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Income Tax Appellate Tribunal, Hyderabad A‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice- & Shri Madhusudan Sawdia
Per Vijay Pal Rao, Vice President
This appeal filed by the assessee is directed against the order dated 31/01/2022 of the learned CIT (A)-12, Hyderabad for the A.Y 2013-14.
The assessee has raised the following grounds: “1. On the facts and in the circumstances of the case the appellate order passed by the CIT(A) is erroneous both on facts and in law to the extent the order is prejudicial to the interest of the appellant.
2. The Ld. CIT (A) ought to have appreciated the fact that the Ld. AO erred in making addition of Rs. 1,70,23,768/- U/s 68 of the IT Act, without establishing that the credits appearing were given to the assessee by known person and that the amount is cumulative and not received entirely during the year under reference.
3. The Ld. CIT (A) ought to have appreciated the fact that no addition can be made U/s 68 in respect of trade creditors.
4. The Ld.CIT (A) ought to have appreciated that the cash deposits are the loans and advances received during the course of business and are reflected in the books of accounts of the assessee, which is supported by evidence in books of accounts. 5. The Ld.CIT (A) ought to have appreciated that the Ld. AO has not brought on record any contradictory evidence by making enquiries about the genuineness and creditworthiness or otherwise of the transactions but has added to the income returned, is not correct and justified. 6. The Ld.CIT (A) ought to have appreciated that the Ld. AO erred in not considering the fact that the amount of Rs. 1,70,23,768/- is already shown in the book of accounts of the assessee. 7. The Ld.CIT (A) ought to have appreciated that the assessee is, maintaining books of account and the same are duly audited u/s 44AB of the Act by the Chartered Accountants. 8. The Ld. CIT (A)erred in upholding the addition made by the AO even though the Identity, Genuineness and Creditworthiness of the creditors is proved. 9. The Ld. CIT(A) ought to have deleted the addition on the fact that the onus on the assessee is discharged when the Identity, Genuineness and creditworthiness of the creditors is proved. 10. The assessee may add, alter or modify any other points to the grounds of appeal at any time before or at the time of hearing of the appeal”.
This is the second round of appeal, as earlier learned CIT (A) dismissed the appeal of the assessee vide order dated 25/10/2016 for want of compliance and also for delay in filing the appeal without adjudication on merits. On further appeal, this Tribunal vide order dated 15/03/2019 remitted the matter back to the record of the learned CIT (A) with a direction to dispose of the appeal on merit after giving reasonable opportunity of hearing to the assessee,.
4. In the second round, the learned CIT (A) has sustained the addition made by the Assessing Officer on account of sundry creditors. The learned AR of the assessee has submitted that the Assessing Officer has made the addition of Rs.1,70,23,768/- on account of increase in the sundry creditors during the year under consideration as unexplained cash credit u/s 68 of the I.T. Act, 1961. He has contended that since these are the trade creditors and therefore, the parameters for verification of the trade creditors are different from the cash credit u/s 68 of the I.T. Act, 1961. This is not a transaction of loan or advance received by the assessee but these are only sundry creditors or the creditors against the supply on credit and therefore, without questioning the trade transactions, the addition cannot be made on account of unexplained credit u/s 68 of the I.T. Act, 1961. In support of his contentions, he has relied upon the following decisions: i) ITAT Cuttack Bench in the case of DCIT vs. Allied Infra Suppliers (ITA No.481/CTK/2017)
Page 3 of 20 ii) ITAT Delhi Bench in the case of Manju Sharma vs. Income Tax Officer (ITA No.8275/Del/2019). iii) ITAR Ranchi Bench in the case of Gulf Steels & Minerals vs. Income Tax Officer (ITA No.57/Ran/16) iv) ITAT Delhi Bench in the case of Mohd Yunus Qureshi (ITA No.4936/Del/2018) v) Hon'ble Delhi High Court in the case of Ritu Anurag Agarwal (2 Taxmann 134).
