Section 68 not attracted to amount representing credit purchases. Findings of ITAT upheld by High Court
ABCAUS Case Law Citation:
ABCAUS 2012 (2017) (08) HC
The respondent assessee was a Government Contractor in the business of road construction. His return of income was selected for scrutiny and the assessment was made under Section 143(3) of the Income Tax Act, 1961 (‘Act’).
During the course of assessment proceedings, an examination of books of account vis-à-vis balance sheet filed revealed that he had shown a number of sundry creditors against registration number of the vehicles. When enquired, it was submitted by the assessee that he had purchased crusher through these vehicles on credit during the month of February and March. The amount shown against each vehicle numbers in the balance sheet was on account of Freight, Octroi and carriage payable at the close of the financial year.
The assessee was asked to furnish copies of account of all the above creditors mentioned in the balance sheet by way of vehicle numbers. He was also asked to produce the goods carrier owners in respect of whom payment exceeding Rs. 50,000/- was outstanding as on 31.03.2009. Summons under Section 131 of the Act were issued randomly to find out the genuineness of creditors in respect of outstanding payments which were reflected against registration numbers of vehicles.
All the summons were received back un-served with the remarks that “no such person available at this address”, “address is incomplete”. The assessee was asked to furnish ledger account of the aforesaid creditors, which were produced by him. It was found that credit entries in respect of all the vehicles had been made on account of freight, octroi and carriage. These entries had been made in the last days of March and a few entries pertained to the months of January and Februar.
The Assessing Officer (AO) was of the view that the assessee had not been able to satisfactorily explain the aforesaid creditors shown against Registration Number of the vehicles. The AO passed order u/s 143(3) of the Act making an addition of Rs. 83,18,322/- on account of freight, octroi and carriage u/s 68.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who dismissed it and confirmed the addition made by the Assessing Officer.
Not satisfied with the order, the assessee filed appeal before the Tribunal. The Tribunal allowed the appeal holding that the provisions of Section 68 of the Act could be invoked in case some amount was received by an assessee whereas in the instant case, the concerned transactions were only of supply of material and, therefore, provisions of Section 68 of the Act were not applicable. It was further held that trade creditors in the earlier years stood accepted in scrutiny assessments. Thus, the genuineness of the expenses under consideration could not be doubted.
The Revenue approached the High court and filed the instant appeal under Section 260A against the order passed by the Income Tax Appellate Tribunal.
The Hon’ble High Court observed that It had been categorically recorded by the Tribunal that the provisions of Section 68 of the Act were clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier years i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted.
The Income Tax Department could not show that the findings recorded by the Tribunal were illegal or perverse or based on misreading of any material on record, warranting interference by the High Court. Thus, the Hon’ble High Court dismissed the appeal of the revenue by holding that no substantial question of law arises.