2006 (3) TMI 193 - AT - Income Tax

Addition u/s 68 - Cash Credits - balance sheet under the head 'Sundry creditors' - whether provisions of section 68 are attracted to such credits or not? - HELD THAT - A bare reading of section 68 of the Act shows that the expression used in the section is 'any sum' and it does not say that credit should be only in the nature of cash receipt. The expression 'any sum' is very wide and general in nature. It covers all credits including loan, receipts and any other amount of similar nature. The credits shall also include both loans and trade credits and also other receipts, be that of cash or kind. These maybe in the name of the assessee i.e., capital account or in the name a of third party. In the case of Smt. Shanta Devi v. CIT 1987 (10) TMI 26 - PUNJAB AND HARYANA HIGH COURT held that section 68 of the Act, refers to credits in the books of the assessee. It was held that where a partner did not maintain any books of account and a cash credit entry appeared in the books of the firm in the name of the partner, section 68 would apply and the amount of the cash credit would be liable to be assessed in the hands of the firm because the entry appeared in the books of account of the firm which was a separate entity from its partner. In the present case also, these credits appeared in the books of account of the assessee. Therefore, these are liable to be considered in the hands of the assessee as per provisions of section 68 of the Act. Thus, it is clear from the facts of the case that even though amount credited to the capital account included gold ornaments i.e., in kinds and partly in cash, the addition of the entire amount was upheld. Thus, from the discussion, it is very clear that the provisions of section 68 are wide enough to cover all credits including credits of the nature found in the books of account of the assessee. The submission of the assessee that provisions of section 68 apply only to cash receipt/loans only is without any merit. Therefore, this submission is rejected.

Issues Involved:
1. Addition of Rs. 60,87,326 under Section 68 of the Income-tax Act, 1961.
2. Addition of Rs. 3,86,563 on account of alleged diversion of income under the head 'Dami'.
3. Failure to appreciate trade practice and legal aspects.
4. Non-consideration of detailed submissions and arguments.
5. Legality of the Inspector recording statements.

Detailed Analysis:

1. Addition of Rs. 60,87,326 under Section 68 of the Income-tax Act, 1961:
The assessee filed a return declaring an income of Rs. 2,01,570, earning from 'Dami' as a commission agent for the sale of agricultural produce. The Assessing Officer (AO) scrutinized the balance sheet and found credits amounting to Rs. 62,55,097 in the names of 52 persons, which were claimed to be agriculturists who had sold their produce to the assessee. The AO sent enquiry letters to 12 of these persons, all of which were returned unserved. Further enquiries revealed that many of these persons did not exist at the given addresses. The AO concluded that the assessee failed to establish the identity, creditworthiness, and genuineness of these credits, thus making an addition of Rs. 60,87,326 as unexplained credits under Section 68.

The CIT(A) upheld the AO's addition, stating that the assessee failed to discharge the onus of proving the identity and genuineness of the credits. The Tribunal agreed with the CIT(A) that Section 68 applies to any sum credited in the books, not just cash receipts. The Tribunal noted the extensive documentary evidence supporting the transactions but emphasized the assessee's failure to establish the identity of the 51 parties. The Tribunal set aside the order and remanded the matter to the AO for fresh consideration, allowing the assessee an opportunity to produce the parties and furnish additional evidence.

2. Addition of Rs. 3,86,563 on account of alleged diversion of income under the head 'Dami':
The AO noticed a discrepancy in the 'Dami' receipts, where the assessee had shown Rs. 1,48,923 in the profit & loss account against the actual receipt of Rs. 5,35,486. The assessee explained that 75% of the 'Dami' was refunded to sister concerns, which the AO found to be a diversion of income to reduce tax liability. The AO noted that the sister concerns did not show any 'Dami' receipt in their returns and concluded that the payment was not genuine.

The CIT(A) upheld the AO's addition, highlighting inconsistencies in the statements of the assessee's father and brother, who could not provide names or addresses of persons sent to the assessee for selling produce. The Tribunal concurred with the CIT(A), stating that the assessee failed to provide evidence of services rendered by the sister concerns. The Tribunal found no merit in the claim and dismissed the ground of appeal.

3. Failure to appreciate trade practice and legal aspects:
The assessee argued that the CIT(A) failed to appreciate trade practices and legal aspects presented during the proceedings. The Tribunal noted that the CIT(A) had considered the submissions but found them insufficient to establish the identity and genuineness of the credits.

4. Non-consideration of detailed submissions and arguments:
The assessee contended that the CIT(A) summarily rejected detailed submissions without considering the facts. The Tribunal observed that the CIT(A) had provided a reasoned order, addressing the assessee's arguments and evidence.

5. Legality of the Inspector recording statements:
The assessee challenged the legality of the Inspector recording statements, arguing that it was not authorized. The Tribunal found no merit in this objection, noting that the AO is empowered to cause enquiries through Inspectors, who can record statements under Section 133A of the Act. The Tribunal held that the enquiries were valid and the statements were admissible.

Conclusion:
The Tribunal partially allowed the appeal for statistical purposes, remanding the matter of the Rs. 60,87,326 addition to the AO for fresh consideration while dismissing the ground related to the Rs. 3,86,563 addition. The Tribunal upheld the CIT(A)'s findings on the other grounds, emphasizing the assessee's failure to establish the identity and genuineness of the credits and the diversion of income.

← Previous Next →