2014 (1) TMI 392 - AT - Income Tax

Tribunal denies deduction under Sec 10B for income from Sec 68, upholds additions for unexplained credits

The Tribunal ruled that income from additions under Section 68 of the Income-tax Act cannot be considered for deduction under Section 10B meant for Export ... Whether the amount of credit u/s. 68 is income from business or income from other sources - Held that:- Following Laxmichand Baijnath vs. CIT [1958 (11) TMI 3 - SUPREME Court] - If credits are found in business account of the assessee and the explanation as to the nature and source of account is rejected by the Income-tax authorities, such authorities are entitled to treat the credit as income from business - It cannot be interpreted to mean that in all cases such credits must be treated as income from business - Merely because the assessee is running a business in which are found certain unexplained cash credits, it does not necessarily follow that such credits represent suppressed business receipts and there would be no error of law in regarding the unexplained cash credits as income of the assessee from some independent and unknown sources unless there are strong reasons for connecting the unexplained cash credits with known sources of income of the assessee, there would be no alternative to treating them as income from other sources - When the assessee pleads that the impugned cash credits came out of suppressed profit, it is for him to prove that it is so. The income resulting on account of additions u/s. 68/69 of the Act cannot be considered as income derived from export activities though it is income of export oriented unit unless there is clear evidence that it represents business receipts - The assessee's business is carrying on of export activities in granite slabs and not dealing in unexplained credits - The assessee is not entitled for deduction u/s. 10B of the Act on account of additions made u/s. 68/69 of the Act - Decided in favour of Revenue. Issues Involved:1. Granting relief under Section 10B of the Income-tax Act, 1961.2. Addition made under Section 68 of the Income-tax Act.3. Application of Section 80IA(10) read with Section 10B(7) of the Income-tax Act.4. Investigation into the genuineness of sales and purchases.5. Remanding the matter back for further examination.Issue-wise Detailed Analysis:1. Granting relief under Section 10B of the Income-tax Act, 1961:The core issue is whether the income resulting from additions made under Section 68 of the Act can be considered for deduction under Section 10B, which is meant for 100% Export Oriented Units (EOUs). The CIT(A) allowed the deduction under Section 10B, but the Revenue contended that the income added under Section 68 should be treated as 'income from other sources' and not as income from business, thus not eligible for deduction under Section 10B. The Tribunal concluded that the income resulting from additions under Section 68/69 cannot be considered as income derived from export activities, and therefore, the deduction under Section 10B is not applicable.2. Addition made under Section 68 of the Income-tax Act:The Assessing Officer (AO) made additions under Section 68 for unexplained credits, which were claimed as sundry creditors by the assessee. The CIT(A) upheld these additions, noting that the assessee failed to prove the identity, creditworthiness, and genuineness of the creditors. The Tribunal supported this view, emphasizing that the primary onus to prove these aspects lies with the assessee, which was not discharged.3. Application of Section 80IA(10) read with Section 10B(7) of the Income-tax Act:The Revenue argued that the CIT(A) ignored the provisions of Section 10B(7) and 80IA(10), which deal with adjustments to deductions when transactions are arranged to gain undue tax benefits. The Tribunal found that there was no involvement of another person in arranging transactions to gain higher deductions. Therefore, these provisions were not applicable in this case.4. Investigation into the genuineness of sales and purchases:The AO disallowed sundry creditors and certain purchases, deeming them bogus. The CIT(A) confirmed this, stating that the assessee did not provide sufficient evidence to prove the genuineness of these transactions. The Tribunal upheld this view, noting that the AO conducted detailed investigations into the sundry creditors and purchases, and the assessee failed to produce credible evidence.5. Remanding the matter back for further examination:The Revenue requested to remand the matter back to the CIT(A) or AO to examine the genuineness of sales, given the bogus nature of purchases. The Tribunal found this request untenable, as the AO had already completed reassessments for previous years based on the findings for the current year. The principle of consistency, as established by the Supreme Court in Radha Soami Satsang vs. CIT, was applied, indicating that the position should not be altered in subsequent years if it was not disputed earlier.Conclusion:The Tribunal concluded that the income resulting from additions under Section 68/69 cannot be treated as business income eligible for deduction under Section 10B. The appeal of the Revenue was allowed, and the order of the CIT(A) granting relief under Section 10B was set aside. The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of creditors and upheld the AO's detailed investigations and findings.