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2025 (7) TMI 184 - AT - Income TaxAddition u/s 68 - unexplained income with regard to cash deposits made out of normal course of business - levying tax u/s 115BBE - additions made in the present case on account of the fact that there was an abnormal increase in cash deposits during the demonetization period as compared to the pre-demonetization period HELD THAT - AO had accepted the assessee s entire sale and purchase offered in the books of account as genuine. Therefore the addition made by the AO on account of cash deposited during the demonetisation period on the pretext that the assessee had created an artificial scenario in its books of account where unaccounted income was shown by them as cash sales and then deposited into bank accounts. There is no evidence/proof of the said observation made by the AO. Since there is no evidence with the explanation put forth by the assessee is justified with reference to various documents such as Cash book day wise - Showing names of persons whom sales is made Party wise purchases with Name/ Address /PAN Party wise sales with Name/ Address /PAN Purchase Register - month wise/Party wise also Sales Register - Date wise / Item Wise and Bank Statement of all bank. And further such cash deposit has been shown as sales in the P L account and has also been offered for taxation. Therefore in our view no addition should have been made in the case of the assessee. Reliance is being placed upon the decision of Vishva and Devji Diamond Pvt. Ltd. 2025 (2) TMI 1025 - ITAT CHENNAI wherein it has been held that where assessee engaged in trading business of gold and diamond jewellery claimed that cash deposited in bank account during demonetization period pertained to sale proceeds of gold and diamond jewellery collected from its customers since assessee s claim was backed up by relevant evidences impugned addition made under section 69A read with section 115BBE treating cash sales as bogus was to be deleted. Also in Charu Agarwal 2022 (4) TMI 537 - ITAT CHANDIGARH wherein as held that held that where cash deposited by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by AO and there was sufficient stock available with assessee to make cash sales sales made by assessee out of existing stock were sufficient to explain deposit of cash (obtained from realization of sales) in bank account and thus cash deposits could not have been treated as undisclosed income of assessee. Appeal filed by the assessee is allowed.
The core legal issues considered in this appeal revolve around the validity of additions made under section 68 of the Income-tax Act, 1961, relating to unexplained cash deposits during the demonetization period in the Assessment Year 2017-18. Specifically, the Tribunal examined whether the cash deposits of Rs. 2,25,04,409/- made by the assessee, a Hindu Undivided Family engaged in trading gold and silver jewellery, could be treated as unexplained income and taxed under section 115BBE, or whether the assessee had satisfactorily explained the nature and source of these deposits as legitimate business receipts from cash sales.
The principal issues can be delineated as follows: 1. Whether the additions under section 68 of the Act on account of cash deposits during the demonetization period were justified, given the assessee's claim that these deposits represented genuine cash sales from the jewellery business. 2. Whether the Assessing Officer (AO) was justified in rejecting the explanations and documents furnished by the assessee regarding the source of cash deposits. 3. Whether the addition under section 115BBE, which imposes a higher tax rate on unexplained cash credits, was correctly levied in this case. 4. Whether the addition under section 68 amounts to double taxation, given that the sales proceeds were already offered to tax in the books of accounts and accepted by the AO. Detailed Analysis of Issues: Issue 1: Validity of Addition under Section 68 on Cash Deposits The legal framework under section 68 mandates that any sum credited in the books of an assessee must be satisfactorily explained as to its nature and source; failing which, it can be treated as income of the assessee. The Tribunal emphasized the three cumulative conditions for applicability of section 68: (i) sum credited in books, (ii) no explanation offered, or explanation unsatisfactory to the AO, and (iii) sum charged as income accordingly. The assessee contended that the cash deposits during the demonetization period were proceeds from genuine cash sales of gold and silver jewellery. The assessee submitted comprehensive documentary evidence, including day-wise cash books, party-wise purchase and sales registers with PAN and addresses, purchase and sales registers, and bank statements. These documents were intended to substantiate the genuineness of the transactions and the source of the cash deposits. The AO, however, disbelieved the explanation, citing absence of certain detailed day-wise/item-wise