INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Addition on account of outstanding liabilities - Treatment as unexplained credit

AO noticed that assessee-company purchased lands from certain persons, but was showing some amount as still payable to sellers of land as on 31-3-2012. Assessee submitted that the payment to the sellers had been stopped due to pending legal problems existing in the lands purchased by it. Hence, the AO asked the assessee to produce the creditors, but it could only produce son of one of the creditors, who confirmed the amount. Accordingly, the AO accepted the outstanding credit balance of that creditor and added the remaining amount as income in the hands of the assessee under section 68. Assessee contended that the payments were made to creditors after 31-3-2012. Held: It was undisputed fact that transaction of purchase of land was a trading activity in the hands of assessee. Thus, the AO, after accepting the genuineness of purchases, could not make addition of outstanding creditors under section 68. Further, although the assessee failed to produce the sellers before the AO, but, it was able to demonstrate that the payments were made to such sellers after 31-3-2012. However, all such explanations required verification at the end of the AO; accordingly, the matter was remanded to the AO for examining it afresh by duly considering the explanation of the assessee.

REFERRED :

FAVOUR : Matter remanded

A.Y. :

INCOME TAX ACT, 1961

Section 68

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