Addition u/s 68 deleted as AO failed to find any discrepancy in details submitted

Addition u/s 68 deleted as AO failed to find any discrepancy in details of creditors submitted by the assessee

In a recent judgment, the ITAT Guwahati deleted penalty u/s 68 as the Assessing Officer (AO) failed to find any discrepancy in the details of creditors submitted.

ABCAUS Case Law Citation:
ABCAUS 4125 (2024) (07) ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition u/s 68 made by the Assessing Officer (AO) holding that it was based on mere surmises and conjectures.

The respondent assessee was a limited company registered with the RBI as a non-banking finance company. The case was selected for limited scrutiny through CASS followed by notice u/s.143(2) of the Act.

The AO in the course of the proceedings examined the balance appearing under the head “current liability” and “trade payables”. The AO noted that a large amount of sundry creditors were appearing in the Balance Sheet. The AO asked the assessee to provide confirmation in support of the balances due in respect of sundry creditors’ balance exceeding Rs. 1 lac.  The AO also asked to file a chart of sundry creditors’ balance for the preceding three FYs and current year along with particulars of increase/decrease in transactions and details also to be filed for squared up accounts.

The assessee furnished certain details in compliance thereto. The AO carried out the proceeding further by issuing notice u/s 133(6) of the Act but in few cases proper compliance was not made by the alleged creditors. The AO was also not satisfied with the explanation given by the assessee in respect of twelve sundry creditors and concluded the assessment by making the impugned addition u/s 68 of the Act.

Before the CIT(A) the assessee placed reliance on various documents given in order to explain and prove the identity and creditworthiness of the alleged sundry creditors/unsecured loan and genuineness of the transaction, the assessee also placed reliance on plethora of judgments in which it has been consistently held that merely non-appearance/non-compliance of notice u/s. 133(6) of the Act should not be taken as the sole basis for making addition u/s. 68 of the Act and if the assessee had furnished various details to explain the nature and source of alleged sum, AO has to bring on record the discrepancy and defects in such details.

It was also claimed by the assessee that out of the alleged cash creditors few were relating to purchase of fixed assets and few were old cash creditors.

The CIT(A) after going through the details gave a detail finding of fact and decided in favour of the assessee and deleted the impugned addition.

The Tribunal noted that it was an admitted fact that NBFC companies have to furnish regular reports to the RBI and also to furnish the information on periodical basis to the Ministry of Corporate Affairs.

The Tribunal further observed that the assessee furnished complete details to explain the identity and creditworthiness of the alleged creditors and genuineness of the transaction in order to explain the nature and source of the alleged sum. Considering all these details, the CIT(A) had given relief to the assessee.

The Tribunal further observed that out of the alleged twelve creditors, five parties had already examined by the revenue authorities during the course of assessment proceeding u/s 143(3) of the Act for immediately preceding AY. Further, three creditors were actually the

outstanding balance sundry creditors for fixed assets. They were not in the nature of any unsecured loan. During the course of business, the assessee had purchased fixed assets from these three parties and some payment was outstanding. Therefore, the genuineness of transaction was not in dispute.

With respect to remaining four parties the Tribunal noted that all these parties had responded to the notice issued u/s 133(6) of the Act and furnished all documents to explain the availability of funds with these companies for providing loan to the assessee company and have also furnished audited financial statement in order to support that these companies were regularly engaged in business activities and duly assessed to tax.

The Tribunal opined that considering the nature of business of the assessee, and also considering that assessee being a limited company, registered as a non-banking finance Company and also considering the details filed during the course of appellate proceeding before the CIT(A) there remained no doubt about the identity and creditworthiness of the cash creditors and genuineness of the transaction. The Tribunal relied upon number of case laws of Co-ordinate Benches of ITAT, Delhi High Court and Hon’ble Supreme Court which delat with the scope of section 68 of the Act.

The Tribunal held that no material had been brought on record by the Revenue to controvert the impugned finding of CIT(A) and that the nature and source of the alleged sum have been thoroughly explained by the assessee before the CIT(A) and also before the Tribunal and also being satisfied that the alleged cash creditors ought to have given the loan or supplied goods to the assessee in the regular course of business and since the AO failed to find any discrepancy in the details so filed by the assessee, the AO was not justified in invoking section 68 of the Act.

As a result, appeal of the revenue was dismissed. 

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