2014 (1) TMI 836 - AT - Income Tax

ITAT partially allows appeal on unexplained cash credit, emphasizes creditor confirmation through bank accounts.

The ITAT partially allowed the appeal, holding that the addition made by the AO treating sundry creditors as unexplained cash credit was unsustainable for ... Addition made u/s 68 of the Act – Unexplained cash credit – Sundry creditors on account of paddy procurement – Held that:- Though the AO has issued summons to four persons only two of them had appeared - Once the sundry creditor has been identified by the assessee and he has responded to the notice issued by the AO u/s. 131 of the Act and he has specifically confirmed the transaction with the assessee and the transactions are also substantially through their bank accounts, it cannot be said that the balance as standing in the account of the sundry creditor with whom the assessee is having the business transactions is not genuine - the addition made by the AO in respect of the sundry creditors Shri P. C. Giri and Shri Sudhanshu Sekhar is unsustainable as the assessee has discharged his onus for proving the transaction of the sundry creditor and no evidence whatsoever has been found to dislodge the evidence as produced by the assessee and the confirmation as given by the said two sundry creditors. The two sundry creditors were out of station when the notices had been issued by the AO and the assessee would be able to produce the said two sundry creditors before the AO for examination - the issue in respect of the sundry creditors Shri Atul Kr. Jena and Shri Gouri Shankar Nayak is liable to be restored to the file of the AO for readjudication – Decided partly in favour of Assessee - the appeal of the assessee has been disposed of the assessee has withdrawn its stay petition – Decided partly in favour of Assessee. Issues:Appeal against CIT(A) order on treating sundry creditors as unexplained cash credit u/s. 68 of the Income-tax Act, 1961 for AY 2009-10.Analysis:The appeal was filed against the CIT(A) order confirming the addition made by the AO regarding four sundry creditors being treated as unexplained cash credit under section 68 of the Income-tax Act. The AO had noticed that the assessee showed five sundry creditors for the purchase of paddy, with two creditors appearing before the AO and confirming the transactions. The AO treated the sundry creditors as unexplained cash credit due to the inability to prove their transactions with the farmers. The CIT(A) upheld the AO's decision but reduced the addition for one deceased creditor. The assessee argued that the two appearing creditors confirmed the transactions, and the issue regarding the other two creditors who were out of station should be re-examined. The DR contended that there was no evidence of the middlemen's transactions with the farmers. The ITAT found that the appearing creditors had confirmed the transactions, received payments by cheque, and provided bank statements. The ITAT held that the addition for the two appearing creditors was unsustainable as the assessee proved the transactions, and the evidence was not rebutted. The issue concerning the two absent creditors was to be sent back to the AO for reevaluation after the assessee had the opportunity to present them.The ITAT emphasized that when the sundry creditor is identified, responds to the notice, confirms the transaction, and conducts substantial transactions through bank accounts, the genuineness of the balance in the account cannot be questioned. Therefore, the addition made by the AO for the two appearing creditors was deemed unsustainable as the assessee fulfilled the burden of proof. Regarding the two absent creditors, the ITAT decided to restore the issue to the AO for further examination after the assessee had the chance to produce them. The appeal was partly allowed for statistical purposes, and the stay petition was dismissed as withdrawn by the assessee.