Advance received adjusted against sales made could not be added under section 68 treating the same as unexplained

THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘SMC’ BENCH, KOLKATA

I.T.A. No. 2284/KOL/ 2014 Assessment Year: 2009-2010

M/s. Narendra Nath Paul (Appellant ) vs. Income Tax Officer (Respondent)

Date of Order: 10-02-2016

ORDER

This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-XXXIII, Kolkata dated 19.09.2014 for the assessment year 2009-10 and the solitary issue arising out of the same for my consideration relates to the addition of Rs.11,15,131/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of advances received by the assessee treating the same as unexplained cash credit under section 68.

2. The assessee in the present case is a partnership firm, which is engaged in the business of M.R. Distributorship. The return of income for the year under consideration was filed by it on 25.11.2009 declaring total income of Rs.9,330/-. During the course of assessment proceedings, the Assessing Officer noticed that the assessee is claimed to have received cash advances of Rs.11,15,131/- mainly at the beginning of the year as well as at the end of the year. In this regard, it was explained by the assessee that the said advances in cash were received by it from 22 M.R. Dealers and the same were finally adjusted against the sales subsequently made to them. Two of such 22 M.R. dealers namely Mr. Sahabuddin Molla and Mr. Majnu Mistry were produced by the assessee before the Assessing Officer for verification. They admitted of having given the advances in cash to the assessee and also stated that it was a regular practice being followed to give advances in cash and to adjust the same against the supply of food grains. This explanation of the assessee as regards the cash advances, however, was not accepted by the Assessing Officer mainly for the following reasons :-

“(a) The appellant was not able to explain as to why the advances were accepted only on dates when the cash balance as per the cash books would have been negative if the advances had not been accepted.

(b) The advances were accepted in cash and no concrete evidence could be furnished by the appellant in support of the actual receipt of such advances. All the persons who had given such advances were not produced and the only two persons who were produced in person gave a statement which was contrary to the actual state of affairs. They stated that they had regularly advanced sums in cash to the appellant firm for later adjustment against food grains purchased by them but in fact, there were only isolated instances of such advances during the period from 01.04.2008 to 10.04.2008 and on 30.03.2009. The witnesses were also not able to produce any concrete evidence in support of their statement.

(c) No advances were accepted from customers by the appellant firm other than on 30.03.2009 and the initial period of the year from 01.04.2008 to 10.04.2008.

(d) In view of the above observations, the Assessing Officer was of the view that the appellant had failed. to explain the nature and source of the purported cash advances from customers satisfactorily as laid down by the provisions of section 68 of the Act.”

For the reasons given above, the Assessing Officer treated the cash advances of Rs.11,15,131/- as unexplained and added the same to the total income of the assessee under section 68 in the assessment completed under section 143(3) vide an order dated 19.12.2011.

3. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and the submissions made before the Assessing Officer were reiterated on behalf of the assessee before the

 ld. CIT(Appeals) in support of its case that the relevant cash advances having been explained in terms of section 68, the addition made by the Assessing Officer by invoking the said provision was not sustainable. The ld. CIT(Appeals), however, did not find merit in the submission of the assessee and proceeded to confirm the addition made by the Assessing Officer under section 68 for the following reasons given in his impugned order:-

“(a) The advances were accepted only in cash and only on a few dates. It is evident that in the absence of such advances, the appellant would have been suffering from cash deficits on the respective dates.

(b) The appellant has not received any advances from customers for almost the entire year barring the few dates as mentioned above on which the appellant was facing situations of cash deficits. Thus, taking advances was not a regular trade practice of the appellant.

(c) The amounts of advances received as claimed by the appellant match the respective amounts of sales exactly. For example, an advance of Rs. 10031.76 was taken from one Safali Ghosh on 01.04.2008 and rice worth Rs. 10031.76 was sold to her on 08.04.2008 as per the details furnished by the appellant. Similar is the case of Shri Sanjib Manna from whom an advance of Rs. 14711.67 was taken on 01.04.2008 and to whom rice worth Rs. 14711.67 was sold on 08.04.2008. While it can be accepted that advances are accepted in certain businesses, it is very difficult to accept, especially in the line of the appellant’s business of wholesale trading in food grains, that advances would be received and that too in exact amounts right up to the second decimal place matching the respective sale amounts.

(d) There are instances of customers making small advances on a particular date followed by advances on the immediately succeeding dates. For example, Shri Sanjib Manna advanced an amount of Rs. 2562/- on 09.04.2008 and a separate amount of Rs. 2562/- on 10.04.2008, which is unusual and against human probabilities”

Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

4. The ld. Counsel for the assessee reiterated before me the submissions made before the authorities below on this issue. He also contended that when the advances in question were finally adjusted against the sales subsequently made by the assessee and the sale so made was considered for determining the income offered by the assessee, there was no case to make a separate addition again on account of cash advances treating the same as unexplained cash credit.

5. The ld. D.R., on the other hand, strongly relied on the orders of the authorities below in support of the revenue’s case on this issue and read out the relevant adverse findings recorded by the Assessing Officer as well as by the ld. CIT(Appeals) in their respective orders while not accepting the explanation of the assessee in respect of cash advances.

6. I have considered the rival submissions and also perused the relevant material available on record. It is observed that the advances in question were stated to be received by the assessee from his dealers and two of such dealers had also appeared before the Assessing Officer and confirmed of having given such advances to the assessee. Moreover, the said advances were adjusted against the sale subsequently made by the assessee to the concerned M.R. Dealers and such sale was duly accounted for by the assessee in his books of account regularly maintained. It appears that these vital facts, however, have been lost sight off by the authorities below and they have mainly decided the issue going by the aspect of preponderance of probabilities. No doubt the preponderance of probabilities can be taken into consideration for deciding the issue if it is found that what is apparent is not real. However, if the facts of the present case are considered in the light of the evidence brought on record by the assessee, it was a case of advances received by the assessee in cash from his dealers and the same having been adjusted against the sale subsequently made to the said dealers, there was no reason to apply the theory of preponderance of probabilities, especially when there was nothing brought on record to doubt the explanation offered by the assessee. There was also no inquiry made by the Assessing Officer with the concerned dealers to establish that what was stated by the assessee is not correct. On the other hand, at least two dealers were produced by the assessee for verification before the Assessing Officer and they admitted of having been given the cash advances to the assessee. Having regard to all these facts of this case, I am of the view that all the advances except the advance of Rs.1,20,000/- received by the assessee on 30.03.2009 having been already adjusted against the sales made by the assessee to the concerned Dealers and the sales so made having been duly accounted for by the assessee, the corresponding advances could not be added to the total income of the assessee under section 68 treating the same as unexplained. As regards the advance of Rs.1,20,000/- claimed to be received by the assessee on 30.03.2009, I, however, find that the assessee has failed to explain the same in terms of section 68 and the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) to this extent is liable to be sustained. I, therefore, modify the impugned order of the ld. CIT(Appeals) and sustain the addition of Rs.11,15,131/- made by the Assessing Officer under section 68 to the extent of Rs.1,20,000/-.

7. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on February 10, 2016.

(P.M. Jagtap) Accountant Member

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