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Judgment
The present appeals have been filed by the Revenue against the orders of ld. CIT(A)-31, New Delhi dated 31.03.2021.
Since, the issue involved in both the appeals are similar, they were heard together and being adjudicated by a commons order. In ITA No. 728/Del/20-21, following grounds have been raised by the Revenue:
“1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,01,18,757/- made by AO on account of unexplained cash credit u/s 68 of I.T. Act without appreciating the fact that the assessee had failed to produce any confirmation or paper in support of its claim during the assessment proceedings.”
Heard the arguments of both the parties and perused the material available on record.
Excerpts from the order of the Assessing Officer:
“Vide show cause notice dated 06.11 .2018, the assessee company was asked to provide the complete details of current liabilities outstanding as on 31.03.2009. However, the assessee failed to produce any confirmation or paper in support of its claim inspite of giving various opportunities. Section 68 of the Act 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 thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.
The expression 'books of the assessee' appearing in section 68 refers to the assessee whose books shown the credit entry. A perusal of this section would show that in relation to the expression 'books' assessee himself and not of any other assessee. {Shanta Devi vs. CIT(1998) 171 ITR 532: Anand Ram Raitani vs. CIT(1997) 223 ITR 544.
Where such credits occur, the section enacts that the assessee should explain to the Assessing Officer satisfactorily the nature and source of the sum so credited, and establish that the sum may be included in the total income of the assessee.
It is well settled that in order to discharge the onus, the assessee must prove that following:
(i) The identity of the creditors,
(ii) The capacity of the creditor to advance money and
(iii) The genuineness of the transaction.
After the assessee has adduced evidence to establish prima facie the aforesaid the onus shifts to the department. The same was necessary to check as per discussion of routing of money in above paras and on careful perusal of seize material. It necessitated', verification of all essential ingredients of Section 68 of the Income Tax Act, 1961.
When an unexplained credit is found in books of account of an assessee initial burden is placed on assessee and once that onus is discharged, it is for revenue to prove that credit found in with respect of deposits found in the books of account of assessee is undisclosed income of assessee. Assessee returned the money, tax was deducted at source, assessee not required to prove the source of source. [CIT vs. Kinetic Capital Finance Ltd (2011) 202 Taxman 548(Del)]
Again it is reiterated that assessee is required to prove capacity of creditor and genuineness of creditor. [Kamal Motors vs. CIT((2003) 131 Taxmanl55 (Raj)] & [Rajshree Synthetics (P) Ltd . v CIT(2003) 131 Taxman 391 (Raj)]".
In view of the discussion made in above paras Rs. 2,10,59,816/- is hereby added to the income of the assessee u/s 68 of the Income Tax Act, 1961 being unexplained cash credit .”
Thus, the addition has been made on the balance of the liabilities outstanding u/s 68 of the Income Tax Act, 1961.
Aggrieved, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) deleted. The salient point of the order of the ld. CIT(A) are as under:
The reason stated in the assessment order for the addition of the outstanding liabilities was that the assessee has not submitted the details of such liabilities outstanding.
Remand report from the Assessing Officer has been called by the ld. CIT(A) enquiry as to how addition u/s 68 of liabilities in every year was justified, particularly when there was decrease in such liabilities from year to year. The chart of such liabilities furnished by the appellant was forwarded to the AO.
DHANESWARI WOOD PRODUCTS LIMITED
Details of Current Liabilities as per Schedule-9 of the Balance Sheet as at
Date
Particulars
Op.
Balance
Cl.
Balance
Increase
Decrease
Net
Remarks
31.03.08
Sundry Creditors-
Due to Small Scale Industries
-
511817
-
-
-
Others
-
11702244
„
-
-
Liability for Expense
-
14319664
-
-
Over draft with Banks
-
89315
-
-
-
TOTAL
-
26623040
-
-
-
31.03.09
Sundry Creditors-
Due to Small Scale Industries
S11817
98260
-
413557
-
Others
11702244
5770008
-
5932236
-
Liability for Expense
14319664
15191548
871884
-
-
Overdraft with Banks
26623040
-
-
89315
-
TOTAL
53156765
21059816
871884
6435108
-5563224
31.03.10
Sundry Creditors-
Dueto Small Scale Industries
98260
46500
-
51760
-
Others
4967699
1744430
-
3223269
-
Difference
between Cl.
Balance: Short fall
Rs.802309/-
Liability for Expense
15191548
18390827
3199279
-
-
TOTAL
20257507
20181757
3199279
3275029
-75750
31.03.11
Sundry Creditors-
Due to Small Scale Industries
46500
0
-
46500
-
Others
1744430
1191098
-
553332
-
Liability for Expense
18390827
14790021
--
3600806
-
TOTAL
20181757
15981119
0
4200638
-4200638
31.03.12
Sundry Creditors-Creditors for Matls. & Services
1191098
2243572
1052474
-
-
Liability for Expense at Garden
24809
24809
0
-
-
Accrued Salaries & Benefits
707470
844636
137166
-
-
Govt. Statutory Dues
13905538
8951347
-
4954191
-
S/Cr. or Expense & Others
152204
94484
57720
-
TOTAL
15981119
12158848
1189640
5011911
-3822271
Date
Particulars
Op.
