REKHA KRISHNARAJ Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE assessee has preferred this appeal challenging the order passed by the Tribunal dismissing her appeal negativing her contentions that Section 68 of the Income Tax Act, 1961 (for short hereinafter referred to as the 'Act') is not attracted to the facts of the case.

(2.) THE assessee is the proprietrix of M/s.Krishna Hardware, Hospet, which was started from April, 1996. The capital investment was of Rs.50,000/ -. A survey under Section 133A of the Act was conducted on 29th October, 1997. Thereafter the assessee filed return of income for the assessment year on the same day. During the course of scrutiny proceedings, the Assessing Officer obtained the copy of account of the assessee as appearing in the books of the creditors and noticed that the balance at the end of the year as shown by the assessee was different from the balance shown by the parties. The assessee was required to reconcile the difference in the accounts of the creditors. In response to the query, the authorized representative of the assessee who was appearing before the Assessing Officer stated that the assessee and her husband were both absconding. After verifying the facts, the Assessing Authority completed the assessment under Section 144 of the Act. The discrepancies in the accounts of the creditors were added to the income of the assessee because the credit balance as shown by the assessee were more than the amounts shown by the creditors as receivable. Besides this addition, some other additions were also made by the Assessing Officer vide order dated 5th January, 2000. Aggrieved by the same, the assessee preferred an appeal to the Commissioner for Income -tax (Appeals). The Appellate Authority allowed the appeal in part giving relief in respect of dis -allowance of telephone expenses and traveling expenses. In respect of unexplained difference of excess creditors shown in the balance sheet, the Appellate Authority granted a relief only to the extent of 1,50,700/ -Before the Appellate Authority, the assessee tried to explain the difference by stating that the stock was utilized for paying the amount to the creditors, which plea was not accepted. Yet another plea, which was raised before the Appellate Authority, was that the assessee is a benami of her husbard, who was doing the business in the name of his wife and addition cannot be made in the hands of the assessee. This plea was also rejected. Aggrieved by the order of rejection, the assessee preferred an appeal before the Tribunal. The Tribunal by its order dated 9th September, 2005 restored the addition of Rs. 19,67,702/ - to the file of Assessing Officer, which represented unexplained difference in account of creditors. Similarly trading the addition of Rs.25,000/ - was restored back to the file of the Assessing Officer. During the course of fresh assessment proceedings, the assessee moved an application under Section 144A of the Act contending that she has not maintained the books of accounts properly, which has been recorded in the assessment order. She has not recorded sales amounting to Rs. 19,67,702/ -, which was available for payment to the sundry creditors. If the gross profit was included, cost of goods sold amounts to Rs. 18,00,000/ -. The assessee being a benami be absolved of all demands and the husband of the assessee should be made liable. The Additional CIT vide his directions under Section 144Aheld that the question of benami and concept of non -maintenance of books properly does not arise. The return was accompanied with auditor report under Section 44AB of the Act and therefore it cannot be accepted that the stock was sold and the amount realized was available for explaining the creditors. The concept of benami was also rejected on the ground that the assessee has filed the return and has not adduced any evidence to show that she was benami of her husband. Therefore, the assessment was completed vide order dated 29th December, 2006 and addition on account of unexplained difference in credits were also made to the extent of Rs. 19.67,702/ - and trading addition of Rs.25,000/ - was made. An appeal preferred against the said order came to be dismissed by the Commissioner of Income Tax. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. Before the Tribunal, it was contended that Section 68 of the Act is applicable when there is a credit in the books of account. It has no application to a case of credit being shown for the supply received by the assessee and the payments were made to the suppliers for such supplies. The Assessing Officer could have exercised the power under Section 131 of the Act to summon and enforce the attendance of witness/creditors, which he has not done. The inability to verify the explanation offered by the Assessing Officer cannot be a ground for rejection of the contention of the assessee and therefore the impugned order passed requires to be set aside. The Tribunal re -appreciated the entire evidence on record and took note of the particulars given by the various creditors and held that the assessee cannot be believed and her contentions are without any substance. Therefore, it dismissed the appeal. Aggrieved by the said order, the present appeal is filed.

(3.) LEARNED counsel for the assessee contends that it is clear from the heading of Section 68 of the Act. Where any sum is found credited in the books, it necessarily means a cash credit and it has no application to a credit given on account of supply of goods. In the instant case, the said sum is credited to the account of suppliers, who had supplied the materials and even if those supplies held to be not true, the case would not fall under Section 68 of the Act and therefore the entire proceedings, which are purported to have been initiated and additions made under Section 68 of the Act require to be set aside.