2022 (5) TMI 511 - AT - Income Tax

Addition u/s 68 - Cash deposits into bank account of the assessee - CIT(A) deleted the addition made u/s 68 holding that the assessee has proved the identity, creditworthiness of the transaction which was made with its sister concern - assessee contended that the company became sick and could not pay the loans to the creditors, bankers and there was one-time settlement offered to the assessee and the business was completely closed down and in fact there was an auction notice issued by Haryana Financial Corporation and the assessee in order to pay one-time settlement and the other dues sold scrap and the sale proceeds were deposited into bank account and the loans were discharged by utilizing the sale proceeds and Assessing Officer in the absence of any further details treated the cash deposits of Rs.36,25,000/- as unexplained cash credits u/s 68 - HELD THAT - As decided in P. MOHANAKALA 2007 (5) TMI 192 - SUPREME COURT in order to attract the scope of section 68 of the Act the assessee offers no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited in the books may be charged to Income tax as income of the assessee - the expression the assessees offered no explanation means where the assessee offers no proper reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. Here in the case of the assessee, the assessee has given an explanation that the credit entries in the bank account are relating to sale of scrap and the original vouchers were also furnished before the Assessing Officer in the remand proceedings. On examination of all the original vouchers the Assessing Officer could not point out any discrepancy in the vouchers. Therefore, the assessee has discharged its initial onus and there was no further enquiry by the Assessing Officer in the remand proceedings though requested by the assessee to summon the vendors. Therefore, taking the totality of facts and circumstances into consideration, we hold that the cash deposits made into bank account by the assessee are nothing but the sale proceeds of scrap sales and the Assessing Officer should not have treated such scrap sales as unexplained cash credits u/s 68 of the Act. Thus, we direct the Assessing Officer to delete the addition made u/s 68 of the Act and re-compute the income of the assessee accordingly. Grounds of appeal of the Assessee are allowed.

Summary

Issues:
- Addition of Rs.36,25,000/- made under section 68 of the Income Tax Act in relation to cash deposits into the bank account of the assessee.

Analysis:
1. The Assessing Officer observed cash deposits of Rs.36,25,000/- in the bank account of the assessee and requested details and documentary evidence. The assessee explained that the company faced heavy losses, leading to closure, and proceeds from scrap sales were used to repay loans.

2. The Assessing Officer treated the cash deposits as unexplained cash credits under section 68 due to lack of evidence. Additionally, Rs.19,20,000/- received from a sister concern was also considered a cash credit.

3. The CIT(A) deleted the Rs.19,20,000/- addition, citing proof of identity and creditworthiness with the sister concern. However, the Rs.36,25,000/- addition from scrap sales proceeds was upheld as the assessee failed to produce vendors before the Assessing Officer.

4. The assessee contended that the scrap sales were genuine, evidenced by verified vouchers. The CIT(A) upheld the addition based on incomplete vouchers and lack of vendor appearance, despite the Assessing Officer verifying all original vouchers without discrepancies.

5. The ITAT noted the assessee's explanation, supported by original vouchers, and the lack of further inquiry by the Assessing Officer. Citing the Hon'ble Supreme Court's judgment, the ITAT held that the assessee had explained the cash deposits adequately, directing the deletion of the Rs.36,25,000/- addition under section 68.

6. The ITAT emphasized that the assessee's burden was discharged with the explanation and verified vouchers, criticizing the lack of further investigation by the Assessing Officer. Consequently, the ITAT allowed the appeal, directing the Assessing Officer to recompute the income accordingly.