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2015 (10) TMI 743 - ITAT JAIPUR

2015 (10) TMI 743 - ITAT JAIPUR - TMI - Legality of order passed U/s 147 - addition on account of alleged unexplained sundry creditors - Held that:- As revealed from the chart that in case of Anurag Sales Corp, and Sunraj Steel, the credit balance has increased from 31/3/2004 and 31/3/2005. In case of Swastik trading company and P.K. Industry, the credit balance had gone down compared to 31/3/2004 to 31/3/2005, which proved that on 31/3/2005, these credit balances were cumulative. AO for A.Y. 20 .....

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simply made addition on the basis of difference in the credit balances in the accounts of these parties for A.Y. 2005-06. It is further confirmed from the CIT(A)’s order wherein sundry creditors list in case of Yash enterprises and Arihant Corp. there were no outstanding creditors as on 31/3/2004. Even the ld Assessing Officer considered these parties for addition to the tune of ₹ 1,11,715/- in case of Arihant Corp. and ₹ 1,72,435/- in case of Yash Enterprises, which is not justifiab .....

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se made by the assessee herself. In some of the cases, there is even reduction in outstanding creditors on payment. The Assessing Officer should have collected the information from the creditors directly to verify the outstanding creditors as on 31/3/2004 and should have compared with the assessee’s books of account before making any addition, which has not been carried out by the Assessing Officer. Thus, the addition confirmed by the ld CIT(A) is deleted. Decided in favour of assessee. - ITA No .....

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y of order passed U/s 147 by incorrectly holding that assessee has not made any submission on this ground of appeal, hence taken as not pressed. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the addition of ₹ 20,06,973/- on account of alleged unexplained sundry creditors by: a) changing the very basis on which A.O. made the addition and instead considering the increase in creditors from A.Y. 2003-04 to A.Y. 2004-05 at ₹ 20,06,973/- (67,70 .....

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,607/- determined by A.O.) and therefore addition for alleged unexplained sundry creditors made by the A.O. in the year under consideration is not covered by the trading addition finally sustained in assessment year 2005-06. 2. Both the grounds of the assessee s appeal are interlinked and are against the order passed U/s 147 of the Income Tax Act, 1961 (in short the Act) as well as confirming the addition of ₹ 20,06,973/- on account of alleged unexplained sundry creditors. The assessee is .....

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espect. Therefore, income chargeable to tax amounting to ₹ 28,39,607/- had escaped assessment for the assessment year 2004-05. Therefore, notice U/s 148 of the Act was issued after recording the reasons in compliance to the notice. The ld AR furnished his objection as on 11/8/2011, which was duly disposed by the speaking order passed on 09/12/2011 as per guideline decided by the Hon'ble Supreme Court in the case of G.N.K. Drivesheft (India) Ltd. Vs. I.T.O. (2003) 259 ITR 19 (SC). There .....

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the case of Swastik Trading Co the ₹ 4,05,705/- were unexplained. The A.O. has not made any addition U/s 40A(3) as well as on account of difference in purchase account but only has made trading addition by applying higher NP rate of 18% as against 7.34% declared by the appellant. There was no addition on account of differences in the balances were made in A.Y. 2005-06. The assessee vide his letter dated 14/12/2007 for A.Y. 2005-06 had admitted that the discrepancy in balances of sundry cr .....

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Usha Precision Exports in the books of accounts of M/s Anurag Sales Corporation is at ₹ 1271436/-. The assessee Smt. Ranjana Rawat Prop. M/s Usha Precisions Exports has shown the credit balance at ₹ 2373278/- in her return of income but has given the confirmation for the balance of ₹ 1271436/- for the assessment proceedings of Anurag Sales Corporation. Thus, there is a difference of ₹ 1101842/- which has escaped assessment. b) In the case of Swastik Trading company, the .....

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s for Rs. NIL. The assessee Smt. Ranjana Rawat Prop. M/s Usha Precisions Exports is showing the credit balance of ₹ 702932/- in her return of income but she has given the confirmation for the balance of Rs. Nil for the assessment proceedings of M/s R.K. Industries. Therefore, income of ₹ 702932/- has escaped assessment. d) In respect of all the three assessees (M/s Arihant Corporation, M/s Sunraj Steel and M/s Yesh Enterprises) no confirmation has been furnished during the assessment .....

