Where sales are duly recorded in books and VAT returns, to treat it bogus sales, AO must bringing cogent adverse material on record – ITAT
In a recent judgment, ITAT has held that in case of alleged bogus sales, once the assessee claims that sales were duly recorded in books of account and also reflected in the VAT returns, it is incumbent upon the Assessing Officer to examine the genuineness of such sales by making appropriate enquiries and bringing cogent adverse material on record.
ABCAUS Case Law Citation:
5257 (2026) (10) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition of the amount found deposited in cash during the demonetization period from 09.11.2016 to 30.12.2016 u/s 68 of the Income Tax Act, 1961 (the Act).
The assessee was engaged in the business of trading in Bardana. His case was selected for scrutiny under CASS for complete scrutiny. Thereafter, the Assessing Officer (AO) issued various notices to the assessee; however, there was no compliance on the part of the assessee.
Consequently, the AO proceeded to complete the assessment on the basis of the material available on record and made an addition u/s 68 on account of cash deposited in the assessee’s savings bank account during the relevant period. However, he allowed the benefit of peak credit and also considered the cash deposit made by the assessee in her savings bank account.
Before the Tribunal, the assessee submitted that the cash sales during the period under consideration, i.e., from 09.11.2016 to 30.12.2016, were duly recorded in the books of account. He further drew my attention to the fact that the total cash deposits during the relevant period was much less than the cash deposits in the two preceding years.
It was further submitted that the assessee had duly maintained and furnished the cash book demonstrating the cash transactions. It was also pointed out that the books of account and financial statements of the assessee were duly audited and the sales were duly accounted for therein.
It was contended that the finding of the CIT(A) doubting the genuineness of the sales was erroneous and contrary to the material available on record.
Further, it was submitted that the bank statement does not constitute the accounts of the assessee, hence invocation of the provisions of section 68 of the Act was erroneous.
The Tribunal observed that the assessee had, inter alia, furnished a copy of the financial statements and copies of the monthly VAT returns.
The Tribunal further observed that as appeared from the assessment order, the Assessing Officer had not properly considered the material furnished by the assessee and had proceeded on the presumption that the cash sales claimed by the assessee were a means of introducing unaccounted money into the business under the guise of business receipts.
The Tribunal opined that once the assessee had claimed that the sales were duly recorded in the books of account and were also reflected in the VAT returns, it was incumbent upon the Assessing Officer to examine the genuineness of such sales by making appropriate enquiries and bringing cogent adverse material on record.
The Tribunal added that the genuineness of the sales could have been examined with reference to the stock position, corresponding purchases, VAT returns and other relevant records. If, upon verification of the stock position and other relevant records, no adverse material is found, it cannot be conclusively inferred that the cash deposits are out of bogus sales recorded by the assessee for introducing unaccounted money in his books.
The Tribunal found that the authorities below had not brought on record any material to demonstrate that the VAT returns furnished by the assessee were false or that any adverse finding had been recorded by the VAT authorities with regard to the sales declared by the assessee. No independent enquiry appears to have been conducted from the concerned VAT authorities or any other relevant party to disprove the sales claimed by the assessee.
The Tribunal opined that where the assessee has furnished the cash book, audited financial statements, VAT returns and other relevant documentary evidence in support of the sales and cash deposits, an adverse inference cannot be drawn merely on the basis of suspicion or presumption. In the absence of any further enquiry or cogent adverse material brought on record by the Assessing Officer, the conclusion that the sales were bogus would base on mere conjectures and surmises.
Accordingly, the Tribunal directed the AO to delete the impugned additions.
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