Unexplained Cash Credits u/s 68 of Income Tax Act, 1961. The word "credited" would also include any entry on the debit side -Allahabad High Court

The Allahabad High Court has ruled that as per section 68 related to Cash Credits of the Income Tax Act, 1961 the word "credited" in relation to "any sum" does not mean an entry only on the credit side but would also include any entry on the debit side as well.

In the instant case, the assessee engaged in the business of Banarasi sarees on commission basis. As per the balance sheet there were outstanding liability for supply of sarees.  During the course of the assessment, weavers were produced for examination on oath , weavers submitted that since the transactions was more than three years old they could not give the exact outstanding amount but maintained that liabilities were outstanding against the assessee. The Assessing Officer concluded that liabilities in the balance sheet remained unexplained and was unreliable but since the assessee had sold some of the sarees of the weavers to different customers, the outstanding liabilities was reduced and remaining sum was added in the income of the assessee as unexplained credit in the balance sheet towards weaver's liability under Section 68 of the Income Tax Act, 1961.

However CIT (Appeals) deleted the addition and the Tribunal  also upheld the order of the CIT (A). The Hon’ble Allahabad High Court also uphel the decision of the Tribunal.

In the words of the Hon’ble Court;

“Having heard the learned counsel for the parties at some length, we find that similar issue was raised in the assessment year 1998-99 and a detailed order has been passed by the Commissioner of Income Tax under Section 264 of the Act deleting the unexplained liabilities under Section 68 of the Act. The order under Section 264 of the Act was passed in the case of the assessee as well as in the case of his elder brother Sri Saidullah. The said orders have become final as nothing has been brought on record to indicate that the department had preferred any further appeal. Consequently, we are of the opinion that since the factual controversy was the same, the Tribunal considered the said decisions as well as in the case of Mohd. Akhlaq, which was also similar in nature and came to the conclusion that since the facts being similar the assessee was entitled for the same relief.   “

“Nothing has been indicated by the learned counsel that the case of the assessee in the present assessment year is different to the case of the appellant and his brother Saidullah in the previous assessment year 1999-00 nor anything has been brought on record to indicate that the findings of the Tribunal that the case of the assessee was not similar to the case of Sri Mohd. Akhlaq. We are of the opinion that the order of the Tribunal does not require any interference.”

While concluding the judgement, the Hon’ble Court also addressed in detail to the submission of the respondent that an entry of liability cannot be added under Section 68 of the Income Tax Act, 1961 related to Cash Credits.

The Hon’ble Court cited two instance of the Supreme Court explaining the nature and the scope of Section 68 as under;

“In Commissioner of Income Tax Vs. P. Mohankala, 2007 (291) ITR 298 the Supreme Court explained the nature and the scope of Section 68 of the Act, namely:-  

The question is what is the true nature and scope of section 68 of the Act ? When and in what circumstances would section 68 of the Act come into play ? A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the b9oks maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion."  

“In Sumati Dayal Vs. Commissioner of Income Tax, 214 ITR 801 the Supreme Court held:-  

"....... But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the asessee, viz., the receipt of money, and if he fails to rebut it is the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably."  

The Court further added that

“The expression "any sum is found credited in the books of the assessee" means all entries on the credit side as well as on the debit side in the books of account. The word "credited" in relation to "any sum" does not mean an entry only on the credit side but would also include any entry on the debit side as well. The word "credited" means an entry of a sum in the books of account.”

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