Additions u/s 28(iv) not apply to benefits received in cash-money. ITAT quashed additions made by Assessing Officer alleging opening balances of customers advances as bogus.
ABCAUS Case Law Citation:
1000 2016 (08) ITAT
The Prelude:
It has bee widely held in numerous judgments that additions u/s 68 can not be made towards opening balances. In a recent judgment, ITAT chennai has held that additions u/s 68 can not be made in respect of old liabilites represented by only opening credit balances. Similarly, ITAT Bangalore has held that Section 68 of the Income Tax Act, 1961 will not apply to the opening balances of creditors which did not arise out of any transaction during the relevant previous year.
However, in the instant judgment, the Assessing Officer invoked section 28(iv) treating the advance received from customers most of which were opening balances, as income of the assessee alleging them to be bogus.
It is notable that the section 28 related to Profits and gains of business or profession provides various types of income that shall be chargeable to income-tax under the head ” Profits and gains of business or profession” and the said sub section (iv) to section 28 reads as follows:
“The value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession.”
Brief Facts of the Case:
In the instant case, the assessee was engaged in the business of fabrication of furniture, trading in imported items and investment in securities. She also had a proprietary concern carrying on the business of an interior decorator. The Assessing Officer (AO) vide his order u/s 143(3) made total addition of Rs.65,40,234/- alleging them as bogus.
On appeal by the assessee, the First Appellate Authority CIT(A) gave a detailed finding that, most of these advances were opening balances of the Previous Year, and that the assessee had received advances by way of account payee cheques from various parties through banking account and that each of the above parties have filed confirmations as well as copies of their ledger accounts and that all these transactions were made in the regular course of business of the assessee, year after year.
Accordingly CIT(A) He deleted the additions made by the AO.
Aggrieved, the Revenue filed the appeal before ITAT challenging the deletions made by the CIT(A).
The assessee also filed Cross Objection on the following grounds
Whether the advance from customers amounting to Rs.65,40,234/- can, on facts and in law, be termed as bogus, as alleged, and can the same be treated as income of the assessee u/s 28(iv).
Held by ITAT:
The Tribunal observed that the Revenue could not controvert the factual findings on each of the advances appearing in the books of accounts of the assessee and upheld the order of CIT(A) by dismissing the appeal of the Revenue.
Regarding the cross objections, the Tribunal quoted the Mumbai High Court in the case of Mahindra & Mahindra Ltd. vs. CIT, 206 ITR 50 (Mum) wherein it was held that Section 28(iv) do not apply to benefits received in cash or money.
The Tribunal held that even otherwise the addition made u/s 28(iv) of the Income Tax Act, 1961 when the advances in question were received in cash was bad in law.
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