Sales Recorded in Books cannot be Treated as Bogus Cash Credits u/s 68: ITAT Deletes ₹84.83 Lakh Addition [ Read Order]

The Income Tax Appellate Tribunal (ITAT) Hyderabad Bench held that sales duly recorded in the books of account cannot be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961 merely on the basis of third-party statements and deleted an addition of ₹84.83 lakh.

The assessee whose main business activity was the manufacture and sale of edible oil reported his total income to be ₹38.85 lakhs. In the course of scrutiny the Assessing Officer (AO) took into consideration a statement given by the Investigation Wing that was indulging in accommodation entries.

Consequently, the AO considered the income received by the assessee from this party to be unexplained cash credits in accordance with Section 68. Also a 10% ad hoc disallowance of expenses to the extent of ₹11.60 lakh was made due to non-production of vouchers.

The assessee stated the transactions were legitimate sales duly backed by the invoices, waybills, ledgers, Form C, and the stock register. It was said that all payments were being made via bank transfer and there were no anomalies with the accounts books. According to the assessee the addition was solely based on the third party declarations and without any supporting evidence whatsoever.

The Tribunal noted that the assessee had properly documented all the sales transactions and the AO had not rejected any of the accounts books and there were no anomalies with the same. Also there was no evidence shown to show that cash had been channeled back to the party who had made the entries in question.

The Bench consisting of Ravish Sood [Judicial Member] and Madhusudan Sawdia, [Accountant Member] held that the appeal preferred by Sri Sarwo Natraj Agro India Private Limited against the order passed by the Commissioner of Income Tax (Appeals), NFAC, for Assessment Year 2017–18.

The ITAT ruled that once sales are recorded and accepted, the corresponding receipts cannot be treated as unexplained cash credits. Accordingly, the addition of ₹84.83 lakh was deleted.However, the Tribunal upheld the disallowance of ₹11.60 lakh towards expenses citing lack of supporting documentation.

Accordingly,the appeal was allowed partly.

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