2022 (2) TMI 1029 - AT - Income Tax

Addition u/s 68 - credit balance appearing in the books of account of the assessee - HELD THAT - As the outstanding liability of the assessee towards M/s. DPSIPL would have crystallized in corresponding unaccounted sales that would have been made by the assessee to the said party, in our considered view, is an observation which is absolutely in the thin air and is clearly devoid and bereft of any supporting material. In our considered view, even if for the sake of argument the aforesaid observation of the AO is accepted, we find no justification as to on what basis the addition of unaccounted purchases corresponding to the alleged unaccounted sales made by the assessee to the aforementioned party could be related to the year under consideration and not to the preceding year. Be that as it may, we are of the considered view that as there is no material on record to support the aforesaid view of the AO, therefore, the same does not merits acceptance. Adverting to the observation of the CIT (Appeals) that it was beyond comprehension and business prudence that the aforementioned party i.e. M/s. DPSIPL would have advanced the amount in two installments, i.e, more than two months before receiving the first bag of cement from the assessee, we are of the considered view, that by so observing the CIT(A) had tried to convey that the liability in question in itself was bogus. If that be so, then, we are of the considered view that no addition qua the outstanding liability in question could have been made in the hands of the assessee during the year under consideration - See USHA STUD AGRICULTURAL FARM LTD. 2008 (3) TMI 91 - DELHI HIGH COURT There was no justification on the part of the A.O in making the impugned addition u/s.68 of the Act during the year. Backed by our aforesaid observation, we find no justifiable reason to uphold the view taken by the CIT (Appeals) as regards the impugned addition. - Decided in favour of assessee.

Summary

Issues involved:
1. Appeal against orders passed by CIT (Appeals) and Assessing Officer under Sec. 143(3) and Sec. 271(1)(c) for assessment year 2008-09.

Comprehensive Analysis:
1. The appeal filed by the assessee for the assessment year 2008-09 pertains to quantum assessment. The Assessing Officer observed a liability of ?1,50,080/- in the name of a party, M/s. DPS Infrastructure (P) Ltd. The assessee claimed it was an advance for cement purchase. The Assessing Officer deemed the liability as bogus, adding it to the income. The CIT (Appeals) upheld this view, leading to the appeal.

2. The Tribunal found that the liability was carried forward from the preceding year and not generated during the current year. The Assessing Officer's reasoning was based on unaccounted sales, which lacked supporting evidence. The CIT (Appeals) doubted the advance in two installments, deeming the liability as bogus. The Tribunal cited a High Court judgment to support vacating the addition, as the liability did not pertain to the current year.

3. The Tribunal disagreed with both lower authorities' reasoning. It found no basis for the Assessing Officer's addition related to unaccounted purchases and rejected the CIT (Appeals)'s doubts on the advance. Citing legal precedent, the Tribunal set aside the CIT (Appeals) order and vacated the addition. The appeal against the penalty under Sec. 271(1)(c) was also allowed due to the vacated addition, as the penalty could not stand independently.

4. Consequently, both appeals by the assessee were allowed, with the Tribunal setting aside the addition made by the Assessing Officer and vacating the penalty imposed under Sec. 271(1)(c). The Tribunal's decision was based on the lack of evidence supporting the liability as unaccounted income and the absence of justification for the penalty post the vacated addition.