2015 (11) TMI 1540 - AT - Income Tax

Addition made on account of bogus creditors - Held that - We find lot of force in the arguments of the Learned AR in respect of this addition that when the trading results are accepted by the Learned AO based on revised return filed by the assessee there is no scope for disputing the veracity of the trade creditors as admittedly the trade creditors had emanated only out of purchases made by the assessee. Moreover we find that in any case there is no scope for making any addition towards the discrepancies if any in the opening balance of sundry creditors in the assessment year under appeal. We find that the Learned CITA had given a finding that the sundry creditors in Asst Year 2006-07 has been accepted by the Learned AO and not disputed. In these circumstances we find no infirmity in the order of the Learned CIT-A in deleting the addition - Decided against revenue Applicability of provisions of section 194H read with section 40(a)(ia) - Held that - We are in total agreement with the finding given by the Learned CITA that the subject mentioned payments made by the assessee are only discount paid to the purchasers of recharge coupons though wrongly categorized as commission on sales in the books of accounts. We also agree that the nomenclature in books of accounts would not be the determinative factor for understanding the real nature of the transaction and it is well settled that substance would always prevail over its form. We hold that in these facts and circumstances the payments made by the assessee is in the category of principal to principal and the provisions of section 194H of the Act would come into play only when the payment is from principal to agent. Hence we find no infirmity in the order of the Learned CITA in this regard.- Decided against revenue

Summary

Issues:
1. Addition made towards discrepancy in expenses
2. Addition made on account of bogus creditors
3. Applicability of section 194H read with section 40(a)(ia) of the Act

Issue 1: Addition made towards discrepancy in expenses
The appeal concerned an addition made towards a discrepancy in expenses of Rs. 11,43,899, which was restricted to 25% by the Learned CITA, with both the assessee and the revenue accepting the same. As the revenue did not raise any ground in their appeal, the arguments regarding this issue were ignored, and it was not adjudicated due to the absence of grounds.

Issue 2: Addition made on account of bogus creditors
The primary issue was whether the deletion of an addition made on account of bogus creditors amounting to Rs. 70,234 was justified when no details were provided by the assessee before the Learned AO. The assessee dealt in wholesale medicine and was subjected to survey proceedings. The Learned CITA deleted the addition, stating it was based on surmise and conjecture. The revenue challenged this deletion, but the ITAT upheld the CITA's decision, emphasizing that the trade creditors were accepted by the AO based on the revised return filed by the assessee, and discrepancies in opening balances were not relevant for the assessment year under appeal.

Issue 3: Applicability of section 194H read with section 40(a)(ia) of the Act
The question revolved around whether the provisions of section 194H read with section 40(a)(ia) of the Act applied in a case where a sum was debited as commission on sales. The AO disallowed the amount under section 40(a)(ia), but the CITA, after considering additional details submitted by the assessee, deleted the addition. The ITAT agreed with the CITA, stating that the payments were actually turnover discounts to purchasers of recharge coupons, not commission on sales. The tribunal held that the nature of the transaction should prevail over the nomenclature in the books of accounts, and the provisions of section 194H applied only in principal-to-agent relationships, not in principal-to-principal transactions.

In conclusion, the ITAT dismissed the revenue's appeal, upholding the decisions of the Learned CITA on both issues regarding the addition made on account of bogus creditors and the applicability of section 194H read with section 40(a)(ia) of the Act. The tribunal found no grounds to overturn the CITA's findings, emphasizing the importance of substance over form in determining the nature of transactions.