AO Treated Sundry Creditors As Bogus Based On His personal belief: ITAT Deletes Addition

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held that AO treated the sundry creditors as bogus at the instance of the report of the inspector for a few sample cases was based on AO's personal belief and not by virtue of any concrete facts and evidence placed on record.

The two-member bench of Rajpal Yadav (Vice-President) and Girish Agrawal (Accountant Member) has observed that the conclusion of the AO was based on imagination and directed to delete the addition.

The respondent/assessee is earning business income from his proprietorship business under the name and style of M/s. Balaram Mullic & Radha Raman Mullick, which is into the manufacturing and sale of sweets and confectioneries spread over the State of West Bengal. The return of income was filed, reporting a total income which was taken up for scrutiny assessment. Statutory notices were issued and served on the assessee and were duly complied with. In the course of assessment, AO made additions in respect of sundry creditors treated as bogus for an amount of Rs.1,42,11,869.

The assessee submitted that owing to the business of manufacturing and selling sweets and confectioneries, he has to regularly purchase different types of raw materials from different vendors for his day-to-day business requirements. The number of vendors is large as there are small vendors mostly supplying perishable items like fruits, vegetables, milk, cheese, and the like, which are consumed regularly in the manufacturing process.

The assessee submitted, in the course of assessment, a list of creditors bifurcated into two parts, i.e., showing creditors above Rs. 10,000 and the other list showing creditors below Rs. 10,000. In the course of assessment, AO accepted the sundry creditors which were shown in the list with amounts above Rs. 10,000, totalling Rs. The other list of sundry creditors for amounts below Rs.10,000 was comprised of almost 2082 creditors, totalling Rs.142,11,869, which the AO held to be bogus.

In the course of First Appellate Proceedings, the assessee submitted certain registers maintained in respect of these small vendors and suppliers of perishable items which were verified by the CIT(A) on a sample test check basis.

The CIT(A) observed that the conclusion of AO to hold sundry creditors as bogus at the instance of the inspector for a few sample cases was based on AO's personal belief and not by virtue of any concrete facts or evidence placed on record. Thus, he held the conclusion that the AO is based on imagination and directed to delete the addition made in this respect of Rs.1,42,11,069.

The ITAT, while considering the nature of expenses, trading results, sales, purchases and gross profit, particularly owing to the nature of the business of the assessee, comprising of the manufacturing and sale of sweets and confectionery, did not find any reason to interfere with the decision and the findings given by the CIT(A).

Case Title: Assistant Commissioner of Income-tax, Circle-29, Kolkata Versus Shri Pradip Mullick

Citation: ITA No.621/Kol/2020

Date: 07.09.2022

Counsel For Petitioner: Addl. CIT, DR Ranu Biswas

Counsel For Respondent: Advocate Soumitra Choudhury

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