TaxTMI 
TaxTMI 
2014 (1) TMI 1724
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....that the assessee failed to substantiate its claim of outstanding sundry creditors by not producing proper addresses during the course of remand proceedings as a result, the AO was prevented from discharging his statutory duties of examining these creditors." 3. The assessee is a partnership firm. It carries on business as cotton merchants and commission agents. In the course of assessment proceedings, the AO found that the assessee had shown sundry creditors (trade creditors) totaling to Rs. 10,37,33,867 in the balance sheet. The Assessing Officer called upon the assessee to file confirmation with account extract in respect of the creditors. The assessee did not file the confirmation as demanded by the AO, nor could the assessee give detailed postal addresses of the creditors for verification of the balances. According to the AO, later on the assessee filed audit report and confirmation from some of the sundry creditors. The AO therefore observed as follows:- ".... In view of the non furnishing of all the account extract and confirmation of sundry creditors, I have no option except to add to the total income of the assessee firm a sum of Rs. 3,60,00,000/, out of total sundry....
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.... in respect of the creditors listed at Annexure-C, the AO found that those creditors have confirmed the outstanding balances, but the balances confirmed by them was less than what the assessee had shown as outstanding and payable in its books to the sundry creditors. 5. In respect of sundry creditors listed at Annexure-C, the assessee filed reconciliation and that reconciliation was also forwarded to the AO. In the remand report, the AO has not said anything adverse about the reconciliation furnished by the assessee. In respect of Annexure-C sundry creditors, the assessee submitted that just because there are discrepancies in the accounts between the assessee and that of the sundry creditors, no addition can be made and relied on the decision of the Delhi High Court in the case of CIT v. Multi System Securities Pvt. Ltd., 305 ITR 298 (Del). The assessee took a plea that all the sundry creditors were running accounts and there is no reason whatsoever to doubt the genuineness of the sundry creditors. 6. The CIT(A) on a consideration of the above submissions came to the following conclusion:- "4. I have gone through the records and the voluminous information furnished ....
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....000001246 4. Syndicate Bank, Bailhongal Branch A/c No.05183030000023 5. Union Bank of India, Bijapur Branch CC A/c No.50001 6. Union Bank of India, Bijapur Branch CD A/c No.33190101011036 4.2. Thus, from the above bank accounts as well as the ledger accounts of the respective parties it is seen that these are running trade accounts and the appellant has made payments not only in the previous year relevant to the asst year in question but also in subsequent year by way of cheque only. Besides, from the reconciliation statement in respect of Annexure-B of the remand report, it is seen that the appellant has reconciled the party's account wherever difference is found and in many cases payments have been made in subsequent years. Thus, from the above it is seen that the appellant has discharged its onus that lay upon it under the law and therefore, it is not proper on the part of the Assessing Officer to treat the creditors as not verifiable brushing aside these vital evidences to prove that the transactions as well as outstanding balances are genuine and verifiable from the books of account and the bank accounts of the appellant firm. As stated above, even the Assessing....
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....in its books and evidence in the form of bank account extract to show payments are made through bank account only. The appellant has maintained regular books of account which are subjected to audit under section 44AB. (ii) Once the appellant has discharged his initial burden, the burden shifts upon the department and the Assessing Officer, was not able to bring anything on record that could show that these outstanding balances are not genuine. On the other hand, the appellant by producing cogent material including reconciliation wherever, difference between amount outstanding as per its books and the parties books and the evidence to indicate all payments by cheques in subsequent year, has discharged its burden that lay upon it to prove these outstanding balances as genuine and of course, verifiable." 8. For the above reasons, the CIT(Appeals) was of the view that the addition of Rs. 3,60,00,000 made by the AO cannot be sustained and accordingly deleted the said addition. 9. Aggrieved by the order of the CIT(A), the revenue has raised ground Nos.1 & 2 before the Tribunal. 10. We have heard the rival submissions made by the ld. DR and the ld. counsel for the asses....
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.... view that for this limited purpose, the issue should be remanded to the AO for fresh consideration. We hold and direct accordingly. 12. As far as Annexure-C sundry creditors are concerned, the sum of Rs. 86,87,710 added by the AO is in respect of discrepancies found between the figures shown by the assessee as due to the sundry creditors and figures shown by the sundry creditors as due from the assessee. The assessee has shown due and payable to the sundry creditors much more than the figures the sundry creditors had shown as receivable from the assessee. Such differences appear only in the case of 36 sundry creditors out of 120 sundry creditors set out in Annexure-C. It is seen that the assessee had filed reconciliation of some of these accounts before the AO and the same is at pages 4 to 6 of the assessee's paperbook. This reconciliation is in respect of 10 sundry creditors out of 36 sundry creditors in whose accounts discrepancies were found by the AO. For ready reference, the reconciliation so filed by the assessee in respect of 10 sundry creditors is enclosed as ANNEXURE-I to this order. Despite this reconciliation, in the remand report filed by the AO after receipt of thi....
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....dditional expenditure. The assessee also pointed out that Kapas were ginned and pressed through different factories after transporting to Hubli which involved additional expenditure. It was also pointed out that some customers had to be accommodated at lesser price because they were prompt in payment. Besides the above, increase in wages and labour and other elements was also pointed out. The assessee also submitted that it maintained regular books of accounts which were duly audited by the Chartered Accountant. Under the circumstances, book results cannot be doubted. With regard to low yield, the assessee submitted that such difference in yield is normal in the line of business. 18. The AO, however, did not agree with the submissions made by the assessee and he held as follows:- " The explanation of the assessee firm has been gone through and is not satisfactory in regard to low GP & low yield and the same is hereby rejected on facts of the case. In the meanwhile, it is also studied that the similar businesses in the nearby locality, have been verified and examined in detail. And the Gross Profit, shown by the other assessee, in the similar line of business, quite more and h....
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.... GP 3.08% at Rs. 1,01,47,869 during the year. Therefore, the differential gross profit of Rs. 5,99,101 is sustained as against the addition of GP of Rs. 32,43,994 made by the AO." 20. Aggrieved by the relief given by the CIT(A), the revenue has raised Gr.No.3 before the Tribunal. Aggrieved by the order of the CIT(A) in not deleting the entire addition made by the AO, the Assessee has filed appeal before the Tribunal. 21. We have heard the rival submissions. The ld. DR reiterated the stand of the AO as reflected in the order of assessment. When a query was put to the Learned DR as to whether an estimation of income can be made without rejecting the book results on the parameters laid down in Sec.145(3) of the Act, the learned DR submitted that in the remand report filed by the AO before CIT(A) he has mentioned that the books of accounts of the Assessee are not complete. The ld. counsel for the assessee, on the other hand, while reiterating the submissions as were made before the AO also submitted that books of accounts of the assessee have not been found to be incorrect or incomplete and therefore book results cannot be rejected. In this regard, reliance was placed by t....