2022 (9) TMI 881 - AT - Income Tax

Addition u/s 68 - additions received as advance against sale of stock in trade i.e flats is against facts - HELD THAT - Section 68 cast obligation on the assessee where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may be treated as income and charged to income-tax as income of the assessee of that previous year. Burden/onus is cast on the assessee and the assessee is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s. 68 as an income. The burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s. 68 of the Act as unexplained cash credit. The use of the word any sum found credited in the books in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s. 68 of the Act as an unexplained credit in the hands of the assessee company because the AO is both an investigator and adjudicator. Thus, in the instant case, we hold based on facts and circumstances of the case, that the assessee fails to satisfy the mandate of Section 68 as creditworthiness of these persons as well genuineness of the transactions could not be proved by the assessee, and we sustain the addition of Rs. 54 lacs as was upheld by ld. CIT(A). The assessee fails on this issue. Additions to being amount received by cheque which was credited in assessee s bank account, and the assessee has claimed that the said amounts were towards finishing work in the flats - HELD THAT - It is claimed that the said finishing work was done in the subsequent year and the amount was offered for taxation by assessee in immediately succeeding year. The assessee has also filed quotation issued by it to these two persons for doing the finishing work - The complete name and addresses of these two persons are on record. We are of the view that claim of the assessee requires verification, and the matter is restored back to the file of AO for fresh adjudication. We clarify that we have not commented on the merits of the issue. AO shall provide proper and adequate opportunity of hearing to the assessee in set aside remand proceedings.

Summary

Issues Involved:
1. Addition of Rs. 55,36,000/- as advance against the sale of stock in trade (flats).
2. Qualification of advance deposit for addition under Section 68 of the Income Tax Act.
3. Alleged contravention of principles of equity and natural justice in the assessment order.

Detailed Analysis:

Issue 1: Addition of Rs. 55,36,000/- as Advance Against Sale of Stock in Trade (Flats)
The assessee, engaged in the construction of residential flats, declared an income of Rs. 30,02,510/- for the assessment year 2013-14. During the scrutiny assessment, the AO observed that the assessee received advances amounting to Rs. 54,00,000/- from 17 persons for flat bookings. The AO found discrepancies in the details provided, such as the absence of dates and evidence of payments. Notices sent to two individuals, Miss Nandini Singh and Mr. Laxmieshwar Singh, were returned unserved. The AO treated these advances as unexplained cash credits under Section 68 of the Income Tax Act and added the amounts to the assessee's income.

Issue 2: Qualification of Advance Deposit for Addition Under Section 68 of the Income Tax Act
The AO added Rs. 54,00,000/- and Rs. 68,000/- each from Miss Nandini Singh and Mr. Laxmieshwar Singh as unexplained cash credits under Section 68. The CIT(A) upheld these additions, noting the lack of agreements, cancellation deeds, and evidence of the creditworthiness and genuineness of the transactions. The tribunal observed that the assessee failed to provide sufficient evidence to discharge the onus under Section 68, such as agreements with landlords, details of flats, and cancellation deeds. The tribunal upheld the addition of Rs. 54,00,000/- but remanded the addition of Rs. 68,000/- each from Miss Nandini Singh and Mr. Laxmieshwar Singh for fresh adjudication by the AO.

Issue 3: Alleged Contravention of Principles of Equity and Natural Justice
The assessee argued that the order was contrary to the principles of equity and natural justice. The CIT(A) dismissed the appeal, noting the assessee's habitual non-compliance and failure to provide necessary details. The tribunal observed that the assessee did not cooperate with the AO or the CIT(A) and failed to discharge the onus under Section 68. The tribunal found no merit in the assessee's claim and upheld the additions made by the AO and CIT(A).

Conclusion:
The tribunal upheld the addition of Rs. 54,00,000/- as unexplained cash credits under Section 68, citing the assessee's failure to provide sufficient evidence of the creditworthiness and genuineness of the transactions. The tribunal remanded the addition of Rs. 68,000/- each from Miss Nandini Singh and Mr. Laxmieshwar Singh for fresh adjudication by the AO. The appeal was partly allowed for statistical purposes.