Prafulldan Motising Gadhvi Vs ITO (ITAT Ahmedabad)
Closing Creditor Balance Cannot Be Treated as Current-Year Credit Without Examining the Opening Balance
The Dispute
The assessee filed his return declaring total income of ₹1,71,52,930. During scrutiny, the Assessing Officer questioned an outstanding trade creditor balance of ₹44,08,895 relating to M/s D & G Enterprise/Vijay Jain and agricultural income of ₹17,91,775.
A notice issued to the creditor under section 133(6) remained unanswered. The Assessing Officer consequently treated the outstanding balance as bogus and added it under section 68. The agricultural income was also brought to tax because evidence establishing agricultural activity had not been placed on record.
The CIT(A) dismissed the assessee’s appeal. Before the Tribunal, the assessee challenged both additions and sought consideration of the supporting evidence.
An Outstanding Balance Is Not Necessarily a Fresh Credit
The assessee contended that the creditor balance arose from regular business transactions and was supported by purchase records, banking records and a creditor-authenticated ledger. According to the assessee, the Assessing Officer had not confronted him with the creditor’s failure to respond to the notice under section 133(6).
The significant factual contention was that the creditor’s opening balance on 1 April 2023 was ₹82,93,019, whereas the closing balance on 31 March 2024 was only ₹44,08,895. The assessee argued that the closing balance could not, therefore, be treated as an unexplained credit arising wholly during the relevant year.
The Tribunal examined the creditor’s confirmation and noticed that the opening balance was substantially higher than the closing balance. It held that the entire closing balance could not have been treated as a credit arising during the year without examining the opening balance and the transactions recorded during the year.
However, the Tribunal did not accept the confirmation as conclusively establishing the assessee’s claim. Since it was additional or fresh evidence, the underlying facts required verification at the assessment stage.
Accordingly, the issue was restored to the jurisdictional Assessing Officer. The Assessing Officer was directed to examine the confirmation, opening balance, transactions during the year and other supporting documents, and thereafter determine the correct outstanding balance, if any, pertaining to the relevant year. Fresh adjudication was to follow after providing an adequate opportunity of hearing.
Agricultural Land Ownership Does Not Establish Agricultural Income
On the second issue, the assessee submitted that documents establishing his agricultural land holdings had been furnished before the CIT(A), but had not been properly considered.
The Revenue responded that mere furnishing of land records does not establish that agricultural activity was actually carried out. Nevertheless, it had no objection to restoring the issue for another opportunity to the assessee.
The Tribunal recognised the distinction between owning agricultural land and proving agricultural income. It observed that ownership or holding of agricultural land may not, by itself, establish either actual agricultural operations or the quantum of income earned.
The claim therefore required examination of documentary evidence and the agricultural activity actually undertaken. Since the assessee maintained that the relevant evidence had not been duly considered, the Tribunal restored this issue also to the Assessing Officer.
The Assessing Officer was directed to allow the assessee an adequate opportunity to furnish evidence of agricultural activities and examine it in accordance with law. Significantly, the Tribunal also directed examination of agricultural income disclosed in preceding years while considering the current year’s claim. The assessee was required to cooperate and produce the evidence and details called for.
The Decision
Both additions were restored to the jurisdictional Assessing Officer for fresh adjudication. The appeal was allowed for statistical purposes.
The decision thus gives the assessee an opportunity to substantiate the claims; it does not finally delete either addition or accept the agricultural income as exempt.
Author’s Comments
The creditor issue highlights a basic distinction that can get overlooked in assessment proceedings: a balance outstanding at year-end is not synonymous with a credit introduced during that year. Before invoking section 68 against the entire closing balance, the account must be examined to identify the opening liability, fresh credits, payments and adjustments.
At the same time, a closing balance lower than the opening balance does not, by itself, prove that no fresh credits arose during the year. There may have been fresh purchases alongside substantial payments. The movement in the ledger, rather than a comparison of two balances alone, is therefore crucial. The Tribunal’s direction appropriately requires that factual exercise.
The creditor’s failure to respond to a departmental notice also needs to be assessed alongside the assessee’s supporting records. Here, the Tribunal required verification of the confirmation and business transactions instead of treating the unanswered notice as sufficient to sustain the entire addition.
On agricultural income, the order provides a useful reminder that land records establish the holding; evidence of agricultural operations and receipts establishes the income claimed. Cultivation records, crop details, sale evidence and relevant expenditure records can help substantiate both the activity and its quantum.
