Sale Proceeds Recorded in Books Cannot be Recharacterized as Unexplained Cash Credit: ITAT Deletes Addition [Read Order]

Krishna Prabhas Agro Oils Private Limited (assessee), which is engaged in the business of manufacturing and sale of edible rice bran oil, filed return of income for AY 2017-18, which was initially processed.

The AO initiated reassessment proceedings under Section 147 after receiving information from the Deputy Commissioner ofIncome Tax (DCIT) that the assessee was a beneficiary of accommodation entries routed through a concern named M/s Prithvi Traders.

During the assessment, the AO noted a transfer of ₹41,74,755 from M/s Prithvi Traders to the assessee's SBI account. The assessee submitted that the amount was received through RTGS as genuine sales proceeds for edible rice bran oil sold to M/s Prithvi Traders.

The assessee also filed copies of ledger accounts, bank statements, CST invoices, Form C, Form 16A, and other supporting documentary evidence. The receipts were duly recorded in the books of accounts as sales proceeds and reflected in the audited financial statements.

The AO treated the entire amount of ₹41,74,755 as unexplained cash credit under Section 68 of the Act and concluded that the assessee failed to substantiate the genuineness of the transaction by providing confirmation from M/s Prithvi Traders or the commission agent.

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Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the addition and confirmed that the assessee had failed to discharge the onus to establish the identity, creditworthiness, and genuineness of the transaction. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench comprising Manjunatha G. (Accountant Member) and Ravish Sood (Judicial Member) observed that the AO, while framing the assessment, had accepted the audited books of accounts and computed the income based on the returned income, which included the sales proceeds in question.

The tribunal observed that the AO accepted the trading results and there was no justification to re-characterize one of the receipts forming part of those sales as an unexplained cash credit under Section 68 of the Income Tax Act.

The tribunal observed that once the AO accepted the trading results then he could not selectively treat a part of the sale proceeds as unexplained.

The tribunal relied on precedents, including the ITAT Raipur Bench's decision in Rahul Cold Storage v. ITO which held that receipts forming part of the business turnover and accepted by the AO cannot be taxed again under Section 68 of the Income Tax Act.

The tribunal set aside the CIT(A)'s order and vacated the addition of ₹41,74,755 made under Section 68 of the Act. The appeal filed by the assessee was allowed.

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