M/s. Latha Steel Suppliers, Pondicherry V. ITO, Pondicherry

ITA 150/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1328 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-12-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 15-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: G BASKAR
• Keywords: Set aside
• Section: 147; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) ..... I.T.A. NO. 150 / MDS/2010 ASSESSMENT YEAR : 2001-02 M/S LATHA STEEL SUPPLIERS, NO.99, KAMARAJ SALAI, PUDUCHERY 605 001. PAN : AAAFL2477N (APPELLANT) V. THE INCOME TAX OFFICER, WARD I(1), PUDUCHERY. (RESPONDENT) APPELLANT BY : SHRI G. BASKAR RESPONDENT BY : SHRI K.E.B. RENGARAJAN JUNIOR STANDING COUNSEL O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL OF THE ASSESSEE, ITS MAIN GRIEVANCE RAISED VIDE GROUND NO.6 IS THAT WHILE MAKING ADDITION FOR THE U NCONFIRMED PART OF CREDITORS BALANCE, OPENING BALANCE IN THE RESPECTIV E CREDITORS ACCOUNTS WERE NOT DEDUCTED. OTHER GROUNDS RAISED B Y THE ASSESSEE ARE MAINLY IN SUPPORT OF THIS ISSUE. I.T.A. NO. 150/MDS/10 2 2. SHORT FACTS APROPOS ARE THAT IN THE COURSE OF AS SESSMENT FOR ASSESSMENT YEAR 2002-03, A.O. MADE VERIFICATION OF THE BALANCES IN THE SUNDRY CREDITORS ACCOUNT WHICH CAME TO ` 1,18,45,167/-. BASED ON CONFIRMATION LETTERS RECEIVED, THE A.O. CAME TO CONCLUSION THAT OUT OF ` 1,18,45,167/- EXCEPT FOR A SUM OF ` 7,53,436/-, BALANCE OF ` 1,10,91,731/- WAS BOGUS. THE SAID OF ` 1,10,91,731/- WAS ADDED TO THE INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 -03. ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS) AND THE CIT (APPEALS) VIDE HIS ORDER DATED 30.3.2006 WITH REGARD TO THE ISSUE OF ADDITION OF TRADE CREDITORS, HELD THAT THE A.O. HAD TO REDUCE OPENING BALANCE IN SUCH CREDITORS ACCOUNT FROM THE CLOSING BALANCE AND ADDI TION SHOULD BE RESTRICTED TO THE DIFFERENCE ONLY. LD.CIT(APPEALS) FOUND THAT THE OPENING BALANCE IN THE CREDITORS ACCOUNT WERE ` 87,80,408/- AND THUS THE ADDITION WAS RESTRICTED TO ` 23,11,323/- BEING THE DIFFERENCE. NEVERTHELESS LD. CIT(APPEALS) AT PARA 4.8 OF HIS OR DER FOR THAT YEAR, ALSO HELD THAT ASSESSING OFFICER WAS TO EXAMINE THE OPENING BALANCE AND IF HE FOUND ANY DISCREPANCY, HE COULD TAKE REME DIAL ACTION IN THE EARLIER YEARS. PURSUANT TO THIS DIRECTION OF THE C IT(APPEALS), ASSESSING OFFICER REOPENED THE ASSESSMENT FOR THE I MPUGNED ASSESSMENT YEAR UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961 I.T.A. NO. 150/MDS/10 3 (HEREINAFTER CALLED AS THE ACT), FOR VERIFYING TH E CREDIT BALANCES IN THE SUNDRY CREDITORS ACCOUNT. AFTER GOING THROUGH THE CREDITORS ACCOUNTS AND RELATED