The direction to examine earlier years’ agricultural income supplies relevant context, but does not dispense with proof for the year under consideration. Ultimately, both claims must succeed on verified facts, which is precisely why the Tribunal ordered a fresh examination.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal filed by the Assessee is directed against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 30.06.2026 for the Assessment Years (A.Y.) 2024-25 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed his return of income for A.Y. 2024-25 on 27.09.2024 declaring total income of Rs.1,71,52,930/-. The case was selected for complete scrutiny under CASS. In the course of assessment, the AO noticed that the assessee had shown balance of Rs. 44,08,895/- as on 31.03.2024 in respect of one sundry creditor M/s D & G Enterprise/Vijay Jain. In order to verify the genuineness of this transaction, the AO had issued a notice u/s. 133(6) of the Act to the said party, to which no compliance was made. The AO had, therefore, treated the sundry credit balance of Rs. 44,08,995/- in respect of M/s D & G Enterprise/Vijay Jain as bogus and accordingly made the addition u/s. 68 of the Act. Further, agricultural income of Rs. 17,91,775/- disclosed by the assessee was also held as bogus, as no evidence for agricultural activity being carried on by the assessee was brought on record. Accordingly, the assessment was completed u/s. 143(3) of the Act on 13.03.2026 at total income of Rs. 2,33,53,600/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee in second appeal before us. The following grounds have been taken in this appeal:
Ground No. 1:
Erred in Addition under Section 68
On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the addition of 244,08,895 under section 68 of the Income-tax Act, 1961 in respect of outstanding trade creditor balance of M/s D & G Enterprise, without appreciating that the said balance arose from regular business transactions recorded in the books of account and supported by purchase records, creditor details, banking records and creditor-authenticated ledger
Non-Admission of Additional Evidence under Rule 46A
On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not giving due consideration to the creditor-authenticated ledger account of M/s D & G Enterprise filed as additional evidence under Rule 46A of the Income-tax Rules, 1962, without appreciating that the said evidence was obtained from the creditor after completion of assessment proceedings and was material for deciding the issue relating to the outstanding trade creditor balance
Ground No. 2:
Erred in not considering Agricultural Income under Section 10(1)
On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the addition of 17,91,775 by treating agricultural income as taxable income, without properly appreciating the land records and other available material furnished by the Appellant in support of the claim under sections 2(1A) and 10(1) of the Act
The Appellant craves leave to add, alter, amend or withdraw any ground at or before the hearing of the appeal.
5. Shri Keyur Bawish, the Ld. AR of the assessee submitted that the addition in respect of sundry creditor was made by the AO without confronting the fact that the said creditor did not comply to the notice u/s. 133(6) of the Act. He submitted that the evidences in respect of identity, genuineness and credit-worthiness of the transaction with M/s D & G Enterprise/Vijay Jain was brought on record before the Ld. CIT(A). He, however, did not consider the fresh evidences filed by the assessee and dismissed the appeal of the assessee on this ground. The Ld. AR further submitted that the opening balance of M/s D & G Enterprise/Vijay Jain at the beginning of the year was Rs. 82,93,019/- and considering this fact the AO was not correct in making the addition in respect of closing balance of Rs. 44,08,896/-, which clearly indicated that the closing balance did not pertain to the current year. As regarding agricultural income, the Ld. AR submitted that the evidences regarding land holding was brought on record before the Ld. CIT(A) which was not considered by him. He, therefore, requested that the matter may be aside to the file of the Jurisdictional AO with a direction to consider the evidences in respect of agricultural activity undertaken by the assessee.
6. Per contra, Shri Arvind Kumar Namdeo, the Ld. SR-DR supported the order of the lower authorities. He submitted that mere furnishing of land records does not establish that the assessee had carried out any agricultural activity. He, however, had no objection if the matter was set aside to the file of the AO for allowing another opportunity to the assessee.
7. We have considered the rival submissions. As regards the addition of Rs.44,08,895/- made in respect of the sundry creditor, M/s D & G Enterprise/Vijay Jain, we find that a confirmation from the said party has been placed on record before us. From the said confirmation, it is evident that the opening balance standing to the credit of the said party as on 01.04.2023 was Rs.82,93,019/-. Thus, the opening balance itself was substantially higher than the closing credit balance of Rs.44,08,895/- as on 31.03.2024. In these circumstances, the entire closing balance could not have been treated as a credit arising during the year without examining the opening balance and the transactions recorded in the account during the year. At the same time, the confirmation relied upon by the assessee has been produced as additional/fresh evidence before us and, therefore, the factual position requires verification at the assessment stage. We accordingly deem it appropriate, in the interest of justice, to restore this issue to the file of the Jurisdictional AO. The AO shall examine the confirmation, the opening balance, the transactions recorded during the year and the other supporting documents furnished by the assessee and thereafter determine the correct outstanding balance, if any, pertaining to the year under consideration. The issue shall thereafter be decided afresh in accordance with law, after affording adequate opportunity of being heard to the assessee.
8. As regards the agricultural income of Rs.17,91,775/-, we find that the assessee has claimed to have furnished before the Ld. CIT(A) documents relating to his agricultural land holdings. However, mere ownership or holding of agricultural land may not, by itself, establish the actual carrying on of agricultural operations or the quantum of agricultural income earned therefrom. The claim, therefore, requires examination with reference to the relevant documentary evidence and the actual agricultural activity carried out by the assessee. In view of this fact and considering the submission of the Ld. AR that the relevant evidence was not duly considered by the Ld. CIT(A), we deem it appropriate to restore this issue also to the file of the Jurisdictional AO. The AO shall provide an adequate opportunity to the assessee to furnish evidence in support of the agricultural activities carried out by him and shall examine the same in accordance with law. The AO shall also examine the agricultural income disclosed by the assessee in the preceding years, while considering the claim for the year under consideration. The assessee shall extend full cooperation and produce all such evidence and details as may be called for by the AO.
9. In the result, both the issues are restored to the file of the Jurisdictional AO for fresh adjudication in accordance with law after providing adequate opportunity of being heard to the assessee. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
10. In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the Court on 08/10/2026 at Ahmedabad.
