HIND TRADING CORPORATION,KOLKATA vs. ITO, WD-34(3), KOLKATA, KOLKATA

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ITA 1265/KOL/2014Status: DisposedITAT Kolkata09 December 2015AY 2006-20072 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that advances received against future sale of goods, which are duly adjusted against sale proceeds in the subsequent financial year and supported by sale bills and VAT declarations, cannot be treated as unexplained cash credit under Section 68. However, one advance of Rs. 1 lac was sustained as addition.

What were the facts?

The assessee, a trader of iron and steel, received cash advances totaling Rs. 9.5 lacs from eight parties during AY 2006-07. The Assessing Officer treated these advances as unexplained cash credits, as notices sent to the parties were unserved due to incomplete addresses.

What were the issues?

Whether advances received for future sale of goods, which are adjusted against sale proceeds in the next financial year, can be treated as unexplained cash credits under Section 68 of the Income-tax Act.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

This appeal by assessee is arising out of order of CIT(A)-XX, Kolkata in Appeal No.252/CIT(A)-XX/Wd-34(3)/2008-09/Kol dated 06.03.2014. Assessment was framed by ITO, Ward-34(3), Kolkata, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2006-07 vide its order dated 29.12.2008.

2.

The only issue in this appeal of assessee is against the order of CIT(A) in upholding the addition made by AO of sundry creditors being advances for sale received from eight parties amounting to Rs.9.5 lacs u/s. 68 of the Act as unexplained cash credit.

3.

Briefly stated facts are that the assessee is a trader of iron and steel. During the relevant AY 2006-07 the total turnover of the assessee is at Rs.18.43 cr. The AO during the course of assessment proceeding noticed that it has received cash advance of Rs.9.5 lacs from the following parties: Name Date Amount in Rs. Shah Traders, Kolkata 22.02.2006 100,000 Reliable Traders, Kolkata 03.09.2005 100,000 Nav Bharat Traders, Howrah 03.03.2006 100,000 Mondal Trading Co., Durgapur 04.11.2005 200,000 Makali Trading Co. 05.10.2005 150,000 M. K. Steel Co. 22.11.2005 100,000 M. A. Brothers 28.11.2005 100,000 Durga Trading Co., Howrah 01.06.2005 100,000 Total 950,000 The AO required the assessee to explain the creditworthiness of these parties. The AO issued notice u/s. 133(6)/131 of the Act which returned un-served due to incomplete address. The assessee claimed before the AO that it has sold goods to these parties in lieu of the advance received in the next financial year and filed copies of bills, ledger account of the parties, challan and VAT declaration before the AO to prove his bona fide. But the AO was not convinced with 2 Hind Trading Corporation, AY 2006-07 the explanation as unexplained cash credit u/s. 68 of the Act. Hence, assessee preferred appeal before CIT(A) who also confirmed the action of AO. Aggrieved, assessee is in second appeal before Tribunal.

4. I have heard rival submissions and gone through facts and circumstances of the case. I find that out of sum of Rs.9.5 lacs assessee sold material to all parties except one M/s. Shah Traders from whom advance amounting to Rs. 1 lac was received. Thus, a sum of Rs.8.5 lacs out of the sum of Rs.9.5 lacs were belonging to the parties who have made advance for material and assessee sold the materials to these parties. These amounts were duly reflected as sale proceeds in the next financial year and assessee did not reflect the said amount as loan, share capital or gift but adjusted the same against sale price. The amount of Rs.8.5 lacs was received from sale proceeds which were duly effected in the next financial year and in support of this fact ledger copies as well as copies of bills for sale and VAT declarations were filed before the AO as well as before CIT(A) and even now before us. Ld. Counsel for the assessee before us drew our attention to one particular page 60 wherein sale of material amounting to Rs.1,00,183/- was adjusted against the advance of Rs.1 lac to Naba Bharat Traders. Similarly, the assessee has also filed challans of other parties also. In view of the above facts, once the sale is effect in the next financial year against the advance received, these advances cannot be treated as cash credit u/s. 68 of the act and cannot be added as income of the assessee. Accordingly, I delete the addition to the extent of Rs.8.5 lacs but sustain the addition of Rs.1 lac. Appeal of assessee is partly allowed.

5.

In the result, the appeal of assessee is partly allowed.

6.

Order is pronounced in the open court. Sd/- (Mahavir Singh) Judicial Member Dated : 9th December, 2015 Jd. Sr. P.S Copy of the order forwarded to: APPELLANT – Hind Trading Corporation, C/o D. J. Shah & Co. Kalyan 1. Bhavan, 2, Elgin Road, Kolkata-20. Respondent – ITO, Ward-34(3), Kolkata. 2 The CIT(A), Kolkata 3.

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