ASSISTANT COMMISSIONER OF INCOME TAX, TIRUNELVELI vs. PONKUMARI WIND FARM, KANYAKUMARI

& 2567/CHNY/2025 & CO Nos.87 & 88/CHNY/2025 “The submission of the authorized representative is carefully considered. The assessee had voluntarily offered the credits u/s 41(1) as cessation of liability in the later year only to avoid interest payment and other penal proceedings. Moreover the issue of bogus credits assessed in AY 2007-08 by the then assessing officer had not reached finality and department went on further appeal before honorable High Court. In order to keep the issue alive, for determining the exact Assessment years in which the taxability of the credits has to be applied, the undersigned is constrained to treat the credits as bogus for the respective Assessment years. However this Assessment Order is a “Protective Assessment Order” which depends on the finality of this issue for AY 2007-08. Hence the above credits in the books of the assessee is treated as income of the assessee.”

Aggrieved, assessee filed further appeal before the CIT(A). The CIT(A) deleted the addition by stating that “5.7 The grounds 4 to 7 are on merits of the addition. I have considered the decision of CIT(A) which is confirmed by ITAT for AY 2007-08. In that appeal, The CIT(A) has examined the facts and submissions in relation to the purchases of cement and steel made by the appellant firm during the financial years 2004-05 to 2006-07 and it was observed that the said purchases were duly recorded in the regular books of accounts maintained by the firm. These transactions were supported by proper purchase bills and were reflected in the audited financial statements. The appellant had also disclosed the same in the returns of income filed for the respective years. The CIT(A) noted that the appellant firm was engaged in construction activity and had executed substantial civil construction work for M/s. Suzlon Developers Ltd., which was duly confirmed and certified by the said client. Considering the nature and volume of construction undertaken, the quantity and value of cement and steel purchased by the firm were found to be reasonable and commensurate with the scaleof operations. It was observed that the sales/purchases of the appellant were subject to sales tax and central excise assessments and no issues were raised by the said authorities on the purchases made by the appellant. It was further recorded that the very same Assessing Officer, who completed the search assessments for the relevant assessment years, had accepted these purchases in the earlier assessments without drawing any adverse inference. As regards the discrepancies in the records of the supplier, M/s. DVS Stores—who reportedly showed ‘Nil’ sales in its sales tax returns for the relevant period—the CIT(A) held that the AO has jumped to the - 4 - & 2567/CHNY/2025 & CO Nos.87 & 88/CHNY/2025 conclusion that the books of DVS are correct without out any basis as DVS had sales but had shown NIL sales in Sales Tax Returns. He has pointed out that the corroborative evidences available would point to the preponderance of probability that the assessee firm's books provided the true and correct account of purchases and not the books of account maintained by DVS Stores. Accordingly, the CIT(A) concluded that the purchases undertaken were genuine business transactions as no discrepancy in purchases was pointed out in the assessments. He held that based on available evidences, no addition on account of bogus purchases can be made either in AY 2007-08 or in earlier years.

5.7.1 On further appeal, the ITAT Chennai Bench upheld the decision of CIT(A) while holding that the purchases have been accepted in all the years and no portion of trade credit can be treated as bogus. It was also observed that no defects in the books of account of the appellant were found. The Hon’ble ITAT found the trade creditors were genuine and the relevant part of the decision was reproduced above.

Aggrieved, the Revenue filed appeal before the Tribunal. The Ld.DR submitted that the protective assessments are made in the hands of the assessee for the reason that the order against the substantive assessment done in assessment year 2007-08 was appealed against before the Hon’ble High Court. The Ld.DR further submitted that the Hon’ble High Court dismissed the appeal on the ground of monetary limit and therefore, the issue cannot be treated as having reached & 2567/CHNY/2025 & CO Nos.87 & 88/CHNY/2025 finality on merits. However, the Ld.DR fairly conceded that the claim of the assessee that the impugned additions have been offered to tax u/s.41(1) of the Act in assessment year 2010-11 may be considered and decided accordingly.

