The Bangalore bench of Income Tax Appellate Tribunal ( ITAT ) recently held that inflated sales during demonetization period to be computed after considering average sales of prior one year.
The aforesaid order was made by the Bangalore ITAT against the order of the Commissioner of Income Tax Appeal CIT(A).
The Assessing Officer (AO) made an addition of Rs.15, 66,990/on assessee Shri Arif account under Section 68 of the Income Tax Act, 1961 towards cash deposits into the bank accounts that included inflating of cash sales. Further CIT (A) deleted an amount of Rs.4, 00,000/- out of the above and sustains Rs.11, 66,994/- which represents the inflated cash sales.
Nitesh Ranjan, counsel for the assessee submits that “the deposit of amount into the bank account cannot be considered as unexplained credit under Section 68 of the Income Tax Act, 1961”
Section 68 of the Income Tax Act, 1961 provides that assessing officers can charge income tax on such income which has been credited to the assessee’s bank and if the assessee can’t explain the nature of the source .
Further submitted that the AO for making the addition considered the sales only for 10 days before the demonetisation period with the average sales of prior three months.
According to the Counsel of the assessee AO ought to have considered the average sales of the entire year instead of the average sales of three months to compare the sales in 10 days during the demonetisation period.
Ganesh R. Ghale Counsel for the revenue confirmed the order of the lower authorities.
After considering the contentions of the both parties the single bench of ITAT of Chandra Poojari (Accountant Member) allowed the appeal filed by the assessee and observed that “This inflated sales, if any, already had gone into the computation of income and making further under section 69A of the Income Tax Act 1961 amounts to double addition which shall be avoided.”
69A of the Income Tax Act 1961 provides that if any money or jewelry or bullion found from the assessee and which was not recorded in the book of accounts of the assessee and the assessee has not such explanation about the nature of the asset such asset shall be considered as the income of the assessee .
Further the bench orders the assessee to furnish full details of one year’s sales prior to the demonetization period and the AO has to consider the average daily sales and compare it with the sales of the demonetization period.
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