2015 (4) TMI 747 - AT - Income Tax

Addition u/s 68 of the Income Tax Act, 1961 on account of un-explained sundry creditors - Trading result not challenged - Difference of opinion between Judicial member and Accountant member of ITAT - Matter referred to dispose u/s 255(4) of Income Tax Act, 1961 - Held that - Keeping in view the fact that in the present case also there being no dispute as regards the purchases and the trading results having been accepted, in my opinion, the decision of Hon'ble Allahabad High Court of Pancham Das Jain 2006 (8) TMI 582 - ALLAHABAD HIGH COURT is squarely applicable to the facts of the case. In this case Hon'ble high court held that Tribunal is justified and deleting addition u/s 68. Also the Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue. The case of Kachwala Gems 2006 (12) TMI 83 - SUPREME COURT primarily supports the asessee's case that income cannot be determined at astronomical figures unless assessee's explanation has been proved to be false. Following the decision of Pancham Das Jain 2006 (8) TMI 582 - ALLAHABAD HIGH COURT , the matter will now go back to the Division bench for passing the order in accordance with majority view. ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 - Pursuant to the order of the Third Member relating to addition of ₹ 10,78,71,656/- made on account of sundry creditors under section 68 of the Income tax Act, 1961, the majority View of the Tribunal is that the aforesaid addition made under section 68 of the Act is not sustainable in the eyes of law and, therefore, the order of the ld. CIT(A) deleting the aforesaid addition is confirmed. - Decided against the revenue.

Issues Involved:
1. Deletion of addition made on account of sundry creditors under Section 68 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) accepted the trading results or not.
3. Verification of sundry creditors and the application of Section 68.
4. Adequacy of the opportunity provided to the assessee to substantiate the sundry creditors.

Detailed Analysis:

Issue 1: Deletion of Addition Made on Account of Sundry Creditors under Section 68
The primary issue was whether the addition of Rs. 10,78,71,656/- made on account of sundry creditors under Section 68 of the Income Tax Act, 1961, was justified. The AO had added this amount, suspecting that the sundry creditors were not verifiable and represented unexplained cash credits.

Issue 2: Whether the AO Accepted the Trading Results
The AO did not dispute the trading results, gross profit, or the purchases made by the assessee. The gross profit rate for the assessment year 2005-06 was 12.09%, higher than the previous year's 9.92%. The AO's addition was based on the non-verifiability of sundry creditors, not on the rejection of trading results.

Issue 3: Verification of Sundry Creditors and Application of Section 68
The AO questioned the genuineness of the sundry creditors due to the absence of complete postal addresses and other details. The assessee explained that the purchases were made from small vendors in weekly markets (mandis) who did not have permanent establishments. The AO concluded that the assessee introduced fictitious creditors to introduce unaccounted money. However, the CIT(A) and the Accountant Member (A.M.) found that the creditors were genuine trade liabilities, supported by the fact that similar creditors were verified and accepted in the subsequent assessment year (2006-07).

Issue 4: Adequacy of Opportunity Provided to the Assessee
The assessee argued that they were not given sufficient time to provide complete details of the sundry creditors. The notice under Section 142(1) was issued on 10/12/2007, and the assessment order was passed on 24/12/2007. The CIT(A) noted that the assessee provided mandi-wise details and that the AO did not make further inquiries to verify these details.

Conclusion:
The Third Member (Accountant Member) agreed with the CIT(A) and the A.M., holding that the addition under Section 68 was not sustainable. It was concluded that the sundry creditors were genuine trade liabilities and not unexplained cash credits. The AO's failure to verify the details provided by the assessee and the acceptance of similar creditors in the subsequent year supported this conclusion. The Tribunal confirmed the deletion of the addition, dismissing the Revenue's appeal.

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