2023 (7) TMI 1078 - AT - Income Tax

Addition u/s 68 - assessee failed to explain the genuineness of the sundry creditors - HELD THAT - Assessee has successfully demonstrated before us about the genuineness of the transactions with the sundry creditors with the help of the facts that there was a steep increase in the purchase and sale, as well as sundry creditors and debtors during the year and amount more than the alleged sundry creditors was outstanding to be received from the sundry debtors and in the subsequent year on the realization of the sundry debtors, most of the alleged sundry creditors have been paid which is reflected from the fact that sundry creditors which was standing due at Rs. 3.99 Crores, during the financial year 2014-15, came down to Rs. 1.34 Crores and remained paid subsequently. Since the assessee has successfully explained the source and identity of sundry creditors, nature and genuineness of the transactions, proved that the payments to the sundry creditors have been made and since the revenue has not doubted the genuineness of the sale and correctness of the book results, we do not find any justification in the action of the Assessing Officer in making the addition u/s 68 - set aside the finding of the ld. CIT(A) and delete the addition made u/s 68 - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of Rs. 3,55,92,450/- under Section 68 of the Income-tax Act for unexplained sundry creditors.

Summary:

Condonation of Delay:
The appeal was filed with a delay of 253 days. The assessee explained that the delay was due to the erstwhile tax consultant's failure to inform about the appellate order. The Tribunal referred to the principles laid down by the Hon'ble Supreme Court in Collector Land Acquisition Vs. Mst. Katiji & Others and N. Balakrishnan Vs. M. Krishnamurthy, emphasizing that "sufficient cause" should be construed liberally to advance substantial justice. The Tribunal found the delay was not deliberate and condoned it, admitting the appeal.

Addition under Section 68:
The assessee, engaged in the business of trading rice, had sundry creditors amounting to Rs. 3,98,42,500/- in the balance sheet. The Assessing Officer (AO) added Rs. 3,55,92,450/- under Section 68 of the Income-tax Act, citing unexplained sundry creditors, as the assessee failed to provide confirmations for all creditors. The CIT(A) upheld the AO's decision due to the assessee's non-compliance during the appellate proceedings.

The Tribunal observed that the assessee had provided details of creditors, mainly farmers, and explained that payments were made in subsequent years. The Tribunal noted that the AO accepted the sales and purchases without disputing the book results. It emphasized that the assessee had discharged its primary onus by providing the nature and source of the credits. The Tribunal also referred to the Hon'ble Supreme Court's judgment in Mahindra and Mahindra Ltd., which held that Section 41(1) of the Act could not be applied without evidence of remission or cessation of liability.

The Tribunal concluded that the assessee successfully demonstrated the genuineness of the transactions and the payments to the creditors. Therefore, it found no justification in the AO's addition under Section 68 and deleted the addition of Rs. 3,55,92,450/-. The appeal was allowed in favor of the assessee.