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TMI Blog2016 (7) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... , we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions :- (i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (ii) No addition need to be made on the debit balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (iii) The Learned AO to make extensive verification of current liabilities and provisions , in accordance with law, in respect of accounts where there were transactions during the year ; (iv) The Learned AO is directed to allow set off of debit balances with credit balances in respect of the same parties while deciding the issue; (v) The assessee is directed to co-operate with the Learned AO and furnish necessary evidences and documents in support of its contentions in the form of reconciliation statements, confirmation of balances etc. (vi) The assessee is also directed to adduce evidences before the Learned AO in respect of rectifications stated to have been carried out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions, closing balance and nature of services rendered / transactions in whose names there was outstanding, including the amounts squared up during the year . The assessee furnished the details called for on 25.11.2010. The Learned AO observed that the assessee was not able to furnish the addresses of the parties in many cases. The Learned AO observed that the assessee had derived interest income of ₹ 1.12 crores and miscellaneous income of ₹ 50.44 lakhs but had totally returned income only at ₹ 53 lakhs, which goes to prove that the assessee had incurred loss in his chemical business. He doubted the veracity of the creditors submitted by the assessee and called for further information as follows:- (i) Address of creditors (ii) Details of Creditor balance on account of purchase suspense of ₹ 73.80 crores. (iii) Complete details of creditor parties with name and specific addresses and in case of old credit balance , please furnish original date of transactions. The Learned AO listed out the names of the sundry creditors for whom the assessee could not submit the complete addresses as below:- Name of Sundry Creditors Closing Balance (Rs.) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as his creditors in spite of having carried on no transactions with them. Based on these observations, the Learned AO brought the closing balances of these creditors amounting to ₹ 10,62,38,834/- as unexplained cash credit u/s 68 of the Act treating the same as bogus liabilities. 3.1. The brief facts of Ground No.2 are that during the course of assessment proceedings, the Learned AO observed that for the following sundry creditors, the notices u/s 133(6) of the Act had returned 'unserved' :- Sl.No. Name of the Party Closing balance As per assessee's Books ( in Rs.) Difference in closing Balance ( in Rs.) 1. Urmi Chemicals 11,83,988 11,83,988 2. Honest Chemical Pvt. Ltd 6,00,000 6,00,000 3. Amit Traders 15,57,490 15,57,490 4. Jay Laminates (P) ltd 27,28,755 27,28,755 5. Lotus Global Limited 53,00,000 53,00,000 6. Navin Chemical Enterprises 18,00,000 18,00,000 7. Nestor Pharmaceuticals Ltd 19,09,991 19,09,991 8. Paritej Molucule Pvt. Ltd 3,49,749 3,49,749 9. Priceless Investrade Pvt. Ltd 7,08,603 7,08,603 10. Sanchay Holding Ltd 3,18,130 3,18,130 11. Shree Giriraj Enterprises 45,16,112 45,16,112 12. Sudarshan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuineness and veracity of the alleged transactions with credible documentary evidences. The Learned AO treated the aforesaid parties as bogus liabilities. In cases where there is more balance as per the assessee's reply but the same is not reflected in the books of the assessee , it was treated as undisclosed purchases as the assessee failed to account for the same in its books of accounts. Accordingly, he brought the aforesaid creditors to tax as unexplained cash credit u/s 68 of the Act treating them as bogus liabilities. 3.3. The brief facts of Ground No. 4 are that during the course of assessment proceedings, from the details of current liabilities and provisions filed by the assessee, the Learned AO observed that the assessee has shown Purchase Suspense of ₹ 73,80,73,509/-. The assessee stated that the purchase suspense represents goods that were sold to certain parties who could not take delivery of the same and accordingly the assessee was forced to re-purchase the same from the following parties to the tune of ₹ 25,73,43,604/- :- Difference in Purchase (Suspense) Sl.No. Name of the Party Particulars Amount in Rs. 1. Bhageria Dye Chem Ltd Repurchaseo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Pvt. Ltd, and the invoice not received. 8,82,000 25,73,43,604 The Learned AO further observed from the notices issued u/s 133(6) of the Act to the aforesaid parties, the closing balances did not match. The Learned AO further observed that the few parties were selected on test check basis and notices u/s 133(6) of the Act were issued for third party verification. In some of the cases, he also observed that the notices were served, replies were awaited till the date of passing of the assessment order. The Learned AO observed that the assessee could not reconcile the differences in closing balances of creditors. Hence the Learned AO brought the aforesaid creditors to tax treating them as bogus liabilities. 4. On first appeal, the assessee referred to the details of sundry creditors and argued that the Learned AO ought not to have made any addition in respect of opening balance of sundry creditors u/s 68 of the Act as admittedly, only the credits during the year alone , if at all, could be subjected to tax as deemed income u/s 68 of the Act. It was also argued with specific reference to the decision of the co-ordinate bench of Ahmedabad Tribunal in the case of DCIT vs Alidhara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had considered the figure of storage charges payable (FSWAI) at ₹ 3,34,84,055/- as against the correct amount of ₹ 34,84,055/- thereby making excess addition of ₹ 3 crores. With regard to the addition made in the sum of ₹ 25,73,43,604/- towards purchase suspense, it was pleaded that because of global recession , certain materials sold by the assessee company during the year ended 31.3.2008 were not lifted by the purchasers and hence assessee company instead of reducing the sales by the amount of such bills, on account of business expediency showed such transactions as re-purchase of such materials and entered the same in purchase suspense account. The complete details of the same party wise were furnished before the Learned CIT(A). It was also explained that since the purchasers had not lifted the goods sold and had not accounted for such purchases in their books of accounts by debiting the purchases account and crediting the account of the assesse company, nothing could be found as recorded in their books of accounts. The reason for crediting purchase suspense account in the books of assessee company was explained that as and when the materials sold were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt during the year ended 31.3.2008 is for the imports of material, the letter of credit for which were established by third parties, and the invoices has not been raised on assessee by third parties who established the letter of credits. (ii) It has been practice of PEC Ltd which has established most of the letter of credits for the imports of assessee on sale of the material imported in one particular consignment. (iii) The goods imported by the third parties were being sold during the year ended 31.3.2008 and sale invoice has been rasied by assessee. (iv) In absence of purchase invoice, assessee made the entries for purchases on the basis of agreement between the companies which has established the letter of credits for the import of assessee and credited the purchase suspense account during the year ended 31.3.2008 and on the day of settling the accounts for a particular consignment, purchase suspense account is debited and respective party which has established the letter of credits for the import of assessee is credited. (v) The details of letter of credits established by third parties for the imports of assessee together with copy of agreement between assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of such transactions. However, from the totality of the facts and circumstances of the case, and in view of the voluminous details filed in the paper book by the assessee, we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions :- (i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (ii) No addition need to be made on the debit balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (iii) The Learned AO to make extensive verification of current liabilities and provisions , in accordance with law, in respect of accounts where there were transactions during the year ; (iv) The Learned AO is directed to allow set off of debit balances with credit balances in respect of the same parties while deciding the issue; (v) The assessee is directed to co-operate with the Learned AO and furnish necessary evidences and documents in support of its contentions in the form of reconciliati ..... 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