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of ₹ 28,39,607/- in the income of the assessee. 3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had confirmed the addition by observing as under:- 5.3 I have carefully perused the order of the A.O. and the submissions of the AR the assessment order of the A.O. in 2005-06 and the assessment records of the assessee for A.Ys. 2003-04, 04-05, 05-06. After a careful study of the above material, I do not agree with .....

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004-05) and 19.51% in (A.Y. 2003-04). Thereafter, she has listed 9 factors on the basis of which she had proceeded to reject the books of account of the assessee by invoking the provisions of section 145(3). Non reconciliation of the accounts of the creditors is only one of the reasons and not the only reason. Total payments of ₹ 10,40,000/- were made in cash and since no separate addition were being made the NP rate was estimated at the rate of 18% on the basis of past history resulting i .....

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dated 18/12/2009. Thus the submissions of the AR that the differences in the creditor s account were confirmed by the CIT(A) is not entirely correct. The unexplained creditors were of ₹ 28,39,607/- and unexplained cash payments were of ₹ 10,40,000/- as per the note on page 8 of the assessment order. A total of this being ₹ 38,79,607/- was included in the trading addition of ₹ 43,17,255/- made by the A.O.. The trading addition at 13.5% confirmed by CIT(A) was only of S .....

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wing sundry creditors at ₹ 47,63,209/- in his balance sheet. No details regarding the names of the sundry creditors and the amount is available on records for this A.Y. In A.Y. 2004-05 the sundry creditors have increased from ₹ 47,63,209/- to ₹ 67,70,182/- in the balance sheet that is, an increase of ₹ 20,06,973/-. The details of sundry creditors for A.Y. 2004-05 and A.Y. 2005-06 furnished by the AR during the assessment proceedings is compiled as below: Sundry Creditors .....

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1,185 -(1,00,000) P.K. Industries 7,33,860.00 7,02,932 -(30,928) R.C.S. Wires 3,75,010.00 3,73,340 -(1,670) Seah Metal Products Co. Pvt. Ltd. Shri Shyam Steel 11,12,261.00 1,00,000 -(10,12,261) S.S. Panchal Industries - 69,600 69,600 Sunraj Steels 3,19,484.00 4,05,705 86,221 Swastik Trading Co. 3,57,134.00 3,44,978 -(12,156) Yash Enterprises - 1,72,435 1,72,435 Grand Total 67,70,182 91,60,405 23,90,223 Thus the submissions of the AR that the same addition on account of unexplained creditors has .....

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rading addition of 13.5% confirmed by the CIT(A) did not cover the unexplained addition of sundry creditors of ₹ 23,90,219 in A.Y. 2005-06 alone the increase of ₹ 20,06,973/- in A.Y. 2004-05 not the disallowance U/s 40A(3) of ₹ 10,40,000/-. The AR of the assessee was given an opportunity during the course of appellate proceedings vide ordersheet entry dated 24/08/2012 to give a list of sundry creditors in A.Y. 2003-04 and to bring evidence to substantiate the increase in sundry .....

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vidence and the inability of the assessee to verify the addition in sundry creditors during this A.Y. as compared to previous A.Y. and the enquiries conducted by the A.O. showing that there are obvious discrepancies indicating inflation of sundry creditors account the increase in amount of ₹ 20,06,793/- remains unexplained during this A.Y. In A.Y. 2005-06 a similar finding was given by the A.O. on similar facts and a trading addition was made by applying a higher NP rate instead of making .....

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ccount of unexplained sundry creditors during this A.Y. this finding is confirmed. Thus the unexplained increase in sundry creditors is of ₹ 20,06,973/- during this A.Y. the addition on account of unexplained sundry creditors is confirmed to the extent of ₹ 20,06,973/-. 4. Now the assessee is in appeal before us. The Ld. A.R. for the assessee has submitted as under:- It may be noted that in assessment year 2005-06 the AO after taking into account the above difference made a trading a .....

