M/s. Nallam Textiles P Ltd., Palladam V. DCIT, Tiruppur

ITA 776/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61183 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B MURALIKUMAR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Unexplained cash credit; Business income; Deemed to accrue or arise in india
• Section: 143(3); 68; 263

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 776/MDS/2011 ASSESSMENT YEAR: 2006-07 M/S. NALLAM TEXTILES P. LTD., NO. 61-C, AVINASHI ROAD, ANUPARPALAYAMPUDUR, PALLADAM 641 652 [PAN:AAACN7316F] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 777/MDS/2011 ASSESSMENT YEAR: 2006-07 M/S. NALLAM MANIAM TEXTILES P. LTD., NO. 4-H, SWAMINATHAPURAM, 1 ST STREET, ANUPARPALAYAM- PUDUR, PALLADAM 641 652 [PAN:AABCN0971F] VS. THE COMMISSIONER OF INCOME TAX III, COIMBATORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, C.A. RESPONDENT BY : SHRI B. MURALIKUMAR, CIT DATE OF HEARING : 3 0 . 0 4 .201 2 DATE OF PRONOUNCEMENT : 25.05.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THESE TWO APPEALS OF DIFFERENT ASSESSEES OF SAME GR OUP ARE DIRECTED AGAINST DIFFERENT ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX-III, COIMBATORE BOTH DATED 23.03.2011 IN C.NO. 320(6)/20 10-11/CIT-III/CBE AND I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 2 IN C. NO. 320(7)/2010-11/CIT-III/CBE FOR THE ASSESS MENT YEAR 2006-07. SHRI T. BANUSEKAR, CHARTERED ACCOUNTANT REPRESENTED ON B EHALF OF THE ASSESSEE AND SHRI B. MURALIKUMAR, CIT REPRESENTED ON BEHALF OF THE REVENUE. I.T.A. NO. 776/MDS/2011 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF YARN MANUFACTURING AND IS ASSESSED TO T AX WITH DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUPUR . THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-0 7 DECLARING LOSS OF ` .87,53,003/-. THE ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) ON 17.12.2008 DETERMINING THE LOSS AT ` .36,05,552/- BY THE ASSESSING OFFICER. WHILE COMPUTING THE LOSS, THE ASSESSING OFFICER MAD E ADDITION OF ` .47,01,519/- UNDER SECTION 68 OF THE ACT OBSERVING AS UNDER: (I) IT WAS FOUND THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE CREDITOR CONFIRMATION TO THE TUNE OF ` .47,01,519/-. THE SAME IS DISALLOWED AND ADDED BACK TO TOTAL INCOME AS UNEXPL AINED CASH CREDITS U/S 68 OF THE INCOME-TAX ACT, 1961. 3. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER ALLOWED SET OFF OF THIS ADDITION OF ` .47,01,519/- AGAINST BUSINESS LOSS OF ` .87,53,003/- AND COMPUTED THE BUSINESS LOSS AT ` .36,05,552/- FOR THE ASSESSMENT YEAR 2006- 07. 4. THE ASSESSEE ACCEPTED THE ADDITION MADE UNDER S ECTION 68 BY THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 3 ASSESSING OFFICER BY NOT FILING FURTHER APPEAL TO T HE COMMISSIONER OF INCOME TAX (APPEALS). AS THE THINGS STOOD THUS, THE COMMIS SIONER OF INCOME TAX III, COIMBATORE ISSUED NOTICE UNDER SECTION 263 TO REVISE THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) ON 17.12.2008 SIN CE THE COMMISSIONER OF INCOME TAX IS OF THE VIEW THAT AS PER PROVISIONS OF SECTION 68, THE UNEXPLAINED CASH CREDIT IS DEEMED INCOME, WHICH WIL L NOT FALL UNDER ANY OF THE HEADS OF INCOME UNDER SECTION 14 AND THEREFORE, SET OFF OF BUSINESS LOSS AGAINST THIS DEEMED INCOME IS NOT PERMISSIBLE AS PE R THE PROVISIONS OF SECTION 71 OF THE ACT. THEREFORE, IN HIS OPINION, T HE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) IS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. 