2023 (6) TMI 930 - AT - Income Tax

Addition of sundry creditors - persons to whom sum is payable on account of purchase of land - HELD THAT - It is not the case of the AO that those parties have not sold the land to the assessee or assessee has already paid the sum to them. Amount outstanding against their names is treated as Bogus. No doubt, AO has issued enquiry letter u/s 133(6) to them but they have not replied. However, that cannot result into an addition in the hands of the assessee in view of overwhelming evidences of purchase of property. Thus, when parties are identified, transaction of purchase of land is accepted, reason for outstanding amount is explained, consideration of land is not in doubt, no evidences that parties have been paid from undisclosed sources, addition of outstanding amount treating it as bogus sundry creditors cannot be made. No reason to sustain the order of the Lower Authorities with respect to the outstanding. Accordingly, the addition to them to extent that purchase of land is deleted. Addition for creditors for various services and purchases - HELD THAT - It is not always necessary that creditors should always remain present in the assessment of debtors. Of course, if the transaction are unusual, alarming and there are evidences that those creditors are bogus, situation may be different. Here in this case, no such abnormal circumstance are shown. Accordingly, we direct the Ld. AO to delete the addition. With respect to the balance sum AO has made the addition of sums are to be paid to the two carpenters. Naturally the nature of payment and the quantum is so small that non-receipt of confirmation from them u/s 133 (6) of the Act cannot result in addition. It is further shown that these expenses are not debited to the Profit and Loss account but are added to the fixed assets on which depreciation is claimed and allowed. This fact is not controverted by Revenue, therefore, the addition also deserves to be deleted. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in the judgment are the validity of the assessment order passed under sections 143(3) and 144 of the Income Tax Act, the addition made by the Assessing Officer regarding sundry creditors, and the confirmation of such additions by the Commissioner of Income Tax (Appeals).

Validity of Assessment Order:
The appellant challenged the assessment order passed under sections 143(3) and 144 of the Income Tax Act, contending that the AO passed an order under both sections, which is impermissible. The appellant argued that no mandatory show cause notice was issued before making additions. The CIT(A) upheld the assessment order. The ITAT found that the AO added sundry creditors without proper evidence, leading to an erroneous assessment. The appeal on this ground was allowed.

Addition of Sundry Creditors:
The appellant contested the addition of Rs. 2,44,85,512 as sundry creditors under section 68 of the IT Act, stating it represented amounts payable for land purchases. The appellant provided purchase agreements and other documents to support the transactions. The CIT(A) confirmed the addition, citing non-production of creditors during assessment. The ITAT noted the substantial evidence provided by the appellant, including agreements, payments, and confirmations, and ruled in favor of the appellant. The addition of Rs. 2,44,85,512 was deleted.

Confirmation of Additions by CIT(A):
The CIT(A) confirmed additions of Rs. 13,19,805 for various services and purchases, despite confirmations from creditors. The ITAT found no justification for sustaining these additions when creditors had confirmed transactions. The ITAT directed the AO to delete the addition of Rs. 11,81,755. Additionally, the ITAT ruled in favor of the appellant regarding payments to two carpenters, leading to the deletion of the remaining Rs. 1,38,580 addition. Consequently, the appeal was partly allowed.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.