Recorded Sales Can’t Be Taxed Again Under Section 68 | ITAT

Case Details: Income-tax Officer vs. Ashok Amritlal Nayak - [2026] 186 taxmann.com 1158 (Mumbai-Trib.)

Judiciary and Counsel Details

• Narender Kumar Choudhry, Judicial Member & Jagadish, Accountant Member
• Rahul Hakani for the Appellant.
• Surendra Mohan, SR. DR for the Respondent.

Facts of the Case

The assessee was engaged in the business of wholesale trading and distributorship of FMCG goods. The return of income was filed, and the same was processed under section 143(1). Subsequently, the Assessing Officer (AO) reopened the assessment based on information received from the Investigation Wing. The information alleged that the assessee had obtained accommodation entries in the form of fictitious sales to a party.

During the reassessment proceedings, the AO treated the entire sales amount as unexplained cash credit under section 68 and added it to the total income. On appeal, the CIT(A) confirmed the additions made by the AO, and the assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the impugned sales formed part of the assessee’s disclosed turnover. The sales were duly recorded in the books of account and credited to the trading results. The books of account were not rejected under section 145(3). The profit arising from such sales has already been offered to tax in the regular course of business. The addition was made by the AO under section 68, treating the sales as unexplained credits. However, once the nature of the credit is disclosed as sales forming part of business turnover and such sales are duly reflected in the books, the same cannot again be treated as unexplained cash credit.

Section 68 contemplates a situation in which a sum is found credited in the books, and the assessee fails to explain its nature and source satisfactorily. In the present case, the nature and source of the credit are disclosed as business receipts. Taxing gross sales themselves as income would amount to taxing the entire turnover, which is impermissible in law. The allegation in the present case is of bogus sales and not bogus purchases. In cases of bogus purchases, the purchases are alleged to have been inflated to suppress profit; therefore, only the profit element embedded therein is brought to tax. Here, however, the sales are alleged to be fictitious.

If the sales were treated as non-genuine, the logical consequence would be an adjustment to turnover or the rejection of books, leading to a recomputation of trading results. It cannot result in the estimation of higher profit on sales already recorded and accepted as part of turnover, particularly when the books of account have not been rejected, and no specific defects in trading results have been pointed out.

Therefore, the additions made by the AO, treating the sales as unexplained cash credits, were unjustified and have been deleted