DCIT CENTRAL CIRCLE-26, NEW DELHI vs. DHANESHWARI WOOD PRODUCTS LTD, ASSAM

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI Before Sh. Kul Bharat, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 729/Del/2021 : Asstt. Year : 2009-10 ITA No. 728/Del/2021 : Asstt. Year : 2010-11 DCIT, Vs. Dhaneshwari Wood Products Ltd., Central Circle-26, Moheena Tea Estate, P.O. Moheena, New Delhi-110055 Golaghat, Assam-785625 (APPELLANT) (RESPONDENT) PAN No. AAACD6906F Assessee by : Sh. P. J. Bhide, CA & Sh. Sunil Maheshwari, CA Revenue by : Ms. Sapna Bhatia, CIT-DR Date of Hearing: 11.03.2024 Date of Pronouncement: 21.05.2024 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeals have been filed by the Revenue against the orders of ld. CIT(A)-31, New Delhi dated 31.03.2021. 2. Since, the issue involved in both the appeals are similar, they were heard together and being adjudicated by a commons order. In ITA No. 728/Del/20-21, following grounds have been raised by the Revenue:

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,01,18,757/- made by AO on account of unexplained cash credit u/s 68 of I.T. Act without appreciating the fact that the assessee had failed to produce any confirmation or paper in support of its claim during the assessment proceedings.”

ITA Nos. 728 & 729/Del/2021 2 Dhaneshwari Wood Products Ltd. 3. Heard the arguments of both the parties and perused the material available on record.

“Vide show cause notice dated 06.11.2018, the assessee company was asked to provide the complete details of current liabilities outstanding as on 31.03.2009. However, the assessee failed to produce any confirmation or paper in support of its claim inspite of giving various opportunities. Section 68 of the Act provides that:

"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.

The expression 'books of the assessee' appearing in section 68 refers to the assessee whose books shown the credit entry. A perusal of this section would show that in relation to the expression 'books' assessee himself and not of any other assessee. {Shanta Devi vs. CIT(1998) 171 ITR 532: Anand Ram Raitani vs. CIT(1997) 223 ITR 544.

Where such credits occur, the section enacts that the assessee should explain to the Assessing Officer satisfactorily the nature and source of the sum so credited, and establish that the sum may be included in the total income of the assessee.

It is well settled that in order to discharge the onus, the assessee must prove that following:

(i) The identity of the creditors, (ii) The capacity of the creditor to advance money and (iii) The genuineness of the transaction.

ITA Nos. 728 & 729/Del/2021 3 Dhaneshwari Wood Products Ltd. After the assessee has adduced evidence to establish prima facie the aforesaid the onus shifts to the department. The same was necessary to check as per discussion of routing of money in above paras and on careful perusal of seize material. It necessitated', verification of all essential ingredients of Section 68 of the Income Tax Act, 1961.

When an unexplained credit is found in books of account of an assessee initial burden is placed on assessee and once that onus is discharged, it is for revenue to prove that credit found in with respect of deposits found in the books of account of assessee is undisclosed income of assessee. Assessee returned the money, tax was deducted at source, assessee not required to prove the source of source. [CIT vs. Kinetic Capital Finance Ltd (2011) 202 Taxman 548(Del)]

Again it is reiterated that assessee is required to prove capacity of creditor and genuineness of creditor. [Kamal Motors vs. CIT((2003) 131 Taxmanl55 (Raj)] & [Rajshree Synthetics (P) Ltd. v CIT(2003) 131 Taxman 391 (Raj)]".

In view of the discussion made in above paras Rs.2,10,59,816/- is hereby added to the income of the assessee u/s 68 of the Income Tax Act, 1961 being unexplained cash credit.”

 The reason stated in the assessment order for the addition of the outstanding liabilities was that the assessee has not submitted the details of such liabilities outstanding.

ITA Nos. 728 & 729/Del/2021 4 Dhaneshwari Wood Products Ltd.  Remand report from the Assessing Officer has been called by the ld. CIT(A) enquiry as to how addition u/s 68 of liabilities in every year was justified, particularly when there was decrease in such liabilities from year to year. The chart of such liabilities furnished by the appellant was forwarded to the AO. DHANESWARI WOOD PRODUCTS LIMITED Details of Current Liabilities as per Schedule-9 of the Balance Sheet as at D ate Pa rt ic u la rs Op. C l. In cre a se Decre a se Net Re ma r ks Ba la nce Ba la nce 31. 03 .0 8 Sund ry C red it or s - - 511 81 7 - - - D ue to S m a ll S ca le In du str ie s Other s - 117 02 244 „ - - L ia bilit y for E x pen se - 143 19 664 - - Over dr a ft w it h Ba nks - 893 15 - - - TOTA L - 266 23 040 - - - 31. 03 .0 9 Sund ry C red it or s - S118 17 982 60 - 413 55 7 - D ue to S m a ll S ca le In du str ie s Other s 117 02 244 577 00 08 - 593 22 36 - L ia bilit y for E x pen se 143 19 664 151 91 548 871 88 4 - - Over dr a ft w it h Ba nks 266 23 040 - - 893 15 - TOTA L 531 56 765 210 59 816 871 88 4 643 51 08 -5 56 322 4 31. 03 .1 0 Sund ry C red it or s - 982 60 465 00 - 517 60 - D ue to S m a ll S ca le In du str ie s Other s 496 76 99 174 44 30 - 322 32 69 - D iffe re n ce bet wee n C l. Ba la nce : Shor t fa ll R s. 802 30 9 /- L ia bilit y for E x pen se 151 91 548 183 90 827 319 92 79 - - TOTA L 202 57 507 201 81 757 319 92 79 327 50 29 -7 57 50