CONFIRMATION LETTERS FURNISHED BY THE A SSESSEE, AN ADDITION OF ` 61,25,195/- WAS MADE, BEING THE BALANCE IN STANDIN G THE CREDITORS ACCOUNT AS ON 31.03.2001, TO THE EXTENT N OT CONFIRMED BY THEM. BREAK-UP OF THE ADDITION WAS AS UNDER:- CREDITOR DISALLOWANCE (IN RS.) M/S MADRAS RUKKUMA STEEL 147,522.86 M/S JBA ROLLING MILLS 1,254,263 M/S P. RAGHAVA & NARAYANASAMY CHETTY 1,744,059.5 M/S SNR STEELS 895,231 M/S NAGODA STEELS 1,629,473 M/S GANGA INDUSTRIES 392,521 M/S VICTORY STEELS 62,125 6,125,195.36 3. ASSESSEE AGAIN APPEALED BEFORE THE CIT(APPEALS). ACCORDING TO IT, THE OPENING BALANCES FOR RELEVANT PREVIOUS Y EAR 2000-01 WERE NOT CONSIDERED WHILE MAKING THE ABOVE ADDITION. NE VERTHELESS, FOR THE IMPUGNED ASSESSMENT YEAR, LD. CIT(APPEALS) WAS OF THE OPINION THAT WHOLE OF THE SUM OF ` 61,25,195/- HAD TO BE BROUGHT TO TAX SINCE THESE WERE BOGUS CREDITS AND ARISING ON ACCOUNT OF DIFFERENCES IN CREDIT BALANCES AS APPEARING IN THE BOOKS OF THE RE SPECTIVE SUNDRY CREDITORS AND THE FIGURES APPEARING IN THE BOOKS OF THE ASSESSEE. I.T.A. NO. 150/MDS/10 4 ASSESSEE DID SUBMIT BEFORE THE CIT(APPEALS) A STATE MENT REGARDING THE CREDIT BALANCES IN SUNDRY CREDITORS ACCOUNTS FO R WHICH ADDITIONS WERE MADE BY THE A.O. WHICH READ AS UNDER:- SL. NO. CREDITOR OP. BALANCE 31.03.2000 CL. BALANCE 31.03.2001 INCREASE/ (DECREASE) ADDITION BY A.O. REMARKS 1. MADRAS RUKKAMMA STEEL 393,523 147,523 (246,000) 147,553 OPENING BALANCE IS MORE THAN THE CLOSING BALANCE 2. JBA ROLLING MILLS 823,958 1,344,264 5 20,306 1,254,263 NIL 3. P RAGHAVA & NARAYANASAMY CHETTY 723,079 1,744,060 1,020,981 1,744,059 NIL 4. SNR STEEL 1,275,231 895,231 (380,000) 895,231 OPENING BALANCE IS MORE THAN THE CLOSING BALANCE 5. NAKODA STEEL 1,974,473 1,629,473 (345,000) 1,629,473 OPENING BALANCE IS MORE THAN THE CLOSING BALANCE 6. GANGA INDUSTRIES 442,746 392,521 (50,22 5) 392,521 OPENING BALANCE IS MORE THAN THE CLOSING BALANCE 7. VICTORY STEEL - 107,415 62,125 62,125 NIL TOTAL 5,633,009 6,260,486 582,187 6,125,225 ARGUMENT OF THE ASSESSEE WAS THAT A SUM OF ` 56,33,009/- ENTIRELY CONSIDERED OPENING BALANCE OF THE PARTIES AND HENCE COULD NOT BE ASSESSED FOR ADDITION FOR THE IMPUGNED ASSESSMENT Y EAR. HOWEVER, CIT(APPEALS) DID NOT APPRECIATE THE CONTENTION OF T HE ASSESSEE SINCE, ACCORDING TO HIM, LEDGER COPIES FURNISHED BY THE CR EDITORS IN A FEW I.T.A. NO. 150/MDS/10 5 CASES AND CONFIRMATIONS FURNISHED BY CREDITORS IN C ERTAIN OTHER CASES DID NOT CORROBORATE THE OPENING BALANCES SHOWN BY T HE ASSESSEE. 