Adhunik Technology P. Ltd. Vs ACIT (ITAT Delhi)
Journal Entries Not “Cash Credits”: ₹10.51 Cr Addition Deleted – Section 68 Not Applicable Without Cash Inflow- AO Should Invoke s.41(1) for Cessation, Not Section 68
Assessee’s case was scrutinized regarding unsecured loans & sundry creditors of ₹15.37 crore from 8 parties. AO found some creditors non-existent & observed immediate cash deposits before cheque issuance, concluding they were accommodation entries. AO added ₹15.38 crore u/s 68 as unexplained cash credits. In appeal, CIT(A) restricted addition to ₹10.51 crore relating to current year transactions, mainly in names of IKF Technologies Ltd., Virtual Global Education Ltd., Adbhut Construction Pvt. Ltd., IKF Green Fuel Ltd. & Utility Agency Pvt. Ltd.
Assessee’s Stand:
- No unsecured loans were taken; only journal entries were passed between accounts.
- Credit in IKF Technologies Ltd. was offset by debit to V&K Softech Ltd., a pure book adjustment.
- Section 68 applies only where unexplained “cash credits” exist; here, no cash or equivalent was involved.
- Proper documents like PAN, ROC registration, ITRs of creditors were filed. If creditors’ existence was doubted, recourse lay under s.41(1) (cessation of liability), not s.68.
Tribunal’s Findings:
- AO himself admitted that the ₹6.29 crore credit in IKF Technologies Ltd. arose through a journal entry adjusted against V&K Softech Ltd. with no cash movement.
- Section 68 contemplates unexplained “cash credits” arising from inflow of cash or equivalent; journal adjustments do not fall within its scope.
- If AO doubted genuineness of sundry creditors, proper course was to test purchases/supplies or invoke s.41(1), not to apply s.68.
- Since opening balances of creditors were accepted & no bogus purchases were shown, additions lacked justification.
- Accordingly, entire addition of ₹10.51 crore sustained by CIT(A) was deleted.
- Assessee’s appeals allowed; all additions deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
