2022 (5) TMI 1330 - AT - Income Tax

Addition on account of large increase in Sundry Creditors with respect to turnover during the year - A/R submitted that it is an admitted fact that during the course of assessment proceedings the assessee could not substantiate the increase in the quantum of sundry creditors through documentary evidence - CIT-A deleted the addition - HELD THAT - We find that the Ld. CIT(A) has recorded a clear finding regarding domestic creditors as well as overseas creditors that their identity, credit-worthiness and genuineness of the transactions have been duly verified by the AO during the remand proceedings and no adverse finding has been recorded in this regard. During the course of hearing, nothing has been brought to our notice to disturb the said findings of the Ld. CIT(A) and therefore, the said findings remain unrebutted before us. Regarding the general trade practice of import against letter of credit, the Ld. CIT(A) has sought explanation from the assessee where the assessee has submitted that due to long standing business dealings with the suppliers of gypsum in Pakistan, they have not insisted on supply against letter of credit and the supplies have been regularly made against payments through regular banking channels and such practice is going on for a long time and being satisfied, CIT(A) has accepted the said explanation and we do not find any perversity in the said findings of the Ld. CIT(A) given the facts of the present case as against the general trade practice. In light of the same, we hereby confirm the findings and order of the Ld. CIT(A) and the ground of appeal taken by the Revenue is dismissed.

Summary

Issues:
- Appeal against deletion of addition of Rs. 1,91,98,342 on account of large increase in Sundry Creditors with respect to turnover during the year.

Analysis:
1. The Revenue appealed against the deletion of an addition of Rs. 1,91,98,342 on account of a significant increase in Sundry Creditors compared to the turnover during the year. The Assessing Officer (AO) selected the case for limited scrutiny due to this large increase. The assessee attributed the increase to higher purchases and direct expenses but failed to provide substantial evidence to support this claim. Consequently, the AO made the addition as the explanation was deemed insufficient. The Commissioner of Income Tax (Appeals) observed anomalies in accounting for overseas creditors but still deleted the addition made by the AO.

2. The appellant contended that additional evidence, including ledger accounts, VAT returns, and other documents, were submitted during the appellate proceedings to substantiate the increase in Sundry Creditors. The Commissioner of Income Tax (Appeals) admitted and considered these additional evidences. The appellant argued that the AO did not report any adverse findings regarding the identity and genuineness of the creditors during the remand proceedings. The appellant emphasized that the Commissioner's reasoned order, based on the remand report and additional information, should be upheld.

3. The Commissioner of Income Tax (Appeals) carefully reviewed the Assessing Officer's findings, the appellant's submissions, and the counter comments. The Commissioner noted that the AO did not dispute the increase in credit balances related to the assessment year under consideration. The Commissioner found no adverse comments on the veracity of the overseas creditors' closing balances during the remand proceedings. The Commissioner acknowledged the regular practice of the appellant in accounting for exchange rate fluctuations but highlighted some inconsistencies. Despite minor irregularities, the Commissioner concluded that the additions on account of Sundry Creditors should be deleted.

4. The Tribunal upheld the Commissioner's findings, noting that the identity, credit-worthiness, and genuineness of the transactions of both domestic and overseas creditors were verified during the remand proceedings. The Tribunal found no reason to disturb the Commissioner's findings and dismissed the Revenue's appeal. The Tribunal also confirmed the Commissioner's acceptance of the explanation provided by the assessee regarding the trade practices with overseas suppliers. Consequently, the Tribunal upheld the order of the Commissioner, and the appeal of the Revenue was dismissed.