Income Tax : Trading liabilities and carried forward balances cannot be treated as unexplained cash credits

ITAT Jaipur Bench Delivers Verdict in M/s Stanford Developers' Case, Partially Allows Appeal. The Tribunal emphasizes the importance of verifying documentary evidence and adherence to principles of natural justice in tax assessments.

In a significant decision, the Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has partially allowed the appeal filed by M/s Stanford Developers against the Income Tax Officer's assessment order for the assessment year 2018-19. The case revolved around the addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961, amounting to Rs. 92,13,534 and capital contributions by a partner totaling Rs. 15,74,99,500.

The Tribunal, comprising Dr. S. Seethalakshmi, Judicial Member, and Shri Rathod Kamlesh Jayantbhai, Accountant Member, scrutinized the facts and evidence presented by both the assessee and the revenue authorities. The core of the dispute was the treatment of certain credit balances and capital contributions as unexplained cash credits, which the Assessing Officer and the Commissioner of Income Tax (Appeals) [CIT(A)] had upheld.

The Tribunal found that the credit balance of Rs. 92,13,534 in the name of M/s Shrey Associates, which was treated as unexplained, was actually a trading liability resulting from continuous transactions with tax deducted at source (TDS) and GST levied. The Tribunal held that such trading liabilities could not be deemed as unexplained cash credits under Section 68 and directed the deletion of this addition.

Regarding the capital contribution by partner Shri Ram Chandra Gurjar, the Tribunal noted that a significant portion of the credited amount was carried forward from previous years and could not be taxed under Section 68. However, fresh credits amounting to Rs. 48,19,500 required further verification, leading the Tribunal to restore the matter to the Assessing Officer for detailed examination.

The Tribunal emphasized the importance of adhering to principles of natural justice, noting that the assessee was not afforded an opportunity to address allegations that certain uploaded documentary evidence was blank. The Tribunal criticized the CIT(A) for not admitting additional evidence that was crucial for a fair adjudication of the matter.

This decision underscores the Tribunal's role in ensuring that tax assessments are conducted with due diligence and fairness, providing taxpayers with adequate opportunities to substantiate their claims.

Bottom Line:

Credit balances in books of accounts must be substantiated with proper evidence, including identity, creditworthiness, and genuineness of transactions. Failure to provide such evidence may justify invoking Section 68. However, trading liabilities and carried forward balances cannot be treated as unexplained cash credits under Section 68.

Statutory provision(s): Income Tax Act, 1961, Section 68

M/s Stanford Developers v. Income Tax Officer, (ITAT)(Jaipur Bench "B") : Law Finder Doc Id # 2777195