Samat Khimabhai Sisodiya Vs ITO (ITAT Rajkot)
Machinery Sale Receipts Cannot Be Treated as Unexplained Merely for Missing VAT Particulars: ITAT
The controversy
The Rajkot Tribunal deleted an addition of ₹24,01,400 under Section 68, representing cash receipts claimed to have arisen from the sale of old plant and machinery. The Assessing Officer had treated the sale as a mere book entry created to explain cash deposited in the bank.
The Tribunal held that contemporaneous books, machinery ledgers, balance sheets and income-tax records could not be rejected merely because the VAT return did not contain the machinery particulars. The Assessing Officer had neither identified specific defects in those documents nor brought independent evidence contradicting them.
Cash received from sale of old machinery
The assessee, proprietor of A One Transport, was engaged in trading in hydrated lime and also earned transportation income. He filed his return declaring total income of ₹2,82,600.
During scrutiny, the Assessing Officer examined cash credits of ₹24,01,400, which the assessee explained as proceeds from the sale of old plant and machinery. According to the assessee, the machinery formed part of the assets recorded in his books, and the cash received on its sale was subsequently deposited in the bank.
The assessee furnished the machinery ledger and ledger accounts of the persons to whom the machinery had been sold. A copy of the VAT return was also submitted during the assessment proceedings.
The Assessing Officer rejected the explanation. He concluded that no actual sale of plant and machinery had taken place and that the entries were introduced only to build up the cash balance and explain the bank deposits. The amount was consequently added as unexplained cash credit under Section 68.
The CIT(A) confirmed the addition, leading to the appeal before the Tribunal.
Documentary evidence supported the explanation
Before the Tribunal, the assessee emphasised that the machinery was already reflected in the books and balance sheets.
The supporting records included the audited balance sheet as on 31 March 2016, the balance sheet as on 31 March 2017, and plant and machinery ledger accounts covering the financial years 2015-16, 2016-17 and 2017-18.
The machinery ledger disclosed an opening balance of ₹80,18,110. The assessee also relied on his income-tax return and other documents to support the existence and accounting of the machinery.
His contention was that the lower authorities had disregarded these records principally because the VAT return did not contain the relevant machinery details. The Revenue supported the findings of the Assessing Officer.
A collateral record cannot override the books without examination
The Tribunal held that once an assessee produces contemporaneous books of account, ledgers, balance sheets, income-tax returns and supporting material, the Assessing Officer must examine that evidence objectively.
The absence of particulars in one collateral record, such as the VAT return, was insufficient by itself to reject the explanation.
The Tribunal observed that non-disclosure of machinery particulars in the VAT return did not establish that the machinery never existed. To reject the documentary evidence, the Assessing Officer needed positive material demonstrating the relevant deficiency—for example, that the machinery did not exist or that the recorded investment was not genuine.
In this case, the Assessing Officer had not pointed out any specific defect or discrepancy in the books, machinery ledger, balance sheet or income-tax return. Nor had he produced independent material establishing that the assessee did not own or possess the machinery.
Opening balance belonged to earlier years
The Tribunal also referred to the opening machinery balance of ₹80,18,110.
It reasoned that where machinery was already recorded as an opening balance, its source had been accounted for or accepted in earlier years. Such an opening balance could not simply be treated as an unexplained investment of the current year without establishing that the investment was actually made during that year.
This observation supported the assessee’s explanation regarding the pre-existing machinery. The disputed addition itself, however, concerned the ₹24,01,400 credited as machinery-sale receipts, rather than the entire opening machinery balance.
Addition deleted
Considering the documentary evidence and the absence of specific defects or contrary material, the Tribunal held that the Assessing Officer was not justified in making the addition merely on the basis of the VAT return.
The addition of ₹24,01,400 was deleted, and the assessee’s appeal was allowed. The Tribunal also condoned a seven-day delay in filing the appeal after considering the circumstances stated in the assessee’s affidavit.
