The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that trading liabilities incurred with corresponding purchases cannot be the subject matter of addition under section 68 of the Income Tax Act,1961.
Shri Debashis Roy, the assessee filed a return of income for the instant year on 30/09/2015 declaring a total income of Rs. 44,37,510/-which was processed u/s 143(1) of the Act. The Assessing Officer during the course of assessment proceedings observed that the assessee has shown huge sundry creditors of Rs.4,35,27,806/- as of 31/03/2015 and called upon the assessee to furnish details thereof and also prove the genuineness of these liabilities.
The Assessing Officer to verify the genuineness of the creditors and authenticity of the transactions issued notices u/s 133(6) of the Act to 39 parties n 14/11/2017 on a test check basis. However, 26 notices issued to the creditors were returned unserved.
The assessee is engaged in the business of construction under the name and style of “Sun Construction”. The assessee also furnished the bills, documents about purchase bills, and challans and the Assessing Officer did not find any mistake or deficiencies in these documents. Further added the entire closing balance standing at the credit of these parties which aggregated to Rs.4,19,07,168/- as unexplained cash credit u/s 68 of the Act.
The assessee filed the necessary documents before the AO comprising bills, vouchers, challans, payment details and confirmations etc. which were duly considered by the Assessing Officer and relied on the fact that these are either unserved on the recipients or denied by the creditors.
A Coram consisting of Shri Rajpal Yadav, Vice President & Shri Rajesh Kumar, Accountant Member observedthat these liabilities were incurred as trading liabilities with corresponding purchases and therefore can not be the subject matter of addition u/s 68 of the Act as the provisions of section 68 of the Act apply to the credits in the books of accounts of the assessee which could not be explained with respect to identity, creditworthiness and genuineness. The Tribunal dismissed the appeal of the revenue.
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