ITAT Deletes Rs. 1.88 Cr Section 68 Addition on Sales; Commission Addition Also Quashed

The assessee, a company engaged in the trading of iron ore, steel scrap and related items, filed its return declaring NIL income. The case was reopened under Section 147 based on information that the assessee was a beneficiary of cash deposits in the bank account of M/s Shri Mahalaxmi Steels. During the assessment, the Assessing Officer observed that the assessee had received Rs 1.88 crore from the said party and treated the same as unexplained cash credit under Section 68, alleging that the buyer was a bogus concern lacking financial capacity.

The assessee submitted invoices, challans, bank statements and C-Forms to substantiate that the amount represented genuine sale consideration. However, the CIT(A) upheld the addition, citing a lack of transport documents and incomplete evidence of the movement of goods.

The Assessing Officer also made an addition of Rs. 125,156 on account of alleged commission expenditure under Section 69C by estimating 2% on derivative profits, which was confirmed by CIT(A).

Issue Before Tribunal: Whether sale proceeds supported by documentary evidence can be treated as unexplained cash credit under Section 68 based on third-party investigation reports, and whether commission expenditure can be estimated without any concrete evidence.

ITAT’s Ruling: The ITAT observed that the assessee had furnished all primary evidence, including invoices, challans, bank statements and statutory C-Forms, to establish the genuineness of sales. It held that the addition was made merely on the basis of investigation reports without disproving the evidence produced by the assessee.

The Tribunal held that once sales are substantiated, the corresponding receipts cannot be treated as unexplained cash credits. Thus, the addition of Rs. 1.88 crore under Section 68 was deleted.

The Tribunal held that the addition was purely based on assumptions without any supporting material. The estimation of 2% commission was found to be arbitrary and without basis. Thus, the addition of Rs. 1,25,156 was also deleted.

The issue relating to the brought-forward losses and unabsorbed depreciation was restored to the Assessing Officer for fresh examination.

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