TaxTMI 
TaxTMI 
2015 (3) TMI 1450
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....IV [Paragraph 24 (a)] to the Form No. 3CD (Stating Audit Report) showing particular of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the year clearly mentioned that the loan amount of Rs. 18,00,000/- has been taken by the 'A1 from Ms, Harbinder Kaur and assessee has also submitted confirmatory letter from the alleged creditor certifying that she had advanced Rs. 1,80,00,000/- to the assessee. 3. The Ld. CIT (A) has erred in Law and in facts in deleting the additions of Rs. 1.8 Crores made u/s 68 by accepting the plea of the assessee that the amount of creditor i.e. Rs. 1.8 Crores was shown in the balance sheet under the head 'Cheque Pending for realization/ encashment' when the total amount appearing in the Audited Balance Sheet Schedule *F' current assets, Loans & Advances as on 31.03.2010 of the assessee under this head is Rs. 86,18,786.62 only and as per ledger of the alleged creditor in the books of accounts of the assessee the amount of Rs. 1,80,00,000/- has been raised on 31.03.2010 through single cheque No. 513501. 4. The Ld. CIT (A) has erred in Law and in facts in deleting the add....
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....the appellant in the assessment proceedings, firstly on the ground that the transaction could not be verified/ authenticated and such a document can always be created at any stage. Secondly, the submission regarding paper transaction was made by the appellant only after being confronted regarding the source of funds. 5. The simple point involved in this case is whether the amount of Rs. 1,80,00,000/- was credited to the bank account of the appellant or not. If there was no credit to the bank account of the appellant company, which appears to be the case here, there cannot be any question of application of section 68 of the Act. Section 68 applies only when a sum is found credited in the books (which in this case would imply the bank account) of an assessee. If there is no credit entry in the bank account, how can Section 68 be invoked? I may also add that if the amount would have been credited to the bank account of the appellant, the source of the credit would have stood explained, it having been transferred from the bank account of the director and even in that case, no action could have been taken in the case of the appellant, The addition made by the Assessing Officer ....
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....ply because the assessee has done some window dressing in the account will not fasten the liability on the assessee and in this regard he strongly relied on the decision of Hon'ble Calcutta High Court in the case of CIT v Kusum Products Ltd 361 ITR 632(Cal.). 7. In any case if funds have not moved to the company and no real money has come to the company, the same cannot be construed as income because of the theory that only real income can be subjected to tax. In this regard he relied on the decision of Hon'ble Supreme Court in the case of CIT vs Shoorji Vallabhdas & Co. 46 ITR 144 (SC) and CIT vs Kerala State Drugs & Pharmaceuticals Ltd., 192 ITR 1 (Ker). 8. We have considered the rival submissions carefully. We find that identical issue was cropped up before the Chennai Bench of the Tribunal in the case of M/s Sri Balamurugan Textile Processing Ltd. Vs ACIT in ITA No. 1859/Mds/2007 for assessment year 2004-05 order dated 5.12.2008. In that case while verifying the sundry creditors it was noticed that there was difference to the tune of Rs. 2,44,96,054/- in respect of two creditors namely Sri Ganesh Traders, Rajapalayam and M/s Raksha's Enterprises, Coimbatore. In re....
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....ere is balancing entry in the asset side. The assessee company represented that there is no variation on the asset side. This clearly shows that assessee has invested in assets out of unaccounted income during the previous year relevant to assessment year 2004-05. Hence the difference amount in liabilities of Rs. 2,44,96,054/- is treated as unaccounted income of the assessee and added to taxable income of the assessee". 9. The above addition was confirmed by Ld. CIT(A). 10. When the issue travelled to the Tribunal, detailed submissions were made by both the parties and issue was decided vide paras 11 to 20 which are as under:- "11. We have considered the rival submissions carefully in the light of the material on record as well as the decisions cited by the parties. We find that the A.O. made investigations in respect of sundry creditors. He found that there was a difference to the tune of Rs. 2,44,96,054/-. Admittedly, this difference arose in respect of two creditors, namely, M/s Sri Ganesh Traders and M/s Raksha's Enterprises. The actual credit balance in two cases was Rs. 3,59,553/- and Rs. 47,45,614/-. It was further not disputed before us that these accounts we....
