Ita/719/2009 Of Sri P M Abdulla v. The Income Tax Officer

1 IN THE HIGH COURT OF KARNATAKA, BENGALURU| DATBD THIS THER O DAY OF JUNE, 2015. PRESENT THE HON'BLE MR. JUSTICEK MOHAN M SHANTANAGOU DA ANT) THR HON’BLE MR. JUSTICE ARAVIND KUMAR ITA NOS.719/2009 & 803/2009 BETWEEN: SRI P.M. ABDULLAPROPRIETOR|RUBBER AGENCIES|SAITU BUILDINGGANDHINAGARSULLIA-9574 239 (D.K). _... APPELLANT (BY SRI.V.K. GURUNATHAN A/W SMT. JINITHAADVOCATE) CHATERJEE, ADVOCATES FOR SRI S PARTHASARATHI AND: THR INCOME TAX OFFICERWARID-IPUTTUR.|— RBSPONDENT (BY SRI.K.V. ARAVIND, STANDING COUNSEL) THESE APPEALS ARE FILED UNDER SECTION 260A|OF INCOME TAX ACT, 1961 PRAYING TO FORMULATE THE 2 SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN ANDALLOW THE APPEAL AND SEI ASIDE THE ORDER PASSEDBY.THEITATBANGALORELN|ITANO.|389CS390/BNG/2008(BY.REVENUE).‘oC.O.NOS.398&33/BNG/2008 (in ITA NOs. 389 & 390/BNG/2008 (BYASSESSEE), DATED 30-06-2009. THESE APPEALS BEING HEARD AND RESERVED,|COMING ON FOR PRONOUNCEMENT OF JUDGMENT THISDAY,ARAVIND KUMAR J.,DBLIVBRED THR FOLLOWING: JUDGMENT These appeals by the assessee is directed againstthe order passed by Income Tax Appellate Tribunal|(ITAT), Bangalore Bench, in ITA No.389-390/Bang/08|dated 30.06.2009 whereunder the appeals filed by the|revenue came to be allowed and the orders passed by|CIT (A) deleting the addition made under section 68 of|the Act came to be set aside and the matter has been|remitted to the assessing officer to examine the additionrepresenting the closing balance of 1o creditors on|confirmations being filed by the assessee and to pass|orders thereunder. O| 2. This court by order dated 18.12.2009 hasadmitted|theappealTO|considerthefollowing substantial questions of law:| (1)Whether the Tribunal was justified|in law in upholding the application|of section 68 in respect of trade.credits outstanding at the end of|the year on account of purchases,|when the purchases have not been)disputed and the trading results|have been fully accepted and also.the outstanding credits have been|confirmed by the parties who were|paid in full after the end of the.accounting year? (2) Without prejudice, even if Section|68 is held to be applicable, can an)addition be made in the relevant/years with regard to the opening|balance in the hands of the creditor|in respect of transactions of the)preceding year? 4. (%)Whether the Tribunal was justified|in law in holding that the provisionsof Section 69C of the Act would alsoapply when the expenses incurred|towardspurchasesWereNOT.disputed and the payments made.were also recorded in the books ot|accounts?”in law in holding that the provisionsof Section 69C of the Act would alsoapply when the expenses incurred|towardspurchasesWereNOT.disputed and the payments made.were also recorded in the books ot|accounts?” 3.ori.Gurunathan, learned counsel appearing|on behalf of sSri.Parthasarathi, Advocate has fairlysubmitted he would not press his arguments insofar as)substantial questions of law 1 and 2 framed by this)court on 18.12.2009. His submission is placed on)record. 4We have heard the arguments of Sriyuths|Gurunathan, learned counsel appearing on behalf of)appellant-assesseeandsri.K.V.Aravind,learnedstanding counsel appearing for the respondent-revenue. BRIEF BACKGROUND: 5. Assessee is a wholesale dealer in raw rubberand for the assessment years 2003-04 and 2004-05)filed return of income which were selected for scrutiny|and after issuance of notice under section 143(2), the)assessment orders came to be framed on 23.03.2006|and 28.12.2006 whereunder a sumot |=42,,08,460/- andV49,48,475/- respectively was added by the assessingofficer aS unproved sundry creditors assessed under|section 68 of the Income Tax Act, 1961 (for short Act’). 4We have heard the arguments of Sriyuths|Gurunathan, learned counsel appearing on behalf of)appellant-assesseeandsri.K.V.Aravind,learnedstanding counsel appearing for the respondent-revenue. BRIEF BACKGROUND: 5. Assessee is a wholesale dealer in raw rubberand for the assessment years 2003-04 and 2004-05)filed return of income which were selected for scrutiny|and after issuance of notice under section 143(2), the)assessment orders came to be framed on 23.03.2006|and 28.12.2006 whereunder a sumot |=42,,08,460/- andV49,48,475/- respectively was added by the assessingofficer aS unproved sundry creditors assessed under|section 68 of the Income Tax Act, 1961 (for short Act’). 