (c) total sales, both cash and credit, were not doubted by the revenue; (d) adequate stock was available and stock was correspondingly reduced for sales; (e) sales were subjected to VAT and accepted by VAT authorities; (f) complete month-wise purchases and sales for the year under consideration and the preceding year were furnished; (g) complete cash book with month-wise movement was produced; and (h) no negative cash balance on any day was alleged.

2.4 The books of account, including the cash book, were not rejected by the Assessing Officer and no defect in the books was pointed out. In these circumstances, the Tribunal held that the assessee had clearly established that the cash deposits emanated from recorded cash sales forming part of the regular books.

2.5 Having accepted the returned income which already included the cash sales, the Assessing Officer's separate addition of Rs. 39,30,000/- as unexplained cash credit on account of cash deposits would amount to taxing the same income twice. The Tribunal treated such separate addition as a "double addition".

Conclusions

2.6 The Tribunal held that the source of the cash deposits was fully explained from the regularly maintained books of account and cash book, and that there was no independent basis for treating the deposits as unexplained cash credits under section 68 read with section 115BBE.

2.7 The addition of Rs. 39,30,000/- on account of cash deposits was deleted, both on the ground that the source was established from the books and that separate addition would lead to double taxation of the same sales.

Issue 2 & 3: Addition of Rs. 1,22,00,000/- towards sale proceeds from identified purchasers as unexplained cash credit and allegation of double addition

Legal framework (as referred)

3.1 The impugned addition was made under section 68 read with section 115BBE of the Act, treating the receipts from two named entities as unexplained cash credits on the basis of information from the investigation wing and a third-party statement.

Interpretation and reasoning

3.2 The assessee had received Rs. 1,22,00,000/- from the two purchasers as sale proceeds, which were recorded as sales in the books and included in the total turnover disclosed in the return and audited accounts. In support of the genuineness of these sale transactions, the assessee furnished: names and addresses of parties; PAN and TIN; sale invoices; details of C-Forms issued; its own bank statements evidencing receipt of sale proceeds; stock registers; and sales registers.

3.3 The Tribunal noted that the Assessing Officer, relying on information from the investigation wing and an alleged link of a third person with one of the purchaser entities, considered the receipts as accommodation entries. However, the statement of the third person, heavily relied upon by the Assessing Officer, was never confronted to the assessee despite specific requests, and no independent inquiry regarding the actual sale transactions between the assessee and the purchasers was carried out.

3.4 It was further observed that: the purchases and overall sales of the assessee were not doubted; the assessee had sufficient stock with corresponding reduction for the sales; the turnover was accepted by VAT authorities; and the books of account were not rejected. The sales in question were part of the same set of accounts and supporting documentation.

3.5 The Tribunal held that, in these facts, the receipts from the purchasers were established as sale proceeds from recorded business transactions, forming part of the declared turnover. Treating the same receipts again as unexplained cash credits under section 68 would therefore amount to double addition, as those sales had already been brought to tax in computing business results.

Conclusions

3.6 The Tribunal concluded that no separate addition under section 68 read with section 115BBE could be sustained in respect of Rs. 1,22,00,000/- received from the purchasers, since the amounts represented duly recorded and supported sales already reflected in the profit and loss account.

3.7 The addition of Rs. 1,22,00,000/- was directed to be deleted, both for want of any independent basis to treat the recorded sales as unexplained cash credits and because sustaining such addition would lead to impermissible double taxation of the same income.

Overall disposition

4.1 On the combined reasoning that (i) the assessee had satisfactorily explained the source of both cash deposits and receipts from the purchasers through its regularly maintained books and contemporaneous records, and (ii) the impugned sums already formed part of the declared turnover and profits, the Tribunal held that the separate additions under section 68 read with section 115BBE were unsustainable.

4.2 All additions were deleted and the appeal was allowed.

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