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2025 (3) TMI 593 - AT - Income TaxAddition u/s 68 - assessee failed to discharge the onus of proving the nature and source of cash credits - primary contention of the Revenue is that the cash sales reported during the demonetization period were abnormally high and were not supported by complete buyer details such as PAN and the addresses of customers. HELD THAT - Regarding the Revenue s allegation that the PAN and address of customers were not mentioned on invoices we note that the requirement to mention PAN applies only when the transaction value exceeds 2 lakhs. In the present case the assessee claimed that all invoices for cash sales were below this threshold thereby making it unnecessary to mention PAN details. AO did not identify any specific invoice where the transaction value exceeded 2 lakhs. Assessee s submitted that the assessee had conducted cash sales before November 2016 and those invoices also did not contain PAN details; however Revenue did not dispute those sales at the same time. We note that the DR has not controverted the claim of the learned AR. In our considered opinion consistency should be maintained and the Revenue cannot be allowed to take different positions on similar transactions conducted on different dates in the same financial year. Regarding the absence of customer addresses on invoices which is required under Rule 29 of the Karnataka VAT Act we note that the statutory requirements should generally be followed. However the circumstances under which the requirement was not met must be considered before drawing an adverse inference against the assessee. As noted that after the announcement of demonetization on the evening of November 8 2016 effective from November 9 2016 the people rushed to general stores jewellery shops fuel stations etc. to spend their cash before it became invalid for general transactions. Furthermore it is important to note that the requirement to record the buyer s address is a VAT regulation and not under the Income Tax Act. VAT Department accepted the invoices raised by the assessee as genuine without any dispute. Therefore in our considered opinion solely for the reason that the buyers addresses were not mentioned on invoices the sales made by the assessee cannot be held bogus or sham transaction. Invoices issued by the assessee contained a barcode. A barcode on a tax invoice serves as a verification mechanism ensuring that the sale is recorded in the system and adds a layer of authenticity. Tax authorities or businesses can scan the barcode to verify transaction details reducing the chances of tampering or post issuance alteration. While the presence of a barcode does not automatically validate every sale it does enhance transparency and accuracy in accounting and tax records. However the AO without verifying this aspect or pointing out any specific defects mechanically treated the sales as bogus and sham transactions which in our considered opinion is unjustified. AO without considering the extraordinary event of demonetization concluded that the cash sales on November 8 2016 were bogus solely due to their unusually high volume compared to average monthly cash sales. In our considered opinion applying a normal monthly cash sales average to an extraordinary event like demonetization is incorrect. The approach of the AO in treating cash sales exceeding the average as bogus is both flawed and unjustified. Decided against revenue.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue presented and considered in this judgment is whether the addition of 6,61,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, was justified. This issue revolves around the genuineness of the cash sales reported by the assessee during the demonetization period, particularly on November 8, 2016, and whether these sales could be treated as unexplained cash credits under Section 68 of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act, 1961, empowers the AO to treat any sum found credited in the books of an assessee as income if the assessee fails to offer a satisfactory explanation about the nature and source of the credit. The burden of proof initially lies with the assessee to explain the nature and source of the cash credits. However, once an explanation is offered, the AO must consider it and form a reasonable opinion based on evidence. Precedents cited include decisions from various High Courts and Tribunals, which emphasize that Section 68 cannot be invoked when the nature of the income is duly recorded as sales in the books of accounts and already offered to tax. Court's Interpretation and Reasoning: The Tribunal examined whether the cash sales reported during the demonetization period were genuine and if the AO's addition under Section 68 was justified. The Tribunal noted that the AO's conclusion was primarily based on the unusually high volume of cash sales on November 8, 2016, compared to the average monthly sales and the lack of complete buyer details on invoices. The Tribunal highlighted that the AO failed to consider the extraordinary circumstances of demonetization, which led to a spike in cash sales across various sectors, including jewellery. The Tribunal also noted that the AO did not identify any specific defects in the books of accounts or the invoices provided by the assessee. Key Evidence and Findings: The assessee provided documentary evidence, including tax invoices with barcodes, stock summaries, and details of purchases, to support the genuineness of the cash sales. The Tribunal found that the presence of barcodes on invoices added a layer of authenticity to the transactions. The Tribunal also noted that the VAT Department accepted the invoices without dispute, and the AO did not find any discrepancies in the stock records or sales registers. Application of Law to Facts: The Tribunal applied the principles established in previous judgments, emphasizing that Section 68 cannot be applied to trading receipts that are already recorded as sales in the books of accounts. The Tribunal concluded that the cash sales reported by the assessee were genuine and duly recorded in the books of accounts, and therefore, the addition under Section 68 was not justified. Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the absence of PAN and addresses on invoices indicated non-compliance with statutory requirements. However, the Tribunal noted that the requirement to mention PAN applies only to transactions exceeding 2 lakhs, and the AO did not identify any such transactions. The Tribunal also acknowledged the practical difficulties faced by the assessee in obtaining buyer details during the demonetization rush. Conclusions: The Tribunal concluded that the AO's addition under Section 68 was based on assumptions and lacked proper inquiry. The Tribunal held that the cash sales were genuine and supported by evidence, and therefore, the addition of 6,61,00,000/- as unexplained cash credits was not sustainable. 3. SIGNIFICANT HOLDINGS The Tribunal established that Section 68 cannot be applied to cash sales that are duly recorded in the books of accounts and offered to tax. It emphasized that the AO must conduct a proper inquiry and cannot rely solely on assumptions or conjecture to make additions under Section 68. The Tribunal upheld the principles that the burden of proof initially lies with the assessee to explain the nature and source of cash credits, but once an explanation is offered, the AO must consider it and form a reasonable opinion based on evidence. The Tribunal's final determination was that the cash sales reported by the assessee during the demonetization period were genuine and supported by documentary evidence, and therefore, the addition under Section 68 was not justified.
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