5. He has further submitted that the assessee has filed the confirmation of sundry creditor which is a group concern of the assessee and therefore, the assessee has discharged its onus to prove the genuineness of the transaction. The books of account are duly audited and copy of Form 3CD were available before the Assessing Officer. Therefore, once the books of account are not rejected and trade transaction is not disputed by the Assessing Officer, then the addition made u/s 68 against the trade creditors/sundry creditors is not justified.
On the other hand, the learned DR has submitted that no evidence was filed by the assessee before the Assessing Officer or before the learned CIT (A) to establish the genuineness of the increase in the sundry creditors. Therefore, the addition was made by the Assessing Officer for want of necessary details and supporting evidence. He has referred to the findings of the learned CIT (A) and submitted that the learned CIT (A) has given a finding
Page 4 of 20 that the sundry creditors remain unverified as the assessee has failed to produce any evidence in support of the claim, except the confirmation from M/s. Madhucon Estates Ltd. The assessee was specifically asked to provide the details of the sundry creditors and justify its increase over the preceding year. The assessee was also asked to file the copy of the ledger account of the sundry creditors and to show that they were genuine and has been squared off in subsequent years. Since the assessee has not furnished any details of identity of all these sundry creditors, their creditworthiness and genuineness of the transactions, therefore, the learned CIT (A) has rightly confirmed the additions made by the Assessing Officer.
We have considered the rival submissions as well as the relevant material available on record. The Assessing Officer has made the addition u/s 68 of the I.T. Act, 1961 on account of increase in sundry creditors in Para 2 of the assessment order as under: “2. In the previous year relevant to the assessment year 2013-14, there is increase of sundry creditors to the tune of Rs.1,70,23.768/- over last year's. In spite of repealed tine and opportunity given, the assessee failed to furnish the details of nature of transactions with regard to which these impugned amounts were received. When any amount found credited in the books of account of the assessee for the assessment year under consideration, the assessee is bound to explain the identity of the parties, capacity of the creditors and genuineness of the transactions. In the instant case, the assessee has been given ample opportunity to lead the evidence so as to show that the creditors from whom the assessee received the amounts, identity of parties and source of income to advance the money to the assessee. In spite of giving
Page 5 of 20 opportunities, the assessee failed to furnish requisite details. Accordingly, it could not be said that the assessement proceedings were concluded with unreasonable haste and there was no violation of principles of natural justice. It is pertinent to mention here that the case was selected for only limited scrutiny of verify the increase in sundry creditors. Further, in spite of giving opportunities, there is failure on the part of the assessee to furnish the basis details and as such failed to establish the proof of identity of creditors, the capacity of the creditors to advance the money and genuineness of the transactions in order to discharge the onus cast on it u/s 68 of the Act. Accordingly, placing reliance on the judgment of jurisdictional Hon'ble High Court in the case of RB Mittal vs. CIT (246 ITR 283), the amount of Rs.1,70,23,768/- is brought to tax as unexplained credits u/s 68 of the Act. Addition: Rs.1,70,23,768/-.”
Thus, it is clear that it is a case of increase in the sundry creditors during the year consideration to the tune of Rs.1,70,23,768/-. The Assessing Officer proceeded to examine the sundry creditors by calling the confirmation and supporting evidences regarding the identity of the party, capacity of the creditors and genuineness of the transaction. These all conditions are required in respect of cash credit u/s 68 of the I.T. Act, 1961. It is an undisputed fact that these are trade/sundry creditors recorded by the assessee in the books of account and therefore, does not fall in the ambit of section 68 of the Act. If the Assessing Officer was having any doubt about the genuineness of the creditors recorded in the books of account, then the trade transaction represented by these sundry creditors were required to be verified and incase the assessee failed to substantiate the trade transaction, then the claim of the said trade transactions as an expenditure in the P&L Account could have been disallowed.
