2017 (1) TMI 1432 - AT - Income Tax

Addition on account of sundry creditors which were static for more than four years - Held that - The learned DR was not able to demonstrate that this addition deleted by Hon ble Tribunal was reversed by Hon ble High Court and therefore, the deletion of assessment year 2007-08 had become final. Therefore, the same addition of same creditors cannot be made in the present year. The argument of learned DR that the creditors had become time barred do not hold any force in view of the fact that the assessee continued to declare creditors in the balance sheet and had been confirming the existence of such creditors by signing the balance sheet and therefore the debt was not time barred. We find that in assessment year 2012-13, the entire creditors were got adjusted as on 31.3.2012. As per paper book page 11, none of the creditors remained outstanding. This fact is verifiable from the order of assessment for assessment year 2012-13 where the Assessing Officer had discussed the writing off creditors against certain debit balances. Such fact has been discussed by Assessing Officer at para 3.1 onwards wherein the Assessing Officer had disallowed the amount relating to debit balances against the credit balances and in fact by this action, the Assessing Officer had taxed the sundry creditors indirectly. - Decided against revenue

Summary

Issues:
1. Addition of sundry creditors outstanding for more than four years.
2. Application of Section 41(1) of the Act.
3. Justification of deletion of addition by CIT (A).
4. Comparison with similar addition in assessment year 2007-08.
5. Verification of adjustments made in assessment year 2012-13.

Analysis:
1. The appeal was filed by the Revenue against the order of the Learned CIT (A) deleting an addition of &8377; 82,44,157/- made by the Assessing Officer on account of sundry creditors outstanding for more than four years. The Revenue contended that the creditors were static for an extended period, leading to the cessation of liabilities under Section 41(1) of the Act.

2. The Revenue argued that the Assessing Officer was justified in making the addition as the liabilities of the assessee company had ceased to exist due to the creditors being outstanding for more than four years. However, the AR pointed out that a similar addition in the assessment year 2007-08 was deleted by the CIT (A) and upheld by the ITAT in a previous order, highlighting that adjustments were pending and eventually adjusted in the subsequent assessment year.

3. Upon review of the material, the ITAT found that the CIT (A) had allowed relief for certain creditors based on addresses filed by the assessee, while confirming the addition for others. The ITAT also noted that in the assessment year 2007-08, a similar addition was made by the Assessing Officer, which was later dismissed by the ITAT, indicating a consistent approach in such cases.

4. The ITAT emphasized that the Revenue failed to demonstrate any reversal of the previous deletion of the addition by the High Court, making the deletion final. The argument that the creditors had become time-barred was dismissed, as the assessee continued to declare the creditors in the balance sheet, confirming their existence and validity.

5. Furthermore, the ITAT observed that in the assessment year 2012-13, all the creditors were adjusted, and none remained outstanding as per the records. The Assessing Officer in that year discussed the writing off of creditors against debit balances, indirectly taxing the sundry creditors. Based on these findings, the ITAT upheld the order of the CIT (A) and dismissed the appeal filed by the Revenue.