IN INCOME TAX APPELLATE TRIBUNAL E Bench, Mumbai Before Shri B.R. Baskaran (AM)& Ramlal Negi (JM) I.T.A. No. 2020/Mum/2014 (Assessment Year 2008-09) Shivram Gopal Shetty ACIT, Circle-3 A-7, Mezzanine Floor Vs. Vardaan, Lower Suryadarshan Tower Ground Floor, MIDC ESIC Hospital Road Wagle Estate Thane-400 604. Thane (Maharashtra). (Appellant) (Respondent) PAN No.ACEPS2775A Assessee by Shri K. Gopal & Miss Neha Paranjape Department by Capt. Pradeep S. Arya Date of Hearing 27.9.2016 Date of Pronouncement 19.10.2016 ORDER Per B.R. Baskaran (AM) :- appeal filed by assessee is directed against order dated 10.12.2013 passed by learned CIT(A)-1, Thane and it relates to A.Y. 2008-09. 2. assessee is aggrieved by decision of learned CIT(A) in confirming addition of ` 86,91,832/- relating to sundry creditors made by Assessing Officer. 3. We have heard parties and perused record. assessee is transport operator owning three heavy goods vehicle (tankers). assessee also undertakes transportation work through hired vehicles. Receipts declared by assessee mainly consist of freight charges received for transporting heavy goods. From Balance Sheet of assessee, Assessing Officer noticed that sundry creditor balance was disclosed at ` 92,31,203/-. From details of sundry creditors, Assessing Officer noticed that assessee has maintained Sundry creditors a/c in name of respective truck numbers, 2 Shivram Gopal Shetty instead of showing name of persons owning trucks. aggregate of amount shown against truck numbers was ` 86,91,832/-. When Assessing Officer asked assessee to submit addresses and phone numbers of truck owners, he could submit some details in respect of only 17 trucks. Assessing Officer noticed that in respect of certain creditors outstanding balance was increasing year after year and in respect of other creditors balance was decreasing. Assessing Officer took view that tanker holders are small time truck owners and hence they would not have kept money with assessee without claiming same. Assessee explained to Assessing Officer that all truck owners are having running account with him and money is paid to them as and when demanded by them. 4. Having observed so, Assessing Officer took different stand that assessee has followed modus operandi by taking bogus truck charges for purpose of reducing his profit and hence same has resulted in creation of bogus creditors. Since payment is made to creditors by way of cash, Assessing Officer observed that there is no scope for cross verification. Accordingly, Assessing Officer took view that bogus credits of ` 86,91,832/- have been accumulated over period of several years and same represents suppressed profit of assessee for all these years. Accordingly, Assessing Officer took view that creditors balance to extent of ` 86,91,832/- has remained unexplained and accordingly added same to income of assessee. 5. Before learned CIT(A), assessee submitted that Assessing Officer has not rejected books of account nor did he find any defect therein. He submitted that general practice prevailing in transport business is to maintain records on basis of vehicle numbers and hence same cannot be found fault with. assessee further submitted that Assessing Officer has not verified any of creditors nor issued notice u/s. 133(6) and accordingly contended that Assessing Officer has taken adverse view only on presumptions. 3 Shivram Gopal Shetty 6. In view of above said submissions, learned CIT(A) asked Assessing Officer to furnish remand report. In remand proceedings Assessing Officer issued notices to ten creditors and nine letters were returned undelivered by postal authorities with remarks incomplete address . Inspector sent by AO could also not locate address. One creditor replied and submitted that he did not maintain books of account and further submitted he did not file his return of income since his income was around` 42,000/- only. Against above said party s name assessee has shown credit balance of ` 1,92,486/-. Further Assessing Officer also called for information from regional transport officer in respect of Vehicle number, viz., MH-04-AC-3007 and noticed that vehicle is Opel Astra model car. Hence AO reported that credit worthiness and genuineness of transactions could not be ascertained. 7. In reply to remand report, assessee submitted that most of vehicle owners are in habit of shifting their addresses after completing license period. It was submitted that Assessing Officer did not confront his finding with assessee. With regard to comment of Assessing Officer that vehicle bearing registration number cited above was Opal Astra model car, assessee submitted that Assessing Officer has made inquiry with RTO by giving wrong registration number while correct number is MH-04- AL-3007. 