Addition u/s 68 on Scrap Sale will invalidate Corresponding Sales and relevant Expenditure charged to Profit and Loss A/c: ITAT [Read Order]

Addition - Scrap Sale - Profit and Loss - ITAT -TAXSCAN

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that addiction under section 68 of the Income Tax Act,1961on scrap sale will invalidate the corresponding sales and relevant expenditure charged to the profit and loss account.

The AO observed that the scrap sales declared by the assessee,Shri. Ramzanali Asgar Khanin the Assessment Year 2009-10 is 1.93 Crores and Rs.12 lakhs in Assessment Year 2010-11 was not supported by any documentary evidence and more so it was cash sales wherein the assessee has not furnished details of the buyers to whom it was sold.  The AO treated these credits as unexplained credits under section 68 of the Income Tax Act, 1961 (‘the Act’). 

It was contended by the assessee that a proper opportunity of being heard was not offered to him to explain these credits found credited in the bank account of the assessee. Further arguedthat the addition was made under section 68 only on suspicion reason which was not enough in sustaining the addition under section 68 of the Act.

The assessee deposited unaccounted cash into the bank account and it created a make-believe story to explain the cash deposit on scrap sales which cannot be upheld.  Thus, he relied on the order of the lower authorities.

A Coram o fShri Chandra Poojari, Accountant Member and Smt.Chandra Poojari, Judicial Member observed that the assessee has not furnished any details about whom the scrap sale was made where the entire scrap sale was recorded by the assessee as cash sales. 

It was observed that the assessee was not able to produce any details of the buyers to whom the scrap was sold and has not produced any stock records for the generation of the scraps from year to year. 

While Partly allowing the appeal of the assessee, the Tribunal found the plea of the assessee reasonable and directed the AO to take out the scrap sales if it was included in the total sales in the Profit and Loss A/c furnished by the assessee and also take out all corresponding expenditure relating to the scrap sales debited to the Profit and Loss A/c and compute the income accordingly and make separate additions for scrap sales to the income of the assessee. 

The assessee was represented by Shri. Siddesh Nagaraj Gaddi and the revenue were represented by Shri. Sankar Ganesh K, JCIT.

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