SHA THANMAL SUKHRAJ JAIN & CO ,RANEBENUUR vs. INCOME TAX OFFICER, WARD-2, HAVERI

Briefly stated the facts of the case are that the assessee filed return of income on 27.9.2012 declaring total income of Rs.3,24,040. The case was selected for scrutiny and statutory notices issued to the assessee. During the course of assessment proceedings, the AO on verification of sundry creditors called the assessee to furnish the names and address of sundry creditors and confirmation account. The assessee submitted the name and address of the parties with confirmation letters. The AO sent notices to 28 creditors as listed in the assessment order directly and received reply from them. On verification of the reply he noted a difference of Rs.60,529 from the closing balance as shown by assessee and asked assessee to furnish reconciliation statement. The assessee filed the reasons for difference as per Annexures 1 & 2. The AO did not accept the reasons and added to total income the amount of Rs.60,529.

Further AO noted that 24 creditors as per para 4.1 of his order did not respond regarding their credit balances as appearing in their names in the books of assessee and the assessee was asked to produce them for examination. The assessee was unable to produce the sundry creditors and failed to establish that the sundry creditors are genuine. Accordingly, the entire closing balance of Rs.90,79,428 of 24 creditors was added to total income of assessee.

The AO further noted that 3 notices sent to the creditors returned unserved. In this regard also the assessee did not produce the creditors before the AO. Accordingly Rs.29,60,999 was also added back to the total income of assessee.

Further the AO sent letters to debtors, out of which in the case of 6 debtors letters returned unserved with the postal remarks “no such address, insufficient address, left without instruction, deceased, etc.” which was also intimated to the assessee, but there was no compliance to the satisfaction of the AO, hence a sum of Rs.48,79,106 was added back to total income of assessee. The AO assessed income of Rs.1,81,58,926.

Aggrieved from the above order, the assessee filed appeal before the First Appellate Authority (FAA) with detailed written submissions.

The ld. AR submitted that the difference of Rs.60,529 towards closing balance in the books of assessee and closing balance of creditors. the reasons were explained during the course of assessment proceedings which is placed at pages 106 & 107 of PB as difference due to calculation, TDS, commission not accounted by the party, debit note, etc. In respect of addition of Rs.90,79,528 as per para 4.1 of the AO’s order in respect of non-compliance by the creditors and addition of Rs.29,60,099 where notices were unserved, the ld. AR submitted that the books of the assessee are audited and auditor has not pointed out any mistake. The books have not been rejected by the AO. Corresponding purchases from the creditors have been accepted and out of the purchases from such creditors, some part of the goods are lying as closing stock of assessee and there is no dispute on the sales and closing stock as declared by the assesse therefore, the AO(Assessing Officer) is not justified in disallowing the sundry creditors. He further submitted that the case of the assessee for AYs 2011-12 & 2013-14 were subject to scrutiny proceedings and order was passed u/s. 143(3) on 26.3.2014 and 26.02.2016 respectively and there is no addition made towards creditors. The closing balance appearing in the books of assessee of creditors were shifted to the next assessment year as opening balance and the AO has not disputed it while completing the assessment proceedings for AY 2013-14 on 26.2.2016, however the assessment order for the impugned assessment year is passed on 27.3.2015. He also submitted that the confirmation of creditors were also filed in the remand proceedings and the AO did not doubt on the same. In support of his arguments, the ld. AR relied on the following judgments:-

The ld. DR relied on the order of lower authorities and submitted that regarding difference in accounts of Rs.60,529, the assessee did not file any evidence as placed in Page 106 of PB. It was the primary duty of the assessee to substantiate all the entries made in the books of account with cogent materials. However the assessee has failed to do so. Further in respect of non-compliance of notices and notices unserved to the creditors, he categorically relied on para 6.4.2 of the CIT(Appeals) order and subitted that assessee did not file confirmation letters of the parties either during assessment proceedings as well as appellate proceedings. During the remand proceedings the assessee was unable to prove the genuineness of creditors and not filed genuineness of payments to the creditors. The assessee could not file confirmation from the persons from whom purchases were purportedly made. The assessee explanation is that these persons being small traders of limited means and operating from table space, etc. are no longer available for verification, but these persons were not available at the stage of assessment proceedings. All that has been stated are self- serving statements without any supporting evidence. The onus is on the assessee to prove the identify of these persons, genuineness of transactions. The assessee has miserably failed in discharging his onus. The ld. DR relied on the judgment of jurisdictional High Court.

Ground Nos. 2.1 to 2.3:

Ground No.3 is consequential in nature.

In the result, we partly allow the appeal of the assessee.