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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI GEORGE GEORGE K.
Per Chandra Poojari, Accountant Member
The appeal by the revenue and the CO by the assessee emanates from the order of the CIT(Appeals)-7, Bengaluru dated 29.8.2019.
The revenue has raised the following grounds:- “
2. Whether in the facts and circumstances of the case, the CIT(A) was justified in allowing the creditors to the extent of Rs,3,60,62,266/-outstanding in different names by accepting the confirmations submitted by the assessee during the course of appellate proceedings which were not submitted during the course of assessment proceedings even after providing sufficient opportunities.
3. Whether in the facts and circumstances of the case, the CIT(A) was justified in accepting the confirmation submitted by the assessee in respect of M/s. Brakes India Ltd., for Rs.95,15,077/- as against the total outstanding claimed by the assessee in their financial statements of Rs.1,11,57,112/- and ignoring the findings of the AO that the creditors shown by the assessee are not genuine.”
3. The assessee in its CO has raised the following grounds:- “1. The Orders of the Authorities below in so far as they are against the Cross-Objector/Respondent are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The Learned CIT(A) has rightly entertained the evidences produced under rule 46A and hence the department is not justified in contesting the same.
3. Without prejudice to the foregoing, section 68 is not at all applicable and hence the entire addition of Rs. 3,71,29,290 by the Learned Assessing Officer deserves to be deleted.
4. It could be noted at page 4 of 16 of the Learned CIT(A) Order dated 29.08.2019, the Appellant at Ground 5 before the CO No.2/Bang/2021 Page 3 of 8 CIT(A) had contested that section 68 has no application in it's case. This ground has not been adjourned by the Learned CIT(A). Hence, the order deserves to be set aside to the Learned CIT(A) for this limited issue.
5. For the above and other grounds that may be urged at the time of hearing of the Cross-Objection, your Respondent/Cross-Objector humbly prays that the appeal filed by/ the appellant. A.O. in the respect of the relief granted by the CIT(Appeals) may be dismissed and the grounds of Cross-Objection may be allowed and justice rendered.”
The facts of the issue are that the assessee filed e-return for assessment year 2013-14 declaring total income at Rs. 90,77,460 /- being income from business and other sources. The assessee is carrying on the business of manufacturing of auto parts/components specifically to supply to M/s Bosch Ltd, as per their design and drawing. The AO completed assessment u/s. 143(3) of the Income-tax Act, 1961, determining the total income at Rs. 4,62,06,750.
One common issue raised by the assessee is that the AO is not right in treating some of the creditors as bogus and bringing it to tax u/s. 68 of the Act. During the course of assessment proceedings, the AO on verification of the details filed by the assessee observed that the assessee was having sundry creditors totaling to Rs. 18,59,68,651. The assessee was asked to produce the confirmations for these creditors for the value of more than Rs.5 lakhs. The assessee produced few of the confirmations. After considering the details submitted by the assessee, the AO held that the assessee neither produced the details of most of the creditors including the identity, addresses, nor did it prove the genuineness of the creditors by providing confirmations. The AO further held that cross verification of the creditors by way of calling details u/s 133(6) could not be done as the assessee had not furnished the addresses of the creditors. The AO
CO No.2/Bang/2021 Page 4 of 8 concluded that 07 creditors amounting to Rs.3,71,29,294, where the confirmations nor information were submitted by the assessee, were bogus and brought it to tax u/s. 68 of the Act.
The CIT(Appeals) called for a remand report from the AO and the assessee also filed a rejoinder to the same. The AO had made an addition of Rs.3,71,29,294 u/s. 68 of the Act as under:- Sl. Amount added Name of the Party (in Rs) No. 1 Abhishek Alloys Pvt Ltd 23,49,927 2 Accurate Gauging & Instruments 10,84,110 Pvt Ltd 3 Shakti Enterprises 6,37,239 4 Brakes India Pvt Ltd 1,11,57,112 5 Mrs Nirmala 8,04,000 6 Mrs. Vilva Lakshmi 8,23,582 7 2,13,57,434 Purchase Payable
In the case of the first three parties of the above table, the CIT(Appeals) observed that the assessee has submitted confirmations before the AO from these sundry creditors. In the remand report the AO has mentioned in his report dated 08-02-2019 that confirmations for these three creditors have been received during assessment proceedings. Therefore, there was no basis to treat these creditors as non-genuine in the light of the confirmations furnished before the AO and the AO has not brought any other reason on record for these additions.
