Cash book cannot be rejected when availability of stock is not disputed

Cash book cannot be rejected when availability of stock in trade is not disputed as per stock register which is accepted. Sales out of available stock cannot be disregarded as ingenuine.

In a recent judgment, ITAT Amritsar has held that cash book cannot be rejected when availability of stock in trade is not disputed as per stock register. Accounts regularly maintained in regular course of business have to be taken as correct unless there are sufficient reasons to indicate that they are unreliable, incorrect or incomplete.

ABCAUS Case Law Citation:
4989 (2026) (01) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order of the AO in making addition u/s 69A of the Act and taxing the same u/s 115BBE, on account of cash deposited in bank account considering it as unexplained money.

The case of the assessee was selected for scrutiny under CASS for verification of “large amount of cash deposits in bank account” during the demonetisation period.

After examination of books of accounts, documentary evidences, submissions and explanations , during scrutiny, part amount was accepted to have been properly explained to have arisen out of genuine explained sources and the balance deposited in bank was treated as unexplained income and the assessment was completed making addition u/s 69A being the alleged unexplained cash deposit in bank after invoking the provisions of section 145(3) of the Act in part, and worked out profits on altered trading A/c figures by reducing disclosed sales.

The CIT(A) after considering all materials and evidences on record has dismissed the appeal of the assessee “on pre ponderance of probabilities”.

Before the Tribunal, the assessee contended that as per provisions of law if books of account are found to be incorrect it is to be rejected in full, because there has no such legal concept as part rejection of books, and for recast of the trading a/c for determining profits.

The assessee further submitted that  there was no evidence on record indicating incorrect entries in books of accounts, and the AO had not made out a case for rejection of book results and various questionnaire had been raised in course of assessment proceedings and the assessee had furnished full response to all such queries and the main issue raised by the AO regarding the source of deposit of cash in the bank account had been explained to have arisen out of regular sales of trading of gold jewellery and ornaments. 

It was also submitted that sales were duly accounted for in the books of account and were duly disclosed in the VAT returns and the income tax returns and the entire sales proceeds had been made out of the available stock in trade as apparent from the day to day stock register maintained which also takes into consideration the purchases made by the assessee during the year under consideration and in order to substantiate the same , day to day stock register containing quantitative details of stock traded, had been filed along with sales and purchase register which had been duly examined by the AO.

It was also submitted that increase in sales for a particular period in comparison to immediately earlier period does not lead to an automatic conclusion that the sales executed were not genuine.

The Tribunal opined that accounts regularly maintained in regular course of business have to be taken as correct unless there are sufficient reasons to indicate that they are unreliable, incorrect or incomplete. There was no evidence that purchases or sales were omitted or in other words there was no challenge to the transactions represented by the entries or genuineness of the entries and nothing had been brought on record to disprove the same with evidence on record.

The Tribunal noted that AO in the instant case had not challenged the method of accounting as such , and it was not a case where income cannot be deduced from the complicated accounting system and there was neither any challenge to the net profits disclosed nor a case for rejection of books had been made out and the conditions laid out in section 145(3) had not been satisfied in this case and therefore, book results cannot be arbitrarily rejected on the basis of preponderance of probabilities.

The Tribunal opined that the cash book cannot be rejected and when the availability of stock in trade is not disputed as per stock register which was accepted, the sales of goods out of available stock cannot be disregarded as ingenuine.

Accordingly, the appeal of the assessee was allowed.

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