TaxTMI 
TaxTMI 
2021 (8) TMI 373
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....e assessee filed the appeal before Hon'ble High Court of Karnataka challenging the order passed by the Tribunal and the Hon'ble High Court vide its order dated 13.11.2018 passed in Income Tax appeal No.283/2010 has restored all the issues to the file of the Tribunal for adjudicating them afresh. Accordingly, this appeal came to be placed before us for adjudication. 3. All the grounds urged by the assessee relate to the following two issues: a) Validity of reopening of assessment u/s 147 of the Act. b) Addition of trade creditors aggregating to Rs. 46,61,745/- u/s 68 of the Act. 4. We heard the parties and perused the record. The assessee is engaged in the business of trading in iron & steel. The assessee filed return of income decla....
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....the Act. In the statement taken from the assessee at the time of survey operations, he admitted that both the above said creditors are bogus and there is no amount due to them. Accordingly, he agreed to voluntarily offer the aggregate sum of Rs. 46,61,745/-, being the outstanding balances standing in the name of the above said two creditors as his income. 6. However, during the course of assessment proceedings, the authorized representative of the assessee furnished a letter stating that both M/s. Sharda Enterprises and M/s. Magnum Trading Company are registered with sales tax authorities and they have issued all statutory forms as required by law in respect of purchases made from them. Further, it was submitted that the payments have been....
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.... above said concern aggregating to Rs. 38.09 lakhs and have also made payment to the tune of Rs. 19.20 lakhs through banking channels. The balance outstanding as at the year end was Rs. 18.89,885/-. The A.O. has added the outstanding balance only, i.e., he has accepted the entire purchases and also the payments made to the above said party through banking channels. The AO is doubting only the outstanding balance. The Ld. A.R. submitted that the A.O., having accepted the entire purchases and also the payments made to the above said party, is not justified in disbelieving the closing balance of outstanding amount. He submitted that the A.O. cannot disbelieve part of the transactions and accept other part of the transactions entered by the ass....
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....itted that the AO has made addition of outstanding trade creditors u/s 68 of the Act, which is not permissible under the Act, as the provisions of sec.68 relate to cash credits only. 13. The Ld. D.R. on the contrary, supported the order passed by Ld. CIT(A).By placing reliance on the decision rendered by the coordinate bench in the case of Suresh Kumar T. Jain (2019) 101 Taxmann.com 164, the Ld. A.R. submitted that even trade creditors can be assessed u/s 68 of the Act. 14. We have heard rival contentions on this issue and perused the record. The undisputed fact is that the assessing officer has made addition of outstanding trade creditors u/s 68 of the Act. The question whether unpaid trade creditors could be added u/s 68 of the Act has ....
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....ived by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction there for has been allowed. In all other cases including the case of a credit re....
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....ded that the outstanding trade creditors could be added u/s 68 of the Act. We have gone through the above said decision and notice that the facts prevailing in that case were different. In the above said case, most of the creditors confirmed the outstanding balances as per their books of accounts, which were much lesser than the outstanding balances disclosed by the assessee before the High Court. Copies of confirmation letters received from the creditors were also furnished to the assessee, but he did not offer any explanation. Hence, it was considered to be a case of either payment outside books or cessation of liability. Under these set of facts, it was held that the addition made u/s 41(1) and 68 of the Act was justified. 14. In the pr....