Jharkhand H.C : Rejecting the books of account and then making addition u/s 68 in section 143(3) is bad in law

High Court Of Jharkhand

Amitabh Construction (P.) Ltd. Vs. ACIT

Section : 68

Prakash Tatia And H.C. Mishra, JJ.

Tax Appeal No. 16 Of 2010

May 10, 2011

JUDGMENT

Heard learned counsel for the parties.

2.The following substantial question of law is involved in this appeal :

“Whether the Tribunal, Circuit Bench, Ranchi, was justified in reversing the order passed by the CIT (A) dt. 26th Dec., 2008, and in upholding the assessment order dt. 26th Dec., 2007, when the AO himself rejected the books of account of the assessee after holding that the transaction shown in the names of the sundry creditors were not genuine yet the AO instead of proceeding to determine the assessment under s. 144 proceeded to add the sundry creditors amount in the income of the assessee under s. 68 of the IT Act ?.”

3.Learned counsel for the appellant vehemently submitted that the appellant-assessee discharged all its obligations to justify the entries made in the books of account showing the credit balance as sundry creditors amounts of 12 persons by disclosing the identity of those persons who supplied the materials to the appellant and admittedly the appellant is the contractor engaged in the construction activities and out of 12 persons 8 persons were summoned under s. 131 of the Act of 1961 by the AO and they have deposed that they have supplied the materials to the assessee.

4.It is submitted that the assessee discharged its obligations and thereafter it was the duty of the Department to proceed further in the matter and it was not the duty of the assessee to find out more about the creditworthiness of the persons who supplied the materials. It is also submitted that even such was not necessary in the matter of trade creditors which may be necessary in the matter of cash deposit.

5.In the alternative, it has been submitted that once the AO has rejected the books of account after appreciation of the evidence of the alleged materials suppliers then the AO should have proceeded to assess the income of the assessee under s. 144(3) of the Act of 1961. It is submitted that non-proving of the genuineness of the transaction shown by the assessee in his books of account itself cannot be a ground to treat those entries to be a taxable sum under s. 68 of the Act of 1961 as it has not been held that the said amount is cash credit in terms of s. 68. It is submitted that s. 68(1) has been enacted for taxing the sum where there are entries of sum in the books of account of the assessee and those transactions have not been proved genuine transactions to the satisfaction of the AO then such transactions only could have been taxed under s. 68A.

6.Learned counsel for the appellant in support of his contention relied upon the two judgments of the Division Bench. The first judgment is dt. 28th Jan., 2009, passed by the Division Bench of the Rajasthan High Court in the case of CIT v. G.K. Contractor & Anr. (2009) 19 DTR (Raj.) 305judgment is passed by the Division Bench of the Allahabad High Court in the case of CIT v. Pancham Dass Jain (2006) 205 CTR (All.) 444 : (2006) 156 Taxman 507 (All.).

7.Learned counsel for the Revenue submitted that from the evidence of the persons whose identities have been disclosed by the assessee himself it is fully proved that the transaction recorded in the books of account of the assessee was not genuine transaction and for this the AO as well as the Tribunal has given cogent reasons and that finding of fact may not be interfered with by this Court.

8.However, it is submitted that since the transactions were in the form of cash entry only though having been described in the head of amount of persons alleged to have supplied the material to the assessee but when the transactions were found not to be genuine then that entry can be treated to be a cash amount in the hands of the assessee for the purpose of taxing under s. 68 of the Act of 1961.

9.We have considered the submissions of the learned counsel for the parties and perused the above judgments. It is not in dispute that the names of the persons, who were alleged to have supplied the materials to the assessee, were disclosed by the assessee and the AO summoned 8 persons out of 12 persons and they gave their statements before the AO and we after perusal of the reasons given in the assessment order and after considering the reasons given by the CIT(A) and reasons given by the Tribunal while considering the credibility of those persons and the genuineness of the transactions we are of the firm opinion that the transactions shown in the books of account were not genuine in the light of the statements given by those persons who were examined by the AO. We may mention a few facts which have been taken by the AO as well as by the Tribunal that none of the alleged suppliers of the materials was maintaining the books of account, none of them have filed any return of income, none of them have any evidence regardingpurchase of goods supplied by them, none of them have any evidence regarding transport of goods supplied by them and even though a number of them had claimed to have bank accounts, none of the payments was ever received by those persons for the goods from the assessee’s bank account and even though the transaction of each of the sundry creditors run into several lakhs not even a single rupee out of the cash (bearer cheque) received was deposited into their bank accounts.

10.We have mentioned these reasons only because of the reason that the learned counsel for the assessee tried to assail the findings of fact recorded by the Tribunal but we are satisfied that the findings of fact recorded by the AO and the Tribunal were based on some reasons and cannot be interfered with.

11. However, so far as the assessment of the income of the assessee is concerned, for that purpose a few facts are very relevant and which are that the total gross receipts of the assessee were Rs. 4,51,01,011 the disclosure of his income is Rs. 14,13,624 and interestingly this income was accepted by the AO himself which is apparent from the assessment order. Then the AO added the amount shown in the accounts of the sundry creditors to the tune of Rs. 1,59,90,274 and assessed the total income as Rs. 1,74,03,900 meaning thereby by this order of assessment the AO accepted the books of account for the purpose of finding out the profit shown by the assessee to be correct as disclosed in the return and thereafter added the amount of the credits shown in the account of the sundry creditors. In view of the above, it appears that the AO has passed the contradictory order by holding that the books of account are not reliable while deciding the issue of the sundry creditors but relied upon the return for accepting the profit shown to be correct which is supported by the books of account. The other fact relevant is that for gross receipts of Rs. 4,51,01,011 the AO has not declared that the gross receipt is the correct figure and yet added the income of Rs. 1,59,90,274 merely on account of cash entries.

12. In the facts of the case, the AO has committed an error of law by adding that amount under s. 68 of the Act of 1961 straight-away merely because of the reason that the genuineness of the transaction shown in the heading of the sundry creditors was not found genuine.

13. In view of the above reasons, following s. 145(3) the AO should have proceeded under s. 144 and should have followed the procedure of assessment of the tax.

14. In view of the above reasons the question is answered that the Tribunal and the AO though recorded finding of fact correctly that the transaction of sundry creditors were not genuine but so far as the assessment order is concerned that deserved to be set aside and the AO should assess the income afresh under s. 145(3).

15. The appeal is accordingly allowed and the order of the Tribunal, Circuit Bench, Ranchi and the AO are set aside. The matter is remanded back to the AO for passing a fresh assessment order and the parties are directed to appear before the concerned authority on 13th June, 2011.

[Citation : 335 ITR 523]

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