Trade Creditors can't be diaallowed u/s 68

[LALIT MUNOYAT]

Refer

RAJESH G. JAIN VERSUS ITO, WARD 2 (2) , THANE - 2022 (10) TMI 1218 - ITAT MUMBAI

Sections: 068, 069C, 144,

Dated:- 21-10-2022

This Order was recalled by the ITAT and reheard on merit .

SHRI RAJESH G. JAIN VERSUS INCOME TAX OFFICER WARD–2 (2) , THANE - 2024 (2) TMI 272 - ITAT MUMBAI

ITA no.150/Mum./2022 (Assessment Year : 2010-11)

Shri Rajesh G. Jain Flat no.304, Janki Orchid 90 Feet Road, Bhayander (W) Mumbai 401 101 PAN – AAEPJ5354H

……………. Appellant

v/s Income Tax Officer Ward–2(2), Thane Park

……………. Respondent

Assessee by : Shri Lalit Munoyat Chartered Accountant

Revenue by : Smt. Mahita Nair

Date of Hearing – 20/12/2023

Date of Order – 29/12/2023

In The Income Tax Appellate Tribunal “D” Bench, Mumbai ITA No.150/Mum./2022 (Assessment Year : 2010-11) Vs.

Income Tax Officer Ward–2(2), Thane Park

Assessee by : CA Shri Lalit Munoyat

Revenue by : Smt. Mahita Nair

Date of Hearing – 20/12/2023

Date of Order – 29/12/2023

Whether sundry creditors arising out of Bogus purchases (Hawala Transactions) and remaining outstanding as at the year-end  can be added to the Total Income u/s 68  as Cash credits.

-NO-

Such creditors can be added u/s 41(1) only as Income to include benefit due to Remission or Cessation of Liability by way of writing off such liability in his accounts. 

Relevant part of the ITAT Mumbai D Bench Order dated 29-12-2023

“178. ….. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received 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 therefor has been allowed.. ….”

16. We find that in SMT. MADHU SOLANKI W/O SRI SHANTILAL SOLANKI C/O RAJENDRA METALS VERSUS ITO WARD-1 (3) BANGALORE - 2021 (8) TMI 373 - ITAT BANGALORE, the coordinate bench of the Tribunal, vide order dated 09/08/2021, after considering the aforesaid decision held that the AO cannot make an addition of trade creditors under section 68 of the Act when the purchases made during the year and payments made during the year have been accepted. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:-

“15. Similar view has been expressed by Hon'ble Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal reported in CIT VERSUS. RITU ANURAG AGARWAL - 2009 (7) TMI 1247 - DELHI HIGH COURT as under:-

"This finding of AO remained undisturbed before the CIT(A) as well and has been accepted by the ITAT. 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. 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 sundry creditors under Section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchase, 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 AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed."

17. In the present case, the facts are totally different. First of all, the outstanding balances related to the purchases made during the year under consideration and not brought forward balances. The AO did not get reply from both the trade creditors and hence he proceeded to assess the outstanding balances, while accepting the purchases made during the year & payments made during the year. The AO has made the addition u/s 68 of the Act and did not invoke provisions of sec. 41(1) of the Act.

On the contrary, the assessee has shown that the payments have been made in the succeeding year through banking channels. Under these set of facts, we are of the view that the AO could not have made addition of trade creditors u/s 68 of the Act.”

Therefore, respectfully following the aforesaid decisions, since in the present case the purchases made by the assessee and the payment made during the year have not been disputed by the AO in respect of the parties shown as sundry creditors, we are of the view that the addition in respect of the balance sundry creditors is not sustainable.

Accordingly, the AO is directed to delete the same. As a result, ground no. 6 raised in assessee’s appeal is allowed.