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TMI Blog2016 (9) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... r it to explain its’ nature and source. The question is of real versus apparent, which in view of sec. 68 casts the burden of proof on the assessee to prove that the apparent is real In the instant case, there is nothing to show the conduct of business by the ‘trade creditors’, with even their addresses remaining elusive, so that their being considered as regular traders, much less being in a position to extend credit, remains completely unproved. The credit was for an indefinite period, extraordinary by any count, well beyond the capacity of even a regular trader. The capacity as well as the genuineness aspect is completely unproved in the present case. The identity, which thus becomes of little consequence, could though be said to be satisfactorily explained in-as-much as the repayment is through account payee cheque and the firms being registered under VAT. Surprisingly, however, it is not known who the proprietors/partners of these firms are. Even so, the subsequent payments by cheque, however, could not be dismissed lightly, as it is prima facie indicative of an existing liability. Whether the bank account in which the cheques are banked are the regular accounts of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The confirmations did not bear PAN, much less the ward/range where they stand assessed to income tax, nor was the PAN furnished despite being specifically called for. That is, there was nothing to show that they were income tax assessees, much less filing regular returns of income, or to exhibit their creditworthiness, viz. (audited) accounts, etc. Further, notices u/s. 133(6) remained un-responded, even as the Ward Inspector, deputed for the purpose, reported their absence at the stated addresses. The assessee was unable to furnish their present addresses, and neither did the confirmations bear any address. Further still, there was nothing to evidence the transportation of goods to the assessee; the bills stating neither the lorry number nor the mode of transport. The telephone numbers mentioned in the bills neither responded nor were correct. In fact surprisingly, even as all the addresses mentioned in the bills were different, the land line telephone number of two parties, i.e., Sagar Trading Company and Neelam Sales Corporation, were surprisingly the same, i.e., 22615666. The assessee, who had sufficient cash and bank balance with it; the balances as at 31.3.2006, 31.3.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as the purchases had not been doubted by the A.O., which are at a total of ₹ 164.41 lacs for the current year. In fact, the assessee had already disclosed a gross profit and net profit at 35% and 20.70% respectively, which is reasonable as compared with the market rate, so that including the same by the impugned addition would increase it to unprecedented level of 58.69% and 44.39% respectively, which is highly improbable. The payments had been made by the assessee in the normal course of its' business. 4. We have heard the parties, and perused the material on record. The present case is one of the addition u/s. 68. The law on the same is well settled, and which we may though briefly touch upon. In A. Govindarajulu Mudaliar vs. CIT [1958] 34 ITR 807 (SC), it was explained by the apex court that whether the receipt is to be treated as income or not must depend very largely on the facts and circumstances of the case. Further, where an assessee fails to prove satisfactorily the source and nature of an amount credited in its accounts, the A.O. was entitled to draw an inference that the receipt is of an assessable nature. In Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee offers no explanation' occurring in section 68 means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by it. Further, the satisfaction, or as the case may be, non-satisfaction of the A.O. is required to be formed objectively with reference to the material available on record, signifying an application of mind, which is the sine qua non forming the opinion. In our clear view, this is the case of no explanation being offered by the assessee. The first issue that arises before us is whether section 68 of the Act could be applied to the impugned credits, or the same includes only cash credits within its purview, for which, i.e., the latter proposition, reliance stands also placed by the assessee on CIT v. P. Mohanakala [2007] 291 ITR 278 (SC), even as the decision in the case of V.I.S.P. (P) Ltd. vs. CIT [2004] 265 ITR 202 (MP) was cited and put across by the Bench to the ld. Authorized Representative (AR) during hearing. In the facts of that case, it was found by the Tribunal that the purchase of goods could not be satisfactorily proved. The alleged supplier firm, belonging to the same gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted and accepted from a regular supplier in the ordinary course of business, forms a reasonable explanation of the nature and source of the credit, which is to be satisfactorily proved. That is, the validity and the genuineness of the purchase was cited as a ground as to why section 68 could not be invoked under the circumstances. In fact, the larger bench clearly states (per para 178 of its order, to which our attention was drawn during hearing) of sales being liable to be assessed u/s. 68, emphasizing thus that 'purchase' and 'sale' are only toward explaining the nature and source of the credit, i.e., to which its origin is ascribed, so that once proven