TaxTMI 
TaxTMI 
2016 (9) TMI 1044
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....was indeed quizzical: (refer pg. 2 of the assessment order) (Amt. in Rs.) Name Closing bal. as on 31.3.2006 Closing bal. as on 31.3.2007 Closing balance as on 31.3.2008 Jyoti Enterprises 4734478 2397908 1897628 Sagar Trading Co. 3618669 1294890 1294890 D M Corporation 3419952 3000661 3000661 Neelam Sales Corpn. 1462718 897529 411869 Komal Enterprise 1424034 1093392 1093392 Total 14659851 8684380 7698440 No explanation qua the same was advanced, i.e., apart from stating that the credits were on account of purchases (made during the year) and, further, paid during the subsequent years by account payee cheques, furnishing along with the copies of the purchase bills, the bank statement (duly supported by confirmations by bank/PB pg. 80-83), as well as the confirmations from the said parties. The Assessing Officer (A.O.) was not satisfied with regard to the genuineness of the said credits. The confirmations did not bear PAN, much less the ward/range where they stand assessed to income tax, nor was the PAN furnished despite being specifically called for. That is, there was nothing to show tha....
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....s. Uttam Chand Jain [2010] 320 ITR 554 (Bom) and CIT vs. Kiran Deepak Kukreja [2010] 190 Taxmann 393 (Bom). 3. Before us, while the Revenue pleaded that the assessee had not been able to prove the impugned credits in terms of section 68 of the Act, relying on the decisions in the case of CIT vs. Precision Finance (P) Ltd. [1994] 208 ITR 465 (Cal); CIT vs. M. Ganapati Mudaliar [1964] 53 ITR 623 (SC); and A. Govindarajulu Mudaliar vs. CIT [1958] 34 ITR 807 (SC) (refer Ground 3 of the Appeal), the assessee's case, relying on CIT vs. Nangalia Fabrics (P.) Ltd. [2013] 40 taxmann.com 206 (Guj); Amitabh Construction (P.) Ltd. vs. Addl. CIT [2012] 20 taxmann.com 385 (Jhark); Manoj Aggarwal vs. Dy. CIT [2008] 113 ITD 377 (Del) (SB); ACIT vs. Lakhi Games Impex Pvt. Ltd. 2010 TIOL 272 (Trib)(Mum) was based principally on the proposition that the credits on account of trade transactions, as purchases, could not be brought to tax as unexplained credit u/s. 68 of the Act. This is particularly so as the purchases had not been doubted by the A.O., which are at a total of Rs. 164.41 lacs for the current year. In fact, the assessee had already disclosed a gross profit and net profit at 35% and 20....
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....rporation P. Ltd. (supra) was also referred to by the hon'ble jurisdictional high court in Major Metals Ltd. vs. Union of India [2013] 359 ITR 450 (Bom) (at pgs. 447 - 478) to emphasize that the doubtful nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee are to be duly taken into consideration by the Revenue authorities. Reference was also made by it to the decision in the case of Vijay Kumar Talwar vs. CIT [2011] 330 ITR 1 (SC) (at pg. 478 of the reports) to reiterate the same principle, i.e., that in the absence of a satisfactory explanation, as where the assessee does not produce any evidence about the nature and source of the credit rebutting the presumption of section 68, the same would hold, attracting charge to income tax. In CIT vs. P. Mohanakala [2007] 291 ITR 278 (SC), to which again reference stands made by the hon'ble court (at pg. 447 of the reports), the apex court clarified that the expression 'the assessee offers no explanation' occurring in section 68 means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maint....
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....ious that it could be argued that the liability in that case was found as bogus. That, however, would be missing the point. The fact of the matter remains that it was not the purchase per se that was disallowed in that case - which would be u/s. 37(1), but the liability, stated as arising on its account, u/s. 68 of the Act. The 'purchase on credit', it may be noted, is the explanation toward the nature of the credit, which is to be satisfactorily explained, so that stating the same as on it's account does not by itself exclude the transaction from the ambit of section 68, but is only towards explaining its nature and source, being on account of purchase from the stated creditor. Reference to 'purchases' by the Special Bench (of the tribunal) in Manoj Aggarwal (supra) while discussing the matter, is only toward citing a case where a credit is considered as explained on account of a purchase, which is admitted and accepted. The said decision in fact thus supports what stands stated by us - that purchase, admitted and accepted from a regular supplier in the ordinary course of business, forms a reasonable explanation of the nature and source of the credit, which is to be satisfactorily....
