2018 (10) TMI 260 - AT - Income Tax

Addition in respect of sundry creditor balance u/s 68 - Held that - Assessee has furnished entire requisite details together with the bills and vouchers and all the supporting documents in support of the claims made in the return of income which fact has been acknowledged by the ld. AO in his assessment order. We also find that the said supplier Mr. Jaharlal Ghosh in response to notice issued u/s 133(6) of the Act had replied before the ld. AO vide his letter dated 15.11.2013 confirming the fact of supply of materials to the assessee during the financial year 2010-11 and had also confirmed the fact that some amount was receivable from the assessee for such supply of materials. It is factually incorrect on the part of the ld. AO to conclude that the said trade creditor had confirmed Nil balance as on 31.03.2011 as amount receivable from the assessee. Hence it could be safely concluded that the AO had proceeded to make an addition by treating the concerned sundry creditor as bogus based on incorrect assumption of facts - no addition could be made u/s 68 in respect of a trade creditor. AO had not disputed the purchase of materials made by the assessee from the said sundry creditor and hence the corresponding credit entry i.e. credit to the account of the sundry creditor cannot be doubted by the ld. AO. Thus we direct the ld. AO to delete the addition - Decided in favour of assessee.

Summary

Issues:
- Addition sustained by the ld. CIT(A) regarding sundry creditor balance of Rs. 9,30,625/- u/s 68 of the Income Tax Act, 1961.

Analysis:
1. The appeal arose from the order of the Learned Commissioner of Income Tax(Appeals) against the order passed by the ACIT under section 143(3) of the Income Tax Act for the Assessment Year 2011-12. The only effective ground raised was related to the addition sustained by the ld. CIT(A) concerning the sundry creditor balance under section 68 of the Act.

2. The assessee, an individual contractor, filed the return of income for the assessment year 2011-12, declaring total income of Rs. 1,23,63,670/-. The ld. AO examined the details of sundry creditors filed by the assessee under section 133(6) of the Act. While some creditors confirmed the amount reported by them, one creditor, Mr. Jaharlal Ghosh, did not confirm the closing balance. The ld. AO treated this balance as unexplained cash credit under section 68 of the Act, despite the assessee providing supporting documents and vouchers. The ld. CIT(A) confirmed this addition, leading to the appeal.

3. The Tribunal found that the assessee had provided all necessary details and documents supporting the claims made in the return of income. The balance shown as payable to Mr. Jaharlal Ghosh was for materials supplied for road contract work. The supplier confirmed the supply and the amount receivable from the assessee. The ld. AO incorrectly concluded that the creditor confirmed Nil balance, leading to an erroneous addition under section 68. The Tribunal held that no addition could be made under section 68 for a trade creditor, especially when the purchases were not disputed by the ld. AO.

4. Consequently, the Tribunal directed the ld. AO to delete the addition of Rs. 9,30,625/- made under section 68 of the Act. The grounds raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

5. In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of the addition made by the ld. AO regarding the sundry creditor balance under section 68 of the Income Tax Act, 1961.