Insufficiency of Verification efforts by AO, CIT(A): ITAT deletes Addition w.r.t. Sundry Creditors [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the additions of Rs. 90,79,428 and Rs. 29,60,999 related to sundry creditors due to insufficient verification efforts by the Assessing Officer ( A O ) and Commissioner of Income Tax ( Appeals ) [CIT(A)].

Sha Thanmal Sukhraj Jain & Co.,the appellant-assessee,filed a return on 27.09.2012 declaring Rs.3,24,040. The case was selected for scrutiny, and the AO requested details of sundry creditors. The assessee provided names, addresses, and confirmation letters during the assessment.

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The AO sent notices to 28 creditors and found a discrepancy of Rs.60,529 after receiving replies. The assessee’s explanation was rejected, and the amount was added to their income. For 24 creditors who did not respond, the assessee failed to prove their genuineness, resulting in an addition of Rs.90,79,428.

Three notices returned unserved, leading to a further addition of Rs.29,60,999. Additionally, letters to six debtors went unserved, adding Rs.48,79,106. The total assessed income was Rs.1,81,58,926.

The assessee appealed to the First Appellate Tribunal ( FAA ), who, after reviewing the AO's remand report, deleted the addition for non-verification of debtors but upheld the addition for creditors. The assessee then appealed to the tribunal.

The assessee submitted that the additions of Rs. 90,79,528 and Rs. 29,60,099 were unjustified, as their audited books of accounts showed no errors or discrepancies.

The bench observed that, regarding the additions of Rs. 90,79,428 and Rs. 29,60,999, the assessee had submitted confirmation letters from creditors, but these were received by a different AO.

The appellate tribunal noted that while the confirmations were submitted, they lacked PAN numbers, which raised doubts about their genuineness. However, the AO had the confirmations but did not undertake further verification, and the CIT(A) did not take additional steps despite having the names and addresses of the creditors.

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The two member bench comprising Beena Pillai ( Judicial Member ) and Laxmi Prasad Sahu ( Accountant Member ) deleted the additions of Rs. 90,79,428 and Rs. 29,60,999 due to the non-verification of confirmation letters by the AO and CIT(A).

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