Tribunal quashes Rs.11,86,168 addition based on extrapolated findings from sundry creditors in favor of appellant

The Tribunal directed the Assessing Officer to delete the addition of Rs.11,86,168 made based on extrapolated findings from sundry creditors outstanding, as confirmed by the CIT(A) for three creditors. Emphasizing that genuine purchases led to sales and liabilities cannot be added under Section 68, the Tribunal ruled in favor of the appellant in ITA No. 3520/DEL/2019, highlighting the necessity for a thorough examination of transactions before invoking Section 68 of the Income Tax Act.

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Issues:
Sustaining addition of sundry creditors outstanding, Computation method by Assessing Officer, Confirmation of additions by CIT(A), Acceptance of sales figures and purchases, Applicability of Section 68 of the Income Tax Act.

Analysis:
The appeal involved a dispute regarding the addition of Rs.7,99,173 out of sundry creditors outstanding at the close of the Assessment Year (A.Y.) 2015-16. During scrutiny assessment proceedings, the Assessing Officer issued notices under section 133(6) of the Income Tax Act to various parties, with some confirming transactions and others not responding. The Assessing Officer devised a formula to extrapolate findings to all outstanding creditors, resulting in an addition of Rs.11,86,168. The CIT(A) confirmed additions for three creditors, despite the appellant's contentions. The appellant argued that purchases were genuine as accepted by the Assessing Officer, and sales were made from these purchases, thus no addition should be made under section 68 of the Act. The Tribunal cited relevant case laws emphasizing that if sales are made from purchases, purchases cannot be termed as bogus, and liabilities payable by the assessee cannot be added under section 68. Additionally, a previous decision authored by the Tribunal Member highlighted the need for thorough examination of transactions before invoking Section 68. Based on these precedents, the Tribunal directed the Assessing Officer to delete the impugned addition, ultimately allowing the appeal of the assessee in ITA No. 3520/DEL/2019.

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