2016 (2) TMI 1359 - AT - Income Tax

Unexplained cash credit u/s 68 - Unexplained cash credit - HELD THAT - It was a case of advances received by the assessee in cash from his dealers and the same having been adjusted against the sale subsequently made to the said dealers, there was no reason to apply the theory of preponderance of probabilities, especially when there was nothing brought on record to doubt the explanation offered by the assessee. There was also no inquiry made by the AO with the concerned dealers to establish that what was stated by the assessee is not correct. On the other hand, at least two dealers were produced by the assessee for verification before the AO and they admitted of having been given the cash advances to the assessee. Having regard to all these facts of this case, advances except the advance received by the assessee on 30.03.2009 having been already adjusted against the sales made by the assessee to the concerned Dealers and the sales so made having been duly accounted for by the assessee, the corresponding advances could not be added to the total income of the assessee u/s 68 treating the same as unexplained. As regards the advance claimed to be received by the assessee we however, find that the assessee has failed to explain the same in terms of section 68 and the addition made by the AO and confirmed by the CIT(A) to this extent is liable to be sustained. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
Addition of unexplained cash credit under section 68 for advances received by the assessee.

Analysis:

Issue 1: Addition of Rs.11,15,131/- as unexplained cash credit under section 68

The Assessing Officer added Rs.11,15,131/- to the total income of the assessee, treating it as unexplained cash credit under section 68. The assessee, a partnership firm engaged in M.R. Distributorship, explained that the cash advances were received from M.R. Dealers and were adjusted against subsequent sales. The Assessing Officer rejected this explanation, citing reasons such as inconsistency in dates of advances, lack of concrete evidence, and absence of advances from other customers. The ld. CIT(Appeals) upheld the addition, emphasizing the irregularity of cash advances matching exact sale amounts and unusual patterns of advances from customers. However, the Tribunal observed that the advances were received from dealers, adjusted against sales, and duly accounted for. It criticized the authorities for relying on probabilities rather than concrete evidence. The Tribunal sustained the addition only for an advance of Rs.1,20,000/- received on 30.03.2009, finding it unexplained under section 68. The rest of the advances were deemed legitimate as they were adjusted against sales and supported by evidence.

In conclusion, the Tribunal partially allowed the appeal, modifying the ld. CIT(Appeals) order to sustain the addition of Rs.11,15,131/- under section 68 only for the unexplained advance of Rs.1,20,000/- received on 30.03.2009. The decision highlighted the importance of concrete evidence and proper verification in determining the legitimacy of cash credits under section 68.