5. IN RESPONSE TO THE NOTICE UNDER SECTION 263, TH E ASSESSEE FILED ITS REPLY STATING THAT THE ADDITION MADE BY THE ASSESSI NG OFFICER IN THE ASSESSMENT ORDER IS UNDER SECTION 41(1) BUT WRONGLY MENTIONED THAT IT IS AN ADDITION MADE UNDER SECTION 68 AND THEREFORE SET OF F ALLOWED BY THE ASSESSING OFFICER IS IN ORDER. HOWEVER, THE COMMISS IONER OF INCOME TAX PASSED ORDER UNDER SECTION 263 DIRECTING THE ASSESS ING OFFICER TO REVISE THE ASSESSMENT WITHDRAWING OFF OF DEEMED INCOME UNDER S ECTION 68 AGAINST BUSINESS LOSS ALLOWED BY THE ASSESSING OFFICER. AGA INST THIS ORDER OF THE COMMISSIONER OF INCOME TAX, THE ASSESSEE HAS COME U P IN APPEAL BEFORE US. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 4 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION OF ` .47,01,519/- MADE UNDER SECTION 68 OF THE ASSESSMEN T ORDER REPRESENTS CLOSING BALANCE AS ON 31.03.2006 IN THE CREDITORS A CCOUNT. THIS AMOUNT REPRESENTS THE BALANCE IN CREDITORS ACCOUNT FOR PUR CHASE OF RAW MATERIALS AND ARE NOT CASH CREDITS. THE COUNSEL SUBMITTED THA T THE ASSESSING OFFICER HAS WRONGLY MENTIONED IN THE ASSESSMENT ORDER THAT THE ADDITION MADE WAS UNDER SECTION 68 REPRESENTING UNEXPLAINED CASH CRED ITS. THE COUNSEL SUBMITTED THAT THE ASSESSING OFFICER SHOULD HAVE CO NSIDERED THE ADDITION UNDER SECTION 41 AND NOT UNDER SECTION 68 AS THESE AMOUNTS REPRESENTS BALANCES OUTSTANDING IN THE CREDITORS ACCOUNT. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS ASKED TO FILE CONFIRMATION OF BALANCES OF CREDITORS. THE COU NSEL SUBMITTED THAT THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT T HE COMPANY WAS ALREADY SICK AND MANY CREDITORS HAVE FILED SUITS AGAINST TH E ASSESSEE FOR NON- PAYMENT OF THEIR DUES BY THE ASSESSEE COMPANY. THER EFORE, OBTAINING CONFIRMATION OF BALANCE FROM THOSE CREDITORS COULD NOT BE POSSIBLE AS THEIR RELATIONSHIP WITH THE CREDITORS WAS NOT GOING GOOD AT THAT POINT OF TIME. THEREFORE, THE COUNSEL SUBMITTED THAT IT WAS AGREED BEFORE THE ASSESSING OFFICER THAT THE CREDITORS BALANCES COULD BE ADDED TO THE INCOME OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT. THE COUNSE L SUBMITTED THAT AT THE TIME OF FRAMING ASSESSMENT, SINCE THE ASSESSEE DID NOT PRODUCE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 5 CONFIRMATION OF THE CREDITORS, THE SAID SUM WAS ADD ED AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 INSTEAD OF UNDER SECTION 41 (1) OF THE ACT. THE COUNSEL SUBMITTED THAT ACCORDING TO SECTION 68 ANY SUM FOUND CREDITED IN THE BOOKS FOR WHICH THE NATURE AND SOURCES REMAINED UNE XPLAINED COULD BE CHARGED AS INCOME OF THAT PREVIOUS YEAR. IN OTHER W ORDS, THE DEEMING FICTION COULD APPLY ONLY WHEN THE NATURE AND SOURCE OF A CR EDIT REMAINS UNEXPLAINED AND THE CREDIT