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2021 (12) TMI 759 - AT - Income TaxAddition u/s 68 - bogus creditors - HELD THAT - There is a valid confirmation letter and the outstanding is on account of purchases from that company and the AO cannot doubt the genuineness of the transaction and capacity of the lender. Being so, the CIT(Appeals) has taken a correct view of facts of the case and accordingly this ground of the revenue is dismissed. With regard to the addition on account of purchase payable, the CIT(Appeals) observed that the assessee has filed complete list with names of parties and the amount outstanding from the various parties and most of the creditors are below ₹ 5 lakhs. According to the CIT(A), these credits are genuine and outstanding on account of purchases - these purchases ought to have been verified individually so as to satisfy the identity, creditworthiness and genuineness of the transactions which the CIT(Appeals) failed to do so. In view of this, we remit this issue to the file of the AO for fresh consideration - Revenue s appeal is partly allowed for statistical purposes.
Issues involved:
1. Treatment of creditors by the CIT(A) - genuineness and confirmation submission 2. Application of section 68 of the Income-tax Act 3. Treatment of specific creditors - Mrs. Nirmala, Mrs. Vilva Lakshmi, and Brakes India Ltd. 4. Addition of purchase payables and verification of transactions Issue 1: Treatment of creditors by the CIT(A) - genuineness and confirmation submission The appeal involved a dispute between the revenue and the assessee regarding the treatment of creditors by the CIT(A). The revenue questioned the acceptance of creditors' confirmations submitted during appellate proceedings but not during assessment proceedings. The CIT(A) upheld the genuineness of certain creditors based on confirmations submitted. The ITAT found that where valid confirmation letters were filed before the AO, the addition made by the AO without proper inquiry was rightly deleted by the CIT(A). The ITAT confirmed the CIT(A)'s decision in this regard. Issue 2: Application of section 68 of the Income-tax Act The AO had treated certain creditors as bogus and added them to the income of the assessee under section 68 of the Act. The CIT(A) called for a remand report and observed that confirmations for some creditors had been submitted during assessment proceedings. The ITAT upheld the CIT(A)'s decision to delete the addition made by the AO in cases where valid confirmation letters were filed before the AO. However, in cases where confirmations were not submitted during scrutiny proceedings, the ITAT sustained the addition based on credibility reasons. Issue 3: Treatment of specific creditors - Mrs. Nirmala, Mrs. Vilva Lakshmi, and Brakes India Ltd. Regarding specific creditors, Mrs. Nirmala and Mrs. Vilva Lakshmi, the ITAT found that while confirmations were filed, discrepancies in the closing balance led to adjustments in the additions. The ITAT upheld the CIT(A)'s decision to sustain the addition in Mrs. Nirmala's case to the extent of the excess liability. In the case of Brakes India Ltd., the ITAT agreed with the CIT(A) that a valid confirmation letter and the nature of the outstanding justified the deletion of a significant portion of the addition made by the AO. Issue 4: Addition of purchase payables and verification of transactions The addition of purchase payables was contested, with the CIT(A) considering most of the credits as genuine. However, the ITAT found that individual verification of these purchases was necessary to establish their identity, creditworthiness, and genuineness. As the CIT(A) failed to conduct this verification, the ITAT remitted this issue back to the AO for fresh consideration. The revenue's appeal was partly allowed for statistical purposes, and the CO by the assessee was dismissed. This detailed analysis covers the key issues involved in the legal judgment delivered by the ITAT Bangalore.
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