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2025 (3) TMI 527 - AT - Income TaxUnexplained income u/s 68 or 69A - assessee deposited in cash into its bank account during the demonetization period - structured nature of these transactions where all sales were below the PAN disclosure threshold of Rs. 2 lakh was found to be highly suspicious - AO noted that there is no instance of sale in cash after 08.11.2016 making it unusual that such a high volume of cash sales occurred on a single day HELD THAT - Law does not mandate PAN disclosure for cash transactions below Rs. 2 lakh and if buyers voluntarily structured their purchases within the legal limit the assessee cannot be penalized for complying with existing rules. The AO has not brought any evidence to show that the sales did not occur or that the cash deposited was from undisclosed sources. Assessee did not maintain a detailed stock register containing itemized inventory records which made it impossible for the AO to verify whether the sales actually took place from available stock - We note that the assessee had maintained stock records and submitted the same during the proceedings and the auditor had reported stock details in Annexure to Form 3CD (Tax Audit Report). AO did not reject the books of accounts or point out any defects in stock movement nor did he dispute the purchases made by the assessee. When purchases are accepted the corresponding sales cannot be arbitrarily disregarded without evidence to the contrary. Therefore the AO s assumption that the stock records were inadequate is not supported by any material evidence. Assessee has duly recorded the cash deposits as sales in its books of accounts and once a transaction is recorded in books Section 69A of the Act cannot be invoked. The AO has not rejected the books of accounts under Section 145(3) of the Act nor has he pointed out any material discrepancies in stock movement VAT returns or financial statements. Revenue s reliance on Namdeo Arora is misplaced as that case dealt with unexplained loans whereas the present case involves recorded business transactions supported by documentary evidence. The AO failed to disprove the genuineness of the sales or conduct any independent verification making the addition purely based on suspicion. - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal question considered in this case was whether the addition of Rs. 5,61,85,000/- made by the Assessing Officer (AO) under Section 69A of the Income Tax Act, 1961, could be justified. This involved examining if the cash deposits made by the assessee during the demonetization period were unexplained and not supported by genuine sales transactions. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 69A of the Income Tax Act allows for the addition of unexplained money, bullion, jewellery, or valuable articles not recorded in books of account, unless the assessee satisfactorily explains their source. The AO applied this section, suspecting that the cash deposits were not genuine sales but unexplained money. The CIT(A) relied on precedents like ACIT v. Hirapanna Jewellers and DCIT v. Bawa Jewellers Pvt. Ltd., which held that cash sales recorded in books cannot be treated as unexplained income under Sections 68 or 69A unless proven otherwise. Court's Interpretation and Reasoning The Tribunal analyzed whether the cash deposits represented genuine sales transactions. It considered the CIT(A)'s reasoning that the AO's assumptions about the feasibility of conducting 350 transactions in 3.5 hours were speculative. The Tribunal noted that the AO did not reject the books of accounts or point out defects in stock registers, VAT returns, or financial statements. The CIT(A) found that the AO relied on assumptions and suspicions without evidence, which cannot form the basis for an addition under Section 69A. Key Evidence and Findings The Tribunal considered the evidence provided by the assessee, including stock-in-hand details, stock movement breakdown, cash book reflecting sales, and VAT returns. The Tribunal noted that the AO did not conduct independent inquiries or summon customers to disprove the sales, relying instead on presumptions about the structured nature of transactions. Application of Law to Facts The Tribunal applied the legal principles from the cited precedents to the facts of the case, concluding that since the sales were recorded in the books, reflected in VAT returns, and supported by stock movement, the AO failed to justify the addition under Section 69A. The Tribunal emphasized that suspicion cannot replace evidence, and the AO did not provide evidence to show that the sales did not occur or that the cash was from undisclosed sources. Treatment of Competing Arguments The Tribunal addressed the Departmental Representative's (DR) arguments regarding the absence of buyer details and the structuring of transactions below Rs. 2 lakh. It noted that the law does not mandate PAN disclosure for such transactions, and the assessee cannot be penalized for complying with existing rules. The Tribunal also considered the DR's argument about the lack of a detailed stock register but found that the assessee maintained stock records and the AO did not reject the books of accounts. Conclusions The Tribunal upheld the CIT(A)'s decision to delete the addition, concluding that the assessee had duly recorded the cash deposits as sales in its books, and Section 69A could not be invoked without evidence to the contrary. SIGNIFICANT HOLDINGS Core Principles Established The Tribunal reaffirmed the principle that cash sales recorded in books cannot be treated as unexplained income under Section 69A unless disproven by the Revenue. It emphasized that suspicion cannot replace evidence and that once transactions are recorded in books, they cannot be arbitrarily disregarded. Final Determinations on Each Issue The Tribunal concluded that the CIT(A) was justified in deleting the addition of Rs. 5,61,85,000/- as the assessee had recorded these sales in its books and provided extensive documentation to support them. The AO failed to disprove the assessee's submissions or conduct any inquiry to verify the genuineness of the transactions. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order.
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