Case Law Details
Sanjay Sharma Vs. ACIT (ITAT Delhi)
Assessing Officer has accepted not only he sales figures but has also accepted that total purchases. Under accounting principles, a liability can only be brought into account by 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 therefore has been allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is preferred against the order of the CIT(A)- 38, New Delhi dated 19.03.2019 pertaining to A.Y. 2015-16.
2. The sum and substance of the grievance of the assessee is that the CIT(A) erred in sustaining the addition of Rs.7,99,173/- out of sundry creditors outstanding at the close of the A.Y under consideration.
3. Briefly stated the facts of the case are that the appellant is an individual having source of income from house property, business or profession and income from other sources. During the course of scrutiny assessment proceedings, the Assessing Officer issued notices under section 133(6) of the Income tax Act, 1961 [hereinafter referred to as ‘the Act’ for short] to the following parties:
| Sr. No | PAN | Name | Amount | Remark/ Status |
| 1 | AGMPA7207P | M/S GEETA METAL INDUSTRIES | 12036 | Confirmed |
| 2 | ARLPS6594B | M/S J.K. GENERATORS | 6375 | No response |
| 3 | AACCP3274A | M/S PDRV ENTERPRISES (P) | 6259557 | Confirmed |
| 4 | AAEPA7698C | M/S PLASTRONICS (INDIA) | 8150510 | Confirmed |
| 5 | M/S PUNEET CARGO SERVICE | 15014 | Confirmed | |
| 6 | AAECR4728D | M/S RAJSHILA SYNTHETICS PVT. LTD | 2514159 | Confirmed |
| 7 | ABGPY8854M | M/S SHA ENGINEERING WORKS | 51000 | Confirmed |
| 8 | AAHPG7462K | M/S USHA TRANSFORMERS & CONTROLS (P) LTD | 22845559 | Confirmed |
| 9 | ARHPS4041H | M/S UV INTERNATIONAL | 4176 | Payment already made on 20.05.2014 |
| 10 | AADPV0103A | J.P. Industries (Delhi) | 567713 | No response |
| 11 | AAAFB0982G | B.P. Chemical (FaridaBad) | 227284 | No response |
| 12 | AATFA4584G | Aum Udhyog Kala (HP) | 1225288 | Confirmed |
| Total | 41878671 |
4. 9 out of the aforestated 12 parties confirmed the transactions. However, on account of three parties, no response was received in respect of the notices served under section 133(6) of the Act. The Assessing Officer completed the assessment by devising a formula not known to Income tax proceedings and came out with a whimsical result. The relevant findings of the Assessing Officer read as under:
“7. Since it is not possible to verify all outstanding sundry creditors and it would be logical if findings of the sample are extrapolated to the outstanding sundry creditors, thus giving benefit of majority of confirmed amount to the assessee. Accordingly, sundry creditors not found to be genuine to be added u/s 68 would be
Unverified amount X total outstanding creditors sample size
799173 x 62158180 = 1186168
41878671
5. In light of the aforestated fantastic computation, the Assessing Officer made an addition of Rs.11,86,168/-.
6. The assessee strongly agitated the matter before the CIT(A).
7. The ld. CIT(A) was convinced that the formula used by the assessee is without any basis and is arbitrary. However, the ld. CIT(A) confirmed the additions on account of three creditors, namely, U.V. International, J.P. Industries, and B.P. Chemicals as under:
| i) | U.V. International | Rs. 4,176/-
|
| ii) | J.P. Industries | Rs. 5,67,713/-
|
| iii) | M/s B.P. Chemicals | Rs. 2,27,484/-
|
8. Before me, the ld. counsel for the assessee vehemently stated that the creditors are outcome of the purchases made from them and the Assessing Officer has not drawn any adverse inference in so far as total purchases are concerned. The learned counsel further stated that the Assessing Officer has accepted the sales made out of the said purchases. It is the say of the learned AR that on such transactions, no addition can be made under section 68 of the Act.
