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Income Tax Appellate Tribunal, DELHI BENCH : C : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Assessment Year: 2014-15 Ipsita Naik, Vs ITO, C/o Babubhai & Co., Ward-29(5), 152, Office Complex, New Delhi. Jhandewalan Extension, Phase-I, New Delhi. PAN: AEIPN8708G (Appellant) (Respondent) Assessee by : Shri Shaantanu Jain, Advocate Revenue by : Shri S.N. Meena, Sr. DR Date of Hearing : 16.01.2020 Date of Pronouncement : 21.01.2020 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 30th October, 2018 of the CIT(A)-10, New Delhi relating to assessment year 2014-15.
Although a number of grounds have been raised by the assessee, these all relate to the order of the CIT(A) in confirming the addition of Rs.48,17,761/- made by the AO u/s 68 of the IT Act being the amount outstanding in the name of the three sundry creditors.
Facts of the case, in brief, are that the assessee is an individual and is the proprietor of M/s Macrame Designs engaged in the business of manufacturing and export of readymade garments and also derives income from job work for local market, fabric sale to local market, etc. She filed her return of income on 27th September, 2014 declaring the total income of Rs.9,67,820/-. During the course of assessment proceedings, the AO noted that on a total turnover of Rs.7.72 crores, the assessee has shown a GP of Rs.24.02 lakhs which is 3.10% as against the total turnover of Rs.3.40 crores with GP of 15.87 lakhs which comes to 4.67% in the preceding assessment year. According to the AO, no substantial reasons with evidences were furnished by the assessee to justify the fall in the GP rate. Therefore, in order to verify the actual trading results, the AO asked the assessee to produce the details of purchases and job work along with confirmations in respect of sundry creditors. From the various details furnished by the assessee, the AO noted that the following amounts were payable to three sundry creditors as on 31st March, 2014 the details of which are as under:- Sr. No. Name of the Party Amount 1. M/s Say my Choice Rs.11,14,675/- 2. M/s Inder Chand Shashi Kant Rs.28,67,614/- 3. M/s Ganapati Impex Rs.8,35,472/-
4. He, therefore, asked the assessee to provide address, furnish confirmations from the said parties or, alternatively, produce the bills along with supporting evidences that the material has been received and to prove that the same has been reflected in either sale/stock so as to arrive at a proper conclusion regarding the trading results. However, the assessee furnished only the copy of account of the aforesaid parties in her books of account and did not furnish any bills/confirmations from the aforesaid parties, subsequent bank statement reflecting the payments and also failed to discharge the onus of proving that the material/stock has been received and put to use and was reflected either in sales or in closing stock with supporting evidences. Therefore, the AO, invoking the provisions of section 68 of the Act, made addition of Rs.48,17,761/-
5. Before the CIT(A), the assessee filed certain additional evidences which were forwarded by the CIT(A) to the AO for obtaining a remand report. After the remand report from the AO was received, he confronted the same to the assessee. After considering the contents of the remand report and the rejoinder of the assessee to such remand report, the ld. CIT(A) upheld the addition made by the AO. While doing so, he noted that the concerned Inspector had given the report that either these parties are not residing at the address given by the assessee or are not doing any business and the assessee could not substantiate the genuineness of such transactions by furnishing the evidence in the form of gate pass, delivery challans, copy of transporters’ bills, etc.
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 3
7. The ld. counsel for the assessee, at the outset, strongly challenged the order of the CIT(A). He submitted that the assessee has filed the audit report and no defects were pointed out by the auditors. Referring to various pages of the paper book, the ld. Counsel drew the attention of the Bench to the confirmations along with copy of account statement of the three parties. He submitted that the payments were made in subsequent year and the assessee is regularly purchasing from the said parties which were accepted in subsequent years. He submitted that the AO neither disbelieved the purchases nor doubted the sales and only made addition of the outstanding payable in respect of the three sundry creditors u/s 68 of the IT Act. Referring to various decisions, he submitted that the provisions of section 68 cannot be attracted in case of outstanding sundry creditors.
