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TMI Blog2013 (11) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the sundry creditors appearing in the balance sheet as at 31-03-2004, 31-03-2005 and 31-03-2006. Therefore, the sundry creditors appearing in the books of account, under the peculiar facts and circumstances of the case cannot be accepted as genuine and some addition has to be made. Addition of the total sundry creditors under the facts and circumstances of the case will give absurd result which is not possible in the type of trade the assessee is engaged in – Also, it is not reasonable to add 3% profit as may be determined on the unproved trade creditors - Under the facts and circumstances of the case, this is a fit case for rejection of the book results and going for estimated addition - Considering the totality of the facts and circumstances of the case, adoption of 1% Net profit on the turnover for various assessment years will be reasonable and will meet the ends of justice – Decided partly in favor of Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the assessee the AO came to the conclusion that the conduct of the assessee is non cooperative in nature. He therefore proceeded to complete the assessment u/s.144 of the Income Tax Act and made addition of Rs. 4,66,93,594/- to the total income of the assessee as unexplained credits in the books of accounts for A.Y. 2004-05. Thus, he determined the total income at Rs. 4,69,06,494/- as against the returned income of Rs. 2,12,900/-. 5. Before the CIT(A) the assessee filed certain additional evidences and moved application under Rule 46A of the I.T. Rules, 1962. The additional evidences filed by the assessee are in the nature of chart of sundry creditors, summary of stock quantity wise and month wise, party wise quantitative tally purchases in terms of quantity and amount, confirmation from some of the parties and letters addressed to some bank. It was submitted before the CIT(A) that these additional evidences are being filed in order to prove that purchases are genuine. It was argued that merely because some of the parties did not respond to the summons issued u/s.131 of the Income Tax Act the purchases should not be treated as non genuine. It was submitted that some of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, conducted enquiry through inspector who reported that the parties were not available at that time. Before the AO the assessee represented that the subject matter was old and pertained to the period 2003-04 and the enquiries were conducted in 2009. Therefore, the parties shifted their base from the given addresses. The Assessing Officer was not satisfied that the explanation and made the impugned addition. Admittedly, these are trade purchases representing the purchase of raw material. Therefore, they are distinct from cash credits. 7.2 The AO has dealt with this issue in this manner (para 9 of the assessment order) : " In response to the show cause notice, assessee did not appear on 21-12-2009 nor any communication or submission is received from assessee. Afterwards, almost every day the AR of the assessee and assessee himself was contacted telephonically by this office considering the time barring nature of proceedings. There was no response from assessee in any manner. This conduct of assessee clearly shows the non-cooperative nature of the assessee for concluding of assessment proceedings. These circumstances leave no option with the undersigned except to proceed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h credits at all. What appears as outstanding credits in the name of sundry creditors are the trade creditors which represent the appellant's purchases of steel. These purchases are supported by bills and ledger entries and debited to purchase account. Therefore, the provisions of Section 68 are not attracted. The appellant submitted the detailed accounts of the trade creditors, that were already available in the seized books of account, which is evidenced from the action of the AO, when the addresses were obtained from the seized books of account and summons to 23 parties were issued. It is settled position of law that when there are credits in the books of account, the Department can ask the assessee to adduce the evidences relevant to the explanation, examine the same and then proceed to decide if the credits outstanding represent an income of the assessee. The Department cannot act unreasonably and reject that explanation to hold that it was income. Such explanation cannot be merely rejected unreasonably to convert good proof into no proof [ 49 ITR 112 (SC)]. It is settled position of law that in making a best judgment assessment, the AO does not possess arbitrary powers to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led position of law that failure to comply with summons u/s.131 cannot bring about an assessment order u/s.144 (110 ITR 674, Cal.). On the given position of law, the evidences on record indicating specifically the material purchased and the parties confirmation accounts that is corroborated by the sales and purchase register, there is no other evidence on record to disbelieve the appellant's purchases. Another fact that is relevant here is that the appellant has made payment in respect of these purchases in the assessment year under appeal partly and in subsequent years as well. With regard to the non service of the summons u/s.131 issued by the AO to 23 parties, it is found that the matter is almost five to six years old. The parties do change their addresses and after the transactions are over, no contact is generally maintained with such parties. In the light of the corroborated evidences with regard to the purchases brought on record and examined, and in view of these facts and circumstances of the case there is no justification to disbelieve the appellant's purchases and the AO's action in invoking Section 68 is not approved for the detailed reasons mentioned above. In the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchase and sundry creditors shown by the assessee are bogus. Under these circumstances the learned CIT(A) was not at all justified in deleting the addition made by the AO u/s.68 of the Income Tax Act treating the creditors as unexplained credit in books of the assessee. 10. The learned counsel for the assessee on the other hand while supporting the order of the CIT(A) submitted that the books of account of the assessee are audited and the auditors have not pointed out any defects in the books of account. Further, sales have been accepted in its entirety. Therefore, when sales are accepted as genuine there has to be purchases. Merely because some of the creditors or parties from whom the assessee purchased goods did not appear before the AO or no confirmation was filed, the entire creditors cannot be treated as bogus and additions cannot be made u/s.68 of the Income Tax Act. He submitted that out of the total addition on account of bogus sundry creditors the assessee has partly proved the trade creditors and partly could not prove. He submitted that in the interest of justice some reasonable gross profit may be applied on the unproved sundry creditors and the matter need not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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