2020 (1) TMI 652 - HC - Income Tax

Addition u/s 68 - unproved trade / sundry creditors - ITAT deleted the addition - HELD THAT - Tribunal noted as follows - In the instant case, the advances were received through cheques, but not in cash. The assesse submitted that the said outstanding was adjusted out the sale of potatoes, tamarind etc. in the subsequent assessment year and also produced the invoices before the Ld.CIT(A) for the period 14.04.2011to 10.12.2011. No evidence was brought on record to show that the sales for the subsequent assessment year were not accepted by the AO or false. The reasons for the Tribunal recording a finding in favour of the respondent herein are as under - For a query from the bench the Ld.AR submitted that the sales were accepted by the AO in the subsequent year and there was no addition or relief was given to the extent of the sales made to the trade creditor. The receipt of advances from customers is a starting point and conclusion of transaction is the relevant sales. Therefore, receipt of advances required to be examined along with sales made by the assesse with stock register. Advances from customers, purchases, stock register and sales account are required to be examined together to verify the genuineness of the advances. No transaction can be isolated since all the transactions are interlinked and depending on each other. The AO isolated the transaction of the advances received against the sales and at the same time, did not examine the genuineness of the sales made to the trade creditor which is part and parcel of the total turnover. There is no justification for making the addition of advances received from the customers without taking into consideration the respective sales. Having accepted the sales account, there is no case for making the addition of the same amount representing advances from the customers. In support of the said findings, reliance was placed on the applicable decisions. On such careful examination, we do not find any infirmity in the findings of the Tribunal warranting interference.

Summary

Issues involved:
Appeal challenging order of Income Tax Appellate Tribunal for assessment year 2011-12, substantial questions of law regarding relevance of material and deletion of addition in respect of sundry creditors.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 was filed challenging the order of the Income Tax Appellate Tribunal for the assessment year 2011-12. The appellant, engaged in a multi facility cold storage project and trading in agricultural commodities, had filed its return of income admitting a loss. The assessment was completed with certain additions/disallowances, which were contested before the CIT(A). The CIT(A) partly allowed the appeal, deleting the addition under Section 40(a)(ia) of the Act and rejecting the ground in respect of sundry creditors. Both the revenue and the appellant filed appeals against the respective decisions. The Tribunal, in its impugned order, dismissed the revenue's appeal and allowed the appellant's appeal, leading to the present appeal by the revenue.

The substantial questions of law raised by the revenue pertained to the Tribunal's consideration of material and the deletion of addition in respect of sundry creditors. The revenue contended that the Tribunal erred in directing deletion of the addition without proper proof of the genuineness of the transaction and the identity and creditworthiness of the sundry creditor. The Tribunal's decision was based on the advances received through cheques and subsequent adjustment against sales of commodities in the following year, supported by invoices produced before the CIT(A). The Tribunal emphasized the interlinking of transactions and the need to examine advances along with sales to verify genuineness, concluding that no addition was warranted if sales were accepted.

Upon careful examination, the Court found no infirmity in the Tribunal's findings and held that no substantial questions of law were involved in the appeal. Consequently, the appeal was dismissed with no order as to costs, and any pending miscellaneous petitions were also closed.

This analysis highlights the procedural history, factual background, legal contentions, and the Tribunal's reasoning leading to the dismissal of the appeal, emphasizing the interconnection of transactions and the importance of verifying genuineness in assessing tax liabilities.