2021 (6) TMI 890 - AT - Income Tax

Disallowance of opening balance of sundry creditors - Second statutory appeal - HELD THAT - Purchases made from creditors were in earlier year payments were made through banking channel and same are part of paper book and ledger account of creditors along with statement of purchases are part of paper book. ITAT Delhi Bench in the matter of Smt. Sudha Loyalka 2018 (7) TMI 1892 - ITAT DELHI where A.O. made addition to assessee's income under section 69C in respect of amount payable to creditors towards purchases, in view of fact that said purchases were duly recorded in books of account and sales made against those purchases were not disputed, impugned addition was to be set aside. ITAT held no addition could be made under section 41(1) in respect of unexplained purchases where amount was shown as payable in balance sheet and thus there was no cessation of liability. Respectfully following the Jurisdictional High Court order in DATTATRAY POULTRY BREEDING FARM PVT LTD 2018 (12) TMI 1636 - GUJARAT HIGH COURT and parity with the Delhi ITAT order and sales were not disputed by the lower authorities, so in view of the above, we allow this ground of appeal. Notional short term capital gain on transfer or otherwise of some real estate asset - Addition of short term capital gain erroneously considered by the appellant in computation of total income - Contention of the ld. A..R. was that assessee moved an application u/s. 154 of the Act stating that he has inadvertently made the claim of capital gain and explained all the details pertaining to property - HELD THAT - The present Assessee's case is of assessment year 2014-15 and after going through the sale deed we have noted that property was sold on 19.08.2019 and in his balance sheet assessee has shown it as an investment not as a closing stock and same is part of paper book at page no. 5. Since assessee inadvertently shown the property as capital asset and moved an application before the lower authority u/s. 154 for rectification of the order but ld. A.O. did not pay and any heed and same property was shown as investment in the individual balance sheet of the assessee. In such case notional capital gain cannot be added. Thus this ground of appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of opening balance of sundry creditors
2. Addition of short term capital gain erroneously considered

Issue 1: Disallowance of opening balance of sundry creditors

The appeal was against the CIT(A)'s order upholding the disallowance of a specific amount out of the total addition made by the Assessing Officer concerning the opening balance of sundry creditors in the assessee's books. The assessee, engaged in building construction and architectural work, had shown a certain amount as sundry creditors. The Assessing Officer requested details and confirmation from the creditors, leading to discrepancies. The AO considered the transactions as accommodation entries, resulting in the addition. The CIT(A) confirmed this decision. The appellant argued that purchases were made in earlier years, payments were through banking channels, and sales against these creditors were not disputed. Citing relevant case laws, the Tribunal allowed the appeal, emphasizing the genuineness of the liabilities and lack of cessation thereof.

Issue 2: Addition of short term capital gain erroneously considered

The second ground of appeal related to the addition of a short term capital gain that the appellant had erroneously considered in the computation of total income. The property in question had been converted from a fixed asset to an investment but had not been disposed of, maintained at the original value in all relevant years. The AO applied section 45(2) regarding conversion of capital assets to stock-in-trade. The appellant claimed inadvertent inclusion of capital gain and sought rectification, citing relevant case law. The Tribunal, after examining the facts and sale deed, noted the property was sold after the assessment year in question. As the property was shown as an investment and the appellant had sought rectification, the Tribunal allowed this ground of appeal, emphasizing that notional capital gain could not be added in this scenario.

In conclusion, the Tribunal allowed the appeal filed by the Assessee, overturning the decisions of the lower authorities in both issues. The judgment provided detailed analysis and application of relevant legal principles to address the concerns raised by the Assessee in challenging the additions made by the Assessing Officer and upheld by the CIT(A).