RAJIV MITTAL,DELHI vs. ITO WARD 44(6), DELHI, DELHI

The Ground Nos. 1 to 2.3. raised by the assessee are challenging the confirmation of addition of Rs 22,61,492/- under section 68 of the Act in respect of closing balance of sundry creditors.

We have heard the rival submissions and perused the materials available on record. The Assessee individual is engaged in the business of wholesale trading of beer and whiskey in Uttar Pradesh. The Assessee filed his income tax return for the assessment year 2022-23 on 7-10-22 declaring total income of Rs 1,51,38,290. The Learned AO in the course of scrutiny assessment proceedings noted that on perusal of return of income for the assessment year 2022-23, it was noticed that Assessee had claimed sundry creditors of Rs 8,90,75,232 in the liability side of the balance sheet as on 31-3-2022. He noted that the Assessee had not submitted PAN, confirmation and ITR of various creditors eventhough the same was called for vide notice under section 142(1) of the Act. He noted that the Assessee had claimed purchases to the tune of Rs 222, 89,62,042 in the profit and loss account for assessment year 2022-23. The Assessee provided the list of suppliers along with all the details called for by the Learned AO. However on perusal of the details, it was observed that Sundry Creditor M/s Molson Coors India Pvt Ltd having closing balance of Rs 34,17,815 remains unexplained as the said party refused to receive the notice under section 133(6) of the Act sent by the verification unit. Accordingly, the Learned AO added the sum of Rs 34,17,815 on account of unexplained sundry creditor under section 68 read with section 115BBE of the Act, among others. The Learned CIT(A) noted that the concerned creditor had declared closing balance of Rs 11,56,323 only as against closing balance shown by the Assessee at Rs 34,17.815. Accordingly, the Learned CIT(A) confirmed only the differential sum of Rs 22,61,492 (3417815 – 1156323) with regard to this party. The Learned AR furnished the complete reconciliation of the balance qua this sundry creditor in Page 11 of the Paper Book. The Learned AR stated that sales and rebate were booked by the Assessee in succeeding year whereas the concerned party had booked the said transaction in the year under consideration itself, which had lead to a difference. In any event, the Learned AR made a preliminary legal argument that there cannot be any addition made under section 68 of the Act in respect of trade creditors, especially when purchases, sales and stocks disclosed by the Assessee were accepted by the Learned AO. Reliance in this regard was placed on the decision of Hon’ble Jurisdictional Delhi High Court in the case of CIT vs Ritu Anurag Aggarwal reported in 2 taxmann.com 134 (Del HC) dated 22-7- 2009. The relevant operative portion of the said judgement is reproduced hereunder:-

The Learned DR before us merely stated that Assessee could not provide the reconciliation of difference in closing balance. We find that the Assessee had indeed provided the reconciliation together with the confirmation of balance from the said party in the Paper Book. Be that as it may, we find that the Learned DR did not advance any argument on the legal issue argued by the Learned AR that there could be no addition that could be made under section 68 of the Act for trade creditors especially when the purchases, sales and stocks were accepted by the Learned AO.

We find that admittedly, the Learned AO had not resorted to disturb the purchases, sales and closing stocks disclosed by the Assessee in the ITR. The same stood accepted by the revenue. The trade creditors are emanating only out of purchases made by the Assessee and they are only another side of the same coin. One side is Purchases and other side is creditors. How can one side of the transaction be accepted and other side of the same transaction be disputed by the revenue. In these circumstances, the reliance placed by the Learned AR on the decision of the Hon’ble Jurisdictional High Court referred supra clearly advances the case of the Assessee on the legal aspect. Hence we hold that no addition could be made for trade creditors under section 68 of the Act. Accordingly, the Ground Nos. 1 to 2.3. raised by the Assessee are hereby allowed on this legal aspect.

The Ground Nos. 3.1. and 3.2. raised by the Assessee are challenging the disallowance under section 40(a)(ia) of the Act for non-deduction of tax at source.

We have heard the rival submissions and perused the materials available on record. The Assessee paid rent to the following parties without deduction of tax at source :-

The Learned AR before us stated that let one more opportunity be granted to the Assessee to establish that the recipients have duly offered the rental income in their respective income tax returns and if it is so proved, by applying the second proviso to section 40(a)(ia) read with second proviso to section 201(1) of the Act, no disallowance need to be made under section 40(a)(ia) of the Act in the hands of the Assessee payer. This request of the learned AR appears to be very reasonable as ultimately if the recipient has paid the taxes for the rental income, then no corresponding disallowance under section 40(a)(ia) of the Act could be made in the hands of the Assessee payer. This would avoid double taxation also. Hence in the interest of justice and fair play, we deem it fit and appropriate to restore this issue to the file of learned AO for de novo adjudication in accordance with law. The Assessee is at liberty to furnish all the supporting evidences to prove the fact that the recipients have duly offered the rental income to tax in their respective returns. If it is so proved, then applying the second proviso to section 40(a)(ia) read with section 201(1) of the Act, no disallowance under section 40(a)(ia) of the Act could be made in the hands of the Assessee payer. With these observations, the Ground Nos. 3.1 and 3.2 are allowed for statistical purposes.

The Ground Nos. 4 and 5 raised by the Assessee are general in nature and does not require any specific adjudication.

In the result, the appeal of the Assessee is allowed for statistical purposes.