The Chennai Bench of the Income Tax AppellateTribunal (ITAT) deleted a total addition of ₹5,99,66,944 made under Section 68 and ruled that Section 68 cannot be invoked for "trade payables" and "trade receivables" that are brought forward balances from earlier years, as they do not represent fresh credits in the relevant assessment year.Arusuvai Food Processors Private Limited (assessee) engaged in the business of trading in food grains. The assessee had challenged the action of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] for confirming the addition of amounts shown as trade payables and trade receivables.For AY 2015-16, the AO added ₹3,62,03,822 as unexplained credit under Section 68, representing a trade payable to one of its Directors, V. Elangovan. The AO doubted the director's creditworthiness despite the assessee confirming the liability and the creditor confirming the same.
For AY 2016-17, the AO made an addition of ₹2,37,62,122 against V. Elangovan, ₹2,12,81,520 against Vitan Agro Industries Ltd. (both 'trade payables'), ₹20,84,201 against M/s. K.C. Food Grains Marketing, and ₹2,19,16,920 against Universal Enterprises (both 'trade receivables'), totaling ₹6,88,61,920. The CIT(A) upheld these additions.The assessee argued before the Tribunal that the amounts were old balances brought forward from earlier years and were consistently disclosed in the audited financial statements, hence Section 68 was not attracted. The total trade payable to V. Elangovan, for instance, had reduced from ₹5,82,24,405 in AY 2014-15 to ₹3,62,03,822 in AY 2015-16 and further to ₹2,37,62,122 in AY 2016-17, demonstrating part-settlement and continuity of the liability.The two-member bench, comprising Aby T. Varkey (Judicial Member) and Jagadish (Accountant Member), noted that a pre-condition for invoking Section 68 is that the credit must be a fresh or unexplained introduction in the books during the relevant previous year.The Tribunal found that the amounts of ₹3,62,03,822 and ₹2,37,62,122 were brought-forward trade liabilities from earlier years and not fresh credits. Relying on the decisions of the Delhi High Court in CIT v. Usha Stud Agricultural Farms Ltd. and CIT v. Vardhman Overseas Ltd., the Tribunal directed the deletion of both additions.The tribunal deleted the addition of ₹2,12,81,520 as it was found to be a bona fide 'trade payable' arising from credit purchases, supported by audited books, statutory returns, and VAT/GST compliance. The Tribunal held that mere non-response from the supplier to a notice could not justify an adverse view.The tribunal deleted the additions of ₹20,84,201 (K.C. Food Grains Marketing) and ₹2,17,16,920 (Universal Enterprise). The tribunal observed that ₹20,84,201 was a continuing brought forward balance from the earlier year, making Section 68 inapplicable. In the result, the appeals filed by the assessee for AYs 2015-16 and 2016-17 were allowed.M/s.Arusuvai Food Processors Pvt. Ltd vs The ITO
CITATION : 2025 TAXSCAN (ITAT) 1999Case Number : ITA Nos.477, 478 & 479/Chny/2024Date of Judgement : 26 September 2025Coram : SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBERCounsel of Appellant : Mr.D. AnandCounsel Of Respondent : Mr.M. Mohan Babu
![Trade Payables and Receivables Carried Forward from Earlier Years Not Fresh Credits: ITAT Deletes ₹5.99 Cr total Addition [Read Order]](https://images.taxscan.in/h-upload/2025/10/29/2100878-trade-payable-itat-taxscan.webp "Trade Payables and Receivables Carried Forward from Earlier Years Not Fresh Credits: ITAT Deletes ₹5.99 Cr total Addition [Read Order]")
