2016 (5) TMI 1101 - AT - Income Tax

Tribunal directs exclusion of credits under Income Tax Act section 68, emphasizing assessee's rights

M/s. Sooraj Leathers Versus Income Tax Officer, Income Tax ward I (1), Vellore

The Tribunal partially allowed the appeal, directing the Assessing Officer to exclude certain credits from the addition under section 68 of the Income Tax ... Addition u/s.68 - plea of the assessee that though certain credits would not be proved due to the circumstances beyond the control of assessee, at least the opening balance, which is carried forward from earlier previous year and it cannot be considered as income of assessee u/s.68 in the assessment year under consideration - Held that:- In view of the judgment of Mariam Aysha V. Commissioner of Agricultural Income-Tax [1971 (7) TMI 50 - MADRAS High Court ] wherein held that “that consent/acceptance given by assessee cannot give jurisdiction and a right to the assessing authority to make an addition, is an essential principle of law. The taxing authority can act only if there is power under the statute to do so”. Further, the addition was made by invoking the provisions of the section 68 of the Act. If the liabilities are old, no credit has been made in so far those credits in the books of accounts in the assessment year under consideration, Sec.68 cannot be applied. This view of ours is supported by the judgement of Delhi High Court in the case of Usha Stud Agricultural Farms Ltd.,[2008 (3) TMI 91 - DELHI HIGH COURT] wherein held that credit balance in the account of the assessee did not pertain to the year under consideration, the AO was not justified in making the addition u/s.68 of the Act. Hence, in our opinion, the liabilities which were not credited in the previous year relevant to the assessment year under consideration, the provisions of the section 68 cannot be applied and the AO is directed to exclude the same from the addition u/s.68 of the Act after duly verifying the same. It needless to say that opportunity of hearing to be given to assessee before deciding the same by AO. Regarding other credits, the assessee failed to adduce any evidence to prove the identity of parties, credit worthiness and genuineness of the transactions in spite of giving repeated opportunity to the assessee by the AO as well as by the Ld.CIT(A). Thus, the failure on the part of assessee is to place necessary evidence to prove the transactions u/s.68 of the Act, the lower authorities is justified in treating those credits as unexplained credit u/s.68 of the Act - Decided partly in favour of assessee for statistical purposes. Issues:1. Addition of unexplained credit under section 68 of the Income Tax Act.2. Treatment of opening balance carried forward from earlier years in the assessment year under consideration.Issue 1: Addition of unexplained credit under section 68 of the Income Tax Act:The appeal was filed against an order of the Commissioner of Income Tax (Appeals) sustaining the addition of Rs. 66,98,357 made under section 68 of the Income Tax Act. The Assessing Officer had added Rs. 1,38,31,660 to the income of the assessee as the appellant could not provide addresses, confirmations, or comply with the inquiries regarding sundry creditors. Out of this amount, the Commissioner confirmed Rs. 66,98,357 under section 68 of the Act. The appellant contended that certain credits were only opening balances and should not be considered for addition in the assessment year. The Departmental Representative argued that the opening credits should be considered as income of the assessee in the relevant previous year. The Tribunal held that if liabilities were not credited in the previous year relevant to the assessment year under consideration, section 68 cannot be applied. The Tribunal directed the Assessing Officer to exclude such liabilities from the addition under section 68 after verification.Issue 2: Treatment of opening balance carried forward from earlier years:The appellant argued that certain credits were opening balances carried forward from earlier years and should not be considered as income under section 68. The Departmental Representative contended that the assessee had accepted these credits as unexplained and offered them as income under section 68 before the lower authorities. The Tribunal referred to a judgment stating that consent or acceptance given by the assessee cannot give jurisdiction to the assessing authority to make an addition. The Tribunal held that if liabilities were old and not credited in the books of accounts in the assessment year under consideration, section 68 cannot be applied. The Tribunal directed the Assessing Officer to exclude such credits from the addition under section 68 after providing an opportunity for the assessee to be heard.In conclusion, the Tribunal partly allowed the appeal for statistical purposes, directing the Assessing Officer to exclude certain credits from the addition under section 68 and provide an opportunity for the assessee to be heard before making a decision.