2025 (4) TMI 1297 - AT - Income Tax

Addition u/s. 68 - unexplained credit in the books of accounts - assessee had submitted details of stock and contended that it has already offered such amount as sales and regularly complied with requirement of laws like Gujarat VAT Act - AO had not accepted the explanation of assessee and relied upon investigation report wherein it was found that cash were collected from various persons by Shri Sanjay Soni and others and were deposited in various dummy accounts with Axis Bank and part of such amount was ultimately transferred to assessee - HELD THAT - CIT(A) held that the assessee was a trader of bullion and in the year under consideration he had made sales to Green Traders Shri Jitendra Patel and DPS Commodities against which amount was received through banking channel. CIT(A) held that the though the assessee had submitted copy of relevant bills issued to SVP Corporation stock register and VAT report no contrary evidence was brought by the AO. CIT(A) held that the assessee had sufficient stock before making any sales. CIT(A) in unequivocal terms held that when assessee was a trader in bullion having sufficient stock before making any sale the AO not doubting any purchases made by assessee including its quantitative records there was no reason for treating entire cheque amount received from above concerns as unexplained credit u/s 68 of the Act. Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

- Whether the Assessing Officer was justified in making additions under Section 68 of the Income Tax Act on account of unexplained credits arising from transactions with parties allegedly providing accommodation entries, despite the assessee having shown these amounts as sales in the books of account.

- Whether the additions made by the Assessing Officer, which were substantially large, could be restricted by the Commissioner of Income-tax (Appeals) to a nominal percentage of the total addition on the basis of the assessee's explanation and evidences.

- The applicability and interpretation of Section 68 in cases where sales transactions are supported by ledger accounts, stock registers, VAT returns, and other documentary evidence, but the counter-parties are alleged to be involved in accommodation entries.

- The principle against double taxation where the income has already been offered to tax as sales but is sought to be taxed again as unexplained credit under Section 68.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of additions under Section 68 on unexplained credits from alleged accommodation entries

Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The provision allows the Assessing Officer to add unexplained credits to the income if the assessee fails to satisfactorily explain the nature and source of such credits. However, the jurisprudence, including decisions of the Ahmedabad ITAT, clarifies that when the assessee explains that the credits represent genuine sales supported by documentary evidence, and the Assessing Officer does not dispute the existence of stock or the genuineness of sales, additions under Section 68 should not be made.

Court's interpretation and reasoning: The Tribunal noted that the assessee was engaged in bullion trading and had declared sales to parties such as Green Traders, Shri Jitendra Patel, DPS Commodities, and SVP Corporation. The amounts received from these parties were reflected in the books of account as sales, supported by sales invoices, ledger accounts, stock registers, and VAT returns. The Assessing Officer had relied on investigation reports and information from surveys and the Insight Portal indicating that some parties were involved in accommodation entries. However, the Tribunal emphasized that the Assessing Officer did not dispute the quantitative stock records or the genuineness of the sales transactions from the assessee's side.

Key evidence and findings: Evidence included tally data from the assessee's premises, confirmation of sales invoices, ledger accounts, VAT returns, and stock registers. The investigation revealed that some parties had deposited cash in dummy accounts and transferred funds through RTGS, some of which were received by the assessee. However, the assessee had offered these amounts as sales and complied with statutory requirements such as PAN and Aadhaar verification.

Application of law to facts: The Tribunal applied the principle that unexplained credit under Section 68 cannot be invoked when the assessee has satisfactorily explained the nature of the credits as sales supported by proper documentation and when the Assessing Officer has not disproved the existence of stock or the genuineness of transactions. The mere fact that the counter-parties may be involved in accommodation entries does not automatically render the sales amount unexplained credit in the hands of the assessee.

Treatment of competing arguments: The Revenue argued that the parties were involved in providing accommodation entries and that the assessee had received cheques from these parties, justifying the additions. The assessee contended that it was a genuine trader with sufficient stock and that sales were recorded and offered to tax. The Tribunal found the assessee's explanation more credible, especially in light of the documentary evidence and absence of any dispute on stock or sales quantification by the Assessing Officer.

