Smt. Sudha Loyalka Vs ITO (ITAT Delhi)
ITAT Delhi Cuts ₹3.50 Cr Bogus Creditor Addition to ₹45 Lakh – Only 25% Disallowance Sustained Cash Payments Below ₹20K Raise Doubts – Tribunal Partly Upholds Disallowance HC Remand Leads to Relief – ITAT Applies Section 37, Narrows Addition to ₹45 Lakh
Background
- Assessee: Smt. Sudha Loyalka, proprietor of M/s Tirupati Industries, engaged in fabric & garment trading.
- Scrutiny Reason: Large sundry creditors (₹6.77 Cr).
- AO’s Findings (143(3), 18.03.2015):
-Issued notices u/s 133(6) to 27 creditors (₹3.48 Cr).
-20 notices (₹2.78 Cr) returned unserved (“wrong/incomplete address”).
-Concluded creditors were non-existent; added ₹3.50 Cr as bogus creditors.
- CIT(A) (01.12.2016): Confirmed addition.
- ITAT (18.07.2018): Deleted addition.
- Delhi HC (30.07.2024, ITA 607/2019): Set aside ITAT’s deletion, remanded to ITAT to re-examine creditors in light of s.37 (allowability of expenditure).
Tribunal’s Findings on Remand
1.Scope of HC Directions
- HC said: Not a case for s.69C (unexplained expenditure).
- Directed ITAT to re-examine allowability u/s 37.
- No adverse comment on ITAT’s earlier finding that purchases/sales existed.
2. Analysis of Creditors
- Total creditors added: ₹3.50 Cr.
- Included opening balances ₹1.90 Cr – not related to current year purchases, hence no disallowance.
- Purchases during year from these parties: ₹2.08 Cr.
- Example: M/s Erica Enterprises – purchases ₹27.22 lakh, but AO added only ₹5.5 lakh difference. Balance treated as genuine.
- Sales corresponding to purchases accepted; VAT input claimed. Thus, goods existed, but creditor parties doubtful.
3. Payment Pattern
- Payments made in cash, in small amounts below ₹20,000, across subsequent years.
- Tribunal: suspicious & casts doubt on genuineness of parties, though purchases cannot be denied since sales accepted.
4. Estimation of Disallowance
- Purchases ₹2.08 Cr – after excluding Erica’s ₹27.22 lakh (accepted), balance ₹1.81 Cr remained.
- To balance revenue leakage vs. genuine purchases:
- Tribunal restricted disallowance to 25% of ₹1.81 Cr = ₹45.32 lakh.
Decision
- Out of ₹3.50 Cr addition, sustained ₹45.32 lakh as disallowance.
- Balance deleted.
- Appeal partly allowed
FULL TEXT OF THE ORDER OF ITAT DELHI
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