The main legal point established in the judgment is the importance of supporting bills, entries in books of account, and payment by cheque in determining the genuineness of creditors. Additionally, the judgment emphasizes the applicability of Rule 46A in admitting additional evidence, considering the assessee's illiteracy and inability to appear before the Assessing Officer.

ORDER :

BHARGAV D. KARIA, J.

1. Heard learned senior standing counsel Mr.Varun K.Patel with learned advocate Mr.Dev Patel for the petitioner.

2. By this Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act”), the appellant-Revenue has proposed the following substantial questions of law arising out of the order dated 26.07.2023 passed by the Income Tax Appellate Tribunal, Ahmedabad-‘B’ Bench (for short “the Tribunal”) in ITA No.1640/Ahd/2019 for A.Y. 2014-15.

“(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition of Rs.5,30,94,465/-, being bogus creditors, though the CIT(A) had clearly violated the provisions of Rule 46A of the Income-tax Rules, 1962, while admitting additional evidence?

(b) Whether in the facts and circumstances of the case and in law, the order of the learned ITAT is erroneous, illegal and ex-facie perverse, because the learned ITAT has not appreciated the fact that, the assessee had not been able to produce bills and evidence providing the purchase as genuine during the course of remand proceedings?”

3.The brief facts of the case are that the assessee who is an individual and proprietor of one M/s. Nishra Enterprise dealing in waste craft paper filed return of income for the year under consideration on 29.11.2014, declaring the total income of Rs.3,55,840/-.

4. The return was taken up for scrutiny assessment due to large amount of sundry creditors with respect to turnover of the assessee compared to the preceeding year as the assessee claimed sundry creditors amounting to Rs.6,15,17,916/- for the year under consideration whereas for the previous assessment year 2013-14 the creditors were only of Rs.84,23,451/-.

5. Though the assessee was given more than ten opportunities, did not respond to the notices and therefore it was not possible for the Assessing Officer to verify the genuineness of the sundry creditors. The Chartered Accountant had certified that the creditors are subject to confirmation as reported in para 3(a) of the Audit Report in 3CD Form. The Assessing Officer therefore framed the assessment under Section 143(3) read with Section 144 of the Act by making an addition of Rs.5,30,94,465/- being the difference between the outstanding balance of the sundry creditors as on 31.03.2015 and 31.03.2014, which was the net increase in creditors by treating the same as bogus creditors.

6. Being aggrieved by the Order passed by the Assessing Officer, the respondent assessee preferred appeal before the Commissioner of Income Tax (Appeals) (for short “CIT (A)”) explaining that the assessee was an illiterate person and was not aware about the hearing notices issued by the Assessing Officer resulting into the ex-parte assessment order. Before the CIT (A), the assessee explained the increase in sales, debtors, closing stock and creditors as per the balance sheet and contended that the Assessing Officer ignored the increase in sales, closing stock but only picked up the creditors amount and made addition as bogus creditors without any justification.

7. The assessee also furnished before the CIT(A) the copies of accounts of each creditor from the books of the assessee and contra accounts with the address and PAN Number which were duly reconciled by the CIT(A). The CIT(A) admitted these documents as such documents go to the root of the controversy involved and called for the remand report from the Assessing Officer.

8. The Assessing Officer in remand report objected to the acceptance of the additional evidences and also stated that the assessee failed to produce supporting bills/ vouchers for the purchases made from the various parties and did not file bank details and proof of payments. In rejoinder, the assessee furnished copies of audited accounts, sample purchase bills, contra accounts with bank statements. The CIT(A) after consi