Mere Difference in Trade Creditor Closing Balance Cannot Justify Section 68 Addition When Purchases Are Accepted, Rules ITAT

The ITAT Delhi Bench has clarified that an addition under Section 68 of the Income Tax Act cannot be made merely because there is a difference in the closing balance of a trade creditor when the purchases, sales, and stock have already been accepted by the Assessing Officer (AO). Accordingly, ruled in favour of the taxpayer, Rajiv Mittal.

The assessee, Rajiv Mittal, is an individual engaged in the business of wholesale trading of beer and whisky in Uttar Pradesh. During the processing of the assessee’s return, the Assessing Officer (AO) had noted that in the present case, the assessee had not furnished the PAN, confirmation and ITR of various creditors in respect of the sundry creditors worth Rs 8.90 crore claimed by him even after a reminder notice was issued under section 142(1) of the Income Tax Act.

It was further noted that in the profit and loss account for the Assessment Year 2022-23, the assessee had also claimed purchases amounting to Rs 222.89 crore. Thereafter, AO called the assessee to provide all the relevant details about the suppliers. The closing balance of Molson Coors India Private Limited was questioned and Rs 34.17 lakh was treated as unexplained under Section 68 read with section 115BBE of the Act, among others, after a notice issued to the company was not successfully served. The Commissioner of Income Tax (Appeals) [CIT(A)] later restricted the addition to the difference of Rs 22.61 lakh.

The assessee, dissatisfied with the decision of the lower appellate authority, approached the Income Tax Appellate Tribunal (ITAT) Delhi, claiming that the difference arose because certain sales and rebate entries were recorded by the supplier in one year but by the assessee in the following year. The Tribunal also noted that the assessee had furnished a reconciliation and confirmation of the balance.

The tribunal noted that the tax authorities had acknowledged the purchases, sales, and closing stock declared by the assessee. Since trade creditors arise directly from purchases, the Tribunal held that one side of the transaction cannot be accepted while the other is treated as unexplained. Citing an earlier decision of the Delhi High Court in the case titled CIT v. Ritu Anurag Aggarwal, the Tribunal deleted the impugned addition made under Section 68 of the Income Tax Act.

The tribunal held that “if the recipient has paid the taxes for the rental income, then no corresponding disallowance under section 40(a)(ia) of the Act could be made in the hands of the Assessee payer. This would avoid double taxation also. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this issue to the file of the learned AO for de novo adjudication in accordance with law.”

On the separate issue of disallowance under Section 40(a)(ia) for non-deduction of TDS on rent payments, the tribunal sent the case back to the AO for fresh consideration. It directed the assessee to produce evidence that the landlords had already offered the rental income to tax, in which case no disallowance should be made. Accordingly, the assessee’s appeal was allowed partly for statistical purposes.