ACIT Vs Kamlesh Gupta (ITAT Lucknow)
Lucknow ITAT: Cash Sales During Demonetisation Cannot Be Taxed Again as Unexplained Money Merely Because Sales Spiked
The Lucknow ITAT dealt with an addition of ₹1.075 crore arising from cash deposits during the demonetisation period. The assessee, a wholesale and retail trader in FMCG products, had recorded the amounts as cash sales. The AO considered the sales during the relevant period abnormally high and treated ₹1.075 crore as unexplained. The CIT(A) deleted ₹87.50 lakh but sustained ₹20 lakh on an estimated basis.
The Tribunal observed that the books of account had not been rejected under section 145(3), purchases were not doubted and sufficient stock was available to support the reported sales. The assessee had also discharged VAT on the turnover and the sales stood accepted by the VAT authorities. Once purchases and stock are accepted, corresponding sales cannot be discarded merely on suspicion or by comparison with sales during dissimilar periods.
Importantly, the ITAT held that where cash sales are duly recorded in the books and already offered as revenue receipts, the same sale proceeds cannot again be treated as unexplained income under section 68. Such an addition would effectively amount to double taxation of the same receipt.
The Tribunal further emphasised that an abnormal or sudden increase in sales by itself is not evidence of tax evasion. Suspicion or a spike in turnover cannot justify an addition under sections 68/69A when the sales are recorded in regular books and supported by accepted purchases and stock.
It also deleted the remaining ₹20 lakh sustained by the CIT(A), holding that once the very basis of the AO’s addition had been found unsustainable, an arbitrary ad-hoc addition without identifying any specific defect in the books or unrecorded income could not survive. Consequently, the entire ₹1.075 crore addition stood deleted; the assessee’s appeal was allowed and the Revenue’s appeal dismissed.
Cases Discussed:
- PCIT vs. Akshit Kumar (Delhi High Court), [2021] 124 taxmann.com 123 (Delhi)
- ACIT vs. Hirapanna Jewellers (ITAT Vishakhapatnam), ITA No.253/VIZ/2020, vide order dated 12.05.2021
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
These are cross-appeals by the assessee as well as the Revenue against the order dated 23.09.2020, passed by the Learned Commissioner of Income Tax (Appeals)-1, Lucknow [Ld. CIT(A)] for Assessment Year 2017-18.