COULD BE REGARDED AS INC OME OF THE PREVIOUS YEAR IN WHICH SUCH CREDIT IS FOUND. THE COUNSEL SUBMITTE D THAT AS THE CREDITS IN THE SAID ACCOUNTS DURING THE YEAR WERE ONLY FOR PUR CHASE OF RAW MATERIALS, THE PROVISIONS OF SECTION 68 DO NOT APPLY TO THE PR ESENT CASE. HE SUBMITTED THAT THE ASSESSING OFFICER ADDED OF ` .41,01,519/- BEING THE CLOSING BALANCES OF THE CREDITS BY WRONGLY QUOTING SECTION 68 INSTEA D OF SECTION 41(1) OF THE ACT. THE COUNSEL SUBMITTED THAT AS THE INCOME DETER MINED AFTER SETTING OFF OF LOSSES REMAINED NIL, THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE ADDITION MADE UNDER SECTION 68 EVEN THOUGH IT IS AN ERROR IN CONSIDERING THE ADDITION UNDER SECTION 68 INSTEAD OF UNDER SECTION 41(1) OF THE ACT. THE COUNSEL FOR THE ASSESSEE INVITED OUT ATTENTION TO P AGE 6 OF THE PAPER BOOK FILED, CONTAINING THE CHART SHOWING THE SUMMARY OF THE TRANSACTIONS WITH THE CREDITORS DURING THE FINANCIAL YEAR 2005-06 RELEVAN T TO THE ASSESSMENT YEAR 2006-07 AND THE DETAILS ARE AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 6 SL. NO. NAME OF THE PARTY OP. BALANCE ` . P CREDITS ` . P DEBITS ` . P CL. BALANCE ` . P 1. MANILAL MANGILAL & SONS 734,372.00 - - 734,372.00 2. PARAS TRADING COMPANY, RAICHUR 1,144,674.00 10,000.00 1,134,674.00 3. SHAH MANGANLAL LAKSHMICHAND 851,096.00 - - 851,096.00 4. SRI MAHESWARI MILLS, ANNUR 939,192.000 1,656,169.00 1,48 9,000.00 1,106,361.00 5. VISHAL COTTON COMPANY 875,016.00 - - 875,016.00 4,544,350.00 1,656,169 .00 1,499,000.00 4,701,519.00 THE COUNSEL FOR THE ASSESSEE ALSO FURNISHED COPIES OF LEDGER ACCOUNTS OF THE ABOVE CREDITORS IN THE BOOKS OF THE ASSESSEE, WHICH ARE AT PAGES 7 TO 11. THE COUNSEL SUBMITTED THAT AS PER THE CHART THE OPE NING BALANCE OF CREDIT WAS ` .45,44,350/-. FURTHER CREDITS IN THE ACCOUNT DURING THE YEAR ON ACCOUNT OF PURCHASE OF COTTON WAS ` .16,56,169/-. DEBITS DURING THE YEAR WAS ` .14,99,000/- AND THE CLOSING BALANCE OF CREDIT WAS ` .47,01,519/- AND THIS AMOUNT WAS ADDED AS UNEXPLAINED CASH CREDIT UNDER S ECTION 68 OF THE ACT. THE COUNSEL FOR THE ASSESSEE, THEREFORE SUBMITTED T HAT THESE BALANCES IN CREDITORS ACCOUNTS ARE ONLY CLOSING BALANCES AND AL L THE CREDITORS ARE TRADE CREDITORS ONLY. HE SUBMITTED THAT EXCEPT IN THE CAS E OF SHRI MAHESWARI MILLS, ANNUR, THERE IS NO CREDIT ENTRY IN ANY OF THE CREDI TORS ACCOUNT DURING THE FINANCIAL YEAR 2005-06. THE COUNSEL FOR THE ASSESSE E FURTHER SUBMITTED THAT BALANCES REFLECTED IN THE CREDITORS ACCOUNT IN THE EARLIER YEARS CANNOT BE CONSIDERED AS CASH CREDIT OF THE PREVIOUS YEAR UNLE SS THERE IS AN ENTRY MADE IN THE BOOKS OF ACCOUNT DURING THE PREVIOUS YEAR. F OR THIS PROPOSITION, THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 7 COUNSEL RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. USHA STUD AGRICULTURAL FARMS LTD. [301 ITR 384] AND THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. PRAMAESHWAR BOHRA [301 ITR 404]. 7. THE COUNSEL FURTHER SUBMITTED THAT AS PER SECTIO N 4 OF THE I.T. ACT, THE INCOME TAX IS PAYABLE ON THE TOTAL INCOME OF THE PR EVIOUS YEAR OF EVERY PERSON. HE SUBMITTED THAT SECTION 5 DEFINES THE SCO PE OF TOTAL INCOME AND AS PER SECTION 14, ALL THE INCOME SHALL, FOR THE PURPO SE OF CHARGE OF INCOME TAX AND COMPUTATION OF TOTAL INCOME BE CLASSIFIED UNDER FIVE HEADS. HE SUBMITTED THAT BY HARMONIOUS CONSTRUCTION OF SECTIO N 4, 5 AND 14, ALL INCOME MUST BE BROUGHT UNDER ANY ONE OF THE FIVE HEADS ONL Y. ACCORDING TO SECTION 56(1), INCOME WHICH IS NOT OTHERWISE CHARGEABLE UND ER HEADS SPECIFIED IN A TO E OF SECTION 14 SHALL BE CHARGEABLE UNDER THE HE AD INCOME FROM OTHER SOURCES. THE COUNSEL SUBMITTED THAT THE UNEXPLAINE D CREDIT DEEMED AS INCOME UNDER SECTION 68 IS ALSO INCOME CHARGEABLE T O TAX AND SHALL FORM PART OF TOTAL INCOME. THEREFORE, HE SUBMITS THAT IT IS TO BE ASSESSED IN ANY ONE OF THE FIVE HEADS. HE SUBMITS THAT IF THE ASSES SEE IS ABLE TO PROVE THAT THE CREDIT MUST FALL UNDER ANY PARTICULAR HEAD THEN THE DEEMED INCOME SHALL FALL UNDER THAT PARTICULAR HEAD. IN CASE, THE ASSES SEE IS UNABLE TO PROVE SO, THEN THE DEEMED INCOME WOULD FALL UNDER THE HEAD O THER SOURCES. THE COUNSEL RELIED ON THE DECISION OF THE HONBLE ANDHR A PRADESH HIGH COURT IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 8 THE CASE OF CIT V. MADURI RAJAIAHGARI KISTAIAH [120 ITR 294] FOR THIS PROPOSITION. THE COUNSEL SUBMITS THAT IN CASE OF AS SESSEE, WHICH IS CARRYING ON THE BUSINESS INCOME IS CHARGEABLE TO TAX UNDER T HE HEAD BUSINESS AND THE NORMAL INFERENCE IS THAT DEEMED INCOME ALSO FLO WS FROM BUSINESS ONLY. THE COUNSEL PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LAKSHMICHAND BAIJNATH VS. CIT [35 IT R 416] AND THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF C IT VS. MARGARETS HOPE TEA CO. LTD. [201 ITR 747]. THE COUNSEL ALSO RELIED ON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF ITO VS. DHARAMBIR HANSRAJ AGARWAL [23 ITD 589]. 8. THE COUNSEL FOR THE REVENUE SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS UNDER SECTION 68 AS NO CONFIRMATIONS WERE FILED BY THE ASSESSEE AND THEREF ORE THE ASSESSING OFFICER WAS CORRECT IN TREATING THE ADDITION AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 AND ADDITION CANNOT BE SAID TO HAVE BEEN MADE UN DER SECTION 41 OF THE ACT. THE COUNSEL FOR THE REVENUE SUBMITTED THAT SEC TION 68 IS A CHARGING SECTION AND THE ADDITION MADE UNDER SECTION 68 NOT FALL UNDER ANY OF THE HEADS OF INCOME. THEREFORE, HE SUBMITTED THAT THE C OMMISSIONER OF INCOME TAX HAS RIGHTLY HELD THAT THIS INCOME CANNOT BE SET OFF AGAINST BUSINESS LOSS. THE COUNSEL FOR THE REVENUE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 9 9. WE HAVE HEARD BOTH SIDES, PERUSED THE ORDERS OF LOWER AUTHORITIES AND PERUSED THE MATERIALS PLACED BEFORE US AND THE CASE LAW RELIED ON. THE COMMISSIONER OF INCOME TAX PASSED ORDER UNDER SECTI ON 263 BASED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF FAKIR MOHAMMED HAJI HASAN VS. CIT [247 ITR 290]. ACCORDING TO THE COMMISSIONER OF INCOME TAX, THE DEEMED INCOME BROUGHT TO TAX UNDER SECTION 68 BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT UNDER SECTI ON 143(3) CANNOT BE CATEGORIZED UNDER ANY OF THE SECTION AS PER SECTION 14 OF THE ACT IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT AND THEREFORE THE INCOME ADDED UNDER SECTION 68 CANNOT BE CONSIDERED FOR SET OFF AGAINST BUSINESS LOSS AND THEREFORE THE ORDER PASSED BY THE ASSESSIN G OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. DUR ING THE COURSE OF HEARING BEFORE THE COMMISSIONER OF INCOME TAX, THE ASSESSEE PRODUCED THE LEDGER ACCOUNT OF THE CREDITORS APPEARING IN THE BOOKS OF THE ASSESSEE INCLUDING A CHART SHOWING SUMMARY OF TRANSACTION OF THE CREDITO RS DURING THE YEAR 2005- 06. THE ASSESSEE ALSO FILED A DETAILED SUBMISSIONS BEFORE THE COMMISSIONER OF INCOME TAX CONTENDING THAT THE ADDITION OF ` .47,01,519/- MADE UNDER SECTION 68 OF THE ACT BY THE ASSESSING OFFICER IN T HE ASSESSMENT ORDER REPRESENTS ONLY CLOSING BALANCE IN THE TRADE CREDIT ORS ACCOUNT AND THEREFORE, THE ADDITION, IF AT ALL CAN BE MADE IS ONLY UNDER S ECTION 41 OF THE ACT , BUT NOT UNDER SECTION 68. INSPITE OF THE ASSESSEE SUBMITTIN G THESE DETAILS BEFORE THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 10 COMMISSIONER OF INCOME TAX, THE COMMISSIONER OF INC OME TAX REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFIC ER WRONGLY ADDED THE CLOSING BALANCE IN CREDITORS ACCOUNT UNDER SECTION 68 INSTEAD OF UNDER SECTION 41(1) AND SIMPLY HOLDING THAT THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 68 AND THEREFORE THIS ORDER B ECAME FINAL. WE ARE UNABLE TO AGREE WITH THE VIEW OF THE COMMISSIONER O F INCOME TAX BECAUSE THE ASSESSEE HAS PROVED THAT THE CREDITORS ARE ONLY TRADE CREDITORS AND THE ADDITION MADE UNDER SECTION 68 REPRESENTS CLOSING/O PENING BALANCE IN THE CREDITORS ACCOUNTS IN SOME OF THE CREDITORS ACCOUNT S, THE OPENING AND CLOSING BALANCES FOR THE ACCOUNTING YEAR 2005-06 AR E, IN FACT, REMAIN SAME. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. PRAMESHWAR BOHRA (SUPRA) HELD THAT THE CARRIED FORWARD AMOUNT OF THE PREVIOUS YEAR DOES NOT BECOME AN INVESTMENT OR CASH CREDIT OF THE RELEVANT YEAR. SIMILAR VIEW IS TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE O F CIT V. USHA STUD AGRICULTURAL FARMS LTD. (SUPRA). THEREFORE, IN VIEW OF THESE DECISIONS, THE OPENING BALANCE OF THE PREVIOUS YEAR CANNOT BE CONS IDERED AS CASH CREDIT UNDER SECTION 68. THE ASSESSEE PROVED BEYOND DOUBT THAT THESE AMOUNTS ARE BALANCES OF TRADE CREDITORS, THEREFORE, CANNOT BE CONSIDERED AS ADDITION UNDER SECTION 68. WE ARE OF THE VIEW THAT EVEN THOU GH THE ASSESSING OFFICER HAS MENTIONED THAT THE ADDITION HAS BEEN MADE UNDER SECTION 68, THIS AMOUNT REPRESENTS INCOME FALLING UNDER SECTION 41(1 ) OF THE ACT. THESE AMOUNTS REPRESENT THE TRADE LIABILITIES, THEREFORE IF AT ALL THE ADDITION IS TO BE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 11 MADE, IT IS UNDER SECTION 41(1) AND NOT UNDER SECTI ON 68. 10. