2026 (4) TMI 178 - AT - Income Tax

Cash sales in scrap trading cannot be treated as unexplained income without evidence, where income is declared under presumptive taxation.

Cash sales from scrap trading could not be treated as unexplained cash credit under section 68 where the assessee had regularly disclosed turnover and ... Presumptive taxation u/s 44AD - Addition of declared sales as unexplained cash credit - Suspicion as basis for treating business receipts as bogus - unusual sales pattern in one month HELD THAT: - The Tribunal found that the assessee was regularly carrying on scrap trading business and had been declaring income u/s 44AD. The material placed showed that in earlier years also the pattern of sales was not uniform, and in such line of business there was no fixed pattern of purchases and sales. In a case where income was returned on presumptive basis, there was no requirement to maintain books of account in the manner assumed by the AO. Therefore, the fact that trading was carried on only in October 2016 during the relevant year did not by itself justify the conclusion that the sales were bogus. The addition was held to have been made only on suspicion, without a sustainable basis to disregard the declared business receipts. [Paras 9] The addition made by treating the declared sales as unexplained cash credit was deleted and the assessee's grounds were allowed. Final Conclusion: Tribunal held that the declared business sales could not be rejected as bogus merely on the basis of an unusual sales pattern in one month, particularly when the assessee had regularly returned income on presumptive basis under section 44AD. The addition sustained by the appellate authority was therefore deleted and the appeal was allowed. Issues: Whether the addition made by treating cash sales as unexplained cash credit under section 68 could be sustained when the assessee was carrying on scrap trading and had declared income under section 44AD.Analysis: The assessee was engaged in scrap trading, had regularly disclosed turnover and income under the presumptive scheme, and had shown comparable business activity in earlier years. The mere fact that the turnover was concentrated in October 2016 did not, by itself, establish bogus sales or unexplained income. In the absence of cogent evidence disproving the business receipts, the addition rested only on suspicion. Since income was declared under section 44AD, the books were not required to be maintained in the manner suggested by the Assessing Officer, and the declared sales could not be rejected without proper rebuttal.Conclusion: The addition under section 68 was not sustainable and was deleted in favour of the assessee.