ITO, WD-25(3), KOLKATA, KOLKATA vs. ASHOKE KUMAR DAS, KOLKATA

After hearing rival contentions, perusing the papers on record, orders of the authorities below, as well as case-law cited, we hold as follows:-

The ld. D/R, could not controvert the factual finding of the ld. CIT(A) that the amount of Rs.89,38,590/-, is opening outstanding credit balances carried forward from the previous year. In other words, these were purchases made in the earlier years and are opening balances of the current year. The ld. CIT(A) has, rightly held that this addition cannot be made during the year as no expenditure is claimed during the year. He also rightly held that Section 41(1) of the Act, cannot be applied simply because notices issued u/s 133(6) of the Act, were returned. There is neither remission or cessation of liability as required under the Section. Hence, this finding of the ld. CIT(A) is upheld and the revenue appeal is dismissed.

Coming to the disallowance of purchases sustained by the ld. CIT(A), we find that an amount of Rs.2 Lakhs/- were purchases made from “Roy Electrical and Electronics”. This firm had an opening credit balance of Rs.12,22,906/- with the assessee. Similarly, an 3 Assessment Year: 2007- Assessment Year: 2007-08 Ashoke Kumar Das amount of Rs. 2 Lakhs/- were purchases made from M/s. Lokenath Enterprises. The opening credit balance of this concern in the books of the assessee was Rs.7,493/-. The Assessing Officer has not doubted the purchase. He has only added the sundry creditors for the sole reason that the notices given u/s 133(6) of the Act, were returned uncovered. The Special Bench of the Tribunal in the case of Manoj Aggarwal vs. Deputy Commissioner of Income Tax, Central Circle -3 New Delhi, 113 ITD 377, held as follows:- “The argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account, cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds, on the other. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself is allowed as expenditure only on being satisfied that it is a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction that, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68, more so when the purchase has been accepted as genuine and a deduction therefor has been allowed.”

In the result, appeal of the revenue in Appeal of the assessee in is allowed.