2020 (5) TMI 47 - AT - Income Tax

Addition u/s 68 - Bogus outstanding balance pertaining to the sundry creditors - HELD THAT - Genuineness of the same was not disproved by the assessing officer. In the light of the above facts and circumstances, we observed that the assessing officer has incorrectly applied section 68 of the act in respect of outstanding balance of sundry creditors reported by the assessing officer. In addition to above, the assessee has clearly demonstrated the outstanding balance in the name of said parties have been squared off in the subsequent year by payment from account payee cheques as demonstrated in the paper book which was not disputed by the assessing officer. Considering the above facts and circumstances, we are not inclined with the decision of ld. CIT(A), therefore, the appeal of the assessee is allowed. Levy penalty u/s. 271(1)(c) - quantification of purchases sales and estimated addition to profit to the extent of ₹ 15% only - HELD THAT - It is noticed that assessing officer has not confronted the assessee to produce the parties who were not found at the given addresses. The Co-ordinate Bench of the ITAT had deleted the additions except sustaining the addition on estimated basis to the extent of ₹ 15%. Considering the facts and sustaining of additions on merely estimated basis, we observe that given circumstances it is not a fit case to levy penalty u/s. 271(1)(c) of the act, therefore, penalty levied in this case is deleted. Accordingly, the appeal of the assessee is allowed. Estimation of gross profit @ 3.82% as averages on last three years - HELD THAT - As during the course of survey against book value of goods the value of goods on physical verification was found to the extent of ₹ 30,75,989/-. In spite of giving a number of opportunity at the level of assessing officer and at the level of CIT(A) the assessee could not produce any evidence to reconcile differences, therefore, we do not find any merit in this appeal of the assessee, therefore, the same stands dismissed.

Summary

Issues Involved:
- Addition of bogus liability u/s. 68 of the Income Tax Act
- Sustaining of penalty u/s. 271(1)(c) on additions made by the assessing officer

Analysis:

Issue 1: Addition of Bogus Liability u/s. 68 of the Income Tax Act
- The appeals were filed against the decision of confirming additions made by the assessing officer on account of bogus liability, estimation of gross profit, and penalty levied u/s. 271(1)(c) of the Act.
- The assessing officer treated outstanding balance of sundry creditors as bogus liability and added it u/s. 68 of the Act.
- The appellant contended that section 68 is only applicable to amounts received during the year, and the outstanding balances were squared off in subsequent years through account payee cheques, which the assessing officer did not dispute.
- The Tribunal observed that the assessing officer incorrectly applied section 68 to the outstanding balances, as no purchases were made from the parties in question during the year, and the outstanding amounts were paid off in subsequent years through account payee cheques.
- The Tribunal allowed the appeal, noting that the assessing officer failed to disprove the genuineness of the payments made by the appellant.

Issue 2: Sustaining of Penalty u/s. 271(1)(c) on Additions Made
- In one case, the penalty was levied on the quantum addition made u/s. 68 of the Act, which was later deleted, rendering the penalty infructuous.
- In another case, the penalty was levied on the enhanced addition made by the CIT(A) on purchases from certain parties. The Tribunal noted that most additions were deleted, and only a marginal amount was sustained on an estimated basis.
- The Tribunal found that the assessing officer incorrectly added outstanding balances of sundry creditors u/s. 68 without confronting the appellant to produce the parties. Considering the circumstances and the sustained additions on an estimated basis, the penalty was deleted.
- The Tribunal allowed the appeals against the penalties levied u/s. 271(1)(c) in these cases.

Conclusion:
- The Tribunal allowed the appeals related to the addition of bogus liabilities and penalties levied u/s. 271(1)(c) based on the incorrect application of provisions and lack of evidence to support the additions.