Advances received in normal course of business and adjusted against sale bills cannot be added u/s 68 of the Income Tax Act
In a recent judgment, ITAT Kolkata has upheld that advances received in the normal course of business cannot be added u/s 68 of the Act when the advances are adjusted against the sale bills.
ABCAUS Case Law Citation:
4891 (2025) (11) abcaus.in ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) of National Faceless Appeal Centre in deleting addition under section 68 of the Income Tax Act, 1961 (the Act) in respect of unsecured loans taken by the assessee.
During the course of the assessment proceedings, the assessee was called upon to furnish he details/ evidences qua the said loan creditor. However, the assessee failed to furnish any reply except the copy of account and therefore, the Assessing Officer (AO) concluded that the assessee failed to discharge the onus cast upon the assessee under section 68 of the Act,
Accordingly, the AO disallowed and added the amount of unsecured loan as unexplained cash credit u/s 68 of the Act in the books of the assessee with respect to advance received towards rehabilitation charges.
The CIT(A) observed that the amount received as unsecured loan was a trade advance for carrying out conversion works in the ordinary course of business. The CIT (A) noted that advance was received against the sales bills raised by the assessee and thus, the said amount was received in the ordinary course of business and the transactions were explained satisfactorily. Accordingly, the CIT (A) deleted the addition.
The Tribunal observed that as observed by the AO, the assessee had not raised any loan from the said creditor and the CIT (A) had correctly observed that amount received was on account of trading advance received in the ordinary course of business which was adjusted against the sale bills.
The Tribunal noted that the assessee had regularly been receiving advances from said customer which were being regularly adjusted against the sale bills as was apparent from the ledger accounts.
The Tribunal further observed that the case of the assessee was squarely covered by the decision of Hon’ble Apex Court in which the Special Leave Petition (SLP) of the Department was dismissed against the judgment of the High Court which upheld the order of the ITAT that section 68 could not be invoked where trade advances received by assessee were adjusted against sales made in subsequent years.
The Tribunal further noted that the case of the assessee found support from the decision of co-ordinate Bench which held that where the advances received were adjusted against the sales made by the assessee to the concerned Dealers and the sales so made having been duly accounted for by the assessee, the corresponding advances could not be added to the total income of the assessee under section 68 treating the same as unexplained.
Accordingly, the Tribunal upheld the order of the CIT(A) holding that advances received in the normal course of business cannot be added u/s 68 of the Act when the advances are adjusted against the sale bills.
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