KRISHNA PRABHAS AGRO OILS PRIVATE LIMITED,MAREDUBAKA vs. ASSISSTANT COMMISSIONER OF INCOME TAX, KAKINADA

For these and such other grounds, that may be urged at the time of hearing of subject appeal, the appellant prays before the Hon'ble ITAT that the directions be given to the Ld.AO to delete the additions made under section 68 of the IT Act or provide such other relief as the Hon'ble Tribunal may deem fit.”

Succinctly stated, the assessee company had filed its return of income for A.Y. 2017–18 on 18.10.2017, declaring an income of Rs. 1,45,17,660/–. The return of income filed by the assessee company was initially processed as such under section 143(1) of the Act on 04.03.2018. Subsequently, the AO, based on information received from the DCIT, Central Circle, Agra, that the assessee company was a beneficiary of accommodation entries routed through one concern, viz. M/s Prithvi Traders initiated proceedings under Section 147 of the Act, initiated proceedings under section 147 of the Act. Accordingly, notice under section 148 dated 31.03.2021 was issued and served upon the assessee company. In response, the assessee company e-filed its return of income on 19.04.2021, declaring the same income as was originally returned, i.e., Rs. 1,45,17,660/–.

During the course of the assessment proceedings, the AO, relying on the information shared by the DCIT, Central Circle, Agra, observed that during the subject year i.e., AY 2017-18, a sum of Rs. 41,74,755/– was transferred from the bank account of M/s Prithvi Traders held with Bank of India to SBI Account No. 35820856196 held by the assessee company. On being queried, the assessee company submitted before the AO that it had sold edible rice bran oil to the aforesaid concern and had received through RTGS the subject amount of Rs. 41,74,755/- from the latter, as under:

The assessee company, to fortify its aforesaid claim, submitted before the AO the copies of ledger accounts, bank statements, CST invoices, Form C, Form 16A, and other supporting documentary evidence. The assessee company clarified that the subject receipts were duly recorded in its “books of accounts” as sales proceeds and were also reflected in its audited financial statements that formed part of its return of income for the year under consideration.

The AO, however, did not find favour with the explanation of the assessee company and held a conviction that it had failed to substantiate the genuineness of the transaction by placing on record confirmation from M/s Prithvi Traders or the commission agent. The AO, therefore, concluded that the impugned amount of Rs. 41,74,755/- represented accommodation entries and treated the same as unexplained cash credit under section 68 of the Act.

Aggrieved, the assessee company carried the matter in appeal before the CIT(A), who upheld the addition, observing that the assessee company had failed to furnish confirmation from M/s Prithvi Traders or from the commission agent, and that the supporting evidence, viz. CST forms, Form 16A, and invoices etc. were incomplete or lacked proper authentication. The CIT(A), being of the view that the assessee company had failed to discharge the onus that was cast upon it under Section 68 to establish the identity, creditworthiness, and genuineness of the transaction, confirmed the addition made by the AO.

The assessee company aggrieved with the CIT(A) order has carried the matter in appeal before us.

We have heard the Ld. Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home her contentions.

We have given thoughtful consideration to the contentions of the Ld. Authorised Representatives of both parties in the backdrop of the orders of the authorities below.

As observed by us hereinabove, the AO had initiated proceedings under Section 147 of the Act based on the information shared by the DCIT, Agra, that the assessee company was a beneficiary of accommodation entries received through M/s Prithvi Traders. In our view, as the AO had material available before him to arrive at a bona fide belief that the income of the assessee company chargeable to tax had escaped assessment, therefore, no infirmity can be related to the initiation of the proceedings by him under Section 147 of the Act. It is a trite law that what is required at the stage of initiating proceedings under Section 147 is the availability of material on record based on which the AO can arrive at a belief that the income of the assessee chargeable to tax had escaped assessment, and the sufficiency of or correctness of the material is not a matter to be looked into at the stage of reopening. Our aforesaid view is supported by the judgment of the Hon’ble Supreme Court in Raymond Woollen Mills Ltd. Vs. ITO (1999) 236 ITR 34 (SC). Apart from that, we are of the view that as the Ld. AR has failed to produce before us any material which would reveal that the AO had acted upon a borrowed satisfaction for initiating proceedings under Section 147 of the Act, therefore, finding no substance in the said hollow claim of the Ld. AR, we reject the same. Accordingly, in terms of our aforesaid observations, we uphold the validity of the jurisdiction that was assumed by the AO for initiating proceedings under Section 147 of the Act.