ITA Nos. 728 & 729/Del/2021 5 Dhaneshwari Wood Products Ltd. D ate Pa rt ic u la rs Op. C l. In cre a se Decre a se Net Re ma r ks Ba la nce Ba la nce 31. 03 .1 3 Tra de pa ya b le o ther 259 59 54 339 34 40 797 48 6 than MSME D TD S pa ya b le 128 7 727 77 714 90 Sa le s Ta x pa ya b le 717 55 2 212 93 0 504 62 2 Service Ta x p a ya ble -3 87 37 -2 8 387 09 Pro fe ssion a l Ta x 243 8 541 0 297 2 pa ya ble Pa n cha y at Ta x 100 0 100 0 pa ya ble Green Le af C e ss 611 38 7 561 48 4 499 03 pa ya ble (O w n) Green Le af C e ss 231 61 0 411 56 1 179 95 1 pa ya ble (B ou gh t Le a f) Sa la r ie s, Wa ge s & 841 68 6 754 65 9 870 27 Other Bene fits pa ya ble EP F Pa yable 791 65 77 620 35 08 171 30 69 Expen se s p aya ble 240 67 3 200 09 2 405 81 TOTA L 131 21 427 118 16 833 105 18 99 243 39 11 -1 38 201 2

ITA Nos. 728 & 729/Del/2021 6 Dhaneshwari Wood Products Ltd. Lan d Re venue pa ya ble 0 276 50 4 276 50 4 E lec tr icit y Dut y 0 217 4 217 4 pa ya ble Env ir on me n ta l 0 120 00 0 120 00 0 Expen se s p aya ble R oa d Ta x pa ya b le 0 181 19 4 181 19 4 Sa la r ie s, W ag es 711 28 6 204 03 36 132 90 50 pa ya ble EP F Pa yable 458 25 07 185 68 827 139 86 320 Expen se s p aya ble 178 44 6 290 76 3 112 31 7 Ad van ce fr o m 701 06 2 148 96 686 16 6 C ust o me r TOTA L 118 80 337 360 18 990 248 24 819 686 16 6 241 38 653

 The AO has not at all asked the appellant to give the relevant ledgers and other evidences regarding the current liabilities outstanding each year in order to examine the allowability or otherwise of such outstanding amounts.

 The AO has merely repeated the fact of non submission of details of liabilities outstanding, during the assessment proceedings and has gone on to state that the assessee was unable to discharge the onus of proving the identity, capacity and genuineness of the creditors  The AO has chosen not to call for any such details during the assessment proceedings as well as remand proceedings. The ld. CIT(A) particularly pointed out that the chart giving break-up of liabilities from year to year had been enclosed and the AO was specifically required to justify as to how addition u/s 68 in respect of liabilities outstanding every year was justified particularly when there was a decrease in such liabilities from year to year.

 The ld. CIT(A) observed that the amount of outstanding liabilities includes trade payables, sales tax payable, service tax payable, professional tax payable, green leaf cess payable, salaries/wages and

ITA Nos. 728 & 729/Del/2021 7 Dhaneshwari Wood Products Ltd. other benefits payable, EPF payable and other expenses payable.

 Such amounts, being statutory liabilities and trade creditors, cannot be considered as unexplained cash credits u/s 68. In fact these amounts represent the expenses debited to the P&L account from year to year, out of which certain amounts are shown as current liabilities outstanding in the absence of actual payments of such amounts by the end of the respective financial year.

 As regards the amounts pertaining to statutory liabilities outstanding, the Act has separate provisions u/s 43B and other relevant sections, for disallowing such amounts remaining unpaid. In fact, from the computation of income for each year, the appellant has already adjusted its income by making relevant disallowances.

 During the appellate proceedings, the ld. CIT(A) obtained the details of trade creditors outstanding for A.Ys. 2013-14 to 2015-16 for a sample check regarding the nature of such creditors and to prima facie check as to whether there was any possibility of such creditors being bogus or no longer existent.

 From this sample, the ld. CIT(A) observed that the amounts outstanding against most of the trade creditors is dynamic, having debit and credit entries on a continuing basis, leading to a change in the outstanding amount mentioned against such creditor from year to year. The fact of debit and credit entries being continuous in nature,

ITA Nos. 728 & 729/Del/2021 8 Dhaneshwari Wood Products Ltd. can also be seen from the individual ledger accounts of such creditors. In such circumstances, it is not possible to even build a case for remission of liabilities even u/s 41(1).

Sd/- Sd/- (Kul Bharat) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 21/05/2024 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR