P.NAGESWARA RAO,,VIJAYAWADA vs. THE ACIT,, VIJAYAWADA

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 364/VIZ/2015 (Asst. Year : 2010-11) Posani Nageswara Rao, vs. ACIT, Circle-1(1), D.No. 11-62-135/A, Vijayawada. Canal Road, Vijayawada. PAN No. AEQPP 7500 L (Appellant) (Respondent)

Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri V. Appala Raju – Sr.DR

Date of hearing : 24/04/2018. Date of pronouncement : 09/05/2018. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Vijayawada, dated 19/08/2015 for the Assessment Year 2010-11. 2. Facts of the case, in brief, are that the assessee is an individual, engaged in the business activity of wholesale trade and C & F agency in pesticide products. The assessee filed his return of income admitting total income of Rs. 29,57,960/-. During the course of assessment proceedings, the Assessing Officer has

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noticed that there are some sundry creditors in the books of accounts and asked the assessee to file confirmations. Most of the cases, assessee was not able to file confirmations, therefore, the Assessing Officer was of the opinion that the credibility of such sundry creditors cannot be ascertained. In some cases, where confirmations have been received, there were variations between the figures of the assessee and that of confirmations given by such sundry creditors. In such cases after necessary reconciliation, the variations were considered for additions and total addition in respect of 18 creditors under section 41(1) of the Act worked out to Rs. 68,31,325.65 ps. and the same is added to the total income of the assessee. 3. On appeal, ld. CIT(A) partly confirmed the order of the Assessing Officer by observing as under:- “4.5 I have perused records ITMR for A.Y. 2009-10 and 2010-11 and considered various submissions of appellant’s Authorised Representative and Remand Report of Assessing Officer and reply thereto by appellants Authorized 'Representative. 4.6. In the Assessment Order the assessing officer had taken in to account only the outstanding credit balances in respect of sundry creditors. In respect of certain parties accounts there were also debit balances receivable by appellant which were not considered by Assessing Officer. This is evidenced by entries in appellant's books of account. Even in remand report, Assessing Officer submitted that appellants contention was found to be partly acceptable an verification of records, Hence Assessing Officer is directed to grant relief to the extent of Rs. 14,28,894.70/- as detailed below in the following cases:

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Sl.No. Name of Creditor Disallowance Dr. Balance (Rs.) Relief allowed (Rs.) * 1 M/s. Fungicides 1,15,795.00 4,68,084.74 1,15,795.00 India Ltd. B 2 M/s. Sabero 10,45,948.70 13,69,687.42 10,45,948.70 Organics Ltd., a 3 M/s. Bharat 7,10,237.00 2,67,151.00 2,67,151.00 * l Insecticides Ltd., a Total 14,28,894.70 n * Balance amount of Rs. 4,43,086/- is to be considered for addition in this case. 4.6 (a) In respect of the following three cases (sundry creditors) confirmation letters had been received from the other parties: Sl. Name of Creditor Amount as per Closing balance Difference No confirmation as per appellant disallowance letter (Rs.) (Rs.) by AO (Rs.) 1 M/s. Gharada 14,691.65 29,35,319.96 29,50,011.61 Chemicals Ltd., 2 M/s. NDR & Co. 10,827.22 86,433.78 97,261.00 Vijayawada. 3 M/s. Bayer 7,30,47,793.26 7,31,07,761.95 59,968.69 Cropscience Ltd., Mumbai Total 31,07,241.30 The appellant did not explain the reason for these variations. No material evidence was produced for any possible reconciliation even during appellate proceedings, Appellant’s Authorized Representative in his letter dated 27.7.2015, submitted the following:- “We also submit that even in the case of M/s. Charade Chemicals Ltd., Mumbai that the credit balance of Rs.29,35,319.96 is lying in books of account from the date prior to 31.3.2005 power as and thereafter we have not made any payment to them, perhaps it appears that the company might have written books of account”. Hence addition of Rs. 31,07,241.30 made by Assessing Officer in this regard, is, accordingly confirmed. 46 (b) In respect of other 12 (twelve) sundry creditors, no confirmation letters were received at Assessing Officers end. The authorized representative submitted the following reasons for non-payment of such amounts to those parties. 1. The amounts are withheld to sundry creditors due to some deficiency in supply.

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2 Non realization of sale proceeds from the farmers. 3. The creditors had the discontinued their business operations for various reasons. 4. The creditors are not available at the business premises. 5. The balances have been outstanding and brought forward without any transaction for the last eight to ten years. etc. 4.6 (c) In respect of all the sundry creditors numbering 18 mentioned in assessment order, it is evident that there has been allowance or deduction in respect of trading liability incurred by the appellant in the earlier year. Hence, initial test to apply section 41 (1) is satisfied in appellant Case. Whether the trading liability of the appellant has been fully discharged is within the special knowledge of the appellant He has to prove that in fact the liability subsists. Owing the course of appellate proceedings also, appellants representative submitted that the creditors are moistly non available in the addresses and they discontinued their business operations for various reasons. Further, the credits are mostly brought forward and long outstanding. They were outstanding payables as early as financial year 2004-05 and no further transactions took plate subsequently involving appellant and those suppliers (creditors). Mere continuance accounting entries in this regard in appellant's books of account will not prove that the liability subsists. In my view, appellant has not discharged his burden to prove that the liability subsists. 4.6(d) In my view, considering the conduct of the appellant in this case coupled with long passage of time, it can be inferred that those who might have any claim against the appellant in respect of un-paid dues have abandoned such claim. The smallness of amount involved in some cases and absence of any demand from the creditors for such a long period would furnish a reasonable basis for holding that such creditors were not interested in realizing their amount of dues. 4.6 (e) Where the conduct and surrounding circumstances demonstrate that amount has been foregone, or the same has ceased to be claimable against the appellant, it would be a dear case of remission or cessation of liability. 4.6(f) The case Laws cited by the appellant in his submission dated 13.7.2015 can be distinguished on facts from that of appellant's case. Hon'ble Gujarat High Court in the case of CIT Vs.

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Hides and Leather Products PL Ltd. (1975) 101 ITR 61(Guj.) has held that where the supplier takes no action to recover the amount for a long period, cessation of liability maybe infected- Hence, I am of the view that action of Assessing Officer in disallowing amounts in respect of other twelve creditors to the tune of Rs. 18,52,103/- in this regard is in order end hence confirmed. 4.6 (g) To summarize, relief allowed is Rs. 1428,895/- and addition confirmed is Rs. 54,02,430/-.” 4. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. 5. Ld. counsel for the assessee has submitted that the credit balance in the books of account of the assessee are mostly brought forwarded and long outstanding, therefore, addition cannot be made in the year under consideration. 6. On the other hand, ld. Departmental Representative strongly supported the orders passed by the authorities below. 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. The assessee is in the business of wholesale trade and C & F agency in pesticide products. During the course of assessment proceedings, the Assessing Officer has found that there are credit liabilities in the books of the assessee. When the Assessing Officer asked the assessee to produce confirmation letters from the trade creditors, in some of the cases assessee was not able to produce the confirmations, in some of the cases where

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confirmations were produced, the Assessing Officer found variations. The Assessing Officer after considering all the details filed by the assessee, he has made an addition of Rs. 63,31,325/- under section 41(1) of the Act. On appeal, ld. CIT(A) has granted relief to the extent of Rs. 14,28,895/- and confirmed the addition of Rs. 54,02,430/-, the same is challenged before us. The assessee has not filed any confirmations from the trade creditors. The only argument is, these trade creditors are brought forwarded outstanding long back, therefore addition cannot be made in the year under consideration. In this regard, Assessing Officer has identified some trade creditors, which are outstanding and when assessee is not able to prove that the liability still exists in the year, in which the Assessing Officer has asked the assessee to produce the details, it is the duty of the assessee to produce the details and discharge his burden that the liability with trade creditors still exist. That apart, ld. CIT(A) also gave a categorical finding that these trade creditors pertains to Financial Year 2004-05, no further transaction had took place. Subsequently, between the assessee and the suppliers and mere continuation of accounting entries in the books of the assessee, will not sufficient that the trade liabilities subsist. We find that the ld. CIT(A) after examining all the details, he is of the opinion that the assessee

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has failed to discharge the burden casted upon him to prove that the liability is subsists. Even before us, the assessee is not able to prove with a relevant material that the liability is subsists. Under these facts and circumstances of the case, we are of the opinion that the ld. CIT(A) rightly confirmed the order of the Assessing Officer. We find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the assessee is dismissed. 9. In the result, appeal filed by the assessee is dismissed. Order Pronounced in open Court on this 09th day of May, 2018. Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated : 09th May, 2018. vr/- Copy to: 1. The Assessee - Posani Nageswara Rao, D.No. 11-62- 135/A, Canal Road, Vijayawada. 2. The Revenue – ACIT, Circle-1(1), Vijayawada. 3. The Pr.CIT, Vijayawada. 4. The CIT(A), Vijayawada. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.