2014 (9) TMI 272 - HC - Income Tax

Addition of unexplained liabilities - Whether the Tribunal is justified in upholding the order of the CIT (A) in deleting the addition on account of unexplained liabilities Held that - As decided in assessee s own case for the earlier assessment year, it has been already been held that an entry of liability in the balance sheet can also be added in the income of the assessee u/s 68 of the Act relying upon Smt. Rekha Krishna Raj Vs. Income Tax Officer 2013 (7) TMI 523 - KARNATAKA HIGH COURT - the essence of the word cash credit under the heading of Section 68 does not mean that credit should be cash credit - it may be a cash credit or it may be a credit representing the value of the supplies made by the suppliers on credit - once the credit so mentioned in the section was found to be not supported by any acceptable evidence than the sum so credited would be charged to income tax as the income of the assessee. Section 68 of the Act suggests that there has to be a credit of an amount in the books maintained by an assessee and such credit would be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source - The expression any sum is found credited in the books of the assessee means all entries on the credit side as well as on the debit side in the books of account - The word credited in relation to any sum does not mean an entry only on the credit side but would also include any entry on the debit side as well - The word credited means an entry of a sum in the books of account thus, no substantial question of law arises for consideration Decided against revenue.

Summary

Issues:
1. Rejection of books of accounts due to loose papers found during survey.
2. Addition of unexplained liabilities as unexplained credit in balance sheet under Section 68 of the Income Tax Act.
3. Appeal filed by department challenging deletion of unexplained liabilities by Tribunal under Section 260A of the Act.

Analysis:

1. The first issue revolves around the rejection of books of accounts by the Assessing Officer based on loose papers found during a survey under Section 133 of the Income Tax Act. The appellate authority criticized this rejection, stating that the books could not be dismissed solely due to the presence of loose papers that were not produced, especially considering the circumstances of the papers being destroyed during riots. The Tribunal partly allowed the appeal, acknowledging the authority to reject the books under Section 145 but refraining from disturbing the book results due to lack of evidence indicating inflated profits.

2. The second issue concerns the addition of unexplained liabilities as unexplained credit in the balance sheet under Section 68 of the Act. The Assessing Officer added a sum towards weaver's liability as unexplained credit, which was then contested in appeals. The appellate authority found the addition unjustified, referencing a previous order under Section 264 that deleted similar unexplained liabilities for the assessee and his brother. The Tribunal agreed with this stance, emphasizing the similarity of facts and decisions in related cases, ultimately leading to the deletion of the unexplained liabilities.

3. The final issue pertains to the department's appeal challenging the deletion of unexplained liabilities by the Tribunal under Section 260A of the Act. The High Court examined the arguments presented by both parties, including the interpretation of Section 68 concerning the addition of liabilities in the balance sheet as unexplained credit. Citing relevant case law, the Court affirmed the Tribunal's decision, emphasizing the requirement for a satisfactory explanation for any sum credited in the books of an assessee to avoid being charged to income tax.

In conclusion, the High Court dismissed the appeals, finding no substantial question of law arising from the issues at hand. The Tribunal's deletion of the unexplained liabilities and its interpretation of Section 68 were upheld, highlighting the importance of providing satisfactory explanations for entries in the books of accounts to avoid adverse tax implications.