2011 (5) TMI 821 - HC - Income Tax

Whether Tribunal was justified in reversing the order passed by the Commissioner of Income-tax (Appeals) in upholding the assessment order when the Assessing Officer himself rejected the books of account of the assessee after holding that the transaction shown in the names of the sundry creditors were not genuine yet the Assessing Officer instead of proceeding to determine the assessment under section 144 proceeded to add the sundry creditors amount in the income of the assessee under section 68 of the Income-tax Act Held that - Assessing Officer has committed an error of law by adding that amount under section 68 of the Act of 1961 straight-away merely because of the reason that the genuineness of the transaction shown in the heading of the sundry creditors was not found genuine. In view of the above reasons, following section 145(3) the Assessing Officer should have proceeded under section 144 and should have followed the procedure of assessment of the tax, Tribunal and the Assessing Officer though recorded finding of fact correctly that the transaction of sundry creditors were not genuine but so far as the assessment order is concerned that deserved to be set aside and the Assessing Officer should assess the income afresh under section 145(3), matter is remanded back to the Assessing Officer

Issues involved:
1. Interpretation of Income-tax Act regarding assessment of sundry creditors' amounts under section 68.
2. Justification of Assessing Officer's decision to add sundry creditors' amounts to the income of the assessee.
3. Application of section 145(3) for assessment under section 144.

Analysis:
1. The primary issue in this case is the interpretation of the Income-tax Act regarding the assessment of sundry creditors' amounts under section 68. The appellant argued that the Assessing Officer should have proceeded to assess the income of the assessee under section 144(3) after rejecting the books of account, rather than adding the sundry creditors' amounts under section 68. The appellant contended that non-proving the genuineness of the transaction in the books of account should not automatically lead to taxing under section 68, as section 68(1) requires unproved transactions to be taxed under section 68A. The appellant relied on judgments from the Division Bench of Rajasthan High Court and Allahabad High Court to support this argument.

2. The second issue involves the justification of the Assessing Officer's decision to add the sundry creditors' amounts to the income of the assessee. The Revenue argued that the transactions recorded as sundry creditors were not genuine, and therefore, could be treated as cash amounts in the hands of the assessee for taxation under section 68. The court considered the evidence provided by the alleged suppliers of materials and found that the transactions were not genuine based on various factors such as lack of bookkeeping, absence of income tax returns, and no evidence of goods purchase or transport.

3. The final issue pertains to the application of section 145(3) for assessment under section 144. The court noted that the Assessing Officer's order was contradictory as he accepted the profit shown in the return based on the books of account but added the amount of sundry creditors straightaway under section 68 without following the proper assessment procedure. The court found that the Assessing Officer should have proceeded under section 144 and followed the assessment procedure instead of adding the amount under section 68 directly. Consequently, the court set aside the orders of the Income-tax Appellate Tribunal and the Assessing Officer, remanding the matter back to the Assessing Officer for a fresh assessment under section 145(3).

In conclusion, the court allowed the appeal, directing the Assessing Officer to pass a fresh assessment order and the parties to appear before the concerned authority for further proceedings.

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