2019 (10) TMI 1174 - AT - Income Tax

Additions towards sundry creditors - assessee could not explain creditors with necessary evidence to the satisfaction of the AO nor prove genuineness of transactions - According to the AO, notices issued to few parties were returned unserved - HELD THAT - It is not a case of the AO that the assessee did not file any documents in respect of creditors to prove identity and genuineness of transactions. In fact, the CIT(A) has recorded categorical finding that the assessee has filed various details including PAN and TIN numbers of the parties. CIT(A) has also recorded categorical finding that the assessee has filed proof of payment by cheque against creditors in subsequent financial years. Therefore, we are of the considered view that it is incorrect on the part of the learned AO as well as CIT(A) to come to the conclusion that the assessee has failed to prove identity of the creditors. Genuineness of transactions - The assessee claims that before lower authorities, it has filed various evidences including bills issued by the parties which contain PAN and TIN numbers of the suppliers. The assessee further claims that it has deducted TDS on payments made to those parties and filed necessary TDS certificates before the AO as well as the CIT(A). When payments have been made through proper banking channels and also necessary TDS has been deducted on such payments, it cannot be said that the transactions between the parties are not genuine. Further, when the assessee has filed various evidences including PAN and TIN numbers of the parties to prove identity and also filed evidences of payment by cheque in subsequent years, then there is no reason for the AO to doubt identity and genuineness of transactions merely for the reason of non filing confirmation letters from the parties. The assessee has explained the reasons for non-furnishing confirmation letters from few parties as per which those parties have closed their business before assessment proceedings was completed. In respect of other parties, even though it could not obtain confirmation letters, but filed all possible details including payment proof by cheque along with letters from the bankers confirming payment to the party account. AO as well as the learned CIT(A) had erred in coming to the conclusion that the assessee had failed to file necessary evidences to prove genuineness of creditors. In so far as M/s. Air State Logistics Couriers Pvt. Ltd.as per assessee s books of accounts, balance outstanding as on 31.03.2011 is at ₹ 8,56,641/-. Even going by the details filed by the assessee, there is huge difference in balance as per books of accounts of the assessee and balance confirmed by the party. The assessee claims that there are some reconciliation issues between balance shown in books of accounts of the assessee and balance confirmed by the party for which necessary reconciliation can be filed to explain difference. Therefore, the learned AR for the assessee requested to set aside the issue to the file of the AO for further verification in light of reconciliation filed by the assessee to explain difference in balance appeared in assessee books of accounts and balance confirmed by the party. But, the fact remains that the assessee has filed certain additional evidences in form of TDS certificates and payment through cheque in subsequent financial years against those creditors. We are not sure whether these documents were placed before the AO at the time of assessment proceedings or not. Therefore, we are of the considered view that the issued needs to go back to the file of the AO for further verification in light of various evidences filed by the assessee including payment proof by cheque in subsequent financial years. Isue needs to go back to the file of the AO for further verification in light of various evidences filed by the assessee including additional evidences filed in the form of TDS certificates and payment proof by cheque in subsequent years to those creditors. Hence, we set aside the issue to the file of the AO and direct him to reconsider the issue in accordance with law, after affording opportunity of being heard to the assessee. Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Failure to direct assessing officer to exercise option u/s 131 of the I.T. Act for sundry creditors.
2. Error in confirming balance outstanding in sundry creditors account.
3. Confirmation of outstanding balance without providing copy of confirmation/statement.
4. Lack of opportunity for cross-examination of creditor.
5. Failure to provide opportunity to reconcile differences in creditor balances.

Issue 1:
The appeal contested the failure of the CIT(A) to direct the assessing officer to exercise the option under section 131 of the Income Tax Act for sundry creditors. The appellant argued that despite producing proof of payment through banking channels, the notice issued under section 133(6) was not served to some creditors. The AO had made additions to the total income based on the assumption that certain creditors were not genuine due to lack of confirmation letters.

Issue 2:
The appeal challenged the CIT(A)'s confirmation of the balance outstanding in the sundry creditors account, despite the appellant deducting TDS for all payments, including the outstanding balance. The appellant contended that TDS deductions proved the identity of the creditors, which the CIT(A) did not acknowledge, leading to the addition made by the assessing officer.

Issue 3:
The CIT(A) confirmed the outstanding balance as of 31.03.2011 for M/s. Air State Logistics & Couriers Pvt. Ltd. based on information received from a notice under section 133(6) without providing a copy of the confirmation/statement from the creditor. This lack of transparency in confirming the balance was a point of contention in the appeal.

Issue 4:
The CIT(A) was criticized for not directing the assessing officer to provide an opportunity for the appellant to cross-examine M/s. Air State Logistics & Couriers Pvt. Ltd., even after submitting proof of payment through banking channels. The appellant sought the chance to verify and clarify details with the creditor, which was not facilitated by the authorities.

Issue 5:
The appeal highlighted the need for an opportunity to reconcile differences in creditor balances. The appellant argued that despite providing necessary evidence, including PAN and TIN details, along with payment proofs through banking channels, the additions made by the assessing officer were upheld by the CIT(A) based on the absence of confirmation letters from creditors. The appeal emphasized the importance of considering all evidence provided by the appellant to establish the genuineness of transactions.

In conclusion, the Appellate Tribunal directed the assessing officer to reevaluate the issues in light of the evidence presented by the appellant, including additional documents such as TDS certificates and payment proofs by cheque in subsequent years. The decision aimed to ensure a fair assessment process and an opportunity for the appellant to address discrepancies in creditor balances.