2025 (7) TMI 1300 - AT - Income Tax

Addition u/s 68/69A - unexplained cash credit - Non rejection of books of accounts by AO - HELD THAT - Since the cash sales has increased manifold compared to previous assessment year however AO rejected all the evidences submitted before him and proceeded to make the addition. We observe that the assessee has already brought on record the relevant stock registers maintained for the year under consideration and the AO has not raised any doubt with regard to stock maintained by the assessee for opening as well as closing stock and accepted the purchase and closing stock declared by the assessee. He has proceeded to make the addition merely on the basis that assessee has declared cash sales based on the comparative data with the previous year. We observe that the AO has not rejected the books of account and has not raised any discrepancies relating to the books of account and relevant documents maintained and submitted by the assessee. Merely on the basis of increased cash sales he has proceeded to make the addition. We observe that various courts have held that if the assessee is able to maintain stock registers/ correspondence with the books of account maintained by the assessee and the cash sales were out of stock maintained by the assessee the same cannot be held as undisclosed credit. CIT(A) has considered the detailed facts on record and observed that the AO has not brought on record any additional findings which proved that sales are not genuine specially when the opening stock and purchases made by the assessee have been accepted by him. AO has not rejected the books of account nor doubted the stock summary submitted by the assessee. Without bringing any evidence on record and proceeded to make the addition on the basis of abnormal increase in cash sales compared to previous year is not the reason to invoke the provisions of section 68/69A - Appeal filed by the Revenue is dismissed.

Summary

ISSUES:

Whether unexplained cash credit additions under section 68 of the Income Tax Act, 1961 can be sustained solely on the basis of an abnormal increase in cash deposits during the demonetization period without rejection of books of account or evidence of fabricated sales.Whether the Assessing Officer can make additions under section 68 without disproving the genuineness of sales or rejecting the books of account under section 145(3) of the Act.What is the burden of proof on the assessee and the Assessing Officer regarding unexplained cash credits under section 68.

RULINGS / HOLDINGS:

The addition of Rs. 1,14,30,000/- as unexplained cash credit under section 68 was deleted because the Assessing Officer did not reject the books of account nor pointed out any defect or inconsistency in the cash account, stock, purchases, or sales, and failed to bring any credible evidence that the cash sales were fabricated or non-genuine.The Assessing Officer cannot sustain additions under section 68 merely on the basis of a "huge increase in cash sales" compared to the previous year without any concrete evidence or fact-finding to prove non-genuineness of the sales transactions.The primary onus under section 68 lies on the assessee to explain the nature and source of the sum credited in the books of account by furnishing proof of identity, creditworthiness, and genuineness of the transaction; once discharged, the burden shifts to the Assessing Officer to bring credible material to disprove the same.Without additional material or rejection of books of account, additions under section 68 cannot be made where the books and related documents have been accepted and no discrepancies have been found.

RATIONALE:

The Court applied the legal framework under section 68 of the Income Tax Act, 1961, which imposes a primary onus on the assessee to explain unexplained cash credits, and section 145(3) regarding rejection of books of account.Precedents from coordinate benches and High Courts were relied upon, including rulings that additions under section 68 cannot be made without rejection of books or credible evidence of fabrication, specifically in cases involving cash deposits during the demonetization period.The Court emphasized settled legal principles that mere abnormal increase in cash sales compared to the previous year, without any contradictory evidence or rejection of books, is insufficient to invoke section 68/69A additions.The decision aligns with a doctrinal position that protects the assessee's books and transactions once primary evidence of genuineness is furnished, and requires the Revenue to produce additional material to justify additions.