2015 (9) TMI 598 - AT - Income Tax

Addition under section 68 - amount payable by the assessee to farmers towards purchase of sunflower seeds as unexplained cash credits - Held that - As rightly submitted by the Ld. Counsel for the assessee, the impugned credits being trade credits of the assessee on account of purchase of sunflower seeds are not in the nature of cash credits as envisaged under section 68 and the same therefore cannot be added to the income of the assessee by invoking the said provision. Moreover, as pointed by him from the trading account of the assessee for the year under consideration the corresponding seeds purchased from the seven farmers for ₹ 54,49,961 were sold in the year under consideration itself for ₹ 58,89,195 and the said sale was duly credited to the trading account of the assessee. As rightly contended by the Ld. Counsel for the assessee, such sale not being possible without any corresponding purchases, the purchases so made could not otherwise be treated as bogus, despite the failure of the assessee to establish the identity of the concerned creditors/suppliers. It is also observed that the resultant profit arising from the relevant transactions of purchase and sale of sunflower seed was duly disclosed by the assessee in the trading account. Thus addition u/s 68 deleted - Decided in favour of assessee. Unexplained expenditure under section 69C - whether the amounts in question representing liabilities which had ceased to exist could be added to the total income of the assessee alternatively under section 41(1) as contended by the learned D.R? - Held that - The two amounts in question have not been paid by the assessee till date nor any party has demanded the said amounts appearing in the books of account of the assessee as liabilities. Since the said amounts represented liabilities of the assessee on account of purchases which had been claimed as expenditure in the earlier years, we are of the view that the provisions of section 41(1) are clearly applicable when it is established that the said liabilities as shown by the assessee actually ceased to exist in the year under consideration itself. We, therefore, confirm the addition made on this issue by invoking the provisions of section 41(1) - Decided against assessee. Validity of the assessment - Held that - The present case however is not such a case where notice under section 148 is issued to give effect to any finding or direction contained in the appellate order of the Tribunal but it is a case of regular assessment made by the A.O. under section 143(3) afresh as per the direction of the Tribunal given in order passed under section 254. The provisions of section 150(1) thus are not applicable in the case of the assessee where the assessment is made by the A.O. under section 143(3) read with section 254 and the issue raised by the assessee in ground No.6 relying on the said provisions is devoid of any merit - Decided against assessee.

Issues Involved:
1. Confirmation of Assessment Order under section 143(3) by CIT(A)
2. Addition of amount payable to farmers under section 68
3. Treatment of credit balances as unexplained under section 69C
4. Validity of assessment being barred by limitation

Analysis:

Issue 1: Confirmation of Assessment Order under section 143(3) by CIT(A)
The appellant challenged the assessment order passed under section 143(3) by the Income Tax Officer (ITO) which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant contended that the assessment was unsustainable on both factual and legal grounds. The appellant argued that the authorities failed to consider the audit reports filed to prove proper maintenance of accounts. However, the Tribunal found that certain grounds raised by the appellant were general and did not require specific adjudication.

Issue 2: Addition of amount payable to farmers under section 68
The Assessing Officer (AO) added an amount payable to farmers for sunflower seeds under section 68 as unexplained cash credits. The AO could not verify the genuineness of the creditors as they were farmers with vague addresses. The Tribunal observed that the trade credits for seed purchases were not cash credits under section 68. The Tribunal noted that the corresponding seeds purchased were sold, indicating genuine transactions. Consequently, the addition made by the AO was deemed unsustainable, and the Tribunal deleted the same.

Issue 3: Treatment of credit balances as unexplained under section 69C
The AO treated credit balances in the names of certain entities as unexplained under section 69C. The appellant failed to reconcile these balances with the parties' records. The CIT(A) upheld the addition under section 69C, considering the unexplained source of payment. The Tribunal acknowledged that the liabilities had ceased to exist and applied section 41(1) to confirm the addition, as the amounts were not paid and no demands were made. The Tribunal dismissed the appellant's challenge on this issue.

Issue 4: Validity of assessment being barred by limitation
The appellant argued that the assessment was time-barred, invoking section 150(1). However, the Tribunal clarified that section 150(1) applied to notices under section 148, not to regular assessments under section 143(3) following Tribunal directions. The Tribunal found no merit in the appellant's argument and dismissed the challenge on the assessment's limitation. Consequently, the Tribunal partly allowed the appellant's appeal.

This detailed analysis of the judgment from the Appellate Tribunal ITAT Hyderabad involved various issues related to the assessment order, additions under different sections, and the validity of the assessment process.

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