2012 (10) TMI 412 - AT - Income Tax

Disallowances on account of trade creditors - assessee had done no business with them during the financial year respectively, represent only opening as balances Held that - Account copies of the parties as appearing in the books of account of the assessee for assessment year 2005-06, 2006-07 and 2007-08 confirm the submission of the assessee. So, it is clear that no new amount had been credited by the assessee in their accounts during the assessment year under consideration. Therefore, application of section 68 was rules out and addition cannot be made - Assessing Officer has not brought on record any evidence to prove that these parties are bogus - disallowance made on account of cash credits has been correctly deleted Additions on account of unproved trade creditors Held that - Additions are made on the basis of the report of the Income-tax Inspector that there is no concern by such name but the assessee had filed before the Assessing Officer purchase and sale bills of the said concerns but the books of account of that concern could not be produced - assessee had made total purchases of Rs. 1,33,39,325/- and there was a carry forward opening balance of Rs. 2,04,050/-. During the period, the assessee made payments of Rs. 1,26,09,000/- and the balance amount has been shown as trade creditor of Rs. 9,34,275/-. A confirmatory letter from M/s Oriental Leathers has also been filed alongiwth copy of account showing payments having been made to the party. The ITI s report cannot stand in view of the above evidence - addition correctly deleted

Summary

Issues:
Appeal against order of CIT(A) regarding disallowance of trade creditors and additions made based on Inspector's report.

Analysis:
1. The Revenue appealed against the CIT(A)'s order concerning the disallowance of trade creditors and additions made during assessment year 2007-08. The Revenue raised various grounds challenging the CIT(A)'s decision, including the deletion of disallowance on account of unproved trade creditors and observations related to the assessment year 2005-06.

2. The CIT(A) deleted the additions made by the Assessing Officer, prompting the Revenue to appeal. The assessee, a leather tanner, filed her return for the assessment year 2007-08, admitting a total income of Rs. 3,98,290. A survey revealed additional income towards unproved trade creditors. The assessment resulted in disallowances and additions, which the CIT(A) later annulled.

3. The Tribunal analyzed the disallowances on trade creditors, noting that certain balances were merely opening balances from the previous year and no new amounts were credited during the assessment year. The Tribunal found no evidence to support the parties being bogus, as the Assessing Officer failed to conduct further inquiries.

4. Regarding specific trade creditors like Sabari Leather Exports and Oriental Leathers, the Tribunal considered the submissions of the assessee, which included details of purchases, sales bills, and banking transactions to establish the genuineness of the transactions. The Tribunal found the Assessing Officer's lack of scrutiny and evidence insufficient to justify the additions.

5. The Tribunal further examined disallowances related to Akshya Leathers, Victory Tanners, and Sai Leathers. The assessee provided evidence such as registration certificates and sales tax orders to refute the ITI reports. The Tribunal concluded that the Assessing Officer's failure to verify details and the presence of substantial evidence supporting the transactions warranted the deletions made by the CIT(A).

6. Ultimately, the Tribunal dismissed the Revenue's appeal and the cross objection by the assessee, upholding the CIT(A)'s decision to delete the disallowances and additions. The Tribunal emphasized the importance of thorough investigations and substantial evidence in determining the genuineness of transactions and trade creditors.

Judgment:
The Tribunal dismissed the Revenue's appeal and the assessee's cross objection, affirming the CIT(A)'s decision to delete the disallowances and additions made during the assessment year 2007-08.