Recorded sales and section 68: documented turnover cannot be taxed as unexplained cash credit without corroboration, while unsupported expenses may be disallowed.

Recorded sales supported by invoices, waybills, ledger entries, Form C, stock records and banking trail could not be treated as unexplained cash credit under section 68 where no specific defect was found, the books were not rejected, and the addition rested only on an uncorroborated third-party statement. By contrast, an ad hoc disallowance of expenditure was sustained where the assessee failed to produce supporting bills and vouchers, leaving the genuineness of the claim unverified. The note illustrates that section 68 requires more than suspicion when sales are properly documented, while unsupported expenditure may be disallowed for want of primary evidence.

---

---

Issues: (i) Whether the receipt of Rs. 84,83,800/- against recorded sales could be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961; (ii) Whether the ad hoc disallowance of Rs. 11,60,640/- being 10% of certain expenses was justified.

Issue (i): Whether the receipt of Rs. 84,83,800/- against recorded sales could be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The sales were recorded in the regular books and were supported by invoices, waybills, ledger account, Form C, stock records and banking trail. No specific defect was pointed out in the documents, the books were not rejected, and no discrepancy in purchases or stock was established. The addition rested mainly on a third-party statement without independent corroboration and without any adverse material from the alleged buyer to show non-genuine transactions or cash routing back to the assessee.

Conclusion: The receipt against recorded sales could not be treated as unexplained cash credit, and the addition under section 68 was deleted, in favour of the assessee.

Issue (ii): Whether the ad hoc disallowance of Rs. 11,60,640/- being 10% of certain expenses was justified.

Analysis: The assessee did not produce supporting bills and vouchers for the disputed expenditure before the assessing authority or before the Tribunal. In the absence of primary evidence, the genuineness of the expenditure could not be fully verified.

Conclusion: The disallowance of Rs. 11,60,640/- was upheld, against the assessee.

Final Conclusion: The addition under section 68 was deleted, but the estimated disallowance of expenses was sustained, resulting in partial relief to the assessee.

Ratio Decidendi: When sales are duly recorded in regular books and supported by contemporaneous documentary evidence and banking receipts, an addition under section 68 cannot be sustained merely on suspicion or an uncorroborated third-party statement; conversely, expenditure unsupported by bills and vouchers may be disallowed on verification failure.

---