Non-response from creditors cannot be treated as inaccurate representation of particulars of income
The Facts and Issues of the case
The assessee is a partnership firm. For the assessment year under dispute, the assessee filed its return of income declaring income of Rs.2,67,730/-. In course of assessment proceeding, the Assessing Officer, on examination of the balance-sheet of the assessee, found that the assessee has shown sundry creditors of Rs.88,97,485/-. Noticing this, the Assessing Officer called upon the assessee to provide the complete details of sundry creditors along with confirmed copy of ledger account. As observed by Assessing Officer, the assessee could only furnish the name and address of the parties.
Thus, holding that the genuineness of the sundry creditors remained unverifiable, the Assessing Officer added back the amount of Rs.34,34,837/-. Based on such addition, the Assessing Officer initiated proceeding for imposition of penalty under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income and ultimately passed an order imposing penalty of Rs.11,44,094/-.
Observations by the Court
The Court has considered rival submissions and perused the materials on record. Undisputedly, the addition based on which the Assessing Officer imposed penalty under section 271(1)(c) of the Act was on account of sundry creditors. While deciding the quantum appeal of the assessee, the Tribunal has deleted the major part of the addition, accepting assessee’s submission that such amount was not credited in the books of account during the year. Addition of Rs.3,43,289/- was sustained only on the ground that it was credited to the books of account during the year.
The assessee has submitted that the Assessing Officer has accepted the sales and purchases. He has further submitted that subsequently the amount was repaid. Thus, considering the quantum of addition sustained by the Tribunal and also the fact that assessee has paid back the amount to the creditors; we are of the view that the assessee cannot be accused of furnishing inaccurate particulars of income. Merely because no reply was received from the creditors, it cannot be presumed that they are non-genuine. Accordingly, we delete the penalty.
It cannot be presumed that the creditors are fake only on the basis that they did not respond.Royal-Rubber-Works-Vs-ITO-ITAT-Delhi