2016 (4) TMI 638 - HC - Income Tax

Cash credit entry - addition on liability towards the suppliers - Held that - The Assessing Officer has accepted purchases of ₹ 1,09,67,551/- out of which ₹ 1,00,49,705/- stood paid during the relevant assessment year. Therefore, the remaining amount is a liability which the assessee has to discharge, which he discharged in the next financial year. How the said amount can be treated to be a cash credit entry after the purchase amount accepted by the Assessing Officer, could not be explained by the learned counsel for the Revenue. We find that the very basis of the order passed by the Assessing Officer and as affirmed by the learned Commissioner and the Tribunal is erroneous. Such amount is the liability towards the suppliers and could not be added as a cash credit entry, when the purchase of the material including the price of the material supplied by the 15 suppliers is admitted. Thus, the addition of ₹ 9,17,846/- as cash credit entry is not sustainable. Consequently said finding is set aside and the question of law is answered in negative and in favour of the assessee and against the Revenue.

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Treatment of outstanding credit amount as unexplained credit.
3. Justification of not allowing the outstanding credit assessed in the income.
4. Interpretation of Section 68 of the Income Tax Act regarding purchases made on credit.
5. Liability towards suppliers and treatment as a cash credit entry.

Analysis:
1. The appellant, a contractor engaged in construction work, filed an appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal regarding the Assessment Year 2002-03.
2. The Assessing Officer added an outstanding amount of &8377; 9,17,846 as unexplained credit, which was shown in the balance sheet as a liability towards 15 sundry creditors supplying stone chips and red sand.
3. The main question of law framed was whether the Tribunal was justified in not allowing the outstanding credit assessed in the income of the appellant.
4. Reference was made to a Division Bench judgment of the Allahabad High Court to argue that Section 68 of the Act does not apply when purchases made on credit are accepted, as in this case. The Court agreed with this view.
5. The Court found merit in the argument that since the purchases were accepted by the Assessing Officer and a part of the amount was paid during the relevant assessment year, the remaining amount was a liability towards suppliers, not a cash credit entry.
6. The Court concluded that the order of the Assessing Officer, Commissioner, and Tribunal was erroneous in treating the outstanding amount as a cash credit entry. The liability towards suppliers could not be added as such, and the addition of &8377; 9,17,846 as cash credit entry was deemed unsustainable.
7. Consequently, the Court allowed the appeal, setting aside the finding of the Assessing Officer and ruling in favor of the assessee against the Revenue.