TMI Blog2022 (10) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT Vs Precision Finance Pvt Ltd [ 1993 (6) TMI 17 - CALCUTTA HIGH COURT] Hon ble Calcutta High Court has summed up this principle by observing that It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to be presumed that the transactions were genuine. Referring to the judgment of Hon ble Patna High Court, [ 1985 (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods were defective, and there is not even a whisper of evidence that there were any issues in this aspect. A lot of emphasis is then placed on the fact that section 68 is titled cash credit and, therefore, purchases on credits cannot be covered by this section. This plea is also ex-facie incorrect as wordings of Section 68, as we have noted above, are categorical, and these words cover any unexplained credit in the books of accounts. This matter has been under hearing before this Tribunal for almost a decade, and a lot of papers are placed on record, but there is not one confirmation from the purported vendors evidencing the transaction, evidencing the goods return or evidencing the payment. When we specifically asked the learned counsel to point out one confirmation filed by the assessee, he could not do so. We have carefully perused the submissions filed by the assessee before the CIT(A) there is not one averment on this aspect. Learned counsel for the assessee expressed inability to file any confirmation from the persons from whom such purchases were purportedly made. It was once again explained that these persons being small traders of limited means and operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow being set out in this detailed order. Let us first take a look at the relevant material facts. The assessee before us is a private limited company with a share capital of Rs 1,00,000 and reserves and surplus aggregating to Rs 7,866. On 26th September 2009, the assessee company filed an income tax return disclosing a taxable income of Rs 9,200. However, when the case was selected for scrutiny assessment and the matter was probed further by the Assessing Officer, it was noticed that the assessee has made purchases of textile items, i.e. fabrics, worth Rs 19,22,05,946 from a large number of entities, and sold all these goods to three entities- namely Global Softech Limited, Ravi Raj Industries, and Tayal Energy Limited, for amounts aggregating to Rs 19,25,88,451. The Assessing Officer also noted that there was no proof of delivery of fabric, that no expenses were debited on account of transportation expenses and that there is no explanation for such inconsistencies. It was also noticed that barring confirmation of purchases from four parties- namely Eskay Knit India Ltd, Krishna Knitwear, Shri Ganesh Knitting and Manufacturing Mills Pvt Ltd, and Shanthi Synthetics and Fabricators P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now suddenly coming up with the explanation after the receipt of final show cause, is noting but an attempt to explain the query which again is not backed by any material evidence. None of the parties who have filed the confirmation have confirmed having received their goods back. 6.7 In view of the above mentioned facts and circumstances, the replies filed by the assessee is not acceptable. 7. In spite of being allowed several opportunities, the assessee has failed to substantiate with evidence the nature and source of these accretion to Sundry creditors representing purchases made during the year of Rs. 19,22,05,496/-. The onus is on the assessee company to explain with evidence the nature and source of these credits appearing in the books of account. The assessee company was allowed an opportunity to present the creditors in course of the assessment proceedings but has failed to do so. In this respect it is pertinent to note the provision of section 68 of the IT act 1961, as under:- where any sum is found to be credited to the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made during the year of Rs. 19,22,05,496/-, is held as unexplained cash credits and is being charged to income-tax u/s. 68 of the I.T. Act as income of the assessee. Therefore a sum of Rs. 19,22,05,496/- is added to the total income of the assessee company. 3. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the learned CIT(A). Learned CIT(A), in a very detailed order, inter alia held that the provisions of Section 68 could not be pressed into service so far as purchases on credit are concerned, as this provision pertains to the cash credits . The relevant observations are as follows: 4.6 I am in agreement with appellant's submission that for making addition u/s. 68, it is needed that the sum should be credited. The legislation has chosen the word 'sum' with a specific intention to meet the amount of money'. In this connection that the appellant's A/R has rightly drawn my attention to the meaning of the word 'sum' from P. Ramanatha Aiyar concise law dictionary and also to Merriam Webster's Collegiate Dictionary. The same is extracted as under:- Sum. A quantity or amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases, sales and sales return purchase return. Thus, the entire transaction merely seems to be a book entry, which records the purchases, sales and subsequent sales return purchase return, which is evident from copy of ledger account filed by the appellant in the form of paper book, along with which the confirmation letter from such creditors were also filed by the appellant company. Further to that, once the A.O. record in the assessment order that there is no movement of any fund and it was merely transaction of purchase of goods, which was shown as outstanding creditors then the same cannot be held as unexplained cash credits. In this regard a decision of Jharkhand High Court in the case of Amitabh Construction Pvt. Ltd. vs. Adul.CIT reported in 335 ITR 523. is very relevant in the perspective of appellant's case, wherein it has been clearly held that the Assessing officer had passed a contradictory order by holding that the books of account were not reliable while deciding