Author’s comments
A missing entry in one return cannot automatically erase an asset appearing in contemporaneous accounts. The decision stresses the need to examine the complete evidence before treating a recorded transaction as fictitious.
At the same time, proof of ownership of machinery and proof of its subsequent sale are distinct factual matters. The ruling should therefore be understood in the context of the records produced and the Assessing Officer’s failure to identify defects or bring contrary evidence. It does not establish that every machinery-sale explanation must be accepted merely because an opening asset balance exists.
Further, deletion of the Section 68 addition does not mean that the sale proceeds are exempt from normal tax computation. The assessee had separately raised a ground concerning recomputation of depreciation on the block of assets, but the order contains no separate discussion or express computational direction on that ground.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 01.06.2026, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Act, dated 28.12.2019.
2. When the matter was called for hearing, the Ld. Counsel for the assessee, at the outset submitted that the appeal has been filed by the assessee belatedly. The Ld. Counsel, adverted my attention to the affidavit filed in this regard citing reasons for condonation of delay and urged for a benign view and sought condonation of delay of 7 days in filing the appeal before the Tribunal. However, learned DR for the revenue, opposed the prayer of the assessee for condonation of delay. I have heard both the parties on this preliminary issue. A perusal of the affidavit gives me an impression of existence of mitigating circumstances to enable me to exercise my discretion in favour of the assessee. Accordingly, the delay is condoned.
3. Grounds of appeal raised by the assessee are as follows:
1. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 24,01,400/- made by the Assessing Officer on account of alleged income arising from sale of machinery. The action of the Learned Commissioner (Appeals) in confirming the said addition is unjustified, erroneous and contrary to the facts and circumstances of the case.
2. The Learned Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to rework and recompute the depreciation on the block of assets in accordance with his own findings and directions, thereby resulting in incorrect computation of income.
4. Brief facts qua the issue are that assessee had filed return of income on 14.03.2018, declaring therein total income of Rs.2,82,600/-. The assessee’s case was selected for complete scrutiny under the CASS. A notice u/s.143(2) of the Act was issued on 21.09.2018 and the same is served upon the assessee. The assessee is an individual and engaged in trading of hydrated lime and also having transportation income. Subsequently, notice u/s 142(1) of the Act was issued on 16.08.2019 by the than AO. Subsequently, the case has been assigned to the assessing officer, vide Joint C.I.T., J.R., Junagadh’s Order u/s. 120(2) of the Act dated 28.08.2019. Thereafter, notice u/s.142(1) r.w.s. 129 of the I.T. Act was issued on 07.09.2019 and 17.10.2019.
5. In response to this, the assessee has filed written submission on 11.12.2019.
6. After verification of the written submission, again show cause notice u/s 142(1) of the Act was issued on 24.12.2019, in which the assessee was required to furnish various explanation/details on or before 26.12.2019.
7. In response to this, the assessee has filed written submission on 26.12.2019, the relevant Para is reproduced as under:
“Sir, I had already submitted ledger account of machinery sold and also ledger account of persons to whom machinery sold to prove genuineness of the machinery sold. Thus, I oppose the addition of Rs.24,01,400/- to my total income as non-genuine transactions. In written submission, the assessee has furnished copy of VAT return.
8. However, assessing officer rejected the contention of the assessee and observed that the assessee has not sold Plant & Machinery but only shown in books of account to built-up cash on hand to establish genuineness of cash deposited during the year under consideration. Therefore, amount credited in cash book of Rs.24,01,400/- was treated as unexplained cash credit u/s.68 of the I.T. Act.
9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer, therefore, the assessee is in appeal before this Tribunal.