quantitative data and alleging manipulation of cash sales during the demonetization period. The AO treated the cash deposits as unexplained cash credits, thereby invoking section 68 and levying tax under section 115BBE. The Tribunal examined the evidence and found that the business activity was not disputed, and the assessee had maintained audited books of accounts with no adverse remarks from the tax auditor. The gross profit ratio remained consistent with previous years, and the sales and purchases were supported by proper invoices and VAT compliance. Further, party-wise details with PAN were furnished and not found to be fabricated. The Tribunal also noted that the sales on 08.11.2016, the demonetization day, amounted to Rs. 2,25,04,409/-, which was credited in the books and offered for taxation. This fact negated the AO's claim of unexplained income, as the sales proceeds were already accounted for and accepted. The Tribunal relied on various precedents establishing that once sales receipts are accounted for as income, the same amount cannot be added again under section 68 as unexplained cash credits, as it would amount to double taxation. Issue 2: Rejection of Explanation and Evidence by the AO Precedents cited by the Tribunal underscored that the AO cannot reject a reasonable explanation without evidence or merely on suspicion, conjecture, or surmise. The Supreme Court decisions referenced held that the Department cannot convert good proof into no proof by unreasonably rejecting explanations, and assessments must be based on legal testimony rather than suspicion. The Tribunal found that the AO's rejection was mechanical and lacked substantive evidence. The assessee's explanation was corroborated by detailed documentary evidence, including stock records, bank statements, and sales and purchase registers. The Tribunal also highlighted that the AO accepted the sales and purchase figures in the audited accounts, further undermining the basis for the addition. Issue 3: Levy of Tax under Section 115BBE Section 115BBE imposes a higher tax rate on unexplained cash credits. The AO levied tax under this provision on the cash deposits deemed unexplained. However, the Tribunal observed that since the cash deposits represented genuine sales proceeds already offered to tax under normal provisions, invoking section 115BBE was inappropriate. The addition under section 68 itself was found to be unsustainable; consequently, the levy under section 115BBE also failed. Issue 4: Double Taxation and Applicability of Section 68 The Tribunal emphasized the principle that when a receipt is accounted for as income and accepted by the AO, it cannot simultaneously be treated as unexplained cash credit under section 68. This principle was supported by multiple decisions, including those of coordinate benches and High Courts, which held that addition under section 68 cannot be sustained if the amount has already been offered to tax as sales income. The Tribunal further analyzed the stock and sales data around the demonetization date. It found no abnormal jump in sales for November 2016, and the stock records matched the sales transactions. The assessee had sufficient stock to justify the sales and cash receipts. Payments to purchase parties were made through banking channels on the same day, further evidencing the genuineness of transactions. The Tribunal also noted that the assessee made cheque sales alongside cash sales on the demonetization day, and the bank statements corroborated these transactions. The detailed ledger accounts and stock movements negated any suggestion of backdating or fictitious sales. These findings reinforced that the cash deposits were legitimate business receipts and not unexplained credits. Competing arguments by the revenue centered on the timing of cash deposits during the demonetization period and alleged lack of detailed supporting records. The Tribunal rejected these arguments as speculative and unsupported by evidence, affirming that the assessee had furnished sufficient proof to explain the source of cash deposits. Significant Holdings: The Tribunal held that the addition under section 68 was not sustainable where the assessee had offered the cash sales proceeds for taxation and maintained proper books of accounts supported by documentary evidence. The Tribunal stated verbatim: "As the same sales have already been offered for taxation and accepted by the AO, the AO cannot make the addition of the same amount again under section 68 of the Act, as it amounts to double addition of the same income." It further observed: "The provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts... Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding." Core principles established include:
On the facts and law, the Tribunal concluded that the additions under section 68 and the consequent levy under section 115BBE were unjustified. The appeal was allowed, and the AO was directed to delete the additions.
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