Section 68 is not authorised to add other creditors or provide growers advances

Fact and issue of the case

Brief fact of the case is that the assessee is a dealer of fresh fruits and commission agent besides under a cold storage plant. In the preceding year for A.Y. 2016-17, the sundry debtors amount of Rs.6,14,67,226/- was reflected in the books of account of the assessee which is finally reflected in the final accounts. The assessee had paid advanced to the farmer for purchasing of fresh fruit. For the impugned assessment year, the advance was returned back by the farmers after the declaration of demonetisation. The advance amount was returned back to the assessee. The assessee had deposited the cash in bank account in Jammu & Kashmir Bank, Branch Lassipora Pulwama, Kashmir and Azadpur, New Delhi Branch. The total amount was deposited in bank account toRs.6,45,50,000/- out of that in Pulwama Branch amount to Rs. 42,50,000/- & in New Delhi Branch amount to Rs. 6,03,00,000/-. As per the information from bankers Rs.32,50,000/- was demonetised currency (SBN) and rest amount was deposited on normal currency. Toconsider the demand of the parties, the cash was immediately received from the total 156farmers to maintain the business liaison. During the assessment, the details of transactions were submitted before the ld. AO. The notice u/s 133(6) was issued to 60 debtors. out of 60 notices, 16 notices were returned back undeliveredwith the remark that “incomplete address or no person received here”. Only denial of transaction from one party was happened during assessment. Perusal of assessment record the appellate authority confirmed that many of the confirmations from parties were received after assessment. All parties had confirmed the cash transaction. One of the debtors Mohd. Ahmed and Sons, Molu Chitragam, Sopian, was alleged returned an amount of Rs.5,03,336/- denied having made any such payment to assessee. But the assessee had made an objection that the verification was not proper and incomplete one. Later the confirmation from party was filed& reason was well explained. But both the authorities have not accepted the argument of assessee & confirmed the amount of Rs. 5,03,336/-. The total addition was made U/s 68 of the Act by the ld. AO amount of Rs.6,33,46,052/- &the tax was charged U/s 115BBE of the Act. Aggrieved assessee had challenged the assessment order before the ld. CIT(A). In order of appeal the amount of Rs.5,03,336/- was only confirmed by the ld. CIT(A). The rest amount of addition of Rs.6,28,42,716/- was deleted by the appellate authority. Being aggrieved, the assessee and the revenue both have filed appeal and cross appeal before the ITAT by challenging the order of the ld. CIT(A).

During hearing the ld. CIT DR had filed a written submission the relevant part of the written submission is extracted as below:-

“The fact of the case gives rise to following queries –

The demonetization was announced at 8.00 p.m. on 08.11.2016. It is unbelievable to accept as to how the news spread so fast so that the illiterate fruit growers got panic and came to the office from different places to return the advances taken by them within a period of 4 hours since all the amounts received from the debtors is shown to have received on 08.11.2016.

It is surprising to note how the debtors from various places in Kashmir could reach at the assessee’s office at Pulwama or the Bank Branch at Azadpur, New Delhi for depositing their advances taken from assessee.

There were 156 debtors who returned the advances taken form the assessee on 08.11.2016. There are only 10 deposit entries from 11.11.2016 to 30.11.2016. It is the moot question that as per the directions of the assessee, how 156 debtors can deposit the amounts in only 10 entries.

It is the question as to who collected the money and deposited the same in the bank account of the assessee since either the pay slips are unsigned or they are only initialled (not having complete signature) due to which depositor cannot be identified easily. (Refer – 24 of the assessment order)

When the amount was deposited in 10 instalments on various dates, then why the total amount of Rs.6,33,46,052/-was shown to have received on 08.11.2016 i.e. on single date.

How the assessee came to know that the total amount of Rs.6,33,46,052/- was received from all 156 debtors on 08.11.2016 when the amounts were deposited on various dates in 10 instalments on subsequent dates.

Amongst the debtors who returned their advances are (i) Mohd. Maqbul and Sons, Check Keeham, Chowgal, Kupwara who returned its outstanding amount of Rs.208.85 and (ii) Irshad Ahmed Lone, Chitragam, Awenura, Anantnag who returned his outstanding amount of Rs.779.20. It is the question as to why such persons will run here and there for such a miniscule amount and return the said amount on 08.11.2016 within 4 hours of the announcement of demonetization.”

Observation of the court

Income Tax Officer Vs. Atul Kumar Mittal, ITAT Delhi, ITA No. 885/Del/2012 Asstt. Year 2007-08:- When The debtor was considered genuine at the end of preceding year, the receipt from the said debtor during the year under consideration cannot be treated as bogus.

