Addition of Sundry Debtors/Advance to Growers cannot be made u/s 68 of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Amritsar Bench, has recently, in an appeal filed before it, held that addition of sundry debtors/advance to growers cannot be made under section 68 of Income Tax Act.

The aforesaid observation was made by the Amritsar ITAT, when an appeal of the revenue was filed before it, as against the order of the Commissioner of Income Tax (Appeals), Ludhiana, [CIT(A)], bearing appeal No. 10342/ROT/IT/CIT(A)-5/2019-20, dated, the order passed under section 250 (6) of the Income Tax Act 1961, for A.Y. 2017-18, bearing ITA No. 150/Asr/2021.

The assessee having also filed cross-appeal by challenging the impugned order of the CIT(A) bearing ITA. 94/Asr/2021, the impugned order was emanated from the order of the Asstt. Commissioner of Income Tax, Central Circle, Jammu, (AO), passed u/s 143(3) of the Act, dated 28.12.2019.

With the Revenue’s grounds of appeal being as to whether upon the facts and circumstances of the case, the CIT(A) was justified in restricting the addition of Rs.5,03,336/-, on account of cash deposits during the demonetization period on one particular day in Delhi, by various debtors residing in J&K State, the grounds taken by the assessee in its appeal, on the other hand,  were that the CIT(A) is not justified in partly allowing the appeal by confirming addition of Rs.5,03,336/- in respect of one grower/debtor out of total addition of Rs.6,33,46,052/- made by the ld. AO.

The brief fact of the case pertaining to the issue were that the assessee was a dealer of fresh fruits and commission agent besides under a cold storage plant, and in the preceding year for A.Y. 2016-17, the sundry debtors’ amount of Rs.6,14,67,226/- was reflected in the books of account of the assessee which was finally reflected in the final accounts.

The assessee having paid advance to the farmers for purchasing of fresh fruit, for the impugned assessment year, the said advance was returned back by the farmers after the declaration of demonetisation. And the advance amount so returned back to the assessee, was deposited by the assessee in the bank account in Jammu & Kashmir Bank, Branch Lassipora Pulwama, Kashmir and Azadpur, New Delhi Branch.

The total amount deposited in bank account being Rs.6,45,50,000/, Rs. 42,50,000 was deposited in the Pulwama Branch & Rs. 6,03,00,000/- in New Delhi Branch. And, as per the information from bankers, Rs.32,50,000/, was demonetised currency (SBN) and the rest amount was deposited on the normal currency. Also, to consider the demand of the parties, the cash was immediately received from the total 156 farmers to maintain the business liaison.

During the assessment, the details of transactions were submitted before the AO, following which a notice u/s 133(6) was issued to 60 debtors. And out of these 60 notices, 16 notices were returned back undelivered, with the remark that “incomplete address or no person received here”, while only denial of transaction from one party had happened during the assessment.

On perusal of the assessment record, the appellate authority confirmed that many of the confirmations from parties were received after assessment, that all parties had confirmed the cash transaction, while one of the debtors, named Mohd. Ahmed and Sons, Molu Chitragam, Sopian, had alleged return, an amount of Rs.5,03,336/, thereby denying having made any such payment to the assessee. But the assessee the same was objected by the assessee on the ground that the verification was not proper and that the same was an incomplete one.

Later, though the confirmation from party was filed & reason well explained, both the authorities refused to accept the argument of the assessee & confirmed the amount of Rs. 5,03,336/, with the total addition made U/s 68 of the Income Tax Act by the AO amounting to Rs.6,33,46,052/, along with the tax charged U/s 115BBE of the Income Tax Act.

Aggrieved by the same, the assessee challenged the assessment order before the CIT(A), who in the order of the only confirmed the amount of Rs.5,03,336, while deleting the rest of the amount of addition of Rs.6,28,42,716. And it is being aggrieved by the same that the assessee and the revenue both have filed appeal and cross appeal before the Amritsar ITAT , challenging the order of the CIT(A).

Hearing the opposing contentions of either sides as submitted by Sh. Hitendra Bhauraoji Ninawe, the CIT. DR, on behalf of the Revenue, and by Sh. R. K. Gupta, CA, on behalf of the assesssee, and by perusing the materials available on record, the ITAT Bench observed :

“We consider the rival submission and perused the documents available in the record. In our factual matrix, the assessee has “Advance to Grower” in other sense Sundry Debtors which were carry forwarded from preceding years. There is no doubt, that the assessee has a sundry debtor in sufficient amount to liquidate the amount for depositing in the bank. Only, the question is the mode of receiving of cash by the assessee and deposited it in Kashmir and in Delhi. In argument, the ld. CIT DR only pointed out the mode of receiving of cash or returned of cash by the Growers during demonetisation. The ld. CIT(A) had clearly verified that the amount was duly deposited by the farmers and most of the Growers are verified and accepted the facts.”

“The ld. Counsel has relied on catena of judgments. In summary the assessee has enough amount to advance to party/ grower. In preceding assessment year there, the assessee has maintained more than 6 crores in “Advance to Grower” account. The full amount was disclosed in books and assessed U/s 143(3). In the impugned assessment year, the verification was initiated& the part response was in favour of the assessee. Pending verifications were accepted by the appellate authority. But total addition was made U/s 68 of the Act by the ld. AO.”, the ITAT Bench.

The ITAT Panel comprising of Dr. M. L. Meena, the Accountant Member, along with Anikesh Banerjee, the Judicial Member, added:

“We relied on the order of ITAT Delhi bench that Sundry Debtor cannot be added back U/s 68 as it is not creditor. The assessing authority has doubt on transaction of assessee with the party. The Hon’able Apex court, hasin its observation held that assessment cannot be done on suspicion. The ld. CIT-DR was not able to submit any contrary judgment against the submission of assessee. In the submission of CIT-DR reiterated by demurring onthe mode of transaction of assessee with parties to whom the advance was given. This cannot be negated only on basis of suspicion.”

Thus, dismissing the Revenue’s appeal while allowing that of the Assessee, the Amritsar ITAT held:

“In our considered view, that there is no infirmity in the order of the ld. CIT(A). So, we are not interfering in the order of ld. CIT(A) related allowing of assessee’s appeal amount to Rs.6,33,46,052/-. We respectfully relied on the order of Apex Court. Section 68 is not empowered to allow addition of sundry debtors/ advance to growers. The ld. CIT(A) without any cross verification had disallowed the amount of Rs.5,03,336/-. The rest amount was accepted which was also not verified & Section 68 is not proper for entertaining the addition. So, we find that the disallowance of Rs.5,03,336/- is erroneous and liable to be dismissed.”

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