ITAT Upholds Deletion of 11.23 Cr Addition on Trade Payables

On October 17, 2016, Assessee company, a Special Purpose Vehicle, was established for the purpose of building highways by a partnership between two parties, which submitted its income return for AY 2016-17, stating that it had earned 2,857 from bank interest. No expenses were reported. The assessee unintentionally included Rs 11,23,30,245 under the heading “Trade Payables” in its return, which related to creditors for capital goods from AY 2015-16.

During assessment, the AO treated this as unexplained trade payables and added the entire sum, rejecting the assessee’s explanation that it was capitalised in AY 2015-16.

CIT(A)’s Decision: On appeal, the CIT(A) examined the audited accounts and accepted the assessee’s contention, deleting the addition. Aggrieved, the Revenue filed an appeal before the ITAT.

Issue Raised: Whether Rs. 11.23 crore shown as “Trade Payables” in AY 2016-17 could be treated as an unexplained liability when the assessee demonstrated that it pertained to creditors for capital goods of AY 2015-16.

ITAT’s Decision: The ITAT maintained the CIT(A)’s ruling and denied the Revenue’s appeal. The Tribunal held that the Rs. 11.23 crore addition was unjustified since the amount clearly pertained to AY 2015-16 and was already capitalized in the assessee’s books. Its nature was not altered by the unintentional disclosure made under “Trade Payables” in AY 2016-17. The Bench determined that the Revenue had not refuted the assessee’s explanation or the conclusions of the CIT(A) with reference to Note 4 of the Balance Sheet.

The Tribunal ruled that no income could be taxed in AY 2016-17 due to the aforementioned amount, thus confirming the removal of the addition. Therefore, the Revenue’s appeal was denied because it lacked merit.

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