2006 (8) TMI 582 - HC - Income Tax

Cash Credits - addition u/s 68 - HELD THAT - The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and therefore the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue inasmuch as on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the department the question of addition of the aforesaid two amounts u/s 68 of the Act did not arise inasmuch as the provisions of section 68 of the Act would not be attracted on the purchases made on credit. We accordingly answer the question referred to us in affirmative i.e. in favour of the assessee and against the revenue. There will be no order as to costs.

Summary

Issues:
- Interpretation of section 68 of the Income-tax Act, 1961 regarding addition of sums under the provision.
- Determination of whether the amounts added by the Income-tax Officer were correctly deleted by the Commissioner of Income-tax (Appeals).
- Assessment of whether the credits in the accounts were cash deposits or represented purchases made on credit.

Analysis:
1. The case involved a reference from the Income-tax Appellate Tribunal, Allahabad regarding the correctness of sustaining the deletion of sums added by the Income-tax Officer under section 68 of the Income-tax Act, 1961. The issue arose from the assessment for the year 1976-77, where the original assessment was set aside, and the Income-tax Officer questioned deposits in the accounts of two individuals. The assessee contended that these credits represented purchases made on credit, not cash deposits, supported by book entries showing transactions of goods purchased and sold.

2. The Commissioner of Income-tax (Appeals) accepted the assessee's explanation, ruling that the credits were not cash deposits but reflected the value of goods supplied by the two individuals. The department appealed to the Tribunal, which acknowledged the assessee's trading activities and profits, concluding that the purchases were genuine despite discrepancies in the names of the suppliers. The Tribunal upheld the deletion of the addition under section 68, emphasizing that the situation did not fall under the provision as it concerned purchases made without disclosing the identity of suppliers.

3. The Revenue argued that section 68 should apply due to the inability to produce the alleged creditors, but the Tribunal's factual findings supported by evidence indicated that the purchases made on credit were accepted by the Assessing Officer. The Tribunal's decision was based on the purchases being made on credit, thereby excluding the application of section 68. The High Court concurred with the Tribunal's assessment, highlighting that the provision did not cover purchases made on credit, leading to the judgment in favor of the assessee.

4. The judgment clarified the distinction between cash deposits and credit purchases, emphasizing that the provisions of section 68 were not applicable to transactions where purchases were made on credit. The decision reinforced the importance of factual findings and evidence in determining the nature of transactions for tax assessment purposes, ultimately ruling in favor of the assessee and rejecting the Revenue's appeal.