Tuesday, July 25, 2017

Sec. 68 couldn't be applied for sundry creditors arising out of purchase expenses: Patna ITAT


a) Assessee-partnership firm had shown sundry creditors arising out of purchase expenses in its return but failed to establish genuineness of such sundry creditors.

b) Assessing Officer (AO) disallowed provision for such creditors and added it to total income of assessee under section 68.

c) CIT (Appeals) confirmed the order of AO. The aggrieved-assessee filed the instant appeal before the Tribunal.

The ITAT held in favour of assessee as under:

1) The provisions of section 68 are applied to the cash credit which has not been explained by assessee. In the instant case sundry creditors arose out of the purchases as claimed by assessee which had been duly accepted by the authorities.

2) AO had invoked section 68 to tax the sundry creditors whereas the assessee was claiming that the aforesaid amount represented the trade creditors and, therefore, it couldn’t be applied.

3) Admittedly, the creditors were found by the AO and the onus lay on assessee to justify that these were sundry creditors. In order to justify the impugned trade creditors, the assessee had to produce copies of PAN, ledger copies, bills / invoices details of payments, income tax return, mode of payments, etc.

4) In the instant case, assessee had summarily failed to observe the directions issued by the AO. Therefore, issue was restored to AO for fresh adjudication as per law. - [2017] 83 taxmann.com 187 (Patna - Trib.)

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