2023 (7) TMI 1200 - AT - Income Tax

Bogus purchases/sundry creditors - assessee failed to produce supporting bills/vouchers for the purchases made from the parties and also not filed bank details and proof of payments - CIT(A) deleted the addition - HELD THAT - As perusal of the HDFC Bank account makes it very clear regular cheque payments were made by the assessee through the continuation of the business with Kingston Peptech P. Ltd. as well as the Om Enterprise and various other suppliers. CIT(A) deleted the addition made on account of bogus sundry creditors which is in our considered opinion does not require any interference. Purchasers are supported by bills entries in books of account and made payment by cheques. AO did not find any inflation in purchase price, but the addition made only on the ground that the assessee failed to furnish the details during the ex parte assessment proceedings. See M/S NANGALIA FABRICS PRIVATE LIMITED 2013 (8) TMI 80 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of Sundry Creditors
2. Consideration of Additional Evidence
3. Grounds of Appeal by Revenue

Summary:

1. Legitimacy of Sundry Creditors:
The assessee, a proprietor of Nishra Enterprise dealing in waste craft paper, filed a return for the Assessment Year 2014-15 declaring a total income of Rs. 3,55,840/-. The Assessing Officer (A.O.) scrutinized the return due to a significant increase in sundry creditors, which rose from Rs. 84,23,451/- in the previous year to Rs. 6,15,17,916/- in the current year. The A.O. treated the net increase of Rs. 5,30,94,465/- as bogus creditors due to the assessee's failure to respond to multiple notices and provide necessary details for verification.

2. Consideration of Additional Evidence:
The assessee appealed against the ex parte assessment order, explaining his illiteracy and unawareness of the hearing notices. The Commissioner of Income Tax (Appeals) [CIT(A)] admitted additional documents provided by the assessee, including audited accounts, purchase bills, and bank statements, and called for a Remand Report from the A.O. The A.O. objected to the acceptance of additional evidence, citing the lack of supporting bills and vouchers. However, the CIT(A) found no discrepancies in the sundry creditors and deleted the addition made by the A.O., stating that the increase in creditors corresponded with an increase in sales, debtors, and closing stock.

3. Grounds of Appeal by Revenue:
The Revenue appealed against the CIT(A)'s decision, arguing that the CIT(A) erred in deleting the disallowance of bogus purchases and failed to appreciate the absence of bills and evidence during the remand proceedings. The Revenue's appeal was dismissed by the Tribunal, which upheld the CIT(A)'s decision. The Tribunal noted that the purchases were supported by bills, entries in the books of account, and payments made by cheque, referencing the Gujarat High Court judgment in CIT Vs. Nangalia Fabrics Pvt. Ltd., which held that such purchases could not be deemed bogus.

Conclusion:
The Tribunal confirmed the CIT(A)'s order, deleting the addition of Rs. 5,30,94,465/- made by the A.O. on account of bogus sundry creditors, and dismissed the Revenue's appeal. The decision was based on the corroborative evidence provided by the assessee, including audited accounts and bank statements, which supported the legitimacy of the sundry creditors.