Assessee can maintain two ledger accounts of one person. ITAT deleted addition u/s 68

Assessee can maintain two ledger accounts of same person one under the head sundry debtor and another under sundry creditor – ITAT

In a recent judgment, ITAT Kolkata has deleted addition u/s 68 for bogus creditors as the assessee maintained two accounts of same person, one under the head ‘sundry debtor’ and another under ‘sundry creditor’.  It was held that there is no restriction in the Mercantile Accounting System to maintain two accounts of the same person because for the purpose of better accounting, one can maintain two accounts in the name of same person of transactions are of different nature.

ABCAUS Case Law Citation:
ABCAUS 4133 (2024) (07) ITAT

Important Case Laws relied upon:
Ambica Mills Ltd. vs.- CIT 54 ITR 167
CIT -vs.- Shri Vardhman Overseas Limited 343 ITR 408
Nitin S. Garg -vs.- ACIT [2010) 5 taxmann.com 115

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre inter alia confirming addition under section 68 the Income Tax Act, 1961 (the Act) for sundry creditors.

The assessee was an individual and carried on the business of goods transportation and cargo lifting at Ports under the proprietorship concern. The case was selected for scrutiny assessment under CASS and notices under sections 143(2) and 142(1) were issued.

The assessee was having transactions with a transport company. The assessee, in the balance sheet had shown a debit balance against the name of the said party under the head of ‘sundry debtors’ and also on the liability side of sundry creditors a credit balance was mentioned against the name of the said party.

During the course of assessment proceedings, the Assessing Officer enquired/ collected information from such party. The said party accepted the amount appearing in the list of sundry debtors but no confirmation was received regarding the credit balance appearing in the assessee’s books.

Based on this information, the Assessing Officer treated the sundry credit balance as unexplained and added in the hands of the assessee.

The Tribunal noted that identity of the alleged sundry creditors was not in dispute as it was duly assessed to tax and has replied to the notices under section 133(6) of the Act.

The Tribunal observed that the Assessing Officer had accepted the debit balance appearing in the books. However, surprisingly when identity was not in dispute, only the debit balance had been accepted but the credit balance was not accepted.

The Tribunal opined that it seemed that Assessing Officer had not examined the ledger account properly because the assessee maintained two accounts of the same person, one under the head ‘sundry debtor’ and another under ‘sundry creditor’.

The Tribunal stated that there is no restriction in the Mercantile Accounting System to maintain two accounts of the same person because for the purpose of better accounting, one can maintain two accounts in the name of same person of transactions are of different nature.

The Tribunal further noted that the account under the head sundry debtors showed only truck running expenses and fuel charges. Against the opening debit balance various expenses had been incurred during the year and the charging debit balance appears at the close of the year. Whereas, the account appearing under the head ‘sundry creditors’ was an account of unsecured loans/funds inflow/ outflow account.

The Tribunal found that the credit ledger was a genuine account and transactions had been entered around the year. Also, since the party had accepted the transactions, which were appearing under the head ‘sundry debtors’, there was no reason to dispute the remaining part of transactions entered with the assessee.

Accordingly, the Tribunal reversed the finding of CIT(Appeals) and the impugned addition under section 68 was deleted.

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