6. Being aggrieved by these assessment orders,assessee preferred appeals before CIT(A). For the|assessment year 2003-04 CIT(A) deleted entire addition|made by the assessing officer except for=6,00,000/-pertaining two sundry creditors and for the assessment|year 2004-05 the entire addition made by the assessing|officer was deleted by order dated 18.12.2007. 6| [.The revenue being aggrieved by these orders.filed an appeal before the Income Tax Appellate Tribunal(for short ITAT’) contending that the addition made by|the assessing officer under section 68 of the Act ought|not have been deleted by the appellate authority. The|assessee preferred cross objections supporting the order|of CIT(A) and contending that the deletion was based on)evidence and proof adduced before the CIT(A) and as|such sought for dismissal of the appeals filed by the|ITEVEeETLTheITATatterconsidering|therivalcontentions and on perusal of material on record, by|common order dated 30.06.2009 partly allowed the|appeals filed by the department and held that in|respect of parties (Sundry Creditors) other than relating|to whom additions made by the CIT(A) are to be restoredto the assessing officer by casting initial burden on theASSESSEETOdischargesuchburdenbyfiling confirmation letters of Sundry Creditors and reserving|liberty to assessing officer to make verification of the|confirmation if felt so necessary and also opining that|the assessing officer may call upon the assessee to|adduce evidence in the form of producing such parties.For the assessment year 2004-05 the matter was|restored back to the file of assessing officer in respect of|addition representing the closing balance of fifteen|creditors with the liberty being granted to the assessee|as well as assessing officer as granted for the|assessment year 2003-04. RE: SUBSTANTIAL QUESTION OF LAW NO.3: oO.In order to answer the above question of law,it would be necessary to state the facts in brief which|has led to the filing of these two appeals. 8| QFor the assessment year 2003-04 _ thassessee has declared a gross profit of|V0,97,168/- on|total sales of.“7,23,69,380/-. It was noticed by theassessing officer that assessee had shown liability ofV81,91,755.80 towards sundry creditors in the Balancesheet. Hence, communication was forwarded to those|sundry creditors under section 133(6) of the Act by theassessing officer calling upon them to either furnish the)copy of the accounts for the financial year 2002-03 as_appearing in their books or to confirm the amount)outstanding. Some of the creditors denied the business|transaction ot the assessee and some letters addressed|to the creditors were received back unserved. Hence,|the assessing officer extended an opportunity to theassessee to prove the sundry creditors by producing the)relevant material. Despite offering opportunity thesame was not proved. Hence, summons under section|131 came to be issued to the assessee and in response 9| 9| to the same, confirmation letters from those sundry|creditors on whom letters under section 133(6) had|been issued and who had not responded came to be|filed. The assessing officer vide assessment order dated23 03.2006hascompletedtheassessment.andcategorized the sundry creditors under four categories|namely, (1) Creditors who have denied the transaction|with the assessee (2) Confirmations filed by the|assessees in respect of sundry creditors who were not,produced before the assessing officer (3) sundry)creditors who were unserved and in respect of whom theassessee has neither filed confirmation letter nor'producedthem beforetheassessingofficer.for.verification and (4) sundry creditors in respect of whom|full address was not furnished. Hence, the assessingofficer added the amounts under the head ‘Sundry|Creditors’ in respect of the creditors mentioned in his)order to the income of the assessee, amounting to. 10| V42,08,460/- . The CIT(A) except sustaining theaddition to the extent ofV6,00,000/-, deleted all other|additions made by the assessing officer. The tribunal asindicated in its order vide paragraph 2.37 has remitted|the matter back to the assessing officer for the reasons|indicated thereunder and to examine the matter in the|background of directions issued therein. 10. Likewise, for the assessment year 2004-05_the addition oft=49 ,48,475/- made by the assessingofficertowardsunprovedsundrycreditorsvideassessment order dated 28.12.2006 came to be deleted|in its entirety by the CIT(A) on the ground that the|assessing officer has neither disputed the purchases norsales amongst other grounds as indicated in the order|dated 18.12.2007. The ITAT vide paragraph 4.3 has|remitted the matter back to the assessing officer as|already noted hereinabove. 