Advances received by assessee & adjusted against the sales made to the concerned parties could not be treated as unexplained cash credit under section 68

short overview : When assessee received advances from customers and the same were subsequently adjusted against goods sold to them, then, the advances could not be treated as unexplained cash credit under section 68, therefore, addition under section 68 made by AO on account of unexplained cash advances was deleted.

AO found that assessee had received various amounts in cash in excess of Rs. 20,000. The assessee explained that the amounts were received from customers and the advances were subsequently adjusted against goods sold to them. The assessee failed to give complete address of the customers. Therefore, the AO made addition under section 68 by treating the cash advances as unexplained cash advances, which was confirmed by CIT(A).

it is held that  In case of M/s. Saha Enterprise v. ITO [I.T.A. No. 2141/Kol/2014, dt. 6-2-2015], Tribunal held that advances received by assessee being trade advances by very nature of activity of the assessee and the same having been adjusted against the sales made to the concerned parties, the said advances could not be treated as unexplained cash credit under section 68. High Court in case of Crystal Networks (P) Ltd. v. CIT [ITA No. 158 of 2002, dated 29-7-2010] : 2013 TaxPub(DT) 1470 (Cal-HC) held that advance so received by assessee from customer could not be treated as unexplained cash credit. Therefore, by following judicial pronouncements, the addition made by AO on account of unexplained cash advances was deleted.

Decision: In assessee’s favour.

Followed: M/s. Saha Enterprise v. ITO [I.T.A. No. 2141/Kol/2014, dt. 6-2-2015]; Crystal Networks (P) Ltd. v. CIT [ITA No. 158 of 2002, dated 29-7-2010] : 2013 TaxPub(DT) 1470 (Cal-HC).

IN THE ITAT, KOTKATA BENCH

P.M. JAGTAP, V.P. (KZ)

Sanjay Agarwal v. ITO

I.T.A. No. 2463/KOL/2018

7 June, 2019

Appellant by: S.M. Surana, Advocate

Respondent by: Sankar Halder, JCIT, Sr. D.R.

P.M. Jagtap, V.P. (Kolkata Zone)

This appeal filed by the assessee is directed against the order of learned Commissioner (Appeals), Siliguri dated 7-9-2018 and the grounds raised by the assessee therein read as under :–

(1) For that assessment order passed by the learned assessing officer is bad in law as well as on facts.

(2) For that learned Commissioner (Appeals) erred in confirming the assessment of cash advances received from various customers aggregating Rs. 4,45,000 as undisclosed income of the assessee, whereas the same were received in ordinary course of business and goods were actually supplied and tax invoices were issued to the customers.

(3) For that learned Commissioner (Appeals) erred in confirming the assessment of cash advances received from various customers aggregating Rs. 4,45,000 as undisclosed income inspite of the fact that the regular books of account were maintained which were duly audited and no defect were found in such books of account.

(4) For that learned Commissioner (Appeals) erred in confirming in disallowance of interest Rs. 64,257 paid on housing loan.

(5) For that learned Commissioner (Appeals) erred in confirming in disallowance of deduction of Rs. 45,111 claimed under section 80C whereas the same represented the principal amount of housing loan repaid during the year.

2. Ground No. 1 raised by the assessee in this appeal is general, while Grounds No. 4 & 5 are not pressed by the learned Counsel for the assessee at the time of hearing before the Tribunal. The same are accordingly dismissed as not pressed.

3. Grounds No. 2 & 3 involve a common issue relating to the addition of Rs. 4,45,000 made by the assessing officer and confirmed by the learned Commissioner (Appeals) on account of cash advances received by the assessee from various customers by treating the same as unexplained.

4. The assessee in the present case is an individual, who is engaged in the business of retail trading of motor-parts and accessories under the name and style of his proprietary concern M/s. Car Decora. The return of income for the year under consideration was filed by him on 22-9-2010 declaring total income of Rs. 3,47,627. During the course of assessment proceedings, it was found by the assessing officer that the assessee has received various amounts in cash in excess of Rs. 20,000 aggregating to Rs. 4,45,000. In this regard, it was explained by the assessee that the said amounts were received by him as advances from the customers and the said advances were subsequently adjusted against the goods sold to them. Ledger accounts of the concerned parties showing the receipt of advances in cash and adjustment of the said advances against sales made subsequently were also furnished by the assessee. On perusal of the same, the assessing officer found that the cash advances were received by the assessee from the customers in the month of July to October, 2010, whereas the corresponding sales were made to them in the month of March, 2011. This raised suspicion in the mind of the assessing officer and he required the assessee to provide the names and addresses of the concerned parties for cross verification. The assessee, however, even failed to give complete addresses of the concerned customers. It was also noticed by the assessing officer from the relevant invoices produced by the assessee that VAT Nos. of the customers were not mentioned in the said invoices. He accordingly held that the existence and genuineness of the concerned parties as well as the genuineness of the relevant transactions was not proved and an addition of Rs. 4,45,000 was made by him to the total income of the assessee by treating the cash advances as unexplained in the assessment completed under section 143(3) vide an Order, dated 28-1-2016.

5. On appeal, the learned Commissioner (Appeals) confirmed the said addition made by the assessing officer observing that the assessee could not controvert the adverse findings of fact recorded by the assessing officer in the assessment order while treating the cash advances as unexplained.

6. I have heard the arguments of both the sides and also perused the relevant material available on record. In the case of Saha Enterprises v. ITO cited by the learned Counsel for the assessee, a similar issue had come for consideration before the Tribunal involving almost identical facts and while deciding the same vide its Order, dated 6-2-2015 passed in ITA No. 2141/KOL/2014, the Tribunal held that the advances received by the assessee being trade advances by very nature of activity of the assessee and the same having been adjusted against the sales made to the concerned parties, the said advances could not be treated as unexplained cash credit under section 68. In the case of Crystal Networks (P) Limited v. CIT (ITA No. 158 of 2002, dated 29-7-2010) : 2013 TaxPub(DT) 1470 (Cal-HC) cited by the learned Counsel for the assessee, trade advances given by the creditors/customers were found to be adjusted against the sale of products made by the assessee subsequently to the concerned creditors/customers and it was held by the Hon’ble Calcutta High Court on these facts and circumstances of the case that the advances so received by the assessee could not be treated as unexplained cash credit. In my opinion, the ratio of the decision of the Coordinate Bench of this Tribunal in the case of Saha Enterprise (supra) and that of the Hon’ble Jurisdictional High Court in the case of Crystal Networks (P) Limited (supra) is squarely applicable to the facts of the present case and even the learned D.R. has not been able to dispute this position. I, therefore, respectfully follow the said judicial pronouncements cited by the learned Counsel for the assessee and delete the addition of Rs. 4,45,000 made by the assessing officer and confirmed by the learned Commissioner (Appeals) on account of unexplained cash advances.

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