Cash credits vis-a-vis sales

[murali Krishnamurthy]

My client is in trading business and has operations in several parts of the state of AP. His accounts are maintained at place   other than Hyderabad. The accountant makes the necessary entries and the same are recorded accordingly.

For the assessment year 2002-03 and 2003-04 the accountant had written the advances received from customers as "loans", for want of accurate information. During the assessment proceedings, the AO had made additions under section 68 as unexplained cash credit. Adequate time was not accorded for filing relevant information and clarification, as the assessment was getting time barred.

Before the CIT(A), an alternate ground was taken to treat the cash credit as "sales" and adopt the GP ratio of the firm and bring to tax the amount proportionately.Unfortunately, the CIT(A) ignored the submissions made and confirmed the addition.

The second appeal before the ITAT is now coming up for hearing next week.

Are there are any case law on the subject? I would be greatly appreciate a quick response from this august body.

CA Murali Krishna Murthy   

 

[murali Krishnamurthy]

Respected Members,

Kindly go through mu query and give your considered opinion at the earliest so as to enable me to effectively represent the appeal before the ITAT.

CA Murali

[sai prasad]

i feel that the original stand of the assessee that they are advances needs to be proved.Whether there are sales made in the year or the subsequent year and the advances were adjusted against sales.Such evidence ,if available should be led to prove that they are advances against sales .In case no such evidence is forthcoming ,they stand as cash credits and the same should be proved by way of confirmation letters from creditors as identity and the capability of the creditors,need tobe established,as has been the settled law.

[probal_shome]

I agree with the views of the earlier poster. In my view, it is not so much a question of case law as it is a question of fact. The questions that I would look at are:

(i) Is there evidence to show that the sums were advances? Was there such a practice in the earlier years? Accepted by the AO? Are the parties willing to give confirmations and come for examination before the AO?

(ii) If the AO did not give enough time, the same ought to have been given before the CIT (A). Why was that not done? Any extentuating circumstances?

(iii) Is it possible to provide the evidence even now? It can be produced as additional evidence with an explanation as to why it could not be produced earlier.

(iv) Was the alternate plea raised by way of a ground of appeal or in the written submissions. If not considered by the CIT (A), the simple solution is to seek a remand to the CIT (A) or even the AO.

The difficult question on merits is how to urge that an amount that is otherwise falling within s. 68 should be treated as "sales". If this argument is accepted then everyone will claim that instead of a 68 addition only the GP should be assessed. So, i see this as a big hurdle.

I think one would have to go through the facts meticulously to find an answer to the problem instead of straightaway jumping at case law  ;)

Regards,

Probal.