Addition u/s 68 cannot be made on sales properly recorded in books of accounts: ITAT

The Income Tax Appellate Tribunal (ITAT) Raipur Bench in the matter of Asstt. Commissioner of Income Tax- 1(1), Bhilai (ACIT) vs Shri Nitin Sankhla has said that addition u/s 68 of the Act cannot be made in respect of the amount which was found to be properly recorded into the books of accounts and no negative inference towards such transactions in the books of accounts were drawn by the revenue.

The tribunal further concluded that any addition on account of treating the sale of the assessee as bogus without rejecting the books of accounts is unjust, unfair, and bad in law.

Relevant Text:

20. We have considered the rival contentions and perused the orders of the authorities below along with the relevant documents placed on record. The judicial pronouncement placed before ITAT to substantiate the contentions by the other parties. The factual matrix of the present case shows that there was a deposit of Rs. 2.90 Crs of old demonetized notes by the assessee after announcement of demonetization on 08.11.2016. It is an admitted fact that the assessee has opening balance of more than Rs. 2.90 crs when the demonetisation was pronounced, and this fact is not disputed by the department. The ld. AO has observed that there was no cash sales between 1st April, 2016 to 4th November, 2016. However, the assessee is in a trade wherein cash sales is a regular feature which is demonstrated by placing necessary evidence before us. Like, the abstract of cash sales of previous year and for the current year. It was also the fact that total turnover of the assessment year under consideration was Rs. 105.18 crs out of which Rs. 18.21 crs was in cash and it was the observations of the ld. CIT(A) that the same cannot be considered as unusual which is further substantiated by the figures of the sale in the previous year wherein the total turnover of the assessee was 200.53 cr and cash sales was Rs. 92.62 crs. It is also admitted fact that books of accounts of the assessee were accepted by the revenue, thereby they have accepted the purchase sales, stock, bank accounts etc. of the assessee. The ld. AO on one hand has accepted the books of accounts of the assessee on the other hand treated the sale of the assessee has bogus, shows that ld. AO is blowing hot and cold at the same time which is unacceptable. The ld. CIT(A) has observed that when the purchases were accepted, the respective sale cannot be doubted. The addition u/s 68 of the Act cannot be made in respect of the amount which were found to be properly recorded into the books of accounts and no negative inference towards such transactions in the books of accounts were drawn by the revenue. We are drawing guidance from the case laws referred to hereinabove wherein it is clearly held that any addition on account of treating the sale of the assessee as bogus without rejecting the books of accounts is unjust, unfair and bad in law. Respectfully following decisions relied upon, we are of the considered opinion that in the circumstances when the assessee has sufficient opening cash balance at the time of pronouncement of demonetization which was not disputed by the department, if the same is being deposited by the assessee in its bank accounts, the same cannot be treated as unexplained or bogus unless any contrary observations borne from available records or otherwise brought on by the revenue against the assessee. Ld CIT(A) has appreciated the facts of the case, considered all the aspects correctly and has appropriately allowed the appeal of the assessee. The case of the Vaishnavi Bullion (supra), since has distinguishing facts and circumstances not comparable with the present case, the same cannot be applied to rescue the contention of the revenue. The department was unable to brought before us anything which inspires us to agree with the contentions of the department to substantiate their claim that the deposits made by the assessee out of its cash sales were not explained or are bogus, we therefore having no distinguished view then the view taken by ld. CIT(A), upheld the finding of the ld. CIT(A) and therefore, decided this issue against the revenue. In the result, grounds no 2 to 7 on this single issue of the appeal of the revenue are dismissed.

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