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2015 (3) TMI 799 - ITAT HYDERABAD

2015 (3) TMI 799 - ITAT HYDERABAD - TMI - Additions of Sundry Creditors - CIT(A) deleted the addition - Held that:- We agree with the observation of the Ld.CIT(A) that the methodology adopted by the Assessing Officer prima facie suffers from certain deficiencies. Entire closing balance cannot be treated as un-accounted credits without examining what was received during the year. Moreover, these are all trade credits and arising out of Books of Accounts, out of the running accounts on account of .....

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nciples alone when on facts, no addition can be made out of the closing credit balances when purchases/ other transactions were accepted. Whether there is incriminating material or not, Assessing Officer's addition per se is not correct on facts itself. - Decided against revenue.

Unexplained credits - Held that:- Assessee did not give any information when these amounts were adjusted or returned. In the absence of these details, we are unable to give any finding, whether the amount .....

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redits from purview of cash credits. If assessee has furnished any mode of receipt/mode of adjustment or repayment of the amounts and confirmations from the said parties, then Assessing Officer can make necessary enquiries to examine whether they are genuine or not. With these observations, the issue of examining the credits which are not adjusted in the trade either during the year or later year is restored to the file of the Assessing Officer. - Decided in favour of assessee for statistical pu .....

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T(A) order stands modified. The addition is deleted from AY.2006-07. - Decided in favour of assessee.

Disallowance of fuel charges - Held that:- As seen from the information available on record, there is no dispute with reference to the fact that journal entry for the above expenditure was passed on one day for the so called fuel charges and assessee has issued different cheques, which seems to have been encashed on a single day in cash. Assessing Officer also, even though accepted by .....

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is drawn by the said person from the bank, the same cannot be considered as non-genuine. Since Assessing Officer also did not enquire, nor CIT(A) considered it necessary to examine the genuineness of transactions, We are of the opinion that the claim of fuel charges should be enquired afresh. Assessee is directed to furnish the necessary invoices raised, the mode of transport of husk to the factory premises and utilisation of the husk in the process of manufacturing of decorative laminated shee .....

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Revenue's appeals are for AYs. 2003-04 to 2005-06 only. Since common issues are involved, these are considered together and disposed-off by this common order. 2. We have heard the Ld.Counsel and Ld.DR in detail and called for details also in the course of hearing. After considering the Paper Books placed on record and submissions by assessee, issues are decided as under. 3. Briefly stated, assessee is a private limited company engaged in manufacturing of decorative laminated sheets. It has .....

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es that the case was heard only on one day i.e., 24-12-2010 and orders have been passed on 31-12-2010. Assessing Officer made various additions in the orders in the respective years not based on any incriminating material or seized material but on the basis of assessee's claims in P&L A/c. Assessing Officer made an addition of Sundry Creditors balances at the end of the year in each of the assessment years from AY.2003-04 to 2006-07. Assessing Officer also made addition of advances again .....

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the Ld.CIT(A) sent on remand to the Assessing Officer. The Assessing Officer vide his letter dt.31-01-2012 submitted a remand report through the Additional Commissioner who forwarded it by letter dt.21-02-2012. Even though on some aspects Assessing Officer accepted assessee's contentions, Addl.CIT did not agree and therefore CIT(A) passed the order on merits considering both the report and forwarding letter. The Ld.CIT(A) deleted the additions made on account of Sundry Creditors, whereas he .....

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appeals for AYs.2003-04, 2004-05 & 2005-06, Ld.CIT(A) deleted the addition of Sundry Creditors made respectively of ₹ 32,37,070/-, ₹ 21,76,103/- and ₹ 11,09,801/-. For the sake of discussion, we take up the addition made in AY.2003-04 by the Assessing Officer. In the assessment order, assessee was asked to furnish the details of Sundry Creditors of ₹ 32,37,070/-, assessee vide his letter dt.09-12- 2010 submitted that the list of Sundry Creditors assessment year wise w .....

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explained investment and made respective additions. 6. Before the Ld.CIT(A), assessee furnished written submissions, complete details which were submitted before AO and contended that these were not considered by the Assessing Officer. The Ld.CIT(A) after considering the observations of the Assessing Officer, deleted addition by stating as under: "4.4 The observations of the Assessing Officer and the written submissions of the appellant are perused. As could be seen from the gist of the inf .....