The observation of the Bench is extracted as follows: –

We have heard both the parties and carefully gone through the material available on record. In the present case it is noticed that a sum of Rs.4,55,990/-was outstanding in the name of M/s Pankaj International and the said amount was received by the assessee during the year under consideration. However, the AO was of the view that the account in the name of M/s Pankaj International belonged to Shri Pankaj Mittal in whose account, no such entry was appearing.

However, the AO did not bring any material on record to substantiate that the debtor M/s Pankaj International was not outstanding in the earlier year. On the contrary the claim of the assessee was that the amount was outstanding in the name of said party since 31.3.2005 and the amount was received during the year under consideration. In our opinion when the debtor was considered genuine at the end of the preceding year, the receipt from the said debtor during the year under consideration cannot be treated as bogus. We, therefore, are of the view that the ld. CIT(A) has rightly deleted the addition.

Racmann Springs (P) Ltd Vs. DCIT (1995) 55 ITD0159.TheITAT Delhi Bench has observed that realisation from Sundry Debtors cannot be treated as cash credits. The observation of the Bench is reproduced as below: –

The CIT (Appeals) proceeds on the basis that the impugned addition of Rs. 15,59,845 is made as the assessee was not able to prove the cash credits. This is evident from para 29 of his order. He speaks of identity and creditworthiness of the creditors. The Assessing Officer never held that the said amount represents unproved credits. The Assessing Officer only held that it represents “undisclosed sales of the assessee”. This shows the utter confusion in the mind of the CIT (Appeals) which led to the dismissal of the assessee’s appeal.

Besides the total of the amounts of drafts as per list-I reproduced in the assessment order dated 13-1-1992 comes only to Rs. 15,09,845. But the Assessing Officer had made an addition of Rs. 50,000 more by taking the figure to be added at Rs. 15,59,845. Neither the assessee’s counsel nor the Departmental Representative have noticed this. This shows the light attitude taken by the Assessing Officer.

In the above facts and circumstances of the case, we hold that the Assessing Officer is not at all justified in adding Rs. 15,59,845 towards undisclosed sales of the assessee and in applying section 68 of the Income-tax Act, 1961 to the same. We delete the sustained addition of Rs. 15,42,000.”

We consider the rival submission and perused the documents available in the record. In our factual matrix, the assessee has “Advance to Grower” in other sense Sundry Debtors which were carry forwarded from preceding years. There is no doubt, that the assessee has a sundry debtor in sufficient amount to liquidate the amount for depositing in the bank. Only, the question is the mode of receiving of cash by the assessee and deposited it in Kashmir and in Delhi. In argument, the ld. CIT DR only pointed out the mode of receiving of cash or returned of cash by the Growers during demonetisation. The ld.CIT(A) had clearly verified that the amount was duly deposited by the farmers and most of the Growers are verified and accepted the facts.

The ld. Counsel has relied on catena of judgments. In summary the assessee has enough amount to advance to party/ grower. In preceding assessment year there, the assessee was maintain more than 6 crore in “Advance to Grower” account. The full amount was disclosed in books and assessed U/s 143(3). In the impugned assessment year, the verification was initiated& the part response was in favour of assessee. Pending verifications were accepted by the appellate authority. But total addition was made U/s 68 of the Act by the ld. AO.

We relied on the order of ITAT Delhi bench that Sundry Debtor cannot be added back U/s 68 as it is not creditor. The assessing authority has doubt on transaction of assessee with the party. The Hon’able Apex court, supra in observation that assessment cannot be done on suspicion. The ld. CIT-DR was not able to submit any contrary judgment against the submission of assessee. In the submission of CIT-DR reiterated by demurring onthe mode of transaction of assessee with parties to whom the advance was given. This can not be negated only on basis of suspicion.

In our considered view, that there is no infirmity in the order of the ld. CIT(A). So, we are not interfering in the order of ld. CIT(A) related allowing of assessee’s appeal amount to Rs.6,33,46,052/-. We respectfully relied on the order of Apex Court, supra. Section 68 is not empowered to allow addition of sundry debtors/ advance to growers. The ld. CIT(A) without any cross verification had disallowed the amount of Rs.5,03,336/-. The rest amount was accepted which was also not verified& Section 68 is not proper for entertaining the addition. So, we find that the disallowance of Rs.5,03,336/- is erroneous and liable to be dismissed.

In the result, the appeal of the revenue bearing ITA No. 150/Asr/2021 is dismissed and the appeal of the assessee bearing ITA No. 94/Asr/2021 is allowed.

Order pronounced in the open court on 31.01.2023