I.T.O, WARD-6(1), KOL, KOLKATA vs. SRI DINESH KUMAR GOYAL , KOLKATA

This appeal preferred by the Revenue is against the order passed by Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] for the Assessment Year (in short ‘AY’) 2013-14.

The only issue raised by the Revenue is against the deletion of addition of Rs. 3,60,72,332/- by Ld. CIT(A) as made by The Assessing Officer (in short ld. 'AO') on account of 40% of the value of excess of sundry creditors over the sundry debtors for the FY 2012-13.

The facts in brief are that the case was selected for scrutiny through CASS and statutory notices were duly issued and served upon the assessee. It is pertinent to note that the assessee filed its return on 12.09.2013 showing total income at Rs. 17,33,890/-. Ld. AO sent notices from time to time, however there was no compliance on behalf of the assessee. Finally, Ld. AO passed the order of assessment ex-parte u/s 144 of the Act vide order dated 18.03.2016 by making an addition of Rs. 3,60,72,332/- which was calculated by Ld. AO by applying 40% of the excess of sundry creditors/sundry debtors on the ground that the sundry creditors were not belonging to the business of the assessee.

In the appellate proceedings, Ld. CIT(A) deleted the disallowance by observing and holding as under: “4.3. DECISION: 4.3.1. The sundry creditors were not found substantiated by the AO during the course of assessment proceedings and therein AO added back 40% of sundry creditors less of sundry debtors. The justification was that i) Value of total purchases and sales, on average in view of profit reported high ii) More than 60% of goods sold against payments iii) Payments made against purchases far less than collection sale made I.T.A. No.: 469/KOL/2023 Assessment Year: 2013-14 Shri Dinesh Kumar Goyal. iv) Amount of loans and advances paid, obviously, to suppliers not high v) Value of sundry creditors far exceeds value of sundry debtors vi) Sale proceeds after payment against direct and indirect charges remain unmatched However, none of these observations can explain why 40% of creditors less of debtors was made, which is a random proposition with no roots in accounting or taxation. If the creditors are unreasonable or high due to various reasons or unsubstantiated, the specific amount of such creditors has to be disallowed. This being a best judgement assessment, in which the appellant did not provide for any material during the course of assessment proceedings, the fact remains that books were not verified by the AO to jump to or substantiate his findings. If books of accounts were not produced, the best course of action would have been to do a best judgment assessment estimating the income. 4.3.2. Instead the AO resorted to a random addition of estimation of what is disallowable in the sundry creditors, that too after reduction of debtors, when there is no nothing on record to suggest that parties involved were same or inter-linked. This addition thus, has no basis either in any section of the IT Act or in any accounting standards prescribed. The factual evidence of there being any cause of concern in the sundry creditors such an investigation done, field enquiries of the AO or of other agencies is also missing. 4.3.3. As the appellant pointed out in his remarks on the remand report dt: 10/01/2016(received in the erstwhile CIT(A) office on 10/1/2017), there is no submission or justification for the addition made. Further, there sundry creditors carried down from the previous years and no cessation of liability is shown or brought onto record by the AO to disallow the same. Of course, this aspect does not come into picture in view of disallowance based on estimation and not on actual figures or specific creditors. In view of the above, the addition made by the AO is found bad in law and the AO is directed to delete the same.”

After hearing rival contentions and perusing the material on record, we find that Ld. AO has passed the order u/s 144 of the Act on failure of the assessee to appear before Ld. AO and in I.T.A. No.: 469/KOL/2023 Assessment Year: 2013-14 Shri Dinesh Kumar Goyal. response to various notices issued by Ld. AO. We note that Ld. AO just on the basis of balance sheet made an addition of Rs. 3,60,72,332/- on provisional basis by just applying 40% to the difference of sundry creditors and sundry debtors. We have failed to understand as to how the addition could be made on such a whimsical and irrational manner. Ld. CIT(A) after appreciating the facts of the case and also after taking into consideration the contention of the assessee deleted the addition by holding that how the addition can be made on random basis without giving any finding even for the best judgment assessment, Ld. AO has to make an addition on some reasoning by referring to the compatible decisions and not in such an ad-hoc manner. We are fully in in agreement with the finding of Ld. CIT(A) that additions on such a random and ad-hoc basis cannot be sustained. Accordingly, the appeal of the Revenue is dismissed by upholding the order of Ld. CIT(A).

In the result, the appeal filed by the Revenue is dismissed.