2026 (2) TMI 1301 - AT - Income Tax

Unexplained cash credits should reflect trading profit, not gross turnover; documentary evidence led to disallowance of the addition.

Whether unexplained cash credits were sustainable where the assessee disclosed only the trading profit and produced contract notes, broker ledgers and ... Addition u/s 68 - addition of purchase as well as sale transactions - HELD THAT:- A.R. at the time of hearing submitted that the client code modification appears in the assessment year 2014-15 is identical and there is no discrepancy pointed out by the Revenue related to the same. The turnover value in commodity transaction has to be taken into account in respect of profit of the said transaction. It is pertinent to note that the purchase value and the sale value should not be taken into account. The basis is only the difference to that extent which should be taken into account. Thus, the addition made under the provisions of section 68 does not justify as the assessee has given all the details of break up of the provisions, bills of expenses, bank statements and thus, the appeal of the assessee is party allowed in consonance with the assessment year 2014-15. Issues: Whether the addition of Rs. 3,90,09,960/- as unexplained cash credits under Section 68 of the Income-tax Act, 1961 is sustainable where the assessee has shown only the profit amount (Rs. 3,33,960/-) arising from commodity transactions and has produced contract notes, broker ledgers and bank statements.Analysis: The Tribunal examined the factual material and documentary evidence pertaining to the commodity transaction (purchase Rs. 1,93,38,000 and sale Rs. 1,96,71,960) and noted that the assessee had offered the profit component of Rs. 3,33,960 as income. The Tribunal observed that for transactions of the nature involved (commodity trading / spot arbitrage), the relevant tax consequence arises from the profit on the transaction rather than treating the whole turnover amounts as credits for the purpose of Section 68. The Tribunal also took into account that the factual position is identical to the subsequent assessment year where the Tribunal had earlier given a decision in the assessee's favour and that the assessee had produced contract notes, broker ledgers and bank statements as supporting evidence.Conclusion: The addition of Rs. 3,90,09,960/- under Section 68 is not justified; the appeal is partly allowed insofar as the addition is concerned and the matter is decided in favour of the assessee on the issue of applicability of Section 68 to the turnover amounts in the present commodity transaction.