Case Law Details
Sarwo Natraj Agro India Private Limited Vs ACIT (ITAT Hyderabad)
The case before the Income Tax Appellate Tribunal (ITAT), Hyderabad, involved an appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017–18. The assessee, engaged in manufacturing and trading edible oil, had filed its return declaring total income of ₹38,85,020. During investigation, a third-party statement indicated that a concern, M/s Rameshwaram Impex, was allegedly engaged in providing accommodation entries without genuine business activity. Based on this information, the Assessing Officer (AO) examined transactions between the assessee and the said concern, where the assessee had recorded sales and received ₹84,83,800 through banking channels.
The AO treated the amount as unexplained cash credit under Section 68, citing deficiencies such as lack of stamped invoices, absence of purchase orders and delivery challans, and reliance on the third-party statement. Additionally, the AO disallowed 10% of certain expenses amounting to ₹11,60,640 due to lack of supporting vouchers. These additions were upheld by the Commissioner (Appeals).
Before the Tribunal, the assessee submitted that the transactions were duly recorded as sales in its books and supported by invoices, waybills, ledger accounts, Form C, and stock records. It was also emphasized that payments were received through proper banking channels and that the AO had neither rejected the books of account nor identified any specific defects in the documents. The assessee further argued that the addition was based solely on a third-party statement without corroborative evidence, and no adverse material was produced from the proprietor of the concerned entity.
The Tribunal observed that the sales were recorded in the books and supported by documentary evidence, and the books of account had not been rejected. It also noted that there was no evidence of cash being routed back to the assessee and that the addition was primarily based on an uncorroborated third-party statement. Accordingly, it held that once sales are duly recorded and supported, the amounts received cannot be treated as unexplained cash credits under Section 68. The addition of ₹84,83,800 was therefore deleted.
However, regarding the disallowance of expenses, the Tribunal found that the assessee failed to produce supporting bills and vouchers. In the absence of proper evidence, the disallowance of ₹11,60,640 was upheld. The appeal was thus partly allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Sri Sarwo Natraj Agro India Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 02/09/2025 for the A.Y.2017-18.
2. The assessee has raised the following grounds of appeal:
3. The brief facts of the case are that the assessee is a company, engaged in the business of manufacturing and trading in edible oil and filed its return of income for the A.Y. 2017-18 on 31.10.2017 declaring total income of Rs.38,85,020/-. During the course of investigation carried out by the Investigation Wing, a statement of Mr. Dipashu Gupta was recorded on 21.12.2016, wherein it was stated that M/s Rameshwaram Impex was a proprietary concern of his friend Mr. Alpesh Shaw, having a bank account at SBI, Burrabazar, Kolkata, and that the said concern was not carrying out genuine business activities but was engaged in providing accommodation entries. It was also stated that no books of account were maintained for the said concern. Based on this information, the Ld. AO observed that the assessee had received funds amounting to Rs.84,83,800/- during the year under consideration. Accordingly, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued by the Ld. AO on 27.09.2018. During the assessment proceedings, the Ld. AO observed that the assessee had shown sales to M/s Rameshwaram Impex and received a sum of Rs.84,83,800/- from them. The assessee was required to produce supporting documents such as invoices, purchase orders and delivery challans. The Ld. AO noted that the invoices produced by the assessee were computer-generated printouts without stamp and that the assessee failed to produce purchase orders and delivery challans. On this basis, the Ld. AO treated the amount of Rs.84,83,800/- as unexplained cash credit under section 68 of the Act. Further, the Ld. AO examined various expenses such as petrol expenses, rate difference, salary and sealling expenses, which were higher as compared to the preceding year. The assessee was asked to furnish supporting bills and vouchers; however, only ledger extracts were produced by the assessee. In the absence of supporting evidences, the Ld. AO made a disallowance of 10% of such expenditure amounting to Rs.11,60,640/-. Accordingly, the assessment was completed by the Ld. AO under section 143(3) of the Act on 26.12.2019 making additions of Rs.84,83,800/- under section 68 of the Act and Rs.11,60,640/- on account of disallowance of expenses.
