Non-mentioning precise section for making addition for bogus purchase made it bad in law – ITAT

Non-mentioning the precise section for making addition for bogus purchase made the impugned addition bad in law – ITAT deletes the addition 

ABCAUS Case Law Citation:
ABCAUS 2424 (2018) 07 ITAT

The instant appeal was filed by the assessee against the order of CIT(A) in confirming the action of Assessing Officer (AO) in making addition on the alleged ground bogus sundry creditors.

The case of the assessee was selected for scrutiny through CASS for the reasons of large amount of sundry creditors. Accordingly, notice u/s. 143(2) and 142(1) of the Act were issued.

During the assessment proceedings, the assessee furnished the list of creditors giving names, postal address and amount payable to each of the sundry creditor. In order to verify the genuineness of creditors, notices u/s 133(6) of the Act were issued all the parties. However, most of the notices were received back with the respective postal remarks that no such firm/left/ koi jankari nahin / not related / wrong address etc.

The AO , in respect of each party made addition on account of sundry creditors not proved as genuine u/s 143(3) of the Act.

Aggrieved by the aforesaid addition, the assessee filed appeal before the CIT(A).However, the CIT(A) sustained the addition.

The Tribunal opined that the sustaining of impugned addition was not justified due to the following reasons:-

(i) It had not been mentioned either by AO or by CIT(A) as to under which section of the Income Tax Act, the closing credit balances could be added. Non-mentioning the precise provision of law made the impugned addition bad in law.

(ii) If addition had been made u/s 68, such could not be added and that too of this much of amount as there was no sum received from these parties & that too during the year under appeal.

(iii) It has been held in various judicial decisions that credit on account of purchases cannot be added u/s 68. 

(iv) When assessee had not claimed any expense during the year under appeal, there was no question of making disallowance of such amount.

(v) If addition had been mentioned u/s 41(1) as cessation of the liability, ingredients of section 41(1), the burden of proof which was resting on revenue in view of the various judicial decisions had not been discharged.

The Tribunal held that lower authorities were not justified in making / sustaining the addition in dispute. Accordingly, the addition made was deleted.

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