2017 (6) TMI 173 - AT - Income Tax

Addition u/s 68 - Held that - In the present appeal the Assessing Officer or the Ld. CIT-A in their orders has not given finding whether the credits in question pertain to the year under consideration or pertain to earlier years. In our view if the credits in question pertained to earlier years no addition could have been made in the year under consideration. In the facts and circumstances of the case we feel it appropriate to restore the issue to the file of the Assessing Officer for verification whether the amount added under section 68 of the Act are opening balances of the creditors and if that is so then directed to decide the issue in view of our finding above. If the credits pertain to the year under consideration then the action should be taken in terms of section 68 of the Act following the finding of the Tribunal in the case of M/s. Gupta Metal Sheet Pvt. Ltd. (2016 (4) TMI 504 - ITAT DELHI). It is needless to mention that assessee shall be afforded reasonable opportunity of hearing. Accordingly ground of the appeal is allowed for statistical purpose.

Summary

Issues involved:
Addition under section 68 of the Income Tax Act, 1961 based on unexplained creditors.

Analysis:

1. Addition under section 68 of the Income Tax Act:
The case involved an appeal against the addition of ?2,19,59,977 under section 68 of the Income Tax Act, 1961. The Assessing Officer had made the addition concerning three creditors - Yamuna Traders, Ganpati Traders, and Shiwalik Enterprises. The CIT(A) upheld the addition, emphasizing the importance of proving the identity, genuineness of the transaction, and creditworthiness of the creditors as per section 68. The CIT(A) noted that while the identity of the concerned party was established, the other requirements were not met. The appellant failed to provide convincing reasons or material substantiation to counter the findings of the AO. The Tribunal found that the appellant had not discharged the initial burden of proof required under section 68. The Tribunal highlighted discrepancies in the transactions and lack of supporting documentation, leading to the confirmation of the addition.

2. Verification of credits pertaining to the assessment year:
The appellant argued that the additions were opening balances of sundry creditors and should not have been made in the year under consideration. Citing a similar case involving M/s Gupta Metal Sheet Private Limited, the appellant requested verification to determine if the credits belonged to the assessment year in question or earlier years. The Tribunal, in line with the M/s Gupta Metal Sheet Private Limited case, decided to provide the appellant with an opportunity to prove the legitimacy of the credits. The matter was remanded to the Assessing Officer for a fresh examination, emphasizing the need for the appellant to substantiate the creditor's creditworthiness. The Tribunal directed the AO to ascertain whether the purchases were genuine and to decide the issue accordingly.

3. Restoration of the issue to the Assessing Officer:
The Tribunal observed that neither the Assessing Officer nor the CIT(A) had determined whether the credits in question related to the year under consideration or earlier years. Acknowledging that no addition could be made if the credits pertained to previous years, the Tribunal remanded the issue to the Assessing Officer for verification. The Assessing Officer was instructed to ascertain if the added amounts were opening balances of the creditors. If the credits were from the current year, the Tribunal directed the AO to take action as per section 68. The appellant was granted a reasonable opportunity to present their case during the reassessment process.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of verifying the nature and timing of the credits before making additions under section 68 of the Income Tax Act, 1961.