2016 (9) TMI 1044 - AT - Income Tax

Unexplained cash credit - addition u/s 68 - Held that - . The assessee was found to have made purchases on credit during the relevant previous year (f.y. 2005-06), which were unpaid by the year-end. Significant proportion of the same remaining unpaid even by 31.3.2008, i.e., two years hence, seriously impaired the genuineness of the credit/s. Neither the material adduced in support, nor the enquiries conducted or the incidents found, which are neither denied nor rebutted, further confirm and validate the inference of the same being bogus or mere accommodation entries. The law does not draw any distinction between one credit and another on which basis principally relief stood allowed by the first appellate authority, so that any credit which is not satisfactorily explained could be deemed as income u/s. 68, which is essentially a rule of evidence, the basis of which is that an amount could be subject to tax on the ground that the assessee is a beneficiary of the said sum, so that it is for it to explain its nature and source. The question is of real versus apparent, which in view of sec. 68 casts the burden of proof on the assessee to prove that the apparent is real In the instant case, there is nothing to show the conduct of business by the trade creditors , with even their addresses remaining elusive, so that their being considered as regular traders, much less being in a position to extend credit, remains completely unproved. The credit was for an indefinite period, extraordinary by any count, well beyond the capacity of even a regular trader. The capacity as well as the genuineness aspect is completely unproved in the present case. The identity, which thus becomes of little consequence, could though be said to be satisfactorily explained in-as-much as the repayment is through account payee cheque and the firms being registered under VAT. Surprisingly, however, it is not known who the proprietors/partners of these firms are. Even so, the subsequent payments by cheque, however, could not be dismissed lightly, as it is prima facie indicative of an existing liability. Whether the bank account in which the cheques are banked are the regular accounts of the parties, etc., duly disclosed and forming part of the regular accounts, etc. are aspect that would require to be looked into. An accommodation entry, on the other hand, would normally be accompanied by withdrawal of cash, which is then recycled by the name lender to the payer. The matter requires factual determination, and for which the same is therefore, without any fetters, restored back to the file of the assessing authority. We decide accordingly. - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act, 1961 to trade credits.
2. Genuineness of the credits and trade transactions.
3. Burden of proof and evidentiary requirements under Section 68.
4. Relevance of subsequent payments and their impact on the genuineness of credits.

Issue-wise Detailed Analysis:

1. Applicability of Section 68 of the Income Tax Act, 1961 to Trade Credits:
The primary issue is whether Section 68, which deals with unexplained cash credits, can be applied to trade credits. The Tribunal referred to the case of V.I.S.P. (P) Ltd. vs. CIT [2004] 265 ITR 202 (MP), which clarified that Section 68 is not confined to cash entries but extends to any sum credited in the books of accounts, including trade credits. The Tribunal emphasized that the provision's language is clear, and any unexplained credit, whether from trade transactions or loans, falls within its ambit.

2. Genuineness of the Credits and Trade Transactions:
The assessee, a builder and developer, had credits from five trade creditors amounting to ?1,46,59,851/- which remained outstanding for an extended period. The Assessing Officer (A.O.) doubted the genuineness of these credits due to discrepancies such as the absence of PAN, non-response to notices, incorrect addresses, and the same telephone number for different creditors. The Tribunal noted that there was no evidence of the transportation of goods, and the assessee failed to provide the current addresses of the creditors. The Tribunal concluded that the transactions appeared to be accommodation entries rather than genuine trade credits.

3. Burden of Proof and Evidentiary Requirements under Section 68:
The Tribunal reiterated that under Section 68, the burden lies on the assessee to satisfactorily explain the nature and source of any credit found in its books. The assessee must prove the identity, capacity of the creditor, and genuineness of the transaction. The Tribunal referenced several judgments, including Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) and CIT vs. P. Mohanakala [2007] 291 ITR 278 (SC), which established that the explanation must be reasonable and acceptable, and the A.O.'s satisfaction must be objective.

4. Relevance of Subsequent Payments and Their Impact on the Genuineness of Credits:
The assessee argued that the credits were trade credits and were paid off in subsequent years through account payee cheques. However, the Tribunal held that subsequent payments by cheque do not automatically establish the genuineness of the initial credit. The Tribunal instructed that the matter be remanded to the A.O. for fresh adjudication, allowing the assessee to present additional evidence. The A.O. was directed to verify the subsequent payments and determine if the bank accounts used were regular accounts of the creditors, indicating genuine transactions.

Conclusion:
The Tribunal concluded that the assessee failed to prove the genuineness of the trade credits, and the A.O. was justified in invoking Section 68. However, due to the subsequent payments made by the assessee, the matter required further verification. The Tribunal restored the case to the A.O. for a re-examination of the evidence and a fresh decision in accordance with the law. The appeal by the Revenue was allowed for statistical purposes.

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