TaxTMI 
TaxTMI 
2013 (11) TMI 321
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.... "During the course of assessment proceedings in the case of assessee for A. Y. 2007-08 enquiries were conducted into the genuineness of creditors appearing in the balance sheet of assessee as at 31.03.2007. The following parties against which opening balance of the amounts were shown are found to be non-existing parties. Thus, the above named creditors appeared in the books of assessee for the first time during F. Y. 2004-05. Therefore, the action as per law is warranted to be taken in A. Y. 2005-06. Summons have been issued to all the parties. On enquiries with the creditors on the given addresses, it was found that all the above parties are non-existing parties. On confrontation, assessee has submitted the bills of some of the creditors. It is seen that these bills are prima-facie non genuine. Accordingly, commission was issued to ADIT (Inv,), Unit-III(3), Scindia House, Mumbai. In response, he has submitted a report and reported that all of the parties are non-existing and addresses are also nonexistent. As these creditors were opening balances as at 01.04.2006, it was necessary to trace the creditors backwards and find out when did it appear for....
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....T Vs. Pancham Dass Jain reported in 205 CTR 444 it was submitted that no addition towards alleged fictitious creditors can be made u/s.68 of the Income Tax Act. It was further submitted that the Assessing Officer has re-opened the assessment for A.Y. 2004-05, 2005-06 and 2006-07 whereas the scrutiny assessment was conducted at the end of the year 2010, i.e. after about 5 to 7 years. The assessee has already repaid the outstanding balances of the suppliers and has no business transactions with the said suppliers. Due to passage of time also the assessee could not file confirmations of the creditors and could not produce them. Referring to the decision of the Hon'ble Madras High Court in the case of Hastimal Vs. CIT reported in 49 ITR 273 it was submitted that after lapse of substantial period, if the department could not find out the creditors, addition cannot be made towards unexplained credit. It was submitted that the assessee cannot earn this much profit which the Assessing Officer has determined and this is not possible in such type of business. 4. Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition made by the Assessing Officer presumably u/s.....
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....alter/amend the grounds of appeal." 6. The Ld. Departmental Representative heavily relied on the order of the Assessing Officer. He submitted that the creditors appeared for the first time in A.Y. 2005-06 and hence these were disallowed. He submitted that the Ld.CIT(A) deleted the addition presuming that the same has been added u/s.68 whereas the Assessing Officer has added the same on the ground that the creditors are bogus and are covered u/s.41 of the Income Tax Act. He further submitted that the various decisions cited by the assessee before the CIT(A) are not applicable to the facts of the present case since in those cases the creditors are more than 10 years old whereas in the present case the matter was 4 to 5 years old. He submitted that the onus was on the assessee to prove that the creditors are genuine. He submitted that if the assessee was making payments to the creditors in the subsequent period then the assessee would be in contact with the creditors and could have furnished the confirmation letters from the creditors during assessment proceedings for A.Y. 2007-08. He submitted that the order of the Ld.CIT(A) is not proper and hence the same should be reversed and th....
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....- on account of bogus/fictitious sundry creditors. We find the Ld.CIT(A) deleted the addition on the ground that there is substantial lapse of time between the assessment year and year of completion of assessment. Further, the assessee has already repaid the outstanding balances and had no business transactions with the said suppliers. The Ld. CIT(A) further observed that addition of such huge income gives an absurd result and it is impossible that the assessee could have earned such huge income. It is the case of the Revenue that the onus was on the assessee to prove to the satisfaction of the Assessing Officer regarding the genuineness of such sundry creditors. It is the case of the assessee that sine he has repaid the creditors and there is lapse of time, therefore, it was not possible to either produce them or obtain confirmation letters from the creditors. It is also the case of the Ld. Counsel for the assessee that without credit purchases there cannot be any sales and the Assessing Officer has not disturbed either the purchases or sales or the book profit. 8.1 In the instant case, we find the assessee for whatever reasons neither could produce the creditors before the Asses....
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....n addition of the total sundry creditors under the facts and circumstances of the case will give absurd result which is not possible in the type of trade the assessee is engaged in. At the same time we also do not find the argument of the learned counsel for the assessee that 3% profit may be determined on the unproved trade creditors. In our opinion, under the facts and circumstances of the case, this is a fit case for rejection of the book results and going for estimated addition. 12. From the various details furnished by the assessee in the Paper Book we find the assessee has declared the following turnover and profit : Financial Year Assessment Year Turnover Profit/Loss 2003-04 2004-05 11,73,44,843 2,12,902 2004-05 2005-06 6,39,87,383 1,45,729.81 2005-06 2006-07 4,99,59,187 (3,74,790.34) 13. Under similar facts and circumstances various Benches of the Tribunal are adopting net profit rate of 1% of the turnover. Considering the totality of the facts and circumstances of the case we are of the considered opinion that adoption of 1% Net profit on the turnover for various assessment years will be reasonable and will meet the ends of justice. We accordingly....