2013 (12) TMI 469 - AT - Income Tax

Unexplained trade creditors u/s 68 The assessee has shown total trade creditors of Rs.56,86,924/- out of which the confirmation letters were received only from the trade creditors of Rs.9,70,524 - Held that - The notices sent to 20 trade creditors having an amount of Rs. 22,02,349/- were returned by the postal authorities with the remark no such firm / addresses - Other trade creditors having amount of Rs. 15,53,815/- to whom notices were served but failed to file any confirmation letters In respect of other trade creditors either the addresses were not furnished or have denied any business relationship with the assessee - The assessee has not filed any fresh list with complete and correct addresses of trade creditors which the assessee has alleged to be genuine creditors - No effort was made to summon trade creditors to the tune of Rs.15,53,815/- to whom notices were served but have not replied The issue was remitted back to Assessing Officer only for limited purpose of verification again from the trade creditors who have been earlier served but failed to file any confirmation letters.

Summary

Issues:
Assessment of unexplained trade creditors under section 68 of the Income Tax Act for the assessment year 2007-08.

Analysis:
The appellant, engaged in wholesale supply of PDS kerosene and supplying eggs to schools under the Midday Meal Scheme, filed a return of income admitting Nil income for the relevant assessment year. The Assessing Officer made an addition of Rs. 48,70,913 on account of unexplained trade creditors under section 68 of the Income Tax Act. The CIT(A) partly allowed the appeal by granting benefit of double addition made during the assessment proceedings. However, the remaining addition was sustained. The appellant contended that the Assessing Officer categorized creditors into different groups based on confirmation responses, presuming certain creditors as bogus. The appellant argued that all transactions were genuine, and no effort was made to re-serve notices to creditors who did not respond. The appellant presented financial documents to support the genuineness of transactions. The Revenue contended that most trade creditors were bogus, evidenced by unserved notices and lack of response. The Revenue emphasized the onus on the appellant to prove the genuineness of trade creditors.

The Tribunal observed that confirmation letters were received only from a portion of trade creditors, with some notices being returned unserved or unresponded. The appellant failed to provide a fresh list with complete and correct addresses of alleged genuine creditors. Notably, some creditors to whom notices were served but did not reply were not re-served. The Tribunal acknowledged the appellant's sales and revenue from egg supplies, indicating corresponding purchases. Considering the lack of evidence to treat the amount as a loan, the Tribunal decided to remit the file back to the Assessing Officer to verify from previously unserved creditors. The Tribunal upheld the remaining addition made, partly allowing the appeal for statistical purposes.

In conclusion, the Tribunal directed a re-verification of trade creditors who did not respond to notices, emphasizing the need for a fair assessment based on confirmed information. The decision aimed to ensure a balanced approach in determining the genuineness of trade transactions while upholding the integrity of the assessment process under section 68 of the Income Tax Act for the specified assessment year.