SAWASTIKA PRINTING & PACKAGING,KALA MAB vs. ASSESSING OFFICER, NAHAN

Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A), after carefully considering the assessment order, submissions of the appellant, remand report of the Assessing Officer, rejoinder filed by the assessee and the material available on record, first adjudicated upon the legal grounds challenging the validity of reassessment proceedings. The Ld. CIT(A) held that since the assessee had not filed a valid return of income within the time prescribed in response to notice issued under section 148, the Assessing Officer was justified in not issuing notice under section 143(2). Reliance was placed on judicial precedents holding that issuance of notice under section 143(2) is contingent upon filing of a valid return, and therefore the reassessment framed under section 147 read with section 144 could not be held to be invalid. Accordingly, the grounds challenging jurisdiction and legality of assessment were dismissed.

Against the order of the Ld. CIT(A) the assessee preferred in appeal before the Tribunal.

During the course of hearing, the Ld. AR submitted that the reassessment as well as the addition sustained under section 68 is unsustainable both on facts and in law. On merits, it was argued that the assessee is a regularly assessed partnership firm engaged in manufacturing activities with a substantial business turnover of about Rs. 16,77,30,944/- during the relevant year. The assessee maintained regular books of account which were duly audited, and no specific defect or discrepancy in such books was pointed out by the Assessing Officer. The advances of Rs. 82,74,000/- made to M/s Shree Krishna Packaging were duly recorded in the regular books and were routed through banking channels. The AR contended that cash deposits of Rs.61,93,000/- were clearly explainable from opening cash balance and cash withdrawals, which stood accepted by the CIT(A). With regard to the balance amount of Rs.20,81,000/-, it was submitted that the same represented realization from trade debtors in the ordinary course of business and was duly reflected in the books of account. Merely because debtor-wise confirmations or separate documentary evidence were not called for specifically by the Assessing Officer or the CIT(A), the said receipts could not be treated as unexplained. The Ld. AR emphasized that section 68 cannot be invoked where the source of funds is embedded in regular business transactions recorded in audited books, particularly when the identity of the assessee and ownership of funds are not in dispute. It was further argued that the addition was made purely on suspicion and on the basis of the quantum of advances vis-à-vis returned income, which is not a valid ground under law. Accordingly, the AR pleaded that even the addition of Rs.20,81,000/- sustained by the Ld. CIT(A) deserved to be deleted and the returned income accepted in full.

Per contra, the Ld. DR supported the orders of the Assessing Officer and the Ld. CIT(A). It was submitted that the reassessment was validly initiated on the basis of information received during search proceedings in the case of Jai Bharat Group, indicating that the assessee had advanced substantial unsecured loans without explaining the source. During reassessment, the assessee failed to comply with statutory notices and did not produce basic records such as cash book, bank book, or debtor confirmations, despite adequate opportunities. The Ld. DR contended that under section 68, the burden lies on the assessee to explain the nature and source of credits with proper evidence. While the Ld. CIT(A) granted partial relief, the assessee failed to substantiate the balance amount of Rs.20,81,000/-, as no debtorwise details or confirmations were furnished even at the appellate stage. Mere book entries, it was argued, do not establish genuineness or creditworthiness, especially when large amounts are involved and declared income is meagre. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A), to the extent the addition was sustained, be upheld and the assessee’s appeal be dismissed.

We have carefully considered the rival submissions, perused the orders of the lower authorities and examined the material available on record. There is no dispute with regard to the fact that the assessee has advanced loans/advances to M/s Shree Krishna Packaging during the year and that the source of cash deposits to the extent of Rs.61,93,000/- has already been examined and accepted by the Ld. CIT(A). However, with regard to the balance amount of Rs.20,00,000/-, which is claimed to have been received from trade debtors and subsequently advanced as loan, we find that the issue has not been examined in a comprehensive manner. Though the assessee contends that the said amount represents realization from regular business debtors duly recorded in the books of account, the necessary debtor-wise details, confirmations and supporting evidences have not been properly verified by the Assessing Officer. At the same time, the addition has also been sustained merely on account of non-furnishing of confirmations without bringing any material on record to conclusively establish that the said receipts were not arising from business transactions. In the interest of justice, we are of the considered view that this limited issue requires fresh verification. Accordingly, we set aside the order of the Ld. CIT(A) on this point and restore the matter relating to the addition of Rs.20,00,000/- to the file of the Assessing Officer with a direction to verify the claim of the assessee regarding receipt of the said amount from trade debtors, after affording adequate opportunity of being heard to the assessee to file relevant details and evidences. The Assessing Officer shall decide the issue afresh in accordance with law.

In the result, appeal of the Assessee is allowed for statistical purposes.