2015 (6) TMI 1024 - HC - Income Tax

Addition u/s 68 - Held that - The Income- tax Appellate Tribunal, after considering the rival contentions and on perusal of material on record, by common order partly allowed the appeals filed by the Department and held that in respect of parties (sundry creditors) other than relating to whom additions made by the Commissioner of Income-tax (Appeals) are to be restored to the Assessing Officer by casting the initial burden on the assessee to discharge such burden by filing confirmation letters of sundry creditors and reserving liberty to the Assessing Officer to make verification of the confirmation if felt so necessary and also opining that the Assessing Officer may call upon the assessee to adduce evidence in the form of producing such parties. For the assessment year 2004-05, the matter was restored back to the file of the Assessing Officer in respect of the addition representing the closing balance of fifteen creditors with the liberty being granted to the assessee as well as the Assessing Officer as granted for the assessment year 2003-04. Addition u/s 69C - Held that - The assessment order would also indicate that in respect of the sundry creditors as reflected in the balance-sheet of the assessee was not proved by the assessee though sufficient opportunity was granted. The order of the Assessing Officer does not indicate about any explanation having called for by the Assessing Officer from the assessee and such explanation having been not accepted so as to treat the same as income of the assessee for such financial year. However, it requires to be noticed from the order of the Tribunal that after analysing the case law it has been held that section 68 read with section 69C can be invoked in respect of the sundry creditors which are not proved by the assessee before the Assessing Officer. As such we are of the considered view that the principles contained in section 68 as well as section 69C would be squarely applicable to sundry creditors in case of a trader, as obtained in the facts of the present case. In fact, credit purchases are nothing but expenditure and if sundry credits are not proved by the assessee addition can be made by the Assessing Officer by resorting to section 69C. Accordingly, substantial question of is being answered in favour of the Revenue.

Summary

Issues:
1. Application of section 68 in respect of trade credits outstanding.
2. Addition regarding the opening balance in the hands of the creditor.
3. Applicability of section 69C in cases where expenses are not disputed.

Issue 1: Application of Section 68
The appeals were directed against an order by the Income-tax Appellate Tribunal where the appeals filed by the Revenue were allowed, setting aside the orders deleting the addition made under section 68 of the Income-tax Act. The matter was remitted to the Assessing Officer to examine the addition representing the closing balance of 15 creditors upon confirmations being filed by the assessee.

Issue 2: Addition Regarding Opening Balance
The court admitted the appeal to consider substantial questions of law, including whether section 68 was rightly applied in respect of trade credits outstanding at the end of the year. The court examined whether an addition could be made in relevant years regarding the opening balance in the hands of the creditor in transactions of the preceding year.

Issue 3: Applicability of Section 69C
The Tribunal remitted the matter back to the Assessing Officer for examination in the background of directions issued. The court analyzed the facts for the assessment years 2003-04 and 2004-05, where the Assessing Officer added amounts under "sundry creditors" to the income of the assessee. The court considered the invocation of section 69C in cases where sundry creditors were not proved by the assessee before the Assessing Officer.

The assessee, a wholesale dealer in raw rubber, filed returns of income for assessment years 2003-04 and 2004-05, which were selected for scrutiny. The Assessing Officer added sums as unproved sundry creditors under section 68 of the Income-tax Act. The Commissioner of Income-tax (Appeals) deleted most of the additions, leading to appeals by both the Revenue and the assessee before the Income-tax Appellate Tribunal. The Tribunal partly allowed the appeals by the Revenue, restoring the matter to the Assessing Officer to examine the addition representing the closing balance of certain creditors.

For the assessment year 2003-04, the Assessing Officer added amounts under "sundry creditors" to the income of the assessee, which was partly sustained by the Commissioner of Income-tax (Appeals). The Tribunal remitted the matter back to the Assessing Officer for further examination. Similarly, for the assessment year 2004-05, the Commissioner of Income-tax (Appeals) deleted the entire addition made by the Assessing Officer, leading to the matter being referred back to the Assessing Officer by the Tribunal.

The court analyzed the application of sections 68 and 69C in cases where sundry creditors were not proved by the assessee. It was held that the principles contained in these sections would be applicable, allowing for additions to be made by the Assessing Officer if sundry credits were not adequately proven. As a result, the substantial question of law was answered in favor of the Revenue, leading to the dismissal of the appeals filed by the assessee and affirming the Tribunal's order.