2013 (11) TMI 814 - AT - Income Tax

Addition towards unexplained cash credit u/s 68 of the Income tax Act - Addition of Rs. 2,75,97,214/- - Both the AO and CIT(A) treated the amounts received by Assessee and deposited in the bank account as cash credits. It is Assessee s submission that there are outstanding debtors in the books from whom Assessee has to collected monies since Assessee was out of business during the year and all these outstanding debtors have been collected in cash and, therefore, these are not cash credits, but, are trade receipts in the form of cash - Held that - Amounts received by Assessee are not cash credits but the same were recovery of the debtors, which are available in the books of account. Since Assessee furnished details of debtors and also the entries made in the books of account, both the AO and the CIT(A) have erred in considering recoveries from deposits as cash credits - It is also not the case of the AO that investments made in Sree Rayalaseema Steel Rerolling Mills from unexplained sources. Having explained the source of investment in the other firm being recoveries from debtors, the same cannot be doubted just because Assessee recovered them in cash Decided in favor of Assessee.

Summary

Issues:
Appeal against addition of unexplained cash credit.

Analysis:
The appeal was directed against the order confirming the addition of Rs. 2,75,97,214/- towards unexplained cash credit. The Assessee firm, engaged in trading and manufacturing of steel, filed a return admitting 'Nil' income, which was accepted under section 143(1) of the Act. During a survey in other group cases, it was discovered that the Assessee had advanced an amount as an unsecured loan to another firm. The Assessing Officer (AO) initiated proceedings under section 148 to tax the deposits made in the bank account as income of the Assessee. The Assessee explained that the cash deposits were receipts from debtors collected in cash due to the cessation of business activity. However, the AO rejected this explanation, citing lack of details and reasons for accepting large cash amounts. The CIT(A) upheld the addition, emphasizing the need to prove the identity, creditworthiness, and genuineness of the transactions for cash credits.

Before the Tribunal, the Assessee presented evidence of outstanding debtors in the books and argued that the cash receipts were trade receipts, not cash credits. The Assessee's sales figures and balance sheets from previous years were submitted to support this claim. The Departmental Representative (DR) contended that the cash credits were unexplained income and violated provisions by accepting cash. The Tribunal noted that both the AO and CIT(A) treated the amounts as cash credits, while the Assessee maintained they were trade receipts from debt recoveries. Referring to case law, the Tribunal emphasized that only cash credits, not trade receipts, fall under section 68. It was established that the recoveries were from debtors, supported by evidence in the books, and not unexplained income. The Tribunal ruled in favor of the Assessee, concluding that the provisions of section 68 did not apply to the trade recoveries made during the year.

The Tribunal also noted that the AO did not question the source of investment in another firm and clarified that the recoveries were made over a period, not in a single day. Given the accepted sales figures from previous years and the nature of debt recoveries, the Tribunal held that section 68 did not apply, and the addition was deleted. The Assessee's appeal was allowed, and the addition was removed.