2023 (10) TMI 912 - AT - Income Tax

Cash sales during the demonetization period - unexplained cash credit u/s 68 - non-verification of sales during demonetization period as in most of the cases addresses are insufficient and the sales could not be verified - HELD THAT - It is an admitted fact that there is an increase in cash deposit in the bank account of the assessee but this sudden spike in the cash deposit is attributable to two reasons. Firstly the recovery from the debtors and some special offers by the assessee to clear its stock by making cash sales. There is a sudden is increase in transactions during the demonetization. But then announcement of such a scheme is also not a regular feature and once such scheme is announced there has to be counter effects to such schemes and business concerns have to arrange their affairs accordingly. For instance normally the period of receiving outstanding amount from debtors is 2 to 3 months but when such scheme is announced each person tries to get free from the liabilities and available cash in hand. There is a chain reaction when such scheme is announced and there has to be an increase in the cash transactions of a business entity. On going through the sample purchase and sale bills, VAT audit reports, month -wise cash deposit and banks month wise cash receipt during the year, we do not find any reason to doubt the genuineness of the cash sale transactions made during the demonetisation period. Since all the cash transactions have duly been reflected in the gross sales during the year, purchases are not in dispute, net profit has been offered as per the past trend, no other defect has been pointed out by the AO in the books except the cash sales made during the demonetisation period, we thus do not find any reason to doubt the genuineness of the cash sale transactions - Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the treatment of cash sales during the demonetisation period as unexplained cash credit under section 68 of the Income Tax Act, 1961 for Assessment Year 2017-18.

Details of the Judgment:

Issue 1: Treatment of Cash Sales during Demonetisation Period

The Assessing Officer (AO) questioned the source of a cash deposit during demonetisation in the bank account of the private limited company, suspecting possible creation of bogus debtors through bogus sales. The AO added the sales amount during demonetisation to the income of the assessee. The CIT(A) upheld this action, considering the lack of necessary evidence for cash sales and purchases made by the assessee during that period.

The Tribunal observed that the company, engaged in manufacturing mosquito net fabric, had a history of regular cash sales and had filed audited financial statements for preceding years. The AO specifically examined cash deposits during demonetisation, noting a spike in deposits during that period. While the AO accepted regular cash sales, sales during demonetisation were disputed due to non-verification of sales transactions. However, the purchases made by the company, especially from a major vendor, were found genuine. The Tribunal noted that the sudden increase in cash deposits during demonetisation was due to debt recovery and special sales offers to clear stock.

The Tribunal found no reason to doubt the genuineness of cash sales transactions during demonetisation, as reflected in the gross sales, with no other defects in the books except for the disputed cash sales. Consequently, the addition made by the AO was deleted under section 68 of the Act, setting aside the CIT(A)'s decision and allowing the assessee's appeal.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.