2021 (11) TMI 700 - AT - Income Tax

Addition u/s 68 unexplained cash credit - profit/income of the assessee from sale of paddy - HELD THAT - Section 68 of the Act is attracted (a) when the assessee fails to prove the genuineness of the transaction that has entered into his book of accounts; (b) when there is no satisfactory explanation provided on the part of the assessee to the AO with respect to the amount credited into the accounts; (c) when there are documentary evidences required to support the validity of the amount credited but there are no such documents furnished by the assessee. The assessee has provided the confirmation letter of the purchaser of paddy M/s. Rameswar Agro Industries Pvt. Ltd., alongwith its ledger account to support that the purchaser had purchased paddy and paid the amount. It is not in dispute that the assessee has not maintained any books of account and whatever credit entries are found by the AO, it was from the bank accounts of the assessee in which deposits were made at different point of time. Even passbook issued by the bank cannot be termed to be the books of account of the assessee in the case of Bhai Chand N. Gandhi 1982 (2) TMI 28 - BOMBAY HIGH COURT - Therefore, provisions of section 68 of the Act cannot be invoked on various deposits/credit found recorded in the bank account of the assessee in absence of books of the assessee maintained for that previous year. The assessee submitted confirmation from the purchaser of paddy before the authorities below and this was the best possible evidence under his command to establish that the impugned amount was actually sale proceeds of paddy, which was purchased from open market/farmers and sold the same without maintaining any books of account to M/s. Rameswar Agro Industries Pvt. Ltd. Even as a man of ordinary prudent, one cannot disagree with the contention of the assessee that even if he is a director in the purchase company i.e. M/s. Rameswar Agro Industries Pvt. Ltd., he cannot be refrained from making sale of paddy to the company in which he is a director. Cautious about the provisions of section 40A(2) (3) of the Act, wherein, the department has right to examine the expenses and payments made to related parties by the related parties but it is not the allegation of the AO in the present case. We not in agreement with the contention of Ld. DR that if sale has not been shown by the assessee in the return of income, then entire amount has to be taxed in the hands of the assessee as his income because if purchase and sale, both transactions have been undertaken without maintaining books of account then only profit element received by the assessee inclusive of sale proceeds can be taxed as income of the assessee because the assessee has to be given credit of the amount incurred for purchase of goods which was sold by him against receipt of sale consideration. A.R. relied on the decision of case of CIT vs. P. Sathyanarayan P. Rathi, 2013 (6) TMI 257 - GUJARAT HIGH COURT wherein, it has been held that only the profit element and not the entire amount of the purchases can be added to the income of the assessee. We deem it just and proper and reasonable to cover all possible leakage of revenue, to tax only profit element embedded in the sale proceeds received and deposited by the assessee in the bank account. In view of facts stated above, thus direct the AO to tax 10% of the total impugned amount as profit/income of the assessee from sale of paddy and to delete the remaining amount. Appeal of the assessee is partly allowed

Summary

Issues Involved:
Appeal against addition of unexplained cash credit under section 68 of the IT Act and addition under section 80C for assessment year 2013-14.

Analysis:

Issue 1: Addition of ?29,56,900 under section 68 of the IT Act as unexplained cash credit

The Assessing Officer added the amount of ?29,56,900 as unexplained cash credit under section 68 of the IT Act due to the failure of the assessee to prove the source of cash deposits in various bank accounts. The CIT(A) upheld this addition ex parte without hearing the assessee. However, the Tribunal decided to hear the appeal on merits. The assessee claimed that the cash deposits were from the sale of agricultural products, specifically paddy, supported by evidence. The Tribunal found that the assessee provided confirmation from the purchaser of paddy, M/s. Rameswar Agro Industries Pvt. Ltd., along with ledger accounts, which was considered sufficient evidence to establish the source of the cash deposits. The Tribunal held that section 68 was not applicable in this case as the assessee had substantiated the source of the deposits, and only 10% of the total amount was taxed as profit/income from the sale of paddy.

Issue 2: Addition of ?1,15,028

The second ground of appeal related to the addition of ?1,15,028 under section 80C of the IT Act. The assessee claimed a rebate under section 80C, but the AO did not consider the evidence submitted. The Tribunal did not provide detailed analysis on this specific issue in the judgment.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to tax only 10% of the total amount as profit/income from the sale of paddy and deleting the remaining amount. The decision was based on the assessee's submission of confirmation from the purchaser of paddy and ledger accounts, which sufficiently proved the source of the cash deposits. The Tribunal's decision was in line with the principles laid down by the Hon'ble Gujarat High Court in similar cases.