the issue of the sundry creditors but had relied upon the return for accepting the profit shown to be correct which was supported by the books of account. The Assessing officer had committed an erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und credited in the books... . Here it is seen that intent of the legislation, while defining the Cash Credit dealt with the word that if any sum is found credited in the books of accounts then only section 68 will came into effect. Thus there is no provision when the goods purchased in credit will amount to cash credit. Further I find that the A.O. has accepted the purchases as genuine and also nowhere objected to the sale consideration shown by the appellant company, which was subjected to statutory Audit u/s 44AB of the Act. Further the sales were affected as outcome of such purchases only. This aspect also proves that A.O.'s action is completely contrary to the facts of the case. Thus, taking note of all these facts, I consider it proper and appropriate to hold that the A.O. was not justified in making the aforesaid addition. Accordingly this ground of appeal is allowed. 4. The Assessing Officer is aggrieved of the relief so granted by the learned CIT(A) and is in appeal before us. Grievance raised by the appellant Assessing Officer is as follows: Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased from them is said to have been returned in the subsequent year- even though there is not an iota of evidence about the goods being returned to them. On the one hand, the assessee submits that the vendors are so small that they operate from the table spaces on wafer-thin margins, and, on the other hand, they are so financially strong that notwithstanding the fact that neither any payment is made to them by the assessee nor there is any evidence of the goods having actually been returned to them, they have not raised even a whisper about such an inordinate delay in payment of dues to them. There is no material whatsoever to corroborate the statements made by the assessee with respect to the quality of the goods and the fact of the good having been returned to the assessee. While these vendors are so accommodating to the business concerns of the assessee, the assessee does not even have their current whereabouts. It is also an interesting coincidence, coincidence if it is, that all the supplies by all the vendors turned out to be defective, and not a single payment is made for any of the supplies by these vendors. Be that as it may, as we look at the balance sheet of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. The matter has to be considered in the light of human probabilities.... Similarly the observation.... that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably . We will be superficial in our approach in case we examine the claim of the assessee solely on the basis of documents filed by the assessee and overlook clear the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon'ble Supreme Court has observed, in the case of Durga Prasad More (supra), it is true that an apparent must be considered real until it is shown that there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be doubted either, as what is sold must have been purchased as well, this theory is relevant only when purchases are being sought to be disallowed as bogus, and profit on the sale is being thus computed without providing for the cost of purchases; that is not the case here. What is held to be unexplained is the bunch of entries showing credits in the names of certain vendors and the existence and means of these vendors is not proved and the genuineness of the transactions is not established. None of the three necessary ingredients of a credit, i.e. existence of the creditor, means of the creditor and genuineness of the transaction involved, are established on the facts of this case. In the case of CIT Vs Precision Finance Pvt Ltd [(1994) 208 ITR 465 (Cal)], Hon ble Calcutta High Court has summed up this principle by observing that It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the ITO reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. We agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body. These observations are equally relevant in the context of explanations for the purpose of application of section 68. Viewed in this light, we reject the explanation of the assessee as an explanation unacceptable to this final fact finding body. 9. As regards the learned CIT(A) s stand that the amount shown as outstanding for the credit purchases can never be covered by the scope of Section 68, in our considered view, that is a very superficial way of looking at the provisions of Section 68. Section 68 categorically 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 there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the submissions filed by the assessee before the CIT(A)- copies of which are placed before us at pages 31 to 33 and there is not one averment on this aspect. Learned counsel for the assessee expressed inability to file any confirmation from the persons from whom such purchases were purportedly made. It was once again explained that these persons being small traders of limited means and operating from table space etc are no longer available for any verification, but then these persons were not available even at the stage of the assessment proceedings. There is a mention about some confirmations having been filed by these persons in the next year but even those confirmations could not be produced before us. There is nothing to establish identity of these persons; no payments have been made to them, and there is no evidence before us about the current status of amounts payable to them. All that is being reiterated are the self-serving statements, based on sweeping generalizations, unverified statements, and without any supporting evidence. The onus is on the assessee to prove the identity of these persons, the means of these persons to have allowed these credits to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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