Page 6 of 20 The Assessing Officer has not disturbed the books of account of the assessee and particularly, the income declared by the assessee except the addition made u/s 68 of the Act. The learned CIT (A) while confirming the addition has acknowledged that the assessee has filed the confirmation from M/s. Madhucon Estates Ltd, the sundry creditor which is a sister concern of the assessee but confirmed the addition made by the Assessing Officer on a different reasoning that the assessee has failed to produce the details of the total balance of the sundry creditors and further to justify its increase over the preceding year. Once the sundry creditors/trade creditors are not falling in the ambit of section 68 being not in the nature of cash credit, then the issue ought to have been examined only regarding the claim of trade transaction against which the assessee has recorded the sundry creditors during the year under consideration. We further note that even the Assessing Officer has not doubted this trade transaction in case of Madhucon Estates Ltd. Once the said trade transactions were accepted in the hand of M/s. Madhucon Estates Ltd as receivable from the assessee, and further, the confirmation was produced by the assessee wherein the sundry creditor has duly confirmed that they had receivables for the amount of Rs.1,70,20,000/- from the assessee, then the addition cannot be made u./s 68 of the I.T. Act, 1961. The learned CIT (A) has duly recorded this fact in Para 7.3.1 as under: “The said letter was received by the AR. In response to the said letter, the assessee vide his letter uploaded in ITBA on 22-01-2022 furnished a copy of confirmation from M/s. Madhucon Estates Limited wherein M/Madhucon Estate
Limited has confirmed that they had trade receivable for an amount of Rs.1,70.2 0007 from M/s. Sree Nagendra Constructions as on 31-03-2013. Since the balance confirmed by M/s. Madhucon Estates Limited, it was stated that the creditworthiness and genuineness of the transactions stands explained and requested far deletion of the said addition.”
Thus, it is manifest from the record that the Assessing Officer has accepted the book results so far as the income declared by the assessee and has not doubted the correctness of the income deduced from the books of account of the assessee, then without disallowing the trade transactions debited to the P&L Account of the assessee, the Assessing Officer is not permitted to resort to the provisions of section 68 of the I.T. Act, 1961 in respect of the sundry creditors. In the case of DCIT vs. Allied Infra Suppliers (Supra), the Cuttack Bench of this Tribunal has upheld the order of the learned CIT (A) deleting the addition made by the Assessing Officer u/s 68 of the Act on account of sundry creditors. The Tribunal has reproduced the relevant order of the learned CIT (A) as under: “7.2 I have considered the matter with reference to the facts on record and the remand report of the AO. I find that the sundry creditors were considered as not genuine in the assessment because the assesee failed to furnish the relevant details and documents to prove the genuineness of the same. Apparently, the addition was made u/s.68 though there is no reference to that section in the assessment order. In the course of remand proceedings, the assessee has furnished all the relevant details and documents examination of the same, the AO is of the opinion that the credit liabilities disclosed in the accounts are genuine. Moreover, the provisions of section 68 cannot be applied to sundry creditors and the assessee cannot be applied to sundry creditors and the assessee cannot be asked to prove the 3 ingredients of cash credits in respect of Page 8 of 20
sundry creditors. The sundry credits have arisen out of transactions with the assessee of supply of goods or services and unless the AO proves that the goods or services were never supplied, he cannot make an addition on account sundry creditors. Keeping the above in view and the report of the AO, the addition of Rs.4,42,82,877/- on account of sundry creditors is deleted."
9.1 The Tribunal then confirmed the above order of the learned CIT (A) in para 13 as under: “13. We have heard the rival submissions, perused the materials available on record and orders of the lower authorities. It is observed that various additions deleted by the CIT(A) were on the basis of the remand report by the Assessing Officer. In the remand report submitted by the Assessing Officer, the Assessing Officer himself after verification admitted that the addition is to be deleted.”
