The Chandigarh Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. 32 lakhs made by the Assessing Officer ( AO ), citing the assessee’s higher sales as a result of the discounted sale of opening stock.
Pawan International, the assessee, is a trader of artificial goods and flowers, operating from Ludhiana. The assessee faced scrutiny regarding cash deposits of Rs. 32 lakhs in its bank account for the assessment year 2017-18. The Assessing Officer ( AO ) treated these deposits as income from undisclosed sources citing unusually high cash sales compared to previous years.
The assessee explained that the cash deposits were proceeds from the sale of its opening stock, which was sold at discounted rates due to the decision to cease business operations during the year. The sales were supported by VAT and sales tax returns. The AO rejected the explanation.
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On appeal, the Commissioner of Income Tax ( Appeals ) [ CIT(A) ] upheld the AO’s decision. Aggrieved by the CIT (A)’s decision, the assessee approached the Chandigarh bench of the Income Tax Appellate Tribunal.
Before the ITAT, the assessee’s counsel argued that its opening stock sales were legitimate and substantiated by records. The assessee’s counsel explained the absence of any rebuttal from the Revenue to the claim that the sales arose from opening stock.
The single-member bench comprising Sanjay Garg ( Judicial Member ) considered the arguments from both parties. The tribunal observed that the authorities failed to justify the treatment of sales proceeds as undisclosed income especially when supported by evidence.
The tribunal found no justification on the part of the lower authorities in treating the deposits made by the assessee, arising from the sales of opening stock, as income from undisclosed sources. The tribunal held that the impugned addition of Rs. 32 lakhs made by the Assessing Officer (AO) was unsustainable and ordered its deletion.
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