Unaccounted Cash Sales Reconciled with Invoices and Stock: ITAT Upholds Deletion of ₹30 Lakh Addition u/s 69C [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of the Rs. 30,01,023 addition under Section 69C of the Income Tax Act, 1961 and ruled that the assessee's reconciliation of unaccounted cash sales with sales invoices and stock registers was satisfactory, and no discrepancies were pointed out by the Assessing Officer.

Mehta Emporium Jewellers (assessee) was subjected to a search under Section 132 of the Income Tax Act, during which unexplained cash of Rs. 30,01,023 was found. The Assessing Officer (AO) treated this as unexplained expenditure under Section 69C, based on statements recorded during the search where a partner admitted to unaccounted cash sales.

The AO added the amount to the assessee's income for Assessment Year (AY) 2019-20, noting that the assessee failed to provide immediate documentary evidence and had reduced stock in trade correspondingly, which was not permissible.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee submitted a reconciliation of the cash found during the search, supported by sales invoices, stock reconciliation statements, and item-wise stock registers.

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The CIT(A) deleted the addition, observing that the AO had not identified any discrepancies in the submitted documents and that the sales had been disclosed in the books of accounts and offered to tax in the income tax return. The CIT(A) further noted that the addition was primarily based on the partner's statement without corroborative evidence of suppression.

Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT. The Revenue Counsel argued that the unaccounted cash was generated from undisclosed sales and that the assessee's explanation during the search warranted the addition.

The assessee’s counsel defended the CIT(A)’s decision and emphasized that the reconciliation fully explained the cash as arising from recorded sales, with no defects pointed out by the AO. The counsel highlighted that the stock register and invoices corroborated the explanation, and the addition under Section 69C was unjustified absent evidence of unexplained expenditure.

The two-member bench, comprising Beena Pillai (Judicial Member) and Renu Jauhri (Accountant Member), observed that the assessee had furnished detailed reconciliation before both the Investigation Wing and during assessment proceedings, including cash invoices and stock registers.

The bench noted that the AO failed to highlight any discrepancies in these documents, and the sales were duly accounted for in the books and taxed.It upheld the CIT(A)’s deletion of the addition.

The Bench concluded that the unaccounted cash was adequately explained through reconciled sales and stock records. The Revenue’s appeal was partly allowed for statistical purposes.

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