2016 (10) TMI 243 - AT - Income Tax

Unsecured cash credit - Held that - A bare reading of section 68 would show that there has to be credit of amounts in the books maintained by the assessee during the previous year and the assessee either offers no explanation or the explanation offered by the assessee about the nature and source of such credit, in the opinion of Assessing Officer, is not satisfactory. It is only in such circumstances the sum so credited may be charged to Income Tax as the income of assessee. In other words, for making addition u/s. 68 of the Act, the assessee should have received cash. In the present case the stand of the assessee is that Shri S.S. Dhage and Shri B.M. Gaikwad are shown as creditors as they had rendered services and the assessee was to make payment to the aforesaid persons for the services rendered. A perusal of the assessment order shows that the Assessing Officer has made addition without quoting any section in the assessment order. In first appeal the Commissioner of Income Tax (Appeals) clarified that the addition has been made u/s. 68 of the Act. The addition made in respect of outstanding expenses payable to Shri S.S. Dhage and Shri B.M. Gaikwad cannot be made u/s. 68 of the Act. The provisions of section 68 are not attracted where services are received by the assessee and an entry is made in the books crediting liability in account of person from whom services are received. In view of the facts of the case and the provisions of section 68 of the Act, the additions confirmed by the Commissioner of Income Tax (Appeals) u/s. 68 of the Act are not sustainable. Accordingly, the findings of Commissioner of Income Tax (Appeals) on this issue are set aside - Decided in favour of assessee.

Summary

Issues:
- Addition of outstanding expenses payable to creditors
- Validity of reopening proceedings u/s. 147/148 of the Income Tax Act, 1961

Analysis:
1. The appeal challenged the addition of outstanding expenses payable to two creditors and the validity of proceedings u/s. 147/148 of the Act for the assessment year 2003-04.

2. The Commissioner of Income Tax (Appeals) upheld the addition made by the Assessing Officer, emphasizing the onus on the assessee to establish the genuineness of transactions and the capacity of creditors to advance money.

3. The assessee contended that no addition could be made under section 68 as no advances or loans were accepted, asserting that the amounts were for services rendered by the creditors.

4. The Department argued that the assessee failed to provide evidence supporting the outstanding amounts claimed to be payable to the creditors.

5. The Tribunal noted that section 68 requires the assessee to receive cash for additions, which was not the case here as the amounts were for services rendered, not advances or loans.

6. Referring to a similar case, the Tribunal emphasized that section 68 does not apply when goods or services are acquired on credit, and the liability is credited in the accounts of the service providers.

7. Consequently, the Tribunal held that the additions made by the Commissioner u/s. 68 were not sustainable, setting aside the findings and allowing the appeal on this issue.

8. The additional ground challenging the validity of reopening proceedings was withdrawn by the assessee, and the Tribunal dismissed it as withdrawn.

9. General grounds raised in the appeal were deemed not to require adjudication, and the appeal was partly allowed in favor of the assessee.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision on each matter, focusing on the legal principles and arguments presented by both parties.