11| ll. It is the contention of Sm.Gurunathan,learned counsel appearing for the assessee_ thatassessee has discharged the initial burden and if the|revenue disbelieved the confirmation on account otfsome valid reason, the burden was on the revenue to|issue commission and make further enquiries to satisfy|itself about the claim. He would elaborate his'submission by contending that tribunal erred in holdingsection 69C can be invoked in respect of sundry|creditors which are not proved though assessing officer|had not made any whisper about invoking the|provisions of Section 69C. He would contend thatCAPCIISCsincurredtowardspurchasehavebeenrecorded in the books accounts of the assessee and no|part of expenses could be said as unexplained for|invoking the provisions of section 69C. Hence, he praysfor dismissing the appeals filed by the revenue. In| support of his submissions he has relied upon the|following Judgments: 1.(1998) 145 CTR (SC) 309Commissioner of Income Tax Vs BEDI|Commissioner of Income Tax Vs BEDI| & Co. Pvt. Ltd. 2.(2012) 83 CCH 275 GUJ HCCommissionerotIncomeTax|Vs)Bholanath Poly Fab Pvt. Ltd.CommissionerotIncomeTax|Vs)Bholanath Poly Fab Pvt. Ltd. 3.(1996) 133 CTR (SC) 82Life Insurance Corporation of India VsCommissioner of Income Tax.Life Insurance Corporation of India VsCommissioner of Income Tax. 4(1986)52CTR(SC)138Commissioner of Income Tax Vs Orissa|Corporation (P) Ltd.Commissioner of Income Tax Vs Orissa|Corporation (P) Ltd. 5(2005) 195 CTR (Bom) 199Babulal C. Borana Vs [Income TaxOfficer and ors.Babulal C. Borana Vs [Income TaxOfficer and ors. 12. In the instant case, the tribunal has found on factual scrutiny that the sundry creditors indicate inthe books of accounts of the assessee was not proved in|its entirety and the same being question of fact it was|required to be examined by the assessing officer and| 10| thereby reserving liberty to the revenue as well as|assessee to prove the genuineness of sundry creditors|has remitted the matter to the jurisdictional assessing|officer. 4(1986)52CTR(SC)138Commissioner of Income Tax Vs Orissa|Corporation (P) Ltd.Commissioner of Income Tax Vs Orissa|Corporation (P) Ltd. 5(2005) 195 CTR (Bom) 199Babulal C. Borana Vs [Income TaxOfficer and ors.Babulal C. Borana Vs [Income TaxOfficer and ors. 12. In the instant case, the tribunal has found on factual scrutiny that the sundry creditors indicate inthe books of accounts of the assessee was not proved in|its entirety and the same being question of fact it was|required to be examined by the assessing officer and| 10| thereby reserving liberty to the revenue as well as|assessee to prove the genuineness of sundry creditors|has remitted the matter to the jurisdictional assessing|officer. 13. The assessment order would also indicate|that in respect of the sundry creditors as reflected in thebalance sheet of the assessee was not proved by the|assessee though sufficient opportunity was granted.The order of the assessing officer does not indicate|about any explanation having called for by the|assessingofficerfromtheaSSeSSeeandsuch|explanation having been not accepted so as to treat the|Same as income of the assessee for such financial year.However it requires to be noticed from the order of the|tribunal that after analyzing the case laws it has been|held that section 68 read with section 6O9C can beinvoked in respect of sundry creditors which are not| 14| proved by the assessee before the assessing officer. As|such we are of the considered view that the principles|contained in section 68 as well as section 69C would besquarely applicable to sundry creditors in case of a|trader, as obtained in the facts of the present case.Infact, credit purchases are nothing but expenditure|and if sundry credits are not proved by the assessee|addition can be made by the assessing officer by|resorting to section 6O09C. Accordingly substantialquestion of law No.3 is being answered in favour of the|TEVENUEe. 14.For the reasons aforestated, we proceed to|pass the following: ORDER| 1.Appeals|ITANos./19/2009and 8003/2009 filed by the assessee-appellant are hereby dismissed by answering the SBN ? 3. 15| substantial question of law No.3 in favour of revenue and against the assessee. Order dated 30.06.2009 passed by the. Income Tax Appellate Tribunal in ITA| Nos.389-390/Bang/0O81Shereby attirmed. Costs made easy. Sd/-| JUDGE Sd/-| JUDGE