The appeal at the instance of the Revenue and the cross-objection preferred by the assessee are directed against the order of the CIT(A)LTD, Bangalore dt. 22nd March, 2012 in relation to the asst. yr. 2008-09.
2. The solitary issue that arises for our consideration in respect of the Revenue appeal is whether the CIT(A) is justified in deleting the additions made by the AO amounting to Rs. 28.95,779 under the head sundry creditors. In the cross-objection, no specific ground has been raised by the assessee. However, it is noticed from Col. 8 of Form No. 36A, the prayer is to annul the assessment order, since notice under s. 143(2) of the Act was issued beyond the stipulated period.
ITA No. 984/Bang/2012 (Revenue's appeal)
3. Brief facts in relation to the appeal are as follows. The assessee is an individual and she is a dealer in silk fabrics and also deriving rentalincome. The return of income for the impugned assessment year was filed on 30,09.2008 declaring a total income of Rs. 95,420. The assessment was taken up for scrutiny by issuance of notice under s. 143(2) of the IT Act on 17th Aug., 2010. The scrutiny assessment under s. 143(3) of the Act was completed vide order dt. 25th Oct., 2010 fixing the total income at Rs. 35,57,356. Among the various additions made, a sum of Rs. 28,95,779 was added under the head "Sundry creditors".
3.1 Aggrieved by the assessment, the assessee carried the matter in appeal before the first appellate authority. The first appellate authority deleted the additions made under the head "Sundry creditors". The relevant findings of the CIT (A) read as follows:
"Disallowance of credit balances of sundry creditors-Rs. 28,95,779
10. It appears from Schedule A to the balance sheet of the appellant's proprietary concern as on 31st March, 2008 that the credit balances of sundry creditors amounted to Rs. 28,95,779 as against the earlier year's balances of 26 creditors totalling to Rs. 13,89,152. At the first appellate stage, it was contended that the appellant's trade creditors swelled from 26 creditors in asst. yr. 2007-08 which were carried over to asst. yr. 2008-09 and an additional 25 creditors in asst. yr. 2008-09 consequent upon which the closing credit balances of the 51 trade creditors .had risen significantly to Rs. 28,95,779. It was pointed out that the increase from Rs. 13,89,152 to Rs. 28,95,779 was on account of a considerable increase in the volume of the business. Moreover the appellant had enclosed confirmatory letters from five of its largest creditors in support of its claim. It is quite apparent from the above that at least 50 per cent of its creditors for asst. yr. 2008-09 were brought forward from the earlier year, Le. Rs. 13,89,152 whereas the appellant had furnished confirmatory letters from parties such as Shri K. Ranga Prasad, Shri Palla Rajashekar etc. However, the AO arbitrarily and without any application of mind, proceeded to add back the entire sum of Rs. 28,95,779 pertaining to all the trade creditors without conducting any independent enquiries of his own from external sources to disprove the genuineness of the trade creditors and completely ignoring the confirmatory letters furnished by the appellant without any basic follow up of the corroborative evidence filed.
10.1. It is incumbent on the AO to pass speaking orders that clearly elucIdate the reasons, rationale, and facts based on which conclusions are being drawn and decisions taken, particularly when the quantum involved is as large as in this case. I do not find this to be the case here. There does not seem to have been adequate application of mind but merely a mechanical addition founded on inadequate facts and reasoning. In the above circumstances, I have no option but to accept the plea of the appellant and delete the addition made by the AO to the tune ofRs.28,95,779."
3.2 The learned Departmental Representative supported the stand of the AO. It was submitted that the CIT(A) has erred in deleting the above addition based on the confirmation letters filed at the time of appellate proceedings. It was contended that no opportunity was provided to the AO to examine the additional evidence furnished and to verify the creditworthiness and identity of the creditors. Therefore, it was pleaded that this matter should be remanded back to the AO for de novo consideration.
3.3 The learned Authorised Representative on the other hand supported the reasoning of the CIT(A). It was submitted that necessary ledger account and the confirmatory letters were already filed before the AO and it was not a fresh evidence furnished at the appellate proceedings. Therefore, it was contended that the order of the CIT(A) is to be sustained.
3.4 We have heard the rival submissions and perused the relevant material on record. It is admitted fact that all the credits are tt;a(le credits and none of the said credit ofRs. 28,95,770 are cash credits. buring last year the trade creditors covering 26 items were to the tune of Rs. 13,89,152. In the current year the trade creditors swelled to Rs. 28,95,779 (51 items). In fact the sundry trade creditors now under consideration include carry forward trade creditors to the tune of Rs. 12,24,290. The assessee had produced ledger details of the trade creditors as well as confirmatory letters from five major trade creditors vide her letter dt. 25th Oct., 2010. The confirmation letters filed for current trade creditors amount to Rs. 12,16,474. The aggregate of last year's carried forward trade credit and the confirmations filed for current year's credit amount to Rs. 24,40,964 out of Rs. 28, 95,770. The AO has failed to look into the information already on record and without making any proper enquiries on his own has added back to income the entire trade creditors outstanding without any justification. In such circumstances of the case, we are of the view that the CIT(A) is justified in deleting the additions made by the AO. Therefore, we uphold the order of the CIT(A) as correct and in accordance with the law. It is ordered accordingly. Hence appeal of the Revenue is dismissed.
CO. No. 44/Bang/2013
4. Since the appeal of the Revenue is dismissed, the cross-objection filed by the assessee has become superfluous and the same is dismissed as infructuous.
5. In the result appeal of the Revenue as well as the cross-objection of the assessee are dismissed. It is ordered accordingly.