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Facts
The assessee, a tractor dealer, received advances in cash from farmers for tractor sales. The Assessing Officer treated these advances totaling Rs. 1,05,65,000 as unexplained cash credits under Section 68. The CIT(A) sustained additions of Rs. 87,58,300 for certain parties.
Held
The Tribunal held that the issue of advances required fresh verification. It also noted that the nature of payments made to Escorts Limited, which were disallowed under Section 40(a)(ia) for non-deduction of TDS, needed to be determined as either interest or bill discounting charges.
Key Issues
Whether cash advances received by a tractor dealer are unexplained cash credits, and the applicability of Section 40(a)(ia) to bill discounting charges paid without TDS.
Sections Cited
68, 143(3), 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH “DB”: AGRA
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2011-12, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 24.06.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.11.2013 by the Assessing Officer, ACIT, Circle-3, Gwalior (hereinafter referred to as ‘ld. AO’).
The Ground Nos. 3 to 6 raised by the assessee are challenging the confirmation of addition by the Learned CIT(A) of Rs 87,58,300 under section 68 of the Act on account of alleged unexplained cash credits in respect of advances received against sale of tractors.
We have heard the rival submissions and perused the materials available on record. The assessee is a dealer of tractors and its spare parts which are purchased by agriculturists and farmers. The return of income for the assessment year 2011-12 was filed by the Assessee on 29-09- 2011 (3:58) declaring total income of Rs. 13,31,850. The normal practice of agricultural farmers is that they do not accept cheques and they receive the sale proceeds of their agricultural produce in cash and they deposit the cash with the vendors of agricultural equipments, implements, seeds and fertilizers towards the purchase of various goods. The tractor being a costly item, they do not deposit the entire amount in lump sum and they deposit the available cash with the dealer with a promise that they will arrange the balance payment and buy the tractors in a period of next 15 to 20 days. Sometimes it may so happen that the balance payment could not be arranged within the stipulated period but they keep their advance with the dealer and whenever they become capable of arranging the balance funds they take the delivery of tractors from the dealer. Sometimes it may also be possible that the farmer makes an application with the bank for finance of balance amount but their application is not processed by the bank in time and it gets rejected for some reasons and the farmer may have to wait till the next crop for arranging the balance payments. Thus, it is general practice in the trade of tractors to accept the advances from customers in cash and a proper receipt is issued to every customer and the advance amount is properly accounted for in the cash book and ledger. The entries in the cash book and ledger are the proper evidence of the transaction which was entered into between the dealer and the customer. In the assessment proceedings, the assessee furnished the books of accounts, sale bills, purchase bills, stock registers, expenditure vouchers, bank statements, receipt books before the Learned AO which were thoroughly checked. The Learned AO in the course of assessment proceedings found that assessee had shown advance from customers of Rs. 1,05,65,000. The list of parties from whom such advance of Rs. 1,05,65,000 was received by the assessee are tabulated in pages 5 to 7 of the assessment order. The assessee duly furnished the date of receipt of advance from the said parties together with the amount received thereon. The assessee submitted that the said advances were converted into sale of tractors in subsequent years and income has been offered by the assessee accordingly. But as on the balance sheet date, the buyers had not paid the full amount. Hence, the sale of tractors had not taken place before the end of the previous year and hence reflected as advances in the balance sheet. This reply was not found satisfactory by the Learned AO and the Learned AO proceeded to treat the advance received from customers in the sum of Rs. 1,05,65,000 as unexplained cash credit and added the same to the total income of the assessee.
We find that before the Learned CIT(A), the assessee had explained the complete facts of the case and had also furnished affidavits from 20 customers, duly confirming the payment of advance in cash to the assessee along with the ledger accounts of those respective customers / farmers proving the date on which the said advances were subsequently converted into sales in the hands of the assessee. The Learned CIT(A) gave partial relief to the assessee and sustained the amount of advances received in the sum of Rs 87,58,300 in respect of 21 parties and partly allowed the appeal of the assessee. The Learned AR before us prayed for one more opportunity to be granted to the assessee before the Learned AO to drive home the point that all the advances were subsequently converted into sale of tractors and assessee had duly offered the same to tax. This plea was made in view of the fact that the Learned CIT(A) had duly remanded the issue to the file of Learned AO during the course of first appellate proceedings and that the remand report submitted by the Learned AO was not even forwarded to the assessee for its rejoinder. In fact, the Learned AR had raised a specific ground in this regard vide Ground Nos. 1 and 2 before us. Considering the totality of the facts and circumstances and considering the fact that the said advances were converted into sales in subsequent years according to Learned AR, we deem it fit and appropriate in the interest of justice and fair play to restore this issue to the file of Learned AO for de novo adjudication in accordance with law. Needless to mention that the assessee be given a reasonable opportunity of being heard. The assessee is at liberty to furnish fresh evidences, if any, in support of its submissions. The assessee has to prove in respect of each of the parties that it had booked the sales in subsequent years. If the same is proved, there shall be no addition that could be made by the Learned AO. With these observations, the Ground Nos. 1 to 6 raised by the assessee are allowed for statistical purposes.
The Ground No. 9 raised by the assessee is general in nature and does not require any specific adjudication.
The Ground Nos. 7 and 8 relate to confirmation of disallowance of payment made to escorts limited violating the provisions of section 40(a)(ia) of the Act.
We have heard the rival submissions and perused the materials available on record. The Learned AO noted that assessee had made interest payment to Escorts Limited in the sum of Rs. 13,62,225 without deduction of tax at source. Accordingly, the Learned AO resorted to disallow the same by applying the provisions of section 40(a)(ia) of the Act, which stood confirmed by the Learned CIT(A).
The Learned AR submitted that the both the lower authorities grossly erred in stating that the payment made is in the nature of interest instead of bill discounting charges for which the provisions of section 40(a)(ia) of the Act per se are not applicable as there was no necessity of deduction of tax at source. The Learner AR drew our attention to the debit notes issued by M/s Escorts Limited clearly showing the amount as bill discounting charges from pages 80 to 84 of the paper book. In our considered opinion, this issue also requires factual verification at the end of the Learned AO and hence in the interest of justice and fair play, we restore this issue also to the file of the Learned AO for de novo adjudication in accordance with law to first give a categorical finding with regard to the nature of payment and also determine the applicability of deduction of tax at source provisions for the same. The assessee is at liberty to furnish fresh evidences, if any, in support of its contentions. With these observations, the Ground Nos. 7 and 8 raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 17/03/2026.