PCIT Vs Buniyad Chemicals Ltd. (Bombay High Court)
Bombay High Court recently delivered a significant judgment in the case of Principal Commissioner of Income Tax (PCIT) Vs. Buniyad Chemicals Ltd., ruling in favor of the revenue department. The court overturned the Income Tax Appellate Tribunal’s (ITAT) order and restored part of the Commissioner of Income Tax (Appeals) [CIT(A)]’s decision, holding that unexplained credits found in the assessee’s bank accounts can be treated as income under Section 68 of the Income-tax Act, 1961. The court emphasized that the onus lies on the assessee to provide a satisfactory explanation for the source and nature of such credits, including the identity, creditworthiness, and genuineness of the depositors.
The case arose from the assessment year 2009-10, where a substantial sum of ₹10,73,52,553 was found credited in the disclosed and undisclosed bank accounts of Buniyad Chemicals Ltd. During the assessment proceedings, the assessee failed to furnish details regarding these credits. The Assessing Officer (AO) subsequently made an addition of the unexplained amount to the assessee’s income under Section 68. The CIT(A) partly allowed the assessee’s appeal, stating that if the beneficiaries of the credits were identified, a commission rate of 0.37% would be applied as income. However, if the beneficiaries remained unidentified, the entire sum would be treated as unexplained income.
On further appeal, the ITAT directed that 0.15% of the total deposits, both explained and unexplained, be treated as income. The High Court, however, found the Tribunal’s approach to be flawed. The division bench comprising Justices observed that the assessee had admitted to being engaged in the business of providing accommodation entries, charging a commission for facilitating transactions where funds were routed through their accounts for various beneficiaries. Despite this admission, the assessee claimed inability to provide details of the customers for a significant portion of the credits.
The High Court firmly rejected the assessee’s contention that merely claiming to be an accommodation entry provider absolved them of the responsibility to explain the credits. The court stated that even in the absence of Section 68, unexplained credits in bank accounts could be treated as income if the assessee fails to provide details of the source. The court also dismissed the argument that the amounts might have been assessed in the hands of the beneficiaries, as no evidence was presented to this effect before the lower authorities. Citing the case of Arunkumar Muchhala Vs. The Commissioner of Income-Tax, the court reiterated that an assessee cannot take advantage of their own failure to maintain proper books of accounts to evade tax liability on unexplained credits. The court clarified that the term “books of an assessee” under Section 68 includes data stored electronically, such as on CDs extracted from the assessee’s computer, aligning with the definition provided in Section 2(12A) of the Act and supported by the precedent in Sheraton Apparels Vs CIT.
