Case Law Details
Rajesh G. Jain Vs ITO (ITAT Mumbai)
Sundry creditors arising out of Bogus purchases (Hawala Transactions) and remaining outstanding as at the year-end cannot be added to the Total Income u/s 68 as Cash credits.
Such creditors can be added u/s 41(1) only as Income to include benefit due to Remission or Cessation of Liability by way of writing off such liability in his accounts.
Relevant part of the ITAT Mumbai D Bench Order dated 29-12-2023
“178. ….. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable.
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