Thus, it is clear that in the said case the learned CIT (A) has clearly given a finding that provisions of section 68 cannot be applied to the sundry creditors and the assessee cannot be asked to prove the 3 ingredients of cash credits in respect of sundry creditors which was upheld by the Tribunal.
In the case of Manju Sharma vs. Income Tax Officer (Supra), the Delhi Bench of the Tribunal vide order dated 23/11/2020 has considered an identical issue and decided the same in favour of the assessee. The concluding part of the said order in para 32 and 33 are as under: “32. Since, in the instant case, the sales made by the assessee has been accepted and the books of account have not been rejected and the assessee has made the payments to the sundry creditors in the subsequent years and there is nothing on record to suggest that the money so paid has come back to the assessee directly or indirectly in any form,
Page 9 of 20 therefore, making addition of the entire amount payable to the six sundry creditors in the instant case in our opinion is highly unjustified. However, the assessee also cannot get scot free by not producing the sundry creditors and making purchases from parties who are not maintaining proper records or who have made adverse statements and, therefore, the assessee cannot be equated with another assessee who is maintaining records meticulously and not making purchase from grey market. Since the assessee in the instant case is showing GP rate of less than 4%, therefore, considering the totality of the facts of the case, we are of the considered opinion that adoption of GP rate of 16% on such unsubstantiated purchases from the six creditors will meet the ends of justice. We, therefore, direct the AO to adopt GP rate of 16% on such purchases of Rs.3,05,34,283/- from the six creditors which comes to Rs.48,85,485/- as against the addition of the entire amount payable to the six parties u/s 68 of the IT Act. Thus, the addition is restricted to Rs.48,85,485/- as against Rs.3,05,34,283/- made by the AO and sustained by the CIT(A).
So far as the decisions relied on by the ld.CIT(A) and the ld. DR are concerned, all those decisions relate to addition u/s 68 of the Act where loans or advances have been obtained by the respective assessees and they could not substantiate with evidence to the satisfaction of the AO regarding the three ingredients of section 68 of the Act. However, in the instant case, there is no such cash loan or advances from the six parties and the amount outstanding against their names represent outstandings payable for purchase of goods. Further such goods have been sold and such sales has been accepted and books of account have not been rejected. Further the payments have been made to them in the subsequent assessment years, a finding given by the AO in the remand proceedings. Therefore, those decisions are distinguishable and not applicable to the facts of the present case.”
The Tribunal has observed that there is no cash loan or advances and the amount outstanding against their names represented outstanding payables for purchase of goods. Further, such goods have been sold and such sales have been accepted and the books of account have not been rejected, then the addition u/s 68 is not sustainable.
Similarly, in the case of Gulf Steels & Minerals vs. Income Tax Officer (Supra), the Ranchi Bench of this Tribunal vide order dated 4/5/2018 has held in paras 2 to 5 as under: “2. After hearing the rival submissions and perusing the material available on record and paper book filed before us, we find that the issue in hand is relating to addition made on account of sundry creditor. During the course of arguments before us the ld.AR referred to page-5 of the paper book and argued that the details of purchases were verified by the AO and found satisfied with the same and accepted the expenditure incurred to that effect. The AO is wrong in making the impugned addition on account of sundry creditor, which are related to purchases and the same also accepted by the AO as genuine. Without rejecting the purchases, the sundry creditors cannot be treated as income of assessee and in support of the contention, the assessee relied on the order dt. 07-09-2016 of the Co-ordinate Bench, ITAT, Kolkata in the case of M/s. Standard Leather Pvt. Ltd in record and referred to paras 10-13 of the said order. We find that the facts of the case in M/s. Standard Leather Pvt. Ltd supra as relied on by the assessee are similar and identical to the facts of the present case. The ld.DR has relied on the orders of the AO and CIT-A. 3. We find that the issue in hand is covered in favour of assessee by the above said order of the Co-ordinate Bench, ITAT, Kolkata. Relevant portion of said order are reproduced herein below:- " 10. The assessee has shown sundry creditors in its books of account for Rs.6,24,70,343/- as on 31.03.2010. The AO during the course of assessment proceeding sent the notice at the addresses given by assessee u/s. 133(6) of the Act but all of them returned unserved. On question by the AO the assessee submitted that the sundry creditors relates to the purchases which is genuine, therefore, the creditors without rejecting the purchases cannot be treated as income of the assessee. However, the AO disregarded the claim of assessee by observing that the onus lies upon the assessee to prove identity, genuinety and creditworthiness. Accordingly, AO disallowed the creditor for Rs.4,29,02,130/- on account of non-existent and added to the total income of assessee.
