2023 (8) TMI 1652 - HC - Income Tax

HC upholds deletion of additions under s. 68 r.w.s. 115BBE for unexplained creditors and liabilities

THE PRINCIPAL COMMISSIONER OF INCOME TAX - 1 Versus VIJAY ANANDBHAI CHAVADA

The HC upheld the ITAT's decision deleting additions under s. 68 r.w.s. 115BBE related to unexplained creditors and liabilities. The Tribunal found that ... Revision u/s 263 - as per CIT AO having erred in not charging tax u/s. 68 r.w.s.115BBE on the additions of unexplained creditors and liabilities - assessee contended before the Tribunal that the increase in balance advances from customers in the year under consideration was only on account of one party i.e., M/s. Bajrang Cotton and the rest are only opening balances - ITAT deleted additon HELD THAT:- From the findings of fact arrived at by the Tribunal to the effect that the PCIT did not controvert the factual assertion made by the assessee that amount represented opening balances from earlier years and from trade creditors of the assessee and the evidence placed on record by the assessee in support thereof by proving the source and genuineness of the trade creditors the amount cannot be said that the assessee has failed to discharge the onus of proving the genuineness of such trade creditors of M/s.Bajrang Cotton which is required u/s 68. On perusal of the provisions of Section 68 of the Act, it cannot be said that the assessee has failed to discharge the burden of showing the identity and genuineness of the trade creditors namely the M/s.Bajrang Cotton as found by the Tribunal and not controverted by the PCIT and therefore, the Tribunal has rightly held that there is no error in the assessment order to invoke Section 263 of the Act as the assessment order is neither erroneous or prejudicial to the interest of the revenue. Assessee appeal allowed. ISSUES: Whether the Tribunal was justified in quashing the order under Section 263 of the Income Tax Act despite Explanation 2 of Section 263.Whether the Tribunal was justified in quashing the order under Section 263 when the Assessment Order passed by the Assessing Officer was unsustainable in law.Whether the Tribunal was justified in quashing the order under Section 263 despite the Assessing Officer erring in not charging tax under Section 68 read with Section 115BBE on additions of unexplained creditors and liabilities.Whether the Tribunal was justified in dismissing the order under Section 263 without appreciating that the assessee failed to satisfactorily explain credits in books of accounts under Section 68, causing loss to Revenue.Whether the Tribunal was justified in allowing the appeal against the order under Section 263 despite gross inadequacy in inquiry as per Supreme Court directions in Commissioner of Income Tax v. M/s Paville Projects Pvt. Ltd. RULINGS / HOLDINGS: The Tribunal correctly quashed the order under Section 263 of the Income Tax Act as the Principal Commissioner of Income Tax (PCIT) did not controvert the factual assertions regarding the nature of the creditors being opening balances/trade creditors, and substantial evidence was placed on record to prove their genuineness, thus no error was found in the assessment order.The Tribunal held that the additions could not be made under Section 68 of the Act since the amounts represented genuine trade creditors and opening balances, supported by evidence such as ledger accounts, contra confirmations, audited accounts, and bank statements.The Tribunal found that the PCIT erred in holding that the Assessing Officer should have invoked Section 68 read with Section 115BBE, as the assessee discharged the onus of proving the identity and genuineness of the creditors, particularly M/s. Bajrang Cotton.It was held that the assessment order was neither 'erroneous' nor 'prejudicial to the interest of the revenue' within the meaning of Section 263, thus justifying dismissal of the revisionary order.The Tribunal's reliance on precedents such as Manoj Aggarwal v. DCIT and others supported the conclusion that unexplained sundry creditors representing genuine trade liabilities cannot be taxed under Section 68. RATIONALE: The legal framework applied includes Section 263 of the Income Tax Act, 1961, which empowers revision of assessment orders if found 'erroneous' and 'prejudicial to the interest of the revenue,' and Section 68 which deals with unexplained cash credits requiring the assessee to satisfactorily explain the nature and source of such credits.The Tribunal applied the burden of proof principle under Section 68, emphasizing that the assessee discharged the onus by producing substantial evidence to establish the genuineness of the creditors and the nature of the amounts as opening balances/trade liabilities.The Tribunal distinguished additions under Section 68 from genuine trade creditors, relying on established judicial precedents that additions cannot be made merely on unexplained creditors if their genuineness and source are satisfactorily explained.The PCIT's failure to controvert the factual assertions and evidence led to the conclusion that the revisionary order under Section 263 was not justified.No doctrinal shift or dissent was noted; the judgment reaffirmed the established principles governing revisionary powers under Section 263 and the evidentiary requirements under Section 68.