ITAT Quashes Addition Made u/s 68: Sales Declared in books, GST Can’t Be Treated as Unexplained Income

ITAT New Delhi recently decided on a dispute regarding an addition of Rs. 95 lakh under Section 68 of the Income Tax Act, made by the AO as “unexplained cash credits” from sales made to a company. However, the tribunal ruled if sales are properly recorded and taxed, the AO cannot claim them as unexplained income under Section 68 based solely on third-party statements without independent inquiry or fair opportunity for the assessee.

The present appeal has been filed by a taxpayer named Manisha (Appellant) against the ITO, Ward 2(1)(3) (Respondent), in the Income Tax Appellate Tribunal (ITAT) Benches “A”, New Delhi. Before Shri S. Rifaur Rahman (Accountant Member) and Shri Anubhav Sharma (Judicial Member). The case is related to the assessment year 2022-23 and was decided on November 12, 2025. The assessee challenged an order dated March 18, 2025, passed by the Commissioner of Income-tax (Appeals), NFAC, Delhi.

Background of Case:

The assessee is a proprietor of M/s Shri Bankey Bihari Trading Co., dealing in the Trading of PVC pipe, Pipe fittings and Water tank etc since 2015 in Hapur, Uttar Pradesh. The case of assessment was chosen for scrutiny. During the case under assessment, the assessee sold PVC pipes worth Rs. 95,00,000 to “M/s Radha Buildtech India Pvt. Ltd”.

During the assessment, the AO alleged that the sale of Rs. 95,00,000 to Radha Buildtech made by the assessee was fake, based on statements from Sh. Babloo, a director of Radha Buildtech, and some past search and seizure operations related to the companies. The said entity raised fake bills and the payments against these bills were made through RTGS/cheque. It was observed that the cash was received by the said entity.

Despite this, the appellant had already included the Rs. 95 lakh in its profit and loss account and GST returns, and it was part of audited sales figures.

Assessee’s Arguments:

• On the action of the assessing officer, the assessee argued that the sales were already declared and mentioned in the books of accounts; hence, making an addition of it again under Section 68 will lead to double taxation.
• Additionally, no independent inquiry was conducted by AO; it merely relied on third-party statements to announce the decision.
• The assessee was not even given any opportunity to cross-examine the witness whose statement was used.
• The transactions were legitimate and reflected in GST and VAT returns, as well as audited books.

ITAT’s Findings:

When the case was taken before the ITAT New Delhi, the tribunal ruled that Section 68 only applies to unexplained cash credits and not to the sales already recorded in books and returns.

AO cannot make additions merely on the basis of statements of third parties without independent verification or giving the assessee a chance to cross-check once.

The sales were already declared in the books of accounts, GST, and previous assessments by the assessee; hence, the assessee had no jurisdiction to treat it under unexplained income.

ITAT’s Final Decision

• In the final decision, ITAT New Delhi allowed the appeal filed by the assessee and deleted the addition of Rs. 95 lakh made by the Assessing Officer (AO) under Section 68.