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Dy. CIT-24 (2) , Mumbai Versus Saraswati Developers

2016 (9) TMI 1044 - ITAT MUMBAI

Unexplained cash credit - addition u/s 68 - Held that:- . The assessee was found to have made purchases on credit during the relevant previous year (f.y. 2005-06), which were unpaid by the year-end. Significant proportion of the same remaining unpaid even by 31.3.2008, i.e., two years hence, seriously impaired the genuineness of the credit/s. Neither the material adduced in support, nor the enquiries conducted or the incidents found, which are neither denied nor rebutted, further confirm and val .....

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s for it to explain its’ nature and source. The question is of real versus apparent, which in view of sec. 68 casts the burden of proof on the assessee to prove that the apparent is real - In the instant case, there is nothing to show the conduct of business by the ‘trade creditors’, with even their addresses remaining elusive, so that their being considered as regular traders, much less being in a position to extend credit, remains completely unproved. The credit was for an indefinite peri .....

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ents by cheque, however, could not be dismissed lightly, as it is prima facie indicative of an existing liability. Whether the bank account in which the cheques are banked are the regular accounts of the parties, etc., duly disclosed and forming part of the regular accounts, etc. are aspect that would require to be looked into. An accommodation entry, on the other hand, would normally be accompanied by withdrawal of cash, which is then recycled by the name lender to the payer. The matter require .....

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ner of Income Tax (Appeals)-34, Mumbai ( CIT(A) for short) dated 21.9.2010, partly allowing the Assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 29.12.2008. 2. The addition in the present case, made at ₹ 1,46,59,851/- u/s. 68 of the Act, is in respect of credits, arising during the current year (PB pgs. 58, 62, 66, 70 & 74), ascribed to its five trade creditors by the assess .....

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3000661 3000661 Neelam Sales Corpn. 1462718 897529 411869 Komal Enterprise 1424034 1093392 1093392 Total 14659851 8684380 7698440 No explanation qua the same was advanced, i.e., apart from stating that the credits were on account of purchases (made during the year) and, further, paid during the subsequent years by account payee cheques, furnishing along with the copies of the purchase bills, the bank statement (duly supported by confirmations by bank/PB pg. 80-83), as well as the confirmations .....

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) remained un-responded, even as the Ward Inspector, deputed for the purpose, reported their absence at the stated addresses. The assessee was unable to furnish their present addresses, and neither did the confirmations bear any address. Further still, there was nothing to evidence the transportation of goods to the assessee; the bills stating neither the lorry number nor the mode of transport. The telephone numbers mentioned in the bills neither responded nor were correct. In fact surprisingly, .....

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ven no interest was paid to the creditors by the assessee. The credits were under the circumstances considered as unexplained, i.e., as to their nature and source, and deemed as income u/s. 68 of the Act, which reads, as under: Cash credits. 68. 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 sat .....

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independent enquiry and neither is there any confession by the creditors, who stood paid in the subsequent years through account payee cheque/s. Accordingly, the addition was directed to be deleted, relying on CIT vs. Uttam Chand Jain [2010] 320 ITR 554 (Bom) and CIT vs. Kiran Deepak Kukreja [2010] 190 Taxmann 393 (Bom). 3. Before us, while the Revenue pleaded that the assessee had not been able to prove the impugned credits in terms of section 68 of the Act, relying on the decisions in the cas .....

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(Trib)(Mum) was based principally on the proposition that the credits on account of trade transactions, as purchases, could not be brought to tax as unexplained credit u/s. 68 of the Act. This is particularly so as the purchases had not been doubted by the A.O., which are at a total of ₹ 164.41 lacs for the current year. In fact, the assessee had already disclosed a gross profit and net profit at 35% and 20.70% respectively, which is reasonable as compared with the market rate, so that in .....

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by the apex court that whether the receipt is to be treated as income or not must depend very largely on the facts and circumstances of the case. Further, where an assessee fails to prove satisfactorily the source and nature of an amount credited in its accounts, the A.O. was entitled to draw an inference that the receipt is of an assessable nature. In Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), the hon ble apex court, after referring to its earlier decisions in Sreelekha Banerjee vs. CIT [19 .....

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t lies upon the assessee. But in view of section 68 of the Income-tax Act, 1961, where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fai .....

