2021 (8) TMI 373 - AT - Income Tax

Tribunal directs deletion of trade creditors in appeal under Section 68 - Assessment reopening challenge not addressed.

Smt. Madhu Solanki W/o Sri Shantilal Solanki C/o Rajendra Metals Versus ITO Ward-1 (3) Bangalore

The Tribunal allowed the appeal, directing the AO to delete the addition of trade creditors under section 68 of the Act. The challenge to the validity of ... Addition u/s 68 - whether unpaid trade creditors could be added u/s 68 of the Act has been examined by various courts? - HELD THAT:- Outstanding balances related to the purchases made during the year under consideration and not brought forward balances. AO did not get reply from both the trade creditors and hence he proceeded to assess the outstanding balances, while accepting the purchases made during the year & payments made during the year. AO has made the addition u/s 68 of the Act and did not invoke provisions of sec. 41(1) of the Act. On the contrary, the assessee has shown that the payments have been made in the succeeding year through banking channels. Accordingly, we are of the view that the revenue could not rely upon the decision rendered in the case of Sureshkumar T Jain. Under these set of facts, we are of the view that the AO could not have made addition of trade creditors u/s 68 of the Act. We set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned addition of trade creditors. Though the assessee has raised legal ground challenging the validity of reopening of assessment, A.R said that he will not press the same, if the appeal of the assessee is allowed on merits. Appeal of the assessee is allowed. Issues involved:1. Validity of reopening of assessment u/s 147 of the Act.2. Addition of trade creditors aggregating to Rs. 46,61,745/- u/s 68 of the Act.Validity of reopening of assessment:The appellant challenged the validity of the assessment reopening under section 147 of the Act. The case had been restored by the Hon'ble High Court for fresh adjudication. The original assessment was completed, but the AO reopened it due to discrepancies in outstanding balances with trade creditors. The appellant contested the reopening, leading to the appeal.Addition of trade creditors under section 68 of the Act:The AO added Rs. 46,61,745 as income under section 68 of the Act, considering outstanding balances with two trade creditors as bogus. The appellant argued that the amounts were genuine trade credits, supported by purchases and payments made through banking channels. However, the AO and CIT(A) upheld the addition. The appellant contended that the AO wrongly doubted the liability despite accepting purchases and payments made to the creditors.The appellant provided evidence of purchases and payments, highlighting that the outstanding balances were cleared in the succeeding year. The AO's addition was based on non-confirmation by the creditors and lack of response to notices. The appellant argued that section 68 pertains to cash credits and not trade creditors. The DR supported the CIT(A)'s decision, citing a precedent where trade creditors were assessed under section 68.The Tribunal examined various legal precedents and held that the AO erred in adding trade creditors under section 68. It differentiated the case from the cited precedent, emphasizing that the outstanding balances were related to purchases made during the year and not brought forward balances. As the payments were shown to be made in the succeeding year through banking channels, the Tribunal directed the AO to delete the addition of trade creditors under section 68.The Tribunal allowed the appeal, setting aside the CIT(A)'s order on the addition of trade creditors. The legal ground challenging the validity of the assessment reopening was not adjudicated as the appeal was allowed on merits.This detailed analysis covers the issues of the validity of assessment reopening and the addition of trade creditors under section 68 of the Act, providing a comprehensive understanding of the judgment.