TaxTMI 
TaxTMI 
2015 (10) TMI 743
X X X X Extracts X X X X
X X X X Extracts X X X X
.... unexplained. b) presuming that increase in sundry creditors from A.Y. 03-04 to A.Y. 04-05 is unexplained without ascertaining that the increase pertain to year under consideration or to earlier years. c) holding that the trading addition of Rs. 24,93,777/- confirmed after the order of CIT(A)/ITAT (as against Rs. 43,17,346/- made by A.O.) in A.Y. 2005-06 do not cover the difference in sundry creditors of Rs. 24,47,617/- determined by CIT(A) (as against Rs. 28,39,607/- determined by A.O.) and therefore addition for alleged unexplained sundry creditors made by the A.O. in the year under consideration is not covered by the trading addition finally sustained in assessment year 2005-06." 2. Both the grounds of the assessee's appeal are interlinked and are against the order passed U/s 147 of the Income Tax Act, 1961 (in short the Act) as well as confirming the addition of Rs. 20,06,973/- on account of alleged unexplained sundry creditors. The assessee is dealing in export of Precision Engineering parts. The assessee filed return on 30/10/2004 declaring total income of Rs. 40,82,720/-. Order U/s 143(3) of the Act was passed on 10/02/2009. The assessee is a proprietor of M/s Usha P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ha Precisions Exports has shown the credit balance at Rs. 2373278/- in her return of income but has given the confirmation for the balance of Rs. 1271436/- for the assessment proceedings of Anurag Sales Corporation. Thus, there is a difference of Rs. 1101842/- which has escaped assessment. b) In the case of Swastik Trading company, the name of the assessee Smt. Ranjana Rawat Prop. M/s Usha Precisions Exports did not reflect in the books of M/s Swastik Trading Company. Thus, amount of Rs. 344978/- has escaped assessment. c) M/s P.K. Industries is also the assessed to income tax in circle-4, Jaipur. The ACIT, Circle-4, Jaipur provided the copy of the letter which was submitted by his assessee vide which he has submitted confirmation from M/s Usha Precisions Exports and the same is duly confirmed by M/s Usha Precisions Exports for Rs. NIL. The assessee Smt. Ranjana Rawat Prop. M/s Usha Precisions Exports is showing the credit balance of Rs. 702932/- in her return of income but she has given the confirmation for the balance of Rs. Nil for the assessment proceedings of M/s R.K. Industries. Therefore, income of Rs. 702932/- has escaped assessment. d) In respect of all the three ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the A.O. in her order and confirmed the estimate of N.P. at 13.5% allowing relief of Rs. 18,23,477/-. This was confirmed subsequently by the Hon'ble ITAT vide its order ITA No. 68/JP/2009 dated 18/12/2009. Thus the submissions of the AR that the differences in the creditor's account were confirmed by the CIT(A) is not entirely correct. The unexplained creditors were of Rs. 28,39,607/- and unexplained cash payments were of Rs. 10,40,000/- as per the note on page 8 of the assessment order. A total of this being Rs. 38,79,607/- was included in the trading addition of Rs. 43,17,255/- made by the A.O.. The trading addition at 13.5% confirmed by CIT(A) was only of Rs. 24,93,777/- which does not even cover the unexplained creditors let alone the additions required to be made U/s 40A(3) of Rs. 10,40,000/-. Thus, it cannot be claimed that the trading addition confirmed by CIT(A) covers entirely the unexplained creditors. 2. On perusal of the assessment records for A.Y. 2003- 04, 2004-05 and 2005-06 it is seen that in all the 3 years the case of the assessee was selected for scrutiny and on order U/s 143(3) was passed. In A.Y. 2003-04 the assessee was showing sundry creditors at Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y dated 24/08/2012 to give a list of sundry creditors in A.Y. 2003-04 and to bring evidence to substantiate the increase in sundry creditors in A.Y. 2004-05 by way of copies of ledger accounts of the assessee in the books of the sundry creditors. He expressed his inability to do so. Moreover, during the course of assessment proceedings, enquiries were made from M/s Anurag Sales Corporation, M/s P.K. Industries which show a marked discrepancy in the ledger accounts maintained in the books of accounts of the assessee and the corresponding ledger accounts of the assessee in the books of these parties. Thus in absence of any evidence and the inability of the assessee to verify the addition in sundry creditors during this A.Y. as compared to previous A.Y. and the enquiries conducted by the A.O. showing that there are obvious discrepancies indicating inflation of sundry creditors account the increase in amount of Rs. 20,06,793/- remains unexplained during this A.Y. In A.Y. 2005-06 a similar finding was given by the A.O. on similar facts and a trading addition was made by applying a higher NP rate instead of making a specific addition on account of unexplained increase in sundry credito....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lying higher net profit rate of 18% as against 7.34% declared by the appellant. After considering the explanation of the AR particularly on fall in g.p./n.p. rate as well as difference in purchase account, ii will be in the interest of the justice if net profit rate of 13.5% is applied on the declared sales of Rs. 4,05,21,730/-. The AO is therefore directed to apply net profit rate of 13.5% on the declared sales as against 18% applied by him. Estimation of the net profit made by the AO at Rs. 72,93,910/- will be reduced to Rs. 54,70,433/-. Thus the appellant gets relief of Rs. 18,23,477/." From the above order of the AO and the CIT(A), it is evident that the trading addition has been made mainly on account of difference in the account of the aforesaid six creditor's account. This difference is finally determined by the CIT(A) at Rs. 21,47,653/-. Therefore the CIT(A) applied a net profit rate of 13.5% resulting into the trading addition of Rs. 24,93,869/-, so as to cover the difference of Rs. 21,47,653/- in the creditors account. Thus, it is incorrect on the part of the lower authorities in holding that no addition has been made on account of difference in the balances of sund....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AY 2005-06, though the sundry creditors increased by Rs. 23,90,219/- the AO on the party wise basis observed that sundry creditors of Rs. 28,39,607/- is not verifiable. This is reduced by CIT(A) to Rs. 21,47,654/-. It is accepted by CIT(A) that in AY 03-04 (i.e. 31.03.2003), the sundry creditors are of Rs. 47,63,209/-. This is more than the amount of Rs. 21,47,654/. In fact the parties involved in the list of sundry creditors for which addition is made is coming from AY 03-04 or earlier years and therefore the addition confirmed by CIT(A) by treating the overall increase in sundry creditor balance from 31.03.2003 to 31.03.2004 as unexplained is incorrect more particularly when the parties considered by the AO for making the addition is also appearing on 31.03.2005 and considered in AY 05-06 in making the addition. CIT(A) at Page 7-8 of his order has given a list of sundry creditors as on 31.03.2004 & 31.03.2005. As per this list, the position of the 6 parties for which addition is made by AO is as under:- Particulars AY 2004- 05 AY 2005-06 Differences Anurag Sales Corp. 8,01,882 23,73,278 15,71,396 Arihant Corporation - 1,11,715 1,11,715 P.K. Industries 7,33,860 7....