Revenue appeal against ITAT deleting an addition on unverified sundry creditors. Holding that the Tribunal had not returned a finding under Section 37 on genuineness of the expenditure, the High Court set aside the ITAT order and remanded the appeal for fresh consideration.
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Through: Mr. Indruj Rai, SSC with Mr. Sanjeev Menon, Mr. Rahul Singh, JSCs and Mr. Anirudh Narendra, Adv.
versus
SMT. SUDHA LOYALKA .....Respondent Through: Dr. Rakesh Gupta, Mr. Somil Agarwal and Mr. Dushyant Agarwal, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE RAVINDER DUDEJA
O R D E R % 03.07.2024
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been made by the assessee in the year in question.
“ 9.8 Assessing Officer has discussed the details in para 3.1 of the Assessment Order in the case of each party. During the course of appellate proceedings, Appellant was asked to submit the addresses of the concerned parties, however, Appellant has stated vide order sheet entry dated 27.07.2016 that the addresses of the parties were not available. Appellant was also asked whether any transactions was done with the said parties during previous years. AR of the Appellant stated vide order sheet entry dated 17.11.2016 that no transaction was done with these parties in any of the previous years. Appellant is not able to establish that these sundry creditors were genuine neither Appellant has offered to verify the genuineness of these parties during appellate proceedings. From the Balance-Sheet, it is apparent that liability on account of sundry creditors was Rs.6,77,21,342/- out of which verification of 20 parties amounting to Rs.2,78,20,495/- could not be done. When the payments are pending and Appellant is not able to give the address of these parties, it shows that liability on account of these sundry creditors were bogus and no actual liability was existing. Appellant has also claimed that she has made full and final payment to these parties during A.Y. 2013-14. However, from the perusal of the ledger account submitted, it is seen that all the payments are in cash and not a single payment has been made through cheque and if parties were existing, Appellant was free to provide the addresses during appellate proceedings which however has not been done.
9.9 In order to claim that an expenditure falls u/s 37(1), burden of proving the necessary fact in this connection is on the Assessee. Onus was on the Appellant to submit the correct addresses of parties from whom she claims to have made purchases. However, Appellant has not submitted any detail in any of the aforesaid either before Assessing Officer or during appellate proceedings. Hon'ble Delhi High Court in the case of Modi Stone Ltd., 203 taxman 123 have held that when no details and evidence was submitted, Assessing Officer was justified in disallowing the entire amount and relief cannot be granted on the basis of past record and nature of claim when there was no evidence/material during the year to prove the claim.
9.10 Hon'ble Punjab & Haryana High Court in the case of SG Exports (P&H), 336 ITR 2 have held that onus is on the Assessee to prove the fact by producing cogent and convincing evidence including the identity of parties alongwith evidences of payment.
9.11 There is also no basis in the claim of Appellant that Appellant has maintained complete book of account, books are audited and there are no adverse observations from auditors. Assessing Officer has conducted
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inquiry and has established that no actual purchases were made from these parties. Hon'ble Delhi High Court in the case of Goodyear India Ltd., 246 ITR 116 (Del) have held that the broad proposition that once there is tax audit u/s 44AB, AO should not insist upon production of records or details cannot be laid down and merely because an audit report is available, there is no fetter on the power of Assessing Officer to require the Assessee to justify its claim with reference to records, materials and evidence as such power is inherent in an Assessing Officer in the scheme of the Act. Therefore, there is no substance in the claim of Appellant.
9.12 Therefore, it is apparent that these sundry creditors were not genuine and such the purchases itself was not genuine. Appellant has stated that gross profit cannot be so high. However, Appellant fails to realize that it was Appellant's onus to establish that purchases were genuine and sundry creditors were also genuine and not bogus. However, Appellant has not discharged her onus. Assessing Officer had issued notice u/s 133(6) on 22.12.2014 to 27 parties out of which letters in the case of 20 partiers were returned back unserved with the remarks of incomplete address/no such firm/left/koi jankari nahin/not related/ wrong address etc. Assessing Officer has discussed the details of each of the aforesaid cases in para 3.1 of the Assessment Order. Assessing Officer requested to furnish confirmation alongwith complete postal address in the case of all the 20 parties mentioned in para 3.1 of the Assessment Order. However, no reply neither any confirmation alongwith complete postal address was submitted by the Assessee before Assessing Officer. Even during the course of appellate proceedings, no details has been submitted. AR has stated that he has no addresses of any of these parties.”
