Abdul Muqeed Mohammed Vs ITO (ITAT Hyderabad)
Creditor Confirmed in Both Books: Section 68 Addition Reopened for Verification
The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) condoned a delay of 223 days in filing the appeal and set aside the addition of ₹3.06 crore made under section 68, holding that the assessee had demonstrated bona fide reasons for the delay and had produced crucial additional evidence going to the root of the matter.
The addition arose because the Assessing Officer treated a sundry creditor (M/s A.A. Nayeem Beedi Leaves) as unexplained solely on the ground that the creditor did not respond to notice under section 133(6), despite the assessee having filed a written confirmation. The AO accepted the opening balance and added only the incremental amount as unexplained cash credit.
Before the Tribunal, the assessee explained the delay due to death of the Chartered Accountant, non-receipt of the CIT(A) order (email landing in spam), and serious medical condition of the assessee’s daughter, all supported by affidavits and medical records. The Tribunal found the delay to be bona fide and condoned it.
On merits, the ITAT admitted additional evidence, including balance sheets and ledger accounts of the creditor, which showed that the same outstanding amount was reflected in the books of both parties, with running business transactions over multiple years. The Tribunal observed that, prima facie, there was no justification to treat the creditor as unexplained, merely for non-response to section 133(6).
However, since these documents were not examined by the Assessing Officer earlier, the ITAT restored the matter to the AO for fresh verification. It directed that if the creditor’s books corroborate the assessee’s claim, the entire addition under section 68 shall stand deleted. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 04/03/2024, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, 1961 (for short, “the Act”), dated 16/04/2021 for the Assessment Year (AY) 201819. The assessee has assailed the impugned order passed by the CIT(A) on the following grounds of appeal:
“1. The Learned First Appellate Authority, in the facts and circumstances of the case, is not justified in conforming addition of Rs. 3,06,98,418/- as unexplained cash credits u/s.68 of the IT Act.
2. The Learned First Appellate Authority, in the facts and circumstances of the case, is not justified in confirming the business creditors of Rs. 3,06,98,418/- as unexplained cash credits u/s.68.
3. The appellant reserves his right to add, amend, delete or substitute any ground or grounds during the course of the hearing.”
2. Succinctly stated, the assessee had filed its return of income for AY 2018-19 on 30/10/2018, declaring an income of Rs. 2,57,360/-. Subsequently, the case of the assessee was selected for scrutiny assessment under section 143(2) of the Act.
3. During the course of the assessment proceedings, the AO observed that a perusal of the “balance sheet” of the assessee revealed a sundry creditor, viz., A.A. Nayeem Beedi of Rs. 3,49,35,797/-. The AO in order to verify the authenticity of the aforesaid creditor, called upon the assessee to furnish the requisite details. In reply, the assessee filed a confirmation letter, dated 16/02/2021 of M/s A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, wherein the said creditor had confirmed that an amount of Rs. 3,49,35,797/- was receivable from the assessee firm as on 31/03/2018.
4. The AO to verify the authenticity of the subject creditor, issued notice under section 133(6) of the Act to M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, wherein he was called upon to furnish certain details, viz., (i) nature of transactions with the assessee; (ii) copies of his returns of income for AY 2017-18 and 2018-19; (iii) details of goods purchased/services rendered by Mohammad Abdul Muqueed; (iv) details of payments received from Mohmmad Abdul Muqueed; (v) copy of the ledger account of the assessee as appearing in his books of account as on 31/03/2018; and (vi) copy of the audited accounts along with all enclosures and notes. However, the aforementioned party, viz., M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, failed to respond to the aforesaid notice issued under section 133(6) of the Act till the culmination of the assessment.
5. The AO based on the fact that the subject creditor, viz., M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial (supra) had failed to comply with the notice under section 133(6) of the Act, observed that the assessee had failed to substantiate the genuineness of the subject transaction and the creditworthiness of the creditor. Accordingly, the AO held the credit entry appearing in the books of account of the assessee as an unexplained cash credit under section 68 of the Act. However, the AO observed that, as perusal of the “balance sheet” of the assessee on 31/03/2017 revealed that an amount of Rs. 42,37,379/- was reflected against the name of the aforementioned party, viz., M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, under the head sundry creditor, therefore, he reduced the said “Opening balance” as on 01/04/2017 and made an addition of the balance amount of Rs. 3,06,98,418/- as an unexplained cash credit in the hands of the assessee under section 68 of the Act. Accordingly, the AO vide his order under section 143(3) r.w.s 143(3A) & 143(3B) of the Act, dated 16/04/2021, after, inter alia, making the aforementioned addition of Rs. 3.06 crores (approx.), determined the income of the assessee at Rs. 3,09,91,780/-.
6. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.