11. Aggrieved assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- "5.3.5 I have gone through the assessment order, submission of the AR, peruse the fact of the case and other materials brought on record and I am of the view that for the following reasons Rs.4,29,02,130/- cannot be added to the income of the appellant either by applying the provisions of section 41(1) or 68 of the Act.:- (i) That the purchase of the hides from the sundry creditors is evident from the purchase bills and books of accounts maintained by the appellant. As regards the treatment of the same as bogus creditors by the AO, I find that the AO has treated the creditors for purchase made during the year as bogus and not existing. The AO was of the view that the notices u/s 133(6) issued to the creditors came back unserved and therefore the creditors were bogus. It is however found that the AO has treated the purchase made during the year from the same very persons as genuine. The payment made to them was also treated as genuine and disallowance was made only by applying the provisions of section 40A(3). I also find that such sundry creditors for supply of raw hides and skins remained outstanding at the end of every year and were duly accepted in earlier years. Even while completing the assessment for the assessment year in question, sundry creditors of the earlier years have been accepted by the AO. I also find that there were sundry debtors of equal amount in the Balance sheet which shows that in this trade there remain outstanding sundry creditors and debtors. When purchase was accepted as genuine then the sundry creditors cannot be treated as bogus. vii) Regarding applicability of provisions of section 68, I find that the appellant has brought substantial material on record to show that these are sundry creditor for purchases paid in subsequent years and that part of the purchases from the very parties were already accepted by the Assessing Officer. Evidently, the creditors were held to be bogus on the ground that enquiry letters under sec. 133(6) of the Act were received back unserved with the remarks 'not known' leaving the Assessing Officer to conclude that the appellant has failed to discharge his onus of proving the capacity of the creditors and genuineness of the transactions. Apparently, in my opinion, the Assessing Officer has not appreciated the facts of the case in its entirety. This is a case, where the books are not outrightly rejected, there is no adverse inference drawn
Page 12 of 20 regarding quantum of purchases or sales and even the purchase accounts of the sundry creditors have not been disturbed. The act that the assessee maintained regular books of account including stock register is also not negated. The Assessing Officer had not disallowed the purchases from those creditors nor the trading results were disturbed. In CIT vs. Ritu Anurag Aggarwal -IT Appeal No. 325 of 2008 dated 22/7/2009, dealing with section 68 of the IT Act in a similar case, the Hon'ble Delhi High Court observed ' ....Proceeding on this basis, the ITAT observed that the sales, 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 the sundry creditors under section 68 of the Income Tax Act. As there was no case for disallowance for responding purchases, 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 Assessing Officer.' viii) As regards applicability of provisions of section 41(1), the facts clearly show that the appellant did not write back the sundry creditors to its profit and loss account. In CIT v. Vardhman Overseas Ltd. in decided on 23.12.2011, (2012) 343 ITR 408 (Del), the Delhi High Court, referring to its judgment in the case of Jay Engineering Works Ltd. v. CIT (22009) 311 ITR 299 (Del) and applying the ratio laid down the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC) under sec. 28 of the IT Act, considered the applicability of clause (a) of sub-section (1) of section 41 as to what would constitute remissions or cessation of trading liability. The Hon'ble Court noted that in the reported case, the assessee has not unilaterally written back the accounts of the sundry creditors in its profit and loss account. Therefore, the High Court answered the substantial question of law in the negative and in favour of the assessee. The facts of the present case are similar those of the case of Vardhman Overseas Ltd. (supra). Therefore, it is abundantly clear that the provision of sec. 41(21) (a) are not applicable. No addition could be made for remission or cessation of trading liability as envisaged under section 41(1) of the Act for the assessment year under consideration.
