2018 (11) TMI 515 - HC - Income Tax

Addition u/s 68 - failure to discharge burden of proof in proving the cash credits - whether the explanation furnished in the opinion of the Assessing Officer is satisfactory or not? - Held that - The authorities below found the explanation furnished by the assessee not to be satisfactory. What was found peculiar, which fact remains unexplained, as to why and how should be their transactions, in cash, only in a particular month of the only two years. Such transactions are of huge amount. Assuming that they were sold across the counter on test market basis, even then such sales ought to have been spread throughout the year. It is not the case of the assessee that the product was manufactured or sold for seasonal consumption or that such sales could have been affected only in the particular months of the respective years. The satisfaction of the officer no doubt has to be based on the material so placed by the parties, which in the instant case is there. Formation of opinion has to be after accounting for all the factors and that too on objective consideration of which we have no doubt - Decided against assessee.

Issues:
1. Addition under Section 68 of the Income Tax Act.
2. Burden of proof in proving cash credits.
3. Deduction under Section 80 IC of the Income Tax Act.
4. Interest income not attributable to manufacturing activity.
5. Allowance of expenditure in respect of interest income.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The primary issue revolves around whether the Income Tax Appellate Tribunal (ITAT) was correct in upholding the addition made under Section 68 of the Income Tax Act. The Assessing Officer (AO) had found that the cash sales amounting to ?3.12 crores and ?1.94 crores for the respective financial years were unexplained and added them to the total income. The court noted that Section 68 mandates that if any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source thereof, the sum so credited may be charged to income tax as the income of the assessee. The court held that the AO's opinion on the unsatisfactory nature of the explanation provided by the assessee was based on proper appreciation of material and circumstances available on record. Thus, the addition under Section 68 was justified.

2. Burden of Proof in Proving Cash Credits:
The court examined whether the assessee had failed to discharge the burden of proof in proving the cash credits. The assessee contended that the books of accounts and supporting vouchers were accepted, and thus, the burden of proof was met. However, the court emphasized that the AO is empowered to assess the total income based on the evidence produced by the assessee. The court referred to several Supreme Court judgments, reiterating that the burden of proving the source and nature of cash credits lies on the assessee. In this case, the explanation offered by the assessee was found unsatisfactory, and hence, the burden of proof was not discharged.

3. Deduction under Section 80 IC of the Income Tax Act:
The court addressed whether the addition sustained by the ITAT qualifies for deduction under Section 80 IC of the Income Tax Act. The court noted that Section 80 IC deals with deductions in respect of certain incomes. However, since the addition was made under Section 68 due to unexplained cash credits, it did not qualify for deduction under Section 80 IC. The court upheld the ITAT's decision on this matter.

4. Interest Income Not Attributable to Manufacturing Activity:
The court examined whether the ITAT was correct in holding that the interest earned/accrued was not attributable to the manufacturing activity of the appellant. The court noted that the interest income was not directly related to the manufacturing operations and thus could not be considered as income derived from the business of manufacturing. Consequently, the interest income did not qualify for deduction under Section 80 IC.

5. Allowance of Expenditure in Respect of Interest Income:
The final issue was whether the ITAT was right in holding that no expenditure was to be allowed in respect of the interest income. The court observed that the ITAT's decision was based on the finding that the interest income was not attributable to the manufacturing activity. Therefore, the expenditure incurred in earning such interest income could not be allowed as a deduction.

Conclusion:
The court found no merit in the appeals and upheld the decisions of the lower authorities. The substantial questions of law were answered against the assessee, and the appeals were disposed of accordingly. The court emphasized that the AO's satisfaction regarding the unsatisfactory nature of the explanation for cash credits was based on objective consideration of the material on record.

← Previous Next →