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ors and treated the entire closing balance of sundry creditors as unexplained credits and accordingly added to the total income of the appellant. The methodology adopted by the Assessing Officer prima facie suffers from certain deficiencies as much as the entire closing balances of the sundry creditors cannot be treated as the unaccounted credits as the closing balances always have opening balances embedded in them. Further, what matters for the year under reference is the total of the credits t .....

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such, the closing balances cannot be treated as unaccounted credit standing against the names of the creditors without bringing any concrete evidence as regard to the fictitious nature of purchases or the credits, and more so when the debits to such accounts are not disbelieved. Further, the appellant has confirmed to have filed the said information before the Assessing Officer during the course of assessment proceedings which was not disputed, and as such, there is no valid ground for the Asse .....

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ught on the record and facts of the case, I am of the considered opinion that there is no ground for the Assessing Officer to treat the entire closing balance of sundry creditors as unexplained credits, that too in a search related assessments like the case of the appellant for the year under reference. Several judicial authorities held that routine and general disallowances, in absence of material found at the time of search, cannot be made in assessment completed u/s 153A. It was also held tha .....

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ble on record. We agree with the observation of the Ld.CIT(A) that the methodology adopted by the Assessing Officer prima facie suffers from certain deficiencies. Entire closing balance cannot be treated as un-accounted credits without examining what was received during the year. Moreover, these are all trade credits and arising out of Books of Accounts, out of the running accounts on account of purchases and payments made over a period of time. Further, the closing balances have been confirmed .....

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s/ other transactions were accepted. Whether there is incriminating material or not, Assessing Officer's addition per se is not correct on facts itself. Therefore, we do not intend to adjudicate the legal contentions raised in the Revenue's grounds, as is not applicable to the facts of the case. 8. In the result, all the three appeals of Revenue are dismissed. Assessee's appeals for AYs.2003-04, 2004-05, 2005-06 & 2006-07: 9. In these four assessment years, assessee's main gr .....

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s in later years or during the year. Ld.CIT(A), after considering the Remand Report of the Assessing Officer, however, did not agree with assessee's contentions. His order on this issue in para 5.4 and 5.5 in AY.2003-04 is as under: "5.4 The observations of the Assessing Officer in the assessment order as well as in the remand report and the written submissions of the appellant are perused. As could be seen from the facts of the case, the closing balance of the creditors against the adv .....

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; 22,69,553 and debited with an amount of ₹ 16,80,828 being the amounts squared up or sales made to the parties for the year under reference. In the strict parlance of the language of sec.68, the credits that appear in the books of the assessee during the relevant year alone can be treated as unexplained credits if the appellant fails to explain the transaction to the satisfaction of the: Assessing Officer. In this case, such fresh credits are to the extent of ₹ 22,69,553 which could .....

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nuineness of the transactions of advances received by the appellant, it may be relevant to mention that this office has forwarded the annexures containing. the details of the creditors against advances as well as the confirmations which are connoting the nature of the transactions and if the Assessing Officer is not satisfied with the creditworthiness of such creditors, it was for the Assessing Officer to go after the creditor and examining of the same. The mere absence of details as enumerated .....

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. In the instant case, at the stage of the. assessment, the Assessing Officer treated the creditors against the advances, as "'unexplained credits, on the pretext of absence of explanation of the assessee and the same reason was indicated in the remand reports. Further, in absence of the adverse information on the fictitious nature of the creditors, there is no ground for such additions in the search related assessments as held by various judicial decisions. However, keeping the incompl .....

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10. Ld.Counsel referring to the details furnished before the authorities was of the submission that all these credits are trade credits and there is no need to take them as cash credits. We have asked for the ledger copies of all the parties, account-wise and assessee has furnished the same. As can be seen from the details, the credits from M/s.Goyal Traders are trade credits which are adjusted towards sales in AY.2003- 04 and 2004-05. Likewise, the credits in the case of M/s.Victory Plywood ar .....

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hat trade credits cannot be considered as cash credits has to be accepted. Moreover these advances were subsequently got adjusted also. There is no merit in order of Assessing Officer and CIT(A) in confirming the same as these are not cash credits per se. 10.1 However, in the case of M/s.Shalimar Plywood assessee has received an amount of ₹ 4,50,000/- in the year 2002-03 relevant to AY.2003-04 which according to assessee's statement filed before us was continuing upto 31-03-2005. Wheth .....