Page 13 of 20 ix) In view of above discussed legal and factual position, I am of the considered view that the sundry creditors of Rs.4,29,02,130/- cannot be treated as bogus sundry creditors and cannot be added to the income of the appellant. Accordingly, the impugned addition made by the AO is hereby directed to be deleted and thus, these grounds of the appeal of the appellant are allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
12. Before us Ld. DR vehemently relied on the order of AO whereas Ld. AR submitted that the AO has made further addition of Rs. 4,29,02,130/- from Sundry Creditors. It is submitted that these creditors stood in the books of the company and the amount was never written off. The purchases of goods from these parties have been accepted to be genuine. There was no evidence to suggest that no liability to sundry creditors was payable. The details of these Sundry creditors were filed. The AO has also accepted that the payments to these parties were made by bearer cheques. However, as per the AO that payment by bearer cheques causes a serious doubt that sundry creditors did not exist. Simply because the AO doubted the said sundry creditors even though accepting that the payments were made by cheque, the doubt will not entitle the AO to treat the said sundry creditors as bogus creditors. It may be submitted that some of the purchases from these sundry creditors were made during the year itself and purchases from all of them have been accepted to be genuine, found recorded in the books of accounts such purchase of raw materials was also found to consumed, the disallowance for purchase was made only by applying section 40A(3) wherever the payment were in excess of Rs. 20,000/. Therefore, sundry creditors cannot be said to be bogus and no addition can be made as bogus creditors. It is further submitted that even if it is presumed that there were unconfirmed creditors, then whether the provision of section 68 or section 41(1) can be invoked and whether such creditors can be treated as bogus warranting addition in the income of the assessee. It is again submitted that there is no dispute that the goods have been purchased and the genuinity of the purchase have not been disputed and it was because that the provisions of section 40A(3) have been applied. Moreover, the assessee maintained day-to-day stock register wherein the raw material purchased were entered into and the finished goods produced have been accepted. Therefore, in so far as the purchase during the year and the corresponding
Page 14 of 20 outstanding balance as creditors which relates the assessment year in question, addition u/s 68 cannot be made. In so far as the balances brought forward from earlier years are concerned addition cannot be made u/s 68 since as per section 68 credits in the books should appear during the assessment year relevant previous year for invoking provision of section 68 of the Act. "
13. We have heard the rival parties and perused the materials available on record. From the aforesaid discussion we find that the addition was confirmed by the AO on account of non-service of notice issued under section 133(6) of the Act for the purpose of the confirmation of sundry creditors. However, we find that the AO has confirmed the addition of the sundry creditors without disallowing the corresponding purchases. From the above it is clear that the purchases in the instant case have been admitted but the corresponding sundry creditors have been added as total income of the assessee. In our considered view the action of the AO for making the addition of the sundry creditors without disallowing the purchases is based on wrong interpretation of Income Tax Laws. The sundry creditors can be added as income under section 41(1) of the Act once it is written off in the books of accounts. In the instant case the same has not been written off and very much reflecting in the books of the assessee. Therefore, in our considered view the sundry creditors reflecting in the books of accounts cannot be disallowed and added to the total income of the assessee. In the instant case, the balances of many of the sundry creditors were outstanding coming from earlier years. Payments were made to some or the creditors during the year. The said payments have been accepted by the AO which means genuinity of the payments to these creditors as well as the genuinity thereof till last year have not disputed by the AO. In the instant case the firstly the AO has not specifically invoked the provisions of section 41 (1). Further in any case no such addition can be made u/s 41. In this connection we are putting our reliance in the judgment in the case of DSA Engineers. In the case of DSA Engineers v. ITO 30 SOT 31 (Mum-Trib), the AO found that there were creditor balances which in many cases were 3 years or more than 3 years old. As per the assessee the balances represented amounts due to various parties and the liability was subsisting. The Tribunal held that in the absence of cessation of liabilities and on the mere fact that the amounts were outstanding for more than 3 years, the provisions of section 41 (1) could not be applied. In the case of Dhawan (M.R.) v. CIT 149 ITR 160 (Del), it was observed that the Page 15 of 20
