ITAT Delhi order on Whether outstanding trade creditors, arising from accepted purchases, can be treated as unexplained cash credits u/s 68 merely because suppliers were not traceable or did not respond fully
Shiv Hari Singla Vs ITO (ITAT Delhi)
Brief facts :
Assessee (contractor – MES, AC systems) declared income ₹13.37 L.
AO noted sundry creditors ₹9.06 Cr; 4 parties (₹3.36 Cr) treated as bogus u/s 68 (not found at addresses, notices unserved).
Purchases & sales accepted; trading results intact. AO added ₹3.36 Cr as unexplained.
CIT(A) confirmed.
Assessee’s Defence & Evidence:
Filed invoices, challans, VAT returns (assessee + suppliers), ST-38 forms.
Confirmations + affidavits from all 4 creditors.
PAN, ledger copies (both sides), bank payments subsequently made.
Recovery suit filed by supplier (further proving liability).
Stock register maintained & not doubted.
VAT Dept. confirmed suppliers’ returns & sales.
During remand proceedings, all 4 suppliers replied u/s 133(6).
Tribunal’s Observations:
AO accepted trading results, purchases, consumption of material.
No suppressed sales, no defect in books.
When purchases are accepted, corresponding creditors cannot be treated as unexplained u/s 68.
CIT(A)’s observation of “procurement from elsewhere” is mere assumption without evidence.
Key Judicial Precedents Relied Upon
CIT v. Anurag Agarwal (Del HC, ITA 325/2008, order dt. 22.07.2009):Where purchases are accepted & creditors are linked to such purchases, addition u/s 68 is not sustainable. No question of law arose.
CIT-1, Mumbai v. Nikunj Exim Enterprises (Bom HC, 216 Taxman 171, 2013): Purchases genuine where invoices, bank statements & confirmations available. Non-appearance of suppliers not decisive. AO/CIT(A) acted only on suspicion.
Hind Globe Links v. ITO (ITAT Delhi, ITA 4904/Del/2014):-If trading results accepted, no basis to disbelieve sundry creditors. Sec 68 applies to cash credits, not to outstanding trade creditors for accepted purchases.
Gheru Lal Bal Chand v. State of Haryana (P&H HC, CWP 6573/2007):-Buyer cannot be penalized for seller’s default. If purchases are genuine, purchaser not responsible for lapses by seller.
ITAT Delhi Ruling:
Assessee discharged onus of proving identity, genuineness & creditworthiness. Purchases accepted, creditors confirmed & payments made.
Section 68 inapplicable → Addition of ₹3.36 Cr deleted.
In view of these facts and circumstances of the case, in our considered opinion, assessee has been able to establish the existence i.e. identity of the four suppliers alleged as bogus and also their creditworthiness was established more particularly when the purchases made from them was treated as genuine thus, provisions of section 68 could not be invoked to hold the outstanding balance against such purchases as unexplained. Accordingly, we direct the AO to delete the addition.
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