2023 (8) TMI 217 - AT - Income Tax

Addition u/s 68 - undisclosed cash deposit - HELD THAT - As in the present case, the cash so received by the assessee is backed by sales carried out by the assessee as recorded in the books of accounts. Therefore, the source of cash is duly explained. The provisions of Sec.68 could be invoked only in cases when there was unexplained cash credit in the books of accounts maintained by the assessee. Assessee has duly identified the debtors from whom the cash was received and the same could not be disputed by lower authorities. The PAN of respective debtors as well as quantum of cash realized from each of them has duly been detailed by the assessee before AO during assessment proceedings. No defect has been pointed out in the books of accounts. In such a case, the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law. Thus in Rahul Cold Storage 2022 (12) TMI 437 - ITAT RAIPUR wherein it has similarly been held that when the deposits were sourced out of business receipts duly recorded in the books of accounts, no such addition could be made u/s 68. Decided in favour of assessee.

Summary

Issues:
The issues involved in this case include the dismissal of claim regarding specified bank notes (SBN) exchange, alleged errors in the order of the Commissioner of Income Tax (Appeals), failure to consider replies filed by the appellant, addition of unexplained money under section 68, failure to follow standard operating procedure, and the scope of the specified bank Notes (cessation of liabilities) Act.

Dismissal of Claim Regarding SBN Exchange:
The appeal by the assessee for Assessment Year 2017-18 arose from an order by the Commissioner of Income Tax (Appeals) dismissing the claim of the appellant regarding the exchange of SBN after 08/11/2016. The appellant contended that the cash deposits into the bank were from the sale proceeds of fireworks, duly accounted for, and identifiable. The Assessing Officer's conclusion of not accepting the cash deposits was challenged. The appellant relied on previous decisions to support their case.

Alleged Errors in CIT(A) Order:
The appellant argued that the order of the Commissioner of Income Tax (Appeals) was erroneous in law and against the principles of natural justice. They claimed that the CIT(A) failed to consider the replies filed by the appellant in the proper perspective, erred in not considering the fact that the cash deposits were from legitimate sales, and did not follow standard operating procedures.

Addition of Unexplained Money under Section 68:
The Assessing Officer had made an addition of Rs. 11823000 under section 68 treating it as unexplained money. The appellant contended that the cash deposits were from debtors during the festival season, collected from legitimate sales, and deposited into bank accounts. The appellant argued that the additions made by the lower authorities under section 68 were unsustainable.

Failure to Follow Standard Operating Procedure:
During appellate proceedings, the appellant submitted that the Assessing Officer did not follow the standard operating procedure specified in a circular. The appellant provided detailed information about cash deposits, sales made, and debtors from whom cash was received. The appellant argued that the Assessing Officer did not analyze sales as per the standard operating procedure and failed to consider the nature of sales in the fireworks industry.

Scope of the Specified Bank Notes Act:
The appellant contended that the Commissioner of Income Tax (Appeals) did not consider the scope and effect of the specified bank Notes (cessation of liabilities) Act properly. The appellant argued that the Assessing Officer erred in making an addition of Rs. 11823000 treating it as unexplained money under section 68 without any basis.

Judgement Summary:
The Tribunal found that the appellant had made legitimate sales of fireworks during the festival season, which were duly accounted for in the books of accounts. The cash deposits from debtors were explained and supported by evidence. The Tribunal noted that the Assessing Officer did not find any irregularities in the books of accounts and that the appellant had provided detailed information and documentation during the assessment proceedings. The Tribunal held that the provisions of section 68 could only be invoked in cases of unexplained cash credits, which was not the situation in this case. Therefore, the impugned additions were deemed unsustainable in law, and the Tribunal ordered the deletion of the addition made under section 68. The Assessing Officer was directed to re-compute the income of the assessee, and the appeal was allowed in favor of the appellant.