2020 (6) TMI 562 - AT - Income Tax

Addition on account of Sundry Creditor merely for want of PAN of those sundry creditors - HELD THAT - In compliance to the summon issued u/s 131 of the Income Tax Act, 1961, three creditors namely Shri Nayanmoni Das, Shri Jagadish Das and Shri Shankarlal Agarwal appeared before the assessing officer on 08.12.2016 and 09.12.2016. They were examined and separate statements under section 131 on oath recorded and placed on record by the assessing officer. These three persons also filed before the assessing officer the requisite details and documents as called for by summon issued under section 131 - AO failed to demonstrate any defect in the documents and evidences adduced before him by these creditors. Out of total creditors which were alleged by the AO to be not genuine, as sum pertain to preceding previous years which have been verified by the AO in the preceding previous years, therefore genuineness of these creditors should not be doubted. All the creditors of the assessee are his regular vendors and transactions with them are genuine business transactions and these transactions with them had been undertaken wholly and exclusively for the purposes of the business activities. We note assessee's accounts are audited and not rejected by the AO therefore to estimate the separate profit in addition to profit shown in the audited books of accounts is not tenable without any tangible material or corroborative evidence. We note that since the assessment year under consideration is 2014-15 therefore furnishing of PAN number is not mandatory as per Rule 115B of the Income Tax Rules, vide entry No. 18, which came into force with effect from 1stJanuary, 2016. Based on the factual position,as narrated above, we are of the view that the assessee has proved the identity, creditworthiness and genuineness of the creditors, therefore we delete the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and procedural correctness of the CIT(A)'s order.
2. Addition of ?60,45,315/- on account of Sundry Creditors due to lack of PAN.
3. Disallowance of ?17,000/- for late fee of service tax.
4. Disallowance of ?11,000/- donation claimed for commercial expediency.
5. Violation of natural justice principles by CIT(A) for not issuing a valid notice or providing an opportunity for hearing.

Issue-Wise Detailed Analysis:

1. Legality and Procedural Correctness of the CIT(A)'s Order:
The assessee contended that the CIT(A)'s order was flawed in law, facts, and procedure. However, this issue was not pressed during the hearing, and thus, it was not adjudicated.

2. Addition of ?60,45,315/- on Account of Sundry Creditors Due to Lack of PAN:
The primary grievance was the confirmation of the addition of ?60,45,315/- by the CIT(A) due to the absence of PAN for certain sundry creditors. The assessee argued that most creditors were carried forward from previous years and had been verified in prior assessments. During the scrutiny, the AO issued notices under sections 133(6) and 131 of the Income Tax Act, 1961, to verify the genuineness of these creditors. Although responses were received, the AO noted that 25 individuals either did not possess PAN or had not filed their returns of income. The AO concluded that the transactions were the assessee's own money introduced as sundry creditors and added ?60,45,315/- to the income.

The Tribunal noted that:
- The creditors were from previous years and had been verified in prior assessments.
- Creditors responded to notices under sections 131 and 133(6), providing confirmations and required documents.
- The AO did not demonstrate any defect in the documents provided by the creditors.
- The PAN requirement as per Rule 115B was not applicable for the assessment year 2014-15.

The Tribunal emphasized that the AO failed to provide evidence that the creditors were bogus and relied on the Coordinate Bench's judgment in Tum Nath Shaw vs. ACIT, which stated that statements must be supported by tangible material or corroborative evidence. Consequently, the Tribunal deleted the addition of ?60,45,315/-.

3. Disallowance of ?17,000/- for Late Fee of Service Tax:
This issue was raised but not pressed during the hearing, and thus, it was not adjudicated.

4. Disallowance of ?11,000/- Donation Claimed for Commercial Expediency:
This issue was raised but not pressed during the hearing, and thus, it was not adjudicated.

5. Violation of Natural Justice Principles by CIT(A):
The assessee argued that the CIT(A) dismissed the appeal without issuing a valid notice or providing an opportunity for a hearing, violating natural justice principles. However, this issue was not pressed during the hearing, and thus, it was not adjudicated.

Conclusion:
The Tribunal allowed the appeal, focusing on the addition of ?60,45,315/- for sundry creditors, and deleted the addition, emphasizing the lack of evidence from the AO to prove the creditors were bogus and the non-applicability of the PAN requirement for the assessment year in question. Other issues raised were not pressed and therefore not adjudicated.