THE KRISHNAGIRI DIST CO OPERATIVE SPINNING MILLS LIMITED, ,KRISHNAGIRI vs. DCIT, CRICLE - 1(1), SALEM

The brief facts of the case emanating from the records are that the assessee is a Society, filed its return of income declaring a current year’s loss of Rs.1,25,69,752/- on 26.09.2010. The return was processed u/s.143(1) of the Act, and subsequently, the case was taken up for scrutiny and accordingly the statutory notices were issued. During the assessment proceedings, the AO noted that the assessee has shown a credit of Rs.6,57,97,951/- and asked the assessee to furnish confirmation of creditors of the following parties:-

In response, the assessee filed a copy of ledger extracts maintained by the assessee and did not furnish the confirmation of the parties concerned. Considering non-filing of the confirmation of 19 creditors for Rs.1,45,55,599/-, the AO made the entire amount claimed of Rs.1,45,55,599/- by treating it as deemed profit and concluded the assessment by making an addition u/s.143(1) of the Act dated 22.12.2011. 4. Aggrieved by the order of the AO, the assessee preferred an appeal on 19.01.2012 before the ld.CIT(A). During the first appellate proceedings, the assessee filed responses through e-filing portal. The assessee further submitted that the ledger extracts of the parties maintained in the books of the assessee are enclosed herewith and shown that the dues were settled in the next AY 2010-11. However, the ld.CIT(A) on perusal of the submissions made by the assessee, was not convinced and hence dismissed the appeal of the assessee by passing order dated 18.11.2025.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. During the hearing, the ld.AR submitted that the assessee is a Co-operative Society, engaged in the operation of spinning mills, which is under the administrative control of the Department of Handloom and Textiles, Government of Tamil Nadu and the accounts of the Society are audited by the Co-operative Auditors of the Government of Tamil Nadu. The ld.AR submitted that both before the AO as well as the ld.CIT(A), the assessee had submitted the details of sundry creditors as on 31.03.2009 and stated that the dues were paid subsequently. The ld.AR submitted that out of creditors of Rs.1,45,55,599/- the ledger extracts were enclosed by showing the outstanding balance of only 4 parties to the tune of Rs.3,46,824/- as on date, as there was no claim from such parties. In support of the claim of the assessee, the ld.AR submitted a paper book having 52 pages consisting of submissions made before the ld.CIT(A), certificate of outstanding balance as on 31.03.,2009 and the balance as on 31.03.2026, confirmation letters from Nagraj Balwanthraj Mootha and Bros., Raichur, Tamil Nadu Co-operative Spinning Mills Federation Limited (KH279) and PAN of the creditors, profit and loss account and balance sheet as on 31.03.2009 with relevant schedules and creditors as on 31.03,.2009. The ld.AR drew our attention to pager No.21 of the paper book, wherein the party has confirmed that the due as on 31.03.2009 of Rs.52,70,676/- in respect of Nagraj Balwanthraj Mootha and Bros. by stating that the said amount has been paid subsequently and the party continued the business transactions with the assessee. Similarly, in page 22 of the paper book, Tamilnadu Co-operative Spinning Mills Federation Limited (KH279) has confirmed the closing balance as on 31.03.2009 of Rs.28,83,652/- and the business transactions were continued with the assessee till the current year. In view of the above, the ld.AR prayed for deleting the additions made by the AO by considering the details and documents submitted in support of the genuineness of the sundry creditors. 6. Per contra, the ld.DR strongly relied upon the orders of the AO and the Ld.CIT(A). It was submitted that the assessee had failed to furnish complete confirmations from the sundry creditors before the lower authorities despite

It is an undisputed fact that the assessee is a Co-operative Society engaged in the operation of spinning mills under the administrative control of the Department of Handloom and Textiles, Government of Tamil Nadu. It is also not in dispute that the books of account of the assessee are subjected to audit by the Co-operative Auditors of the Government of Tamil Nadu and that the liabilities in question were duly reflected as sundry creditors in the audited balance sheet as on 31.03.2009. The AO has nowhere recorded any finding that the books of account maintained by the assessee were either unreliable or liable to be rejected. Neither has any material been brought on record to demonstrate that the purchases corresponding to the said creditors were found to be bogus or that the liabilities were fictitious in nature.

We find from the assessment order that the addition has been made solely on the ground that confirmations from certain creditors were not produced during the assessment proceedings. Except for drawing an adverse inference on account of non-furnishing of confirmations, the AO has not conducted any independent enquiry to establish that the liabilities shown by the assessee had

We further find that before the first appellate authority as well as before us, the assessee has produced substantial documentary evidence in support of the genuineness of the outstanding creditors. The paper book contains ledger extracts of the creditors, copies of the audited financial statements, details of outstanding balances, PAN particulars of the creditors and confirmation letters from major creditors, namely, M/s. Nagaraj Balwanthraj Mootha & Brothers, Raichur and Tamil Nadu Co-operative Spinning Mills Federation Limited (KH279). The confirmations clearly acknowledge the outstanding balances as on 31.03.2009 and further certify that the dues were subsequently discharged and that regular business transactions continued between the parties even thereafter. These documents establish not only the identity of the creditors but also the genuineness of the transactions and the subsistence of the liabilities. Before us, the ld. Authorised Representative has produced a paper book containing the financial statements, schedules of sundry creditors, ledger extracts, certificates regarding outstanding balances and confirmation letters from certain major creditors.

The ld. AR drew our attention to the confirmation furnished by M/s Nagaraj Balwanthraj Mootha & Brothers, Raichur, confirming the outstanding balance of Rs.52,70,676/- as on 31.03.2009. It was further stated that the said liability was subsequently discharged and that the creditor continued to have business transactions with the assessee. Similarly, the confirmation furnished by the Tamil Nadu Co-operative Spinning Mills Federation Limited reflected an outstanding balance of Rs.28,83,652/- as on 31.03.2009 and also indicated the continuation of business transactions with the assessee in subsequent years.

We also take note of the specific submission of the ld.AR that, out of the total addition of Rs.1,45,55,599/-, supporting ledger extracts and related evidences have been furnished in respect of substantially the entire amount, leaving a balance of only Rs.3,46,824/-, for which no claim was subsequently made by the concerned parties. This factual assertion has not been controverted by the Revenue by bringing any material on record to establish that the liabilities represented unexplained credits, fictitious liabilities or income liable to tax under any provision of the Act.

It is a settled proposition of law that an outstanding trade creditor arising in the normal course of business cannot be assessed as income merely because the assessee could not produce confirmation from the creditor. Unless the Revenue establishes, on the basis of cogent evidence, that the liability is bogus, has ceased to exist or represents unexplained income, no addition can be sustained. The burden cast upon the assessee stands sufficiently discharged when the liabilities are reflected in the regular books of account, supported by purchase transactions and corroborated by subsequent payments or confirmations from the creditors.

In the present case, the Revenue has neither disputed the purchases made by the assessee nor questioned the trading results arising therefrom. There is also no finding that the liabilities had ceased during the relevant previous year so as to attract the provisions of section 41(1) of the Act. Likewise, the AO has not invoked any other specific provision of the Act under which the

Having regard to the totality of the facts and circumstances of the case, the documentary evidence placed before us and in the absence of any material brought on record by the Revenue to disprove the genuineness of the outstanding trade liabilities, we are of the considered opinion that the addition of Rs.1,45,55,599/- made by the AO and sustained by the ld.CIT(A) is not justified. Accordingly, we direct the AO to delete the addition by allowing the grounds of appeal raised by the assessee.

In the result, the appeal filed by the assessee is allowed.