Sri P.M. Abdulla v. The Income-tax Officer Ward-I Puttur
[Citation -2015-LL-0609-6]

Citation 2015-LL-0609-6
Appellant Name Sri P.M. Abdulla
Respondent Name The Income-tax Officer Ward-I Puttur
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 09/06/2015
Assessment Year 2003-04, 2004-05
Judgment View Judgment
Keyword Tags business transaction • confirmation letter • issuance of notice • wholesale dealer • initial burden
Bot Summary: Assessee is a wholesale dealer in raw rubber and 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 sum of 42,08,460/- and 49,48,475/- respectively was added by the assessing officer as unproved sundry creditors assessed under section 68 of the Income Tax Act, 1961. The ITAT after considering the rival contentions 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 other than relating to whom additions made by the CIT(A) are to be restored to the assessing officer by casting initial burden on the assessee to discharge such burden by filing 7 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. The assessing officer vide assessment order dated 23.03.2006 has completed the assessment and categorized the sundry creditors under four categories namely, Creditors who have denied the transaction with the assessee Confirmations filed by the assessees in respect of sundry creditors who were not produced before the assessing officer sundry creditors who were unserved and in respect of whom the assessee has neither filed confirmation letter nor produced them before the assessing officer for verification and sundry creditors in respect of whom full address was not furnished. For the assessment year 2004-05 the addition of 49,48,475/- made by the assessing officer towards unproved sundry creditors vide assessment 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 nor sales amongst other grounds as indicated in the order dated 18.12.2007. In the instant case, the tribunal has found on factual scrutiny that the sundry creditors indicate in the 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 13 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. The order of the assessing officer does not indicate about any explanation having called for by the assessing officer from the assessee and such explanation having been not accepted so as to treat the same as income of the assessee for such financial year.


1 IN HIGH COURT OF KARNATAKA, BENGALURU DATED THIS 09TH DAY OF JUNE, 2015 PRESENT HON'BLE MR. JUSTICE MOHAN M SHANTANAGOUDAR AND HON BLE MR. JUSTICE ARAVIND KUMAR ITA NOS.719/2009 & 803/2009 BETWEEN: SRI P.M. ABDULLA PROPRIETOR RUBBER AGENCIES SAITU BUILDING GANDHINAGAR SULLIA-574 239 (D.K). ..APPELLANT (BY SRI.V.K. GURUNATHAN A/W SMT. JINITHA CHATERJEE, ADVOCATES FOR SRI S PARTHASARATHI ADVOCATE) AND: INCOME TAX OFFICER WARD-I PUTTUR. ..RESPONDENT (BY SRI.K.V. ARAVIND, STANDING COUNSEL) THESE APPEALS ARE FILED UNDER SECTION 260A OF INCOME TAX ACT, 1961 PRAYING TO FORMULATE 2 SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW APPEAL AND SET ASIDE ORDER PASSED BY ITAT BANGALORE IN ITA NO. 389 & 390/BNG/2008 (BY REVENUE) & C.O.NOS. 32& 33/BNG/2008 (in ITA NOs. 389 & 390/BNG/2008 (BY ASSESSEE), DATED 30-06-2009. THESE APPEALS BEING HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ARAVIND KUMAR J., DELIVERED FOLLOWING: JUDGMENT These appeals by assessee is directed against order passed by Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in ITA No.389-390/Bang/08 dated 30.06.2009 whereunder appeals filed by revenue came to be allowed and orders passed by CIT (A) deleting addition made under section 68 of Act came to be set aside and matter has been remitted to assessing officer to examine addition representing closing balance of 15 creditors on confirmations being filed by assessee and to pass orders thereunder. 3 2. This court by order dated 18.12.2009 has admitted appeal to consider following substantial questions of law: (1) Whether Tribunal was justified in law in upholding application of section 68 in respect of trade credits outstanding at end of year on account of purchases, when purchases have not been disputed and trading results have been fully accepted and also outstanding credits have been confirmed by parties who were paid in full after end of accounting year? (2) Without prejudice, even if Section 68 is held to be applicable, can addition be made in relevant years with regard to opening balance in hands of creditor in respect of transactions of preceding year? 4 (3) Whether Tribunal was justified in law in holding that provisions of Section 69C of Act would also apply when expenses incurred towards purchases were not disputed and payments made were also recorded in books of accounts? 3. Sri.Gurunathan, learned counsel appearing on behalf of Sri.Parthasarathi, Advocate has fairly submitted 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. 4. We have heard arguments of Sriyuths Gurunathan, learned counsel appearing on behalf of appellant-assessee and Sri.K.V.Aravind, learned standing counsel appearing for respondent-revenue. 5 BRIEF BACKGROUND: 5. Assessee is wholesale dealer in raw rubber and for 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), assessment orders came to be framed on 23.03.2006 and 28.12.2006 whereunder sum of `42,08,460/- and `49,48,475/- respectively was added by assessing officer as unproved sundry creditors assessed under section 68 of Income Tax Act, 1961 (for short `Act ). 6. Being aggrieved by these assessment orders, assessee preferred appeals before CIT(A). For assessment year 2003-04 CIT(A) deleted entire addition made by assessing officer except for `6,00,000/- pertaining two sundry creditors and for assessment year 2004-05 entire addition made by assessing officer was deleted by order dated 18.12.2007. 