2000-VIL-303-ITAT-AHM

Equivalent Citation: TTJ 077, 069

Income Tax Appellate Tribunal AHMEDABAD

Date: 20.07.2000

SR. ENTERPRISE.

Vs

INCOME TAX OFFICER.

JUDGMENT

This appeal by the assessee for the asst. yr. 1997-98 is directed against the order of the CIT(A) upholding addition of Rs. 3,87,985 on account of cash credits.

2. The assessee-firm in the relevant period carried on business of machinery spare parts and also trading in stone quarry. The AO found that in accounts of certain parties, the assessee showed cash receipts against sale bills. The assessee was asked to file confirmation from the parties and produce them. On account of assessee's failure to file the confirmation, the AO examined some of the parties under s. 131 and those parties stated that cash was not given by them to the assessee as recorded in assessee's books of accounts. The AO has made addition of cash credits of Rs. 81,185 with the following observation:

"1. Hans Quarry & Metal Works, Chikhli

The assessee's books of accounts shown sale of Rs. 76,785 and payment for the same whereas accounts in the books of accounts of the customer, no such payment has been made to the assessee. A statement under s. 131 have been recorded in the case of customer. It is shown that the assessee has credited in its books of accounts cash credit and not the payment received on account of sale of goods. In the circumstances the cash introduced in the books of accounts has been treated as cash credit amounting to Rs. 26,785.

2. Sanjay Stone Quarry, Surat:

In the books of accounts of the assessee's bill dt. 7th April, 1996, for Rs. 2,020 has been raised. No such transaction has been recorded in the books of accounts of the customer. This has been deposed by one of the partners of the firm; statement under s. 131 recorded. He has specifically stated that no such transaction has taken place with the assessee. In the circumstances, transaction of Rs. 2,020 shown by the assessee in his books of accounts as payment is nothing but cash credit introduced in the books of accounts. The same is treated as cash credit amounting to Rs. 2,020.

3. M/s Bajrang Stone Quarry Works, Chikhli:

As can be seen from the chart transaction in the books of accounts of the assessee has been raised bills amounting to Rs. 1,00,615 and shown as payment received from the customer for the entire amount. Whereas in the books of accounts of the customer the assessee has correctly shown bills for purchase of goods amounting to Rs. 1,00,615 whereas payment has been shown Rs. 80,410 in his books of accounts. A statement has been recorded from one of the partners under s. 131 and stated whatever be the transactions have been recorded in their books of accounts for payment amounting to Rs. 88,410. In the circumstances, the excess cash introduced in the books of accounts by the assessee amounting to Rs. 12,265 has been treated as cash credit.

4. Shivam Stone Supply Co.

In the books of accounts the assessee has shown bills amounting to Rs. 40,380 for sale of goods and the entire amount has been taken as cash received whereas in the books of accounts of customer. The assessee has shown purchase of goods amounting to Rs. 40,180 and payment to the assessee Rs. 21,165. Since the assessee has credited in its books of accounts excess cash amounting to Rs. 19,215. The same has been created as cash credit in conformity with the cross-examination of the customer; one of the partners statement under s. 131 has been recorded.

5. Amardeep Metal Works

In the books of accounts of the assessee, the total bills raised for Rs. 63,175 the entire payment has been received whereas in the books of accounts of the customer. The total purchase of goods bills have been shown to the tune of Rs. 74,120 and payment of Rs. 50,000 by cheque. As such Rs. 24,120 credited in the books of accounts the same has been treated as cash credit.

6. Bhavin Quarry Works

In the books of accounts the assessee has shown sales bill dt. 19th March, 1999, amounting to Rs. 71,765 the same has been accepted by the customer on 19th March, 1999, in his books of accounts. Whereas in the case of books of accounts of the assessee the entire amount has been shown as received whereas no such payment has been made by the customer as per his books of accounts. This has been recorded under s. 131 statement from one of the partners, attended and he specifically deposed that no payment has been made against the purchases. As such entire amount of Rs. 71,765 credited to the books of accounts of the assessee treated as cash credit.

