2020 (2) TMI 850 - HC - Income Tax

Addition u/s 68 - old outstanding sundry credit balances - HELD THAT - From the plain reading of the provisions of Section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum so credited can be charged to the income tax as the income of the assessee of that previous year . In the present case, the material on record indicates that the Assessing Officer has relied upon the credits for the financial year 2006-07. However, the sum so credited, in terms of such credit, is sought to be brought to tax as the income of the appellant-assessee, for the assessment year 2009-10, which means for the previous year 2008- 09, in terms of the definition under Section 3 of the IT Act. Dr. Daniel is justified in submitting that this is not permissible. M/s Bhor Industries Limited Vs. Commissioner of Income Tax, Bombay 1961 (1) TMI 10 - SUPREME COURT the Hon'ble Apex Court in the context of provisions of the Merged States (Taxation Concessions) Order (1949) has interpreted the expression any previous year to mean as not referring to all the previous years, but, the previous year in relation to the assessment year concerned. Again, this decisions also, to some extent, supports the contentions of Dr. Daniel. The crucial phrase in Section 68 of the IT Act, which provides that the sum so credited in the books and which is not sufficiently explained, may be charged to the income tax as income of the assessee of that previous year also lends support to the contentions of Dr. Daniel - Decided in favour of the appellant-assessee and against the respondent-Revenue. Disallowance made of labour charges on an adhoc basis - HELD THAT - Assessing Officer, the Commissioner (Appeals) as well as the ITAT have recorded concurrent findings of facts. The contention that no opportunity was afforded to the assessee is not correct. The order of the Assessing Officer clearly indicates that opportunity to explain the cash payments to the tune of ₹2.65 crores was afforded to the assessee. It is only after taking into consideration the explanation offered and further, looking to the position of the preceding year, which was not even contested, the Assessing Officer has made disallowance only to the extent of 10% of ₹2.65 crores. In these circumstances, we do not think that the substantial questions of law, as framed, on this issue of disallowance are required to be answered in favour of the appellant-assessee. This is not a matter where the disallowance is based on mere suspicion. Further, it is only accepting the principle that commercial expediency has to be judged from the view of businessman, that these Authorities have made disallowance of only 10%, in the present case. There is neither any unreasonability nor any perversity in the approach or the findings of these authorities so as to warrant interference. - Decided against assessee

Summary

Issues:
1. Whether the Tribunal was right in sustaining the additions made of old outstanding sundry credit balances under Section 68 of the Income Tax Act?
2. Whether the Tribunal was right in sustaining the allowance made of labor charges on an adhoc basis?
3. Whether the ITAT had any material to confirm the adhoc disallowance of labor charges on an assumption that the same are not genuine?

Analysis:

Issue 1:
The appellant argued that Section 68 of the Income Tax Act mandates that if any sum is credited in the books of the assessee without proper explanation, it may be charged to income tax as the income of the assessee for that previous year. The court referred to the definition of "previous year" and the provisions of Section 68, emphasizing that the sum credited must be for that specific previous year. Citing relevant case laws, the court held that the sum credited for a different financial year cannot be taxed for another assessment year. Consequently, the first substantial question of law was answered in favor of the appellant.

Issue 2 and 3:
Regarding the adhoc disallowance of labor charges, the appellant contended that the disallowance was based on suspicion without substantial evidence. The court noted that the Assessing Officer provided an opportunity for explanation and made the disallowance based on the preceding year's unchallenged disallowance. Referring to legal precedents, the court held that disallowance should not rest on mere suspicion and must consider commercial expediency from the viewpoint of the businessman. As all authorities followed established principles and there was no unreasonableness in the decision, the second and third substantial questions of law were answered against the appellant and in favor of the respondent.

In conclusion, the court disposed of the appeal, directing the Assessing Officer to make necessary modifications within a reasonable period. No costs were awarded in the judgment.