7. The assessee, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us.
8. We have heard the Learned Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record.
9. Shri KA Sai Prasad, CA, the Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal submitted that the same involves a delay of 223 days. Elaborating on the reasons leading to the delay, the Ld. AR submitted that the same had crept in because of multi-facet reasons, viz., (i) the Chartered Accountant of the assessee, viz., Shri V. Satyanarayana, FCA (since deceased), had expired on 12/03/2022, i.e., during the course of the pendency of the appeal before the CIT(A); (ii) that Shri Madhusudan Phani, CA S/o. Late V. Satyanarayana (supra), after death of his father had remained unaware of the CIT(A) order that was dropped in the email account, i.e., [email protected] that was provided by his deceased father for necessary communication from the CIT(A); (iii) that it was only when the assessee in the month of November, 2024 was called upon for depositing the demand for the subject case that he had approached his Chartered Accountant, viz., Shri Madhusudan Phani (supra) to enquire about the status of his appeal; (iv) Shri Madhusudan Phani (supra) on being approached by the assessee had checked the email account, i.e., [email protected], wherein it was gathered by him that the CIT(A) order, dated 04/03/2024 was dropped in the spam mails; (v) that the assessee at the relevant point of time had remained busy attending to his daughter who was suffering from a disability, i.e., Mental Retardation and thus, had to close his business at Warangal and shift his place of residence to Hyderabad. The Ld. AR to fortify the aforesaid factual position, which had resulted in the delay in filing the appeal, had drawn our attention to the “affidavit” filed by the assessee, viz., Shri Abdul Muqueed Mohammed S/o. Mohammed Abdul Khader and also that of Shri Madhusudhan Phani, i.e., the assessee’s counsel. Also, Ld. AR had taken us through the medical certificates of Ms. Kumari Maheen Sadaf, i.e., the assessee’s daughter, which revealed that she was suffering from Mental Retardation (Moderate) and was undergoing medical treatment. Also, Ld. AR had drawn our attention to the screenshot of the email account that was dropped in the spam mail folder of the assessee’s counsel, i.e., [email protected]. The Ld. AR submitted that as the aforesaid multi-facet reasons had resulted in the bona fide delay in filing the appeal, therefore, the same in all fairness be condoned.
10. Per contra, Shri S. Arun Kumar, Learned Senior Departmental Representative (for short, “Ld. Sr. DR”) objected to the seeking of the condonation of the delay involved in the present appeal.
11. We have given thoughtful consideration and, considering the totality of the facts leading to the delay in filing of the present appeal, are of firm conviction that, as the same had crept in because of bona fide reasons, therefore, the same merits to be condoned.
12. The Ld. AR had further placed on our record a letter seeking admission of additional evidence, viz., (i) balance sheet of Shri Ahmed Abdul Nayeem, i.e., the sundry creditor as on 31/03/2018; (ii) copy of account of the assessee, i.e., M A Muqeed in the books of account of Shri Ahmed Abdul Nayeem for the financial year 01/04/2016 to 31/03/2017; (iii) copies of “balance sheets” of Shri Ahmed Abdul Nayeem, for the years ending 31/03/2017 and 31/03/2019; (iv) copies of accounts of the assessee in the books of account of Shri Ahmed Abdul Nayeem for the financial year ending 31/03/2019.
13. The Ld. AR submitted that as the aforementioned documents supported the confirmation that was filed by Shri Abdul Muqeed Mohammed (supra) vide his letter dated 16/02/2021 during the course of the assessment proceedings, wherein he had confirmed that an amount of Rs.3,49,35,797/- was receivable by him from the assessee on 31/03/2018, therefore, the same in all fairness and in the interest of justice be admitted.
14. We have given thoughtful consideration and are of the firm conviction that, as the aforesaid documents, i.e., “balance sheets” of Shri Ahmed Abdul Nayeem, proprietor of M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, along with the copy of the ledger accounts of the assessee as appearing in the books of account of the said sundry creditor will have a strong bearing on the adjudication of the issue before us, therefore, considering the fact that the same only fortifies the confirmation of the said sundry creditor, i.e., Shri Ahmed Abdul Nayeem (supra) that was filed with the AO in the course of the assessment proceedings, the same merits admission.
15. Ostensibly, a perusal of the “balance sheet” of Shri Ahmed Abdul Nayeem as on 31/03/2018 reveals that he had disclosed as on 31/03/2018, viz., (i) amount receivable from M.A. Muqeed (assessee): Rs. 3,49,35,797.60; and (ii) amount payable to M.A. Muqeed (assessee): Rs. 5,01,860.40. Accordingly, netting of the aforementioned amounts reveals that Shri Ahmed Abdul Nayeem, i.e., the sundry creditor, had disclosed that an amount of Rs. 3,44,33,937/- (net balance) was receivable by him from the assessee. On the other hand, an amount, i.e., Rs. 3,44,33,937/- (net balance), stands disclosed as payable to Shri M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial in the books of account of the assessee as on 31/03/2018. Apart from that, we find that the “balance sheets” of the aforementioned sundry creditor for the immediately preceding and succeeding years, i.e., year ending on 31/03/2017 and 31/03/2019, as well as the ledger accounts of the assessee as appearing in the books of account of the said creditor, i.e., M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, reveals that there are running transactions between the assessee and the said concern.
16. Although, based on the aforesaid facts, wherein the amount of Rs. 3,49,35,797/-, reflected in the books of account of the assessee against the name of M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial as a sundry creditor is similarly disclosed as such in the “balance sheet” of the said creditor for the year ending 31/03/2018, therefore, prima facie there was no justification for the AO to have held the said amount as an unexplained cash credit under section 68 of the Act, but considering the fact that the said “balance sheets” of the creditor, viz., Shri. Ahmed Abdul Nayeem, proprietor of M/s. A.A. Nayeem Beedi Leaves, Koratla, District Jagtial, had been filed before us as an additional evidence and was not before the AO, therefore, in all fairness and in the interest of justice, the matter requires to be restored to the file of the AO for verifying the said claim of the assessee in the backdrop of the aforesaid additional evidence that have been placed on our record. In case, the claim of the assessee is found to be in order, which as observed by us herein above, prima facie appears to be correct, then the impugned addition of Rs. 3,06,98,418/- made by the AO by treating the amount reflected against the name of the said creditor as an unexplained cash credit under section 68 of the Act shall stand vacated.
17. Resultantly, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 07th January, 2026.
