2022 (6) TMI 842 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - onus to prove - AO concluded that the creditworthiness and genuineness of the transactions had not been proved - summons u/s 131 could not be served because of sundry creditors were not traceable by the Jurisdictional Assessing Officer at the given address by the assessee goes to prove that the identity of the sundry creditors was bogus - As submitted by assessee Mere fact that the notices u/s 133(6) and summons u/s 131 could not be served, it does not lead to conclusion that the sundry creditors are bogus especially in the light of fact that the loans were repaid through banking channel along with interest after deduction of tax deducted at source in the subsequent assessment years - HELD THAT - Indisputably, the assessee had discharged the onus lying upon him by filing all the necessary details and particulars such as PAN Numbers, copies of returns of income, bank statements etc. The mere fact that the sundry creditors had failed to respond to the notices issued u/s 131 could not justify any adverse inference being drawn against the assessee in the light of the judgement of the Hon ble Supreme Court in the case of CIT vs. Orissa Corpn, (P.) Ltd 1986 (3) TMI 3 - SUPREME COURT The same ratio was followed by the Hon ble Delhi High Court in the case of CIT vs. Divine Leasing Finance Ltd. 2006 (11) TMI 121 - DELHI HIGH COURT In the present case, though the Department is in possession all full particulars of loan creditors, such as bank passbook, etc, nothing more than mere issue notice u/s 131 of the Act was done by the Assessing Officer. There was no effort made to pursue the creditors. Even the Assessing Officer granted unreasonably short time to produce the sundry creditors before the Assessing Officer. Considering these circumstances, we are of the considered opinion that the Assessing Officer had not discharged the onus of burden of proving that had shifted to it that the sundry creditors are bogus and credits represent the income of the assessee. Therefore, the Assessing Officer as well as the ld. CIT(A) had failed to appreciate the facts and law in proper perspective. Accordingly, we set aside the orders of the lower authorities and direct the Assessing Officer to delete the addition - Decided in favour of assessee. Addition u/s 41(1) - AO made addition disbelieving the genuineness of the credit and brought the tax u/s 41(1) - CIT(A) considering the fact that the sundry creditors are not written off in the books of accounts held that the question of invoking provisions of section 41(1) does not arise - HELD THAT - It is settled position of law that merely because the credit was outstanding for long time does not lead to conclusion that the sundry creditors are not payable. We find from the material on record that there is a material on record in the form of credit notes issued by the appellant as to how the amount became payable to these parties. This evidence was not reverted by the Department. The submission made by the assessee that these amounts were paid in the subsequent year through banking channel remained uncontroverted. The burden lies upon the Department to establish the cessation of liability before invoking the provisions of section 41(1) of the Act. Apparently, this burden was not discharged by the Revenue, inasmuch as, the amounts of sundry creditors were paid in the subsequent year then there is no scope to invoke the provisions of section 41(1) by the Assessing Officer. Thus, we do not find any illegality and perversity in the order of the ld. CIT(A) to delete the addition made u/s 41(1) of the Act. Thus, we do not find any merits in the ground of appeal no.3 filed by the Revenue dismissed.

Summary

Issues Involved:
1. Addition of sundry creditors' loans under Section 68.
2. Addition under Section 41(1) for unpaid sundry creditors.

Issue-wise Detailed Analysis:

1. Addition of Sundry Creditors' Loans under Section 68:

The assessee, engaged in the wholesale trading of sugar, filed a return of income for the assessment year 2012-13. The Assessing Officer (AO) completed the assessment at a significantly higher income by adding Rs.13,25,72,525/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The AO determined that the assessee failed to prove the identity, creditworthiness, and genuineness of loans received from 57 parties. Notices issued under Section 133(6) to verify the creditors were returned unserved for 23 parties, and the Jurisdictional Assessing Officers (JAOs) could not trace many creditors. Consequently, the AO concluded that the transactions were not genuine.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] partly upheld and partly deleted the additions. The CIT(A) found that the assessee had provided sufficient evidence for 41 creditors, including bank statements, affidavits, and IT returns, thus proving the genuineness of these transactions. However, for 16 creditors, the CIT(A) upheld the addition, noting that the notices under Section 133(6) could not be served and the creditors were untraceable.

The assessee appealed against the addition of Rs.3,52,00,150/- for these 16 creditors, arguing that the necessary documents proving the identity, creditworthiness, and genuineness were provided. The Tribunal noted that the assessee had discharged the onus by filing relevant documents and that the mere non-service of notices does not justify adverse inference. Relying on the Supreme Court's decision in CIT vs. Orissa Corporation (P.) Ltd., the Tribunal held that the AO had not pursued the creditors adequately and had not discharged the burden of proof that shifted to the Department. Consequently, the Tribunal directed the deletion of the addition of Rs.3,52,00,150/-.

The Revenue, in its cross-appeal, challenged the CIT(A)'s deletion of Rs.9,73,75,375/- for the remaining 41 creditors. The Tribunal observed that the assessee had discharged the initial onus by providing complete details and that the creditors had responded to the notices. The AO's adverse inference was based on doubts about the creditors' capacity to lend, not on concrete evidence. The Tribunal reiterated that the assessee is not required to explain the source of the source, as per the Bombay High Court's decision in Pr. CIT v. Veedhata Towers (P.) Ltd. Thus, the Tribunal upheld the CIT(A)'s deletion of the addition for these 41 creditors.

2. Addition under Section 41(1) for Unpaid Sundry Creditors:

The AO added Rs.16,14,500/- (M/s Arpit Enterprises) and Rs.12,35,500/- (M/s V.S.N. Trading Co.) under Section 41(1), citing cessation of liability. The CIT(A) deleted this addition, noting that the assessee had provided credit notes, ledger accounts, and bank statements proving that the liabilities were not written off and were paid in subsequent years.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the mere outstanding nature of liabilities does not imply cessation. The burden lies on the Department to prove cessation of liability, which was not discharged. The Tribunal concluded that the provisions of Section 41(1) were not applicable as the amounts were paid subsequently.

Conclusion:

The Tribunal allowed the assessee's appeal, deleting the addition of Rs.3,52,00,150/- under Section 68 for 16 creditors, and dismissed the Revenue's cross-appeal, upholding the deletion of Rs.9,73,75,375/- for 41 creditors and the deletion of Rs.28,50,000/- under Section 41(1).