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2025 (6) TMI 288 - AT - Income TaxUnexplained cash credits u/s 68 - assessee failed to explain the identity genuineness and creditworthiness of the customers/depositors - CIT(A) having satisfied with the genuineness of the transaction deleted the addition so made. HELD THAT - CIT(A) has objectively considered all the submissions and analysed the details to arrive at fact based finding. Ld. CIT(A) has taken note of the modus operandi of the business undertaken by the assessee including various schemes and multiple retail stores located all over the country. He also observed about accounting of cash advances received by the assessee from the customers under the Advance Jewellery Purchase Scheme which are subsequently converted into sales for which complete details were submitted. CIT(A) also took note of details of PAN for all the customers in respect of whom advances were above Rs. 2 lakhs and in respect of which no negative inference was drawn. Most importantly CIT(A) noted that subsequent sales arising from the advances from customers which are subject matter of present appeal are recorded in the books of accounts duly offered to tax. He notes that it is a settled principle that addition which results in double taxation of income is not permissible. The fact of conversion of advances so received into sales during the year as well as in subsequent years is uncontroverted since nothing cogent has been brought on record by the Department. He thus arrived at a conclusion that addition of advances received to total income cannot be made when the sales in respect of such advances has already been offered to tax in the return of income. CIT(A) correctly held that advances from customers are part of routine business operations which are subsequently converted into sales either in the year under consideration or in subsequent years. Appeal by the Revenue is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: - Whether the learned CIT(A) erred in admitting additional evidence filed by the assessee during appellate proceedings, despite objections raised by the Assessing Officer in the remand report. - Whether the learned CIT(A) erred in deleting the addition made by the Assessing Officer under section 68 of the Income-tax Act, 1961, relating to unexplained cash credits amounting to Rs. 3,09,91,233/-, without adequately appreciating the failure of the assessee to explain the identity, genuineness, and creditworthiness of the customers/depositors. - Whether the addition of advances received from customers can be sustained when such advances have been subsequently converted into sales and offered to tax in the relevant and subsequent assessment years. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admission of Additional Evidence under Rule 46A of the Income-tax Rules, 1962 Relevant legal framework and precedents: Rule 46A of the Income-tax Rules, 1962, governs the admission of additional evidence at the appellate stage. The rule allows the appellate authority to admit additional evidence if it is satisfied that the evidence is relevant and could not be produced before the Assessing Officer for reasons beyond the assessee's control. Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer had called for details of advances received from customers vide notice dated 28.12.2019, with compliance due on 29.12.2019, which was a Sunday. Due to technical glitches on the portal on 30.12.2019, the assessee was unable to upload the details electronically and physically filed the information on 31.12.2019. However, the assessment order was passed on 30.12.2019 without considering these details. The learned CIT(A) admitted the additional evidence after obtaining a remand report from the Assessing Officer and considering the assessee's rejoinder. The Tribunal agreed that this was a bona fide case for admission of additional evidence under Rule 46A, given the technical difficulties and the timing of the submission. Key evidence and findings: The remand report and rejoinder were carefully considered. The Assessing Officer's comments did not negate the relevance or genuineness of the additional evidence, and the CIT(A) found no procedural impropriety in admitting the evidence. Application of law to facts: The Tribunal held that the assessee's inability to submit the details electronically on the due date was due to circumstances beyond its control, justifying admission of additional evidence. Treatment of competing arguments: The Revenue contended that the additional evidence should not have been admitted as it was filed after the assessment order. The Tribunal rejected this, emphasizing the technical glitches and the procedural fairness in allowing the assessee to present relevant material. Conclusion: The admission of additional evidence was proper and in accordance with Rule 46A. Issue 2: Deletion of Addition on Account of Unexplained Cash Credits under Section 68 Relevant legal framework and precedents: Section 68 of the Income-tax Act, 1961, deals with unexplained cash credits. If the assessee fails to satisfactorily explain the nature and source of cash credits, the amount is added to the income. The burden lies on the assessee to prove the identity, genuineness, and creditworthiness of the parties from whom the cash credits are received. Court's interpretation and reasoning: The Tribunal analyzed the nature of the advances received by the assessee during the demonetisation period (25.10.2016 