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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. P. MADHAVI DEVI & SHRI ABRAHAM P GEORGE
This appeal by the assessee is against the order of the CIT(A)-II, Bangalore, dated 26/02/2014 confirming the disallowance and the consequential addition of the closing balance of creditors as appearing in the books of account as on 31/3/2007 made by the Assessing Officer (AO) as undisclosed income for the assessment year 2007-08.
M/s.Habib Proteins & Fats Extracts. Page 2 of 6 2. Brief facts of the case are that the assessee-firm filed its return of income for the relevant assessment year declaring ‘nil’ income. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] the assessee was required to produce books of account, proof for secured and unsecured loans, break-up for sundry creditors of Rs.40,68,403/- in the balance-sheet filed for the assessment year 2007-08 and other details. The required details were filed and examined by the AO. AO observed that the break- up of sundry creditors included advances received from different customers from different places for purchase of De-oil cakes amounting to Rs.33,65,593/- shown in the balance-sheet filed for the year ending 31/03/2007. He further observed that advance received from the trade creditors is shown within the range of Rs.20,000 to Rs.50,000/- and only in 6 cases the advances received is shown more than Rs.1 lakh. AO asked the assessee as to how the advances received from various customers is exactly only Rs.50,000/- and not more. Assessee explained that the customers placed orders for De-oil cake for which advances were received and he is not aware of the advance amount. It was further stated that since there is no proper business activity, the orders placed by them two years back could not be met and hence the advance remained with the assessee which are shown as sundry creditors. The AO also asked the assessee to produce the names and addresses of the customers/creditors along with M/s.Habib Proteins & Fats Extracts. Page 3 of 6 confirmation letters confirming the advances to prove the genuineness of the transaction. The assessee could not produce the required details and therefore the AO concluded that the assessee has failed to prove the identity of the creditors and genuineness of the transaction. He, accordingly, disallowed the same and added it back to the returned income of the assessee and brought it to tax.
Aggrieved, assessee preferred an appeal before the CIT(A) along with certain confirmation letters from the creditors. The CIT(A) called for a remand report from the AO and after considering the assessee’s rejoinder to the remand report, confirmed the addition made by the AO. Against the order of the CIT(A), the assessee is in appeal before us.
The learned counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below, drew our attention to para.3 of the assessment order at page 2 wherein the AO has recorded that the orders placed by the customers were two years back and that they could not be met due to a lull and there was no proper business activity and hence the advances remained. The learned counsel for the assessee submitted that this proves that sundry creditors pertain to earlier assessment year and not to the relevant assessment year and since the sum of Rs.33,65,593/- was opening balance as well as the closing balance for the relevant assessment year, it is clear
M/s.Habib Proteins & Fats Extracts. Page 4 of 6 that no fresh advances were received by the assessee during the relevant assessment year. He submitted that since these sundry creditors belonged to the earlier assessment year, no disallowance or addition could be made during the relevant assessment year. To prove his point, he has drawn our attention to pages 1, 6 and 7 of the paper book wherein the advances from customers is reflected as opening balance as on 1/4/2005 and closing balance as on 31/3/2006. He submitted that all these details were filed before the AO as well as the CIT(A) but they have not been appreciated in proper perspective. He has relied upon the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR 384(Del) and the decision of the Hon’ble Rajasthan High Court in the case of CIT vs. Prameshwar Bohra (2008)301 ITR 404(Raj) in support of his contention.
The learned Departmental Representative, on the other hand, supported the orders of the authorities below and submitted that the assessee has not given all the details before the AO and has filed confirmation letters of only a few parties before the CIT(A) who called for a remand report on the same from the AO. He submitted that the AO, during the assessment proceedings, had tried to verify the genuineness of the transactions by requiring the parties to produce the details but since no details were filed, the AO was constrained to presume that the parties do not exist or that they are not available in the M/s.Habib Proteins & Fats Extracts. Page 5 of 6 addresses given by the assessee. Therefore, according to him, the addition needs to be confirmed.
Having regard to the rival contentions and the material on record, we find that the assessee has been able to establish before us that Rs.33,65,593/- is opening balance as on 1/4/2005 and remained closing balance as on 31/3/2006. However, financial statements filed by the assessee before us do not give us the details of sundry creditors. In order to appreciate the assessee’s contention that the advances given were given in the years prior to relevant assessment year and that it is the opening balance of the relevant assessment year, it is necessary to examine as to whether the sundry creditors in the earlier years and balance against them are the same which are recorded as the closing balance during the relevant assessment year. None of the authorities have examined these details. Therefore, while holding that only unexplained cash credits or unexplained sundry creditors relevant to the relevant assessment year is disallowable, as held by the Hon’ble High Courts of Delhi and Rajasthan in the cases cited supra, we direct the AO to verify as to whether the parties who are alleged to have given the advances in the earlier assessment years are the same parties who are continuing as sundry creditors during the relevant assessment year and if it is found that these are the advances given in the earlier assessment year, then we hold that disallowance of the same and the consequential addition cannot be made during the relevant
M/s.Habib Proteins & Fats Extracts. Page 6 of 6 assessment year. With these directions, the assessment is set aside to the file of the AO.
In the result, the assessee’s appeal is treated as allowed for statistical purposes.