2019 (11) TMI 546 - AT - Income Tax

Addition u/s. 68 or 69C - amount representing purchases made on credit - HELD THAT - After receiving the payment of building sold, the payment was made and it was noted that the documentary proof is the books of the assessee which are audited and it shows that all these payments were made and the assessee also filed necessary evidence before the authorities below which was also accepted by the department in the next years for substantiating the claim of the assessee. We further note that the assessee has also filed the affidavit of Sh. Naresh Jain, Director of the assessee company. All these submissions of the assessee were forwarded to the AO for his comment. However, the AO adopted his earlier stand. Hence, the addition in dispute is not permissible u/s. 68 which should have been invoked u/s. 69C. We further note that the applicability of section 69C in place of section 68 of the Act applied by the AO, enabling the provision of section 292B permits the authority to do so in view of the decision in the case of Yadu Hari Dalmia vs. CIT 1980 (5) TMI 22 - DELHI HIGH COURT . The unpaid purchase price could not be added to the income of the assessee as per the decision case of CIT vs. Ritu Anurag Aggarwal 2009 (7) TMI 1247 - DELHI HIGH COURT . We are of the view that when purchases were not doubted by the AO, the addition in dispute u/s. 68 is not tenable. As per the aforesaid decision, in the present case AO had not disallowed the purchases from those creditors and trading result were also not disturbed. To support our aforesaid view, we draw support from the decision in the case of Pr. CIT vs. Kulwinder Singh 2017 (7) TMI 957 - PUNJAB AND HARYANA HIGH COURT wherein it has been held that section 68 could not be invoked for the amount representing purchases made on credit. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?21,26,190/- under Section 68 of the Income Tax Act.
2. Rejection of the assessee's explanation regarding the expenditure.
3. Application of Section 292B.
4. Penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?21,26,190/- under Section 68 of the Income Tax Act:
The assessee, engaged in the construction business, declared an income of ?15,993/- after claiming brought forward losses. The Assessing Officer (AO) noticed an expenditure of ?51,59,170/- on construction and ?21,26,190/- as construction expenses payable. The AO issued notices under Section 133(6) to three parties, which were returned unserved. The AO added ?21,26,190/- as unexplained cash credit under Section 68 due to the lack of response and supporting evidence. The CIT(A) upheld this decision.

The Tribunal found that the said amount was paid in the next assessment year after the building was sold, and the payments were reflected in the audited books of accounts. The Tribunal noted that the addition under Section 68 was not appropriate as the amount was related to purchases made on credit, and thus, should have been considered under Section 69C. The Tribunal cited the decision of the Hon'ble Delhi High Court in Yadu Hari Dalmia vs. CIT and the Hon'ble Punjab & Haryana High Court in Pr. CIT vs. Kulwinder Singh, which supported the view that unpaid purchase prices could not be added under Section 68.

2. Rejection of the Assessee's Explanation Regarding the Expenditure:
The AO rejected the explanation provided by the assessee, which included the affidavit of the Director and documentary evidence. The Tribunal found the explanation plausible, noting that the payments were made in the subsequent year and were recorded in the audited books. The Tribunal concluded that the AO's rejection was unjustified as the assessee had substantiated its claim with credible evidence.

3. Application of Section 292B:
The Tribunal discussed the applicability of Section 292B, which allows for procedural errors to be overlooked if they do not affect the substance of the assessment. The Tribunal found that the AO should have invoked Section 69C instead of Section 68, and Section 292B could permit this correction. The Tribunal emphasized that the unpaid purchase price could not be added under Section 68, supporting its decision with relevant case law.

4. Penalty under Section 271(1)(c) of the Income Tax Act:
The penalty was levied based on the quantum addition of ?21,26,190/-. Since the Tribunal deleted the quantum addition, the basis for the penalty ceased to exist. Consequently, the Tribunal deleted the penalty, stating that it was dependent on the outcome of the quantum appeal.

Conclusion:
The Tribunal allowed both the quantum appeal and the penalty appeal. The addition of ?21,26,190/- under Section 68 was deleted, and the penalty under Section 271(1)(c) was also cancelled. The decisions were pronounced on 15-10-2019.