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Facts
The assessee, engaged in wholesale trading of iron and steel, filed a return declaring taxable income. The AO noted a large outstanding sundry creditors amount and, after inquiries and a remand report, added the difference between opening and closing creditors to the assessee's income, doubting the genuineness of the purchases.
Held
The Tribunal held that the AO's addition was made without proper application of mind, as the AO accepted the sales and purchases but added the difference in creditors in a gross manner. The Tribunal observed that the assessee had provided confirmations and other documents, and the AO should have rejected the entire purchases if genuineness was doubted, rather than making an addition based on the difference in balances.
Key Issues
Whether the addition made by the AO on account of sundry creditors, based on the difference between opening and closing balances, is justified when the purchases were otherwise accepted and supported by documentation?
Sections Cited
143(1), 143(2), 142(1), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
(Assessment Year: 2014-15) Sunil Bansal, vs. ITO, Ward 55 (3), 11/144, Gali No.8, Delhi. West Azad Nagar, Delhi – 110 051. (PAN : ANEPB4635R) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Somil Aggarwal, Advocate Ms. Shilpa Gupta, CA Shri Shrey Jain, Advocate Shri Deepesh Garg, Advocate REVENUE BY : Shri Manish Gupta, Sr. DR Date of Hearing : 09.07.2025 Date of Order : 30.09.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 24.11.2023 for the Assessment Year 2014-15.
Brief facts of the case are, assessee filed his return of income on 18.09.2019 declaring taxable income at Rs.8,67,690/-. The case was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). Subsequently the case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) were issued and served on the assessee. The ld. AR of the assessee attended and submitted relevant information as called for.
The assessee is engaged in the business of wholesale trading of iron and steel under the proprietorship of Bansal Sales Corporation. During assessment proceedings, he observed that during the year, assessee has declared gross turnover of Rs.36,59,71,751/- yielding GP of 0.67% and net profit of 0.26%. The AO on perusal of the Balance Sheet noticed that assessee has shown sundry creditors outstanding at Rs.8,82,71,609/-. In this regard, the assessee was asked to furnish details/confirmation in respect of the above sundry creditors for further verification. The assessee has furnished the details of sundry creditors. The notices were returned unserved by the postal authorities with the remark “not known and left”. The same was confronted with the assessee. The assessee has submitted copies of ledger account showing the purchases made from these creditors. In order to verify the same, an Inspector was deputed to verify the correctness of the business transactions and obtained copy of ledger and ITR from the respective creditors. The Inspector could not trace the two creditors at the given address and the accountant of creditor, SS Traders could not provide the requisite information. Accordingly, a show-cause notice dated 22.12.2016 was issued to the assessee why a sum of Rs.1,03,09,347/- i.e. a difference of sundry creditors outstanding at the beginning and closing of the period under consideration should not be added to the income of the assessee. The assessee also was informed the status of the notice issued u/s 133(6) of the Act to three main parties i.e. M/s. JBG Trading Co., M/s. S.S. Trading Co. and M/s. Shree Ram Traders. In response, assessee submitted the address and PAN details of the three parties. The AO observed that there is mismatch of PAN numbers declared by the assessee of two parties and there was no PAN detail available for creditor, SS Trading Company. After considering the detailed ledger copies in the books of the assessee company, the AO was of the view that the genuineness of the amount of purchase made during the year and the correctness aggregating to Rs.1,03,09,347/- could not be proved by the assessee, therefore, he proceeded to make the above difference amount to the income of the assessee.
Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed a detailed submission which is reproduced at pages 3 to 5 of the appellate order. The matter was remanded to the AO and the remand report is also reproduced at pages 6 to 10 of the appellate order. The assessee also filed a rejoinder to the remand report which is reproduced at pages 11 to 17 of the appellate order. After considering the same, the ld. CIT (A) dismissed the grounds raised
by the assessee with the following observations :- “7. Ground Nos.3 and 4 relates to addition of Rs.1,03,09,347/- on account of sundry creditors. The submissions of the appellant, remand report of the Assessing Officer and Re-joinder of the appellant have been perused. The AO noted that the appellant made purchases" with three parties i.e. (i) M/s.J8G Trading Co RS.1 ,29,21 ,312/-, (ii) M/s. S.S. Trading Co. Rs.1,52,09,392/- and (iii) M/s. Shree Ram Traders Rs.6,01,40,905/- totaling to Rs.8,82,71,609. The AO stated that as per balance sheet filed by the appellant for the AY 2013-14 sundry creditors outstanding as on 31.03.2013 stood at Rs.7,79,62,262/- (not Rs.8,59,61,999/- as contested by the appellant now in its letter filed on 28.12.2016). The difference of Rs.8,82, 71,609/- less Rs.7,79,62,262/- comes to RS.1 ,03,09,347/- which was added to total income of the appellant as not proved. In the remand report the AO stated that on re-examination as per order dated 23.01.2019, the re-sent notices etc. have either returned or the reply or information has not been sent, it is justified not to accept the evidence presented by the appellant. In the remand report the AO stated that Mr. Gopal Prasad, Inspector was deputed to make enquiries with regard to the above trade creditors. The Inspector found the office of Khem Chand & Associates at this firm letterhead address which belongs to Mehar Chand who was working at this address for the last 5 years and did not know the firm named JBS Trading Company. With regard to S.S. Trading Company, the AO in the remand report stated that Mr. Gopal Prasad Inspector did not find the firm at the given address. With regard to Shree Ram Traders, the AO stated in the remand report that the Inspector tried to find out this firm but due to incomplete address could not be traced. 7.1 It is seen from the above that the appellant could not prove the genuineness of trade creditors. The Inspector made enquiries and found the creditors not genuine. It is also seen from the assessment order that the PAN numbers given by the appellant do not pertains to the above trade creditors. In view of the above facts and certification from the remand report, the appellant has failed to establish the genuinity of the credits involved. Hence, the addition made by the AO is sustained and appeal is dismissed.
5. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.l,03,09,347/- on account or sundry creditors and that too by recording incorrect facts and findings and without observing the principles of natural justice and without confronting the adverse material available 011 record and without providing the opportunity of cross examination.
2. That in any case and in any view of the matter. action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition or Rs.1,03,09.347/- on account of sundry creditors, is bad in law and against the facts and circumstances of the case.”
6. At the time of hearing, ld. AR of the assessee brought to our notice brief facts of the case and also brought to our notice detailed informations which were submitted before the lower authorities which are placed at paper book pages 18 to 178 including the detailed submissions submitted before the AO and ld. CIT (A). The ld. AR further submitted as under:- “Adverse observation of Ld. CIT(A) and Ld. AO are met as under: - 1.
1. Ld. CIT( A) mentioned in para 7 at page 17 of the impugned order and Ld. AO in para 3.2 at page 3 of the assessment order that sundry creditors outstanding as on 31.03.2013 is Rs. 7,79,62,262/- not Rs. 8,59,61,999/- and difference of Rs.8,82,71,609/- less Rs. 7,79,62,262/- comes to Rs. 1,03,09,347/- which was added. In reply it is submitted that the figure of Rs.7,79,62,262/- considered as sundry creditors outstanding as on 31.03.2013 is factually incorrect. The correct figure is Rs.8,59,61,999/-, which includes Rs. 79,99,737/- representing advance paid to suppliers. This reconciliation was duly submitted during the assessment proceedings along with supporting documents (PB 50). Therefore, the difference of Rs.1,03,09,347/- as calculated by the Ld. CIT(A) does not arise, and the addition made on this basis is incorrect and liable to be deleted. PB 112 is the copy of written submission dated 28.08.2017 duly filed before the Ld. CIT(A) submitted that based on the correct calculation-after adjusting the advances given to suppliers-the amount of addition, if any, should be restricted to Rs.23,09,610/- instead of Rs. 1,03,09,347/-.
2. Ld. CIT(A) mentioned in para 7 at page 17 of the impugned order that notices either returned or the reply or information has not been received so it is justified not to accept the evidence presented by the appellant.
In reply it is submitted that the appellant had no control over third parties but had made all possible efforts to ensure compliance. Upon learning that certain notices were retuned or went unanswered, the appellant proactively approached the concerned creditors, who subsequently submitted confirmations and ledger accounts directly to the Assessing Officer. Additionally, the appellant submitted VAT registration details and sales tax records substantiating the transactions. Therefore, the rejection of evidence solely on the ground of non-receipt of replies is unjustified, especially when the transactions were fully accounted for, confirmed, and payments were made through proper banking channels.
