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TMI Blog2012 (7) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... kumar, CIT ORDER PER Challa Nagendra Prasad, Judicial Member These two appeals of different assessees of same group are directed against different orders passed by the Commissioner of Income Tax-III, Coimbatore both dated 23.03.2011 in C.No. 320(6)/2010-11/CIT-III/CBE and in C. No. 320(7)/2010-11/CIT-III/CBE for the assessment year 2006-07. Shri T. Banusekar, Chartered Accountant represented on behalf of the assessee and Shri B. Muralikumar, CIT represented on behalf of the Revenue. I.T.A. No. 776/Mds/2011 2. The brief facts of the case are that the assessee is engaged in the business of yarn manufacturing and is assessed to tax with Deputy Commissioner of Income Tax, Company Circle, Tirupur. The assessee filed its return of income for the assessment year 2006-07 declaring loss of Rs..87,53,003/-. The assessment was completed under section 143(3) on 17.12.2008 determining the loss at Rs..36,05,552/- by the Assessing Officer. While computing the loss, the Assessing Officer made addition of Rs..47,01,519/- under section 68 of the Act observing as under: (i) It was found that the assessee was not able to produce creditor confirmation to the tune of Rs..47,01,519 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 41 and not under section 68 as these amounts represents balances outstanding in the creditors account. The counsel for the assessee submitted that during the course of assessment, the assessee was asked to file confirmation of balances of credito The counsel submitted that the assessee stated before the Assessing Officer that the company was already sick and many creditors have filed suits against the assessee for nonpayment of their dues by the assessee company. Therefore, obtaining confirmation of balance from those creditors could not be possible as their relationship with the creditors was not going good at that point of time. Therefore, the counsel submitted that it was agreed before the Assessing Officer that the creditors balances could be added to the income of the assessee under section 41(1) of the Act. The counsel submitted that at the time of framing assessment, since the assessee did not produce confirmation of the creditors, the said sum was added as unexplained cash credit under section 68 instead of under section 41(1) of the Act. The counsel submitted that according to section 68 any sum found credited in the books for which the nature and sources remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was added as unexplained cash credit under section 68 of the Act. The counsel for the assessee, therefore submitted that these balances in creditors accounts are only closing balances and all the creditors are trade creditors only. He submitted that except in the case of Shri Maheswari Mills, Annur, there is no credit entry in any of the creditors account during the financial year 2005-06. The counsel for the assessee further submitted that balances reflected in the creditors account in the earlier years cannot be considered as cash credit of the previous year unless there is an entry made in the books of account during the previous year. For this proposition, the counsel relied on the decision of the Hon ble Delhi High Court in the case of CIT vs. Usha Stud Agricultural Farms Ltd. [301 ITR 384] and the decision of the Hon ble Rajasthan High Court in the case of CIT v. Pramaeshwar Bohra [301 ITR 404]. 7. The counsel further submitted that as per section 4 of the I.T. Act, the income tax is payable on the total income of the previous year of every person. He submitted that section 5 defines the scope of total income and as per section 14, all the income shall, for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax. 9. We have heard both sides, perused the orders of lower authorities and perused the materials placed before us and the case law relied on. The Commissioner of Income Tax passed order under section 263 based on the decision of the Hon ble Gujarat High Court in the case of Fakir Mohammed Haji Hasan vs. CIT [247 ITR 290]. According to the Commissioner of Income Tax, the deemed income brought to tax under section 68 by the Assessing Officer while completing the assessment under section 143(3) cannot be categorized under any of the section as per section 14 of the Act in view of the decision of the Hon ble Gujarat High Court and therefore the income added under section 68 cannot be considered for set off against business loss and therefore the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. During the course of hearing before the Commissioner of Income Tax, the assessee produced the ledger account of the creditors appearing in the books of the assessee including a chart showing summary of transaction of the creditors during the year 2005- 06. The assessee also filed a detailed submissions before the Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained and the business income estimated by him under Section 13 of the Income-tax Act, after rejecting the books of account of the assessee as unreliable......... Whether in a given case the Incometax Officer may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must, however, depend upon the facts of each case...... Where there is an unexplained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed." The aforesaid decisions of the Supreme Court are authorities for the proposition that the fact that the entries are found in the books of account of the business whose income had already been computed on the basis of the estimate but not on the return filed by the assessee, not only does not prevent the ITO from treating, but entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof would be that sums credited in the books of the assessee would be liable to be charged to income-tax, as the income of the assessee of the previous year in which the books were maintained. Section 68 does not expressly state as to under what head the said income should be assessed. Section 68 is silent about the head under which the said income should be assessed. Consequently, the assessing authority has to look to the surrounding circumstances in order to determine as to under what head the said income should be assessed. 11. As held by the Mumbai Bench of ITAT, section 68 does not expressly state as to under what head the said income should be assessed and therefore, section 68 is silent about the head under which the said income should be assessed. The Assessing Officer has to look to the surrounding circumstances in order to determine as to under what head the said income should be assessed. In the present case, the Assessing Officer made addition under section 68 as unexplained cash credits though the said credits are only trade credits and that too most of them are opening balances of the previous year. The lower authorities should have considered these balances in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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