Section 68- Trade credits cannot be taxed as unexplained cash credit

Brief Facts of the case:

The assessee is a partnership firm which is engaged in the business of manufacture and trading in edible oils. The return of income for the year under consideration was filed by it on declaring total income of Rs.45,008. In the assessment originally completed under section 143(3), the total income of the assessee was determined by the A.O. at Rs.59,14,923 after making additions of Rs.54,49,961 under Sec 68 treating the amount payable by the assessee to farmers towards purchase of sunflower seeds as unexplained cash credits.

Further AO added the opening balances standing to the credit of M/s.Ammireddy Oil Limited & M/s.Krishnaveni Agrotech Products of Rs.2,27,952/- & 1,91,992/-respectively are to be added as the corresponding balances were not found in the books of suppliers.

The appeal filed by the assessee against the said order was dismissed by the CIT (A) and when the assessee filed a further appeal beforethe Tribunal, the Tribunal vide its order dated 12.11.2010 set aside the orders of the authorities below and remanded back the matter to the file of the A.O. for completing theassessment afresh, after giving proper and sufficient opportunity of being heard to the assessee. As per the directions of the Tribunal, fresh assessment proceedingswere initiated by the Assessing Officer.

During the course of the said proceedings, the credit balances appeared in the books of account of the assessee in the name of seven farmers aggregating to Rs.54,49,961 were examined by the A.O. to verify their genuineness. In this regard, summons issued by him under section 131 to the seven creditors returned back un-served by the postal authorities stating that there were no such persons available on the given address. The AO, therefore, issued a commission to the ITO, Ward-1, Adoni who deputed hisInspector to conduct enquires with the concernedcreditors. Such enquires made by the Inspector revealed that the address of the creditors given by the assessee was not sufficient to trace thecreditors. He also reported that it was not possible to find out the address of the said creditors as they were farmers doing cultivation in some village.

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