Introduction

The case of Asstt. Commissioner of Income-tax, Central Circle-2, Jaipur v. Shri Chandra Surana adjudicated by the Income Tax Appellate Tribunal (ITAT) in Jaipur on December 15, 2022, presents a pivotal analysis of the application of Section 68 of the Income Tax Act, 1961. This case delves into the contentious issue of whether cash deposits made during the demonetization period should be considered unexplained income, thereby leading to potential double taxation for the assessee.

The primary dispute arose when the Assessing Officer (AO) made an addition of ₹2,90,93,500/- to the declared income of Shri Chandra Surana under Section 68 of the Act, alleging that these deposits were undisclosed income resulting from cash sales, especially during the demonetization period when high-denomination notes were rendered invalid. The AO contended that these cash deposits, purportedly from sales, constituted undisclosed income and were taxable under Section 115BBE at 60%. However, Shri Chandra Surana contested this addition, asserting that his cash sales were accurately reflected in his books of accounts and had already been taxed, making the Section 68 addition a case of double taxation.

The ITAT's decision to dismiss the revenue's appeal and uphold the deletion of the addition has significant implications for taxpayers and tax authorities alike, especially in contexts where demonetization or similar economic events lead to anomalous cash flows.

Summary of the Judgment

In this judgment, the ITAT Jaipur bench considered the appeal filed by the Assistant Commissioner of Income-tax (ACIT) against an order of the Commissioner of Income-tax (Appeals) [CIT(A)] dated February 25, 2022. The ACIT had initially added ₹2,90,93,500/- to Shri Chandra Surana's income under Section 68, alleging that these were unexplained cash credits arising from cash sales during the demonetization period.

Shri Chandra Surana argued that these cash sales were duly recorded in his audited books of accounts and that the AO's addition under Section 68 led to double taxation—once as taxable sales income and again as unexplained cash credits.

The CIT(A) agreed with the assessee, citing established precedents where such double taxation was deemed impermissible. The Tribunal meticulously analyzed the case, noting that:

• The assessee maintained regular books of accounts, including a manual stock register, which was produced during proceedings.
• The cash deposits in question were linked to legitimate cash sales, especially during the high-sales period post-demonetization.
• Precedent cases supported the notion that once sales income is declared and taxed, it cannot be taxed again under Section 68.

Consequently, the ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition under Section 68.

Analysis

Precedents Cited

The Tribunal extensively referenced several landmark cases to substantiate its decision:

• CIT vs Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC): Established that once income is disclosed and taxed, it cannot be subjected to tax again under Section 68.
• Asstt. Commissioner of Income Tax, Central Circle-1 Visakhapatnam vs. M/s Hirapanna Jewellers (2021 (5) TMI 447): Highlighted that cash sales during demonetization, if documented with appropriate evidence like authenticated invoices and stock records, should not attract additions under Section 68.
• CIT vs Kailash Jewellery House [2010 (4) TMI 1070 Delhi High Court]: Reinforced that documented sales recorded in books of accounts cannot be treated as undisclosed income.
• CIT vs. Vishal Exports Overseas Ltd. Tax Appeal No. 2471 of 2009 (Gujarat High Court, 2012): Affirmed that income already offered for taxation shouldn't be taxed again under Section 68.
• Smt. Harshil Chordia v. ITO [2008] 298 ITR 349 (Raj.): Supported the non-application of Section 68 when cash receipts are genuine and documented.
• Asstt. CIT vs. Dewas Soya Ltd. [IT Appeal No. 336/Ind/2012]: Emphasized against double taxation where income is already reflected in profit accounts.

These precedents collectively underscored the principle that once income is transparently declared and taxed, additional taxation under Section 68 without substantial evidence of undisclosed income is impermissible.

Legal Reasoning

The Tribunal's legal reasoning centered around the principle of prohibition of double taxation and the proper application of Section 68. Key points include:

• Recording of Income: The assessee had meticulously recorded cash sales in his audited books of accounts, including detailed sales invoices and a manual stock register. This documentation served as concrete evidence of income already disclosed and taxed.
• Section 68 Applicability: Section 68 is designed to bring unexplained or suspicious cash credits into the tax net. However, when such cash is transparently recorded as part of the business's income, as in this case, applying Section 68 leads to unjust double taxation.
• Impact of Demonetization: The Tribunal acknowledged the unique economic scenario during demonetization, where high cash flows were legitimate, driven by consumer behavior and market dynamics, especially in sectors like gold jewelry.
• Absence of Discrepancies: The AO did not find any discrepancies in the books of accounts and accepted the declarations of sales, purchases, and stock. Without any inconsistencies or evidence of bogus transactions, the addition under Section 68 lacked grounds.
• Statutory Compliance: The assessee had complied with all statutory requirements, including depositing demonetized notes within the prescribed time frame and documenting sales appropriately.

The Tribunal concluded that the AO's addition under Section 68 was based on unfounded suspicions without substantive evidence, thereby constituting double taxation.

Impact

Complex Concepts Simplified

To ensure clarity, let's demystify some of the complex legal terminologies and concepts used in this judgment:

• Section 68 of the Income Tax Act, 1961: This section empowers tax authorities to presume any sum of money deposited in an account from an unexplained source as income. If the taxpayer cannot satisfactorily explain the origin of the funds, it's added to their taxable income.
• Section 115BBE: Imposes a higher tax rate of 60% on undisclosed income deemed to be purely speculative or not from a recognized source.
• Double Taxation: Occurs when the same income is taxed twice by the same taxing authority, which is generally impermissible unless specified by law.
• Appellate Tribunal: A quasi-judicial body that hears appeals against orders passed by lower tax authorities.
• Assessing Officer (AO): The tax official responsible for assessing a taxpayer's income and determining the tax liability.
• CIT(A): Commissioner of Income Tax (Appeals), a higher authority that hears appeals against orders made by AOs.
• Demonetization: The act of stripping a currency unit of its status as legal tender. In India, this primarily refers to the 2016 policy where ₹500 and ₹1000 notes were demonetized.
• Stock Register: A detailed record of inventory, tracking the quantity and value of stock held by a business.

Conclusion

The ITAT Jaipur's decision in Asstt. Commissioner of Income-tax v. Shri Chandra Surana underscores the judiciary's commitment to ensuring fairness and preventing double taxation in the income declaration process. By emphasizing the sanctity of accurately maintained and audited financial records, the Tribunal reinforced the principle that taxpayers should not be unduly penalized for transparent income reporting. This judgment serves as a beacon for both taxpayers and tax authorities, advocating for meticulous documentation and judicious application of tax provisions to uphold the integrity of the taxation system.