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Income Tax Appellate Tribunal, DELHI BENCH : SMC : NEW DELHI
Before: SHRI R.K. PANDA
ORDER This appeal by the assessee is directed against the order dated 30th December, 2013 of the CIT(A), Muzaffarnagar, relating to Assessment Year 2008-09.
Ground of appeal No.1 being general in nature is dismissed.
3. In Ground No.2 and 3 the assessee has challenged the order of the CIT(A) in confirming the addition of Rs.11,69,600/- made by the Assessing Officer on account of sundry creditors.
Facts of the case, in brief, are that the assessee is an individual and is engaged in the trading of buffalo omasum and meat. He filed his return of income on 30th September, 2008 declaring the total income at Rs.2,53,216/-. During the course of assessment proceedings, the Assessing Officer noted that there are six creditors, namely, Shri Atiq Qureshi, Farique Qureshi, Gayasuddin Qureshi, Husnain and Javed and the total amount payable to them was Rs.11,69,600/-. He issued notice u/s 133(6) to these creditors. Out of five creditors three unserved envelopes in the case of Shri Shri Husnain, Atiq Qureshi, Shri Farique were received back with the Postal remarks: “incomplete address.” So far as the other two creditors are concerned, neither any reply was received nor unserved envelopes were received back. He, therefore, asked the assessee to produce the creditors for his examination and recording of statements. However, the assessee could not produce those creditors before the Assessing Officer nor could produce any credible evidence to his satisfaction. The Assessing Officer, therefore, treated these creditors as bogus and made addition of Rs.11,69,600/- to the total income of the assessee. In appeal, the ld.CIT(A) upheld the action of the Assessing Officer by observing as under:-
“ The facts of the case, submissions made by the appellant and remand report of the AO have been carefully considered. It is observed that the AO had made addition of Rs.11,69,600/- on the ground that three envelopes containing notices u/s 133(6) of the Act were received back unnerved from the postal department with the remarks ‘incomplete address’, Further, in the case of aforesaid two creditors no compliance was made. Furthermore, the appellant during the course of assessment proceedings could not produce such creditors for examination despite the fact that the AO specifically required the assessee to produce them. It is observed that the appellant has pleaded that he was ready to produce all the creditors before the undersigned or the AO. However, the fact on record is that the appellant has not been able to explain why such creditors were not produced before the AO at the time of assessment proceedings. Thus 2 such submissions made by the appellant have no force and are accordingly rejected. Once the envelopes containing notices u/s 133(6) of the Act were received back unserved/uncomplied the onus shifted on to the appellant to establish that the creditors were genuine. However, the appellant by not producing such creditors has not discharged its burden u/s 68 of the Act. Thus in the light of the above facts it is held that the AO was justified in making addition of Rs.11,69,600/-. The same is here confirmed. Ground of appeal No.l is dismissed.”
5. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. counsel for the assessee strongly challenged the order of the CIT(A) sustaining the addition made by the Assessing Officer. Referring to page 6 of the paper book which is the balance sheet of the assessee on 31st March, 2008, the ld. counsel drew the attention of the Bench to the list of sundry creditors amounting to Rs.11,69,600/-. Referring to page 24 of the paper book which is the letter addressed to the Assessing Officer, the ld. counsel drew the attention of the Bench to the said letter wherein the assessee had requested the Assessing Officer that he is ready to produce all the creditors before him for his examination. Referring to page 39-43 of the paper book, the ld. counsel drew the attention of the Bench to the ledger account of all those parties and submitted that the assessee is having regular transaction with those parties and payments have been made to them subsequently.
Referring to page 10 of the paper book, the ld. counsel drew the attention of the bench to the list of sundry creditors as on 3rd March, 2009 wherein some of the creditors are appearing. Referring to copy of the order for assessment year 2011-12 and 2012-13 which are placed at paper book pages 29 to 31, he submitted that the Assessing Officer in the orders passed u/s 143(3) for both the years has not made any addition on account of such sundry creditors. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal (2010) 2 taxmann.com 134 (Del), he submitted that in that case the Assessing Officer had doubted the veracity and genuineness of sundry creditors of an amount of Rs.1 lakh and above as shown by the assessee in her books of account on the ground that they were neither income tax assessees nor having PANs and the assessee failed to produce books of account entries regarding sales and purchase, etc. Accordingly, the sundry creditors were disallowed u/s 68 of the Act. The Tribunal found that even if it is accepted that books were rejected, however, the Assessing Officer had not disallowed the purchases from those creditors nor the trading results have been disturbed and accordingly the Tribunal deleted the addition made by the Assessing Officer. In appeal filed by the Revenue, the Hon'ble High Court held that when disallowance for corresponding purchases were not made, no addition could be made u/s 68 of the Act inasmuch as it was not in dispute that the creditors’ outstanding related to purchases and trade results were accepted by the Assessing Officer. Referring to the decision of the Delhi Bench of the Tribunal in the case of Smt. Sudha Loyalka vs. ITO (2018) 97 taxmann.com 30 (Delhi), he submitted that the Tribunal in the said case has held that addition cannot be made to income of the assessee u/s 69C in respect of amount payable to creditors towards purchases since the said purchases were duly recorded in books of account and sales made against those purchases were not disputed. Referring to the decision of the Lucknow 4 Bench of the Tribunal in the case of ITO vs. Zazsons Exports Ltd., 158 ITD 1, he submitted that the Tribunal in the said decision has held that where the Assessing Officer had drawn an adverse conclusion only on account of non-verifiability of sundry creditors but there being no dispute as regards purchases, and trading results having been accepted, addition made under section 68 was not sustainable.
