No Adverse Findings on Purchases or Stock: ITAT deletes 39.2 Lakhs cash credit u/s 68 of Income Tax Act [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted Rs. 39.2 Lakhs Cash Credit Under Section 68 of the Income Tax Act, 1961, citing absence of adverse findings on purchases or stock.

The assessee is engaged in the business manufacturing and trading of Guar, Guar dall, Guar Churi, Rui, Sarson, Sarson Oil, Khal Binola and Joe etc. The assessee had filed its return of income, declaring total income of INR 98,041/- on 30.10.2017. The case of the assessee was taken up for scrutiny assessment on the basis of cash deposited in the bank account during the demonetization period.

Mr. Gautam Jain representing the assessee argued that authorities below failed to appreciate the facts in right perspective. The accounts of the assessee were not rejected. The assessee has stated the source of cash deposits was out of sales. The Assessing Authority has not given findings regarding sales being bogus. The Assessing Authority had also accepted the stock as disclosed in DVAT.

He contended that the cash sales have been made subsequently as well. He drew my attention to the pages 85 to 86 of the Paper Book wherein as per page 85 of the Paper Book, the assessee had deposited cash amount of INR 1,16,00,000/- in the month of May, 2015; INR 36,50,000/- in the month of June, 2015; and INR 7,00,000/- in the month of August, 2015; as per page 86 of the Paper Book, the assessee had also deposited cash amount of INR 40,00,000/-; INR 55,00,000/-; and INR 14,00,000/- in the months of April, May and June, 2016 respectively

The bench found that the AO did not accept the source of cash deposited in the months of October to November, 2016 on the basis that there was no historical basis for such deposits. Hence, the source of cash deposits ought to have been treated as explained. Further, the AO has not commented on purchases. Undisputedly manufacturing and trading activity would be based on sale and purchase. If the purchases are treated as genuine and stock is also accepted then treating the sales as bogus is not logical.

A single member bench of the tribunal comprising Kul Bharath (Judicial member) observed that invoking the provision of Section 68 of the Income Tax Act, would not be justified. It is not a case of inflated purchases but AO treated cash sales being bogus without disturbing the book results. Therefor it was held that the authorities below have committed error in making impugned addition without bringing any adverse material in respect of purchases and stock of assessee. The impugned order was set aside and the AO was directed to delete the impugned addition. Thus, grounds raised by the assessee was allowed.

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