Section 68 Cannot Tax Recorded Sales Again | ITAT Mumbai Rules Against Double Taxation of Turnover
In a significant ruling with wide practical implications, the ITAT Mumbai has clarified that sales already recorded as turnover cannot be taxed again under Section 68 as unexplained cash credit, especially when books of account are not rejected under Section 145(3) and profit has already been offered to tax. This decision draws a clear line against attempts to tax gross receipts instead of real income.
In ITO vs Ashok Amritlal Nayak, the Tribunal dealt with a reassessment case initiated based on information from the Investigation Wing alleging accommodation entries through fictitious sales amounting to ₹55,11,843. Acting on this, the Assessing Officer invoked Section 68 and treated the entire sales receipts as unexplained cash credit.
However, the facts on record told a different story. The alleged sales were duly recorded in the books of account and formed part of the declared turnover. The books were never rejected under Section 145(3) at any stage of the reassessment proceedings. Moreover, the assessee had already offered profit on these sales to tax in the normal course of business.
The Tribunal, in its detailed analysis, held that once sales are recorded as business receipts and included in turnover, Section 68 cannot be applied to the same amount. Doing so would effectively result in taxing the gross turnover instead of the income element embedded in it, which is contrary to settled principles of taxation.
The ITAT made an important distinction that every taxpayer and professional must understand. In cases of alleged bogus purchases, it is a settled position that only the profit element is taxed, not the entire purchase value. However, where sales themselves are doubted, the correct approach is not to invoke Section 68 but to examine the books of account, possibly reject them under Section 145(3), and recompute income based on reasonable estimation.
In the present case, since the Assessing Officer neither rejected the books nor pointed out any defects, and the gross profit declared was not found to be abnormal, there was no legal basis for making further additions. The Tribunal also rejected the approach of the CIT(A), who had sustained an additional profit percentage over and above what was already declared by the assessee.
Accordingly, the entire addition was deleted, and the Tribunal ruled in favour of the assessee.
This ruling is a strong reminder that taxation must be based on real income and not on suspicion or duplication of receipts. Section 68 cannot be stretched to cover situations where the receipts are already accounted for and taxed as part of business income.
From a practical standpoint, this decision provides a strong defense in cases where the department attempts to tax recorded sales again under Section 68. If the turnover is duly recorded, books are not rejected, and profit is already offered, any further addition may not stand judicial scrutiny.
Key Takeaways for Taxpayers and Professionals
Section 68 cannot be invoked on recorded sales forming part of turnover.
Taxing entire sales receipts amounts to taxing gross turnover, which is impermissible.
If books are not rejected under Section 145(3), further additions lack legal basis.
In bogus purchase cases, only profit element is taxed—not entire receipts.
Proper course in doubtful sales cases is recomputation, not double taxation.
Conclusion
The ITAT Mumbai has reinforced a fundamental principle—income tax is levied on income, not on turnover. Any attempt to tax the same receipts twice, without rejecting books or proving defects, is legally unsustainable.
Bottom Line: Once sales are recorded and profit is taxed, Section 68 cannot be used to tax the same amount again.
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