2018 (9) TMI 882 - HC - Income Tax

Addition u/s 68 - unexplained cash credit - assessment records that the feeder accounts were opened either in the name of the assessee s employees or in the name of those who operated for consideration and operated at the instruction of Mr. Ashok Gupta, proprietor of the assessee and these individuals denied of having any knowledge of transactions in those bank accounts - Held that - Having regard to Kale Khan 1963 (2) TMI 33 - SUPREME COURT and D.K. Garg 2017 (8) TMI 450 - DELHI HIGH COURT it is held that per se the ITAT could have not ruled out taxability under Section 68, given the unsatisfactory nature of the explanation provided by the assessee. This court notices, at the same time that inconsistent approaches were adopted by the lower revenue authorities for two years for the first block period, ending with AY 2000-2001, the assessee was sought to be taxed for a total amount of ₹ 71,396,211/-; for the later block period the CIT taxed (out of the same amount) only the sum of ₹ 3,99,35,142/-. It appears that the assessee could satisfactorily explain the genuineness and other necessary ingredients needed under Section 68 with respect to the balance except inability to co-relate the cheque or instruments with the creditor concerned. Given that on these aspects, the findings were in favour of the assessee (which do not appear to have been interfered with), the revenue s appeal can only succeed in part. It is held that the revenue s appeal has to succeed in part; the amount of ₹ 3,99,35,142/- in the account of the assessee can be taxed under Section 68 of the Act. The appeal is allowed to this extent.

Summary

Issues Involved:
1. Reduction of commission rate from 1.5% to 0.6%.
2. Deletion of the sum brought to tax under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Reduction of Commission Rate:
The court examined the issue of whether the ITAT's decision to reduce the commission rate from 1.5% to 0.6% was justified. The appellant argued that the reduction was without reason and should be set aside since both lower tax authorities concurred on the higher rate. However, the court found no fault with the ITAT’s decision, noting that the total turnover brought to tax was over ?100 crores and the higher commission rate imposed by the lower authorities was based on rough estimates. Therefore, the ITAT's reduction of the commission rate was not regarded as an error of law requiring correction.

2. Deletion of Sum Under Section 68:
The second issue revolved around the ITAT's decision to delete the addition of ?3,99,35,142/- made by the AO under Section 68 of the Income Tax Act. The revenue argued that the ITAT erred in holding that the addition was unwarranted, emphasizing that the assessee failed to explain the identity, capacity, and genuineness of the transactions, as required under Section 68. The revenue relied on the case of *Kale Khan Mohammad Hanif v. Commissioner Of Income-Tax* to support their argument.

The ITAT had previously held that Section 68 was inapplicable as the addition was not for any cash credits in the books of accounts but for peak credits in the bank accounts. The ITAT reasoned that the revenue had accepted the assessee's business of providing accommodation entries and thus, the credits in the accounts could not be treated as unexplained. The ITAT also noted that the cash credits were explained with reference to the cash available in the main or feeder accounts.

However, the court found that the lower authorities had established that the feeder accounts were opened in the names of employees or other individuals who denied knowledge of the transactions. Given the unsatisfactory nature of the assessee's explanations, the court held that the ITAT could not rule out taxability under Section 68. The court also noted inconsistent approaches by the lower revenue authorities, with different amounts being taxed for different periods. The court concluded that the revenue's appeal could only succeed in part, allowing the amount of ?3,99,35,142/- to be taxed under Section 68.

Conclusion:
The court allowed the revenue's appeal in part, holding that the amount of ?3,99,35,142/- in the assessee's account could be taxed under Section 68 of the Income Tax Act. There was no order on costs.