The Chennai Bench of Income Tax Appellate Tribunal (ITAT)deleted the addition made under Section 69A of Income Tax Act,1961 for cash deposits and advances, holding that the amounts were sourced from recorded sales.
Mahasakthi Mills Limited, the appellant-assessee, engaged in manufacturing cotton and synthetic yarn and cloth, reported a loss of Rs. 174.55 lakh for the relevant year. A survey conducted on March 23, 2017, revealed cash deposits of Rs. 800.05 lakh during the demonetization period and cash advances of Rs. 1267.55 lakh to sister concerns.
The assessee claimed these were sourced from cash sales, which were recorded in VAT returns and audited books, but verification efforts, including summonses and VAT return revisions, raised doubts. The Assessing Officer (AO) rejected the explanation, citing invoice discrepancies, unusual cash deposits, and a sharp stock decline, and added both amounts under Section 69A of the Act.
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The assessment resulted in a business loss of Rs. 119.04 lakh, with income from other sources assessed at Rs. 2067.60 lakh. The assessee challenged the additions before the Commissioner of Income Tax(Appeals)[CIT(A)].
The assessee argued that the cash deposits came from recorded sales reflected in Value Added Tax(VAT) returns, and the revision was within legal limits. It maintained audited books and provided invoices, stock details, and accounts during assessment. During the survey, a broker confirmed facilitating sales and collections, and sales invoices were found and verified.
The assessee contended that taxing cash deposits separately would lead to double taxation and that advances to sister concerns came from opening cash balances and past debtor collections.
Read More: Cash Deposits made from Sale Proceeds: ITAT directs Deletion of S.69 Income Tax Additions
The AO rejected these claims, citing invoice inconsistencies and an unusual spike in cash deposits, concluding that unaccounted money was introduced as sales. CIT(A) upheld the additions, stating that the assessee failed to provide debtor details, confirm cash sales, or justify stock records, leading to the present appeal.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The two member bench comprising Mahavir Singh(Vice President) and Manoj Kumar Aggarwal(Accountant Member) examined the case and noted that the taxpayer had filed revised VAT returns before the survey and reported sales in the Profit & Loss account. Extensive documentation, including financial statements, cash books, and ledgers, was submitted.
The appellate tribunal highlighted that sales turnover was recorded in audited books, and no defects were pointed out. The AO relied on a small sample of confirmations, overlooking the taxpayer’s business model, where brokers played a key role in collections.
Relying on past rulings, including its own decision in the taxpayer’s case for AY 2015-16, the ITAT held that Section 69A could not be invoked when cash was sourced from recorded sales. It found no basis for the addition and ruled in favor of the taxpayer, deleting the disputed amounts.
In short, the appeal filed by the assessee was allowed.
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