2016 (4) TMI 1347 - AT - Income Tax

Addition u/s 68 - assessee failure to fulfill requisite condition of identity of creditor and genuineness of the transaction despite the opportunities given by the AO - HELD THAT - We find that the amount in question is a brought forward balance as shown in the account of the two parties viz. M/s.Beijia Industrial Co. Ltd. and M/s.S.I.International Co. who are stated to be suppliers of the assessee. CIT(A) has recorded the fact that the assessee has claimed this amount being a brought forward balance in the ledger accounts of the creditors - AO made the addition on the ground that the assessee failed to produce the confirmation of the creditor - this amount was shown as credit for the financial year 2005-06 and continued as carried forward till this year then it would not be a case of credit entries in the books of account of the assessee during the year under consideration. Therefore when no cash credit was entered into books of account during the year under consideration then no addition u/s 68 can be made in respect of this amount of credit balance shown in the books of account. As regards the genuineness of the transaction is concerned if the assessee failed to prove the existence of the liability in question then the addition can be made under the provisions of sec.41(1) or sec.28 of the Act and not u/s 68 - wet aside this issue to the record of the AO to re-examine the same in the light of the judgment of the Hon ble Delhi High Court in the case of Usha Stud Agricultural Farm Ltd.(2008 (3) TMI 91 - DELHI HIGH COURT). The assessee is also directed to explain the status of the repayment of the liability. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
- Disputed genuineness of sundry creditor transactions for assessment year 2008-09.

Analysis:
The appeal was filed against the order of the CIT(A) for the assessment year 2008-09, with the main contention being the genuineness of the sundry creditor transactions. The AO had noted credits related to two creditors, M/s.Beijia Industrial Co. Ltd. and M/s.S.I.International Co., without confirmations from them. The AO added these amounts back to the total income of the assessee due to the absence of business transactions and confirmations. The assessee argued that these credits were brought forward balances from earlier years and no new credits were introduced during the assessment year. The CIT(A) upheld the addition made by the AO, leading to the appeal before the ITAT.

The ITAT considered the submissions and the material on record. It was noted that the amounts in question were indeed brought forward balances in the ledger accounts of the two creditors. The CIT(A) acknowledged this fact but emphasized the lack of creditor confirmations. The ITAT observed that if the credit balance was carried forward from previous years and not introduced as new credits during the assessment year, no addition under section 68 of the Income Tax Act could be made. The genuineness of the transaction was crucial, and failure to prove the liability's existence could lead to additions under other sections of the Act, not under section 68. Therefore, the ITAT set aside the issue for the AO to re-examine in line with the judgment of the Delhi High Court and directed the assessee to clarify the repayment status of the liability.

Ultimately, the ITAT allowed the appeal of the assessee for statistical purposes, indicating a favorable outcome regarding the disputed genuineness of the sundry creditor transactions for the assessment year 2008-09.