2023 (10) TMI 1028 - AT - Income Tax

Unexplained cash credit u/s. 68 - assessee was not authorized to accept Specified Bank Notes during demonetization period as observed in the assessment order - HELD THAT - It is an admitted fact that the cash deposit is on account of sale of petrol, diesel and other petroleum products. These sales have been duly recorded in the books of accounts and appropriate VAT taxes also collected by the assessee. The Manager of the assessee company also filed a Notarized Affidavit accepting the above facts during the course of assessment proceedings. Thus it is clearly established that the Ld. A.O. on one side accepting the source of cash deposit and on the other side, he is making the cash deposit as unexplained cash credit which is self-contradictory. The Assessing Officer following the Circular dated 08-11-2016, which is not applicable since Para (e) of the Circular deals with the cases of purchase of petrol, diesel etc., and not to sale of petrol, diesel by accepting Specified Bank Notes. Thus the invocation of Section 68 is invalid in law. Assessee filed complete details of Purchase register, Sales register, Cash Book, Bank statement, Month-wise details of purchase and sales, Copies of VAT returns etc. A.O. is not able to find any defect in the books of accounts, except general statements made in the assessment order. Though the A.O. has doubted the sales made during the year, he is not doubted the purchases made or stock maintained by the assessee during the year. Further the assessee also demonstrated the fluctuations in the sales during the entire period and there is no drastic increase in sales during the period of demonetization. It is further noticed that it is the month of May 2016 sales reported at 84.81 lacs. Similarly, in the month of November 2016 (demonetization period), the sales is reported at 1.04 crores which is not found to be drastic higher figure - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,24,59,500/- under Section 68 of the Income Tax Act.
2. Applicability of Government notification dated 08.11.2016.
3. Factual discrepancies and inconsistencies in the books of account.

Summary:

Issue 1: Deletion of Addition under Section 68
The Revenue challenged the deletion of an addition of Rs. 1,24,59,500/- under Section 68 of the Income Tax Act by the Commissioner of Income Tax (Appeals). The assessee, a company trading in petroleum products, deposited Specified Bank Notes (SBN) during the demonetization period, which the Assessing Officer (A.O.) added as unexplained cash credit under Section 68. The CIT(A) deleted the addition, observing that the sales were accepted by the A.O., the books of account were not rejected under Section 145(3), and genuine purchases were allowed. The CIT(A) emphasized that the real income should be taxed, and the sales receipts were part of the books of account. The Tribunal upheld this view, noting that the A.O. accepted the source of cash deposits as sales and found no defects in the books of account. The invocation of Section 68 was deemed invalid as the cash deposits were explained to have originated from sales.

Issue 2: Applicability of Government Notification Dated 08.11.2016
The A.O. relied on a notification dated 08.11.2016, which permitted only public sector oil marketing companies to accept SBN during demonetization. The CIT(A) and the Tribunal found this notification inapplicable to the assessee, a private dealer, as the notification pertained to purchases of petrol and diesel, not sales. The Tribunal cited various case laws supporting the view that contraventions of the notification did not attract the provisions of Section 68.

Issue 3: Factual Discrepancies and Inconsistencies in Books of Account
The Revenue argued that the CIT(A) ignored factual discrepancies and inconsistencies in the books of account. However, the Tribunal found that the A.O. did not identify specific defects in the books, and the sales during the demonetization period were consistent with sales in other months. The Tribunal noted that the assessee provided comprehensive details, including purchase and sales registers, cash book, bank statements, and VAT returns, which the A.O. did not dispute.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition of Rs. 1,24,59,500/- under Section 68, and upheld the CIT(A)'s order. The Tribunal emphasized that the real income should be taxed, and the assessee's sales receipts were duly recorded in the books of account. The Tribunal also found that the government notification dated 08.11.2016 did not apply to the assessee's case.