8. Referring to the decision of the Hon’ble Allahabad High Court in the case of CIT vs. Pancham Dass Jain, 205 CTR 444, he submitted that the Hon’ble High Court in the said decision has held that the provisions of section 68 cannot be attracted to the outstanding sundry creditors being purchases made by the assessee on credit where the department has accepted the purchases, sales as also the trading results disclosed by the assessee.
9. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ritu Anurag Aggarwal (2010) 2 taxmann.com 134, he submitted that the Hon’ble High Court in the said decision has held that when there was no disallowance for corresponding purchase, no addition could be made u/s 68 of the Act where the creditors’ outstanding related to purchases and trading results were accepted by the AO.
Referring to the decision of the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. Kulwinder Singh reported in 298 CTR 389, he submitted that the Hon’ble High Court in the said decision has held that the provisions of section 68 are not attracted to amounts representing purchases made on credit.
Referring to the decision of the coordinate Bench of the Tribunal in the case of Shri Mehraj Malik vs. ITO in order dated 15th May, 2019 for A.Y. 2009-10, he submitted that under identical circumstances the Tribunal in the said decision has deleted the addition made by the AO and upheld by the CIT(A).
Referring to the decision of the coordinate Bench of the Tribunal in the case of ITO vs. Swati Housing & Construction (P) Ltd., 112 taxmann.com 371, he submitted that the Tribunal in the said decision has held that where purchases made through sundry creditors have been duly accounted for and were part of trading account and neither debit side nor the credit side of the trading results have been disturbed nor books of account had been rejected, then, no addition on account of sundry creditors could be made.
Relying on various other decisions filed in the paper book, he submitted that the addition made by the AO and sustained by the CIT(A) by invoking the provisions of section 68 of the Act in respect of the three sundry creditors is not sustainable especially when the trading results of the assessee have not been disturbed.
The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that the amount outstanding in the name of the three sundry creditors has rightly been added by the AO u/s 68 of the IT Act since the assessee has miserably failed to substantiate with evidence to the satisfaction of the AO regarding identity of those creditors and the genuineness of the transaction. Referring to the copy of the remand report, which has been reproduced by the CIT(A) in the body of the order, he submitted that the Inspector had categorically mentioned that out of the three creditors, address of the two are the residential addresses from where no business is being carried out and in respect of the third creditor, the same is not dealing with items in which the assessee is dealing. The assessee has not taken any effort to substantiate the purchases made from those three parties and the entire amount was outstanding at the end of the year which casts doubt. Relying on various decisions which was relied on by the CIT(A) in the appeal order, he submitted that the order passed by the CIT(A) should be upheld and the grounds raised by the Revenue should be dismissed.
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO, in the instant case, invoking the provisions of section 68 of the IT Act, 1961, made addition of Rs.48,17,761/- in respect of the following three creditors:- Sr. No. Name of the Party Amount 1. M/s Say my Choice Rs.11,14,675/- 2. M/s Inder Chand Shashi Kant Rs.28,67,614/- 3. M/s Ganapati Impex Rs.8,35,472/-
16. The reason for making the addition was that the assessee did not furnish any bills, confirmations from the aforesaid parties, subsequent bank statements reflecting the payments and also failed to discharge the onus of proving that the material/stock has been received and put to use and was reflected either in sales or in closing stock with supporting evidence. We find the ld.CIT(A), after calling for a remand report from the AO and rejoinder of the assessee to such remand report, sustained the addition. While doing so, he observed that the assessee could not substantiate the genuineness of the transaction with the aforementioned three parties and the claim of genuineness of the creditors cannot be allowed simply on the basis of the fact that only confirmations, bank statements, copies of bills, audit report have been filed whereas the Inspector’s report shows that the parties are not doing any regular business. It is the submission of the ld. Counsel for the assessee that since the AO has accepted the purchase, sales and the trading results and has not rejected the book results, therefore, the provisions of section 68 of the IT Act cannot be attracted to such outstanding sundry creditors.
We find some force in the above arguments of the ld. Counsel. It is an admitted fact that the AO has not doubted the purchase, sales and the trading results and the books of account have not been rejected. The assessee has also substantiated with evidence that the payments have been made in subsequent years to the said parties and the assessee is also making regular purchases from the said parties in the subsequent years and the Revenue has not taken any step to reopen the assessment.