Balance
Cl.
Balance
Increase
Decrease
Net
Remarks
31.03.13
Trade payable other than MSMED
2595954
3393440
797486
TDS payable
1287
72777
71490
Sales Tax payable
717552
212930
504622
Service Tax payable
-38737
-28
38709
Professional Tax payable
2438
5410
2972
Panchayat Tax payable
1000
1000
Green Leaf Cess payable (Own)
611387
561484
49903
Green Leaf Cess payable (Bought Leaf)
231610
411561
179951
Salaries, Wages & Other Benefits payable
841686
754659
87027
EPF Payable
7916577
6203508
1713069
Expenses payable
240673
200092
40581
TOTAL
13121427
11816833
1051899
2433911
-1382012
31.03.14
Trade payable other than MSMED
3393440
3885827
492387
TDS payable
72777
80390
7613
Sales Tax payable
212930
235886
22956
Service Tax payable
-28
19403
19431
Professional Tax payable
5410
5621
211
Panchayat Tax payable
1000
0
0
Green Leaf Cess payable (Own)
561484
865492
304008
Green Leaf Cess payable (Bought Leaf)
411561
614417
202856
Salaries, Wages &
Other Benefits payable
754659
711286
43373
EPF Payable
6203508
4582507
1621001
Expenses payable
200092
178446
21646
Share Appl. Money pending allotment
2500000
2500000
Advance from Customer
0
701062
701062
TOTAL
14316833
14380337
1750524
1686020
64504
31.03.15
Trade payable other than MSMED
3885827
6190201
2304374
TDS payable
80390
181761
101371
Sales Tax payable
235886
2992522
2756636
Service Tax payable
19403
59784
40381
Excise Duty payable
0
12503
12503
Professional Tax payable
5621
15334
9713
Panchayat Tax payable
0
1000
1000
Green Leaf Cess payable (Own)
865492
2277994
1412502
Green Leaf Cess payable (BoughtLeaf)
614417
644882
30465
Agricultural I. Tax payable
0
2148315
2148315
Land Revenue payable
0
276504
276504
Electricity Duty payable
0
2174
2174
Environmental
Expenses payable
0
120000
120000
Road Tax payable
0
181194
181194
Salaries, Wages payable
711286
2040336
1329050
EPF Payable
4582507
18568827
13986320
Expenses payable
178446
290763
112317
Advance from Customer
701062
14896
686166
TOTAL
11880337
36018990
24824819
686166
24138653
The AO has not at all asked the appellant to give the relevant ledgers and other evidences regarding the current liabilities outstanding each year in order to examine the allowability or otherwise of such outstanding amounts.
The AO has merely repeated the fact of non submission of details of liabilities outstanding, during the assessment proceedings and has gone on to state that the assessee was unable to discharge the onus of proving the identity, capacity and genuineness of the creditors
The AO has chosen not to call for any such details during the assessment proceedings as well as remand proceedings. The ld. CIT(A) particularly pointed out that the chart giving break-up of liabilities from year to year had been enclosed and the AO was specifically required to justify as to how addition u/s 68 in respect of liabilities outstanding every year was justified particularly when there was a decrease in such liabilities from year to year.
The ld. CIT(A) observed that the amount of outstanding liabilities includes trade payables, sales tax payable, service tax payable, professional tax payable, green leaf cess payable, salaries/wages and other benefits payable, EPF payable and other expenses payable.
Such amounts, being statutory liabilities and trade creditors, cannot be considered as unexplained cash credits u/s 68. In fact these amounts represent the expenses debited to the P&L account from year to year, out of which certain amounts are shown as current liabilities outstanding in the absence of actual payments of such amounts by the end of the respective financial year.
As regards the amounts pertaining to statutory liabilities outstanding, the Act has separate provisions u/s 43B and other relevant sections, for disallowing such amounts remaining unpaid. In fact, from the computation of income for each year, the appellant has already adjusted its income by making relevant disallowances.
During the appellate proceedings, the ld. CIT(A) obtained the details of trade creditors outstanding for A.Ys. 2013-14 to 2015-16 for a sample check regarding the nature of such creditors and to prima facie check as to whether there was any possibility of such creditors being bogus or no longer existent.
From this sample, the ld. CIT(A) observed that the amounts outstanding against most of the trade creditors is dynamic, having debit and credit entries on a continuing basis, leading to a change in the outstanding amount mentioned against such creditor from year to year. The fact of debit and credit entries being continuous in nature, can also be seen from the individual ledger accounts of such creditors. In such circumstances, it is not possible to even build a case for remission of liabilities even u/s 41(1).
Having gone through the details as mentioned above, since the amounts involved are proved to be Government dues and the disallowance made by the Assessing Officer has nothing to do with the bogus purchases or unproven liabilities but they are on account of trade payables, sales tax, service tax, professional tax, green leaf cess etc., we decline to interfere with the order of the ld. CIT(A) passed after due examination of accounts and creditors.
In the result, the appeals of the Revenue are dismissed.