TaxTMI 
TaxTMI 
2022 (7) TMI 175
X X X X Extracts X X X X
X X X X Extracts X X X X
....(A) has erred in confirming the addition of Rs. 42,904/- on account of interest income without any basis. 3. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing." 2. The assessee is an individual and engaged in the business of trading of diamond and color stones through his proprietorship concern M/s. Gokhroo Gems. The assessee has started trading of diamond from the year under consideration. The assessee filed his return of income on 30.11.2014 declaring total income of Rs. 4,85,230/-. The case was selected for Complete Scrutiny through CASS. Accordingly, notice u/s. 143(2) of the Act was issued on 03.09.2015. The AO proposed to examine the large increase of sundry creditors during the year and noted that the assessee claimed sundry creditors on 31.03.2014 as under:- S.No. Name of the party Outstanding balance as on 31.03.2014 1. M/s Mona Impex, 203, 2nd Floor, Parshwa Building, Thodasheri, Mahidharpura, Surat. Rs. 8,48,01,956/- 2. M/s Ridhhi Sidhhi Gems, 6/1765, first Floor, Lal Darwaza, Gundisheri, Surat. Rs. 3,01,61,279 3. M/s Prathmesh Traders, 5/3717, 2nd Floor, Fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der consideration and sale of the next year then the purchase made on credit and settlement of the account by making the sale to the creditors established the genuineness of the claim. He has further contended that the assessee furnished confirmation and PAN of the trade creditors in question therefore, existence of the creditors/identity have been established by the assessee. Further, the assessee has also furnished the return of income showing the fact that the sundry creditors were doing the business activity of trading in the diamonds and other previous stones. The bills and vouchers were produced by the assessee to establish the genuineness of the transaction. On the one hand, the AO treated the credit purchases as bogus but at the same time the corresponding sale of these purchases has not been doubted and has been accepted as it is. Again, the AO has treated these trade creditors as cash credits and has made addition U/s 68 of the Income Act which is against the settled preposition of law. The ld. AR has submitted that Section 68 of the Act is applicable only on introduction of an amount in the books of account and is not applicable for trade entries. Thus, the stand of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en used and not the sum of money is found to be credited. It may be mentioned that in the case of CIT Vs Sophia Finance Ltd. [1993] 70 Taxman 69 (Delhi), it has been observed by the Hon'ble Delhi High Court that: "As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the ITO has the jurisdiction to enquire from the assessee the nature and source of the said amount." "The use of the words 'any sum found credited in the books' in section 68 indicates that the said section is very widely worded and an ITO is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." Further, it would be argued by the Id. AR that the heading of section 68 is 'cash credit' and therefore, these provisions are applicable to cash credits only and not to trade credits. It may be mentioned that In the case of Frick India Ltd vs Union of India And Others 1990 AIR 689, 1989 SCR Supl. (2) 570, while dealing with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s cannot control the plain words of the provisions. Therefore, headings of the Section cannot be referred to for the purpose of construing the provision when the words used in the provision are clear and unambiguous. In support of his contention that the trade creditors also attracts the provisions of Section 68 of the Act he has relied upon the following decisions:- * Uplaksh Metal Industries vs. CIT [2009] 177 Taxman 298 (Punjab & Haryana) * Smt. Rekha KrishnaRaj vs. ITO [2013] 33 taxmann.com 64 (Karnataka) * Smt. Rekha Krishnaraj vs. ITO [2017] 85 taxmann.com 256 (SC) * P.M. Abdulla vs. ITO [2015]60 taxmann.com 52 (Karnataka) * Suresh Kumar T. Jain vs. ITO [2011]128 ITD 74 (Bangalore) * Suresh Kumar T. Jain vs. ITO [2019] 101 taxmann.com 164 (Karnataka) * Satpal Goyal vs. CIT ITA No. 117 of 2016 (O&M) * CIT vs. Karnataka Planters Coffee Curing Work (P.) Ltd. [2016] 74 taxmann.com 256 (SC) * ITO vs. Lal Chand Yadav [2017] 82 taxmann.com 429 (Jaipur- Trib.) * Champalal S. Shah vs. ITO [2017] 86 taxmann.com 258 (Mumbai Trib.) * A Godwin Maria Visuvasam vs. ITO [2017] 84 taxmann.com 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, the book results shown by the assessee do not reveal the correct state of affairs and business results. When the AO has clearly made out a case of non genuine purchase made by the assessee then instead of making the addition U/s 68 of the Act the income of the assessee ought to have been estimated after rejecting the books of accounts and applying appropriate and reasonable rate of GP/NP. We further note that it is a regular practice of the assessee to show that the purchases on credit and then settlement of account by showing the sales to the same trade creditors who have supplied the goods to the assessee. Therefore, in the facts and circumstances of the case we are of the view that when the assessee's books of account are not reflecting the correct affairs and book results are not rejected at most the income of the assessee is required to be estimated after rejecting the books of accounts. This is view taken by us is based on the decision of Hon'ble Bombay High Court in the case of PCIT Vs. Mohmmad Haji Adam & Co. in ITA No. 1204 & 1012 & 2016. The relevant finding / observation on the issue of bogus purchase is extracted here in below for the sake of brevity 8 In ....