We find the Hon’ble Delhi High Court in the case of CIT vs. Ritu Anurag Aggarwal (supra), while deciding an identical issue has dismissed the appeal filed by the Revenue as under:- “1. The assessee filed his return for the Assessment Year 2001-02, declaring an income of Rs.4,10,544/-. This return was processed under Section 143(1)(a) and the case was selected for scrutiny thereafter. Notice under Section 143(2) was issued to the assessee. The Assessing Officer doubted the veracity and genuineness of sundry creditors of an amount of Rs. 1 lakh and above, as shown by the assessee in its books of accounts. He found that those parties/sundry creditors were neither the income tax assessee nor having PAN numbers. According to the Assessing Officer, the genuineness of the secured creditors was in doubt. The assessee also failed to produce the books of accounts, entries sales and purchase bills in support of his case. In these circumstances, the Assessing Officer disallowed the sundry creditors and added the amount in the income of the assessee under Section 68 of the Income Tax Act. The appeal filed by the assessee before the CIT(A) against the aforesaid order, was also dismissed. However, on further appeal before the ITAT, the assessee had succeeded, inasmuch as his appeal was allowed by the ITAT vide its order dated 13.04.2007. The order of ITAT has been challenged in this appeal. It would be worthwhile to mention that the aforesaid creditors shown in the books of accounts, are the sundry creditors, from whom as per the assessee, he had made purchases. They are thus the creditors. The Tribunal 8 found that even if it is accepted that the books were rejected, significantly the Assessing Officer had not disallowed the purchases from those creditors nor the trading results have been disturbed. In this behalf, learned counsel for the assessee also drew our attention to the orders of the AO, as per which the assessee had shown the total turnover of Rs.1,03,44,054/-, on which gross profit rates declared was 68.94% as compared to sales of Rs.21,18,994/- in the previous year. The AO accepted the aforesaid figures and categorically observed as under: “The GP rate as well as the sales has been substantially increased during the year in comparison to the last year. Sales trading results are not disturbed.” 3.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 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 corresponding 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 AO.
We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed.”
We find the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. Kulwinder Singh (supra), while holding that the provisions of section 68 are not attracted to the amounts representing purchases made on credit, has observed as under:- “4. A perusal of the order passed by the Tribunal shows that the assessee had shown numerous sundry creditors along with details in his balance sheet. The assessee being a road Contractor received material for the construction of the road. The amounts in question represented purchases made on credits. According to Section 68 of the Act, where any sum is found credited in the books of account of an assessee maintained for any previous year and the asseessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing 9
Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It has been categorically recorded by the Tribunal that the provisions of Section 68 of the Act were clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier years i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted. The relevant findings recorded by the Tribunal in this regard read thus:- “Having heard the rival contentions in the light of the material available on record, it is seen that in para-3 of the assessment order, the AO observed that the assessee had shown numerous sundry creditors along with details, as was available from the examination of the assessee’s books of account vis-à-vis his balance sheet. The assessee is a road contractor. He received material for the construction of the road. The amounts in question represented purchases made on credits. The provisions of Section 68 of the Act are clearly not attracted to amount representing purchases made on credits, as is also held in ‘CIT Vs. Pancham Dass Jain’, 205 CTR 444 (All). The assessee raised this issue by way of written submissions (APB 37 to 160, relevant portion at para-5, on page 43) dated 10.05.2014 filed before the CIT(A). The ld. CIT(A) has, however, not addressed this grievance at all and merely upheld the addition made under Section 68 of the Act. On behalf of the assessee, a comparative chart of net profit rate of the assessee for the assessment years has been filed before us. In the earlier years also, no such addition was made. For the assessment year 2007-08, under scrutiny assessment, the assessment was made at 8%. The position remained much the same for the assessment year 2008-09. The year under consideration is assessment year 2009-10. The material supplied to the assesseee by the concerned department is part of the assessee’s turnover. The net profit rate of the assessee for the year under consideration was in line with the preceding assessment year. Further, the trade creditors in the earlier years, i.e. assessment years 2007-08 and 2008-09 stand accepted in scrutiny assessments. Thus, the genuineness of the expenses under consideration cannot be doubted. Moreover, the genuineness of the expenditure was not at all called into question. It was only that no- verification thereof raised doubts of the incurrence thereof. Then, even if the credits concerning the purchases and transportation of the material are not to be accepted, as discussed, still, the provisions of Section 68 of the Act cannot be invoked to make the addition.”