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“ 6. After hearing both the parties and perusing the entire material on record, we find that the only effective issue in the present appeal is against the addition of Rs.3,50,94,7581- made by A.O. and confirmed by Ld. CIT(A) on the ground that closing credit balances of 26 parties could not verified. The above addition included a sum of Rs. 5,50,000/- made by AO vide page 16 of the assessment order ·in the name of Erica Enterprises P Ltd. This difference is due to the cheque issued but not presented for payment. The A.O. has given the list of 26 parties under two heads i.e. one list of 20 suppliers aggregating to Rs. 2,78,20,4951- i.e. where notices were issued u/s 133(6) but were received back undelivered with the remarks that no such firm/left/koi jankari nahin/not related/wrong address etc. given at page 3-4 of the assessment order and six suppliers aggregating to Rs. 67,24,2631- in respect of which though notices were served but confirmations were not received given at page 13-14 of the assessment order. We further find that Ld. CIT (A) has confirmed the addition vide discussion made -at page 25-30 of the appeal order. These amounts added are the closing credit balances of the suppliers as on 31.3.2012 which is evident from PB 42-66. In our considered opinion, the sustaining of impugned addition is not justified due to the following reasons:-
i) It has not been mentioned either by A.O or by Ld. CIT(A) as to under which section of the Income Tax Act, these closing credit balances appearing as on 31.03.2012 could be added. Therefore, non-mentioning the precise provision of law makes the impugned addition bad in law.
ii) If addition has been made u/s 68, such could not be added and that too of this much of amount as there was no sum received from these parties & that too during the year under appeal which is evident from the copies of account of these parties enclosed in the paper book at PB 42-66 which would show that either there were opening credit balances or were purchases.
iii). After perusing the PB Pg. 42-66 and PB Pg. 144, we find that purchases from these parties were aggregating to Rs 1,90,88,538/and it has been held in the following judicial decisions that credit on account of purchases cannot be added u/s 68.
Addition under section 69 - Unexplained investment in purchases - Purchases made by assessee having been properly recorded in books of account and supported by authenticated purchase bills/vouchers for which payments were made through banking channels, and sales against these purchases are not doubted, addition under section 69 was not justified merely because suppliers could not be located and were not produced for examination - RAJESH P. SONI VS. ACIT 100 TTJ 892 (AHD 'D').
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Section 68 cannot be applied for taxing unconfirmed sundry creditors - CIT vs. Vardhman Overseas Ltd. (2012) 343 ITR 0408 (Del).
Income-Cash credit-Credit purchases-Provisions of s. 68 are not attracted to amounts representing purchases made on - credit- Tribunal- has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO has accepted the purchases, sales as also the trading result disclosed by the assessee-It has also recorded a finding that the two amounts in question represented the purchases made by the assessee on creditTherefore, addition of said amounts could not be made under s. 68 (COMMISSIONER OF INCOME TAX vs. PANCHAM DASS JAIN 74 CCH 0623 (All HC)
Income-Cash credit-Credit purchases-Provisions of s. 68 are not attracted to amounts representing purchases made on credit -Astt. CIT vs. Har Singar Gutkha (P) Ltd. 9 DTR 604(Lucknow)
Construction business-Trade purchases-Assessing Officer rejecting books while deciding purchase transactions not genuine but relying on return accepting profit-Assessing Officer ought to have proceeded under section 144-Addition under section 68 not justified-Incometax Act, 1961, ss. 68,144, 14S(3)-Amitabh Construction P. Ltd. vs. Addl. CIT 335 ITR 523 Glharkltand) (PARA 11-15 OF THE DECISION).”
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would merit being remitted to the ITAT which may examine the issue afresh and bearing in mind the provisions contained in Section 37 of the Act.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
JULY 3, 2024/ RW
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3 issues framed by the court
Could sundry creditors of Rs.3,50,94,758/- be added when no precise provision of law was cited for the addition?
Were additions sustainable under Sections 68, 69 or 69C for unverifiable credit purchases recorded in books?
Whether the matter required fresh examination under Section 37 regarding genuineness of expenditure.
4 provisions across 1 enactments
Pr. Commissioner of Income Tax -12
Smt. Sudha Loyalka
Yashwant Varma
Ravinder Dudeja
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
