2018 (9) TMI 1419 - AT - Income Tax

Addition under the head sundry creditors - addition on account of unexplained credit - Held that - In the present case of the assessee, neither the Assessing Officer nor the ld. D.R. at the time of hearing disputed the purchases made by the assessee and once purchases are not doubted, in such a scenario question of creditors being non-genuine does not arise. As held in CIT vs. Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT , it was the duty of the Assessing Officer to ensure production of those creditors before him and for the deeds of his inaction, assessee cannot be held liable. Assessee has always complied with the requirements of law before the Revenue authorities, meaning thereby they have filed additional evidences before the ld. CIT(A) on an application under rule 46A which provides that ld. CIT(A) may admit those additional evidences after confronting the same before the Assessing Officer to ascertain the veracity of those evidences. Instead of doing this exercise, ld. CIT(A) has summarily rejected the additional evidences placed before him under rule 46A on baseless and frivolous reasons which goes against the principles of natural justice. We find that complete names, addresses, amounts were provided by the assessee including entire confirmation from these creditors filed before us. CIT(A) has also not given a clear cut finding on the issue and has simply accepted the version of the Assessing Officer and the Assessing Officer, without taking procedure initiated by him under section 133(6) to a logical conclusion, has held the assessee liable for non-production of creditors, which is not warranted within the purview of tax legislation - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of addition of ?1,06,88,435/- under the head "Sundry Creditors" to the returned loss of ?26,80,346/-.
2. Non-admission of additional evidence by the CIT(A).

Issue-Wise Detailed Analysis:

1. Confirmation of Addition of ?1,06,88,435/-:

The primary issue in this appeal was the confirmation of the addition of ?1,06,88,435/- to the returned loss of ?26,80,346/- by the CIT(A) as imposed by the Assessing Officer under the head "Sundry Creditors". The assessee, engaged in construction and builder services, had filed its return of income at a loss of ?26,80,346/- for the assessment year 2014-15. During scrutiny, the Assessing Officer asked the assessee to provide complete details of sundry creditors, including addresses and payment modes. The assessee responded with details, attributing the increase in creditors to the full swing of construction activities during the relevant year. Notices under section 133(6) were issued to the creditors, which were served, but only one creditor responded. Consequently, the Assessing Officer added the entire amount of ?1,06,88,435/- to the income, citing non-response from other creditors.

The ITAT found that the assessee had provided complete details of sundry creditors, and the notices under section 133(6) were served, indicating genuine addresses. The Tribunal held that once the assessee has provided such details, the burden shifts to the Assessing Officer to take proceedings under section 133(6) to its logical end. The ITAT referenced judicial pronouncements, including CIT vs. Orissa Corporation Pvt. Ltd., which held that non-response to notices under section 133(6) cannot be held against the assessee if the addresses are genuine. The Tribunal noted that the Assessing Officer did not dispute the purchases made by the assessee, and thus, the question of creditors being non-genuine does not arise.

2. Non-Admission of Additional Evidence by the CIT(A):

The second issue was the non-admission of additional evidence by the CIT(A). The assessee contended that the previous counsel failed to submit all details of sundry creditors during the assessment proceedings, leading to the addition. The assessee sought to file additional evidence, including confirmations from creditors, before the CIT(A) under rule 46A. However, the CIT(A) rejected the additional evidence, stating that the assessee did not satisfactorily explain the reasons for non-production during the assessment proceedings and that sufficient opportunity had been provided.

The ITAT found that the CIT(A) summarily rejected the additional evidence on baseless reasons, which goes against the principles of natural justice. The Tribunal emphasized that rule 46A allows the CIT(A) to admit additional evidence after confronting it before the Assessing Officer. The ITAT concluded that the CIT(A) failed to give a clear finding on the issue and merely accepted the Assessing Officer's version without taking the procedure initiated under section 133(6) to a logical conclusion.

Conclusion:

The ITAT set aside the order of the CIT(A) and allowed the appeal of the assessee. The Tribunal found that the assessee had provided complete details and confirmations from creditors, and the Assessing Officer's failure to follow through with the procedure under section 133(6) could not be held against the assessee. The rejection of additional evidence by the CIT(A) was deemed unwarranted, and the appeal was allowed in favor of the assessee.

Order Pronounced:

The appeal of the assessee was allowed, and the order was pronounced in the open Court on 07/09/2018.