By K. B. Bhujle
Advocate
19. Cash credit – Section 68 – A.Y. 2006-07 –
Sums outstanding against trade creditors for purchases – Appellate Tribunal
concluding that assessee having failed to furnish confirmation had paid in cash
from undisclosed sources – Finding not based on any material but on conjectures
and surmises – Perverse – Addition cannot be sustained
Zazsons
Export Ltd. vs. CIT; 397 ITR 40 (All):
The assessee was a
manufacturer of leather goods for export purposes. It purchased the raw
material on credit from petty dealers, who were shown as trade creditors in the
books of account, and payments were made subsequently. For the A.Y. 2006-07,
the assessee disclosed the purchase of raw materials from small vendors, part
of which amount was confirmed and the remaining was unconfirmed. Such
unconfirmed amount was treated as cash credits u/s. 68 of the Income-tax Act,
1961 (hereinafter for the sake of brevity referred to as the “Act”),
and added as income of the assessee. The Commissioner (Appeals) deleted the
addition. The Appellate Tribunal restored the addition on the ground that the
assessee had failed to confirm the amount and that such purchases were made on
cash payment, which had not been accounted for and as such liable to be added
to the assessee’s income u/s. 68.
On appeal by the assessee,
the Allahabad High Court reversed the decision of the Tribunal and held as
under:
i) The
credit purchases of raw material shown in the books of account of the assessee
from petty dealers even if not confirmed would not mean that it was concealed
income or deemed income of the assessee, which could be charged to tax u/s. 68
of the Act. The finding of the Appellate Tribunal that it was possible that the
assessee paid them in cash from undisclosed sources without accounting for it
and therefore, the amount paid was to be added to the income of the assessee,
was based on no material but on conjectures and surmises. The purchases made by
the assessee were accepted by the Assessing Officer and the trade practice that
payment in respect of the purchases of raw material was made subsequently was
not disputed. Therefore, its finding was perverse.
ii) In
order to maintain consistency, a view which had been accepted in an earlier
order ought not to be disturbed unless there was any material to justify the
Department to take a different view of the matter. In respect of the earlier
assessment year, 2005-06, the Department had accepted the decision of the
Appellate Tribunal that the trade amount due to the trade creditors in the
books of account of the assessee could not be added to the income of the
assessee. There was nothing on record to show that any appeal had been filed by
the Department against that order, which had become conclusive.
iii) The
appeal is allowed insofar as the addition of Rs. 1,05,01,948 u/s. 68 of the Act
is concerned.”