4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT (A). The Ld. CIT (A) after calling for a remand report and considering the submissions of the assessee, dismissed the appeal of the assessee and upheld the additions made by the Ld. AO.
5. Aggrieved with the order of the Ld. CIT (A), the assessee is in appeal before this Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the issues involved in the present appeal are confined to the addition of Rs.84,83,800/-under section 68 of the Act and the disallowance of Rs.11,60,640/- being 10% of certain expenses. With regard to the addition under section 68 of the Act, it was submitted that the assessee had produced before the lower authorities stamped copies of sales invoices along with waybills in respect of the transactions with M/s Rameshwaram Impex. It was further submitted that the assessee had also filed the ledger account of M/s Rameshwaram Impex in its books, and all the amounts were received through proper banking channels. The assessee had also furnished Form C issued by the Central Sales Tax Department and details of purchases and stock summary for the year under consideration. The Ld. AR further submitted that the Ld. AO had not pointed out any defect in the books of account, nor rejected the purchases or stock records maintained by the assessee. It was contended that once the books of account are accepted and sales are recorded therein, the addition under section 68 of the Act cannot be made merely on suspicion. It was also argued that the Ld. AO has failed to establish any trail of cash being returned by the assessee to M/s Rameshwaram Impex in lieu of the cheque payments received. It was further submitted that the addition has been made solely on the basis of the statement of Mr. Dipashu Gupta, who is a third party not only to the assessee but also not directly connected with M/s Rameshwaram Impex. It was also contended that no adverse statement has been brought on record from Mr. Alpesh Shaw, the proprietor of M/s Rameshwaram Impex, to substantiate the allegation of accommodation entries. In this regard, the Ld. AR relied on the order of the Amritsar Bench of the Tribunal in the case of Ganesh Rice Mills Vs. DCIT in ITA No.287/ASR/2018, dated 15.02.2023. Accordingly, it was prayed that the addition under section 68 of the Act be deleted.
6. With regard to the disallowance of expenses, the Ld. AR submitted that the disallowance was made on an ad hoc basis without pointing out any specific defect and prayed for relief on this count.
7. Per contra, the Learned Departmental Representative (“Ld. DR”), relied upon the orders of the lower authorities.
8. We have heard the rival submissions and perused the material available on record including the case law relied upon.
With regard to the addition of Rs.84,83,800/- made under section 68 of the Act, we find that the assessee has recorded the impugned transactions as sales in its regular books of account. The assessee has produced invoices, waybills, ledger account of the party, Form C and stock records in support of such transactions. It is also not in dispute that the payments have been received through banking channels. The Ld. AO has neither pointed out any specific defect in the documents furnished nor rejected the books of account of the assessee. Further, the purchases and stock records have been accepted and no discrepancy has been brought on record. We further observe that the Ld. AO has not established any evidence of cash being routed back by the assessee to the said party in lieu of the amounts received through banking channels. The addition has primarily been made on the basis of a statement of a third party, namely Mr. Dipashu Gupta, without bringing any independent corroborative evidence on record. Moreover, no adverse material or statement from Mr. Alpesh Shaw, the proprietor of M/s Rameshwaram Impex, has been brought on record to substantiate the allegation that the transactions are non-genuine. Therefore, in our considered view, once the sales are duly recorded in the books of account, supported by documentary evidences, and the books of account have not been rejected, the amount received against such sales cannot be treated as unexplained cash credit under section 68 of the Act. The profit element embedded in such sales has already been offered to tax. Therefore, the addition made under section 68 of the Act is not sustainable in law. Accordingly, we direct the Ld. AO to delete the addition of Rs.84,83,800/-.
9. With regard to the disallowance of Rs.11,60,640/-being 10% of certain expenses, we find that the assessee has failed to produce supporting bills and vouchers in respect of such expenditure, either before the Ld. AO or before us. In the absence of proper supporting evidence, the genuineness of such expenditure cannot be fully verified. Therefore, the disallowance made by the Ld. AO and confirmed by the Ld. CIT (A) is justified and does not call for any interference. Accordingly, the disallowance of Rs.11, 60,640/- made by the Ld. AO is upheld.
10. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 27th March, 2026.
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