SANKARA RAO,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-5, Chennai, dated 29.07.2015 and pertains to assessment year 2009-10.

Sh. A.S. Sriraman, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is with regard to disallowance of `37,87,876/-. According to the Ld. counsel, the outstanding trading account was erroneously brought to tax under Section 68 of the Income-tax Act, 1961 (in short 'the Act').

On the contrary, Sh. A.B. Koli, the Ld. Departmental Representative, submitted that the assessee was claiming `1,57,03,338.86 as current liabilities and provisions. The Assessing Officer, after verification of the accounts, found that there were many sundry creditors whose opening balance has not changed throughout the financial year. To verify the genuineness of the sundry creditors, the assessee was asked to produce confirmation letters from respective parties. The assessee was able to produce confirmation letters only from seven parties. The assessee has also expressed his inability to produce confirmation letters from 22 other parties to the extent of `37,87,876/-, therefore, the Assessing Officer made addition under Section 68 of the Act.

We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer, during the course of assessment proceeding, found that a sum of `1,57,03,338.86 was shown as current liabilities and provisions. The Assessing Officer further found that the opening balance of many sundry creditors has not changed throughout the financial year. The assessee was able to produce confirmation letters only from seven creditors. The assessee could not furnish confirmation letters to the extent of `37,87,876/- from 22 creditors.

The CIT(Appeals), by placing reliance on the judgment of Madras High Court in C. Pakirisamy v. ACIT 92009) 315 ITR 293, found that when the assessee failed to explain the source for the opening capital and how it was accumulated for the years, disallowance of opening balance can be made. In the case before us, the assessee has filed the details of the creditors and their addresses are also available. Therefore, the Assessing Officer herself could have called for confirmation letters from the respective creditors. When the assessee is able to produce the confirmation letters, the Assessing Officer is expected to examine the creditors and find out whether all the creditors are genuine. Since such an exercise is not done, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer.

In the result, the appeal of the assessee is allowed for statistical purposes.