2012 (9) TMI 182 - AT - Income Tax

Addition on account of unexplained creditors - Held that - From the perusal of ledger accounts of one creditor it can be concluded that the opening balance and closing balance are the same figure and no transaction was made during the year under consideration. It is also observed that the address of the sundry creditor was furnished to the Assessing Officer and the Assessing Officer has admitted in the assessment order that the letter written to the aforesaid creditor was delivered, thus there is no material on the record on the basis of which the amount could be treated as income of the assessee during the year under consideration - no material could be brought on record by the Revenue to show that the amounts ceased to exist as liability of the assessees during the year under consideration. No material had been brought on record by the Revenue to show that purchases from the second creditor by the assessee were not genuine or in fact, the both the assessees has paid any amount more than Rs. 2,30,000/- and 2,00,000/- respectively in the assessment year under consideration to the said party. In the above circumstances addition made for want of confirmation was not warranted when the purchases were duly supported by bills and substantial subsequent payment was made through banking channel. On addition in regard to third creditor the Revenue was not justified in making the addition being unpaid purchase price as at the year end only for want of confirmation without bringing on record any material to show that the entries made in the regular books of account were not correct. Thus, the entire addition is unsustainable - appeal in favour of assessee. Levy of interest u/s 234B - Held that - As the addition made by AO have been directed to be deleted assessee is to granted consequential relief for interest under section 234B - in favour of assessee.

Summary

Issues Involved:
1. Justification of the addition of unexplained creditors.
2. Levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

Issue 1: Justification of the Addition of Unexplained Creditors

Facts and Arguments:
- The Assessing Officer (AO) made additions of Rs. 16,49,728/- for Shri R. Thangamani and Rs. 22,99,052/- for Shri A. Rajendran as unexplained creditors due to the non-filing of confirmations.
- The creditors in question included M/s Century Corporation, M/s Asian Needle Agency, and M/s J.M. Traders.
- The CIT(A) upheld these additions, stating that the appellant failed to produce confirmation letters and that disputes with creditors were not a valid reason for non-production of confirmations.
- The assessee argued that the amounts represented either opening balances or genuine transactions with subsequent payments, supported by account copies and ledger entries.

Tribunal's Findings:
- M/s Century Corporation: The Tribunal found that the amounts were opening balances with no transactions during the year. The addresses were provided, and letters were delivered, indicating no new income or cessation of liability.
- M/s Asian Needle Agency: The purchases were genuine, supported by bills, and substantial payments were made through banking channels. The remaining balances were cleared in subsequent years.
- M/s J.M. Traders: Similar to Asian Needle Agency, the purchases were genuine, and payments were made through banking channels.

Conclusion:
- The Tribunal concluded that the additions were unsustainable as the transactions were genuine, supported by proper documentation, and the amounts did not represent income for the year under consideration. Thus, the additions of Rs. 16,49,728/- for Shri R. Thangamani and Rs. 22,99,052/- for Shri A. Rajendran were deleted.

Issue 2: Levy of Interest Under Section 234B

Facts and Arguments:
- The assessee contested the levy of interest under section 234B, which was consequential to the additions made by the AO.

Tribunal's Findings:
- Since the Tribunal deleted the additions, it directed the AO to grant consequential relief regarding the interest under section 234B.

Conclusion:
- The ground of appeal concerning the levy of interest under section 234B was allowed, providing relief to the assessee.

Final Judgment:
- Both appeals were allowed, with the Tribunal deleting the additions made by the AO and directing consequential relief for the levy of interest under section 234B. The order was pronounced on June 22, 2012, at Chennai.