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE C ASE OF CIT V. MADURI RAJAIAHGARI KISTAIAH (SUPRA) HELD AS UNDER: 5. THE SAME VIEW HAS BEEN REITERATED BY THE SUPREM E COURT IN C1T V. DEVI PRASAD VISHWANATH PRASAD . THE LEARNED JUDGE, SHAH J. (AS HE THEN WAS), SPEAKING FOR THE COURT, RULED THUS : ' THERE IS NOTHING IN LAW WHICH PREVENTS THE INCOME -TAX OFFICER IN AN APPROPRIATE CASE IN TAXING BOTH THE CASH CRED IT, THE SOURCE AND NATURE OF WHICH IS NOT SATISFACTORILY EXPLAINED AND THE BUSINESS INCOME ESTIMATED BY HIM UNDER SECTION 13 O F THE INCOME-TAX ACT, AFTER REJECTING THE BOOKS OF ACCOUN T OF THE ASSESSEE AS UNRELIABLE......... WHETHER IN A GIVEN CASE THE INCOME- TAX OFFICER MAY TAX THE CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF THE BUSINESS, AND AT THE SAME TIME ESTIM ATE THE PROFIT MUST, HOWEVER, DEPEND UPON THE FACTS OF EACH CASE.. .... WHERE THERE IS AN UNEXPLAINED CASH CREDIT, IT IS OPEN TO THE INCOME-TAX OFFICER TO HOLD THAT IT IS INCOME OF THE ASSESSEE A ND NO FURTHER BURDEN LIES ON THE INCOME-TAX OFFICER TO SHOW THAT THAT INCOME IS FROM ANY PARTICULAR SOURCE. IT IS FOR THE ASSESSEE TO PROVE THAT EVEN IF THE CASH CREDIT REPRESENTS INCOME IT IS INC OME FROM A SOURCE WHICH HAS ALREADY BEEN TAXED.' THE AFORESAID DECISIONS OF THE SUPREME COURT ARE AU THORITIES FOR THE PROPOSITION THAT THE FACT THAT THE ENTRIES ARE FOUN D IN THE BOOKS OF ACCOUNT OF THE BUSINESS WHOSE INCOME HAD ALREADY BE EN COMPUTED ON THE BASIS OF THE ESTIMATE BUT NOT ON THE RETURN FIL ED BY THE ASSESSEE, NOT ONLY DOES NOT PREVENT THE ITO FROM TREATING, BUT EN TITLES HIM TO TREAT, THE UNEXPLAINED CASH CREDITS AS INCOME FROM AN UNDI SCLOSED SOURCE WHICH FALLS UNDER THE HEAD 'INCOME FROM OTHER SOURC ES' UNLESS THE ASSESSEE, BY INDEPENDENT AND SATISFACTORY EVIDENCE, ESTABLISHES THAT THOSE AMOUNTS RELATE OR ARE REFERABLE TO THE UNDISC LOSED INCOME OF THE VERY KNOWN OR DISCLOSED SOURCE, NAMELY, THE BUSINES S WHOSE INCOME HAD ALREADY BEEN ESTIMATED. WE MAY ADD THAT A DIVIS ION BENCH OF THIS COURT CONSISTING OF ONE OF US (KONDAIAH J.) AND SRI RAMULU J IN C1T V. JANAB MOHD. SULEMAN (REFERRED CASE NO. 13 OF 1968 D ATED 11-11- 1970) AND KESARIMAL SOHANRAJ V. CIT EXPRESSED THE S AME VIEW ON SIMILAR FACTS AND CIRCUMSTANCES. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 12 AS COULD BE SEEN FROM THE ABOVE DECISION OF THE HON BLE ANDHRA PRADESH HIGH COURT, THE ITO IS NOT ONLY PREVENTED, BUT ALSO ENTITLES HIM TO TREAT THE UNEXPLAINED CASH CREDITS AS INCOME FROM AN UNDISCLO SED SOURCE WHICH FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES UNLESS T HE ASSESSEE, BY INDEPENDENT AND SATISFACTORY EVIDENCE, ESTABLISHES THAT THOSE AMOUNTS FALLS IN ANY OTHER SOURCE NAMELY BUSINESS, ETC. FURTHER, THE MUMBAI BENCH OF ITAT IN THE CASE OF ITO V. DHARAMBIR HANSRAJ AGARWA L (SUPRA) OBSERVED AS UNDER: 2. WE HAVE HEARD THE PARTIES. SECTION 68 OF THE I NCOME-TAX ACT, 1961, ON WHICH THE INCOME-TAX OFFICER HAS RELIED LA YS DOWN THAT WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESS EE MAINTAINED FOR ANY PREVIOUS YEAR AND THE ASSESSEE OFFERS NO EXPLAN ATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERE D BY HIM IS NOT, IN THE OPINION OF THE INCOME-TAX OFFICER, SATISFACTORY , THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE A SSESSEE OF THAT PREVIOUS YEAR. IN THE PRESENT CASE, THE ASSESSEE HA S OFFERED AN EXPLANATION ABOUT THE NATURE AND SOURCE OF THE SUMS CREDITED IN THE BOOKS OF THE ASSESSEE. IT IS SUBMITTED ON HIS BEHAL F THESE CASH AMOUNTS WERE RECEIVED AS PRICE OF THE SHOWROOMS SOLD AND TH AT THEY REPRESENTED AMOUNTS WHICH WERE, OVER AND ABOVE, THE AMOUNTS MEN TIONED IN THE AGREEMENTS WITH THE PURCHASERS. THERE WAS ABSOLUTEL Y NO REASON TO DISBELIEVE THE SAID EXPLANATION. CONSEQUENTLY, THE AMOUNTS IN QUESTION SHOULD HAVE BEEN TREATED AS TRADING RECEIPTS AS PLE ADED BY THE ASSESSEE. 