Referring to the decision of the coordinate Bench of the Tribunal in the case of Shri Mehraj Malik, vide order dated 15.05.2019, he submitted that the Tribunal in the said decision has held that when purchases and sales have not been doubted by the Assessing Officer or CIT(A) which are through banking channel, then, the trade creditors cannot be doubted who have otherwise been accepted in subsequent years. He also relied on various other decisions as placed in the paper book. The ld. counsel accordingly submitted that the addition made by the Assessing Officer and sustained by the CIT(A) is not justified.
The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer and CIT(A). In his alternate submission, he submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to the assessee to produce the creditors before the Assessing Officer for his examination.
I have considered the rival arguments made by both the sides and perused the orders of the authorities below. I have gone through the paper book and the various case decisions cited before me. I find the Assessing Officer made addition of Rs.11,69,600/- in respect of five creditors on the ground that the letters issued u/s 133(6) to them were either returned unserved or no reply was received from some of the parties and the assessee failed to produce them or furnish any credible evidence. I find the ld.CIT(A) sustained the addition so made by the Assessing Officer, the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. counsel for the assessee that when the purchase and sales have been accepted and books were not rejected and when the assessee is having regular transactions with the said parties and in subsequent years the assessments have been completed u/s 143(3) without making any addition, therefore, no addition is called for. In find some force in the above argument of the ld. counsel. A perusal of the ledger account of the above parties for different years, copies of which are placed in the paper book, shows that the assessee is having regular transaction with the said parties. A perusal of the assessment order for assessment year 2011-12 and 2012-13 shows that no such addition has been made by the Assessing Officer in respect of those sundry creditors. It is also pertinent to mention that the assessee before the Assessing Officer had made a request that he was ready to produce all the creditors, however, no such opportunity was granted by the Assessing Officer. It is also noticed from the assessment order that the Assessing Officer has not rejected the book results and thereby has accepted the purchases made from the said parties and the sales have also been accepted. Under these circumstances, it has to be seen as to whether the addition is called for merely because some of the letters issued u/s 133(6) were returned back unserved or in 6 some other cases there was no compliance from the said creditors. The coordinate Bench of the Tribunal in the case of Sudha Loyalka (supra) has held that addition cannot be made u/s 69C in respect of amount payable to creditors towards purchases when such purchases were duly recorded in books of account and sales made against those purchases was not disputed. The Lucknow Bench of the Tribunal in the case of Zazsons Exports Ltd. (supra) has held that when the Assessing Officer has accepted the purchases and trading results has not been disturbed, addition cannot be made u/s 68 of the Act merely on account of non- verifiability of sundry creditors. The Hon'ble Delhi High Court in the case of Ritu Anurag Agarwal (supra) has held that when there was no disallowance for corresponding purchases and the trade results were accepted by the Assessing Officer, no addition can be made u/s 68 in respect of the outstanding sundry creditors related to purchases. The various other decisions relied on by the ld. counsel in his paper book also support his case. In this view of the matter, I hold that the ld.CIT(A) is not justified in sustaining the addition made by the Assessing Officer on account of the sundry creditors in whose cases the letters issued u/s 133(6) were either returned unserved or were not complied with and the assessee failed to produce them. Accordingly, the order of the CIT(A) is set aside and the grounds raised by the assessee are allowed.
In ground No.4, the assessee has challenged the order of the CIT(A) in sustaining the lumpsum disallowance of Rs.80,000/- made by the Assessing Officer on account of unverifiable freight expenses. 7
After hearing both the sides, I find the assessee had claimed the expenses under the head ‘Freight’ totaling to Rs.4,81,500/-. Since the assessee did not produce the bills and vouchers and no explanation was given, the Assessing Officer made a disallowance of Rs.80,000/- on ad hoc basis which has been upheld by the CIT(A).
It is the submission of the ld. counsel for the assessee that when the Assessing Officer had not rejected the books of account and no specific amount has been doubted and the accounts are audited and the auditors have also not pointed out any defects, the addition made by the Assessing Officer and sustained by the CIT(A) is not justified. I find some merit in the above arguments of the ld. counsel.
Admittedly, the accounts of the assessee are audited u/s 44AB by the auditors and they have not given any adverse remarks. The Assessing Officer has not pointed out any specific defect and has merely made the disallowance on ad hoc basis on the ground that the assessee failed to produce bills and vouchers. He has also not given any comparable case which he has mentioned in the order other than stating that the claim is higher in comparison to other similar assessees. In this view of the matter, I set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition.
In ground No.5, the assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs.60,000/- on account of low household withdrawal.
After hearing both the sides, I find the Assessing Officer has made an addition of Rs.60,000/- towards low household withdrawal on the ground that the assessee has shown only Rs.32,434/- as withdrawal for household expenses. The argument of the assessee that his wife has also contributed an amount of Rs.42,159/- was rejected by the Assessing Officer. I find the ld.CIT(A) upheld the action of the Assessing Officer in making the addition of Rs.60,000/- on account of low household expenses. It is the submission of the ld. counsel for the assessee that the total amount of 74,593/- is sufficient to maintain the family. However, on a pointed query by the Bench, the ld. counsel was unable to explain the size of the family for which an amount of Rs.74,593/- will be sufficient. However, the Assessing Officer has also not given any plausible reason as to on what basis he has made this addition of Rs.60,000/-. Considering the totality of the facts of the case and considering that the disallowance of Rs.60,000/- on ad hoc basis appears to be on higher side, I modify the order of the CIT(A) and direct the Assessing Officer to restrict the same to Rs.30,000/-. This ground raised by the assessee is accordingly partly allowed.
In the result, the appeal filed by the assessee is partly allowed. The decision was pronounced in the open court on 22.08.2019.