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rdwar amount received on 27- 03-2005 of ₹ 2,05,700/- was also continuing as closing balance. In the case of M/s.Vikram Plywood amount received on 18-03-2005 ₹ 3,50,000/- and on 21-03-2005 ₹ 1,68,794/- were also continuing as closing balances. In the case of M/s.Ajay Laminates amount received on 14-03-2005 of ₹ 3,49,875/- and in the case of K.Bhaskar Rao of ₹ 2,50,573/- dt.15-03-2005 were also continuing as such. In the case of R.Subba Rao, entire amount received  .....

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its or trade credits. Therefore, issue of examining these amounts are restored to the file of Assessing Officer to examine in respective assessment years and determine whether they can be treated as unexplained cash credits. Assessing Officer's order did not specify the details of credit. Therefore above analysis is based on the details filed by assessee. Assessing Officer is directed to examine the amounts that were considered for addition and exclude trade credits from purview of cash cred .....

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the CIT(A) to that extent too. In the result, assessee's grounds are allowed partly for statistical purposes. Assessing Officer should give due opportunity to assessee to furnish necessary information/confirmations to the extent of the credits available on the above issue. 11. The next issue for consideration in AY.2006-07 is with reference to the commission received to the extent of ₹ 26,61,915/-. On the basis of the TDS certificates issued by M/s.Amit Commercial Cooperation and M/s.C .....

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ed that assessee has accounted for the receipt of commission in that year and claimed the TDS in that year. The matter was remitted to the Assessing Officer and Assessing Officer has accepted the same in his report. However, the CIT(A) was of the opinion that assessee has mentioned AY.2005-06 also wherein it was supposed to have received commission of ₹ 24,35,341/-. Therefore, he directed the Assessing Officer to examine the issue. 12. On considering the facts placed on record, we are of t .....

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s deleted from AY.2006-07. 13. Next issue for consideration is issue of fuel charges. This issue arises in AY.2009-10. Assessee has claimed an amount of ₹ 31,06,169/- as fuel charges. Assessing Officer in his brief order mentioned that for the first time, fuel expenses were debited during the year and assessee has not justified, therefore, the same were disallowed. Before the CIT(A), assessee furnished the details and CIT(A) remanded for examination. Assessing Officer vide his Remand Repor .....

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not agree with the report. The Additional CIT was of the opinion that Assessing Officer ought to have brought out necessary document on record before stating that credit of fuel charges may be given to assessee. Additional CIT noted that the bills are raised on one day i.e., 31-01-2009 and all payments are made in the month of February and March and complete details of Mr. Ramesh Kumar are not known. Therefore, the Additional CIT expressed doubt about the genuineness of the claim. In the absenc .....

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rseas Bank, R.P.Road Branch, Secunderabad bearing account no.043202000003073. As could be seen from the bank account extract for the period under reference, the appellant has made the following amounts vide the bearer cheque with the cheque numbers indicated which have been encashed by the recipient in cash, except on one occasion. The details are as under; S.No. Date Cheque No. Narration Code Amount(debit) 1 24.3.09 705563 To M RameshKu CSH 297653 2 24.3.09 705562 To M RameshKu CSH 241538 3 24. .....

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not substantiate the reasons for booking the expenditure by raising the bills on single day and by paying the amounts to the extent of ₹ 28,97,889 on a single day and in cash thereby the genuineness of the transaction. The abnormality of the transaction raised the doubts and the payments by cash had confirmed the same. It is not known how and what prompted the appellant to raise the bills on the same day and paid the amount on a single day to the extent of ₹ 28,97,889, by cash, to be .....

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7,889 is not an allowable expenditure and as such the same is confirmed out of the total disallowance of ₹ 31,06,169 made by the Assessing Officer. Though the Assessing Officer has made the disallowances, on prima facie suspicion, the major portion of the so called expense representing the fuel charge, in the form of purchase of paddy husk from a single party, that too by raising bills on a single day and discharged the liability by payments in cash, conclusively proves the fictitious natu .....

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that assessee did indeed pay the amounts for the fuel received from the said person and therefore, there is no need for disallowance. Ld Counsel also commented that Addl. CIT report is not correct as AO examined and accepted the claim in remand. 15. We have considered the issue and examined the rival contentions with the help of the orders of the authorities. As seen from the information available on record, there is no dispute with reference to the fact that journal entry for the above expendi .....

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