This article examines the Income Tax Appellate Tribunal’s decision in ITA No. 741/DEL/2020, where Dwarikadhish Spinners Limited, a Punjab-based company, contested additions made by the Income Tax Department due to unconfirmed sundry creditors for the assessment year 2016-17. The tribunal’s decision highlights significant aspects of tax assessment and procedural fairness in handling disputed credits.
The appeal originates from an order by the Commissioner of Income-Tax (Appeals)-3, New Delhi, dated November 14, 2019. The primary contention involves an addition of Rs.10,35,332 attributed to sundry creditors which the assessee argued were not adequately verified during the assessment process.
The core of the dispute lies in the assessment officer’s decision to add a sum to the assessee’s taxable income due to alleged unconfirmed sundry creditors. The officer’s decision was based on non-response to notices sent under section 133(6) of the Income Tax Act to the creditors cited by the assessee. Dwarikadhish Spinners Limited provided full details of these transactions, but the lack of responses led to the subsequent addition.
The tribunal, led by members Shri Shamim Yahya and Shri Yogesh Kumar US, criticized the approach taken by the assessing officer, noting that the mere non-response to a notice does not conclusively prove that the transactions did not exist or were non-genuine. They emphasized that more thorough inquiry was required and that the case needed reassessment with an opportunity for the assessee to present further evidence.
The tribunal’s decision serves as a reminder of the importance of procedural fairness and thorough investigation in tax assessments. It underscores the need for tax authorities to provide adequate notice and opportunity for taxpayers to substantiate their claims before making additions based on non-response to notices.
The ruling in ITA No. 741/DEL/2020 is a significant one for businesses facing similar issues with tax assessments related to creditor confirmations. It provides a judicial precedent that can be referred to in disputes over the adequacy of creditor verification by tax authorities.
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