TaxTMI 
TaxTMI 
2025 (2) TMI 1973
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....ring the year under reference. 3. The Ld. CIT (A) ought to have appreciated the fact that no addition can be made U/s 68 in respect of trade creditors. 4. The Ld.CIT (A) ought to have appreciated that the cash deposits are the loans and advances received during the course of business and are reflected in the books of accounts of the assessee, which is supported by evidence in books of accounts. 5. The Ld.CIT (A) ought to have appreciated that the Ld. AO has not brought on record any contradictory evidence by making enquiries about the genuineness and creditworthiness or otherwise of the transactions but has added to the income returned, is not correct and justified. 6. The Ld.CIT (A) ought to have appreciated that the Ld. AO erred in not considering the fact that the amount of Rs. 1,70,23,768/- is already shown in the book of accounts of the assessee. 7. The Ld.CIT (A) ought to have appreciated that the assessee is, maintaining books of account and the same are duly audited u/s 44AB of the Act by the Chartered Accountants. 8. The Ld. CIT (A)erred in upholding the addition made by the AO even though the Identity, Genuineness....
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....sessee has filed the confirmation of sundry creditor which is a group concern of the assessee and therefore, the assessee has discharged its onus to prove the genuineness of the transaction. The books of account are duly audited and copy of Form 3CD were available before the Assessing Officer. Therefore, once the books of account are not rejected and trade transaction is not disputed by the Assessing Officer, then the addition made u/s 68 against the trade creditors/sundry creditors is not justified. 6. On the other hand, the learned DR has submitted that no evidence was filed by the assessee before the Assessing Officer or before the learned CIT (A) to establish the genuineness of the increase in the sundry creditors. Therefore, the addition was made by the Assessing Officer for want of necessary details and supporting evidence. He has referred to the findings of the learned CIT (A) and submitted that the learned CIT (A) has given a finding that the sundry creditors remain unverified as the assessee has failed to produce any evidence in support of the claim, except the confirmation from M/s. Madhucon Estates Ltd. The assessee was specifically asked to provide the details of the....
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....f RB Mittal vs. CIT (246 ITR 283), the amount of Rs. 1,70,23,768/- is brought to tax as unexplained credits u/s 68 of the Act. Addition: Rs. 1,70,23,768/ -. " 8. Thus, it is clear that it is a case of increase in the sundry creditors during the year consideration to the tune of Rs. 1,70,23,768/ -. The Assessing Officer proceeded to examine the sundry creditors by calling the confirmation and supporting evidences regarding the identity of the party, capacity of the creditors and genuineness of the transaction. These all conditions are required in respect of cash credit u/s 68 of the I.T. Act, 1961. It is an undisputed fact that these are trade/sundry creditors recorded by the assessee in the books of account and therefore, does not fall in the ambit of section 68 of the Act. If the Assessing Officer was having any doubt about the genuineness of the creditors recorded in the books of account, then the trade transaction represented by these sundry creditors were required to be verified and incase the assessee failed to substantiate the trade transaction, then the claim of the said trade transactions as an expenditure in the P&L Account could have been disallowed. The....
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....L Account of the assessee, the Assessing Officer is not permitted to resort to the provisions of section 68 of the I.T. Act, 1961 in respect of the sundry creditors. In the case of DCIT vs. Allied Infra Suppliers (Supra), the Cuttack Bench of this Tribunal has upheld the order of the learned CIT (A) deleting the addition made by the Assessing Officer u/s 68 of the Act on account of sundry creditors. The Tribunal has reproduced the relevant order of the learned CIT (A) as under: "7.2 I have considered the matter with reference to the facts on record and the remand report of the AO. I find that the sundry creditors were considered as not genuine in the assessment because the assessee failed to furnish the relevant details and documents to prove the genuineness of the same. Apparently, the addition was made u/s. 68 though there is no reference to that section in the assessment order. In the course of remand proceedings, the assessee has furnished all the relevant details and documents examination of the same, the AO is of the opinion that the credit liabilities disclosed in the accounts are genuine. Moreover, the provisions of section 68 cannot be applied to sundry creditors ....
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....ecords meticulously and not making purchase from grey market. Since the assessee in the instant case is showing GP rate of less than 4%, therefore, considering the totality of the facts of the case, we are of the considered opinion that adoption of GP rate of 16% on such unsubstantiated purchases from the six creditors will meet the ends of justice. We, therefore, direct the AO to adopt GP rate of 16% on such purchases of Rs. 3,05,34,283/- from the six creditors which comes to Rs. 48,85,485/- as against the addition of the entire amount payable to the six parties u/s 68 of the IT Act. Thus, the addition is restricted to Rs. 48,85,485/- as against Rs. 3,05,34,283/- made by the AO and sustained by the CIT(A). 33. So far as the decisions relied on by the ld.CIT(A) and the ld. DR are concerned, all those decisions relate to addition u/s 68 of the Act where loans or advances have been obtained by the respective assessees and they could not substantiate with evidence to the satisfaction of the AO regarding the three ingredients of section 68 of the Act. However, in the instant case, there is no such cash loan or advances from the six parties and the amount ou....
