COMMISSIONER OF INCOME TAX vs. SK MALHOTRA

IN THE HIGH COURT OF DELHI AT NEW DELHI . 04.01.2011 . Present: Ms. Sonia Mathur, Advocate for the appellant/Revenue. None for the respondent. . +ITA No.2079/2010 . The assessee herein is in the business of exports, inter alia, handicraft items. In the return filed by the assessee for the Assessment Year 2005-06, the assessee had returned the income of `30,50,208. In this return, he had shown sundry creditors of `1,73,83,755. According to the assessee, it had purchased handicraft items from these creditors, which were exported. The Assessing Officer (AO) directed the assessee to furnish the confirmation of accounts from the sundry creditors showing balance above `2,00,000. According to the AO, the assessee could furnish details only to the extent of `31,62,522. In these circumstances, for the balance amount of `1,42,21,233, since the assessee could not substantiate its claim, addition to this effect was made in the assessment order. It is clear from the above that the AO primarily made addition of `1,42,21,233 under Section 68 of the Income Tax Act in absence of evidentiary proof. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A) and furnished additional evidence at the appellate stage. It was, inter alia, stated that all these sundry creditors were small time traders and belonged to Jaipur and Jodhpur in Rajasthan. The assessee also submitted that these creditors were illiterate traders and most of them were from unorganized sectors and many of them did not have Permanent Account Numbers allotted to them. They only operate bank account in which they deposit the cheques received from various parties including from the assessee and carry on their business. The bills, etc. received from these creditors/traders were also submitted. Admitting this additional evidence, the CIT (A) called for remand report of the AO. The AO, after verification of the documents supplied by the assessee including the ledger accounts, inter alia, stated that the transactions were ?verifiable from the copy of ledger submitted?. However, on the ground that the assessee had not submitted the required confirmation from these creditors, the AO contended that the addition made was proper. The CIT(A) analyzed the evidence produced by the assessee along with the Remand Report submitted by the AO. He found that there were basically two types of sundry creditors, viz.: 1) From whom purchases are being made continuously and payments have been made in subsequent year by way of account payee cheques a fact which has been verified by the AO as per the Remand Report. 2) The second category is those creditors from whom one time purchase was made during the year under appeal and whose payment is still outstanding and no further purchases have been made from them. . . A finding of fact recorded by the CIT (A) that the most of the creditors belong to the first category which means that the payments were made by way of account payee cheques and this fact was verified by the AO even in the Remand Report. This significant fact would clearly prove that the transactions with those creditors were genuine and they were not the bogus creditors. In respect of the second category of creditors, the CIT(A) found that their genuineness was also established inasmuch as the assessee had submitted the copies of bills of most of these creditors; these were properly printed bills with proper addresses; some dealers are described on the bills to be manufacturers of wooden items and some are described to be suppliers of handicraft items; some bills relate to marble manufacturing activities and the bills show the addresses of some villages in Rajasthan. After examining these bills in depth, the CIT(A) arrived at a finding of fact that these creditors are also genuine. On this basis, the CIT(A) allowed the appeal and deleted the addition. The Income Tax Appellate Tribunal (in short ?the ITAT?) has confirmed the order of the CIT (A) thereby dismissing the appeal of the Revenue. The only argument which is raised by the learned counsel for the Revenue is that the ITAT has not commented upon the second category of creditors and has gone by the only fact that the payments were made through account payee cheques, which observation would be confirmed to the creditors of first category. That may be so, it is because of this reason we have gone through the judgment of the CIT (A) in detail and finding of fact is plausible, after due application of mind and on the basis of documents produced by the assessee before it. We, therefore, find that no question of law arises. This appeal is accordingly dismissed. . A.K. SIKRI, J. . M.L. MEHTA, J. JANUARY 04, 2011 pmc . . . 14#