2022 (4) TMI 539 - AT - Income Tax

Unverifiable creditors - case of the assessee that the assessee tried his best to persuade the aforesaid creditors to appear before the Assessing Officer and verify the aforesaid credits - HELD THAT - Assessee was not having control over the aforesaid creditors to compel their appearance before the Assessing Officer. On the other hand, AO had wide powers to compel the appearance of the aforesaid creditors before him but he failed to exercise that power. Counsel has also submitted that out of total addition on account of unverifiable creditors, an amount is pertaining to the earlier assessment year which has been brought forward as opening balance of the credits, which otherwise cannot be added back during the assessment year under consideration. Counsel has also relied upon the bank statements and copy of the ledger in the name of the assessee in the books of accounts of the aforesaid creditors and has further submitted that the assessee will produce the aforesaid two creditors before the AO. In our view, the interest of justice will be well-serve if the assessee is given an opportunity to produce the necessary evidences/creditors for the verification of the transaction in question. Impugned order of the ld. CIT(A) is set aside on this limited issue with a direction that the ld. CIT(A) will give an opportunity to the assessee to produce the evidences/creditors, if so required for the purpose of verification of genuineness of the transaction and creditworthiness of the creditors, thereafter the ld. CIT(A) will decide the issue afresh in accordance with law. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
Appeal against order limiting disallowance on account of unverifiable creditors and failure to consider additional evidence.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) limiting the disallowance on account of unverifiable creditors to a specific amount. The appellant argued that the opening balance of creditors from the previous year should not be considered as income for the current assessment year. The appellant also contended that the details of bank transactions with the creditors were available and that section 133(6) of the Income Tax Act was not the only way to verify transactions.

2. The main issue in the appeal was the addition made by the lower authorities on account of unverifiable creditors. The appellant claimed that efforts were made to persuade the creditors to appear before the Assessing Officer, but two creditors did not appear. However, the appellant managed to obtain copies of ledgers and bank statements to support the transactions. The appellant requested an opportunity to produce the creditors and relevant evidence to verify the genuineness of the transactions and the creditworthiness of the creditors.

3. The Tribunal considered the contentions of both parties and noted that the Assessing Officer had the power to compel the appearance of the creditors but failed to do so. It was highlighted that a portion of the total addition on account of unverifiable creditors was related to the opening balance from the previous year, which should not have been added back during the current assessment year. The Tribunal decided that the appellant should be given an opportunity to produce necessary evidence and creditors for verification purposes. The impugned order was set aside, and the Commissioner of Income Tax (Appeals) was directed to allow the appellant to present evidence for a fresh decision.

4. Consequently, the appeal of the assessee was treated as allowed for statistical purposes, emphasizing the importance of providing an opportunity for the appellant to produce evidence and creditors for the verification of transactions and creditworthiness. The decision aimed to ensure justice and compliance with the law in the assessment of unverifiable creditors.