The Ld.AR on the other hand argued that the substantive assessment towards the same amount are made by the AO in the assessment year 2007-08 and that the Co-ordinate Bench in assessee's own case (ITA No.1393/Mds/2009 order dated 07.05.2010) while considering the impugned addition has deleted the same by holding that “5.2 We have considered the rival submissions. A perusal of the assessment order shows that a survey has been conducted by the Department in the premises of M/s. DVS Stores on 06.06.2007 and the books of account for the financial year 2004-05 and 2005-06 were impounded. It is also noticed that the Assessing Officer has recognized the fact that the Proprietor of M/s. DVS Stores has disclosed a turnover of Rs.11.14 crores for the assessment year 2006-07. DVS Stores has also accepted that Rs. 10,27,740/- was due from the assessee on 31.3.2007. A perusal of the assessment order for the assessment years 2005-06 and 2006-07 shows that the assessment has been completed on 30.12.2008. From the assessment order for the relevant assessment years, it is noticed that the survey in the premises of M/s, DVS Stores was conductedon 08.06.2007. Thus, when the assessment for the assessment year 2005-06 2006-07 was being completed, the books of accounts of M/s. DVS Stores were available with the Revenue, still the Revenue has accepted the return filed by the assessee, wherein substantial amount has been shown in the name of M/s. DVS Stores as trade creditor. Undisputedly, there is a difference between the accounts of M/s. DVS Stores and the assessee. If the trade creditor shown by the assessee in the name of Mis. DVS Stores is even assumed to be bogus, the total purchase of the assessee from M/s. DVS Stores would become bogus as the purchase was only for Rs.6.46 crores during the assessment year under consideration and out of this Rs.6.46 crores, M/s DVS Stores has only admitted sales to the assessee for Rs.2.77 crores, The fact that the purchases as disclosed by the assessee for all the years have been accepted would support the case of the assessee that the trade creditor in genuine. This is because even as per the accounting standards the purchases would have to be recorded and it is only such unpaid purchases which would go into the balance sheet in the form of - 6 - & 2567/CHNY/2025 & CO Nos.87 & 88/CHNY/2025 trade creditors. Any tinkering in the trade creditors would automatically affect even the purchases. Further it is noticed that the Revenue has not dispute the bills of purchases, which has resulted in the trade creditor. In the circumstances, as the purchase have been accepted in all the years, no portion of the trade credit can be treated as bogus and also in view of the fact that the trade creditor does exist and as also accepted having been done business with the assessee. It is only the quantum of the business that is in dispute. But, this quantum cannot be considered to the detriment of the assessee especially when no defects in the books of account have also beenpointed out. Further, even after M/s DVS Stores admitted a due of Rs. 10,27,740/- from the assessee, the Assessing Officer has not accepted this. This shows that the Assessing Officer is also not accepting the books of M/s DVS Stores as true and correct. Further, the fact that even after M/s DVS Stores has admitted the due of Rs. 10,27,740/- the assessee has written back Rs.10.41 crores shows that the assessee is also trying to force M/s DVS Stores to come forward with the true facts. In the circumstances, we are of the view that the findings of the ld. CIT(A) is in right footing and does not call for any interference and the appeal of the Revenue stands dismissed.”

We have heard the parties and perused the material on record. On combined perusal of the findings of the AO and the CIT(A) as extracted in the earlier para’s of this order, we notice that the AO has made protective assessment on the ground that finality of the issue is to be decided for assessment year 2007- 08 which at the time of assessment year was pending before the Hon’ble High Court. It is brought to our attention during the course of hearing that that the Hon’ble High Court has dismissed the Revenue’s appeal against the order of the Tribunal deleting the impugned addition for assessment year 2007-08, on the - 7 - & 2567/CHNY/2025 & CO Nos.87 & 88/CHNY/2025 ground of monetary limit. Therefore, we see merit in the argument of the Ld.AR that the impugned issue in the substantive assessment for assessment year 2007- 08 has reached finality and accordingly, the protective assessment does not have a leg to stand.

During the course of hearing, it has also been brought to our notice that the AO while making addition on protective basis for AY 2006-07 has erroneously considered the outstanding balance which includes the addition already made for assessment year 2005-06. Our attention was further drawn to the relevant findings of the Tribunal in this regard as extracted in the order of the CIT(A) as per which the cumulative credit balance as per assessee's books against M/s.D.V.S Stores is Rs.10,41,94,289. Accordingly, it was submitted that the amount offered under cessation of liability in AY 2010-11 is the balance as per the books of accounts of the assessee as credits for assessment years 2005-06 and the 2006-07. From the perusal of the findings of the Tribunal as extracted in earlier para of this order, we notice that this factual error in the order of the AO has been considered by the Co-ordinate Bench while deleting the addition. Further, from the perusal of the orders of the lower authorities, we notice that the fact that the assessee has offered the impugned additions in the assessment year 2010-11 u/s.41(1) of the Act has not been disputed. We also notice that it is one of the grounds considered by the CIT(A) while allowing the appeal of the assessee for the year under consideration. In overall circumstances and facts of the case, we are of the considered view that the addition made on protective basis cannot be sustained since the assessee has offered the credits u/s.41(1) of the Act in subsequent assessment year and also that the substantive addition made in the hands of the assessee has reached finality. Accordingly, we see no reason to interfere with the decision of the CIT(A) in deleting the addition made on protective basis in the hands of the assessee.