2015 (10) TMI 2561 - AT - Income Tax

Ingenuine trade creditors - assessee submitted that records of the trade creditors were not maintained during the year because assessee had not maintained any books of accounts due to applicability of provisions of section 44AE - Held that - Assessee had failed to give names, addresses, confirmation, bank statement and transactions details of the creditors. In the absence of these details, the claim of the assessee regarding sundry creditors is not acceptable particularly when there was no such creditor in the year ended on 31.3.2005 and the nature of business is stated to be the same. The AO has also reproduced the cash flow statement on page 3 of his assessment order which shows that against the receipt of ₹ 30.55 lacs, the assessee has shown expenses of ₹ 12.64 lacs resulting in a surplus of ₹ 17.90 lacs against which the assesee has declared income of ₹ 2.10. lacs only u/s 44AE of the Act. As per the provisions of section 44AE such income is taxable even if the assessee has not maintained books of accounts. When the assessee has shown a cash surplus of ₹ 17.92 lacs as against the declared income of ₹ 2.10 lacs such excess cash surplus has to be explained. If the assessee is claiming to have trade creditors to the tune of ₹ 9,80,000/-, he is bound to substantiate the same, if required to do so. Although the assessee is not required to maintain regular books of accounts, he is bound to furnish information regarding trade creditors if he has claimed their existence. Under these facts it cannot be accepted that the trade creditors shown by the assessee are genuine. AO has made an addition on the basis of the statement of affairs and the cash flow statement drawn and submitted by the assessee himself and hence the assessee cannot rightfully claim that he is not obliged to substantiate the same by taking shelter under the provisions of section 44AE of the Act. - Decided against assessee.

Summary

Issues:
1. Validity of order passed under section 143(3) of the Income Tax Act.
2. Addition of trade creditors by the assessing officer.
3. Application of section 44AE of the Income Tax Act in relation to trade creditors.
4. Observations and findings of lower authorities for making the addition.
5. Consideration of TDS benefit on transportation charges.
6. Justification of interest charged under different sections of the Income Tax Act.

Analysis:

1. Validity of Order under Section 143(3): The appellant challenged the order passed under section 143(3) of the Income Tax Act, claiming it to be unjustified. The appellant argued that the declared income should be accepted. However, the authorities upheld the order, citing lack of substantiating evidence from the appellant regarding trade creditors.

2. Addition of Trade Creditors: The assessing officer made an addition of Rs. 9,80,000 as trade creditors, considering it as undisclosed capital of the assessee. The CIT(A) confirmed this addition, noting the failure of the assessee to provide necessary details and confirmations regarding the creditors. The appellate tribunal found the addition justified based on the lack of evidence provided by the assessee.

3. Application of Section 44AE: The appellant invoked section 44AE of the Income Tax Act, arguing against the addition of trade creditors. The appellant contended that under section 44AE, no further addition should have been made in respect of trade creditors. However, the tribunal upheld the addition, emphasizing the appellant's failure to substantiate the existence of the claimed trade creditors.

4. Observations and Findings of Lower Authorities: The lower authorities' observations and findings regarding the addition of trade creditors were deemed general, casual, and contrary to the actual facts of the case by the appellant. However, the tribunal supported the lower authorities' decision, emphasizing the lack of evidence provided by the appellant to support the claim of trade creditors.

5. Consideration of TDS Benefit: The appellant argued that the lower authorities erred in not considering the benefit of TDS on transportation charges. The tribunal did not find merit in this argument, as the focus remained on the substantiation of trade creditors rather than TDS benefits.

6. Justification of Interest Charged: The appellant contested the interest charged under different sections of the Income Tax Act as unjustified. However, the tribunal did not delve into this issue extensively in the judgment, focusing primarily on the substantiation of trade creditors and the application of relevant tax provisions.

In conclusion, the appellate tribunal dismissed the appeal, upholding the addition of trade creditors due to the appellant's failure to provide essential details and confirmations. The judgment underscored the importance of substantiating claims and complying with tax regulations, particularly in cases involving undisclosed income sources.