6 7. revenue being aggrieved by these orders filed appeal before Income Tax Appellate Tribunal (for short `ITAT ) contending that addition made by assessing officer under section 68 of Act ought not have been deleted by appellate authority. assessee preferred cross objections supporting order of CIT(A) and contending that deletion was based on evidence and proof adduced before CIT(A) and as such sought for dismissal of appeals filed by revenue. ITAT after considering rival contentions and on perusal of material on record, by common order dated 30.06.2009 partly allowed appeals filed by department and held that in respect of parties (Sundry Creditors) other than relating to whom additions made by CIT(A) are to be restored to assessing officer by casting initial burden on assessee to discharge such burden by filing 7 confirmation letters of Sundry Creditors and reserving liberty to assessing officer to make verification of confirmation if felt so necessary and also opining that assessing officer may call upon assessee to adduce evidence in form of producing such parties. For assessment year 2004-05 matter was restored back to file of assessing officer in respect of addition representing closing balance of fifteen creditors with liberty being granted to assessee as well as assessing officer as granted for assessment year 2003-04. RE: SUBSTANTIAL QUESTION OF LAW NO.3: 8. In order to answer above question of law, it would be necessary to state facts in brief which has led to filing of these two appeals. 8 9. For assessment year 2003-04 assessee has declared gross profit of `5,97,168/- on total sales of `7,23,69,380/-. It was noticed by assessing officer that assessee had shown liability of `81,91,755.80 towards sundry creditors in Balance Sheet. Hence, communication was forwarded to those sundry creditors under section 133(6) of Act by assessing officer calling upon them to either furnish copy of accounts for financial year 2002-03 as appearing in their books or to confirm amount outstanding. Some of creditors denied business transaction of assessee and some letters addressed to creditors were received back unserved. Hence, assessing officer extended opportunity to assessee to prove sundry creditors by producing relevant material. Despite offering opportunity same was not proved. Hence, summons under section 131 came to be issued to assessee and in response 9 to 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. assessing officer vide assessment order dated 23.03.2006 has completed assessment and categorized sundry creditors under four categories namely, (1) Creditors who have denied transaction with assessee (2) Confirmations filed by assessees in respect of sundry creditors who were not produced before assessing officer (3) sundry creditors who were unserved and in respect of whom assessee has neither filed confirmation letter nor produced them before assessing officer for verification and (4) sundry creditors in respect of whom full address was not furnished. Hence, assessing officer added amounts under head `Sundry Creditors in respect of creditors mentioned in his order to income of assessee, amounting to 10 `42,08,460/- . CIT(A) except sustaining addition to extent of `6,00,000/-, deleted all other additions made by assessing officer. tribunal as indicated in its order vide paragraph 2.37 has remitted matter back to assessing officer for reasons indicated thereunder and to examine matter in background of directions issued therein. 10. Likewise, for assessment year 2004-05 addition of `49,48,475/- made by assessing officer towards unproved sundry creditors vide assessment order dated 28.12.2006 came to be deleted in its entirety by CIT(A) on ground that assessing officer has neither disputed purchases nor sales amongst other grounds as indicated in order dated 18.12.2007. ITAT vide paragraph 4.3 has remitted matter back to assessing officer as already noted hereinabove. 11 11. It is contention of Sri.Gurunathan, learned counsel appearing for assessee that assessee has discharged initial burden and if revenue disbelieved confirmation on account of some valid reason, burden was on revenue to issue commission and make further enquiries to satisfy itself about claim. He would elaborate his submission by contending that tribunal erred in holding Section 69C can be invoked in respect of sundry creditors which are not proved though assessing officer had not made any whisper about invoking provisions of Section 69C. He would contend that expenses incurred towards purchase have been recorded in books accounts of assessee and no part of expenses could be said as unexplained for invoking provisions of section 69C. Hence, he prays for dismissing appeals filed by revenue. In 12 support of his submissions he has relied upon following Judgments: 1. (1998) 145 CTR (SC) 309 Commissioner of Income Tax Vs BEDI & Co. Pvt. Ltd. 2. (2012) 83 CCH 275 GUJ HC Commissioner of Income Tax Vs Bholanath Poly Fab Pvt. Ltd. 3. (1996) 133 CTR (SC) 82 Life Insurance Corporation of India Vs Commissioner of Income Tax 4. (1986) 52 CTR (SC) 138 Commissioner of Income Tax Vs Orissa Corporation (P) Ltd. 5. (2005) 195 CTR (Bom) 199 Babulal C. Borana Vs Income Tax Officer and ors. 12. In instant case, tribunal has found on factual scrutiny that sundry creditors indicate in books of accounts of assessee was not proved in its entirety and same being question of fact it was required to be examined by assessing officer and 13 thereby reserving liberty to revenue as well as assessee to prove genuineness of sundry creditors has remitted matter to jurisdictional assessing officer. 13. assessment order would also indicate that in respect of sundry creditors as reflected in balance sheet of assessee was not proved by assessee though sufficient opportunity was granted. order of assessing officer does not indicate about any explanation having called for by assessing officer from assessee and such explanation having been not accepted so as to treat same as income of assessee for such financial year. However it requires to be noticed from order of tribunal that after analyzing case laws it has been held that section 68 read with section 69C can be invoked in respect of sundry creditors which are not 14 proved by assessee before assessing officer. As such we are of considered view that principles contained in section 68 as well as section 69C would be squarely applicable to sundry creditors in case of trader, as obtained in facts of present case. Infact, credit purchases are nothing but expenditure and if sundry credits are not proved by assessee addition can be made by assessing officer by resorting to section 69C. Accordingly substantial question of law No.3 is being answered in favour of revenue. 14. For reasons aforestated, we proceed to pass following: ORDER 1. Appeals ITA Nos.719/2009 and 803/2009 filed by assessee-appellant are hereby dismissed by answering 15 substantial question of law No.3 in favour of revenue and against assessee. 2. Order dated 30.06.2009 passed by Income Tax Appellate Tribunal in ITA Nos.389-390/Bang/08 is hereby affirmed. 3. Costs made easy. Sd/- JUDGE Sd/- JUDGE SBN Sri P.M. Abdulla v. Income-tax Officer Ward-I Puttur
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