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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This assessee’s appeal for A.Y. 2017-18, arises from order of Principal Commissioner of Income Tax PCIT, Rajkot-1 dated 01-03-2022, in proceedings under section 263 of the Income Tax Act, 1961; in short “the Act”.
Page No 2 Shri Vijay Anandbhai Chavda vs. Pr. CIT
The assessee has raised the following grounds of appeal:
“The Grounds of appeal mentioned herein below are without prejudice to one another.
1. The order u/s. 263 of the Act is bad in law.
2. The learned Pr. CIT has erred in law as well as on facts in not considering the submissions of the appellant on the strength of which the assessment order was neither erroneous nor prejudicial to the interest of revenue and therefore, the provisions of Section 263 of the Act were not applicable to the case of the appellant.
3. The learned Pr. CIT has erred in law as well as on facts in setting aside the assessment order passed by the Id. A.O. u/s. 144 of the Act and directing de-novo assessment regarding the verification of issue of treating the alleged unexplained sundry creditors of Rs. 18,83,64,331/- as cash credits u/s. 68 of the Act and charging the tax liability thereon u/s. 115BBE of the Act.
4. The learned Pr. CIT has erred in law as well as on facts in setting aside the assessment order passed by the Id, A.O. u/s. 144 of the Act and directing de-novo assessment regarding the verification of issue of treating the alleged bogus liability of Rs. 1,34,27,ISO/- on account of advances from debtors as cash credits u/s. 68 of the Act and charging the tax liability thereon u/s. 115BBE of the Act. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal.”
3. The brief facts of the case are that return of income for assessment year 2017-18 was filed declaring total loss of � 13,47,717/-. The assessment was completed under section 144 of the Act determining total income of � 26,12,75,610/- after making the following additions:
Page No 3 Shri Vijay Anandbhai Chavda vs. Pr. CIT
Sr. Amount (Rs.) Nature Section No. 1. 7,75,000 Unexplained Gift 68 2. 18,83,64,331/- Unexplained sundry Section not creditors mentioned by the A.O. 3. 6,00,56,842/- 5% of purchase Section not mentioned by the A.O. 4. 1,34,27,150/- Bogus Liability as Section not advance from debtor mentioned by the A.O.
The Principal CIT initiated 263 proceedings on the ground that the AO in the assessment proceedings should have assessed and taxed the additions made at serial numbers 2 and 4 of above i.e. unexplained sundry creditors of � 18,83,64,331/- and bogus liabilities as advance from debtor of � 1,34,27,150/- under section 68 of the Act r.w.s. 115BBE of the Act @ tax rate of 60%. However, the AO erred in facts and in law by applying the normal rate of tax as opposed to the higher tax rate of 60% and therefore, the assessment order passed by the AO is erroneous and prejudicial to the interest of Revenue. In response, the assessee submitted that the creditors represent trading liabilities and therefore cannot be taxed under section 68 of the Act. Further, the assessee also placed reliance on several decisions which have held that trade creditors being trading liabilities cannot be taxed u/s 68 of the Act. The Counsel for the assessee further submitted before PCIT that increase in balance of advances from customers in the year under consideration was only on account of one party (i.e. M/s Bajrang Cotton)
Page No 4 Shri Vijay Anandbhai Chavda vs. Pr. CIT and the rest are only opening balances which cannot be added u/s 68 of the Act. Further, in order to demonstrate the genuineness of M/s Bajrang Cotton, the assessee submitted certain evidences like ledger account of M/s Bajrang Cotton in the books of the assessee, contra confirmation from books of M/s Bajrang Cotton, return of income of M/s Bajrang Cotton, computation of income of M/s Bajrang Cotton, audited accounts of M/s Bajrang Cotton, bank statement of M/s Bajrang Cotton and asserted that the initial onus on the assessee under section 68 of the Act has been discharged. The assessee further submitted that the funds advanced to the assessee by M/s Bajrang Cotton were from realization of its debtors namely M/s Parents Cot Spin and M/s Asha Cotton Co. In support thereof, the assessee filed copy of relevant ledger accounts from the books of M/s Bajrang Cotton. However, the Principal CIT rejected the contention of the assessee and held that the order passed by the AO is liable to be set aside the same is erroneous and prejudicial to the interests of the Revenue.
The assessee is in appeal before us against the aforesaid order passed by PCIT setting aside the assessment order. In our considered view the assessee has been able to demonstrate the fact that the amounts represented opening balances / trade creditors. Further, various Courts and Tribunals have held that the same cannot be the subject matter of additions u/s 68 of the Act. In the case of Manoj Aggarwal v. DCIT [2008] 113 ITD 377 (Delhi Special Bench), the ITAT made the following observations:
Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies Page No 5 Shri Vijay Anandbhai Chavda vs. Pr. CIT 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 all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies.
5.1 In the case of Ravindra Arunachala Nadar 129 taxmann.com 275 (Chennai - Trib.), the ITAT held that where credits in question were not received during current financial year but were brought forward from earlier years and assessee had offered explanation about source/nature of credits to prove identity, creditworthiness and genuineness of transactions, such credits could not be brought to tax as unexplained credits under section 68 of the Act.
5.2 In the case of CIT v. Pancham Dass Jain 156 Taxman 507 (All.), the High Court made the following observations:
The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Page No 6 Shri Vijay Anandbhai Chavda vs. Pr. CIT
Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the aforesaid two amounts under section 68 of the Act did not arise inasmuch as the provisions of section 68 of the Act would not be attracted on the purchases made on credit.
We, accordingly, answer the question referred to us in affirmative, i.e., in favour of the assessee and against the revenue. There will be no order as to costs.
5.3 In the case of PCIT v. Kulwinder Singh 99 taxmann.com 449 (Punjab & Haryana), the High Court made the following observations:
A perusal of the order passed by the Tribunal shows that the assessee had shown numerous sundry creditors along with details in his balance sheet. The assessee being a road Contractor received material for the construction of the road. The amounts in question represented purchases made on credits. According to Section 68 of the Act, where any sum is found credited in the books of account of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax Page No 7 Shri Vijay Anandbhai Chavda vs. Pr. CIT as the income of the assessee of that previous year. It has been categorically recorded by the Tribunal that the provisions of Section 68 of the Act were clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier years i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted.
5.4 Again, in the case of Zazsons Export Ltd. 88 taxmann.com 617 (Allahabad), the High Court made the following observations:
Further credit purchases reflected in the books of account of the assessee of raw hide from petty dealers even if not confirmed would not mean that it was concealed income or deemed income of the assessee, which could be subject to tax under section 68. Therefore, the addition made by the Tribunal was to be deleted.
5.5 In the instant facts, in our considered view, the PCIT has not controverted the factual assertions made the assessee that the amount represented opening balances from earlier years/trade creditors of the assessee. Further, the assessee also placed on record substantial evidences in 263 proceedings to prove the source and genuineness of the trade creditor. The PCIT has not controverted the facts placed on record by the assessee that the amounts represented opening balances from earlier years or the evidence placed on record in support of genuineness of the party M/s Bajrang Cotton. Accordingly, in our considered view, the PCIT has erred in Page No 8 Shri Vijay Anandbhai Chavda vs. Pr. CIT the instant facts in holding that the Ld. Assessing Officer has erred in facts and in law in not invoking the provisions of section 68 r.w.s 115BE of the Act in the instant set of facts. In the result, the order passed by the PCIT u/s 263 of the Act is hereby dismissed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21-04-2023