ASSISTANT COMMISSIONER OF INCOME TAX, PUDUCHERRY vs. KALPANA, PUDUCHERRY

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ITA 2412/CHNY/2025Status: DisposedITAT Chennai09 June 2026AY 2017-186 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the CIT(A) should not have deleted the entire addition solely on procedural grounds without examining the merits. The Tribunal directed the CIT(A) to re-examine the issue on merits after calling for necessary details from the assessee.

What were the facts?

The Assessing Officer (AO) made additions to the assessee's income for bogus sundry creditors. The CIT(A) deleted these additions, finding that the AO's investigation was inadequate and the amount added exceeded the year's purchases. The Revenue appealed this deletion.

What were the issues?

Whether the CIT(A) erred in deleting additions for bogus sundry creditors without a proper examination of the assessee's evidence and whether the AO's procedural lapses justified the complete deletion of the addition.

Which sections of the Income-tax Act were involved?

Section 68,Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI SS VISWANETHRA RAVI & MS. PADMAVATHY.S

For Respondent: Ms. R. Anitha, CIT

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the Revenue is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 08.07.2025 for Assessment Year (AY) 2017-18.

2.

The assessee is an individual and engaged in the business of trading of furniture in the name and style of M/s.Selva Furniture. The assessee filed the return of income for AY 2017-18 on 02.11.2017 admitting a total income of

ITA No.2412/Chny/2026 Kalpana :- 2 -: Rs. 35,81,200/-. The case was selected for scrutiny and the statutory notices were issued in favour of the assessee. The A.O called on the assessee to furnish details pertaining to the cash deposit and also the details of sundry creditors. The A.O concluded the assessment by making an addition u/s. 68 of the Act to the tune of Rs. 12,84,700/- and towards bogus sundry creditors to the tune of Rs. 22,06,06,080/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) after considering the submissions of the assessee deleted the addition made by the A.O towards sundry creditors. The relevant observations of the CIT(A) in this regard are extracted herein below: 5.2.2 I have gone through the observations of the Assessing Officer. It is seen that as per show-cause notice dated 20.12.2019 issued (as reproduced in the impugned assessment order) by the Assessing Officer to the appellant, notices u/s 133(6) were Issued to all the six sundry creditors on 13.12.2019. Notices were returned by postal authorities as unserved in 3(three) cases and there were no reply from other 3(three) parties. Since the genuineness of the trade creditors could not be established, it was proposed to treat these creditors as bogus and to assess the amount of Rs.22,06,06,080/- as bogus creditors. The appellant responded to the show-cause notice in the following manner (as apparent from the impugned assessment order): "Your notice is not clear as to when was the notice sent and what was reason for nondelivery. In fact two of the creditors are in the same area as my business is in operation and on enquiry I believe that no notices were received by them. Also, I am not clear as to which are the creditors' letters which were returned un served. In the absence of clarity, I am unable to respond." 5.2.3 The ground raised by the appellant, in response to the show-cause notice, was valid to a considerable extent. When a notice is returned unserved by the postal authority, specific remark for non-delivery is written on the same, i.e. 'closed', 'left', 'address not found', 'refused', etc. Unless the reason is communicated to the claimant, it becomes difficult for him/her to offer the explanation for non-delivery.

Further, as pointed out by the appellant in her reply dated 20.12.2019, it was not stated the name(s) of the creditors notices in respect of whom was returned unserved. The name(s) of the sundry creditors, the notices addressed to whom was returned unserved, is of paramount importance because the assessee can identify the party concerned and discharge

ITA No.2412/Chny/2026 Kalpana :- 3 -: his/her onus to cause the notices to be served upon, and response to be sent by, such creditors.

5.2.4 It is pertinent to mention that while making the addition of Rs.22,06,06,080/-under the head Bogus Sundry Creditors, the Assessing Officer has observed that "reply has been received from one creditor named M/s.Poonam Trading Co on 24.12.2019 stating that it has no business transaction or any other transactions with the assessee for the F.Y.2016-17 and F.Y. 2017-18" while there was no such entity as per the list of creditors stated in the show-cause notice as well as anywhere else in the assessment order. I have perused the list of trade creditor as per statements of accounts of the appellant for the financial year ended 31.03.2017. It is seen that Rs.22,06,06,080/- is shown as total trade creditors against the aforesaid six entities only, i.e.., against the following:

1.

Bhuvaneshwari Timbers, 2. Green wood Trading Company, 3. Maruthi Timbers, 4. Sri Guru Trade Mart, 5. Sri Laxmi Timbers Pvt Ltd; and

5.2.5 The creditor named M/s.Poonam Trading Co is not appearing in the statements of accounts also. Therefore, when the entire amount of Rs.22,06,06,080/-shown as total trade creditors against the aforesaid trade 6(six) creditors is added to the total income, based on reasons and materials including the reply of one entity whose name is not there at all in the list of creditors, it cannot be stated that adequate investigation was made by the Assessing Officer.

5.2.6 While going through the statements of accounts of the appellant for the financial year ended 31.03.2017, it is seen that the total purchase during the relevant financial year was of Rs 16,86,10,030/-. If the accounting principle of genesis of sundry creditors is considered, the balance under the head 'trade creditors' arise when purchase is made and the same, or a part of it, remains unpaid as on a particular date. The format for ledger accounts related to sundry creditors is as follows –

ITA No.2412/Chny/2026 Kalpana :- 4 -:

the books, it indicates that there were some brought forward balances of earlier years. Income-tax Act, on the other hand, allows taxation of the income accrued during the relevant year only. Therefore, even if it is assumed that sundry creditors were actually non-existing, the maximum amount pertains to the year, in the case of the appellant, works out to Rs.16,86,10,030/-. Form this point of view also, the Assessing Officer's action in adding an amount of Rs.22,06,06,080/-, is not sustainable.

5.2.9 Therefore, it is seen that the Assessing Officer has made the addition without giving adequate and proper opportunity to the appellant [Para 5.2.3 of this order], based on information allegedly received from a party to whom notice was not issued [Para 5.2.4 of this order] and to an extent exceeding the amount involved during the yea [Para 5.2.6 to 5.2.8 of this order]. Accordingly, I hold that the addition of Rs.22,06,06,080/- under the head under the head 'Bogus Sundry Creditors' cannot be sustained.

ITA No.2412/Chny/2026 Kalpana :- 5 -: Therefore, I direct the Assessing Officer to delete the addition of Rs.22,06,06,080/-. Grounds no. 3, 4, 5 6 and 7 are allowed.”

3.

The Revenue is in appeal before the Tribunal against the order of the CIT(A).

4.

None appeared for the assessee and we heard the Ld. Departmental Representative. From the perusal of the order of the A.O, we notice that the addition has been made by the A.O on the ground that some of the parties to whom the notice u/s. 133(6) was issued did not respond. We further notice that the assessee did not furnish any details before the A.O. We further notice that the CIT(A) has given relief to the assessee stating that one of the creditors which the A.O has recorded has non responding to the notice is not there in the list of creditors and that the amount of creditors as added by the A.O is more than the purchases made during the year under consideration. However, the CIT(A) has not recorded any finding with regard to how the genuineness of the creditors were substantiated by the assessee before the CIT(A). We also notice that the CIT(A) in para 5.2.8 above has recorded that the creditors towards purchases during the year under consideration alone could be disallowed at best but has proceeded to delete the entire disallowance in para 5.2.9 stating that the A.O has made the addition without giving proper opportunity. It is also relevant to mention here that nothing with regard to the documentary evidences submitted by the assessee and how the CIT(A) was convinced on the genuineness of the parties is not coming out clearly from the order of the CIT(A). Further in our considered view the relief given by the CIT(A) solely on the ground that the A.O has not given property opportunity to the assessee is not tenable and that the CIT(A) if convinced of the fact that the assessee was not given an opportunity ought to have remitted the appeal back to the A.O for fresh consideration instead of deleting the entire

ITA No.2412/Chny/2026 Kalpana :- 6 -: additions. Accordingly we are of the view that the issue needs to be re- examined by the CIT(A) on merits afresh by calling for the necessary details pertaining to the impugned issue to decide the same in accordance with law. The CIT(A) is further directed to pass a speaking order recording the findings with regard to the details submitted by the assessee with regard to the impugned additions/disallowances. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

5.

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

Order pronounced on 09th day of June, 2026 at Chennai.

Sd/- Sd/- (यस यस िव�ने� रिव) (पदमावती यस) (SS Viswanethra Ravi) (Padmavathy.S) लेखा सद�य सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य लेखा लेखा लेखा चे�नई/Chennai, �दनांक/Dated: 09th June, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु!/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF Digitally signed by EJTADA DURGA EJTADA DURGA NARESH NARESH Date: 2026.06.11 17:28:58 +05'30'

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