2021 (7) TMI 679 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - assessee could not submit the address/permanent account number of these parties - HELD THAT - These parties are the trade creditors of the assessee.The assessee has failed to produce even the Ledger account of these parties before the CIT - A. If these are the trade creditors claimed by the assessee that in subsequent years the sales should have been accounted for in these accounts. If, the sales has been accounted for out of these sundry credits, then the addition u/s 68 of the act would result in to double addition. It is also but natural that assessee has provided services to the guesthouses of various companies as well as of Indian Navy which naturally could not have the permanent account number. Therefore, in the interest of justice we set-aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to show by producing the Ledger account of the sundry creditors that in subsequent years the sales have been accounted for against the credits received from these parties. If, learned assessing officer finds that the assessee has already accounted for the sales out of the sundry credits, the resultant addition cannot be made in the hence of the assessee u/s 68. Therefore to that extent the learned assessing officer is directed to delete the addition. With this direction to the assessee, all the grounds of the appeal are restored back to the file of the learned assessing officer to decide the issue afresh.

Issues Involved:
1. Justification of disallowance under Section 68 of the Income Tax Act.
2. Requirement to quote Permanent Account Number (PAN) in transactions.
3. Rejection of the appellant's explanation regarding the nature and source of sums credited.
4. Classification of cash credits as deposits towards recharge by small traders.
5. Applicability of Section 115BBE for taxation.
6. Consideration of documents and submissions by CIT(A).
7. Disallowance of deposits due to non-availability of PAN.
8. Nature of deposits as EPRS recharge.
9. Applicability of Rule 114B and Section 39A.
10. Penalty for non-availability of third-party confirmation.
11. Requirement to show the source of the source by the appellant.

Issue-wise Detailed Analysis:

1. Justification of Disallowance under Section 68:
The appellant challenged the disallowance of ?26,88,147 under Section 68 of the Income Tax Act, arguing that the Assessing Officer (AO) unjustifiably discarded the books of account and misapplied relevant provisions. The Tribunal noted that the assessee failed to provide PAN and addresses for certain parties, leading to the disallowance. The CIT(A) confirmed this disallowance due to the absence of necessary details to establish the identity and creditworthiness of the creditors.

2. Requirement to Quote PAN in Transactions:
The appellant argued that during the relevant financial year, there was no statutory requirement to quote PAN for transactions below ?2 lakh. The Tribunal acknowledged this but emphasized that the appellant still needed to substantiate the identity and genuineness of the transactions, which was not adequately done.

3. Rejection of the Appellant's Explanation:
The Tribunal observed that the appellant's explanation regarding the nature and source of sums credited in the books was not sufficiently supported by evidence. The appellant claimed that the deposits were related to Electronic Purchase Recharge System (EPRS) transactions, but failed to provide ledger accounts or addresses of the parties involved.

4. Classification of Cash Credits as Deposits Towards Recharge:
The appellant contended that the cash credits were deposits from small traders for EPRS, not loans or advances, hence there was no need to show the means or creditworthiness of the creditors. The Tribunal, however, maintained that the appellant had to prove the identity and genuineness of the transactions, which was not done satisfactorily.

5. Applicability of Section 115BBE for Taxation:
The appellant argued against the imposition of tax under Section 115BBE, claiming that the transactions were already disclosed and taxed. The Tribunal did not specifically address this issue but focused on the need for the appellant to substantiate the transactions.

6. Consideration of Documents and Submissions by CIT(A):
The appellant claimed that the CIT(A) ignored the documents and submissions provided. The Tribunal noted that the CIT(A) did consider the submissions but found them insufficient to establish the identity and creditworthiness of the creditors.

7. Disallowance of Deposits Due to Non-availability of PAN:
The Tribunal upheld the disallowance due to the appellant's failure to provide PAN and addresses for certain parties, which was crucial for verifying the identity and genuineness of the transactions.

8. Nature of Deposits as EPRS Recharge:
The appellant argued that the deposits were EPRS recharges disclosed in financial statements and not illegal cash deposits. The Tribunal acknowledged this claim but emphasized the need for the appellant to provide detailed evidence to substantiate the transactions.

9. Applicability of Rule 114B and Section 39A:
The appellant contended that the provisions of Rule 114B and Section 39A were not applicable to the transactions in question. The Tribunal noted this argument but reiterated the need for the appellant to provide sufficient evidence to support the transactions.

10. Penalty for Non-availability of Third-party Confirmation:
The appellant argued that the penalty was unjustified as the deposits were made by distributors, not the appellant, and third-party confirmations were beyond their control. The Tribunal emphasized the appellant's responsibility to provide sufficient evidence to substantiate the transactions.

11. Requirement to Show the Source of the Source:
The appellant argued that there was no legal requirement to show the source of the source. The Tribunal, however, emphasized the need for the appellant to prove the identity and genuineness of the transactions.

Conclusion:
The Tribunal set aside the issue back to the Assessing Officer, directing the appellant to produce ledger accounts of the sundry creditors to show that sales were accounted for against the credits received. If the sales were accounted for, the addition under Section 68 would result in double addition, which is not permissible. The appeal was allowed for statistical purposes with directions to the Assessing Officer to decide the issue afresh in accordance with the law.

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