Case Note & Summary
The appellant-assessee, Shri Ivan Singh, filed a Tax Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) which had sustained additions and disallowances made by the Assessing Officer. The appeal was admitted on three substantial questions of law. The first question pertained to the addition of old outstanding sundry credit balances amounting to Rs.62,24,163/- under Section 68 of the Act. The second and third questions related to the adhoc disallowance of labour charges of Rs.26,54,158/-. The appellant argued that Section 68 applies only to sums credited in the books for the relevant previous year, and since the credits were from financial year 2006-07, they could not be added for assessment year 2009-10. Regarding the labour charges, the appellant contended that the disallowance was based on suspicion and the failure to challenge a similar disallowance for the preceding year, which cannot justify an adhoc disallowance. The court agreed with the appellant, holding that Section 68 cannot be invoked for credits of earlier years, and that adhoc disallowance without material basis is unsustainable. The court also noted that principles of estoppel or acquiescence do not apply in tax matters. Consequently, the court allowed the appeal, answering all three substantial questions of law in favor of the appellant-assessee and against the respondent-Revenue.
Headnote
A) Income Tax - Section 68 - Addition of Sundry Credit Balances - Section 68 of the Income Tax Act, 1961 applies only to sums credited in the books for the relevant previous year - The Revenue sought to add old outstanding sundry credit balances of Rs.62,24,163/- for assessment year 2009-10, but the credits were from financial year 2006-07, not the relevant previous year 2008-09 - Held that the addition was unsustainable as Section 68 cannot be invoked for credits of earlier years (Paras 3, 5).
B) Income Tax - Adhoc Disallowance - Labour Charges - The Tribunal sustained an adhoc disallowance of Rs.26,54,158/- out of labour charges without any material basis, relying on suspicion and the assessee's failure to challenge similar disallowance for the preceding year - Held that adhoc disallowance without material is unsustainable, and principles of estoppel or acquiescence do not apply in tax proceedings (Paras 4, 5).
Issue of Consideration
Whether the Tribunal was right in sustaining additions of old outstanding sundry credit balances under Section 68 of the Income Tax Act, 1961, and whether the Tribunal was right in sustaining adhoc disallowance of labour charges without material basis.
Final Decision
The appeal is allowed. The substantial questions of law are answered in favour of the appellant-assessee and against the respondent-Revenue. The impugned order of the Tribunal is set aside.
Law Points
- Section 68 of the Income Tax Act
- 1961 applies only to credits in the relevant previous year
- adhoc disallowance without material basis is unsustainable
- principles of estoppel or acquiescence cannot be applied in tax matters
Case Details
2020 LawText (BOM) (02) 105
TAX APPEAL NO. 29 OF 2013
M.S. Sonak, Smt. M.S. Jawalkar
Dr. P. Daniel with Ms. Yadika Mandrekar for the Appellant, Ms. Susan Linhares for the Respondents
The Asstt. Commissioner Income-Tax, Circle-1 (1) and The Commissioner of Income-Tax
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Nature of Litigation
Tax Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
Remedy Sought
The appellant-assessee sought to set aside the additions and disallowances made by the Assessing Officer and sustained by the Tribunal.
Filing Reason
The appellant challenged the addition of old outstanding sundry credit balances under Section 68 and the adhoc disallowance of labour charges.
Previous Decisions
The Assessing Officer made additions and disallowances, which were sustained by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.
Issues
Whether the Tribunal was right in sustaining the additions of old outstanding sundry credit balances amounting to Rs.62,24,163/- under Section 68 of the Income Tax Act, 1961?
Whether the Tribunal was right in sustaining the adhoc disallowance of labour charges of Rs.26,54,158/- without any material basis?
Submissions/Arguments
The appellant argued that Section 68 applies only to credits in the relevant previous year, and the credits in question were from financial year 2006-07, not the relevant previous year 2008-09.
The appellant argued that the adhoc disallowance of labour charges was based on suspicion and the failure to challenge a similar disallowance for the preceding year, which cannot justify the disallowance.
The appellant submitted that principles of estoppel or acquiescence cannot be applied in tax matters.
Ratio Decidendi
Section 68 of the Income Tax Act, 1961 applies only to sums credited in the books for the relevant previous year, and cannot be invoked for credits of earlier years. Adhoc disallowance without any material basis is unsustainable, and principles of estoppel or acquiescence do not apply in tax proceedings.
Judgment Excerpts
Section 68 of the Income Tax Act, 1961 (IT Act), is very clear in providing that where any sum is found to be credited in the books of the assessee for the previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to the income tax as the income of the assessee of that previous year.
He submits that in such matters, principles of estoppel or acquiescence cannot be applied and therefore, the substantial questions of law are liable to be answered in favour of the appellant-assessee and against the respondent-Revenue.
Procedural History
The Assessing Officer made additions and disallowances for assessment year 2009-10. The Commissioner of Income Tax (Appeals) sustained the additions and disallowances. The Income Tax Appellate Tribunal also sustained them. The appellant then filed a Tax Appeal under Section 260A of the Income Tax Act, 1961 before the High Court of Bombay at Goa, which was admitted on 02.12.2013 on three substantial questions of law.
Acts & Sections
- Income Tax Act, 1961: 68, 260A