9. Per contra, the ld. DR strongly supported the findings of the Assessing Officer.
10. I have carefully considered the orders of the authorities below. The total purchases made from the three parties are as under:
| i) | U.V. International | Rs. 4,176/-
|
| ii) | J.P. Industries | Rs. 5,67,713/-
|
| iii) | M/s B.P. Chemicals | Rs. 2,27,484/-
|
During the year under consideration, the assessee has shown sales of Rs.13.41 crores on purchases of Rs.91.37 crores. The three purchases mentioned hereinabove are part of the total purchases.
11. I find that not only the Assessing Officer has accepted the sales figures but has also accepted that total purchases. The two most relevant decisions of the Tribunal need mention here:
“124 TTJ 554 (Del) Elnad International (p) Ltd. v DCIT
“5.4 we have considered the facts ofthe case and rival submissions. From the submissions made before us, it is clear that the transactions of purchase and sale were recorded in the books of account and these transactions led to profit to the assessee, which was brought to tax, If sales have been effected out of purchases made from these parties, then, it cannot be said that the purchases were bogus. The finding of bogus sale can only lead to the inference that the corresponding amount should be deleted from the turnover of the assessee. The Assessing Officerhas also not rejected the books of account to estimate profit on these transactions in case it was a firm finding that purchases and sales were bogus. The facts of the case of LA Medica (supra) are different in the sense that detailed enquiries were made into the purchases made by the assessee, which were held to be bogus by the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No such enquiry was made in this case. In the case of La Medica (supra), it was also not the case that sales were effected from the purchases made and, thus, the purchases could not be outrightly termed as bogus.We are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of the leamed CIT(A) and the fact that the assessee showed profit from these transactions, it is held that there is no such error in the orderof the leamed CIT(A) which requires correction from us. Thus, this ground is dismissed.”
ii) 310 ITR 99 (AT) (SB) (Del) Manoj Aggarwal vs. DCIT
“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 amount credited 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 mere monies have been received by the assessee, but the credit represents a liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by 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 therefore has been allowed.”
12. Further, the decision in the case of Jhabua Power Investments Ltd 938/DEL/2018 dated 21.05.2019, which has been authored by me, needs mention wherein it has been held as under:
“8. I have carefully considered the order of the authorities below. It is not in dispute that the A.O made impugned addition of Rs. 4,97,5g9/- treating the purchases as bogus expenses. It is equally true that the purchases were debited in the regular books of account of the assessee. The sales out of the purchases were accepted by the A.O. I further find that the notices issued by the A.O on the address of Ms Kumar Sales were duly served. Nothing prevented the A.O to issue summons to M/s Kumar Sales to force its attendance and examine the transaction. I further find that the CIT(A) realising that Section 69C is not applicable on the facts of the case invoked Section 68 of the Act. In find that the assessee has furnished all the details of sales made to M/s Overseas and such details can be seen from the followings chart:- —
9. The sale invoices are exhibited at pages 5 to 10 of the paper book. In my considered opinion, the power of the CIT(A) are co terminus to that of the A.O and, therefore, he should have examined the transaction if he wanted to invoke the provisions of Section 68 of the Act. Failing which the action of the CIT (A) cannot be upheld. The contention of the DR that fresh opportunity should be given to the CIT (A) to examine the transaction does not have any force. In my considered view, no second innings should be given to examine the same set of facts which were very much before the lower authorities. I do not find any merit in the order of the CIT(A). I have accordingly direct the A.O to delete the addition of Rs. 4,97,589/. The appeal filed by the assessee is accordingly allowed.”
13. In the light of the afore-mentioned decisions, I do not find any merit in the addition made by the Assessing Officer and sustained by the ld.CIT(A). I, accordingly, direct the Assessing Officer to delete the impugned addition.
14. In the result the appeal of the assessee in ITA No. 3520/DEL/2019 is allowed.
The order is pronounced in the open court on 22.09.2020.
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