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2025 (1) TMI 178 - AT - Income TaxUnaccounted/unexplained income - Unexplained Cash Credit u/s 69A - assessee was selected for scrutiny under CASS for the reason that there was an abnormal increase in the cash deposits during the demonetization period - HELD THAT - AO was of the view that the assessee had inflated cash sales even prior to the declaration of the demonetization and had introduced bogus sales and had deposited cash so generated in the books of account to account for his unaccounted money, which was otherwise lying outside the books of account. While arriving at this conclusion, the AO has heavily relied on preponderance of probability and, thus, has worked on the assumption/presumption that the assessee had resorted to this kind of exercise for the purpose of depositing his unaccounted money in the Bank account through the cash book. While doing so, as rightly pointed out by the A.R., the AO has not brought on record any single piece of evidence, which would suggest that the assessee has inflated sales so as to create cash balance in the books of account. Moreover, no deficiency has been pointed out by the AO in the books of account nor has the availability of stock been doubted. Thus, the AO has, on the one hand, accepted the sales and purchases declared by the assessee and, on the other hand, has made addition on account of bogus sales made out of books of account and deposited in the Bank account during the period of demonetization. Undoubtedly, there has been a substantial jump in the turnover during the period of demonetization, but without there being any evidence to justify the claim of the AO that such jump in turnover was due to bogus sales having been created in the books, such claim remains a mere presumption. Although the principle of preponderance of probability is an accepted principle, but such probability has to be backed by some cogent evidence and the onus is squarely on the Department to establish that what is being said to be probable has proper evidence to support such claim. The Ld. First Appellate Authority, while dismissing the appeal of the assessee has also not considered this aspect. AO was legally not entitled to calculate sales on a hypothetical basis completely ignoring various evidences submitted during the course of assessment proceedings in the form of VAT returns, Purchase Bills and quantitative details, etc. Once the amount has been declared in the VAT return as well and the same has also been accepted by the AO, such sales cannot be considered as concealed income. Appeal of assessee allowed. 1. ISSUES PRESENTED and CONSIDERED The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Addition of Rs. 31,93,527/- as unexplained cash credit Relevant legal framework and precedents: The addition was made under Section 68 of the Income Tax Act, which deals with unexplained cash credits. The AO's reliance on preponderance of probability and hypothetical calculations was challenged. Court's interpretation and reasoning: The Tribunal noted that the AO accepted the sales and purchases declared by the assessee and did not reject the books of account. The Tribunal emphasized that any addition under Section 68 must be backed by cogent evidence. Key evidence and findings: The assessee provided VAT returns, purchase bills, and quantitative details, which were not disputed by the Commercial Tax Department. The AO's calculation lacked evidentiary support. Application of law to facts: The Tribunal found that the AO's addition was based on assumptions without evidence, which is contrary to the principles of taxation. Treatment of competing arguments: The assessee argued that the cash deposits were from legitimate sales, supported by documentation. The Department's argument of inflated sales was not substantiated with evidence. Conclusions: The Tribunal concluded that the addition was unsustainable and directed its deletion. Issue 2: Treatment of cash sales during demonetization as bogus sales Relevant legal framework and precedents: The AO treated the cash sales as bogus based on the sudden increase during demonetization. Court's interpretation and reasoning: The Tribunal highlighted that the AO did not provide evidence of inflated sales and that the books of account were audited and accepted by the Commercial Tax Department. Key evidence and findings: The Tribunal noted the absence of any adverse findings from the Commercial Tax Department regarding the sales figures. Application of law to facts: The Tribunal emphasized that sales recorded in the books and accepted by tax authorities cannot be deemed bogus without evidence. Treatment of competing arguments: The Department's reliance on circumstantial evidence was deemed insufficient without concrete proof. Conclusions: The Tribunal rejected the treatment of cash sales as bogus and supported the assessee's position. 3. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Tribunal stated, "Once the amount has been declared in the VAT return as well and the same has also been accepted by the AO, such sales cannot be considered as concealed income." Core principles established: The judgment reinforced the principle that tax additions must be based on evidence, not assumptions. It also emphasized the need for consistency between the treatment of sales in VAT returns and income tax assessments. Final determinations on each issue: The Tribunal set aside the First Appellate Authority's order and directed the AO to delete the addition of Rs. 31,93,527/-. The appeal of the assessee was allowed. In conclusion, the Tribunal's decision underscores the importance of evidence-based assessments and the inadmissibility of hypothetical calculations in determining unexplained cash credits. The judgment also highlights the necessity for tax authorities to align their assessments with documented and verified sales figures.
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