2015 (11) TMI 1311 - HC - Income Tax

Addition on consignment purchases made by the assessee - CIT(A) deleted the addition confirmed by ITAT - Held that - CIT (A) held that the single instance did not call for complete rejection of the Assessee s books of accounts. The CIT(A) gave a further opportunity to the Assessee to explain the discrepancy since the P&L Account was debited to an extent of ₹ 11,43,016/- towards own purchase , whereas the sale of milk had been shown as consignment sale to Apollo Hospital. The Assessee then filed a chart giving the break-up of the sale of milk to Apollo Hospital which showed that the purchase of the milk sold to it was already debited to the P&L Account. However, the sales of milk worth ₹ 21,65,485/- made to Apollo Hospital was not included in the P&L Account. After accounting for the commission income at 0.94 per cent the net addition of ₹ 11,97,312/- was directed to be made. As regards addition on account of undisclosed closing stock, the CIT(A) noted that an incorrect figure had been given by the Assessee by mixing the figures of monthly sales with monthly purchases in some months or by mixing up opening or closing stock at the end of the month with the relevant monthly purchases. The actual closing stock out of the consignment purchases amounted to ₹ 31,755/- which had been duly disclosed in the balance sheet. The An explanation offered by letter dated 15th February, 2006 had been accepted by the AO. The figures had been corrected on 22nd March, 2006 during the course of assessment proceedings. On this a remand report was requisitioned. After considering the report of the AO the CIT (A) was satisfied that the discrepancy in the figures had been satisfactorily explained by the Assessee and accordingly deleted the said addition correctly confirmed by ITAT. - Decided against revenue Addition on the ground of bogus creditors - CIT(A) deleted the addition confirmed by ITAT - Held that - CIT(A) was satisfied that one Khurshid S/o Fazal, who had been summoned was a wrong person and he had denied having a dealing with the Assessee. This was supported by a letter dated 9th March, 2006 of the Chartered Accountant. It was also urged before the CIT (A) that no serious attempt was made to summon vendors who lived in remote areas of UP and Haryana. The CIT (A) then asked the AO to conduct another inquiry and send a report. This report showed that the transactions were conducted with fourteen of the creditors in cash. The creditors had confirmed the supplies as well as credit balances. Only one of the creditors did not respond to the notice issued. The CIT (A), therefore, concluded that the identity and creditworthiness of the said creditors had not been doubted by the AO and the genuineness of the transaction was also not in doubt. The lack of response only from one of the creditors would not, therefore, make much of a difference. Unable to find any legal error committed by the ITAT - Decided against revenue

Summary

Issues:
1. Whether the Tribunal erred in directing the deletion of a sum on account of consignment purchases made by the assessee?
2. Whether the Tribunal erred in appreciating the circumstances leading to the deletion made by the AO on account of the finding that the identity, creditworthiness, and genuineness of the transactions with the assessee's creditors had not been duly established?

Analysis:
Issue 1:
The appeal under Section 260A of the Income Tax Act, 1961 was directed against the order passed by the Income Tax Appellate Tribunal (ITAT) regarding consignment purchases made by the assessee. The Assessee is in the business of supplying milk and milk products on a consignment basis. A survey under Section 133A of the Act was conducted, leading to scrutiny of the Assessee's accounts. The Assessing Officer (AO) rejected the claim of consignment purchases made by the Assessee, treating them as own trading of goods. The AO added amounts to the taxable income based on profit calculations and undisclosed closing stock. The Commissioner of Income Tax (Appeal) allowed the Assessee's appeal, considering additional evidence provided. The CIT (A) found discrepancies but did not reject the Assessee's books entirely. The net addition was directed after accounting for commission income.

Issue 2:
Regarding the deletion made by the AO on account of the creditors, the AO added amounts to the income of the Assessee due to unverified and unsubstantiated creditors. The CIT (A) found discrepancies in the figures provided by the Assessee but accepted explanations and additional evidence. The CIT (A) was satisfied with the identity and creditworthiness of most creditors. The ITAT concurred with the CIT (A)'s findings on both consignment sales and unexplained credits. The Court found no legal error in the conclusions of the ITAT, affirming the decisions in favor of the Assessee against the Revenue.

In conclusion, the Court dismissed the appeal, upholding the decisions in favor of the Assessee on both issues related to consignment purchases and creditors' identity and creditworthiness.