2008 (11) TMI 335 - HC - Income Tax

Search and seizure operation - Undisclosed income - notice was issued under section 158BC - amount pertaining to the sundry creditors - During the course of hearing, the assessee was asked to submit confirmation of accounts of all sundry creditors, but confirmation in regard to the aforesaid two creditors were not submitted - Show-cause notice given to the assessee also did not yield any result. Neither the assessee submitted confirmation from the aforesaid creditors nor delivery challans were filed to prove that those are genuine creditors - we are of the opinion that the Assessing Officer rightly did not accept the case of the assessee in regard to those two creditors and the Tribunal without assigning any reason had deleted the said addition. In the facts of the present case, we are of the opinion that the assessee had not discharged the onus and the Tribunal erred in directing deletion thereof.

Issues:
1. Assessment of undisclosed income related to sundry creditors.
2. Deletion of additions by the Tribunal concerning two specific sundry creditors.
3. Discharge of onus regarding trade creditors' entries in the books of account.

Analysis:

Issue 1: Assessment of undisclosed income related to sundry creditors
The case involved a search and seizure operation on the business and residential premises of the assessee, who was a proprietor deriving income from the business of crackers. The Assessing Officer found a disparity in the amount due to sundry creditors as per the original books of account and the declared undisclosed income. The assessee failed to provide confirmation of accounts for two specific creditors, M/s. Mohan Fireworks and M/s. Santosh Sharma, during the hearing. Despite requests and show-cause notices, the assessee did not submit necessary documentation or addresses of these creditors. Consequently, the Assessing Officer determined the sundry creditors' amount based on available information.

Issue 2: Deletion of additions by the Tribunal concerning two specific sundry creditors
The Tribunal, in the appeal filed by the assessee, observed that further addition on account of the two sundry creditors, M/s. Mohan Fireworks and M/s. Santosh Sharma, was not necessary and ordered for its deletion. The Tribunal considered the lack of cooperation from the mentioned creditors and referred to a decision of the Andhra Pradesh High Court regarding additions when books of account have been rejected. The Tribunal concluded that, based on the facts of the case, no further addition was warranted concerning these two creditors.

Issue 3: Discharge of onus regarding trade creditors' entries in the books of account
The Commissioner of Income-tax challenged the Tribunal's decision by filing an appeal under section 260A of the Income-tax Act, 1961, questioning whether the assessee had fulfilled the onus regarding the entry of trade creditors in the books of account. The appellants argued that the Tribunal erred in directing the deletion of the amount related to the two sundry creditors without proper justification. They referenced a Supreme Court judgment emphasizing the assessee's responsibility to prove the source of received sums to avoid taxation.

In the final judgment, the High Court agreed with the appellants' submission, noting that the assessee had not provided sufficient evidence to support the entries related to the two sundry creditors. The court highlighted the lack of material submitted, such as confirmation, delivery challans, and addresses of the creditors. It was also noted that no purchases had been made from these creditors in earlier years. Therefore, the court concluded that the assessee had not discharged the onus, and the Tribunal's decision to delete the addition was erroneous. As a result, the appeal was allowed, and the Tribunal's order regarding the issue was set aside.

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