2014 (1) TMI 1924 - AT - Income Tax

ITAT rules in favor of assessee, deletes bogus creditors, allows interest claim based on commercial expediency

The ITAT allowed the appeal, ruling in favor of the assessee. The addition of bogus sundry creditors was deleted as the ITAT found them genuine, ... Bogus sundry creditors - sundry creditors are outstanding and these sundry creditors are on account of supply of materials i.e. iron and steel - HELD THAT:- We find that the CIT(A) has not gone through the details properly. He just simply influenced by the assessment order. First of all it is a fact that these sundry creditors are outstanding as on 31.03.2006 and these sundry creditors are on account of supply of materials i.e. iron and steel. Assessee has also filed confirmations, details of sundry creditors, details of purchases made from FY 2005-06 relating to this AY 2006-07. Even now before us assessee has filed complete details of sundry creditors which are outstanding as on date. Admittedly, these sundry creditors are outstanding out of the purchases made. Assessee submitted the transaction with those sundry creditors were made in the FY 2003-04 and thereafter there was no further business with those parties and those sundry creditors were outstanding due to disputes. Once it is a fact that these sundry creditors are outstanding and assessee has not written off those creditors, these cannot be assessed as income of the assessee. All the parties have confirmed these sundry creditors u/s. 133(6) of the Act as notices were issued by the AO as replied by these sundry creditors. Once this is the position, the sundry creditors cannot be considered as bogus or cannot be assessed as income of the assessee. Hence, we delete the addition and allow this issue of assessee’s appeal. Addition being interest on loan to sister concern as well as business transaction on account of sundry debtor - HELD THAT:- We find that the assessee company has not charged interest on this loan for the reason that during the relevant previous year there was a business transaction taken between the assessee company and this loan debtor M/s. Ganesh Commercial Co. a sister concern, and on that basis the assessee has not charged interest. Once there is commercial expediency, the assessee is not supposed to charge interest on loan debtor. See case of S. A. Builder [2006 (12) TMI 82 - SUPREME COURT] - we allow the claim of assessee. This issue of assessee’s appeal is allowed. Issues:1. Addition of bogus sundry creditors2. Addition of interest on loan to sister concern and business transaction with sister concernAnalysis:Issue 1: Addition of Bogus Sundry CreditorsThe appeal was against the CIT(A)'s order confirming the addition made by the AO on account of bogus sundry creditors amounting to Rs.99,84,733. The AO noticed discrepancies in the replies received from the sundry creditors, leading to suspicion of their genuineness. The assessee provided details and confirmations of the sundry creditors, but the AO remained unconvinced and made the addition. The ITAT observed that the CIT(A) passed an ex parte order without properly considering the details. The ITAT noted that the sundry creditors were outstanding due to disputes and were not written off by the assessee. The parties confirmed the sundry creditors under section 133(6) of the Income Tax Act. Therefore, the ITAT held that these creditors cannot be considered as bogus and deleted the addition.Issue 2: Addition of Interest on Loan to Sister ConcernThe second issue concerned the addition of interest on a loan to a sister concern, M/s. Ganesh Commercial Co., and business transactions with the same concern. The AO charged interest on the loan amount receivable from the sister concern and on the amount shown as a sundry debtor. The assessee argued that no interest was charged due to commercial expediency arising from business transactions with the sister concern. The ITAT cited a Supreme Court case emphasizing commercial expediency in such situations and ruled in favor of the assessee, allowing the claim and deleting the addition. Consequently, the appeal of the assessee was allowed, and the order was pronounced on January 30, 2014.