7. Umiya Stone Quarry

In the books of accounts of the assessee it has shown bills for sales amounting to Rs. 34,150 and the entire amount has been shown as collected from the customer whereas in the books of accounts of the customer it is seen that opening balance of Rs. 19,450 and total payment have been shown to the tune of Rs. 53,600 against these the customer has shown as made payment amounting to Rs. 20,775. As such Rs. 32,825 credited in the books of accounts as cash has been credited as cash credit.

8. Shivam Stone Ltd.

In the books of accounts of the assessee it has shown the total amount with opening balance of Rs. 3,990 and bills raised comes to Rs. 1,22,545 and entire payment has been shown as received whereas in the books of accounts of the customer only Rs. 64,740 purchase of goods have been disclosed and against this Rs. 15,000 payment has been made as such Rs. 14,740 cash introduced by the assessee. In the books of accounts of the assessee has been treated as cash credit.

9. Gayatri Quarry Works

In the books of accounts of the assessee the total sales have been shown Rs. 79,665 and the same has been shown as payment received from the customer. Whereas in the books of accounts of the customer the total transaction for purchase of goods have been shown as Rs. 1,20,835 with the opening balance of Rs. 88,135. The opening balance in the case of the assessee has shown Rs. 25,395 against Rs. 88,135. The payment has been shown Rs. 30,000 by the customer made by cheque and shown balance amounting to Rs. 90,835 as carried forward. Thus, the assessee introduced cash in its books of accounts to the tune of Rs. 90,835 has been treated as cash credit.

10. Jai Kodiar Metal

In the books of accounts of the assessee, the sale have been shown as per opening balance of Rs. 27,420 and total bills of Rs. 85,990 and the same has been shown as payment received from the customer. Whereas in the books of accounts of the customer it has been shown Rs. 58,615 with opening balance of Rs. 26,725 and this amount has not been paid as per customer's books of accounts. This has been reported by one of the partner attended, in the statement recorded under s. 131. As such the cash introduced by the assessee in its books of accounts amounting to Rs. 58,615 has been treated as cash credit."

3. The assessee impugned the addition in appeal before the learned CIT(A) and contended that assessee has correctly accounted for cash received from different purchasers and that he was not responsible how through mistake or otherwise wrong entries were made by the assessee. The assessee was not allowed opportunity to cross-examine the parties who deposed against the assessee. The learned CIT(A) asked the assessee to give details of payment received through cheque and cash and also file confirmation from different parties. This was not done. Accordingly, the learned CIT(A) as per discussion in para 3.4 of this order, confirmed the addition.

4. The assessee has come up in appeal. The principal arguments on Shri J.P. Shah, the learned counsel for the assessee, were as under:

(i) That credits in accounts of the purchasers was not cash credits. It was realisation of sale consideration of goods sold. This realisation from the sundry debtors could not be treated as cash credits. Cash credits always appear as a liability in the balance-sheet of the assessee. Realisation from the sundry debtors would reduce sundry debts appearing on the asset side of the balance-sheet. In support of above proposition, the learned counsel relied upon decision of Tribunal 'A' Bench, Delhi in the case of Racmann Springs (P) Ltd. vs. Dy. CIT (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del).

(ii) That assessee could have shown all sales in cash to augment his cash balance and there was no need for the assessee to make fictitious entries of cash received. It is not clear as to why more credence has been given to statements and entries in books of accounts of purchasers and it was one against one. The entries of the purchasers cannot be treated as sacrosanct and assessee's books of accounts false.

