2013-VIL-664-KAR-DT

KARNATAKA HIGH COURT

ITA No.811/2009

Date: 13.03.2013

SMT REKHA KRISHNARAJ

Vs

INCOME TAX OFFICER

For the Appellant : Sri Manian, Adv.
For the Respondent : Sri K V Aravind, Adv.

BENCH

N Kumar and B Manohar, JJ.

JUDGMENT

2. The assessee is the proprietrix of M/s.Krishna Hardware, Hospet, which was started from April, 1996. The capital investment was of Rs.50,000/-. A survey under Section 133A of the Act was conducted on 29th October, 1997. Thereafter the assessee filed return of income for the assessment year on the same day. During the course of scrutiny proceedings, the Assessing Officer obtained the copy of account of the assessee as appearing in the books of the creditors and noticed that the balance at the end of the year as shown by the assessee was different from the balance shown by the parties. The assessee was required to reconcile the difference in the accounts of the creditors. In response to the query, the authorized representative of the assessee who was appearing before the Assessing Officer stated that the assessee and her husband were both absconding. After verifying the facts, the Assessing Authority completed the assessment under Section 144 of the Act. The discrepancies in the accounts of the creditors were added to the income of the assessee because the credit balance as shown by the assessee were more than the amounts shown by the creditors as receivable. Besides this addition, some other additions were also made by the Assessing Officer vide order dated 5th January, 2000. Aggrieved by the same, the assessee preferred an appeal to the Commissioner for Income-tax (Appeals). The Appellate Authority allowed the appeal in part giving relief in respect of dis-allowance of telephone expenses and traveling expenses. In respect of unexplained difference of excess creditors shown in the balance sheet, the Appellate Authority granted a relief only to the extent of 1,50,700/-. Before the Appellate Authority, the assessee tried to explain the difference by stating that the stock was utilized for paying the amount to the creditors, which plea was not accepted. Yet another plea, which was raised before the Appellate Authority, was that the assessee is a benami of her husband, who was doing the business in the name of his wife and addition cannot be made in the hands of the assessee. This plea was also rejected. Aggrieved by the order of rejection, the assessee preferred an appeal before the Tribunal. The Tribunal by its order dated 9th September, 2005 restored the addition of Rs.19,67,702/- to the file of Assessing Officer, which represented unexplained difference in account of creditors. Similarly trading the addition of Rs.25,000/- was restored back to the file of the Assessing Officer. During the course of fresh assessment proceedings, the assessee moved an application under Section 144A of the Act contending that she has not maintained the books of accounts properly, which has been recorded in the assessment order. She has not recorded sales amounting to Rs.19,67,702/-, which was available for payment to the sundry creditors. If the gross profit was included, cost of goods sold amounts to Rs.18,00,000/-. The assessee being a benami be absolved of all demands and the husband of the assessee should be made liable. The Additional CIT vide his directions under Section 144A held that the question of benami and concept of nonmaintenance of books properly does not arise. The return was accompanied with auditor report under Section 44AB of the Act and therefore it cannot be accepted that the stock was sold and the amount realized was available for explaining the creditors. The concept of benami was also rejected on the ground that the assessee has filed the return and has not adduced any evidence to show that she was benami of her husband. Therefore, the assessment was completed vide order dated 29th December, 2006 and addition on account of unexplained difference in credits were also made to the extent of Rs.19,67,702/- and trading addition of Rs.25,000/- was made. An appeal preferred against the said order came to be dismissed by the Commissioner of Income Tax. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. Before the Tribunal, it was contended that Section 68 of the Act is applicable when there is a credit in the books of account. It has no application to a case of credit being shown for the supply received by the assessee and the payments were made to the suppliers for such supplies. The Assessing Officer could have exercised the power under Section 131 of the Act to summon and enforce the attendance of witness/creditors, which he has not done. The inability to verify the explanation offered by the Assessing Officer cannot be a ground for rejection of the contention of the assessee and therefore the impugned order passed requires to be set aside. The Tribunal re-appreciated the entire evidence on record and took note of the particulars given by the various creditors and held that the assessee cannot be believed and her contentions are without any substance. Therefore, it dismissed the appeal. Aggrieved by the said order, the present appeal is filed.

3. The substantial question of law that arises for consideration in this appeal is as under:

   “Whether Section 68 of the Act applies only to cash credit?”

4. Learned counsel for the assessee contends that it is clear from the heading of Section 68 of the Act. Where any sum is found credited in the books, it necessarily means a cash credit and it has no application to a credit given on account of supply of goods. In the instant case, the said sum is credited to the account of suppliers, who had supplied the materials and even if those supplies held to be not true, the case would not fall under Section 68 of the Act and therefore the entire proceedings, which are purported to have been initiated and additions made under Section 68 of the Act require to be set aside.

5. Per contra, learned counsel for the Revenue submitted that though the heading of Section 68 of the Act mentioned the word cash credits, but in the body of the Section what is mentioned is a credit for supply of goods. Such a narrow and limited interpretation on the said provision is not permissible in law and the Authorities were justified in making the additions under Section 68 of the Act.

6. In order to appreciate the said contentions, it is necessary to look at the Section 68 of the Act as under:

   “Cash credits.

   68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source there of or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

7. What is the weight which should be attached to the heading (Cash credits) of Section 68 of the Act? A heading is to be regarded as giving the key to the interpretation of the clauses ranged under it, unless the wording is inconsistent with such interpretation. The headings might be treated as preambles to the provisions following them. Though the Court is entitled to look at the headings in an Act of Parliament to resolve any doubt, they may have as to ambiguous words, the law is clear that those headings cannot be used to give a different effect to clear words in the section where there cannot be any doubt as to the ordinary meaning of the words. The title of a chapter be legitimately used to restrict the plain terms of an enactment. The headings prefixed to sections or entries cannot control the plain words of the provision; they cannot also be referred to for the purpose of construing the provision when the words used in the provision are clear and unambigious; nor can they be used for cutting down the plain meaning of the words in the provision. Only in the case of ambiguity or doubt the heading or sub-heading may be referred to as an aid in construing the provision but even in such a case it could not be used for cutting down the wide application of the clear words used in the provision. Those headings are not meant to control the operation of enacting the words and it may be a wrong to permit them to do so.

8. It is in this background, we have to look at the above provision in particular opening words of the Section. What is referred to is where any sum is found credited in the books of an assessee and in the ends what is mentioned is the sum so credited may be charged to income-tax. Therefore, in the body of the Section, the word used is either found credited or so credited, there is no indication in the Section that such a credit should be a cash credit. It may be a cash credit or it may be a credit representing the value of the supplies made by the suppliers on credit. The essence is that the credit should be shown in the account and that would satisfy the requirement of Section 68 of the Act. Once the credit so mentioned in the Section is found to be not supported by any acceptable evidence, then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. This is precisely what can be done in the instant case.

9. In that view of the matter, the orders passed by the Authorities are legal, valid and call for no interference. Hence, the substantial question of law is answered in favour of the Revenue and against the assessee.

The appeal is dismissed accordingly.

 

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