M/S Habib Proteins & Fats Extracts , ... vs Assessee

M/s.Habib Proteins & Fats Extracts, C/o. N.K.Agro Oil (P) Ltd., No.63/1, III Floor, Mosque Road Cross, Frazer town, Bangalore-560 052; ... Appellant PAN: AADFH6338K

Vs.

Income-tax Officer, Ward 6(1), Bangalore. ... Respondent

Appellant by: Shri Zain Ahmed Khan, CA. Respondent by: Shri C.H.Sundar Rao, CIT(DR).

Date of hearing : 18/06/2015 Date of pronouncement: 30/06/2015.

Per Smt. P. MADHAVI DEVI, JM:

This appeal by the assessee is against the order of the

CIT(A)-II, Bangalore, dated 26/02/2014 confirming the

disallowance and the consequential addition of the closing balance

of creditors as appearing in the books of account as on 31/3/2007

made by the Assessing Officer (AO) as undisclosed income for the

assessment year 2007-08.

ITA No.527/Bang/2014

M/s.Habib Proteins & Fats Extracts.

Page 2 of 6

2. Brief facts of the case are that the assessee-firm filed its

return of income for the relevant assessment year declaring 'nil'

income. During the assessment proceedings u/s 143(3) of the

Income-tax Act, 1961 [hereinafter referred to as 'the Act' for

short] the assessee was required to produce books of account,

proof for secured and unsecured loans, break-up for sundry

creditors of Rs.40,68,403/- in the balance-sheet filed for the

assessment year 2007-08 and other details. The required details

were filed and examined by the AO. AO observed that the break-

up of sundry creditors included advances received from different

customers from different places for purchase of De-oil cakes

amounting to Rs.33,65,593/- shown in the balance-sheet filed for

the year ending 31/03/2007. He further observed that advance

received from the trade creditors is shown within the range of

Rs.20,000 to Rs.50,000/- and only in 6 cases the advances

received is shown more than Rs.1 lakh. AO asked the assessee

as to how the advances received from various customers is

exactly only Rs.50,000/- and not more. Assessee explained that

the customers placed orders for De-oil cake for which advances

were received and he is not aware of the advance amount. It was

further stated that since there is no proper business activity, the

orders placed by them two years back could not be met and

hence the advance remained with the assessee which are shown

as sundry creditors. The AO also asked the assessee to produce

the names and addresses of the customers/creditors along with ITA No.527/Bang/2014 M/s.Habib Proteins & Fats Extracts.

Page 3 of 6 confirmation letters confirming the advances to prove the

genuineness of the transaction. The assessee could not produce

the required details and therefore the AO concluded that the

assessee has failed to prove the identity of the creditors and

genuineness of the transaction. He, accordingly, disallowed the

same and added it back to the returned income of the assessee

and brought it to tax.

3. Aggrieved, assessee preferred an appeal before the

CIT(A) along with certain confirmation letters from the creditors.

The CIT(A) called for a remand report from the AO and after

considering the assessee's rejoinder to the remand report,

confirmed the addition made by the AO. Against the order of the

CIT(A), the assessee is in appeal before us.

4. The learned counsel for the assessee, while reiterating

the submissions made by the assessee before the authorities

below, drew our attention to para.3 of the assessment order at

page 2 wherein the AO has recorded that the orders placed by the

customers were two years back and that they could not be met

due to a lull and there was no proper business activity and hence

the advances remained. The learned counsel for the assessee

submitted that this proves that sundry creditors pertain to earlier

assessment year and not to the relevant assessment year and

since the sum of Rs.33,65,593/- was opening balance as well as

the closing balance for the relevant assessment year, it is clear ITA No.527/Bang/2014 M/s.Habib Proteins & Fats Extracts.

Page 4 of 6 that no fresh advances were received by the assessee during the

relevant assessment year. He submitted that since these sundry

creditors belonged to the earlier assessment year, no

disallowance or addition could be made during the relevant

assessment year. To prove his point, he has drawn our attention

to pages 1, 6 and 7 of the paper book wherein the advances from

customers is reflected as opening balance as on 1/4/2005 and

closing balance as on 31/3/2006. He submitted that all these

details were filed before the AO as well as the CIT(A) but they

have not been appreciated in proper perspective. He has relied

upon the judgment of the Hon'ble Delhi High Court in the case of

CIT vs. Usha Stud Agricultural Farms Ltd. (2008) 301 ITR

384(Del) and the decision of the Hon'ble Rajasthan High Court in

the case of CIT vs. Prameshwar Bohra (2008)301 ITR 404(Raj) in

support of his contention.

The learned Departmental Representative, on the other

hand, supported the orders of the authorities below and

submitted that the assessee has not given all the details before

the AO and has filed confirmation letters of only a few parties

before the CIT(A) who called for a remand report on the same

from the AO. He submitted that the AO, during the assessment

proceedings, had tried to verify the genuineness of the

transactions by requiring the parties to produce the details but

since no details were filed, the AO was constrained to presume

that the parties do not exist or that they are not available in the ITA No.527/Bang/2014 M/s.Habib Proteins & Fats Extracts.

Page 5 of 6 addresses given by the assessee. Therefore, according to him,

the addition needs to be confirmed.

5. Having regard to the rival contentions and the material on

record, we find that the assessee has been able to establish

before us that Rs.33,65,593/- is opening balance as on 1/4/2005

and remained closing balance as on 31/3/2006. However,

financial statements filed by the assessee before us do not give

us the details of sundry creditors. In order to appreciate the

assessee's contention that the advances given were given in the

years prior to relevant assessment year and that it is the opening

balance of the relevant assessment year, it is necessary to

examine as to whether the sundry creditors in the earlier years

and balance against them are the same which are recorded as the

closing balance during the relevant assessment year. None of the

authorities have examined these details. Therefore, while holding

that only unexplained cash credits or unexplained sundry

creditors relevant to the relevant assessment year is disallowable,

as held by the Hon'ble High Courts of Delhi and Rajasthan in the

cases cited supra, we direct the AO to verify as to whether the

parties who are alleged to have given the advances in the earlier

assessment years are the same parties who are continuing as

sundry creditors during the relevant assessment year and if it is

found that these are the advances given in the earlier assessment

year, then we hold that disallowance of the same and the

consequential addition cannot be made during the relevant ITA No.527/Bang/2014 M/s.Habib Proteins & Fats Extracts.

Page 6 of 6 assessment year. With these directions, the assessment is set

aside to the file of the AO.

6. In the result, the assessee's appeal is treated as allowed

for statistical purposes.

Pronounced in the open court on 30th of June, 2015.

sd/- sd/- (Abraham P George) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu

Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore