JAMBAI KNM TEXTILES PVT. LTD.,NAMAKKAL vs. DCIT, CIRCLE-1,, NAMAKKAL

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 04.09.2025 for Assessment Year 2014-15. 2. The assessee has raised the following grounds of appeal: 1. The order of the Commissioner of Income Tax(Appeals) NFAC in so far as it is against the assessee is contrary to law, erroneous and unsustainable on the facts of the case. 2. The CIT(A) NFAC erred in confirming the addition of sundry creditors totalling to Rs.3,31,13,358/-.

:: 2 :: 3. The CIT(A) NFAC failed to appreciate that the sundry creditors are opening balances of the year and had been part of the balance sheet of the assessee in the earlier years and accepted by the Department and hence cannot be subjected to addition in the current year. 4. The CIT(A) NFAC further failed to appreciate that the asst. year 2007- 08 was a scrutiny assessment in which the sundry creditors were considered by the AO and accepted and therefore the addition on the ground that assessee had not proved the genuineness of the credits is untenable in law and facts. 5. The CIT(A) NFAC further failed to appreciate that in the assessment for A.Y.2007-08, AO had specifically examined the same sundry creditors and accepted the genuineness of the credits in the books of assessee and confirming the addition only for the reason that the AOS order is cryptic is wholly unjustified and unsustainable on the facts of the case. 6. The CIT(A) NFAC further failed to appreciate that the opening balance of credits cannot be examined in the current year and any enquiry is to be confined to the fresh credits of the year is a settled law through a catena of decisions including that of the Delhi High Court in Usha Stud and Agricultural Farms [301 ITR 384] and hence was not justified in confirming the addition of the opening balances of sundry credits. 7. The CIT(A) NFAC also ought to have seen that assessee had discharged its onus of proving the genuineness of the credits, although these were opening balances as on 01.04.2013 in the books of assessee and hence confirming the addition was incorrect. 8. The CIT(A) NFAC, in any event, ought to give due credence to the fact that opening balance of sundry creditors are not liable to be added as unexplained credits u/s.68 in the current year and considering the entire details of creditors filed by assessee in the remand proceedings, the addition of the amount was to be deleted. 9. The CIT(A) NFAC erred in confirming the addition of Rs.12,40,000/- as unproved unsecured loans. 10. The CIT(A) NFAC ought to have considered that the loans pertain to amounts received from relatives and friends as hand loan and also amounts were received as 'trade advances' from small vendors in connection to the business of the assessee and considering the smallness of the amounts ought to have deleted the addition. 11. The CIT(A) NFAC failed to appreciate that it was not possible to obtain the necessary details from all the parties and the addition ought to have been deleted going by the genuine statement made by the assessee. 12. The CIT(A) NFAC erred in not granting additional depreciation on the machinery, which the assessee was statutorily entitled under sec.32 of the Act. 13. The CIT(A) NFAC ought to have considered the CBDT Instruction No. XIV of 1955 and held that the AO ought to have appraised the assessee on its entitlement and granted the additional depreciation. 14. The CIT(A), in any view of the matter, ought to have duly considered the enormous details and submissions placed on record,

:: 3 :: including the documents filed before AO in remand proceedings and deleted all the additions made to the returned income of the assessee. 3. The assessee is a company engaged in the business of manufacturing cotton yarn. During the relevant period, the manufacturing operations of the company had been leased out to Narendrakumar Cotton Mills. For Assessment Year (AY) 2014-15, the assessee filed its return of income declaring Nil income. The assessment was completed u/s. 143(3) of the Income-tax Act on 29.12.2016, wherein the Assessing Officer (AO) determined the total income at Rs.4,41,19,641/-. While completing the assessment, the AO made additions on account of unexplained sundry creditors amounting to Rs.3,95,73,945/-, unexplained unsecured loans of Rs.12,40,000/-, lease income not admitted of Rs.27,00,000/- and excess depreciation claimed of Rs.6,05,696/-. The AO has given the following findings:

Addition towards Sundry Creditors: During the course of assessment proceedings, the AO called upon the assessee to furnish complete details of sundry creditors reflected in its books of account. In response, the assessee furnished the names and addresses of the creditors, income-tax particulars and confirmation letters in respect of creditors whose balances exceeded Rs.2 lakhs. The AO, however, was not satisfied with the explanation and evidence produced. According to him, the assessee had failed to furnish PAN details and copies of ledger accounts of the creditors. In the absence of sufficient documentary evidence to establish the genuineness of the liabilities, the AO held that the assessee had not discharged the burden cast upon it u/s. 68 of the Act.

:: 4 :: Consequently, the AO treated the entire outstanding balance of Rs.3,95,73,945 appearing under the head "Sundry Creditors" as unexplained cash credits and brought the same to tax u/s. 68 of the Act.

Addition towards Unsecured Loans: The AO noticed from the trial balance that certain amounts had been credited under the head "Unsecured Loans". The assessee was asked to furnish the names, addresses and other details of the persons from whom the amounts had been received. The assessee explained that only a small portion of the amounts represented loans from family members and relatives and that a substantial portion represented trade advances received from vendors and brokers in connection with its business activities. The AO was not convinced with the explanation. Since the assessee failed to furnish satisfactory evidence regarding the identity and genuineness of the creditors, the AO treated the amount of Rs.12,40,000 as unexplained credits u/s. 68 of the Act.

Disallowance of Depreciation: The AO observed that the assessee had claimed depreciation of Rs.12,11,393 on certain machinery purchases, whereas the admissible depreciation worked out only to Rs.6,05,696. Accordingly, excess depreciation of Rs.6,05,696 was disallowed and added back to the income of the assessee. Though the assessee admitted the computational mistake, it simultaneously claimed that it was entitled to additional depreciation u/s. 32 of the Act, which had inadvertently not been claimed in the return of income. The AO rejected this claim on the ground that the assessee had not

:: 5 :: claimed additional depreciation in the original return and no revised return had been filed.

Sundry Creditors: The assessee submitted that the CIT(A) himself had accepted that the impugned creditors were very old outstanding balances and did not represent fresh credits introduced during the relevant previous year. Once such a factual finding had been recorded, the provisions of section 68 could not be invoked in the year under appeal. The assessee further contended that all the impugned creditors had been carried forward from AY 2007-08 onwards and that AY 2007- 08 was a scrutiny assessment completed u/s. 143(3). To substantiate this claim, the assessee obtained certified copies of notices issued u/s. 142(1), replies submitted during the scrutiny proceedings and confirmation letters filed before the AO during AY 2007-08.

:: 6 :: These records demonstrated that the sundry creditors had been specifically examined during the scrutiny assessment and accepted by the Department. Therefore, the CIT(A) was not justified in concluding that no verification had taken place merely because the assessment order was brief and did not contain detailed discussion. The assessee argued that settled law prohibits examination of opening balances u/s. 68 in a subsequent year. Reliance was placed on the decisions in: • CIT v. Usha Stud Agricultural Farm Ltd.; • Sooraj Leathers v. ITO; and • CIT v. Fine Jewellery (India) Ltd..

Accordingly, it was argued that the addition sustained by the CIT(A) deserved to be deleted in its entirety.

Unsecured Loans: The assessee submitted that the impugned amount represented advances received from 104 small vendors and brokers in the normal course of business. Each individual advance was less than Rs.20,000. Given the small amounts involved and the large number of parties, it was practically impossible to obtain confirmations from every individual vendor. Nevertheless, all the transactions were duly recorded in the books of account and were part of regular business dealings. Therefore, the assessee contended that the addition made u/s. 68 was unjustified and liable to be deleted.

:: 7 :: Additional Depreciation: The assessee submitted that additional depreciation u/s. 32 is a statutory benefit and cannot be denied merely because it was not claimed in the original return of income. Reliance was placed on CBDT Circular No. 14 of 1955, which mandates that tax authorities should assist taxpayers in claiming all lawful deductions and reliefs. The assessee further relied upon the decisions in: • CIT v. Jai Parabolic Springs Ltd.; • Nagaraj and Co. (P.) Ltd. v. ACIT; and CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd.. •

It was argued that the restriction laid down in Goetze (India) Ltd. v. CIT applies only to the powers of the Assessing Officer and does not curtail the powers of appellate authorities, including the Tribunal.

:: 8 :: On the issue of additional depreciation, the Revenue contended that the claim had not been made in the return of income and, therefore, the AO was justified in rejecting the same in view of the decision of the Supreme Court in Goetze (India) Ltd. v. CIT.

Sundry Creditors: We observed that the CIT(A) had himself accepted that the impugned sundry creditors were very old outstanding balances and not fresh credits introduced during the year under consideration. We further took note of the certified assessment records of AY 2007-08 produced by the assessee. These records clearly established that the AO had issued notices, called for details and obtained confirmations from the creditors during the scrutiny assessment proceedings of AY 2007-08. Therefore, we hold that merely because the assessment order for AY 2007-08 did not contain elaborate discussion regarding the verification of creditors, it could not be presumed that no enquiry had been conducted. The documentary evidence on record clearly established that the creditors had been examined and accepted in the earlier scrutiny assessment. We further hold that section 68 can be invoked only in respect of credits appearing during the relevant previous year. Since the impugned balances represented opening balances brought forward from earlier years, they could not be assessed as unexplained cash credits in the current assessment year. Following the ratio laid down in CIT v. Usha Stud Agricultural Farm Ltd. [301 ITR 384] and Sooraj Leathers v. ITO ITAT Chennai dated 22.04.2026, the we hold that the addition sustained by the CIT(A)

:: 9 :: was legally unsustainable. Accordingly, the addition of Rs.3,31,13,358/- is deleted.

Unsecured Loans: We find merit in the assessee's explanation that the impugned amounts represented trade advances received from numerous small vendors and brokers. It is noted that there were 104 parties and the individual advances were generally below Rs.20,000/-. Considering the nature of the transactions, the small amounts involved and the fact that the advances were duly recorded in the books of account, we accept the assessee's explanation and hold that the addition was unwarranted. Accordingly, the addition of Rs.12,40,000/- is deleted.

Additional Depreciation: We observed that the assessee's entitlement to additional depreciation had not been disputed on merits. The only reason for rejection was that the claim had not been made in the original return of income. We hold that appellate authorities possess wide powers to grant lawful relief and that the decision of the Supreme Court in Goetze India Limited Vs. CIT [284 ITR 323 (SC) is confined to the powers of the Assessing Officer. The said decision does not restrict the jurisdiction of appellate authorities or the Tribunal to entertain a legitimate claim. Relying upon the judgments in Commissioner of Income Tax(CIT) Vs Jai Parabolic Springs Ltd reported in [2008] 306 ITR 42 (Delhi), Nagaraj and Co. (P.) Ltd. -vs- Assistant Commissioner of Income Tax, Circle-IV(4), Chennai, reported in [2020] 425 ITR 421 (Madras) and Commissioner of Income Tax Vs. Pruthvi Brokers & Shareholders Pvt. Ltd., reported in [2012] 349

:: 10 :: ITR 336 (Bombay), we hold that a legitimate statutory deduction cannot be denied merely because it was not claimed in the return. Accordingly, the we direct the AO to allow the additional depreciation claimed by the assessee. 8. In the result, we allow the appeal of the assessee in full.

Order pronounced in the open court on the 25th day of June, 2026, in Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग#र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद%या/ACCOUNTANT MEMBER &या�यक सद%य/JUDICIAL MEMBER चे&नई/Chennai, (दनांक/Dated: 25th June, 2026. SNDP, Sr. PS आदेश क� ��त)ल*प अ+े*षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF