ITO Vs Sanjeev Kejriwal (ITAT Kolkata)
Conclusion: Addition under section 68 on account of entire credits shown by assessee in form of realization from debtors was justified as the onus was primary on assessee to prove that the said cash was sourced by realization from debtors, which had not been proved by assessee except making an oral statement and taking credence from the entries passed by him in the books of accounts.
Held: From the details filed during the course of assessment proceedings, AO sought to verify the sundry debtors balance as appearing in books of assessee-proprietary concern and issued notices under section 133(6) to seven parties. Since notices got returned unserved, AO came to conclusion that entire credits shown by assessee in form of realization from debtors during the year as not proved within meaning of section 68 and added the same by treating as unexplained cash credit. It was held once cash was deposited into bank account of assessee, the onus was primary on assessee to prove that the said cash was sourced by realization from debtors, which in the instant case had not been proved by assessee except making an oral statement and taking credence from the entries passed by him in the books of accounts. Moreover, assessee did not take corrective measures to produce confirmations from these seven sundry debtors either during the assessment proceedings or during the appellate proceedings. Hence the primary onus and the three ingredients of section 68 had not been discharged by assessee in the instant case, thus, addition was justified.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-XIV, Kolkata, [in short the ld CIT(A)] in Appeal No. 308/CIT(A)-XIV/Kol/10-11 dated 15.05.2013 against the order passed by the ITO, Ward-30(3), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 29.12.2010 for the Assessment Year 2008-09.
2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the addition of Rs. 1,89,34,232/- on account of unexplained cash credit in the facts and circumstances of the case. The interconnected issue is the revenue had also raised a ground with regard to violation of provision of Rule 46A of the Income Tax Rules.
3. The brief facts of this issue are that the assessee is an individual engaged in the business of trading of Swan Timbers in the name of ‘Rajeev Trading Co.’ and also derived income from commission, salary and profit from trading of shares. The return of income for the assessment year 2008-09 was filed by the assessee on 21.07.2008 declaring total income of Rs. 1,83,414/-. Subsequently, a revised return was filed on 30.09.2008 declaring total income of Rs. 2,67,518/-. The ld. AO observed that the assessee appeared before the ld. AO from time to time and produced books of accounts and all documents for verification. From the details filed during the course of assessment proceedings, the ld. AO sought to verify the sundry debtors’ balance as appearing in the books of proprietary concern M/s Rajeev Trading Co. and issued notices u/s 133(6) of the Act to seven parties. The said notices returned unserved. Since the notices got returned unserved, the ld. AO came to conclusion that the entire credits shown by the assessee in the form of realization from debtors to the total sum of Rs. 1,89,34,232/- during the year as not proved within the meaning of section 68 of the Act and added the same to the total income by treating the same as unexplained cash credit.
4. The assessee pleaded that the assessee credited a sum of Rs. 1,89,34,232/- in cash to the account of the various sundry debtors as detailed in page 2 of the assessment order. The assessee stated that these realizations were made against the supplies made in earlier year. The assessee furnished the names and addresses of the debtors and has filed a statement showing particulars of account in their names during this year, recovery of amounts during the year and closing balance outstanding as on 31.03.2005 to 31.03.2009, profit and loss account for the same period, list of sundry debtors, confirmatory certificates and such other particulars to prove that these sums represent realization from debtors. Accordingly, it was pleaded that the provisions of section 68 per se are not at all applicable in the facts of the instant case as it pertains to trade receipts and not loan receipts or share capital receipts. The assessee also placed reliance on certain decisions in support of these contentions. The Ld. CIT(A) deleted the addition by observing as under:
“12. All the grounds of appeal are directed against the addition of Rs. 1,89,34,232/-made by the A.O. I have given careful consideration to the contention of the appellant and have also perused the order of the A.O. and relevant documents. I find, there are sufficient force to the arguments placed by the Id. counsel for the appellant. Before dwelling upon the impugned issue related to addition of Rs.1,89,34,232 it may be necessary to examine first the method of accounts followed by the appellant which resulted debts due from the customers in earlier years. The appellant was engaged in the business of sawn timbers during the previous year relevant to the asst. year 2005-06 and the appellant derived income of Rs.1,20,306 from the business which was disclosed in the return for the asst. year 2005-06. As per audited statements of account for the year ended 31.3.2005 there were sundry debtors of Rs.7,54,45,999 and sundry creditors of Rs.7,91,60,460. The appellant realized money partly from sundry debtors and met liabilities out of the sums collected from the sundry debtors in the subsequent years. It is also important to note that as per balance sheet as at 31.3.2007, i.e., immediately preceding year, the appellant had an outstanding liability of sundry creditors to the tune of Rs.1 ,35,58,275 and at the same time he had sundry debtors of Rs.2,96,92,935. This clearly demonstrates that on the one hand the appellant had liability towards these creditors and on the other hand he had assets in the forms of sundry debtors and other kinds. During the relevant previous year the appellant realized Rs.1 ,89,34,232 out of sundry debtors of Rs.2,96,92,935 standing as assets on 31.3.2007. A cash flow chart for the year under consideration was furnished by the appellant which indicated recovery of debts and disbursement of fund as mentioned there under:
3.3 In course of the assessment proceedings, the appellant furnished a cash flow statement (annexure-C) which indicated disbursement of the sum realized from the sundry debtors as mentioned here under:
