2015 (11) TMI 172 - AT - Income Tax

Addition u/s 68 - Assessing Officer made additions by invoking the provisions of Section 69C - Held that - From the perusal of assessment order, it is clear that Assessing Officer has allowed purchases to the tune of ₹ 1,15,84,527/-, which were paid to various parties from whom assessee made purchases during the year. After the payment of ₹ 1,15,84,527/- outstanding balance remained to be paid on 31st March, 2007, which means that Assessing Officer has treated all these parties as genuine suppliers to whom some payments have been made during the year. If in any case, Assessing Officer had come to a conclusion that certain supplier is a bogus party, then the complete purchases made from such bogus suppliers should have been disallowed by him. In the present case, Assessing Officer has allowed the purchases to the extent they have been paid and disallowed the purchases to the extent which have not been paid. Assessing Officer ought to have appreciated the fact that assessee has submitted the ledger account of all the 11 parties for the relevant assessment year as well as for the next financial year during which balance payment of the outstanding liabilities were made through bank. Here, we can take example of one of the parties amongst the list of 11 parties in the name of M/s. Landmark Engineering from whom assessee made purchases during the year. Outstanding liability in the name of this party on 31.03.2007 stood at ₹ 53,19,523/- and this outstanding amount repaid in full by the assessee during the financial year 2007-08. As submitted by ld. A.R. that in case of other parties also the outstanding liability standing under the head sundry creditors on 31.03.2007 have been paid in the following years by account payee cheques. Books of account have not been fully rejected, none of the parties has previously been proved as bogus, part of payments made towards the purchases have already been allowed by the Assessing Officer and no specific working has been made by the Assessing Officer to treat a particular purchase from a supplier as bogus purchase and further the outstanding purchases at the end of the year have been subsequently paid by banking channel and nothing contrary to this fact of payment by banking channel has been brought on record before us. In this situation, it is not justified on the part of Assessing Officer to treat the sundry creditors outstanding at the end of the year as unexplained and accordingly, the addition sustained by the CIT(A) is deleted and the appeal of assessee is allowed. - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment order.
2. Legitimacy of the addition of Rs. 3,34,56,223/- to the income.
3. Applicability of Section 68 of the Income Tax Act.
4. Applicability of Section 69C of the Income Tax Act.
5. Identity and genuineness of transactions with sundry creditors.
6. Charging of interest under Sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the assessment order passed by the Assessing Officer (AO) was bad in law and should be canceled. However, the Tribunal did not find sufficient grounds to invalidate the assessment order itself.

2. Legitimacy of the Addition of Rs. 3,34,56,223/- to the Income:
The AO added Rs. 3,34,56,223/- to the assessee's income, treating it as unexplained expenditure under Section 69C of the Income Tax Act. The CIT(A) reduced this amount by Rs. 24,15,407/- but sustained the addition of Rs. 3,10,40,816/-. The Tribunal found that the AO allowed purchases to the extent they were paid and disallowed the unpaid purchases, which was inconsistent because part payments were made through banking channels, and the outstanding amounts were subsequently paid.

3. Applicability of Section 68 of the Income Tax Act:
The CIT(A) applied Section 68, treating the unexplained sundry creditors as unexplained credits, instead of Section 69C. The Tribunal noted that the AO allowed part of the purchases and disallowed the unpaid part, which was illogical as the outstanding amounts were eventually paid through banking channels.

4. Applicability of Section 69C of the Income Tax Act:
The AO initially invoked Section 69C for unexplained expenditure, but the CIT(A) found it inapplicable because Section 69C pertains to expenses not recorded in the books. The Tribunal agreed with the CIT(A) that Section 69C was not applicable in this case.

5. Identity and Genuineness of Transactions with Sundry Creditors:
The AO questioned the identity and genuineness of transactions with 11 sundry creditors. The Tribunal found that the assessee provided ledger accounts, bank statements, purchase bills, and quantitative details, and the outstanding amounts were paid through banking channels. The AO did not fully reject the books of accounts and accepted the sales turnover and gross profit. Therefore, the Tribunal concluded that the addition of Rs. 3,10,40,816/- was unjustified and deleted it.

6. Charging of Interest under Sections 234B and 234C of the Income Tax Act:
The appellant contested the charging of interest under Sections 234B and 234C. However, this issue became moot as the primary addition to the income was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the sustained addition of Rs. 3,10,40,816/-. The Tribunal found that the AO's approach was inconsistent and that the outstanding liabilities were genuine and subsequently paid through banking channels. The assessment order was not canceled, but the primary addition was deemed unjustified.

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