Case Law Details
DCIT Vs Sri Arumuga Sugars Ltd (ITAT Chennai)
In the case of DCIT vs. Sri Arumuga Sugars Ltd (ITAT Chennai), the dispute primarily revolves around the treatment of cash deposits and balances reflected in the books of accounts of the assessee, a company engaged in the manufacturing of sugar. The contention arises from the advances made by the assessee to sugarcane farmers to ensure a steady supply of raw material. These advances were funded through bank loans and were recorded as receivables in the company’s financial statements over several years, which were not disputed.
During the assessment year 2016-17, the total cash receipts of the assessee amounted to Rs. 2502.32 Lacs, sourced from cash withdrawals, sugar sales, and recoveries from the farmers’ advances. However, the Assessing Officer (AO) treated the entire cash receipts as unexplained cash credit under section 68 of the Income Tax Act. The AO’s action was deemed erroneous because the advances made to farmers were well-documented and were recovered by the company over time, as evidenced by the cash book.
Moreover, the company had previously provided a list of farmers to the investigation wing, and while some farmers didn’t respond to summons, the company had furnished confirmation letters from others. Despite this, the AO failed to conduct independent inquiries to support the addition made under section 68 for the assessment year 2016-17.
Additionally, the Tribunal found no grounds for the additions made under section 69A for the assessment years 2016-17 and 2017-18. The cash deposits made by the company were duly supported by the cash balances reflected in its books of accounts, and there was no evidence to suggest that these deposits were unexplained or undisclosed income.
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