2023 (9) TMI 1150 - AT - Income Tax

ITAT upholds Revenue's appeal, reinstates AO's addition of Rs. 7.74 crore for unexplained liabilities. Assessee fails to justify source.

The ITAT allowed the Revenue's appeal, setting aside the CIT(A)'s order and restoring the AO's addition of Rs. 7,74,32,498/- as unexplained bogus ... Addition u/s 68 - Unexplained sundry creditors - CIT(A) deleted the additions - HELD THAT:- It is a case of issue of shares for consideration other than cash for which nothing is brought on record in respect of relevant compliance and documentary evidence under the Companies Act. CIT(A) has not enquired on this aspect which is vital before concluding to give relief to the assessee. Further, identity and creditworthiness of the creditors and the genuineness of the transactions have not been satisfactorily explained as required u/s. 68 of the Act, more importantly, when this information is stated to be the source of investment in the share capital of CMHPL. We set aside the finding given by Ld. CIT(A) and restore the order of AO wherein addition has been made. We also note that even if we presume that the basis adopted by the CIT(A) is correct then also the nature and source of making an investment in the share capital of CMHPL by the assessee remains unexplained when no payments have been made to the stated 71 sundry creditors and, therefore the relief granted by Ld. CIT(A) on the basis of considering sundry creditors as of earlier years would not hold field to bring the assessee out of the burden casted on him to explain the source and nature of investment made by him in the share capital of CMHPL. Accordingly, we allow the grounds taken by the Revenue. Issues Involved:1. Validity of the addition made on account of bogus sundry creditors.2. Whether the sundry creditors related to earlier years or the year under consideration.3. Compliance with the requirements of section 68 of the Income Tax Act regarding the identity, creditworthiness, and genuineness of transactions.Summary:Issue 1: Validity of the addition made on account of bogus sundry creditorsThe Revenue appealed against the deletion of an addition of Rs. 7,74,32,498/- made by the Assessing Officer (AO) on account of bogus sundry creditors. The AO had issued multiple notices to the assessee to furnish details of sundry creditors, which were not complied with. Consequently, the AO treated the sundry creditors as false liabilities and added the amount to the total income of the assessee. The CIT(A) deleted this addition, but the ITAT found that the AO's detailed examination and observations raised substantial doubts about the genuineness of the sundry creditors.Issue 2: Whether the sundry creditors related to earlier years or the year under considerationThe CIT(A) held that the sundry creditors were from earlier years and not the year under consideration. However, the ITAT noted that the sundry creditors were shown in the balance sheet of the assessee for the year under consideration and were linked to the investment in the share capital of CMHPL. The ITAT disagreed with the CIT(A)'s conclusion, stating that the sundry creditors should be considered for the year under consideration as they were reflected in the balance sheet as on 31.03.2014.Issue 3: Compliance with the requirements of section 68 of the Income Tax ActThe ITAT emphasized the need to verify the identity, creditworthiness, and genuineness of the transactions as required under section 68 of the Income Tax Act. The ITAT found that the CIT(A) did not adequately inquire into these aspects, which are crucial for determining the legitimacy of the sundry creditors and the source of investment in CMHPL. The ITAT restored the AO's order, reinstating the addition made on account of unexplained bogus liabilities.Conclusion:The ITAT allowed the Revenue's appeal, setting aside the CIT(A)'s order and restoring the AO's addition of Rs. 7,74,32,498/- as unexplained bogus liabilities. The ITAT concluded that the assessee failed to satisfactorily explain the nature and source of the sundry creditors and the investment in CMHPL, as required under section 68 of the Income Tax Act.