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nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee are to be duly taken into consideration by the Revenue authorities. Reference was also made by it to the decision in the case of Vijay Kumar Talwar vs. CIT [2011] 330 ITR 1 (SC) (at pg. 478 of the reports) to reiterate the same principle, i.e., that in the absence of a satisfactory explanation, as where the assessee does not produce any evidence about the nature and .....

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it. Further, the satisfaction, or as the case may be, non-satisfaction of the A.O. is required to be formed objectively with reference to the material available on record, signifying an application of mind, which is the sine qua non forming the opinion. In our clear view, this is the case of no explanation being offered by the assessee. The first issue that arises before us is whether section 68 of the Act could be applied to the impugned credits, or the same includes only cash credits within it .....

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, was not assessed to tax and its credentials were doubtful. It s books of account were also not produced. Under the circumstances, the tribunal upholding the addition u/s. 68, the question arose if section 68 could extend to the credit on account of purchases as well. The Hon ble Court found no reason as to why it could not be so. Drawing on the clear, unambiguous, open and wide language of the provision, reproduced supra, it held as: Section 68 of the Income-tax Act, 1961, is not confined to c .....

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ostensible source of the credit is a trade creditor or the loan creditor. The provision nowhere employs the word/s cash , or of money following the words Where any sum , therein, so that the same cannot be read there-into. In fact, any sum is convertible into money, as indeed the credit in the instant case, stated to be paid subsequently (through bank). We are conscious that it could be argued that the liability in that case was found as bogus. That, however, would be missing the point. The fac .....

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being on account of purchase from the stated creditor. Reference to purchases by the Special Bench (of the tribunal) in Manoj Aggarwal (supra) while discussing the matter, is only toward citing a case where a credit is considered as explained on account of a purchase, which is admitted and accepted. The said decision in fact thus supports what stands stated by us - that purchase, admitted and accepted from a regular supplier in the ordinary course of business, forms a reasonable explanation of .....

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hich its origin is ascribed, so that once proven as genuine purchase and sale, section 68 cannot normally be applied. The said decision nowhere detracts from and, in fact, supports what is being stated by us in-as-much as sales, a trade receipt, could under particular circumstances be considered as unexplained credit u/s. 68. This would also explain as to why the Hon ble Courts have, in the facts and circumstances of the respective cases, as in Nangalia Fabrics (P.) Ltd. (supra); Amitabh Constru .....

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well as the reasons for the same, we may though add, would be very relevant. There is no explanation for the non or, as the case may be, delayed payment, which assumes all the more significance as the assessee had sufficient liquid resources with it. The matter is purely factual, that is to say, whether there are facts and circumstances to infer that the liability, ascribed to purchases, exists. In the present case there is nothing to show that it does. In fact, the ld. AR arguing during the co .....

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artly heard. During the hearing, a submission was made that the impugned payments were made in the normal course of business. In the present case, the liabilities stand discharged only by May/June, 2008. To establish the same as representing the normal credit allowed by the assessee, hearing is adjourned to 12.5.16. No material, however, was produced on 12.5.2016, the next date of hearing, even as all that the assessee was required to produce, to establish it s claim, was copies of the account o .....

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trade credit allowed to the assessee, assumes relevance/significance as it directly exhibits the capacity of the creditor to extend credit. It was in fact only on account of the abnormal credit, un-explicable under normal trade conditions, where a trader would endeavour to extend minimum credit, seeking to collect funds - the life line of his business, and deploy them in his trade, that doubt with regard to the genuineness of the transaction came to be entertained by the AO. Blockage of funds, .....

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position to extend credit. It would be though incorrect to say, we may add, that purchases in the instant case stand accepted by the Revenue or, alternatively, are not doubted by it, and the only infirmity in the assessee s case is qua the non-proving of the creditworthiness of the creditors by it. There is, firstly, as stated, nothing to evidence the receipt of goods by the assessee. The purchase bills do not bear the correct addresses, making them doubtful. The non-furnishing of the addresses .....

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, rather, to exhibit both the former and the current, changed address, and toward which there would be abundant material generated in the normal course of business. The VAT returns of the creditors have not been submitted, which would lend some credence to the transaction. Registration under VAT would not automatically establish the conduct of business, even as it is surprising that business, involving sums in lakhs, for which in fact credit is allowed - even if it is not, though stated to be, i .....

