Section 28, 41(1) – In a case where assessee has filed confirmation from creditors along with PAN number, amounts payable to creditors cannot be added to income merely on the ground that the assessee could not produce creditors

FACTS
During the course of assessment proceedings, the AO noticed that sundry liabilities at the end of the year were shown at Rs. 90,00,563 as against the previous years amount of Rs. 19,69,537.  He issued notice u/s. 133(6) of the Act, which were not returned back but there was no response received.  Therefore, assessee was asked to produce the creditors with their relevant income-tax records for verification. However, the creditors did not come before the AO. The AO added this sum of Rs.90,00,563 to the total income of the assessee.

Aggrieved, the assessee filed an appeal to the CIT(A) where elaborate reasoning was given for assessee not being able to produce creditors. The assessee also filed confirmatory letters from all the 8 creditors which contained complete names, addresses and even income tax particulars of the creditors. The CIT(A) remanded the matter to the AO with a direction to make enquiries/ investigation as he thinks fit to ascertain the facts of the matter.  

In the remand proceedings, the AO instead of making any enquiries asked the assessee to produce the creditors which the assessee could not do for the very reasons mentioned in the submissions filed before CIT(A). The CIT(A) observed that through the letter calling for remand report specifically directed the AO to make an enquiry, investigation as was necessary and thereafter submit a factual report, the AO did not do any enquiry at his end.  The CIT(A) allowed the appeal and held that that the assessee on his part has primarily discharged his onus cast upon him to establish the credits in his books whereas AO except harping on the point that the assessee has failed to produce them along with records has not brought any material to establish that the liabilities were fictitious.  

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD
The AO was not justified in rejecting the claim of the assessee mainly on the ground that assessee could not produce creditors. It is not in dispute that the assessee has filed confirmation from creditors along with PAN number.  This view is fortified by the decision of Hon’ble Apex Court in the case CIT vs. Orissa Corporation (P.) Ltd. [159 ITR 78 (SC)].  In view of this, CIT(A) was justified in deleting the addition.  

The Tribunal dismissed the appeal filed by the revenue.