In a recent case, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) dismissed an appeal put forth by the revenue, deleting a ₹2 Crore addition made under the provisions of Section 68 of the Income Tax Act, 1961.
The Assessee, B. Braun Medical India Pvt Ltd, provides health care in the therapeutic segment. In 2021, it filed its return of income, reporting a total loss of ₹11.9 Crores. During the assessment proceedings, the assessing officer (AO) found a liability of ₹2 Crores, which was not substantiated. The AO asserted that the assessee had shown liability concerning a creditor in the name of Santosh Trust.
On further assessment, the assessee argued that this amount was not a liability but an advance payment for goods made in 2015-16FY. The assessee asserted that since no goods were supplied and the amount was not refined, the company had classified it as a doubtful advance in its books.
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The AO treated this amount as a bogus credit entry and added it under Section 68 of the Income Tax Act, stating that the assessee gave contradictory transaction replies. The alleged creditor, Santosh Trust, had failed to reply to the notice issued under Section 133(6) of the Act, and the AO stated that the transaction lacked genuineness.
Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals), who took into consideration all the submissions made by the assessee. The CIT(A) found that no credit was received by the assessee, which is factually verifiable, and thus, the addition made under Section 68 was held to be unwarranted. The AO was directed to delete the same.
Aggrieved by the CIT(A) ‘s decision, the revenue appealed to the Tribunal. The departmental representative (DR) held that the assessee gave contradictory replies during proceedings and produced the details against the SCN issued by the AO, which led to the addition of ₹2 Crores. The DR asserted that the genuineness of the transaction was not established since there was no response to the notice issued under Section 133(6) of the Act.
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The assessee’s assessee’s authorised representative (AR) stated that the assessee had submitted all relevant details, including bank statements, to show that the ₹2 Crores was paid in advance through a banking channel. This amount was also reported in the audited financial statement, which is a current asset and not a liability. The AR asserted that this amount was reflected in the books as a sundry debtor and that the AO was incorrect in adding it as an unexplained liability under Section 68 of the Income Tax Act.
After hearing both sides, the tribunal upheld CIT(A) ‘s findings. It asserted that Section 68 of the Income Tax Act only applied to unexplained cash credits in the relevant assessment year. The ITAT observed that the transaction was a business advance from AY 2016-17, not a fresh credit received in AY 2020-21.
The ITAT Bench, consisting of Sandeep Gosain (Judicial Member) and Girish Agrawal (Accountant Member), stated that the mistake in classification, i.e. recording it as a liability instead of a recoverable asset,t does not justify an addition made under Section 68. As a result, the appeal raised by the revenue was dismissed.
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