2022 (7) TMI 1381 - AT - Income Tax

Addition u/s 68 - cash deposits made during demonetization period in all the bank accounts - HELD THAT - It is an undisputed fact accepted by both the AO and the CIT(A) that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition is made for the deposit of SBN during demonetization period on the ground that the cash sales is inflated by the assessee. The amount of sales which is not disputed is already offered to tax by the assessee by reflecting the same in the trading / P L Account. This fact is not doubted by the lower authorities. In that case, if the cash deposits are added under section 68 of the Act, then it would result in taxing the impugned amount twice, once as a sales income and secondly as an addition under section 68 - As in the case of PCIT Vs. Singhal Exim Pvt. Ltd. 2021 (2) TMI 1061 - DELHI HIGH COURT on similar issue took the view that the addition under section 68 of the Act is contradictory to the stand taken while accepting the business income and that the amount in question have already been charged to the income of the assessee, cannot be taxed again under section 68 of the Act. Also in the case of CIT Vs. Devi Prasad Viswanath Prasad 1968 (8) TMI 5 - SUPREME COURT on the issue of additions under section 68 held that It is for the assessee to prove that even if the cash receipts represents income, it is income from a source, which has already been taxed. Applying this ratio, in our view, the assessee has discharged the onus by offering the sales for taxation and therefore the same income cannot be taxed again - addition made under section 68 of the Act cannot be sustained and is therefore deleted. This ground is allowed in favour of the assessee. Addition made u/s 69C - deduction towards housing loan interest - AO concluded that there is no source for the repayment of housing loan for the assessee and hence treated an amount which the AO arrived at from the housing loan statement as unexplained expenditure u/s 69C - Addition upheld by the CIT(A) on the ground that majority of the loan is repaid in cash and the genuineness of the funds used for repayment has not been proved by the assessee - HELD THAT - From the perusal of the cash book, it is also noticed that the assessee is having sufficient cash balance generated out of cash sales as on the date of repayment of the loan. In view of the above discussion of facts, we are of the considered view that the assessee is having sufficient source explaining the repayment of housing loan and therefore delete the addition made under section 69C of the Act as unexplained expenditure. This ground of the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs. 19,50,000/- under section 68 of the Income Tax Act.
2. Addition of Rs. 6,97,272/- under section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 19,50,000/- under section 68 of the Income Tax Act:

The assessee, a dealer in motor pumps and related products, filed a return for Assessment Year 2017-18 declaring an income of Rs. 37,16,360/-. During scrutiny, the Assessing Officer (AO) questioned the cash deposits made during the demonetization period, specifically Rs. 23,50,000/- in Specified Bank Notes (SBN). The AO concluded that the assessee inflated cash sales to justify these deposits and made an addition of Rs. 19,50,000/- under section 68 as unexplained income.

The assessee appealed, arguing that:
- The disallowance was made on an adhoc basis.
- Sales trends showed a gradual increase, consistent with previous years.
- The Gross Profit and Net Profit ratios were consistent.
- The books of accounts were audited and accepted by the AO and CIT(A).
- Most sales were in cash due to the nature of the business and customer base.

The Tribunal noted that the cash deposits were substantiated by sales records and the sales figures were consistent with previous years. It was highlighted that taxing the cash deposits again under section 68 would result in double taxation since the sales were already reflected in the trading and profit & loss account. Citing precedents, the Tribunal held that the addition under section 68 was contradictory and deleted the addition of Rs. 19,50,000/-.

2. Addition of Rs. 6,97,272/- under section 69C of the Income Tax Act:

The AO noted that the assessee repaid a housing loan amounting to Rs. 5,74,414/- in cash, but the drawings in the capital account were only Rs. 1,85,000/-. Consequently, the AO treated Rs. 6,97,272/- as unexplained expenditure under section 69C.

The assessee contended that:
- Detailed records of the housing loan and cash book were submitted.
- The housing loan was closed as of 20th August 2016, and the repayment entries were reflected in the cash book.
- There was an arithmetic error in the AO's calculation.

The Tribunal reviewed the housing loan ledger and cash book, confirming that the repayment entries were substantiated and the assessee had sufficient cash balance from sales to cover the repayment. Consequently, the Tribunal deleted the addition under section 69C, finding that the assessee had adequately explained the source of the repayment.

Conclusion:

The Tribunal allowed the appeal in favor of the assessee, deleting both additions under sections 68 and 69C. The judgment emphasized the importance of substantiating cash deposits and expenditures with proper records and avoiding double taxation.