Section 68 not applicable to sales receipt shown in books of accounts.

Section 68 not applicable to sales receipt shown in books of accounts. A Receipt can not be treated sale proceeds & unexplained cash credit simultaneously.

ABCAUS Case Law Citation:
ABCAUS 3232 (2020) (01) ITAT

In this case, appeal had been filed at the instance of the Assessee against the common order of the Commissioner of Income Tax (Appeals) in confirming the order of the Assessing Officer (AO) by treating the per cent of the sales as unexplained cash credit u/s 68 of the Income Tax Act, 1961 (the Act).

The assessee for the year under consideration filed the return of loss. Subsequently, The case of the assessee was selected under scrutiny and assessment u/s 143(3) was completed after making addition on account of unexplained cash credit and interest free loan and advances.   

Thereafter, there was a search conducted at the premise of the assessee by the Central Excise Department. As per the search report of the central excise department, it was revealed that the assessee along with some other persons/organizations indulged in diverting the excisable goods in the domestic market but claiming on papers to have cleared the goods on Inter unit transfer basis in order to escape from the payment of the excise duty.

On the basis of such information the assessment was re-opened u/s 147 of the Act. The assessee during the assessment proceedings was requested to produce the books of accounts but it expresses its inability to do so as the books of account were seized by the Excise Department.

However, the AO during the assessment proceedings to verify the genuineness of the sales shown by the assessee in the books of accounts conducted inquiries on 10 parties to whom the assessee had shown sales.

As per the enquiry, these 10 parties did not exist. Therefore, the AO disbelieved the amount of sales shown by the assessee in the absence of books of accounts and non-existent of the parties. Accordingly, the AO treated the 33% of the total sales shown as unexplained cash credit under section 68 of the Act.

The assessee carried the matter to the CIT (A) who deleted the addition made and restored the issue to the file of the AO.

In view of the above, the AO issued notice under section 143(2) of the Act directing the assessee to appear before him along with the books of accounts, documents. The assessee in response to such notice again expressed its inability to produce the books of accounts as the same were seized by the Central Excise Department.

The assessee further requested the AO to collect the necessary information/ books of accounts from the Central Excise Department. However, the AO in the absence of books of accounts again confirmed the addition under section 68 of the Act.

The assessee before the CIT(A) submitted that it has written various letters to the central excise department requesting for the releasing of the books of accounts but its request remained unattended. Similarly, the assessee also requested the AO to collect the books of accounts directly from the excise department in order to verify the genuineness of the sales but the AO failed to do so despite there was the clear direction of Hon’ble ITAT to verify the books of account.  

However, the CIT(A) held that the onus lies on the assessee to prove the credit worthiness, identity and the genuineness of the transactions carried out with the parties but the assessee failed to establish the same. Accordingly the CIT (A) confirmed the order of the AO by enhancing the addition made u/s 68 of the Act.

The Tribunal observed that the amount of sale as claimed by the assessee was offered to tax by reflecting the same in the trading and profit and loss account. This fact had not been doubted by the authorities below.

The Tribunal further noted that the impugned amount had been taxed twice firstly the same was treated as sales and secondly the same was treated as unexplained cash credit under section 68 of the Act.

The Tribunal opined that even if it was assumed that the action of the CIT (A) was correct i.e. the impugned amount is representing the cash credit as provided under section 68 of the Act. Then, the CIT (A) was duty-bound to reduce the same from the amount of sales as the same did not represent the sale but unexplained cash credit. As such, the same amount could not be held taxable twice as per the wish of the CIT (A).

The Tribunal opined that the action of the CIT (A) was erroneous to the extent of treating the same as sale proceeds and the unexplained cash credit simultaneously.

The Tribunal also noted the fact that there was no allegation from the authorities below that the impugned amount represents the unexplained cash credit over and above the sale proceeds.

Section 68 not applicable to sales receipt shown in books

The Tribunal observed that the provisions of section 68 of the Act can be attracted where there is a credit found in the books of accounts and the assessee failed to offer any explanation or the offer made by the assessee is not satisfactory in the opinion of the assessing officer. Whereas in the instant case, the assessee had explained that the impugned amount represented the sale which had not been doubted by the authorities below. Therefore, the impugned amount could not be treated as unexplained cash credit under section 68 of the Act merely on the ground that the assessee failed to furnish the details of the existence of the parties.

The Tribunal also opined that the provisions of section 68 could not be applied in relation to the sales receipt shown by the assessee in its books of accounts. It was because the sales receipt had already been shown in the books of accounts as income at the time of sale only.

The Tribunal stated that there was no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases had been accepted, then the corresponding sales could not be disturbed without giving any conclusive evidence/finding.

Accordingly, the Tribunal set aside the findings of the CIT(A) with the direction to the AO to delete the addition made by him.

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