AO is not justified in making addition U/s 68 in respect of cash receipts converted into sales: ITAT Chennai
M/s.Sahana Jewellery- Exports Pvt. Ltd. Vs ITO (ITA No.999/Chny/2022)
1.The taxpayer operates in the gold and jewellery trading sector, having filed income returns declaring the total income.
2.Assessee had deposited cash of Rs 48,80,73,000 in the accounts with SBI Bank. The assessee further claimed that assessee had a cash in hand in the books of Rs 48,82,75,750.
3.The assessee claimed that cash in hand is out of cash advances from customers made before demonetisation, which got converted into sales later on.
4.The AO believed that the taxpayer couldn’t fulfil the initial requirement to validate three crucial aspects—establishing the identity of investors, their financial credibility, and the legitimacy of the transactions. As the taxpayer couldn’t satisfactorily prove the credits in their bank account to the AO, the entire sum of cash receipts was considered unexplained and consequently subjected to taxation.
ITAT Chennai held as below:
1.There might be diverse reasons behind fluctuations in sales, tied to factors like seasonal, clearance, or year-end sales. Hence, the explanation provided by the taxpayer, stating that cash received from customers for jewellery sales is later converted into sales, seems genuine and plausible.
2.AO made an error in including cash receipts—originating from jewellery sales later converted into sales—in the assessment year’s unexplained cash credit.
3.The addition under section 68 of the Income Tax Act for the receipts of cash ought to be deleted.