remission of the liability arises when the creditor voluntarily gives up the claim. The cessation of such liability arises only when it ceases to exist in the eyes of law for all intents and purposes. In the case of UOI vs. K.. Synthetics Ltd. (1993) 199 ITR 14 (SC), the Hon'ble Court held that A.Y. 2010-11 ITO Wd-12(1), Kol. vs. M/s Standard Leather Pvt. Ltd. Page 15 cessation of liability for the purpose of section 41(1) means irrevocable cessation so that there is no possibility of the liability being revived in future. If there is such a possibility, then the cessation is not complete and section 41 (1) is not attracted. In the case of Shri Vardhman Overseas Ltd. vs. Asstt. CIT 24 SOT 393 (Del 'H'- Trib), the facts of the case were that the AO asked the assessee to prove the genuineness of some sundry creditors. The assessee did not file confirmations of said sundry creditors, except one. Therefore, AO after giving various opportunities treated the balance amount as income of assessee on account of unexplained cash credits and added the same balance amount to the income of assessee. It was held that all the parties with regard to which the addition has been made, no new amount was found credited in its account during the year under consideration hence section 68 cannot be applied. It was also held that the balances were brought forward balances and if the same were added on account of their non- genuineness, then also these amounts could not be added to the income of the assessee for the year under consideration as the question of genuineness thereof can be examined only in the year in which they were credited in the account of the assessee. It was also held that the department could not prove that the debt cannot be said to be unenforceable. It was held that the onus had wrongly been shifted by the revenue on the assessee. It was held that the liability existed since tile assessee had shown the liabilities outstanding in its balance sheet. Therefore, there was no occasion to treat the said amount as taxable under section 41 (1) and if department intends to assess the same by applying the provisions of section 41 (1), then the onus will be on the revenue to show that the liability which is appearing in the balance sheet has ceased finally and there is no possibility of the revival of the liability. Hence, addition could not be sustained under section 41(1). The said judgment of the Tribunal was confirmed by Delhi High Court on 23-12-2011 In the case of National Insulated Cable Co. v. ITO dt. 8-7-2011 (Del 'E'-Trib) it was held that the fact that the creditors were old creditors brought forward from earlier years has not been disputed by the department. These creditors have not been introduced during the year under Page 16 of 20 consideration. There is no evidence or material on record to establish that the assessee liability to pay the amount to the creditors have been ceased during the year under consideration. Further, the amount payable to these creditors can be added to the assessee's total income in the year in which the assessee's liability to pay the amount ceased or extinguished and not in the year under consideration where assessee has admittedly shown the liability in the balance sheet. It has been held in the case of G P International Ltd. (P & H) reported in 325 ITR page 25 that provisions of section 41 cannot be applied if the assessee is still showing the liability. It has been held in the case of Bhavesh Prints reported in 142 TTJ page 128 that simply because some of the creditors were not traceable it cannot be held that the liability is not payable. In the case of Tamil Nadu Ware Housing Corporation reported in 292 ITR 310, it was held that so long the assessee had shown the liability in the balance sheet it cannot be said that the liability has ceased to exist. In the case of Willson and Co. Ltd reported in 121 TTJ 258 (Chennai Tribunal), it was held that unless it was shown by the Department that the liability ceased to exist during the assessment year in