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.... 'Mr. Viraj Shah, CA, appears. Case was partly heard. During the hearing, a submission was made that the impugned payments were made in the normal course of business. In the present case, the liabilities stand discharged only by May/June, 2008. To establish the same as representing the normal credit allowed by the assessee, hearing is adjourned to 12.5.16.' No material, however, was produced on 12.5.2016, the next date of hearing, even as all that the assessee was required to produce, to establish it's claim, was copies of the account of the trade creditors for the preceding or the succeeding years. In the alternative, it could show that this is the extent of trade credit normally allowed in the industry, or that the purchases under reference were made on such credit terms. In fact, the order sheet entry was pronounced in the open court, on the basis of the information furnished by the ld. counsel and, as the record shows, the 'liability' has been fully discharged only by September, 2008 (PB pg.77). This aspect, i.e., the normal trade credit allowed to the assessee, assumes relevance/significance as it directly exhibits the capacity of the creditor to extend credit. It wa....
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....ns who are not even assessees. The suppliers are further not shown to be the regular sources of supply for the assessee inasmuch as it has not dealt with them either in the past or future, i.e., on the basis of the material on record; the only purchases during financial years 2005-06 to 2008-09, for which copies of account are on record, being for the current year. Rather, how could anyone function on a credit period of 2-3 years? There is further nothing to show that they are regular traders. That is, the claim of the impugned purchases being regular purchases, made in the normal course of its business by the assessee, is completely un-established. On the contrary, the facts and circumstances of the case seriously impair the claims of genuineness of the transactions. Who are the partners/proprietors of the concerned creditor-firms. What are their antecedents, which remain completely un-evidenced? The issue, as the foregoing would demonstrate, is principally a matter of fact. Whether on account of purchase or the transaction being bogus or otherwise, the question is if the liability, as stated, exists as on 31.3.2006, the relevant year-end, or not? This would again be a question....
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....s profit/income. Why, in a given case, the purchases may be from the concerned supplier, and yet the liability may not exist, as where it stands discharged, either by the assessee or someone acting on its behalf. Surely, this would require material to establish this as a fact, or else it would be the conjecture, yet represents a distinct possibility. It may be noted that this is only a variant of the earlier example where the purchases are from one source (grey market, etc.), while the billing and the booking of the purchase is from another. The actual purchase, even if costing the same, can only be presumed to have been paid, while it may well be that the 'liability' to the latter, i.e., in respect of the book purchases, being only an accommodation entry, continues to outstand. This aspect of the matter has been brought forth in Lachhmandas U. Talreja (HUF) (ITA Nos. 7644, 7645, 6581 & 6582/Mum/2013 dated 11.7.2016), in which the issues arising on the booking of the purchases from an ostensible source, while presumably making the purchases from another, i.e., from the stand point of the income-tax law, stand discussed by the tribunal. The issue, therefore, boils down to, if the....
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....it wishes to rely upon. The AO may cause any verification including by cross-examination, of the assessee's claims as he may deem fit and proper, as well as to bring on record material in rebuttal, including by way of inspection; calling materials; information, etc. and decide the same in accordance with law, issuing definite findings of fact. In summation 5. The assessee was found to have made purchases on credit during the relevant previous year (f.y. 2005-06), which were unpaid by the year-end. Significant proportion of the same remaining unpaid even by 31.3.2008, i.e., two years hence, seriously impaired the genuineness of the credit/s. Neither the material adduced in support, nor the enquiries conducted or the incidents found, which are neither denied nor rebutted, further confirm and validate the inference of the same being bogus or mere accommodation entries. The law does not draw any distinction between one credit and another - on which basis principally relief stood allowed by the first appellate authority, so that any credit which is not satisfactorily explained could be deemed as income u/s. 68, which is essentially a rule of evidence, the basis of which is that an....