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....y this argument because section 68 as reproduced above does not distinguish between journal entry and cash entry. What is required for the purpose of section 68 is "any sum found to be credited." 14. We have carefully gone through the decision of Hon'ble Madras High Court in the case of CIT v. Pandian Distributors 259 ITR 428 (Mad.) on which the learned counsel for the assessee placed heavy reliance. In that case, the assessee was a firm of two partners, namely, one P. Thiagarajan and another K.L. Sri Hari. The business of the firm commenced from 16th July, 1981 and even before the commencement of the firm, on May 16, 1981, one of the partners of the firm viz. P. Thiagarajan had paid a sum of Rs. 30,000/- as license fee for warehouse and depots under the State Excise Rules to the State Government and had deposited another sum of Rs. 30,000/- as a wholesale security deposit with the State Government. The question arose whether the sum of Rs. 60,000/- credited to the account of P. Thiagarajan and treated as his capital contribution should be treated as undisclosed income of the firm. The Tribunal found that even before the commencement of the business of the firm on July 16,....
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.... From the above, it is clear that there is no possibility for a firm to earn any undisclosed income before the business is started and that is why, the Tribunal took the decision because amounts were entered in the books at the commencement of the business. Therefore, the above decision is totally correct. But, we are unable to find any ratio that section 68 is not applicable in the case of journal entries. 17. We are also unable to agree with the reasoning given by the learned counsel for the assessee in the light of the decision of the Hon'ble Supreme court in the case of Sree Lekha Banerjee v. CIT (supra). In that case, following facts were involved:- "The assessee, who was a colliery proprietor and a coal raising contractor, had encashed on January 22,1946, high denomination notes of the value of Rs. 51,000. In his application under the Ordinance for encashment of the notes he had stated that for the purpose of conducting his business and making payment ot labour which was to the tune of Rs. 30,000 to Rs. 40,000 every week. His explanation before the Income-tax Officer that the high denomination notes formed part of the cash balance at his head office was reje....
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....ot satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income natue." 19. On the basis of above observations, it ....
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....ceipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature." In that case the amount was credited in the capital account in the books and the assessee offered her explanation about the said receipt being her winnings from horse races. The explanation was not accepted. There was no dispute that the amount was received by the assessee form various race clubs on the basis of winning tickets presented by her. This court based on the material available on record found that an inference about such a purchase has to be drawn on the basis of the circumstances available on record inasmuch as no direct evidence bout such purchase would be rarely available. This court accordingly upheld the majority opinion of the Settlement Commission based on surrounding circumstances and applying the test of human probabilities. This authoritative pronouncement in our considered opinion is the complete answer to reject the submissions made by the learned senior counsel on behalf of the respondents." Thus, it is clear that while deciding an issue, it is very important to keep the human probabili....
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....mstances, we find nothing wrong with the order of the CIT(Appeals). 21. In the result, the appeal filed by the assessee stands dismissed" 11. From the above order and discussion, it become absolutely clear that Section 68 would get invoked the movement the entry for credit of a sum is made in the books of account. The Ld. CIT(A) totally misdirected himself to the extent and meaning of section 68 by observing that this section can be invoked only when the money is credited in the bank account. Perusal of the section which has been reproduced in the above decision clearly shows that provision can be invoked once a credit is made in the books of account. Therefore, in our opinion the addition has been correctly made by the Assessing Officer. 12. The Ld. counsel of the assessee had also strongly relied on certain observation of Jaipur Bench of the Tribunal in the case of ACIT vs Mahendra Kumar Agarwal 23 taxmann.com 285 (Jaipur - Trib). He particularly relied on the observation made at para 35 that "in s. 68 the words used are "where any sum is found credited in the books of an assessee". In this connection the word "sum" is of paramount importance. The words "any sum" c....
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....me because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialized or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the self-serving statement of the assessee. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view or real income taking the probability or improbability of realization in a realistic manner, but once accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has been accrued cannot be made "no income'." The above position can be understood very clearly by referring to various provisions of the Act. For example u/s 22 which deals with the income form house property, income has to be determined as per Section 23. Section 23 clearly prescribes the method of determination of the annual value and reads as under:- 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be - ....