3. Ld. CIT(A) mentioned in para 7.1 at page 18 of the impugned order and Ld. AO in para 3.1 at page 2 of the assessment order that inspector made enquiries and found the creditors not genuine and PAN numbers do not pertain to aforementioned creditors. In reply it is respectfully submitted that the inspector's finding regarding the non- genuineness of creditors is misplaced. The appellant had submitted confirmations from all three parties along with their PAN details (PB 20-22), ledger accounts, and proof of VAT registration. The transactions were carried out through banking channels and duly recorded in the books of account. The PA s may have appeared to differ due to minor clerical errors or were possibly misread, as clarified in the rejoinder (PB 162-164). In any case, the identity and existence of the parties were further substantiated through VAT records and tax return acknowledgements. Therefore, the conclusion that the creditors are not genuine is unfounded and unsupported by the comprehensive documentary evidence' placed on record. PB 110 is the copy of written submission dated 28.08.2017 duly filed before the Ld. CIT(A) submitted that Ld. AO had already accepted the substantial portion of the purchases made from the said creditors, the difference between the opening and closing balances of the creditors could not justifiably be treated as income of the assessee. Reliance is placed on the following judicial pronouncements wherein it has been consistently held that when the Ld. AO has accepted the purchases from the creditors as genuine and has not doubted the underlying transactions, the mere non-confirmation of balances or variation in creditor balances cannot be treated as income in the hands of the assessee. CIT v. Usha Stud Agricultural Farms Ltd., 120091 182 Taxman 321 (Delhi HC) CIT v. Shree Rama Multi Tech Ltd., [2013j 38 taxmann.com 306 (Gujarat HC) ITO v. Neelkanth Ispat Udyog Pvt. Ltd.,[2012] 23 taxmann.com 61 (ITAT Kolkata) Late Sh. Mahender Kumar Mittal vs. ITO ITA No.7497/Del/2019”
On the other hand, ld. DR of the Revenue brought to our notice remand report submitted by the AO and detailed findings of the ld. CIT (A) from pages 14 to 18 of the appellate order and he relied on the findings of the ld. CIT (A).
Considered the rival submissions and material placed on record. We observe that the AO while examining the records noticed that assessee has declared huge sales, however declared less GP and NP. During assessment proceedings, he noticed that assessee has shown huge sundry creditors in their Balance Sheet. He asked the assessee to submit the details of purchases and confirmations. The assessee has submitted all the information including confirmations from the parties. Since the main three parties from whom assessee has purchased were not found in the addresses given by the assessee, the AO on deputation of Inspector from his office could not trace and extract the information from these parties. Accordingly, he came to the conclusion that the purchases are bogus and accordingly, he proceeded to make addition of the purchases considering only the difference of closing balance outstanding as on 31.03.2013 and 31.03.2012. Before us, ld. AR brought to our notice detailed ledgers of the three parties, namely, JBG Trading Company, SS Trading and Shree Ram Traders. From the ledgers, we observe that the assessee has purchased during the year from SS Trading Co. to the extent of Rs.3,10,02,059/- and there was no outstanding with this party at 31.03.2013 and after making the payment, the closing balance stood at Rs.1,52,09,392-. Similarly, from JBG Trading Company, the assessee has purchased during the year of Rs.1,29,21,312/- and there was no opening balance. With regard to Shree Ram Traders, assessee had purchased Rs.7,70,77,498/- and after making payments during the year, closing balance stood at Rs.6,01,40,905/-. It is also fact on record that assessee has obtained confirmation from all three parties. At the same time, we also observe that there is opening balance of creditors as on 31.03.2013 which stood as under :-
After considering the above details available on record, we observe that the assessee has dealt with the suppliers who are different compared to the current assessment years. The parties are different in both the assessment years and in case, the AO is doubting the genuineness of the transactions, he should have rejected the whole purchases made by the assessee during the year rather making the addition only the difference of opening and closing sundry creditors. It shows that the AO has completed the assessment without application of mind and made the addition on the gross basis. Further we observe that assessee had declared turnover of Rs.36.60 crores and declared purchases of Rs.36.99 crores and maintained closing stock of Rs.69.29 lakhs. Without there being purchases, the assessee would not have achieved such huge sales. The AO has accepted the sales and made the addition on the genuineness of the purchases by adding in such gross manner. Therefore we are inclined to delete the addition proposed by the Assessing Officer and allow the grounds raised
by the assessee