We have heard both the parties and perused the material on this issue. With regard to the addition made by the AO with regard to Abhishek Alloys P. Ltd. of Rs.23,49,927, Accurate Gauging & Instruments of Rs.10,84,110 and Shakti Enterprises of Rs.6,37,239, we are of the opinion that there are valid confirmation letters filed by the assessee before the AO and the AO without making any enquiry made addition which is rightly
CO No.2/Bang/2021 Page 5 of 8 deleted by the CIT(Appeals) and we do not find any infirmity in his order. Hence the same is confirmed.
As regards the addition of credits in the name of Mrs Nirmala of Rs 8,04,000 and Mrs Vilva Lakshmi of Rs 8,23,582, it was submitted by the assessee that these two creditors are family members of the partners and not sundry creditors. The confirmations could not be filed before the AO as they were not in station during the relevant time. The assessee filed the confirmations before the CIT(Appeals), which were sent to the AO for verification and report. The AO in his report has mentioned that since these confirmations were not submitted during the scrutiny proceedings, same should not be considered at the appeal stage for credibility reason.
The CIT(Appeals) observed that the AO had not controverted the confirmations filed by the assessee. He however found that the copy of the confirmation filed in respect of Mrs Nirmala mentions the closing balance in her account at Rs 8.04,000/- whereas the amount of closing balance as submitted by the assessee before the AO as well as in its submission during appeal proceedings was Rs 13,13,103/-. In view of this the excess liability of Rs 5,09,103 will have to be added to the income of the assessee. Hence, addition of credits in the name of Mrs Nirmala was sustained to the extent of Rs.5,09,103 and addition in the name of Mrs. Vilva Lakshmi of Rs.8,23,582 was deleted.
We have considered the rival submissions and perused the record. The assessee had filed confirmation letters in respect of these credits and the CIT(Appeals) after calling for a remand report and after going through the income tax returns of these parties for the AYs 2012-13 to 2014-15 came to the conclusion that they have the capacity to lend money to the assessee. He thus deleted the addition in the case of Mrs. Vilva Lakshmi of Rs.8,23,582 and sustained the addition of Rs.5,09,103 on account of CO No.2/Bang/2021 Page 6 of 8 excess liability towards Mrs. Nirmala. We are of the opinion that the CIT(Appeals) was justified in his order and uphold the same. Accordingly, we dismiss the grounds of the revenue in this regard.
In respect of Brakes India Ltd., the addition was made by the AO at Rs.1,11,57,112 and the same was deleted by the CIT(Appeals) on the reason that there was valid confirmation letter filed by the assessee before the CIT(Appeals) and on the basis of remand report from the AO called for, the CIT(Appeals) sustained only Rs.16,42,075 out of the addition of Rs.1,11,57,112 made by the AO. In our opinion, there is a valid confirmation letter and the outstanding is on account of purchases from that company and the AO cannot doubt the genuineness of the transaction and capacity of the lender. Being so, the CIT(Appeals) has taken a correct view of facts of the case and accordingly this ground of the revenue is dismissed.
With regard to the addition of Rs.2,13,57,434 on account of purchase payable, the CIT(Appeals) observed that the assessee has filed complete list with names of parties and the amount outstanding from the various parties and most of the creditors are below Rs.5 lakhs. According to the CIT(A), these credits are genuine and outstanding on account of purchases. In our opinion, these purchases ought to have been verified individually so as to satisfy the identity, creditworthiness and genuineness of the transactions which the CIT(Appeals) failed to do so. In view of this, we remit this issue to the file of the AO for fresh consideration.
The revenue’s appeal is partly allowed for statistical purposes.
In the CO by the assessee, ground No.2 is infructuous in view of the issue having been remitted back to the AO for verification of purchase
CO No.2/Bang/2021 Page 7 of 8 payable and fresh consideration and confirming the other deletions made by the CIT(Appeals).
Ground Nos.3 & 4 raised are that section 68 cannot be applied to the entire addition of Rs.3,71,29,290 as these are purchase payables. In our opinion, section 68 comes into play only when any sum is found credited in the books of account of the assessee maintained for any previous year, the source and nature of which is either not explained by the assessee or the explanation offered by the assessee is not satisfactory. IN this case, the amount of Rs.3,71,29,270 was found credited in the books of account of the assessee by way of loan or purchase payable which is not properly explained by the assessee and the AO invoked the provisions of section 68 of the Act. We do not find any infirmity in this action of the AO and these grounds of CO are dismissed, subject to our findings in the revenue’s appeal.
Ground No.5 is general in nature and does not require any adjudication.
Hence, the CO by the assessee is dismissed.
In the result, the revenue’s appeal is partly allowed for statistical purpose and the CO by the assessee is dismissed.
Pronounced in the open court on this 29th day of November, 2021.