4. BEFORE US, LEARNED A.R. SUBMITTED THAT THE ADDIT IONS WERE MADE BASED ON THE BALANCES APPEARING IN THE BOOKS OF THE ASSESSEE. ACCORDING TO HIM, AS PER THESE BOOKS, THERE WERE OP ENING BALANCES OF ` 56,33,009/- AS ON 31.3.2000. LEARNED A.R. FURTHER SUBMITTED THAT THE ORDER OF THE CIT(APPEALS) FOR ASSESSMENT YEAR 2 002-03 WHICH WAS THE BASE FOR REOPENING THE ASSESSMENT FOR IMPUG NED ASSESSMENT YEAR, WAS VERY CLEAR THAT OPENING BALANC ES COULD NOT BE CONSIDERED AS INCOME. THEREFORE, ACCORDING TO HIM, FOLLOWING THE RATIONALE ADOPTED FOR ASSESSMENT YEAR 2002-03, FOR THE IMPUGNED ASSESSMENT YEAR ALSO OPENING BALANCES NEEDED TO BE EXCLUDED. 5. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. ADDITION OF ` 61,25,195/- WAS THE AGGREGATE OF CLOSING BALANCES APPEARING IN THE BOOKS OF THE ASSESSEE FOR ITS SUND RY CREDITORS TOTALLING TO SEVEN AS ON 31.3.2000. A.O. EXCLUDED THE AMOUNTS TO THE EXTENT TO WHICH CREDITORS HAD GIVEN CONFIRMATIONS. ARGUMENT OF THE I.T.A. NO. 150/MDS/10 6 ASSESSEE IS THAT A PART OF SUM OF ` 61,25,195 CONSIDERED FOR ADDITION WAS REPRESENTED BY OPENING BALANCE. THAT ACCOUNTS OF THE ASSESSEE IN RESPECT OF THESE SUNDRY CREDITORS DID SHOW OPENI NG BALANCES TOTALLING TO ` 56,33,009/- HAS NOT BEEN DISPUTED BY THE REVENUE. HENCE IN OUR OPINION, RATIONALE FOLLOWED BY THE LEA RNED CIT(A) FOR ASSESSMENT YEAR 2002-03, WHICH APPEAR TO HAVE BEEN ACCEPTED BY BOTH THE PARTIES, HAD TO BE FOLLOWED IN LETTER AND SPIRIT. IT WAS HELD BY THE LD. CIT(APPEALS), IN ASSESSMENT YEAR 2002-03 TH AT OPENING BALANCES HAD TO BE EXCLUDED WHILE CONSIDERING THE A DDITION. WHEN THE ADDITIONS WERE MADE BASED ON THE BALANCES APPEA RING IN THE BOOKS OF THE ASSESSEE, THERE IS VERY LITTLE RATIONA LE FOR EXCLUDING THE OPENING BALANCES IN SUCH BOOKS. NO DOUBT, REVENUE WILL BE FREE TO VERIFY SUCH OPENING BALANCES AS APPEARING IN THE EA RLIER YEARS IF THE CONFIRMATION DID NOT TALLY WITH SUCH AMOUNT AND TAK E NECESSARY ACTION IN THIS REGARD FOR SUCH YEARS. BUT, NEVERTHELESS, FOR THE IMPUGNED ASSESSMENT YEAR WHAT CAN BE CONSIDERED FOR ADDITION IS ONLY THE DIFFERENCE BETWEEN THE OPENING AND CLOSING BALANCES . THEREFORE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND D IRECT THE A.O. TO CONSIDER ADDITION ONLY TO THE EXTENT OF DIFFERENCE BETWEEN OPENING I.T.A. NO. 150/MDS/10 7 AND CLOSING BALANCE IN THE CREDITORS ACCOUNT AS INC OME OF THE ASSESSEE, UNDER SECTION 69 OF THE ACT. ORDERED ACC ORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 3 RD JANUARY, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEO RGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 3 RD JANUARY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-XII, CHENNAI-34 (4) CIT, PONDICHERRY CHARGE, PONDICHERRY (5) D.R. (6) GUARD FILE