2015 (7) TMI 12 - HC - Income Tax

Addition made under section 68 - CIT(A) deleted addition - Held that - ITAT after considering the rival contentions and on perusal of material on record, by common order dated 30.06.2009 partly allowed the appeals filed by the department and held that in respect of parties (Sundry Creditors) other than relating to whom additions made by the CIT(A) are to be restored to the assessing officer by casting initial burden on the assessee to discharge such burden by filing confirmation letters of Sundry Creditors and reserving liberty to assessing officer to make verification of the confirmation if felt so necessary and also opining that the assessing officer may call upon the assessee to adduce evidence in the form of producing such parties. For the assessment year 2004-05 the matter was restored back to the file of assessing officer in respect of addition representing the closing balance of fifteen creditors with the liberty being granted to the assessee as well as assessing officer as granted for the assessment year 2003-04. Unapproved sundry creditors - Whether the Tribunal was justified in law in holding that the provisions of Section 69C of the Act would also apply when the expenses incurred towards purchases were not disputed and the payments made were also recorded in the books of accounts? - Held that - The order of the assessing officer does not indicate about any explanation having called for by the assessing officer from the assessee and such explanation having been not accepted so as to treat the same as income of the assessee for such financial year. However it requires to be noticed from the order of the tribunal that after analyzing the case laws it has been held that section 68 read with section 69C can be invoked in respect of sundry creditors which are not proved by the assessee before the assessing officer. As such we are of the considered view that the principles contained in section 68 as well as section 69C would be squarely applicable to sundry creditors in case of a trader, as obtained in the facts of the present case. Infact, credit purchases are nothing but expenditure and if sundry credits are not proved by the assessee addition can be made by the assessing officer by resorting to section 69C. - Decided in favour of revenue.

Summary

Issues:
1. Application of section 68 in respect of trade credits outstanding.
2. Addition of opening balance in the hands of the creditor.
3. Applicability of Section 69C when expenses are not disputed.

Issue 1: Application of Section 68:
The appeals were against the ITAT order allowing revenue's appeals and setting aside CIT(A)'s deletion of additions under section 68. The High Court admitted the appeal to consider substantial questions of law. The Tribunal upheld section 68 application for trade credits outstanding at year-end, even when purchases were not disputed, and outstanding credits were confirmed post-year end. The appellant's counsel did not press arguments on substantial questions of law 1 and 2. The Court heard arguments and provided a brief background of the case.

Issue 2: Addition of Opening Balance:
For assessment years 2003-04 and 2004-05, the assessing officer added amounts as unproved sundry creditors under section 68. CIT(A) partially deleted the additions. The ITAT partly allowed the appeals, restoring the matter to the assessing officer for verification based on confirmation letters from creditors. The Court detailed the facts for both years and highlighted the assessing officer's actions and the subsequent decisions by CIT(A) and ITAT.

Issue 3: Applicability of Section 69C:
The Court addressed the contention that the assessee had discharged the initial burden, and if the revenue disbelieved the confirmation, the burden was on the revenue to conduct further inquiries. The appellant's counsel argued against invoking Section 69C for unproved sundry creditors. The Court referred to judgments supporting the appellant's position. However, the tribunal found that the sundry creditors were not entirely proved, reserving the matter for the assessing officer to examine. The Court concluded that sections 68 and 69C could be invoked for unproved sundry creditors, leading to the dismissal of the appeals and affirming the ITAT order.

This detailed analysis covers the issues of the application of section 68, addition of opening balance, and the applicability of Section 69C in the legal judgment delivered by the Karnataka High Court.