2019 (11) TMI 331 - AT - Income Tax

Penalty u/s 271(1)(c) - sundry creditors u/s 68 as alleged unexplained cash credit - HELD THAT - After considering the submissions of both the parties and perusing the entire material available on record along with the orders of authorities below as well as the case relied upon by the assessee, we find in this case that the lower authorities have disallowed only sundry creditors for want of verification but the corresponding purchase, sales and net profit declared by the assessee have been accepted by the authorities below. Our this view is supported by the decision of coordinate bench of the Tribunal in the case of M/s Gulf Steel Minerals 2018 (5) TMI 627 - ITAT RANCHI AO is wrong in making the impugned addition on account of sundry creditor, which are related to purchases and the same also accepted by the AO as genuine. Without rejecting the purchases, the sundry creditors cannot be treated as income of assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of sundry creditors under Section 68 of the Income Tax Act for the assessment year 2015-2016.
2. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act for the assessment year 2013-2014.

Issue-Wise Detailed Analysis:

1. Addition of Sundry Creditors under Section 68 (Assessment Year 2015-2016):

The assessee contested the addition of ?2,77,65,917 as unexplained cash credit under Section 68 of the Income Tax Act. The argument was that ?2,12,36,651 of this amount was the opening balance and could not be considered unexplained for the current year. Additionally, ?65,29,356 was disclosed under the Income Declaration Scheme (IDS), and taxes were paid accordingly. The assessee maintained that the sundry creditors were duly recorded in the books and not written off.

The Tribunal noted that the lower authorities disallowed the sundry creditors solely for lack of verification, despite accepting the corresponding purchases, sales, and net profit. Citing the case of M/s Gulf Steel & Minerals, the Tribunal emphasized that if purchases are accepted as genuine, the corresponding sundry creditors cannot be treated as bogus. The Tribunal referenced multiple cases, including CIT vs. Ritu Anurag Aggarwal and Vardhman Overseas Ltd., to support the view that additions under Section 68 or 41(1) cannot be made if the purchases are genuine and the liabilities are not written off.

The Tribunal concluded that the CIT(A) was incorrect in confirming the additions and directed the deletion of the impugned additions, thereby allowing grounds 1 to 4 in favor of the assessee.

2. Confirmation of Penalty under Section 271(1)(c) (Assessment Year 2013-2014):

The assessee also appealed against the confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act. Since the Tribunal directed the deletion of the addition made by the AO on account of sundry creditors in the quantum appeal, the penalty under Section 271(1)(c) was deemed unsustainable. Consequently, the penalty was directed to be deleted, and the appeal on this ground was allowed.

Conclusion:

The Tribunal allowed both appeals filed by the assessee. The addition of sundry creditors under Section 68 for the assessment year 2015-2016 was deleted, and the penalty under Section 271(1)(c) for the assessment year 2013-2014 was also deleted. The judgment emphasized the importance of verifying the genuineness of purchases and the corresponding liabilities before making additions under Sections 68 and 41(1) of the Income Tax Act.