Sales of Jewellery could not be treated as Unexplained Cash Credit u/s 68 of Income Tax Act: ITAT [Read Order]

In a recent decision the chennai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that sales of jewellery could not be treated as unexplained cash credit under Section 68 of Income Tax, Act, 1961

The Counsel for the assesse, S. Sridhar, supporting the order of the CIT (A) submitted that there was no dispute with regard to the fact that the assessee has maintained books of accounts and as per cash book, the cash balance available as on the date of demonetization was much higher than the amount of cash deposit made during demonetization period.

Stated the counsel  submitted that the sole basis for the AO to treat cash receipts recorded in the books of accounts of the assessee as unexplained cash credits and taxable u/s.68 of the Act, is the fundamental mistake committed by the AO in understanding difference between trade advances and cash credits.

The counsel for the revenue Clement Ramesh Kumar further submitted that the CIT (A) failed to appreciate the fact that there was a substantial increase in cash sales during the impugned Financial Year when compared to earlier Financial Year. Although, the assessee claims that the percentage of cash sales to total sales is almost equal when compared to earlier years, the fact remains that when it comes to value, the assessee could not explain the sudden spike in cash sales before the demonetization period.

The Section 68 of the Income Tax Act, 1961 deals with the unexplained cash credit. This section enacted that where any sum of money was found credited in the books of the assessee,

The assessee should explain to the AO ( Assessing Officer ) satisfactorily the nature and source of the sum so credited and establish that the sum in question was not his income.

If he does not offer any explanation, or explanation offered was not found satisfactory in the opinion of the AO then, such sum may be charged as the income of the assessee.

The bench found that with sufficient stock in record for which excise duty was paid and vat taxes were paid, the sales could not be treated as unexplained cash credit u/s.68 of the Income Tax Act.  The addition made on account of bogus sale thus failed that test of being unexplained as envisaged under Section 68 of the Income Tax Act, 1961. In view of these, the addition of Rs.51, 39,39,100/- stands deleted.

The corum of Mahavir Singh ( Vice President ) and Manjunatha G ( Accountant member ) considered view that the AO was erred in making additions towards cash receipts received for sale of jewellery, which has been subsequently converted into sales, for the impugned assessment year as unexplained cash credits taxable under Section 68 of the Income Tax Act, 1961

The bench was inclined to uphold the findings of the CIT (A) and dismissed the appeal filed by the Revenue.

To Read the full text of the Order CLICK HERE

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