2015 (10) TMI 743 - AT - Income Tax

Legality of order passed U/s 147 - addition on account of alleged unexplained sundry creditors - Held that - As revealed from the chart that in case of Anurag Sales Corp, and Sunraj Steel, the credit balance has increased from 31/3/2004 and 31/3/2005. In case of Swastik trading company and P.K. Industry, the credit balance had gone down compared to 31/3/2004 to 31/3/2005, which proved that on 31/3/2005, these credit balances were cumulative. AO for A.Y. 2005-06 had considered the G.P. addition on account on discrepancy found in these creditors account. No separate additions were made on account of different in creditors. The credit balance as on 31/3/2005 i.e. for A.Y. 2005-06 cannot be added as income in A.Y. 2004-05. The ld Assessing Officer had not verified the creditor s balance as on 31/3/2004 from the assessee s books as well as creditor s books and had not quantified the exact difference if any difference in their accounts. He simply made addition on the basis of difference in the credit balances in the accounts of these parties for A.Y. 2005-06. It is further confirmed from the CIT(A) s order wherein sundry creditors list in case of Yash enterprises and Arihant Corp. there were no outstanding creditors as on 31/3/2004. Even the ld Assessing Officer considered these parties for addition to the tune of ₹ 1,11,715/- in case of Arihant Corp. and ₹ 1,72,435/- in case of Yash Enterprises, which is not justifiable as there was no outstanding balance as on 31/3/2004 in case of above two parties. The ld Assessing Officer made addition in A.Y. 2005-06 as well as A.Y. 2004-05 in case of four parties and in case of Arihant corp. and Yash enterprises, he made addition without any creditors outstanding as on 31.03.2004. Therefore, the ld CIT(A) was not right to confirming the addition between difference in creditors as on 31/3/2003 and 31/3/2004, this increase can be on the basis of further purchase made by the assessee herself. In some of the cases, there is even reduction in outstanding creditors on payment. The Assessing Officer should have collected the information from the creditors directly to verify the outstanding creditors as on 31/3/2004 and should have compared with the assessee s books of account before making any addition, which has not been carried out by the Assessing Officer. Thus, the addition confirmed by the ld CIT(A) is deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order passed under Section 147 of the Income Tax Act, 1961.
2. Confirmation of addition of Rs. 20,06,973/- on account of alleged unexplained sundry creditors.

Issue-wise Detailed Analysis:

1. Legality of the order passed under Section 147 of the Income Tax Act, 1961:

The assessee challenged the legality of the order passed under Section 147, contending that the reassessment was based on incorrect grounds. The CIT(A) dismissed this ground, stating that the assessee had not made any submission on this ground of appeal, hence it was taken as not pressed. The tribunal noted that the Assessing Officer (AO) had issued a notice under Section 148 after recording reasons that income chargeable to tax amounting to Rs. 28,39,607/- had escaped assessment for the assessment year 2004-05. This was based on discrepancies noticed in the balance of sundry creditors during the scrutiny assessment proceedings for A.Y. 2005-06. The AO followed the guidelines set by the Hon'ble Supreme Court in the case of G.N.K. Driveshaft (India) Ltd. vs. I.T.O. (2003) 259 ITR 19 (SC). The tribunal found that the AO had not verified the creditor's balance as on 31/3/2004 from the assessee's books and creditors' books and had not quantified the exact difference. Thus, the tribunal concluded that the reopening of the assessment under Section 147 was not justified.

2. Confirmation of addition of Rs. 20,06,973/- on account of alleged unexplained sundry creditors:

The CIT(A) had confirmed the addition of Rs. 20,06,973/- based on the increase in sundry creditors from A.Y. 2003-04 to A.Y. 2004-05. The AO had determined that the balance of sundry creditors related to A.Y. 2004-05 was not tallied, and the assessee had not provided a satisfactory explanation. The AO made specific additions based on discrepancies found in the accounts of various creditors such as Anurag Sales Corporation, Swastik Trading Company, and P.K. Industries.

The assessee argued that the differences in the accounts of certain sundry creditors had already been considered while making a trading addition in A.Y. 2005-06. The CIT(A) had reduced the trading addition but still considered the differences in these accounts. The tribunal found that the AO had made a trading addition for A.Y. 2005-06 based on discrepancies in creditors' accounts, but no separate additions were made for these differences. The tribunal noted that the credit balances as on 31/3/2005 were cumulative and could not be added as income in A.Y. 2004-05. The tribunal also found that the AO had not verified the creditor's balance as on 31/3/2004 and had made additions based on differences in credit balances for A.Y. 2005-06. The tribunal concluded that the addition confirmed by the CIT(A) was not justified and deleted the addition of Rs. 20,06,973/-.

Conclusion:
The tribunal allowed the assessee's appeal, concluding that the reopening of the assessment under Section 147 was not justified, and the addition of Rs. 20,06,973/- on account of alleged unexplained sundry creditors was deleted.