10. I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the Ld. CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted that assessee sold the very old plant and machinery, in cash, and money received by the assessee, was deposited in the bank account. The Ld. Counsel also stated that the machinery, so sold by the assessee, is recorded in the books of accounts. The assessee is engaged in small business and therefore in assessee’s case during the assessment proceedings, the assessee submitted the following documents and evidences before the Assessing Officer, to prove his claim:
(i) Copy of Audited Balance Sheet of A One Transport as on 31.03.2016. vide PB No.15
(ii) Copy of Balance Sheet of A One Transport as on 31.03.2017, vide PB No.16
(iii) Copy of Ledger account of plant and machinery for the period starting from 01.04.2015 to 31.03.2016, vide PB No.17
(iv) Copy of Ledger account of plant and machinery for the period starting from 01.04.2016 to 31.03.2017, vide PB No.18
(v) Copy of Ledger account of plant and machinery for the period starting from 01.04.2017 to 31.03.2018, vide PB No.19
11. Therefore, Ld. Counsel contended that assessee submitted the Balance-Sheet, wherein the plant and machinery is recorded. Vide paper book Page No.18, there is ledger account of plant and machinery, wherein the opening balance to the tune of Rs.80,18,110/- is mentioned and assessee also submitted the copy of income tax return, to explain the genuineness of the transaction, which is mentioned in the paper book page No.9. The assessee submitted the plethora of documents before lower authorities, however, the Assessing Officer rejected all the documents and addition was made in the hands of the assessee, which is not justified. The Assessing Officer has mainly made the addition only on the plea that the VAT return furnished by the assessee does not contain the detail of plant and machinery, however, for plant and machinery, there is no link with the VAT return. The Ld. Counsel also submitted that during the assessment proceedings and during the appellate proceedings, the assessee submitted same documents and evidences, therefore, addition made by the Assessing Officer may be deleted.
12. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.
13. I have considered submissions of both the parties. I note that once the assessee produces contemporaneous books, ledger, balance-sheet, income-tax return and other supporting material, the Assessing Officer is required to examine that evidence objectively and cannot reject it merely because one collateral record, such as the VAT return, does not contain the particulars of plant and machinery. I also note that if the plant and machinery is recorded in the books with an opening balance of Rs.80,18,110/-, therefore, its source had already been accounted for or accepted in the earlier years. If so, the Assessing Officer cannot simply treat the opening balance as an unexplained investment of the current assessment year without establishing that the investment was actually made during the year under consideration. This principle also accords with the settled proposition that income or investment pertaining to another assessment year cannot ordinarily be brought to tax in the present year merely because it continues to appear as an opening balance.
14. Absence of the machinery in a VAT return cannot, disprove the existence of the machinery or establish that the investment is unexplained. The Assessing Officer would have to bring some positive material to demonstrate either that the machinery did not exist, that the expenditure was not incurred, that the recorded amount was understated, or that the source of the investment was unexplained. The assessee produced the balance-sheet, plant and machinery ledger, opening balance of Rs.80,18,110/-, income-tax return and such other contemporaneous documents, and that the Assessing Officer did not point out any specific defect in those documents or bring any contrary evidence on record. The assessee has placed on record the balance-sheet wherein the plant and machinery is duly reflected. Further, at page No.18 of the paper book, the assessee has furnished the ledger account of plant and machinery, wherein an opening balance of Rs.80,18,110/- is recorded. The assessee has also furnished its income-tax return at page No.9 of the paper book and other documentary evidence in support of the existence and accounting of the plant and machinery. However, the Assessing Officer has not pointed out any specific defect or discrepancy in the books of account, plant and machinery ledger, balance-sheet or income-tax return, nor has he brought any independent material on record to establish that the plant and machinery was not owned or possessed by the assessee or that the amount recorded in the books did not represent the actual investment. Accordingly, considering the totality of the facts and material available on record, and particularly the contemporaneous books of account, plant and machinery ledger, balance-sheet and income-tax return furnished by the assessee, I am of the considered view that the Assessing Officer was not justified in making the impugned addition merely on the basis of the VAT return. Considering this factual position, I delete the addition.
15. In the result, appeal filed by the assessee is allowed.
Order is pronounced in the open Court Today on 12/10/2026.
