Capital Creditors reflected in FY 2015-16 Mistakenly Shown as Trade Payables in FY 2016-17: ITAT upholds Deletion [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of an addition exceeding ₹11 crore made by the Assessing Officer (AO) towards alleged unexplained trade payables.

The assessee, Bhopal Sanchi Highways P. Ltd., was set up as Special Purpose Vehicle (SPV) by consortium of Pratibha Industries Ltd. (PIL) and Abhyudaya Housing and Construction (P) Ltd. for construction of highways. During the period relevant to assessment year under appeal, the assessee filed its return of income on 17.10.2016 declaring total income of Rs.2,857/- consisting of interest income from bank and no expenditure was claimed.

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During assessment for AY 2016-17, the AO noticed that the assessee had disclosed a sum of ₹11.23 crore as ‘Trade Payables’ in its return, despite its audited books and balance sheet clearly showing the same amount as ‘Creditors for Capital Goods’ pertaining to FY 2015-16.

In response to queries during the scrutiny proceedings, the assessee explained that the sum had already been accounted for in the previous year as a capital liability and was inadvertently carried forward and misclassified as a trade payable in the current year’s return.

The AO, however, rejected the explanation without pointing out any actual cash outflow or fresh transaction in FY 2016-17, and treated the entire amount as unexplained, adding it back to the taxable income.

On appeal, the CIT(A) examined the audited financial statements and relevant balance sheet notes and found that the assessee had indeed disclosed the same capital creditor figure in FY 2015-16, and that no fresh liability had arisen in the year under appeal. Satisfied that this was simply a clerical misclassification at the return filing stage, the CIT(A) deleted the addition in its entirety.

When the Revenue challenged the relief before the Tribunal, the bench of S. Rifaur Rahman (Accountant member ) and Vikas Awasthy ( Judicial member) noted that the department had failed to bring any contrary evidence to rebut the CIT(A)’s detailed factual findings.

It observed that “Before the AO and CIT(A), the assessee has referred to Note-4 of the Balance Sheet, wherein, the same amount has been reflected in the Financial Year relevant to AY 2015-16 under the head ‘Creditor for Capital Goods’. Since, amount pertains to the period relevant to AY 2015-16 no addition could be made in AY 2016-17. As per the assessee amount was inadvertently shown under the head ‘Trade Payables’ at the time of filing return of income for impugned assessment year.”

It held that since the sum in question pertained to an earlier year’s capital expenditure already recorded in the books, it could not be treated as unexplained trade credit for the subsequent year merely because of an inadvertent misstatement in the return.

The ITAT rejected the Revenue's appeal as it was not able to contradict findings of the CIT(A).

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