Recoveries of farmer’s advances duly reflected in Cash Book, not Unexplained Cash credit u/s 68 of Income Tax Act: ITAT [Read Order]

The Chennai Bench, Income Tax Appellate Tribunal ( ITAT ) held that when recoveries of farmers advances were duly reflected in cash book of assessee it would not be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961

The Assessee Arumuga Sugars Ltd. resident corporate assessee is stated to be engaged in manufacturing of sugar. An enquiry u/s 131(1A) was conducted in the business premises of the assessee on 13.03.2017 by Investigation wing, Coimbatore.

During the course of enquiry, it was found that the assessee made deposits in State Bank of Hyderabad, Chennai during the demonetization period.

Accordingly the assessee filed return of income for AYs 2016-17 and 2017-18 which was picked up for scrutiny assessment and notices under Section 143(2) of the Income Tax Act were issued for both the years. During the course of assessment proceedings, to verify the claim of the assessee that the cash was sourced out of farmers’ advances granted earlier which was received back.

After examining the cash deposits made during the demonetisation period AO  made certain additions for assessment year 2016-17 and 2017-18.

Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) deleted the addition.  Thereafter the revenue filed an appeal before the tribunal.

During the adjudication J. Premanand the counsel for assessee argued that to ensure smooth business and to ensure supply of raw material, the assessee advanced money to sugarcane growing farmers. These advances were duly reflected in the financial statements of respective years which were furnished by the assessee to AO during the course of assessment proceedings.Further the advances so given were recovered during financial years 2014-15 to 2016-17. He also proved the details regarding farmers before the AO.

R. Venkata Raman, Department Representative supported the order of lower authorities.

The tribunal observed that the advances so given by the assessee were reflected in the Balance Sheet as ‘receivables’. These advances have been sourced out of bank loans availed by the assessee from the bank. These advances are reflected by the assessee as ‘receivables’ in its financial statements of earlier years and the same is not under dispute.

After analyzing the submission of both parties, the bench of V. Durga Rao (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that during the impugned years, the assessee has received back these advances which have been reflected in the cash book of the assessee. The cash balance has been used to make the deposits in the bank account which has ultimately been used in settling the bank loan as availed by the assessee. Therefore, the claim of the assessee was based on books of accounts and financial statements which could not be negated by AO.

To Read the full text of the Order CLICK HERE

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