2016 (6) TMI 1223 - AT - Income Tax

Addition u/s 68 - Held that - On behalf of the assessee, a comparative chart of net profit rate of the assessee for the assessment years 2005-06 to 1011-12 has been filed before us. In the earlier years also, no such addition was made. For the assessment year 2007-08, under scrutiny assessment, the assessment was made at 8%. The position remained much the same for the assessment year 2008-09. The year under consideration is assessment year 2009-10. The material supplied to the assessee by the concerned department is part of the assessee s turnover. The net profit rate of the assessee for the year under consideration was in line with the preceding assessment year. Further, the trade creditors in the earlier years, i.e., A.Ys. 2007-08 & 2008-09 stand accepted in scrutiny assessments. Thus, the genuineness of the expenses under consideration cannot be doubted. Moreover, the genuineness of the expenditure was not at all called into question. It was only that non verification thereof raised doubts of the in-occurrence thereof. Then, even if the credits concerning the purchases and transportation of the material are not to be accepted, as discussed, still, the provisions of section 68 of the Act cannot be invoked to make the addition. - Decided in favour of assessee.

Summary

Issues:
Appeal against addition under section 68 - Genuineness of credits - Admissibility of additional evidence.

Analysis:
1. The appeal was filed against the addition of ?83,18,322 made under section 68 of the Income Tax Act for the assessment year 2009-10. The assessee contended that the addition was not justified as the credits represented purchases made on credit for material supply, not cash receipts. The AO raised concerns about the genuineness of the credits, citing discrepancies in addresses and failure to serve summons on creditors.

2. The AO rejected the assessee's explanation, stating that the credits were not genuine and added back the amount as income under section 68. The ld. CIT(A) upheld the AO's decision, leading to the appeal. The assessee argued that section 68 was not applicable as the transactions were related to material supply, not cash receipts, and highlighted inconsistencies in treatment compared to previous years.

3. Upon review, it was observed that the provisions of section 68 were not applicable to credits representing purchases made on credit, as held in precedent cases. The assessee's net profit rate for the year was consistent with previous years, and the genuineness of expenses was not in question. The Tribunal found the grievance of the assessee justified and reversed the ld. CIT(A)'s decision, deleting the addition under section 68.

4. The Tribunal emphasized that the mere entries of credits for material purchases did not warrant invocation of section 68, especially when the genuineness of expenses was established. The decision highlighted the importance of considering the nature of transactions and past assessments in determining the applicability of tax provisions. The appeal was allowed, and the addition was removed.

5. In conclusion, the Tribunal's judgment clarified the interpretation of section 68 in cases involving credits for material purchases made on credit. The decision emphasized the need to assess the substance of transactions and the genuineness of expenses to determine the applicability of tax provisions accurately.