2016 (7) TMI 240 - AT - Income Tax

Addition u/s 68 - Held that - AO had even treated the debit balances of sundry creditors as unexplained cash credit u/s 68 of the Act by treating them as bogus liabilities. We find that there is an arithmetical error committed by the Learned AO thereby making excess addition of ₹ 3 crores towards storage charges payable (FSWAI). We also find from the details in the paper book and the arguments of the Learned AR that the assessee had heavily transacted with a Public Sector Undertaking, a Government of India Enterprises, M/s PEC Ltd. There are certain details such as Suspense Accounts, which assessee himself had admitted in the narration that details of credits are not available and hence credited to suspense accounts. Hence the Learned AO is justified in invoking the provisions of section 68 of the Act in respect of such transactions. However, from the totality of the facts and circumstances of the case, and in view of the voluminous details filed in the paper book by the assessee, we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions - (i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (ii) No addition need to be made on the debit balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; (iii) The Learned AO to make extensive verification of current liabilities and provisions , in accordance with law, in respect of accounts where there were transactions during the year ; (iv) The Learned AO is directed to allow set off of debit balances with credit balances in respect of the same parties while deciding the issue; (v) The assessee is directed to co-operate with the Learned AO and furnish necessary evidences and documents in support of its contentions in the form of reconciliation statements, confirmation of balances etc. (vi) The assessee is also directed to adduce evidences before the Learned AO in respect of rectifications stated to have been carried out in subsequent years for the wrong credit entries made in the earlier years and also produce evidences for payments / settlements made to various creditors in subsequent years. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition under Section 68 on account of bogus liabilities amounting to ?10,62,38,834.
2. Deletion of addition under Section 68 on account of bogus liabilities amounting to ?2,93,67,494.
3. Deletion of addition under Section 68 on account of bogus liabilities amounting to ?10,56,92,541.
4. Deletion of addition towards purchase suspense amounting to ?25,73,43,604.

Issue-Wise Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 (?10,62,38,834)
The assessee, engaged in trading chemicals, failed to furnish complete addresses for several creditors. The AO concluded these liabilities as bogus due to lack of credible evidence, absence of PAN, and inability to issue notices under Sections 133(6) and 131. The AO treated the closing balances of ?10,62,38,834 as unexplained cash credit under Section 68. The CIT(A) deleted the addition, noting that many credits were carried forward from previous years and supported by bills and payments via account payee cheques.

Issue 2: Deletion of Addition under Section 68 (?2,93,67,494)
The AO observed that notices sent to certain creditors returned unserved, and the assessee failed to produce these parties or provide necessary details. Consequently, the AO treated the balances of ?2,93,67,494 as unexplained cash credit under Section 68. The CIT(A) deleted the addition, emphasizing that the credits were supported by proper documentation and payments were made through account payee cheques.

Issue 3: Deletion of Addition under Section 68 (?10,56,92,541)
The AO found discrepancies in the closing balances of certain creditors based on independent inquiries. The AO treated these as bogus liabilities due to unverified transactions and differences in balances. The CIT(A) deleted the addition, noting that the credits were carried forward from previous years and supported by valid documentation.

Issue 4: Deletion of Addition towards Purchase Suspense (?25,73,43,604)
The AO observed a purchase suspense of ?73,80,73,509, with ?25,73,43,604 attributed to repurchased goods. The AO found discrepancies in closing balances and treated these as bogus liabilities. The CIT(A) deleted the addition, explaining that the purchase suspense was due to global recession and business expediency. The transactions were supported by agreements, invoices, and bond transfer agreements.

Tribunal's Decision:
The Tribunal noted that the AO had even treated debit balances of sundry creditors as unexplained cash credit and made an arithmetical error of ?3 crores in storage charges payable. The Tribunal acknowledged the detailed submissions and documentation provided by the assessee, including transactions with PEC Ltd, a Government of India Enterprise. The Tribunal found merit in the arguments of the DR that the AO should be given another opportunity to verify the details.

The Tribunal set aside all issues to the AO with specific directions:
1. No addition on opening balances of sundry creditors.
2. No addition on debit balances of sundry creditors.
3. Extensive verification of current liabilities and provisions for accounts with transactions during the year.
4. Allow set-off of debit balances with credit balances for the same parties.
5. Assessee to cooperate and furnish necessary evidence.
6. Assessee to provide evidence for rectifications and settlements made in subsequent years.

The appeal of the revenue was allowed for statistical purposes.