QMIN INDUSTRIES LIMITED,AHMEDABAD vs. THE ITO, WARD-7(2)(1), AHMEDABAD

During the course of assessment proceedings, the Assessing Officer specifically asked upon the assessee to furnish details and supporting documentary evidence in respect of sundry creditors and trade payables reflected in the books of account. In response to the queries raised by the Assessing Officer, the assessee furnished details of certain creditors such as M/s Smartpaddle Technology Pvt. Ltd., M/s Vaxtex Cotfab Ltd., M/s Kritika Enterprise, M/s Dipsi Chemicals Pvt. Ltd. and M/s Stitched Textiles Ltd. However, according to the Assessing Officer, the assessee failed to furnish any documentary evidence in respect of the trade payable standing in the name of M/s Brand Cluster LLP. According to the Assessing Officer, no satisfactory documentary evidence was furnished in respect of the transaction with M/s Brand Cluster LLP. The Assessing Officer held that the assessee had failed to establish the identity, Qmin Industries Ltd. vs. ITO Asst. Year –2022-23 - 3– genuineness and creditworthiness of the said party and therefore the trade payable amounting to ₹1,57,46,408/- appearing in the name of M/s Brand Cluster LLP remained unverified. Accordingly, the Assessing Officer treated the said amount as unexplained cash credit under section 68 read with section 115BBE of the Act and added the same to the income of the assessee.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. Commissioner of Income Tax (Appeals). Before the Ld. CIT(A), the assessee challenged the addition on several grounds contending, inter alia, that the Assessing Officer had erred in making the addition under section 68 of the Act without properly appreciating the explanations and documents furnished by the assessee and that the addition had been made merely on suspicion and conjectures. The assessee also contended that section 68 of the Act could not be applied to trade payables and that the Assessing Officer had initially proposed disallowance of only 10% of the difference in sundry creditors in the show cause notice but finally the Assessing Officer made addition of the entire amount which was arbitrary and unjustified.

The Ld. CIT(A) considered the assessment order and submissions of the assessee and held that the primary issue involved in the appeal was the addition of ₹1,57,46,408/- which represented the outstanding balance payable to M/s Brand Cluster LLP. The Ld. CIT(A) observed that the assessee had failed to furnish documentary evidence to establish the genuineness of the transaction with the said party. The Ld. CIT(A)

With regard to the ground alleging borrowed satisfaction, the Ld. CIT(A) held that the assessment had been framed under section 143(3) of the Act after examination of details by the Assessing Officer and therefore the contention of the assessee was not acceptable. With respect to the ground that the Assessing Officer had made addition of the entire amount instead of the 10% proposed in the show cause notice, the Ld. CIT(A) held that during the course of assessment proceedings the assessee had furnished confirmations in respect of all other creditors except M/s Brand Cluster LLP and therefore the Assessing Officer had rightly restricted the addition to the outstanding amount relating to the unverifiable party. Accordingly, the Ld. CIT(A) confirmed the addition of ₹1,57,46,408/- and dismissed the appeal of the assessee.

We have heard the rival submissions and carefully perused the material available on record. The addition in the present case has been made by the Assessing Officer on account of the outstanding trade payable in the name of M/s Brand Cluster LLP on the ground that the assessee failed to substantiate the genuineness of the transaction with the said party. The Ld. CIT(A) has also confirmed the addition mainly on the basis of the observations regarding absence of supporting evidence and doubts regarding the business activities of the said concern.

However, considering the totality of the facts and circumstances of the case, we find that the matter requires further verification at the level of the Assessing Officer. The addition has been made primarily on account of lack of documentary evidence relating to the transaction with M/s Brand Cluster LLP. In our considered opinion, before drawing any adverse inference, it would be appropriate for the Assessing Officer to make independent enquiries from the said party so as to verify the genuineness of the transactions and the existence of the trade liability reflected in the books of account of the assessee.

In the interest of justice and fair play, we deem it appropriate to set aside the impugned order on this issue and restore the matter to the file of the Assessing Officer for de-novo consideration. The Assessing Officer is directed to conduct necessary enquiries, including verification from M/s Qmin Industries Ltd. vs. ITO Asst. Year –2022-23 - 6– Brand Cluster LLP by way of issuance of summons to the said party, and thereafter adjudicate the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Assessing Officer and furnish all necessary documents and explanations in support of its claim.

Accordingly, the appeal of the assessee is allowed for statistical purposes. This Order is pronounced in the Open Court on 12/03/2026