(iii) That having regard to the fact that assessee has fully accounted for the sale, no addition should be made under s. 68/69 of the IT Act as under the above provision, discretion is vested with authorities not to make addition even when entries are not fully explained. Having regard to the act and conduct of the assessee and also the fact that no benefit has been derived by the assessee by making entries of cash receipt, the addition should not be sustained, Shri Shah wanted the Bench to apply principle laid down by Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509 : (1997) 237 ITR 570 (SC).

(iv) It was further submitted that AO did not mention any date of introduction of cash. Even if addition was to be made, the same could be made of peak credits and not of all the credits. Shri Shah submitted that while working out the addition, the AO committed several errors. He pointed out that in the case of Umiya Stone Quarry, the AO added Rs. 32,825 whereas addition worked out to Rs. 14,000 only. Likewise, in case of Gayatri Guarry Works, the AO added Rs. 90,835 whereas the correct addition as per AO's own showing was only Rs. 49,665. Such mistakes were committed in other cases also.

4.1. Shri Shah, however, submitted that he did not want the case to be remanded for cross-examination of assessee's purchasers as such cross-examination would not be in assessee's interest. He reiterated that addition should be deleted as it is based on no evidence.

5. The learned Departmental Representative opposed above submissions. He argued that assessee was asked to file confirmation from the creditors in support of entries and also to produce them. The assessee failed to produce them. The assessee failed to produce relevant material in spite of repeated opportunities provided by the Revenue authorities. The learned Departmental Representative, accordingly, supported the impugned order.

6. I have given careful thought to the rival submissions of the parties. In my considered view, the AO was fully justified in asking the assessee to prove the credits introduced in the shape of sale receipts from the customers and when those were not proved, treating them as unexplained income of the assessee. The AO was also justified in recording statement of the purchasers regarding the cash payment allegedly made by them. The denial contained in the statement was duly put to the assessee and the assessee offered no explanation. There may be some justification for the argument that assessee should have been permitted to cross-examine persons who deposed against the assessee, but then this argument has been specifically given by the learned counsel for the assessee and, therefore, I need not comment upon this aspect any further.

6.1. It is now well accepted proposition that even addition for unproved trade credit can be made. When it is brought on record that the cash introduced in the books of accounts, is not genuine and assessee's own money, there is no material difference whether it is introduced as "cash credit" or as "trade credit". In both the cases the credit is to be assessed as "deemed income" of the assessee. I further do not find any substance in the argument that cash credits appear on the liability side whereas sundry debtors appear on the asset side of the balance sheet and, therefore, s. 68 is not applicable to trade credits. The above is true of genuine cash credits and not of credit entries which are held to be non-genuine. The strong reliance of the assessee on the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan is also not of any avail. The decision was given on the peculiar facts before the Court and is not applicable to the facts and circumstances of the case before me. Therefore, I do not find any substance in the submissions advanced by Shri J.P. Shah except the one relating to the working of the addition.

6.2. That on treating credit entries as non-genuine, the amount introduced has been taken to be assessee's deemed income. All the credits have been added without bothering to know as to what was the cash available with the assessee on a given date on which it was introduced in the books of accounts as receipt from the customer. The AO has not even mentioned dates of credits. It is also not available on record as to what was the opening balance with the assessee and how much cash he had from known and accepted sources. In the absence of above material, the addition for unexplained cash could not be worked out. What has been introduced beyond the available cash could only be treated as "unexplained". It is, therefore, necessary to work out the peak of the credits as also details of available funds with the assessee and then see how much unaccounted for cash has been introduced in the books of accounts. The peak of such amounts is to be added in the hands of the assessee as "deemed income" and in accordance with law. To enable the AO to carry out the above exercise, the impugned orders are set aside and matter is restored to the file of AO for passing a fresh order after affording reasonable opportunity of being heard to the assessee. The matter is, accordingly, restored to the file of AO for passing a fresh order in the light of above observations.

7. The other grounds raised in the memo of appeal were not pressed by the learned caunsel for the assessee and are, accordingly, rejected.

8. In the result, assessee's appeal is partly allowed in terms stated above.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.