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Facts
The assessee filed its return of income for AY 2017-18, which was selected for scrutiny. The Assessing Officer (AO) made an addition of Rs. 7,52,058/- on account of increase in loan and trade creditors, and also disallowed 30% of interest paid to sundry creditors amounting to Rs. 45,660/- under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) deleted the addition for loan creditors but upheld the addition for trade creditors and the disallowance of interest.
Held
The Tribunal held that the addition made by the AO on account of trade creditors under Section 68 was not justified as the purchases were accepted as genuine and payments were made in the succeeding year. However, the disallowance under Section 40(a)(ia) for non-deduction of TDS was sustained due to the assessee's inability to provide evidence of submitting Form 15G.
Key Issues
Whether additions on account of trade creditors are justified under Section 68, and whether disallowance of interest for non-deduction of TDS under Section 40(a)(ia) is sustainable.
Sections Cited
68, 40(a)(ia), 143(3), 147, 148, Chapter XVII B
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Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This is an appeal filed by the assessee against the Order passed by the CIT(A) vide DIN &Order No: ITBA/APL/S/250/2024-25/1071454520(1) dated 23.12.2024.
Briefly stated, the facts of the case are that assessee filed return of income on 23.10.2017 declaring income of Rs.4,69,267/-, income from house property of Rs.25,200/- and income from profit / gains from business / profession was declared at Rs.4,44,067/-. The case was selected for scrutiny and notice was issued to the assessee. On verification of the financials submitted by the assessee, the loan creditors and trade creditors were observed as under:
From the above table, it was noticed that the loan creditors and trade creditors were increased by Rs.7,52,058/-. In this regard, assessee furnished reply and AO was not satisfied. Accordingly, he made addition under section 68 of the Act to the above amount. Further on verification it was noticed that an amount of Rs.1,52,200/- as interest paid to sundry creditors but the assessee has not deducted TDS in terms of provisions of Chapter XVII B. Therefore, 30% of such interest under section 40(a)(ia) of the Act was disallowed which is Rs.45,660/- and completed the Order on 30.12.2019.
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A) deleted the addition made towards loan creditors but he upheld the addition of trade creditors and disallowance under section 40(a)(ia) of the Act. With regard to disallowance of Rs.45,660/- made under section 40(a)(ia) of the Act. Assessee pleaded before the learned CIT(A) for non deduction of TDS. Assessee has obtained Form 16G from loan creditors and submitted to the appropriate authority within due date. However, in this regard, assessee was unable to produce the same before the learned CIT(A). Therefore, for want of evidence disallowance made under section 40(a)(ia) of the Act was also confirmed by the learned CIT(A). Accordingly, he partly allowed appeal of the assessee.
Aggrieved from the above Order, assessee filed appeal before the Tribunal.
The learned Counsel reiterated the submissions made before the lower authorities and submitted that the confirmations from creditors were filed during the course of assessment proceedings as well as before learned CIT(A). The AO has not disputed the purchase made from trade creditors and did not doubt on the stock maintained by the assessee. However, he has made addition under section 68 of the Act which is completely not justified. In support of his arguments, he relied on the judgment of the Co-ordinate Bench of the Tribunal in Order dated 06.02.2024 and he referred to Para No.3 of the Order. With regard to disallowance under section 40(a)(ia) of the Act, the necessary documents were submitted before the learned CIT and recipient of interest had submitted Form 15G to the assessee within due date. Therefore, there was no deduction of TDS on such interest paid. He has filed Paper Book page Nos.1 to 9 containing the confirmation from the creditors and ledger accounts and bank accounts. Regarding payment made to the trade creditors and in subsequent years, the closing balance of the creditors have been accepted by the AO. Therefore, no addition can be made
On the other hand, learned DR relied on the Order of lower authorities and further submitted that during the course of assessment proceedings, assessee did not submit any documents like copy of Form 15G and proof of furnishing the same to the Commissioner within due date. Just mentioning that the proof was submitted is not sufficient. Therefore, even before the Hon’ble Bench, assessee was unable to submit any proof regarding submission of Form 15G to the respective Commissioner. Therefore, arguments of the assessee should be not be considered.
