2010 (1) TMI 822 - AT - Income Tax

Current years trade credits u/s 68 of the Act - assessee s contention that the authorities have erred in making addition being current year s trade credits u/s 68 of the Act as the said section applies to Cash Credits only Held that - any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year . Since, the assessee had failed to furnish convincing and documentary explanation with regard to the nature and source thereof and on the other hand the AO had brought on record with unflinching documentary proof by way of confirmation obtained from the alleged sundry creditors that the brought forward sundry creditors and current year creditors (credits) were not genuine, there was no infirmity in the findings of the lower authorities which require our interference at this stage. It is ordered accordingly. Interest charged u/s 234B of the Act should be restricted to the levy made in 143(1) of the Act Held that - interest levied u/s 234B should be restricted to the levy made in the intimation u/s 143(1) is without much force. By virtue of amendment to Act by Finance Act, 2001, with retrospective effect from 1.4.1989, it beyond doubt interest u/s 234B is to be levied on the assessed income and not on the returned income, reassessment u/s 147, interest u/s 234B is imposable only on the amount on which interest was payable u/s 234B is increased. The Tribunal held since, there is excess payment of TDS and advance tax; no interest u/s 234B(3) could be imposed, there was a levy of interest u/s 234B in the intimation passed u/s 143(1), order of the authorities is correct and is in accordance with law and does not warrant any interference, appeal filed by the assessee is dismissed.

Summary

Issues Involved:
1. Addition of Rs. 50.09 lakhs as 'old brought forward trade credits' under Section 41(1) of the Income Tax Act.
2. Addition of Rs. 14.99 lakhs as 'current year's trade credits' under Section 68 of the Income Tax Act.
3. Interest charged under Section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 50.09 lakhs as 'old brought forward trade credits' under Section 41(1) of the Income Tax Act:

The assessee, a retail trader in electronic goods, filed a return of income declaring Rs. 6.06 lakhs. During a survey under Section 133A, discrepancies were found in the trade credits. The Assessing Officer (AO) added Rs. 50.09 lakhs as 'old brought forward trade credits,' treating them as cessation of trading liability under Section 41(1). The assessee argued that these were credit balances from earlier years and could not be added in the current year. However, the CIT(A) and the Tribunal found that the assessee failed to establish the genuineness of these liabilities. The AO's inquiries revealed that many creditors either did not exist or confirmed lower balances. The Tribunal upheld the AO's decision, stating that the assessee did not discharge the onus of proving the genuineness of the liabilities.

2. Addition of Rs. 14.99 lakhs as 'current year's trade credits' under Section 68 of the Income Tax Act:

The AO also added Rs. 14.99 lakhs as 'current year's trade credits' under Section 68, which pertains to unexplained cash credits. The assessee contended that Section 68 applies only to 'loan creditors' and not 'trade creditors.' However, the CIT(A) and the Tribunal disagreed, stating that Section 68 applies to any sum credited in the books of the assessee for which no satisfactory explanation is provided. The Tribunal noted that the assessee failed to furnish convincing evidence regarding the nature and source of these credits. The AO's inquiries confirmed that these credits were not genuine, and the Tribunal upheld the addition.

3. Interest charged under Section 234B of the Income Tax Act:

The assessee argued that the interest charged under Section 234B should be restricted to the levy made in the intimation under Section 143(1). The Tribunal referred to the amendment by the Finance Act, 2001, which clarified that interest under Section 234B is to be levied on the assessed income, not the returned income. The Tribunal also cited judgments from the Punjab and Haryana High Court and the Kerala High Court, which supported this view. The Tribunal found no merit in the assessee's reliance on the Mumbai Bench's decision in Datamatics Ltd. vs. ACIT, as the facts were different. Consequently, the Tribunal upheld the interest charged under Section 234B.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the additions made by the AO and the interest charged under Section 234B. The assessee failed to provide satisfactory evidence to substantiate the genuineness of the trade credits, and the AO's findings were supported by documentary evidence. The Tribunal found no infirmity in the lower authorities' decisions and ruled in favor of the Revenue.