to 08.11.2016), amounting to Rs. 3,09,91,233/-. These advances were received under two main schemes: the Advance Jewellery Purchase Scheme (10+1) and the Made to Order Scheme. The assessee explained the modus operandi of its business, including the existence of 33 retail outlets across India, the marketing schemes in place, and the method of accounting for advances and sales. It was demonstrated that advances were received mostly in cash during the festive season (Diwali), which is a peak sales period, and due to bank holidays and multiple locations, cash deposits were delayed and carried as cash in hand before being deposited post-demonetisation. Detailed reconciliation of advances, sales, and stock movement was submitted, showing that advances received were subsequently converted into sales either in the relevant assessment year or in subsequent years. The assessee furnished customer-wise details, PAN information for customers with advances above Rs. 2 lakhs, invoices, passbooks, and inventory records to corroborate the genuineness of transactions. The CIT(A) observed that the addition by the Assessing Officer was solely on the ground of non-furnishing of details and did not consider the subsequent conversion of advances into taxable sales. The CIT(A) held that addition under section 68 is not permissible when the same amount has already been offered to tax as sales turnover, as it would result in double taxation. Key evidence and findings: The Tribunal noted the following key findings:
Application of law to facts: The Tribunal applied the principle that unexplained cash credits can be added only if the assessee fails to adequately explain the source and genuineness. Here, the assessee provided detailed documentary evidence and reconciliations proving that advances were genuine business receipts subsequently converted into taxable sales. Treatment of competing arguments: The Revenue argued that the assessee failed to establish the identity and creditworthiness of customers and that the advances were unexplained cash credits. The Tribunal rejected this, finding the explanations and evidence satisfactory and noting that the Assessing Officer had not raised objections to other advances or sales. Conclusion: The addition under section 68 was rightly deleted as the advances were genuine business receipts subsequently converted into sales and offered to tax, and addition would result in impermissible double taxation. 3. SIGNIFICANT HOLDINGS The Tribunal made the following crucial legal observations and determinations: "The details of advances were filed before the AO on 31st December 2019 i.e., after the assessment order was passed. A request for admission of additional evidence under Rule 46A of the Income-tax Rules, 1962 was made. The additional evidence were forwarded to the Assessing Officer for his comments. The AO has provided his comments in the Remand Report dated 3rd June 2024 and rejoinder was filed by the Appellant on 21st June 2024. The same have been perused and taken on record. Based on the facts available on record, AO, during assessment proceedings for the first time vide notice dated 28th December 2019, sought customer-wise details of advances received from the customers. The due date for compliance is fixed on 29th December 2019 which was a Sunday. Due to technical glitches on the portal, the Appellant was unable to furnish response on 30th December 2019. These details were physically filed on 31st December 2019, by which time the assessment order was passed. This is a bona fide case to admit additional evidence under Rule 46A. AO was given opportunity to verify these details. The remand report received from AO is duly considered." "Subsequent sales arising from these advances has been recorded in the books of account and duly offered to tax. It is a settled principle that addition that results in double taxation of income is not permissible. In the present case, the Appellant has substantiated its contention that the advances received were subsequently converted to sales during the year under consideration as well as in subsequent years. Thus, the addition of advances received to total income cannot be made when the sales in respect of such advances have been offered to tax in the return of income." "The comparison of sales for the period under consideration (October to December 2016) with corresponding period in F.Y. 2015-16 confirms that the volume of sales were similar. The inventory details reflect the Appellant having significant inventories of finished goods at stores during Diwali approx. 46,968 pcs of aggregate value Rs. 182.75 Crore. This stock came down to 35,447 pcs of aggregate value of Rs. 131.43 Crore after 8th November 2016 confirming that significant sales were made during Diwali period." "I have gone through the material on record and find that the Appellant has been able to substantiate the genuineness of the transaction and accordingly, the addition made by the AO of Rs. 3,09,91,233/- is hereby deleted." The Tribunal thus established the core principle that additions under section 68 cannot be sustained where the advances are genuine business receipts, adequately explained, and subsequently converted into taxable sales, preventing double taxation. It also underscored the importance of procedural fairness in admitting additional evidence when the assessee is prevented by circumstances beyond control. Final determination on the issues:
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