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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI P.M. JAGTAP & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER P.M. JAGTAP, VP :
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-4, Pune [„CIT(A)‟] dated 20-02-2017 for assessment year 2009-10 on the following ground : “1. On the facts and circumstances of the case, whether the CIT(A) is correct in restricting the addition of Rs.3,80,16,774/- made by the AO u/s. 68 of the I.T. Act, 1961 to Rs.32,51,040/-, when the CIT(A) himself has held that the two parties from whom purchases made by the assessee i.e. M/s. Steel Traders and M/s. C S Corporation are bogus parties and hence the purchases made from these parties including opening balances of earlier years are required to be taxed as per the provisions of section 68 of the I.T. Act, 1961.”
2. The assessee in the present case is an individual who is engaged in the business of trading of building material under the name and style of his proprietary concern “M/s. Jaileela Enterprises”. The return of income for the year under consideration was filed by him on 30-09-2009 declaring a total income of Rs.7,68,850/-. In the Balance sheet filed along with the said return, sundry creditors to the tune of Rs.6,25,80,849/- were shown by the assessee. During the course of assessment proceedings, the AO verified the genuineness of said creditors. In this regard, he required the assessee to furnish ledger account extracts and confirmations from certain sundry creditors. Although the assessee furnished ledger account extracts of the creditors, he failed to file their confirmations. The AO, therefore, issued summons u/s. 131 of the Act calling for the relevant details from the said creditors relating to the assessee as appearing in their books of account. Although some of the creditors complied with the requirements of AO, there was no response from other creditors. In the case of some creditors, even the summons issued by the AO through postal authority were returned back “unserved”. The AO, therefore, deputed the Inspector of Income Tax to make necessary enquiries in case of such creditors. As reported by the Inspector to the AO, atleast two creditors namely M/s. Steel Traders and M/s. C.S. Corporation were found to be not in existence at the address given by the assessee. The AO, therefore, required the assessee to produce the said creditors along with the relevant evidences to establish their identity as well as to confirm the relevant transactions. As noted by the AO in the assessment order, the assessee however failed to comply with the said requirement in spite of sufficient opportunity afforded in this regard. The AO, therefore, treated the credit balances appearing in the name of M/s. Steel Traders and M/s. C.S. Corporation to the tune of Rs.2,82,35,355/- and Rs.97,81,419/-, respectively in the books of account of the assessee on unexplained/unproved and addition of Rs.3,80,16,774/- was made by him to the total income of the assessee u/s. 68 of the Act in the assessment completed u/s. 143(3) of the Act by an order dated 26-12-2011.
3. Against the order passed by the AO u/s. 143(3) of the Act, the assessee preferred an appeal before the CIT(A) and since the submissions made on behalf of the assessee before him in order to establish the genuineness of concerned two creditors were not found acceptable by the ld. CIT(A), he confirmed the findings of AO that there was a failure on the part of assessee to establish the genuineness of concerned two parties. He, however, found that the entire credit balance appearing in the name of M/s. C.S. Corporation represented opening balance while out of the total credit balance of Rs.2,82,35,355/-, a sum of Rs.2,49,84,315/- represented opening balance which had been carried forward from the earlier year. Since, these opening balances pertained to the transactions entered into by the assessee in the earlier years, the ld. CIT(A) held that the same could not be added u/s. 68 of the Act in the year under consideration as unexplained cash credits. He accordingly, deleted the addition made by the AO u/s. 68 of the Act to the extent of Rs.3,47,65,734/- and restricted the addition of Rs.3,80,16,774/- made by the AO to Rs.32,51,040/-. He also directed the AO to consider the credits to that extent pertaining to earlier year in the relevant year for the purpose of taxation in accordance with law. Aggrieved by the order of ld. CIT(A), the Revenue has preferred this appeal before the before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that out of the total credit balance of Rs.3,80,16,774/- appearing in the name of concerned two creditors added by the AO as unexplained cash credit u/s. 68 of the Act, amount to the extent of Rs.3,47,65,734/- represented opening balances that was carried forward from the earlier year. As rightly held by the ld. CIT(A), the same therefore represented credit pertaining to the earlier year and the same could not be added on unexplained cash credits in the year under consideration u/s. 68 of the Act which provides that “where any sum is found credited in the books of assessee maintained for any 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 Income Tax as the income of the assessee of that previous year”.
At the time of hearing before us, the ld. DR has not been able to raise any contention to dispute this position that the opening balance appearing in the accounts of concerned two creditors representing transactions / credits pertaining to the earlier year cannot be added in the year under consideration u/s. 68 of the Act. He, however, has contended that the addition made by the AO on account of credit balance appearing in the accounts of concerned two creditors having been found to be bogus can be confirmed alternatively by recourse to sub-section (1) of section 41 of the Act. We are unable to accept the contention of ld. DR. It is well settled that the provisions of section 41(1) can be invoked only when trading liability incurred by the assessee is subsequently found to have seized to exist in the relevant year and the onus in this regard is on the AO to establish on evidence that there was indeed remission or cessation of such liability. In the present case, this onus was not discharged by the AO and addition on account of balance appearing in the name of concerned two creditors was made by him u/s. 68 of the Act by treating the same as unexplained cash credit because of the failure of assessee to establish mainly the genuineness of said creditors. Keeping in view this position clearly apparent from record, we are of the view that recourse at this stage cannot be made to sub-section (1) of section 41 to confirm the addition made by the AO u/s. 68 as sought by the ld. DR. We accordingly, uphold the impugned order of ld. CIT(A) restricting the addition of Rs.3,80,16,774/- made by the AO u/s. 68 of the Act to Rs.32,51,040/- thereby giving a relief of Rs.3,47,65,734/- which represented the opening balance and pertained to transactions of earlier year.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 28th August, 2020.