No addition u/s 68 could be sustained if sales were made out of stock-in-trade

ACIT Vs Chandra Surana (ITAT Jaipur)

Conclusion:  If the cash sales and receipts were duly supported by relevant bills which were produced in the course of assessment proceedings, addition U/s 68 was unwarranted. Where cash sales transaction was recorded in regular books of accounts, sales were made out of stock-in-trade then no addition U/s 68 could be sustained.

Held: AO made an addition of Rs.2,90,93,500/- in declared income by holding that said amount of cash deposited by the assessee in his bank account during the demonetization period was nothing but the undisclosed income of assessee which was shown under the garb of cash sales and thus it was liable to be added u/s 68 and taxable @ 60% under the provision of Section 115BE. Assessee contended that cash sales transaction was recorded in regular books of accounts, sales were made out of stock-in-trade. It was held that the books of account of the assessee had been audited by an independent auditor. The cash sales and receipts were duly supported by relevant bills which were produced in the course of assessment proceedings before the AO and it was not the case of the AO that the assessee did not have sufficient stock for making the sales. Hence, it could not be said that the figures of sales and purchases were not supported by the quantitative details and the AO did not make any enquiry on the material supplied by the assessee. Thus the AO neither brought any material on record to establish that the sale bills were bogus nor provided any evidence that such sales were bogus. Assessee had duly substantiated its claim from the documentary evidences and also with the facts. AO had not rejected the books of account of the assesee as no contrary material was available with him to reject the books of account of the assessee. As regards the addition of Rs.2,90,93,500/- made by the AO by applying the provisions of Section 68 of the Act, it was noted that provisions of Section 68 were not applicable on the sale transactions recorded in the books of accounts as sales were already part of the income which was already credited in P&L account. Hence, there was no occasion to consider the same as income of the assessee by invoking the provisions of Section 68 of the Act. AO was not justified in making an addition of Rs.2,90,93,500/- u/s 68 which had rightly been deleted by CIT(A). Thus the appeal of the Revenue was dismissed.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The Revenue has filed an appeal against the order of the ld. CIT(A)-4, Jaipur dated 25-02-2022 for the assessment year 2017-18 raising therein following grounds of appeal.

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