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Dcit Cent. Cir. -5(3) (Erstwhile Dcit ... vs Jyoti A. Kulkarni, Pune on 15 April, 2024 cites

Cit, Ernakulam vs P.K. Noorjahan (Smt) on 15 January, 1997

Had these creditors being not genuine, the assessee could have squared up or not shown these advances to suppliers, etc. Accordingly, the overall circumstances also do not suggest that any adverse inference should be drawn against the assessee. Further, as per the provisions of section 68, it is not mandatory that in case the assessee fails to satisfy the Assessing Officer about the outstanding credits, the same are mandatorily required to be added as income of the assessee. [Para 18] This view has also been upheld by the Supreme Court in the case of 'CIT v. Smt. P.K. Noorjahan' [1999] 237 ITR 570/103 Taxman 382 (SC). The Assessing Officer has to take into account the overall facts. Accordingly, in the case of the assessee the overall facts need to be considered. The amount outstanding being credit on account of purchases which have been exported by the assessee, it is not mandatory that in the absence of verification of the creditors, the same need to be added statutorily. [Para 19] In the case of the assessee, these creditors represent the outstanding amount on account of the purchases. There can be three alternative allegations against the assessee. One can be that these credits represent the credit for earlier years. If that is the case, no addition can be made in this year under section 68. The second allegation can be that these credits represent the purchases for which payments have been made by the assessee during the year itself. If this is so, the onus will be on the department to establish that the assessee has made payment to these creditors. This is not even the allegation of the Assessing Officer, much less his case against the assessee. The third allegation can be that these credits do not represent the purchases which have been made by the assessee. The implication of this will be that the purchases debited in the 22 ITA No. 5067, 5069 To 5073 & 5119/Mum/2016 Mrs. JYOTI AJIT KULKARNI trading account are not genuine to that extent and, accordingly, that the trading account is not correct. However, through the assessment order, it is evident that the trading results have been accepted. Despite this, for the sake of analysis, if it is considered that the assessee has failed to prove the genuineness of the creditors and, consequently, the purchases to that extent are not genuine, then the declared gross profit of Rs. 32,16,564 will get further enhanced by Rs. 37,99,907, i.e., a GP of Rs. 70,16,471 on a total turnover of Rs. 2,51,55,930 giving an exorbitant gross profit rate of 27.89 per cent, which is not the case. It is also important to note that the assessee is in the business of exports and its entire income is exempt. There is, as such, no reason for the assessee to suppress the profit as its income. [Para 20] Taking into consideration the above facts of the assessee, it is a fit case not to make any addition by invoking the deeming fiction of section 68 in respect of the sundry creditors, despite the fact that the assessee could not supply the addresses of these creditors. All the facts and circumstances of the case, including that of the destruction of books of account, old period, petty karigars, advances to the suppliers, debtors and the closing stock, and particularly the fact that all these creditors have been paid off in the subsequent year and the return for that year has been accepted by the department clearly show that in the case of the assessee, it is not necessary to add these creditors. [Para 21]"
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