2014 (4) TMI 934 - AT - Income Tax

Deletion made u/s 68 of the Act Unexplained sundry creditors Held that - The CIT(A) was of the view that the addition in appellant s income could not be made on the basis of apprehensions as done by the AO - At the most these apprehensions may be a lead for further investigation so-as-to establish the actual fact - The AO has not carried out any investigation on such lines - The only issue raised by the AO now remains that instead of sundry debtors, the assessee should have shown equivalent amount as cash-in-hand in the balance sheet and thus should have paid wealth-tax on it - The AO s suggestion, though looking rosy from his angle, could only be implemented if such fact is established on record. The onus of proving it lies with the department and such approach could not be taken merely on the basis that the outstanding balances of sundry debtors could not be verified - Be it as may, since cash-in-hand could not be treated as income in appellant s hands by any stretch of imagination either u/s 68 or u/s 69 of the Act, the addition made by the A.O. does not stand - there are inherent contradictions in AO s approach in giving treatment to the closing balances of sundry debtors - The opening balances which could be verified from the books of accounts of the assessee cannot be added in current year s income as done by the AO the AO was not justified in making addition u/s 68 or u/s 69 of the Act Decided against Revenue.

Issues Involved:
1. Deletion of addition of Rs. 34,51,095/- made by the Assessing Officer (A.O.) under Section 68 of the Income Tax Act on account of unexplained sundry debtors.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the IT Act:
The primary issue in this case revolves around the deletion of the addition of Rs. 34,51,095/- made by the A.O. under Section 68 of the Income Tax Act, which pertains to unexplained sundry debtors. The A.O. had issued enquiry letters to 24 parties for verification of substantial debtors shown by the assessee, which amounted to Rs. 51,44,212/-. Several of these enquiry letters were returned unserved, and some parties indicated no business transactions during the year.

2. Non-compliance and Returned Enquiry Letters:
The A.O. highlighted that notices sent under Section 133(6) of the Act to seven debtors exceeding Rs. 50,000/- were received back unserved. In response, the assessee promised to furnish complete addresses and confirmation letters but requested more time. The A.O. then issued another notice, indicating that enquiry letters sent to several debtors at the addresses provided by the assessee neither returned unserved nor received any confirmations.

3. Genuineness of Debtors:
The A.O. inferred that the debtors were not genuine due to non-verifiable addresses and discrepancies in the balances shown by the assessee compared to the debtors' records. The A.O. held that the debtors were bogus and the assessee had made unexplained investments in the guise of these bogus debtors, leading to the addition of Rs. 34,51,095/- to the assessee's income under Section 68.

4. Assessee's Defense:
The assessee contended that the debtors could not be deemed non-genuine solely based on non-compliance with notices. The assessee requested the A.O. to examine the parties and provided evidence such as copies of confirmations, bills, and other documents to establish the genuineness of the debtors. Despite this, the A.O. maintained that the debtors were not true and correct.

5. CIT (A)'s Decision:
The CIT (A) deleted the addition made by the A.O. after considering the assessee's submissions, remand report, and rejoinder. The CIT (A) noted that the A.O. had not conducted necessary inquiries to verify the debtors and had incorrectly applied Section 68. The CIT (A) also rejected the A.O.'s request to consider the addition under Section 69 of the Act.

6. Tribunal's Findings:
The Tribunal upheld the CIT (A)'s decision, agreeing that sundry debtors could not be added under Sections 68 or 69, especially when the assessee had made debit entries in the books of account. The Tribunal emphasized that the A.O. failed to conduct necessary inquiries and that the assessee had provided sufficient documentary evidence to shift the onus back to the A.O. The Tribunal also noted that the A.O. accepted the sales figures and did not find any discrepancies in the purchases, further weakening the A.O.'s stance.

Conclusion:
The Tribunal concluded that the CIT (A) was correct in deleting the addition of Rs. 34,51,095/- under Sections 68 or 69 of the Act. The appeal filed by the department was dismissed, and the order pronounced in the open court on 05.12.2013 was upheld.

Significant Phrases Preserved:
- "Deletion of addition of Rs. 34,51,095/- made by the Assessing Officer u/s 68 of the IT Act on account of unexplained sundry debtors."
- "The A.O. inferred that the debtors were not true and correct."
- "The CIT (A) deleted the addition made by the A.O."
- "Sundry debtors cannot be added either u/s 68 or u/s 69 of the Act."
- "The appeal filed by the department is dismissed."

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