3. EVEN IF WE HOLD THAT THE EXPLANATION OF THE ASS ESSEE ABOUT THE NATURE AND SOURCE OF THOSE AMOUNTS WAS NOT SATISFAC TORY, AS HAS BEEN HELD BY THE INCOME-TAX OFFICER, THE ONLY CONSEQUENC E THEREOF WOULD BE THAT SUMS CREDITED IN THE BOOKS OF THE ASSESSEE WOU LD BE LIABLE TO BE CHARGED TO INCOME-TAX, AS THE INCOME OF THE ASSESSE E OF THE PREVIOUS YEAR IN WHICH THE BOOKS WERE MAINTAINED. SECTION 68 DOES NOT EXPRESSLY STATE AS TO UNDER WHAT HEAD THE SAID INCOME SHOULD BE ASSESSED. SECTION 68 IS SILENT ABOUT THE HEAD UNDER WHICH THE SAID IN COME SHOULD BE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 13 ASSESSED. CONSEQUENTLY, THE ASSESSING AUTHORITY HAS TO LOOK TO THE SURROUNDING CIRCUMSTANCES IN ORDER TO DETERMINE AS TO UNDER WHAT HEAD THE SAID INCOME SHOULD BE ASSESSED. 11. AS HELD BY THE MUMBAI BENCH OF ITAT, SECTION 6 8 DOES NOT EXPRESSLY STATE AS TO UNDER WHAT HEAD THE SAID INCOME SHOULD BE ASSESSED AND THEREFORE, SECTION 68 IS SILENT ABOUT THE HEAD UNDE R WHICH THE SAID INCOME SHOULD BE ASSESSED. THE ASSESSING OFFICER HAS TO LO OK TO THE SURROUNDING CIRCUMSTANCES IN ORDER TO DETERMINE AS TO UNDER WHA T HEAD THE SAID INCOME SHOULD BE ASSESSED. IN THE PRESENT CASE, THE ASSESS ING OFFICER MADE ADDITION UNDER SECTION 68 AS UNEXPLAINED CASH CREDI TS THOUGH THE SAID CREDITS ARE ONLY TRADE CREDITS AND THAT TOO MOST OF THEM ARE OPENING BALANCES OF THE PREVIOUS YEAR. THE LOWER AUTHORITIE S SHOULD HAVE CONSIDERED THESE BALANCES IN CREDITORS ACCOUNTS AS INCOME UNDE R SECTION 41 AND NOT AS UNEXPLAINED CASH CREDITS UNDER SECTION 68. THEREFOR E, IN OUR CONSIDERED VIEW, SINCE THE BALANCES IN CREDITORS ACCOUNTS ARE INCOME FALLING UNDER SECTION 41(1), THE SET OFF OF THIS INCOME AGAINST B USINESS LOSS ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) IS CORRECT AND THEREFORE, WE SET ASIDE THE ORDER OF TH E COMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .776 & 777 776 & 777 776 & 777 776 & 777/M/ /M/ /M/ /M/11 1111 11 14 I.T.A. NO. 777/MDS/2011 13. IN VIEW OF OUR DECISION IN I.T.A. NO. 776/MDS/ 2011 IN THE CASE OF M/S. NALLAM TEXTILES P. LTD., WE ALLOW THE APPEAL OF THE ASSESSEE IN THE CASE OF M/S. NALLAM MANIAM TEXTILES P. LTD. BY SETTING ASID E THE ORDER OF THE COMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263 OF THE ACT, AS THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN BOTH THE C ASES EXCEPT CHANGE IN FIGURES. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON FRIDAY, THE 25 TH OF MAY, 2012 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) VICE - PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 25.05.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.