ITAT Ahmedabad Deletes ₹28.92 Lakh Addition, Says AO Cannot Treat Only Year-End Credit Balances As Unexplained

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹28.92 lakh addition made against a taxpayer after finding that the Assessing Officer could not selectively treat only the year-end outstanding creditor balances as unexplained while accepting the rest of the same transactions as genuine.

The bench of Accountant Member Annapurna Gupta and Judicial Member Suchitra Kamble observed:

“The AO has not made addition of the entire credits on account of transaction carried out that the said parties, but, only of the outstanding balance of credit as at the end of the year, which means that he has partly accepted as genuine the credit which was repaid during the year while the balance he has treated ingenuine without assigning any reason for this distinctive treatment.”

The taxpayer had challenged the addition after the Assessing Officer treated outstanding balances of ₹28.92 lakh in the names of AS Industries, Esskay Steel Industries, and M.J. Rana & Co. as unexplained cash credits, citing the absence of creditor confirmations, ITR copies, and supporting purchase documents.

Before the tribunal, the taxpayer submitted ledger accounts, PAN details and bank statements to show that the outstanding dues, relating to scrap purchases and legal expenses, had been cleared in the succeeding year through banking channels.

The tribunal noted that the Revenue had not disputed the subsequent payments.

“Even otherwise, we have noted that the assessee had demonstrated to have paid off the entire outstanding balance in the succeeding year which fact the Revenue had failed to controvert either in their orders below or even before us.”

However, the tribunal upheld separate additions relating to low household withdrawals and freight expenses for failure to deduct tax at source.