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to show that they are regular traders. That is, the claim of the impugned purchases being regular purchases, made in the normal course of its business by the assessee, is completely un-established. On the contrary, the facts and circumstances of the case seriously impair the claims of genuineness of the transactions. Who are the partners/proprietors of the concerned creditor-firms. What are their antecedents, which remain completely un-evidenced? The issue, as the foregoing would demonstrate, i .....

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applicable to the income-tax proceedings. Further, the Revenue authorities, as indeed the appellate authorities, are not supposed to put blinkers (on their eyes) while looking at documents furnished, or else it would leave the door wide open for tax evasion by leading self-serving documents (Durga Prasad More [1971] 82 ITR 540 (SC)), as the purchase bills and confirmatory letters from the creditors in the instant case (as per Revenue). There is nothing to show that the creditors are regular supp .....

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s. At the same time, however, the assessee s sales (or work undertaken) is not doubted or in dispute. It is, as such, open for it to contend that in view of its sales (work undertaken), its purchases, even if from the grey market or from a different source, stand indirectly established in-as-much as there could be no sales or work undertaken without the input goods and services, so that the purchases cannot be disallowed on that ground. A view that has found acceptance by the tribunal as well as .....

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m. The question of the liability, would therefore survive even where expenditure on purchase is allowed as deduction in computing business profit/income. Why, in a given case, the purchases may be from the concerned supplier, and yet the liability may not exist, as where it stands discharged, either by the assessee or someone acting on its behalf. Surely, this would require material to establish this as a fact, or else it would be the conjecture, yet represents a distinct possibility. It may be .....

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(HUF) (ITA Nos. 7644, 7645, 6581 & 6582/Mum/2013 dated 11.7.2016), in which the issues arising on the booking of the purchases from an ostensible source, while presumably making the purchases from another, i.e., from the stand point of the income-tax law, stand discussed by the tribunal. The issue, therefore, boils down to, if the impugned liability, outstanding as on 31.3.2006, has been reasonably shown to exist, i.e., as representing an existing liability as on that date. We consider it as .....

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liability qua the impugned (trade) credits being not shown to exist, the same is based, as afore-stated, on a complete absence of any independent material exhibiting the same. The assessee has, at the same time, shown the payments to have been made subsequently, discharging the liability in full per account payee cheques. A subsequent payment, even if by way of a cheque, cannot by itself prove a credit. Why, the receipt itself may be by cheque, in which case it would prove it as a genuine credit .....

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ent a genuine liability in-as-much as no such liability exists, at the very least, by the year-end, at which (date) it is reported to exist as per the assessee s accounts, subsequent payment/s cannot be dismissed without being impugned or found infirm by it (Revenue). It could be that payments are deposited in their regular bank accounts by the creditors, adjusting the assessee s debt outstanding in their accounts, with the funds deployed in business. On the other hand, it may not be so, with th .....

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and decide the same in accordance with law, issuing definite findings of fact. In summation 5. The assessee was found to have made purchases on credit during the relevant previous year (f.y. 2005-06), which were unpaid by the year-end. Significant proportion of the same remaining unpaid even by 31.3.2008, i.e., two years hence, seriously impaired the genuineness of the credit/s. Neither the material adduced in support, nor the enquiries conducted or the incidents found, which are neither denied .....

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eficiary of the said sum, so that it is for it to explain its nature and source. The question is of real versus apparent, which in view of sec. 68 casts the burden of proof on the assessee to prove that the apparent is real (refer, inter alia, Sumati Dayal (supra); Sreelekha Banerjee (supra)). This burden on the assessee has been further enumerated by the Hon ble Courts to include satisfaction with regard to the identity and capacity (of the creditor) and the genuineness (of the credit). The tra .....

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ional High Court in Nikunj Eximp Enterprises Pvt. Ltd. (supra), effectively de-linking the two. The question, therefore, boils down to if the credit represents an existing liability. The same also meets the assessee s pleading with reference to the inflated profit ratio - which though is, both, unverified and within the range of possibility, in-as-much as the same is thus rendered of no moment. In the instant case, there is nothing to show the conduct of business by the trade creditors , with ev .....

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