INCOME TAX OFFICER, WARD 3(2), SRINAGAR vs. M/S M M I ENTERPRISES, SRINAGAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. R.S.SYAL, VICE PRESIDENT AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA No.392(Asr)/2017 Assessment Year:2012-13

Income Tax Officer Vs. M/s. MMI Enterprises Ward3(2), Srinagar R/o Noor Bagh Srinagar PAN:AANFM0364Q (Appellant) (Respondent) Appellant by: Sh. S.S. Negi (DR) Respondent by: None Date of hearing: 19.02.2018 Date of pronouncement: 21.02.2018 ORDER PER N.K.CHOUDHRY, JM: The instant appeal has been preferred by the Revenue Department, on feeling aggrieved against the order dated 15.03.2017 passed by the Ld. CIT(A), J&K, Jammu, in appeal No.427/14-15, by raising the following grounds of appeal. “1. Whether the Ld. CIT(A) was right in law and fact in allowing the appeal of the assessee despite the fact that the assessee has failed to substantiate the correctness of the sundry creditors despite being given sufficient opportunities by the AO..

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declared a net profit of Rs.21,273/- on the gross turnover. During the assessment proceedings the AO asked the assessee to produce details of purchase, various expenses etc, as debited in the profit and loss account along with the supporting documents. The assessee submitted all these details and the same was examined by the AO, however, on perusal of these details, it was noticed by the AO that the assessee has shown sundry creditors at Rs.85,89,800/- as "advances from buyers" and Rs.20,40,955/- "for supplies" aggregating to a total of Rs.1,06,30,763/- as on 31/03/2012. In order to verify the genuineness of the sundry creditors, the assessee was asked to provide addresses of the creditors and to submit confirmation from them, in those cases, where credit balance was shown at Rs.1,00,000/- or more. In response to that the assessee furnished a list of the creditors and the AO issued notice u/s. 133(6) of the Income tax Act on random basis, however, no confirmation was received till the completion of the assessment proceedings. Thereafter, the assessee was asked to produce documentary evidence to prove the genuineness of the creditors and reasons for creating such a huge liability, however, the assessee could not produce any evidence to establish the genuineness of these liabilities. The AO, therefore, added a sum of Rs.57,67,367/- to the total income of the assessee on account of bogus creditors.

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substantiate the correctness of the sundry creditors, despite being given sufficient opportunities by the A.O. Further the Ld. CIT(A) was not right in law and fact in not appreciating the failure of the assessee to justify huge increase vis-à-vis earlier years in the sundry creditors shown, despite ample opportunities given, during the assessment proceedings.

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allowed as liability being 51.05% of the total turn over of Rs.95,23,045/- (being average percentage of sundry creditors claimed for two immediately preceding assessment years) and accordingly an addition of Rs.57,67,367/- was made to the income of the assessee on account of undisclosed/unexplained investment/ expenditure made by the assessee during the previous year:2011-12 relevant to the assessment year:2012-13, because the assessee has failed to discharge his onus by not providing the details/information called for and also has not substantiated the liabilities by not furnishing the requisite documentary evidences.

The Ld. CIT(A) considered the facts that the Ld. AO herself has accepted as per assessment order, that the Accountant of the assessee has attended and produced necessary details/information as called for from time to time and nothing adverse stands detected in the books of accounts of the assessee, therefore, the book version of the assessee stands almost accepted by the AO and it is evident, that assessee has not made any incorrect claim or claimed any expenses which are not genuine nor the A.O has doubted the accounts of the assessee and the assessment must be based on facts and evidences rather on presumptions. Further as per assessment order, the Ld. Assessing officer although desired confirmation from sundry creditors by issuing notices u/s 133(6) of the I.T. Act to various sundry creditors selected on random basis, however, neither provided any information and list of the creditors during the assessment proceedings to the assessee nor the same is mentioned in the assessment order to whom notice u/s 133(6) have been issued, which is very casual approach of an quasi-judicial authority, without making any sincere efforts to tax the correct income, rather in a casual manner has imposed an addition of Rs.57,67,367/- to a small assessee, who has a turnover Rs.95,23,045/- only, on the pretext that no confirmation has been received from sundry

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creditors. Further, the ld. CIT(A) also taken into consideration the facts that by producing the books of account, vouchers and list and addresses of the sundry creditors, the assessee discharge its responsibility and in case of not receiving any confirmation from the sundry creditors, from whom sought confirmation, then the AO was under an obligation to bring the said facts before the assessee in order to provide him sufficient opportunity, while following principle of natural justice and the addition cannot be made on the presumption rather on evidences, when the AO has not doubted the books of account of assessee. While recording its finding in the assessment order, the AO treated the addition under challenge as undisclosed/unexplained investment/expenditure while concluding her finding, treating the adhoc disallowances of Rs.57,67,367/- as unexplained cash credit u/s 68 of the Act. Therefore, AO itself is not clear about its action and findings, because finding does not co-relate with the action as the undisclosed/explained investment/expenditure and unexplained cash credit are two different concepts, while the prior represents asset side of balance sheet and later liability side of balance sheet. For making any addition u/s 68 of the I.T. Act, the AO is required to give clear finding that any particular credit was not acceptable because the assessee had failed to establish the identity and creditworthiness of the creditor as well as genuineness of the transaction, however, in the instant case, no such finding was given by the AO and he had made addition to the extent of 49% of the total creditors on adhoc basis by invoking the provisions of Sec.68, therefore, the addition was not sustainable.

While considering the submissions of the assessee as well as decision by Hon’ble ITAT, Agra Bench in the case of Meena Gupta Aligarh vs. Assessee and Sh. Mithless Agrawal, Lucknow in ITA No. 748(Luck)/2011 decided by Hon’ble ITAT, Lucknow Bench, Lucknow, it was observed by the

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Ld. CIT(A) that ad hoc addition on estimate basis cannot be made on account of bogus sundry creditors, unless, the AO comes to a clear cut finding that a particulars of sundry creditors found to be bogus as the genuineness of the creditors could not be established by the assessee and in the absence of that adhoc addition on account of sundry creditors cannot be made.

While perusing the impugned order independently, we do not find any substance in the submission of the Ld. DR because the AO has made the addition only on the basis of estimate without specifying any particulars of sundry creditors as found to be bogus and genuineness of the said creditors could not be established by the assessee. The order under challenge passed by the Ld. CIT(A) based on the judgments rendered by the various Benches of ITAT on similar and identical facts and conclusion drawn by the CIT(A) is based on logical reasoning, hence, does not suffer from any illegality, perversity or impropriety, and therefore does not require any interference.