Conclusions: The Tribunal upheld the CIT(A)'s decision to restrict the additions under Section 68, holding that the Assessing Officer was not justified in making the full additions when the assessee had satisfactorily explained the transactions as genuine sales.

Issue 2: Restriction of additions to a nominal percentage of total unexplained credits

Relevant legal framework and precedents: The Tribunal referred to the CIT(A)'s discretion to restrict additions where the explanation of the assessee is partly acceptable and where the evidence supports the genuineness of transactions. Precedents cited include decisions of the Ahmedabad ITAT in cases such as Shri Ankesh Kumar Bachubhai Gandhi and Sanand Textile Industries Limited, which emphasize that additions under Section 68 cannot be sustained merely on suspicion or unsubstantiated allegations.

Court's interpretation and reasoning: The CIT(A) had restricted the addition to 5% of the total unexplained credit amount, recognizing that while some transactions might be questionable, the bulk of the credits were explained as genuine sales. The Tribunal found no error in this approach, considering the substantial documentary evidence and the absence of any contrary evidence from the Assessing Officer.

Key evidence and findings: The CIT(A) relied on ledger confirmations, sales invoices, stock registers, and VAT returns, none of which were successfully challenged by the Assessing Officer. The Tribunal also noted that the Assessing Officer had not doubted the quantitative stock records or the genuineness of the purchases made by the assessee.

Application of law to facts: The Tribunal applied the principle that additions under Section 68 must be based on cogent evidence and not mere suspicion. Where the assessee has provided reasonable explanation and documentary support, the Assessing Officer's additions must be proportionate and not arbitrary.

Treatment of competing arguments: The Revenue's submission that the entire amount should be added because the parties were involved in accommodation entries was rejected for lack of direct evidence against the assessee's transactions. The assessee's argument for restricting the addition was accepted.

Conclusions: The Tribunal upheld the CIT(A)'s order restricting the addition to 5%, thereby rejecting the Revenue's appeal for full addition.

Issue 3: Principle against double taxation where income has already been offered to tax as sales

Relevant legal framework and precedents: The Tribunal relied on the decision in the Vishal Exports case, affirmed by the High Court, which held that addition under Section 68 on sales already offered to tax would amount to double taxation and is not permissible. The principle is that income cannot be taxed twice under different heads for the same transaction.

Court's interpretation and reasoning: The Tribunal observed that the assessee had already offered the sales proceeds to tax and the Assessing Officer had accepted the turnover for various purposes, including deduction computations. Therefore, making additions again under Section 68 on the same amounts would be unjustified and contrary to the principle against double taxation.

Key evidence and findings: The sales were reflected in the Profit & Loss account, and the Assessing Officer had accepted these figures in earlier assessments and for deduction computations. No evidence was found to show that these sales were bogus or fabricated.

Application of law to facts: The Tribunal applied the principle that once income is offered to tax and accepted by the tax authorities, the same cannot be subjected to addition again under unexplained credit provisions without fresh and cogent evidence.

Treatment of competing arguments: The Revenue argued that the parties were involved in accommodation entries, which should render the amounts unexplained. The Tribunal rejected this argument in absence of evidence that the assessee's sales were not genuine or that the amounts had not been offered to tax.

Conclusions: The Tribunal held that addition under Section 68 on sales already offered to tax would amount to double taxation and is not sustainable.

3. SIGNIFICANT HOLDINGS

- "When assessee was a trader in bullion, having sufficient stock before making any sale, the AO not doubting any purchases made by assessee including its quantitative records, there was no reason for treating entire cheque amount received from above concerns as unexplained credit under Section 68 of the Act."

- "The 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."

- "Addition in these assessment years is based on some information gathered in some other party's case and without concrete evidences concerning the assessee. In any case, this amounts to double taxation of the same income, when the assessee has already offered the same income in the Profit & Loss account as sales."

- The Tribunal concluded that the Assessing Officer's additions were not justified in full and upheld the CIT(A)'s order restricting the addition to 5% of the total unexplained credits.

- The appeals filed by the Revenue were dismissed, affirming the principle that unexplained credit additions under Section 68 require cogent evidence and cannot be sustained merely on suspicion or association with parties involved in accommodation entries, especially when the assessee's transactions are documented and income is offered to tax.