2020 (3) TMI 461 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - source of amount deposited in the bank account - represents sale proceeds or not - Peak Credit - HELD THAT - Provisions of section 68 of the Act can be attracted where there is a credit found in the books of accounts and the assessee failed to offer any explanation or the offer made by the assessee is not satisfactory in the opinion of the assessing officer. The assessee has explained to the authorities below that the impugned amount represents the sale which has not been doubted by the authorities below. Thus in our considered view the impugned amount cannot be treated as unexplained cash credit under section 68 of the Act merely on the ground that the assessee failed to furnish the details of the existence of the parties. Provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with the finding of the learned CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him. Suppression of sales - Rejection of the books of accounts under the provisions of section 145(3) - HELD THAT - The rejection of the books of accounts of the assessee has not been challenged either by the assessee or the revenue. Thus the order of the learned CIT-A qua to the rejection of the books has reached to its finality. It is the settled law that once the books of accounts have been rejected the only option available to the revenue is to estimate the profit on scientific basis. We find support and guidance from the judgment of PRESIDENT INDUSTRIES. 1999 (4) TMI 8 - GUJARAT HIGH COURT There was no allegation by the authorities below that the assessee has made some investment in the sales which has been suppressed. Therefore the learned CIT (A) in our understanding has correctly estimated the profit. Accordingly we do not find any reason to interfere in the finding of the learned CIT-A. We also note that the entire basis of the additions as discussed above was on the basis of the information received from the central excise department - DR at the time of hearing has not brought anything contrary to the finding of the central excise department as reproduced above. Thus in the absence of any assistance from the learned DR we have no alternate except to place the reliance in the aforesaid order as true and correct. Furthermore we also assume that the impugned order of the central excise department pertains to the year under consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of Assessment under section 147/148 of the Income Tax Act.
2. Addition under section 68 of the Income Tax Act for unexplained cash credits.
3. Addition for alleged suppressed sales.
4. Claim of double addition and the principle of telescoping.

Detailed Analysis:

I. Reopening of Assessment:
- The CIT(A) held that the assessee is barred from challenging the reopening of assessment under section 147/148 of the Act. The assessee contended that the reopening should have been decided on merits, considering the facts and provisions of law. However, the assessee did not press this ground before the ITAT, and it was dismissed as not pressed.

II. Addition under Section 68:
- The CIT(A) confirmed the addition of Rs. 3,75,39,177 as unexplained cash credit under section 68 and further enhanced it by Rs. 1,04,876, totaling Rs. 3,76,44,053. The assessee argued that section 68 does not apply as the amount represents sales realization, not deposits, and pertains to a different assessment year (1996-97).
- The revenue's inquiry revealed that the parties to whom sales were shown did not exist. The AO treated 33% of the total sales as unexplained cash credit due to the non-production of books of accounts, which were allegedly seized by the Excise Department.
- The ITAT noted that the amount of sales was already offered to tax and cannot be taxed again under section 68. The ITAT directed the AO to delete the addition, as the same amount cannot be taxed twice.

III. Addition for Alleged Suppressed Sales:
- The AO made an addition of Rs. 3,44,10,000 for suppressed sales based on the difference in the sale price of PTY products. The CIT(A) reduced this to Rs. 36,54,000, considering only the profit element on suppressed sales, as per the precedent set by the Gujarat High Court.
- The ITAT upheld the CIT(A)'s decision, noting that once books of accounts are rejected, profit estimation on a scientific basis is required. The ITAT found no reason to interfere with the CIT(A)'s estimation of profit.

IV. Claim of Double Addition and Telescoping:
- The assessee argued that the addition of cash credit and unaccounted/suppressed sales results in double addition, which is against equity and justice. The ITAT agreed, noting that the same amount cannot be taxed twice and directed the deletion of the addition under section 68.

Conclusion:
- The appeal of the assessee was allowed, the appeal of the revenue was dismissed, and the cross-objection of the assessee was dismissed as infructuous. The ITAT emphasized that the same amount cannot be taxed twice and upheld the CIT(A)'s profit estimation for suppressed sales while directing the deletion of the addition under section 68.