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us dates as listed on page 3 & 4 of the order) and other defects in the books. From this order, it is clear that the difference in the account of above parties has been specifically considered and the trading addition has been made by taking into account the said difference. The CIT(A) though reduced the trading from 43,17,346/- to ₹ 24,93,869/- but he also considered the difference in these accounts at ₹ 21,47,653/- by giving the following finding "Regarding reconciliation .....

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trading addition by applying higher net profit rate of 18% as against 7.34% declared by the appellant. After considering the explanation of the AR particularly on fall in g.p./n.p. rate as well as difference in purchase account, ii will be in the interest of the justice if net profit rate of 13.5% is applied on the declared sales of ₹ 4,05,21,730/-. The AO is therefore directed to apply net profit rate of 13.5% on the declared sales as against 18% applied by him. Estimation of the net pro .....

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on of ₹ 24,93,869/-, so as to cover the difference of ₹ 21,47,653/- in the creditors account. Thus, it is incorrect on the part of the lower authorities in holding that no addition has been made on account of difference in the balances of sundry creditors during A.Y. 2005-06. The assessee in course of assessment proceeding for A.Y. 2005-06 has stated that the difference in the balances of the aforesaid sundry creditor is due to pending reconciliation of the earlier years. However, th .....

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2932 - 702932 Swastik Trading 344978 - 344978 107840 237138 Arihant Corporation 111715 - 111715 111715 - Sunraj Steel 405705 - 405705 - 405705 Yash Enterprises 172435 - 172435 172435 - 4111043 1271436 2839607 691990 214761 From the said reconciliation, it is evident that assessee has nowhere stated that the difference pertain to A.Y. 2004-05. There is no material with the lower authorities to assume that this difference pertain to A.Y. 2004-05. The AO has considered this difference in A.Y. 2005- .....

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at the specific parties for which addition is made by AO has already been considered in A.Y. 2005-06 while making the trading addition is incorrect. Hence, the addition confirmed by the CIT(A) be deleted. CIT(A) has observed that sundry creditors as compared to A.Y. 2003-04 has increased by ₹ 20,06,973/- in AY 2004-05 and as compared to AY 2004-05 has increased by ₹ 23,90,219/- in AY 2005-06. He therefore confirmed the addition of ₹ 20,06,973/-. This is incorrect. The verifiabi .....

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he parties involved in the list of sundry creditors for which addition is made is coming from AY 03-04 or earlier years and therefore the addition confirmed by CIT(A) by treating the overall increase in sundry creditor balance from 31.03.2003 to 31.03.2004 as unexplained is incorrect more particularly when the parties considered by the AO for making the addition is also appearing on 31.03.2005 and considered in AY 05-06 in making the addition. CIT(A) at Page 7-8 of his order has given a list of .....

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espect of some of the parties, there is increase in the balance whereas in case of some of the parties, there is a decline. The credit balance in the name of the above parties as existing on 31.03.04 & 31.03.05 were appearing even on 31.03.2003 as in that year the total sundry creditor were of ₹ 47,63,209/-. Therefore, addition confirmed by CIT(A) by treating the difference of increase in sundry creditor from 31.03.2003 to 31.03.2004 at ₹ 20,06,973/- is incorrect. 5. At the outse .....

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es at ₹ 1,72,435/- while the assessment for A.Y. 2005-06 was made by the Assessing Officer. The total difference in creditors account was found at ₹ 28,39,607/- on that basis the ld Assessing Officer recorded a reason U/s 147 and issued notice U/s 148 for A.Y. 2004-05 by observing that the assessee had purchased raw material from the local market for this purpose and also the assessee had not disclosed fully and truly all material facts for her assessment. The ld AR s contention is t .....

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rom the above chart that in case of Anurag Sales Corp, and Sunraj Steel, the credit balance has increased from 31/3/2004 and 31/3/2005. In case of Swastik trading company and P.K. Industry, the credit balance had gone down compared to 31/3/2004 to 31/3/2005, which proved that on 31/3/2005, these credit balances were cumulative. The ld Assessing Officer for A.Y. 2005-06 had considered the G.P. addition on account on discrepancy found in these creditors account. No separate additions were made on .....

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