8. Since assessee has failed to give correct addresses of creditors and since notices issued by Assessing Officer have been returned back, learned CIT(A) agreed with view taken by Assessing Officer and accordingly held that Assessing Officer was justified in treating creditors as unexplained creditors. Before learned CIT(A) assessee submitted that creditors balance could not be doubted with when purchase and sale are accepted. Learned CIT(A) took view that assessee has not made any purchase or sale and assessee could not furnish copies of bills issued by creditors for services rendered. 4 Shivram Gopal Shetty 9. assessee also contended before learned CIT(A) that opening balance of creditors could not have been added during year under consideration, learned CIT(A) took view that said contention could not be accepted in absence of documentary evidence namely bills issued by them. Accordingly he confirmed order passed by Assessing Officer. 10. Aggrieved, assessee has filed this appeal before us. Ld A.R submitted that creditors balance should not have been doubted simply because truck numbers were shown. He submitted that assessee has maintained books of accounts on his convenience. He submitted that question of booking bogus lorry charges does not arise, since same is linked to freight receipts of assessee. He further submitted that AO did not reject books of accounts and hence he should not have made addition. Further AO has also assessed opening balance of creditors , even though same does not pertain to year under consideration. 11. On contrary, Ld D.R submitted that assessee has not furnished details of creditors and further enquiries made by AO did not yield favourable results. 12. We heard parties and perused record. We notice that assessing officer did not examine lorry freight expenses claimed by assessee. Ld A.R submitted that above said expense can be linked to lorry freight receipts. AO has doubted genuineness of creditors, since assessee has created ledger account in name of Vehicle number , instead of name of owners of vehicles. We find merit in contentions of assessee that assessee followed system which was convenient to him. 13. We further notice that assessing officer has come to conclusion that assessee has booked bogus expenses on reasoning that assessee could not give full details of owners of vehicles. However, he has failed to match lorry freight expenses with corresponding freight 5 Shivram Gopal Shetty receipts. In this line of trade, there will be generally one to one link between freight expenses and freight receipts. Unless AO examines this aspect, it would be difficult to establish bogus nature of expenses. Accordingly, we are of view that AO was not justified in drawing adverse inferences on basis of outstanding balance of sundry creditors. 14. With regard to sundry creditors, we notice that AO has mainly doubted about their genuineness on reasoning that assessee has shown vehicle numbers instead of name of persons. We have earlier noticed that same was found to be convenient method of accounting for assessee and, in our view, it cannot be found fault with. We have noticed that assessing officer has assessed entire balance as income of assessee. First of all, sundry creditors balance is represented by lorry freight expenses and hence question as to whether they can be treated as cash credits itself is debatable one. Even though AO did not mention section 68, Ld CIT(A) has stated same as cash credit. Secondly these credits are represented by corresponding debit of lorry expenses. We have earlier noticed that lorry expenses can be linked to corresponding lorry receipts. Hence, unless one reconcile lorry expenses with lorry receipts, it would be difficult to come to conclusion that expenses are bogus in nature and hence corresponding Sundry creditors are bogus in nature. 15. In view of foregoing discussions, we are of view that there is no justification in sustaining addition made by AO. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to delete impugned addition. 16. In result, appeal filed by assessee is allowed. Order has been pronounced in Court on 19.10.2016 Sd/- Sd/- (RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 19/10/2016 6 Shivram Gopal Shetty Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Dy./Asstt. Registrar) PS ITAT, Mumbai Shivram Gopal Shetty v. ACIT, Circle-3, Thane