2018 (3) TMI 1579 - AT - Income Tax

Addition u/s 68 - credit purchase of Supari, as unexplained cash credits - Held that - The assessee had made purchases of ₹ 3,00,90,226/- from M/s. Ganesh Trading Co., Kolkata on credit, against of which, part payment of ₹ 65,00,000/- was made to the said creditor through banking channel and balance amount of ₹ 2,35,90,226/- was shown as credit balances appearing in the name of said creditor in the books of assessee, which too was paid in succeeding years through banking channel and the Revenue Authorities have not raised any doubt on discharge of this liability in subsequent years. The assessee has also filed a comparative chart, showing the turnover, gross profit and net profit for three consecutive years including the year in dispute, on perusal of which, it is found that the gross profit and net profit shown by the assessee is progressive and the AO has not doubted the same. It is also worth mentioning that the addition of ₹ 2,35,90,226/- if added to the declared profit of ₹ 8,69,652/- as shown in the comparative chart filed, the gross profit would work out to ₹ 2,44,59,878/- giving GP rate of 105.22%, which is not appealing to reason at all. In view of all these facts and laying our hands on the aforesaid decisions, we are of the considered opinion that the addition made by the AO and sustained by the ld. CIT(A) was not justified. Thus addition is not sustainable - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 68 of the Income-tax Act, 1961.
2. Addition of ?2,35,90,226 to the income of the assessee.
3. Authority of CIT(A) to travel beyond the subject matter of the assessment order.
4. Non-adjudication of interest charged under Sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Applicability of Section 68 of the Income-tax Act, 1961:
The primary issue revolves around the addition of ?2,35,90,226 made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961, which was confirmed by the CIT(A). The AO treated this amount, shown as payable to M/s. Ganesh Trading Co., Kolkata, towards the credit purchase of Supari, as unexplained cash credits. The assessee, engaged in the trading business of Kirana items, had filed its return declaring a taxable income of ?9,86,250. During the assessment, the AO scrutinized the credit balances in the names of three sundry creditors. While the balances for M/s. Jet Road Carriers and M/s. Raman Trading Co. were accepted as genuine, the credit balance for M/s. Ganesh Trading Co. amounting to ?2,35,90,226 was not accepted as genuine. Despite multiple notices issued under Section 133(6) to verify the identity and creditworthiness of M/s. Ganesh Trading Co., the responses were either unserved or incomplete. Consequently, the AO added the amount to the total income of the assessee under Section 68, citing the assessee's failure to satisfactorily explain the identity, creditworthiness, and genuineness of the creditor.

2. Addition of ?2,35,90,226 to the income of the assessee:
The assessee contested the addition, providing substantial documentary evidence to prove the genuineness of the creditor, including purchase invoices, bank statements, goods receipts, and payment proofs. The CIT(A), however, upheld the AO's addition after further verification through a commission issued to the ITO, Ward-1 Imphal, who conducted an enquiry and recorded the statement of the proprietor of M/s. Ganesh Trading Co. Despite the additional evidence and the statement confirming the transactions, the CIT(A) endorsed the AO's view and upheld the addition. The Tribunal, upon reviewing the evidence and arguments, found that the identity, creditworthiness, and genuineness of M/s. Ganesh Trading Co. were sufficiently established. The Tribunal noted that the accounts of the assessee were audited, and no adverse comments were made regarding the correctness and completeness of the accounts. The Tribunal also observed that the corresponding sales from the purchase of Supari were genuine, and the trading results were not doubted by the AO. Therefore, the addition made by the AO and confirmed by the CIT(A) was deemed unjustified.

3. Authority of CIT(A) to travel beyond the subject matter of the assessment order:
The assessee argued that the CIT(A) erred by traveling beyond the subject matter of the assessment order. The Tribunal found that the CIT(A)'s findings were based on the evidence and submissions provided during the appeal process, which were relevant to the matter at hand. The Tribunal did not find any indication that the CIT(A) had exceeded their authority or scope in addressing the issues raised in the appeal.

4. Non-adjudication of interest charged under Sections 234A and 234B:
The assessee contended that the CIT(A) failed to adjudicate the interest charged under Sections 234A and 234B. The Tribunal did not specifically address this issue in the detailed analysis provided, focusing primarily on the main issue of the addition under Section 68. However, given the Tribunal's decision to allow the appeal and delete the addition of ?2,35,90,226, the interest charged under Sections 234A and 234B would consequently be impacted, as these charges are typically based on the assessed tax liability.

Conclusion:
The Tribunal concluded that the addition of ?2,35,90,226 made by the AO and confirmed by the CIT(A) under Section 68 was not sustainable. The Tribunal allowed the appeal of the assessee, finding that the identity, creditworthiness, and genuineness of the sundry creditor, M/s. Ganesh Trading Co., were sufficiently established through substantial documentary evidence and the statements recorded during the enquiry. The Tribunal emphasized that the accounts of the assessee were audited, and the trading results were not doubted by the AO, further supporting the assessee's position.

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