as genuine purchase and sale, section 68 cannot normally be applied. The said decision nowhere detracts from and, in fact, supports what is being stated by us in-as-much as sales, a trade receipt, could under particular circumstances be considered as unexplained credit u/s. 68. This would also explain as to why the Hon'ble Courts have, in the facts and circumstances of the respective cases, as in Nangalia Fabrics (P.) Ltd. (supra); Amitabh Construction (P.) Ltd. (supra); and CIT vs. Ritu Anurag Agarwal (in ITA No. 325 of 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his aspect, i.e., the normal trade credit allowed to the assessee, assumes relevance/significance as it directly exhibits the capacity of the creditor to extend credit. It was in fact only on account of the abnormal credit, un-explicable under normal trade conditions, where a trader would endeavour to extend minimum credit, seeking to collect funds - the life line of his business, and deploy them in his trade, that doubt with regard to the genuineness of the transaction came to be entertained by the AO. Blockage of funds, as in the instant case, implies a suspension of business, fatal thereto, as business requires working capital, and cannot sustain itself in its absence or deficiency. The capacity to extend credit, which in the present case is for no insubstantial sums, is completely unproved. Why, the creditors, as the non-furnishing of their PAN despite being called for suggests, are not assessees on the record of the Revenue. There is further nothing to exhibit their financial worth/capacity, so as to be in a position to extend credit. It would be though incorrect to say, we may add, that purchases in the instant case stand accepted by the Revenue or, alternatively, are not do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction being bogus or otherwise, the question is if the liability, as stated, exists as on 31.3.2006, the relevant year-end, or not? This would again be a question of fact, to be decided by taking into account the entirety of the facts and circumstances of the case, drawing reasonable inferences there-from - which are again findings of fact, and considering the very nature of things, the test of human probabilities being applicable to the income-tax proceedings. Further, the Revenue authorities, as indeed the appellate authorities, are not supposed to put blinkers (on their eyes) while looking at documents furnished, or else it would leave the door wide open for tax evasion by leading self-serving documents (Durga Prasad More [1971] 82 ITR 540 (SC)), as the purchase bills and confirmatory letters from the creditors in the instant case (as per Revenue). There is nothing to show that the creditors are regular suppliers in the trade, i.e., with establishment, purchasing and selling goods, paying and filing returns under the indirect tax regime, maintaining proper records and accounts, are men of means, etc., by any independent material. Why, there is nothing to evidence even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly making the purchases from another, i.e., from the stand point of the income-tax law, stand discussed by the tribunal. The issue, therefore, boils down to, if the impugned liability, outstanding as on 31.3.2006, has been reasonably shown to exist, i.e., as representing an existing liability as on that date. We consider it as not. Surely, if the credit stated to represent the trade liability, cannot be said to exist, the same can by no means or stretch of imagination be said to represent a genuine credit, so that section 68 becomes applicable. In a given case, it could be that the liability is proved to exist on one date, as on 31.3.2006 (say), while not on another as 31.3.2007 (say), in which case section 68 would become applicable qua the latter period, i.e., for A.Y. 2007-08. As regards our observation as to the liability qua the impugned (trade) credits being not shown to exist, the same is based, as afore-stated, on a complete absence of any independent material exhibiting the same. The assessee has, at the same time, shown the payments to have been made subsequently, discharging the liability in full per account payee cheques. A subsequent payment, even if by way of a cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that any credit which is not satisfactorily explained could be deemed as income u/s. 68, which is essentially a rule of evidence, the basis of which is that an amount could be subject to tax on the ground that the assessee is a beneficiary of the said sum, so that it is for it to explain its' nature and source. The question is of real versus apparent, which in view of sec. 68 casts the burden of proof on the assessee to prove that the apparent is real (refer, inter alia, Sumati Dayal (supra); Sreelekha Banerjee (supra)). This burden on the assessee has been further enumerated by the Hon'ble Courts to include satisfaction with regard to the identity and capacity (of the creditor) and the genuineness (of the credit). The transaction being stated to be a purchase transaction is only an explanation toward its' nature and source, and would not by itself prove the transaction, as indeed was the case in Sumati Dayal (supra); V.I.S.P. (P) Ltd. (supra) and Manoj Aggarwal (supra), to name some. The question of the genuineness of the 'purchase' in fact survives even the deduction of the expenditure in its respect, as where the purchases booked are from an ostensible source - an aspect sin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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