question it cannot partake the character of income during the assessment year in question. Similarly in the case of Dy. CIT v. Amod Petrochem (P) Ltd. (2008) 23 (I) ITCL 145 (Guj- HC) : (2008) 217 CTR (Guj) 401, it was held that as per section 68, there should be cash credits of previous year. The section provides for a deeming fiction of treating the sum found credited in the books of an assessee maintained for any previous year, being charged to income-tax as the income of the assessee of that previous year, provided (i) the assessee offers no explanation as to the nature and source of the credits, or (ii) the explanation offered by the assessee is not, in the opinion of the assessing officer, satisfactory. The crux of the issue, therefore is, there have to be credits of any sum in the books of an assessee maintained for any previous year, only then the sum so credited can be brought to tax as the income of the assessee of that previous year; in other words, first of all, there have to be credits in a previous year and only in the assessment relatable to that previous year, namely, year of credit, the sum can be brought to tax. In CIT v. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384 (Del) : (2009) 183 Taxman 277 (Del), it was held that since it is a finding of fact recorded by the Commissioner (Appeals) that the credit balance appearing in the accounts of assessee, did not pertain to the year under consideration, under these circumstances, the assessing officer was not Page 17 of 20 justified in making the impugned addition u/s 68 and as such no fault could be found with the order of the Tribunal which had endorsed the decision of Commissioner (Appeals). In Mahabir Prasad Prem Chand Jain v. ITO (1988) 40 Taxman 35 (Del- Trib )(Tax Mag), it was held that amounts found in the books of assessee were in existence much prior to the beginning of the accounting period corresponding to the relevant assessment year and the same could not, therefore, be treated as the income of assessee earned during the relevant previous year. In Nuchem Ltd. v. Dy. CIT (2004) 87 TTJ (Del-Trib) 166, it was held that revenue had failed to prove that the amounts were credited to the books of account of the assessee in the year under consideration. These amounts were brought forward from earlier years and it is settled law that the addition under section 68 could be made only if the amount was credited in the accounts of the assessee in the relevant financial year. In Shri Vardhman Overseas Ltd. v. Asstt. CIT (Del-Trib): 24 SOT 393, it was held that no new amount had been credited by assessee in its account during the year under consideration. Therefore, applicability of section 68 of the Act is also ruled out and addition could not be made under section 68 of the Act. In view of above we find no reason to interfere in the order of ld. CIT(A). Hence this ground of Revenue is dismissed. "
4. The AO in our view was confused. He at para (3) of his order states that the addition u/s 68 of the Act and at para 3.6 states that he is disallowing Sundry Creditors. The ld. CIT- A also did not dispute the facts that the purchase is genuine. While so Sec 68 of the Act cannot be invoked.
In view of above, we are of the view, the Tribunal has analyzed the issue with various case laws. The case laws are also relevant to the present facts of the case. Thus, the CIT-A was not justified in confirming the impugned additions challenged in ground nos. 2 to 7 of the appeal. Thus, the order of the CIT-A is set aside and direct the AO to delete the additions involved in ground nos. 2 to 7 of the appeal raised by the assessee before us.”
We further note that the Hon'ble Delhi High Court in the case of Ritu Anu Agarwal (2 Taxmann 134) has upheld the order of the Tribunal and observed in Para 4 as under:
“4. 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 the sundry creditors u/s 68 of the I.T. Act. As there was no case for disallowance for corresponding purchases, no addition could be made u/s 68 inasmuch as it is not in dispute that the creditors outstanding relates to purchases and the trading results were accepted by the Assessing Officer. “
In view of the facts and circumstances as discussed above as well as the various precedents on this issue, we are of the considered opinion that the additions made by the Assessing Officer u/s 68 of the I.T. Act, 1961 on account of sundry creditors without making any disallowance on account of purchase/supply received by the assessee on credit, the addition is not sustainable and liable to be deleted. We order accordingly.
In the result, appeal filed by the assessee is allowed.