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....p;6,24,70,343/- as on 31.03.2010. The AO during the course of assessment proceeding sent the notice at the addresses given by assessee u/s. 133(6) of the Act but all of them returned unserved. On question by the AO the assessee submitted that the sundry creditors relates to the purchases which is genuine, therefore, the creditors without rejecting the purchases cannot be treated as income of the assessee. However, the AO disregarded the claim of assessee by observing that the onus lies upon the assessee to prove identity, genuinety and creditworthiness. Accordingly, AO disallowed the creditor for Rs. 4,29,02,130/- on account of non-existent and added to the total income of assessee. 11. Aggrieved assessee preferred an appeal before Ld. CIT (A) who deleted the addition made by AO by observing as under :- "5.3.5 I have gone through the assessment order, submission of the AR, peruse the fact of the case and other materials brought on record and I am of the view that for the following reasons Rs. 4,29,02,130/- cannot be added to the income of the appellant either by applying the provisions of section 41(1) or 68 of the Act .:- (i) That the purchase ....
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.... creditors nor the trading results were disturbed. In CIT vs. Ritu Anurag Aggarwal -IT Appeal No. 325 of 2008 dated 22/7/2009, dealing with section 68 of the IT Act in a similar case, the Hon'ble Delhi High Court observed ' .... Proceeding on this basis, the ITAT observed that the sales, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer. 4. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this aspect while making additions of the sundry creditors under section 68 of the Income Tax Act. As there was no case for disallowance for responding purchases, no addition could be made under section 68 inasmuch as it is not in dispute that the creditors' outstanding related to purchases and the trading results were accepted by the Assessing Officer.' viii) As regards applicability of provisions of section 41(1), the facts clearly show that the appellant did not write back the sundry creditors to its profit and loss account. In CIT v. Vardhman Overseas Ltd. in ITA No. 774//2009 decided on 23.12.2011, (2012)....
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.... to treat the said sundry creditors as bogus creditors. It may be submitted that some of the purchases from these sundry creditors were made during the year itself and purchases from all of them have been accepted to be genuine, found recorded in the books of accounts such purchase of raw materials was also found to consumed, the disallowance for purchase was made only by applying section 40A(3) wherever the payment were in excess of Rs. 20,000/. Therefore, sundry creditors cannot be said to be bogus and no addition can be made as bogus creditors. It is further submitted that even if it is presumed that there were unconfirmed creditors, then whether the provision of section 68 or section 41(1) can be invoked and whether such creditors can be treated as bogus warranting addition in the income of the assessee. It is again submitted that there is no dispute that the goods have been purchased and the genuinity of the purchase have not been disputed and it was because that the provisions of section 40A(3) have been applied. Moreover, the assessee maintained day-to-day stock register wherein the raw material purchased were entered into and the finished goods produced have been accep....
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....d. As per the assessee the balances represented amounts due to various parties and the liability was subsisting. The Tribunal held that in the absence of cessation of liabilities and on the mere fact that the amounts were outstanding for more than 3 years, the provisions of section 41 (1) could not be applied. In the case of Dhawan (M.R.) v. CIT 149 ITR 160 (Del), it was observed that the remission of the liability arises when the creditor voluntarily gives up the claim. The cessation of such liability arises only when it ceases to exist in the eyes of law for all intents and purposes. In the case of UOI vs. K. Synthetics Ltd. (1993) 199 ITR 14 (SC), the Hon'ble Court held that ITA No. 2620/Kol/2013 A.Y. 2010-11 ITO Wd-12(1), Kol. vs. M/s Standard Leather Put. Ltd. Page 15 cessation of liability for the purpose of section 41(1) means irrevocable cessation so that there is no possibility of the liability being revived in future. If there is such a possibility, then the cessation is not complete and section 41 (1) is not attracted. In the case of Shri Vardhman Overseas Ltd. vs. Asstt. CIT 24 SOT 393 (Del 'H'- Trib), the facts of the case were that the AO asked the as....
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....ished and not in the year under consideration where assessee has admittedly shown the liability in the balance sheet. It has been held in the case of G P International Ltd. (P & H) reported in 325 ITR page 25 that provisions of section 41 cannot be applied if the assessee is still showing the liability. It has been held in the case of Bhavesh Prints reported in 142 TTJ page 128 that simply because some of the creditors were not traceable it cannot be held that the liability is not payable. In the case of Tamil Nadu Ware Housing Corporation reported in 292 ITR 310, it was held that so long the assessee had shown the liability in the balance sheet it cannot be said that the liability has ceased to exist. In the case of Willson and Co. Ltd reported in 121 TTJ 258 (Chennai Tribunal), it was held that unless it was shown by the Department that the liability ceased to exist during the assessment year in question it cannot partake the character of income during the assessment year in question. Similarly in the case of Dy. CIT v. Amod Petrochem (P) Ltd. (2008) 23 (I) ITCL 145 (Guj- HC) : (2008) 217 CTR (Guj) 401, it was held that as per section 68, there should be cash credits of ....