1 IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No.2283/Hyd/2018 Assessment Year: 2015-16 M/s. Chennai Shopping Vs. Income Tax Officer, Mall, Ward-1, Kurnool. Kurnool. PAN: AAWFM 8028 N (Appellant) (Respondent) Assessee by: Sri K.C. Devdas Revenue by: Sri Nilanjan Dey, DR Date of hearing: 03/07/2019 Date of pronouncement: 21/08/2019 ORDER PER A. MOHAN ALANKAMONY, AM.: This appeal is filed by assessee against order of Ld. CIT(A), Kurnool in appeal No.10124/CIT(A)/KNL/2017-18, dated 31/10/2018 passed U/s. 143(3) & U/s. 250(6) of Act for assessment year 2015-16. 2. assessee has raised 5 grounds in its appeal however, crux of issue is that Ld. CIT (A) has erred in confirming addition made by Ld. AO of Rs. 1,94,11,610/- (sic) Rs. 1,93,65,810/- towards Sundry creditors since their genuineness was not established. 2 3. brief facts of case are that assessee is firm engaged in business of retail sale of textile / garments and other fabrics filed it s e-return on 31/10/2015 for AY 2015-16 declaring total taxable income at Rs. 45,800/-. Thereafter, case was selected for scrutiny and assessment was completed U/s. 143(3) of Act vide order dated 11/12/2017 wherein Ld. AO added amount of Rs. 1,93,65,810/- towards Sundry creditors as their genuineness was not established. 4. Revenue had issued several notices and show cause letters to assessee with respect to date of hearing fixed more than 9 occasions calling for books of accounts, bank statements, list of creditors, copies of income tax returns filed by partner firm etc. However, assessee failed to furnish any of details called for and also failed to furnish particulars of sundry creditors amounting to Rs. 1,93,65,810. It was further observed by Ld. AO that sundry creditors disclosed by assessee was abnormal. Therefore, he was of view sundry creditors disclosed by assessee is not genuine. Hence, Ld. AO added sundry creditors amounting to Rs. 1,93,65,810 as unexplained credits in hands of assessee. 5. When matter came up before Ld. CIT (A), Ld. CIT (A) called for remand report from Ld. AO. In remand report ld. AO observed following discrepancies and facts: - 3 (i) assessee could not produce confirmation from respective sundry creditors. (ii) assessee has stated that business of assessee has been discontinued and legal cases have been filed by creditors against assessee. (iii) assessee had made cash payments in excess of Rs. 20,000 to various sundry creditors during FY 2014-15 aggregating to Rs. 65,96,245/-. (iv) assessee had stated that cash payments were made due to business exigency and to protect reputation of assessee. (v) There is overstatement of credit balance by Rs. 1 lakh with respect to sundry creditor M/s. Siri Silks. 6. Thereafter, Ld. CIT (A) forwarded remand report to assessee and called for its explanation. submission of assessee is briefly stated herein below for reference: - (i) Managing Partner of firm Sri Sekhar Babu was suffering from Blood Cancer detected during year 2015 and was undergoing treatment and hospitalized. (ii) assessee has produced its financial statements and audit reports. 4 (iii) As business was discontinued and managing partner of firm was hospitalised further details could not be produced. (iv) It was therefore requested that based on materials available on record assessment may be completed. (v) All sundry creditors were pertaining to purchases and there were continuous transactions of repayments. (vi) nature of business was such that purchases were predominantly based on credits and repayments were made from sale proceeds. (vii) When purchases and sale are accepted by Revenue creditors cannot be simply treated as not genuine. (viii) Since payments were over due to creditors for prolonged period, they had declined to cooperate by furnishing confirmation statements in order to put pressure to recover their dues. (ix) Out of 225 creditors only for 22 creditors cash payments were made out of compulsion and for others payments were made through electronic mode or by cheque. Therefore, provisions of section 40A(3) of Act may not apply to assessee by virtue of Rule 6DD(j) r.w. CBDT Circular dated 31/5/1977. 7. However Ld. CIT (A) after considering submissions of assessee and by relying on various decisions of higher judiciary 5 arrived at conclusion that order of Ld. AO need not be interfered because assessee has failed to prove genuineness of sundry creditors. 8. Before us, Ld. AR reiterated submissions made before Ld. Revenue Authorities and further argued by stating that due to serious illness of assessee business has practically come to end and since Sundry creditors were yet to be paid assessee was finding it difficult to obtain confirmation statements from them. Ld. A.R further submitted that, from bank statement of assessee it is evident that there were transactions between assessee and most of sundry creditors. Hence it was pleaded that Sundry creditors may be treated as genuine. Ld. DR on other hand relied on orders of Ld. Revenue Authorities. 9. We have heard rival submissions and carefully perused materials on record. Considering nature of business of assessee, being trading in Textiles / Garments etc., it is obvious that largely business constitutes credit purchase and payments are made to creditors from sale proceeds. In these circumstances over period of time as per growth in turnover sundry creditors of assessee will swell. In case of assessee nature of business conducted by assessee is not disputed. Further, it is 6 obvious that when assessee has failed to repay sundry creditors within stipulated time relationship between them may not be pleasant. In this situation, sundry creditors may not cooperate with assessee in order to put pressure on assessee for recovering their dues. In case of assessee it is also fact that due to serious illness of Managing Director, business of assessee has virtually come to standstill and has become unorganised and shattered. In this situation, it will not be appropriate on part of Revenue to treat entire sundry creditors as not genuine as it would be too harsh on assessee and lead to injustice. Considering facts and peculiar circumstances of case it is to be appreciated that assessee is unable to produce requisite documents called for, such as confirmation statements from sundry creditors. However, it is needless to mention that Ld. Revenue Authorities are at liberty to examine sundry creditors and their relevant state of affairs and thereafter come to conclusion whether they are genuine or not genuine. Moreover, it is not case where names and addresses of sundry creditors are not available. Considering all these facts and circumstances of case, in interest of Justice, We hereby remit matter back to file of Ld.AO for fresh consideration and to pass appropriate Order in accordance with merit and law keeping in view of our observations made hereinabove. assessee and its representatives are also directed to cooperate with Ld. Revenue 7 Authorities promptly in order to expedite their orders failing which Ld. Revenue Authorities shall be at liberty to pass appropriate order in accordance with merit and law based on materials before them. 10. In result appeal of assessee is allowed for statistical purpose as indicated hereinabove. Pronounced in open Court on 21 st August, 2019. Sd/- Sd/- (P. MADHAVI DEVI) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated:21 st August, 2019 OKK Copy to:- 1) Ms. Chennai Shopping Mall, 40 -321-18, Upstairs, Shop No. 1 to 5, Abdullah Khan Estate, Kurnool. 2) Income Tax Officer, Ward-1, Kurnool. 3) CIT(A), Kurnool. 4) Pr. CIT, Kurnool. 5) DR, ITAT, Hyderabad 6) Guard File Chennai Shopping Mall v. Income-tax Officer, Ward-1, Kurnool