Heard Sri R.P. Agarwal, learned counsel for the assessee/appellant and Sri Piyush Agarwal, learned counsel for the respondent.
The assessee has preferred this appeal against the order of the tribunal dated 26.2.2015.
The assessee is a public limited company engaged in the business of manufacture of finished leather shoe upper and shoes mainly for the purpose of export. In manufacturing the above items it uses raw hide specially raw goat hide. According to the trade practice raw animal hide is purchased by it generally from petty dealers on credit and the payment is made subsequently and as such these dealers are shown in the books of accounts as trade creditors.
In respect of the assessment year, 2006-2007 assessee disclosed purchase of raw hide to the extent of (outstanding amount) Rs. 9,03,09,714/- from small vendors. In respect of purchases worth Rs. 7,98,07,768/-, the assessee was able to get it confirmed from small hide dealers and thus balance of Rs. 1,05,01,948/- remained unconfirmed. The aforesaid amount was added in the income of the assessee by the Assessing Officer in view of Section 68 of the Income Tax, 1961 (hereinafter referred to as the Act).
On appeal addition of the said amount was deleted by the CIT (Appeals) but the same has again been restored by the tribunal by the impugned order on the ground that the assessee has failed to establish the credit purchases of the raw hide for the said amount and that in fact the purchases were made on cash payment, which has not been accounted and as such it is liable to be added under Section 68 of the Act.
On this appeal being preferred, this Court on 8.7.2015 has formulated the following two substantial question of law:
"I. Whether on the facts and in the circumstance, the ITAT is correct in law in restoring the addition of Rs. 1,05,01,948 made by the Assessing Officer treating the aggregate credit balances of suppliers of raw hides ( whose balance confirmation could not be produced by the assessee), under Section 68 of the Income Tax Act as unexplained cash credit and setting aside the Order of the CIT(A) dated 26.5.2010 by which the above addition was deleted, although the genuineness of the entire purchases made from those suppliers and the audited Accounts of the assessee have been accepted by the Assessing Officer ?
II. Whether on the facts and in the circumstances, the ITAT has proceeded on wild guess, conjectures and surmises, whereas there is no finding in the assessment order or ITAT or to support the observation made by the ITAT on Page 5 of the impugned Order which reads as "It is very much possible that the payment was made in cash from undisclosed sources but such payment was not accounted for and creditors were shown", and as such the impugned Order of the ITAT is liable to be set aside ?"
Both the questions are inter-linked and we propose to deal them simultaneously.
Section 68 of the Act provides for the addition of the credit of the books of accounts of the assesee for which either no explanation is furnished or explanation furnished is not found to be satisfactory by the Assessing Officer to be added in the income of the assessee for the purposes of charging income tax over it.
The scope and ambit of Section 68 of the Act has been explained by the Supreme Court in the case of Commissioner of Income Tax Vs. P. Mohan Kala (2007) 291 ITR 278 (SC).
The Apex Court lays down that what Section 68 suggests is: (i) that there has to be credit of the amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; (iii) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer.
It is only on the fulfilment of the above conditions that the sum so credited in the books of accounts of the assessee may be charged to income tax as income of the assessee for the previous year. It also lays down that the presumption of such credits shown in the books of accounts of the assessee are chargeable to tax is rebutable presumption and the burden to rebut it is upon the assessee and if he fails to rebut it then only it can be held that it was receipt in the form of the income.
It is in the light of the above scheme of Section 68 of the Act that we have to consider the applicability of the above provision to the facts and circumstances of the present case in respect of the entries of purchases of raw hide from small vendors of credit in respect whereof proof of confirmation had not been submitted.
The tribunal on account of failure of the assessee to furnish confirmation in respect of the above amount, opined that it may be possible that the payment was paid to such vendors in cash from undisclosed sources without accounting the same and therefore, the amount so paid has to be included or added in the income of the assessee.
The aforesaid finding of the tribunal is based on no material and is simply on conjunctures and surmises. The tribunal has ignored the fact that the purchases made by the assessee were accepted by the Assessing Officer and there was no dispute to the trade practice that the payment in respect of the purchase of raw hide is made subsequently.
Thus, the aforesaid finding is primarily perverse finding.
A Division Bench of this Court in Commissioner of Income Tax Vs. Pancham Dass Jain (2006) 205 CTR All 444, was seized with a similar matter in respect of assessee dealing in the purchase of form implements.
The assessing officer had asked the assessee to explain the nature and source of various deposits appearing in the books of accounts specially in the name of two persons. The assessee was not able to give any satisfactory reply with regard to the nature and source of the above two deposits and as such the amount of the said deposits was added to the income of the assessee under Section 68 of the Act.
The C.I.T. (Appeals) held that the aforesaid two persons used to manufacture agricultural implements and sell them to the assessee on credit and that the entries represented value of the goods purchased from these two persons from time to time. Accordingly, the addition was deleted. The tribunal also accepted view taken by the C.I.T. (Appeals).
On appeal by the revenue before the High Court, the Division Bench held that mere absence of proof regarding the existence of two persons cannot be confused with the question of genuineness of the purchases and if the purchase of the goods has been accepted by the department it would not be possible for it to turn around and say that the debits appeared in the accounts of these purchases were in from of cash deposits. Thus, the purchases made by the assessee from the above two persons without properly disclosing their identity was not held to be covered by Section 68 of the Act.
The facts of the present case are similar and identical to that of Pancham Dass Jain (Supra) and the credit purchases reflected in the books of accounts of the assessee of raw-hide from petty dealers even if not confirmed would not mean that it is concealed income or deemed income of the assessee, which can be subjected to tax in view of Section 68 of the Act.
In addition to the above it has come on record that in respect of an earlier assessment year, 2005-2006 the matter regarding such addition under Section 68 of the Act in respect of credit purchases of raw-hide by the assessee has travelled up-to the tribunal and after there was a difference between the two members, the matter was referred for the opinion of the third member, who accepted the opinion of the administrative member and opined that trade amount due to the trade creditors in the books of accounts of the assessee cannot be added towards the income of the assessee under Section 68 of the Act. The aforesaid decision of the tribunal in respect of the previous year is said to be final and conclusive, as there is no material on record to show that any appeal was preferred against it rather Sri R.P. Agarwal states at the bar that no appeal against the same was ever filed.
It has been settled by the Hon'ble Supreme Court that assessment of tax for each assessment is separate and is not dependent upon the previous one and that the principle of res-judicata is not applicable for tax matter nonetheless in order to maintain consistency, a view, which has been accepted in the earlier order ought not to be disturbed unless there is any material to justify the revenue to take a different view of the matter.
In other words, it is not considered appropriate to allow the revenue to change the position, which it has taken in one such assessment year, in the subsequent years. This is precisely what has been laid down by the Supreme Court in Radhasomi Satsang Vs. Commissioner of Income Tax (1992) 193 ITR 321(SC).
In view of the reasoning as recorded above, we answer the questions as formulated above in favour of the assessee and against the revenue.
Accordingly, the order of the tribunal dated 26.2.2105 is set aside and the appeal is allowed in so far as the addition of Rs. Rs. 1,05,01,948/ under Section 68 of the Act is concerned.