Advance received for Car Booking without Invoice cannot be treated as Unexplained Cash Credit: ITAT [Read Order]

A division bench of the Kolkata ITAT, recently ruled that the advance amount received by a car dealer for booking by customers without invoice cannot be treated as unexplained cash credit under section 68 of the Income Tax Act, 1961 since it is a usual practice and the assessee had provided the names, address and PAN of all the parties from whom advances were received.

In the instant case, assessee, a dealer in maruti vehicles, received advance from customers for booking of car and recorded it in the liability side of the Balance sheet. AO called for the records from which he found that had received advances from different persons of Rs 10,000/- each on different dates aggregating to Rs 34,14,590/- . Further, the assessee has also received such advances ranging below Rs 10,000/- aggregating to Rs 72,71,066/-. observed that the assessee failed to furnish any further explanation as to why the sums were received and part refunded. Further he observed that the assessee could not furnish any documentary evidence to substantiate its claim, i.e scheme under which sums were received, name of the party, complete address, PAN, assessment jurisdiction etc to verify the genuineness of aforesaid deposits of Rs 1,06,85,656/-. He further observed that it is beyond the human probability that every party has advanced a sum of Rs 10,000/- only to the assessee company. Accordingly, he treated the amount as unexplained cash credit under section 68 of the Income Tax act, 1961.

Assessee maintained that the the deposit from the customers for booking of the vehicles which remained outstanding at the end of the year is a usual phenomenon. The customers at the time of deposit give their full address as well as the PAN as per the Motor Vehicle Rules, without which the dealer cannot book a car.

Allowing the contentions of the assessee, the bench noted that the addition has been made by the ld AO without appreciating the business model of the assessee. “It is very usual for a car dealer such as assessee, to receive booking advance from various prospective customers at the time of booking the vehicle and the same would be reflected as advance from customers, which would get adjusted with the sale invoice in subsequent period on delivery of the vehicle. In case if the customer wishes to cancel the order, the same would be refunded as per the terms and conditions agreed upon. This is the general practice followed by every car dealer in the country.”

It further found that the assessee had provided the names, address and PAN of all the parties from whom advances were received. The entire details were very much available on record before the AO and the addition was made without appreciating the same.

Read the full text of the Order below.

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