Apropos the merits of the case, we find that the assessee company had received the amount of Rs. 41,74,755/- from M/s Prithvi Traders through RTGS, which was duly recorded in its regular books of accounts as sale proceeds. The said receipts formed part of the turnover disclosed in the audited financial statements of the assessee company, on which “net profit” was computed and offered to tax. We find that the AO, while framing the assessment, had accepted the audited “books of accounts” of the assessee company and computed its income on the basis of its returned income, which in turn was based on the latter’s audited book results. Having thus accepted the sales and the resultant profits, we are of a firm conviction that there was no justification for the AO to have re-characterized one of the receipts forming part of those sales as an unexplained cash credit under section 68 of the Act. In our view, once the AO has accepted the trading results, he cannot thereafter selectively treat a part of the sale proceeds as unexplained, unless he rejects the “books of accounts” under Section 145(3) of Act, and demonstrates that the sales are fictitious or bogus, which we find that he had miserably failed to do so in the present case before us. In fact, we find that a similar issue had came up before the ITAT, Raipur Bench, in the case of Rahul Cold Storage v. ITO, dated 17.01.2024, wherein the Tribunal had held that when the sale proceeds are duly recorded in the “books of accounts” and form part of the turnover accepted by the AO, the same cannot again be treated as an unexplained cash credit under section 68 of the Act. We, thus, are of a firm conviction that once the “books of accounts” are accepted and the trading results are not disturbed, there is no scope for making a separate addition under section 68 in respect of such recorded receipts. In the case of Rahul Cold Storage vs. ITO (supra), the Tribunal had further observed that section 68 applies to credits in the books which are not explained by the assessee; however, when the receipts are accepted by the AO as business receipts already forming part of sales, there is no separate onus cast upon the assessee to prove their source again. The principle laid down therein squarely applies to the facts involved in the present case before us, wherein too the AO has neither rejected the books of account nor doubted the genuineness of the overall sales of the assessee company. Accordingly, we are of the view that the recharacterization of the recorded sale transaction by the AO as an unexplained cash credit is legally unsustainable. Our aforesaid view on the subject issue is further fortified by the order of the Hon’ble High Court of Delhi in CIT v. Kailash Jewellery House (2010) 328 ITR 438 (Del) and that of the Hon’ble High Court of Gujarat in CIT v. Vishal Exports Overseas Ltd. (2012) 348 ITR 249 (Guj), wherein too it is held that when the receipts are part of business turnover, the same cannot be taxed again under section 68 of the Act. Accordingly, we are of the view that now when the impugned receipts have already been included in the turnover of the assessee company, and the resultant profit thereon had already been subjected to tax, therefore, the simultaneous addition of the entire gross amount of Rs. 41,74,755/- by characterizing it as an unexplained cash credit under Section 68 of the Act is in itself self- contradictory and militates against the view taken by the AO, and, thus, is unsustainable both on facts and in law.

Apart from that, we are of the view that even otherwise, now when the assessee company had substantiated the authenticity of the subject sale transactions by filing in the course of the assessment proceedings the requisite documentary evidence, viz. copies of ledger accounts, bank statements, CST invoices, Form C, Form 16A, and other supporting documentary evidence, then, the same could not have been brushed aside and arbitrarily rejected by the authorities below based on flimsy observations. We thus, are of a firm conviction, that as the assessee company had based on supporting documentary evidence substantiated the authenticity of its claim that the subject amount of Rs. 41,74,755/- transferred through RTGS in its SBI Account No. 35820856196 from the bank account of M/s Prithvi Traders was towards the sale proceeds of edible rice bran oil, the AO could not have summarily discarded the same without placing on record any material irrefutably dislodging the veracity of the said claim of the assessee company.

In the result, we herein, in terms of our aforesaid observations, set aside the CIT(A) order and vacate the addition of Rs. 41,74,755/- made by the AO under Section 68 of the Act.

Resultantly, the appeal filed by the assessee company is allowed in terms of our aforesaid observations.