We find the Hon’ble Allahabad High Court in the case of CIT vs. Pancham Dass Jain (supra), while holding that the provisions of section 68 would not be attracted to purchases made on credit, has observed as under:-
“6. We have heard Shri Shambhoo Chopra, learned standing counsel for the Revenue.
He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of Section 68 of the Act was squarely attracted in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him Section 68 of the Act also covers up the case of purchases made on credit.
The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of Section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the aforesaid two amounts under Section 68 of the Act did not arise inasmuch as the provisions of Section 68 of the Act would not be attracted on the purchases made on credit.
We, accordingly, answer the question referred to us in affirmative, i.e., in favour of the assessee and against the Revenue. There will be no order as to costs.”
We find the Delhi Bench of the Tribunal in the case of ITO vs. Swati Housing & Construction (P) Ltd., while dealing with an identical issue, has observed as under:-
“15. Lastly in so far as addition on account of sundry creditors are concerned, Ld. DR submitted that all the sundry creditors remained unverified even in response to enquiries made by the AO u/s 133(6). AO at page 5 of the assessment order has clearly mentioned that assessee has not filed any 11 supporting bills/ vouchers or books of accounts. Accordingly, he submitted that such an addition has to be made u/s 68 and in support he relied upon the following judgment of Hon'ble Karnataka High Court in the case of Rekha Krishna Raj Vs. ITO [2013] 215 Taxman 159/33 taxmann.com.
On the other hand, Ld. Counsel for the assessee submitted that assessee has filed copy of ledger account of the sundry creditors which gives the opening and closing balances as well as bill numbers, details of payment made and additions made during the year. Ld. AO without even verifying the books of accounts or the records as produced before him has made the entire addition u/s 68 when most of the amount were not credited during the year and they are coming from the earlier years. He thus strongly supported the order of the Ld. CIT (A).
17. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as material referred to before us. The entire basis for the additions made by the AO is that, none of the parties have responded to notices sent u/s 133(6) and beyond that he has neither examined the nature of sundry creditors or ledger account or the bills. First of all, from the perusal of the copy of the ledger account and the balance sheet, it is quite clear that during the year addition on account of sundry creditors are only Rs. 35,36,546/-; and if AO is invoking section 68, ostensibly, the entire addition of Rs. 2,22,59,664/- could not have been made u/s 68, because these are not credits in the books of account for the relevant previous year. Moreover, from the perusal of the ledger account of the sundry creditors it is seen that all these parties were having regular transactions from whom assessee has been making purchases and all the payments has been made though account payee cheques against specific bills and also mentions vouchers numbers. The bills of these parties contain the entire details of purchases made by the assessee. Once from all the parties assessee was having regular business transaction and regular payment has been made from these parties, duly backed by bills and payment vouchers, then where is the question of disallowance. If the purchases made from these parties have been duly accounted for and are part of trading account and neither the debits side nor the credit side of the trading results have been disturbed nor books of accounts have been rejected, then no addition on account of sundry creditors can be made. Accordingly, the addition as confirmed by the Ld. CIT( A) is confirmed and additions stands deleted.”
Since the assessee in the instant case, has filed the various details giving the statement of account, confirmation, etc., and has substantiated that the said sundry creditors were paid in the subsequent year through banking channels and that the assessee has had regular transactions with the same parties in the subsequent years which were not doubted by the Revenue and considering the fact that the trading results shown by the assessee for the impugned year have not been disturbed by the AO, therefore, in the light of the above discussion and relying on the decisions cited (supra), we hold that the addition made by the AO u/s 68 of the Act in respect of the three sundry creditors which has been sustained by the CIT(A) is not justified. We accordingly set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee are allowed.