Considering the rival submissions, here the dispute is regarding addition made towards trade creditors which has increased at the end of the year after settlement of accounts. Assessee furnished confirmation, bank statement towards payment to the trade creditors and the AO has accepted the entire purchase made by the assessee. Therefore, the case relied on by the learned AR noted supra is very much applicable to the case of the assessee in which it has been held as under :
‘3. We have heard the rival submissions and perused the materials available on record. Admittedly, there was no response from the assessee before NFAC. As such, NFAC has confirmed the order of the ld. AO. Before us, ld. A.R. submitted that these are trade creditors emanated from the purchases made by assessee in the assessment year under consideration. Once the department has accepted the purchases as genuine, the other limb of the same transaction being a trade creditors cannot be doubted or no addition could be made on this count. For this purpose, he relied on the judgement of Allahabad High Court in the case of CIT Vs. Pancham Dass Jain (205 CTR 444) and for the same purpose, he also relied on the order of the coordinate bench in the case of Smt. Madhu Solanki in dated 9.8.2021, wherein held as under: "14. We have heard rival contentions on this issue and perused the record. The undisputed fact is that the assessing officer has made addition of outstanding trade creditors u/s 68 of the Act. The question whether unpaid trade creditors could be added u/s 68 of the Act has been examined by various courts. The Five member special bench of ITAT has held in the case of Manoj Agarwal vs. DCIT (113 ITD377) as under on this issue:- "The argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction there for has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies....."
Similar view has been expressed by Hon'ble Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal reported in 2009 (7) TMI 1247 as under:- "This finding of AO remained undisturbed before the CIT(A) as well and has been accepted by the ITAT. Proceeding on this basis, the ITAT observed that the soles, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this aspect while making additions of sundry creditors under Section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchase, no addition could be made under Section 68 inasmuch as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed."
The LdD.R placed his reliance on the decision rendered by the Bangalore bench of ITAT in the case of Suresh Kumar T. Jain (supra), which was also confirmed by Hon'ble Karnataka High Court, vide its order dated 20-11-2018 passed in of 2010. The LdD.R contended that the outstanding trade creditors could be added u/s 68 of the Act. We have gone through the above said decision and notice that the facts prevailing in that case were different. In the above said case, most of the creditors confirmed the outstanding balances as per their books of accounts, which were much lesser than the outstanding balances disclosed by the assessee before the High Court. Copies of confirmation letters received from the creditors were also furnished to the assessee, but he did not offer any explanation. Hence, it was considered to be a case of either payment outside books or cessation of liability. Under these set of facts, it was held that the addition made u/s 41(1) and 68 of the Act was justified.
In the present case, the facts are totally different. First of all, the outstanding balances related to the purchases made during the year under consideration and not brought forward balances. The AO did not get reply from both the trade creditors and hence he proceeded to assess the outstanding balances, while accepting the purchases made during the year & payments made during the year. The AO has made the addition u/s 68 of the Act and did not invoke provisions of sec. 41(1) of the Act. On the contrary, the assessee has shown that the payments have been made in the succeeding year through banking channels. Accordingly, we are of the view that the revenue could not rely upon the decision rendered in the case of Sureshkumar T Jain. Under these set of facts, we are of the view that the AO could not have made addition of trade creditors u/s 68 of the Act.
Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned addition of trade creditors."
3.1 In our opinion, at this stage, we are not in a position to decide the appeal on merit as the NFAC/CIT(A) has not gone in to the merit of the issues raised by the assessee before it. Being so, in our opinion, it is appropriate to remit the entire issue in dispute to the file of NFAC/CIT(A) to decide the same after giving opportunity of hearing to the assessee.”
Respectfully following the above judgment, In the case the AO has decided the issue on merits of the case, accordingly, we delete the addition made under section 68 of the Act towards trade creditors of Rs.5,82,717/-. Further, in respect of disallowance made under section 40(a)(ia) of the Act, assessee was liable to deduct TDS in terms of provision of Chapter XVIIB. However, the assessee submitted that Form 15G was obtained from the recipient of interest and it was submitted before the respective Commissioner within the due date but the assessee is unable to show any evidence regarding submission before the respective commissioners to the Form 15G and copy of Form 15 G obtained from the recipient of interest and he has not deducted TDS as per applicable rate. Therefore, even before us, he could not furnish any evidence. Therefore, we sustain this disallowance made by the AO under section 40(a)(ia) of the Act.
In the result, appeal filed by the assessee is partly allowed.