Assessing Officer Cannot Make Addition u/s 68 Based Solely on Suspicion: ITAT
Income Tax Appellant Tribunal (ITAT), Ahmedabad, has recently upheld the CIT(A)’s order saying that the addition under section 68 of the Income Tax Act, 1961, cannot be made based on suspicion.
The assessee, M/s Maheshwari Sales Corporation, filed its Income Tax Return (ITR) for the Assessment year 2018-19 on 10.09.2018, reporting an income of Rs 10,30,030. The assessing officer, after receiving information flagged under the Risk Management Strategy of CBDT, observed that during the year, the assessee had made cash transactions of Rs 63,84,998 with Kushal Limited and its associates for getting accommodation entries.
The Investigation wing had earlier uncovered an accommodation entry racket run by Kushal Tradelink Ltd. Based on this information, the AO made an addition of Rs 63,84,998 as unexplained cash credit under section 68 of the Income Tax Act to the income of Maheshwari Sales Corporation. The addition was challenged by the assessee before the CIT(A).
The assesse argued that all sales were genuine and recorded properly in their books. The assesse also submitted supporting documents like sales bills, bank statements, and ledger copies. The assessee also argued that since the sales had already been recorded and taxed, adding them again under section 68 would result in double taxation, which is not correct.
The Commissioner of Income (Appeals) found that the assessing officer had made the addition after solely relying on information received from the investigation wing and did not submit any direct proof that shows that the assessee was involved in doing the fraudulent transactions. The CIT(A) observed that the assesse had submitted enough proofs to establish the identity of the purchaser, the nature of the transactions, and the genuineness of sales through the banking channels. Therefore, the CIT(A) deleted the addition of Rs 63,84,998, made under section 68 of the Act, and partly allowed the appeal filed by the assessee. Being aggrieved by this order, the Revenue filed an appeal before the Income Tax Appellant Tribunal (ITAT), Ahmedabad.
The ITAT also agreed with CIT(A)’s ruling. It highlighted that just being suspicious is not enough reason to make the addition. The ITAT said that the Assessing Officer did not give any direct evidence to prove the transactions were bogus. It also observed that the assessee had already submitted enough proof showing the transactions were genuine.
The Tribunal also cited various judgements, including the decision of the Hon’ble Apex Court in the case of Pr. CIT v. Shapoorji Pallonji and Co. Ltd.[2022] 141 taxmann.com 509/288 Taxman 661, which held that the assessing officer could not make any addition just based on suspicion. Similarly, the Bombay High Court also deleted the addition made by the assessing officer, as he failed to submit any record or evidence to prove his allegation of a bogus purchase in the case of Principal Commissioner of Income-tax v. Vaman International (P.) Ltd. [2020] 422 ITR 520 (Bom)
Therefore, the ITAT deleted the addition of 63,84,998 made under section 68. The appeal filed by the Revenue was dismissed.
Case Citation: The ITO Ward vs Maheshwari Sales Corporation (ITAT Ahmedabad); ITA No.1306/Ahd/2025; 30/10/2025; 2018-19
