Case Law Details
ITO Vs Solid Machinery Co Pvt Ltd (ITAT Mumbai)
It was noticed that the assessee has made purchases of textile items, i.e. fabrics, worth Rs 19,22,05,946 from a large number of entities, and sold all these goods to three entities- namely Global Softech Limited, Ravi Raj Industries, and Tayal Energy Limited, for amounts aggregating to Rs 19,25,88,451. The Assessing Officer also noted that there was no proof of delivery of fabric, that no expenses were debited on account of transportation expenses and that there is no explanation for such inconsistencies. It was also noticed that barring confirmation of purchases from four parties- namely Eskay Knit India Ltd, Krishna Knitwear, Shri Ganesh Knitting and Manufacturing Mills Pvt Ltd, and Shanthi Synthetics and Fabricators Pvt Ltd- which were all sister concerns and group companies of the assessee company, all the notices served to the purported sellers of fabrics came back unserved with remarks like ‘not known’, ‘not found’ and ‘left’ etc. The assessee was confronted with these facts and called upon to explain the position. The explanation of the assessee was that these vendors are small parties who primarily work from tables spaces mostly in Bhiwadi and their addresses also keep changing, that the good supplied by them was found to be defective and that, as per trade practices, the goods are directly picked up by our buyers from the vendors, and as such, there is no question of payment for transportation etc. None of these contentions impressed the Assessing Officer. The Assessing Officer rejected these contentions and proceeded to make an addition of Rs 19,22,05,496, as unexplained credit under section 68.
Learned CIT(A), in a very detailed order, inter alia held that the provisions of Section 68 could not be pressed into service so far as purchases on credit are concerned, as this provision pertains to the ‘cash credits’.
The Assessing Officer is aggrieved of the relief so granted by the learned CIT(A) and is in appeal before us. Grievance raised by the appellant Assessing Officer is as follows:
“Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 19,22,05,496/- made by AO as unexplained cash credit u/s. 68 of the I.T. Act 1961 without appreciation of the fact the assessee could not prove the identity and existence of the creditors shown in the balance sheet after providing the reasonable opportunity.”
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Hudos to the Assessing Officer for his perseverence and correct assessment, and to the Hon’ble ITAT for explaining the letter and spirit of law and for allowing AO’s appeal.