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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI KUL BHARAT
per the accounts of Haryana Traders and as claimed by the assessee amounting to
Rs. 10,50,532/-. The assessee was asked to reconcile the same. On account of
failure to reconcile, the Assessing Officer made addition of this amount. The
Assessing Officer noticed that the assessee had made payment to M/s Vasu Steels
amounting to Rs. 59,995/-. However, the payment was made on different dates,
keeping the amount lower than Rs. 20,000/-. Hence the Assessing Officer by
invoking the provisions of Section 40A(3) of the Act made addition of Rs.59,995/-.
4 ITA No. 774/Del/2020 Hence the Assessing Officer assessed income at Rs. 25,02,530/- against the declared income of Rs. 5,93,500/-. 3. Aggrieved against this the assessee preferred appeal before the learned
CIT(Appeals), who after considering the submissions partly allowed the appeal. Thereby he confirmed the addition made by invoking the provisions of Section 40A(3) and also addition of Rs. 10,52,532/- and Rs. 5,46,169/-. However, in respect of the ad hoc disallowance of 1/10th of the expenditure amounting to Rs. 2,50,330/- the ground of the assessee’s appeal was allowed and the addition was deleted. Aggrieved against the order of learned CIT(Appeals) the assessee is in appeal before this Tribunal.
Learned counsel for the assessee reiterated the submissions as made in the submissions filed by the assessee. For the sake of clarity the same are reproduced as under: “1. This appeal has been instituted against the order dated 23/12/2018 passed by Income Tax Officer Ward 2(4), Faridabad and further against CIT(A). 2. That Id CIT(A) has erred in sustaining the addition without appreciating the fact that the whole assessment order is based on a 3rd party statement without corroborating the same with other relevant evidence. 3. That there are plethora of judgments which in nutshell says that sole reliance on third party statements cannot be a sole basis of additions: I. ITA No. 373 OF 2005 Kolkata High Court in BANGODAYA COTTON MILLS LTD:
5 ITA No. 774/Del/2020 Sole reliance on third party statement was rejected, crux at page no. 13 of compilation of case laws. II. Hon'ble SC in V.C. SHUKLA case Papers seized in premises of third party cannot be the bases on which additions can be done, crux at page no. of compilation of case laws. III. Hon'ble Delhi High Court in Lata Mangeshkar Case Third party statement is merely evidence. For additions proper corroborative evidence is required to be scrutinised, crux at page no. of compilation of case laws. Therefore in light of above judicial findings it can be concluded that sole reliance of 3rd party statement should be corroborated with other evidence before making reliance. Facts of individual additions are as under: 4. Disallowance of purchase on account of non-pavment to vendor: That applicant had made the purchases of Rs.5,46,169/- from M/s Sudhir Metals & Alloys, AO made verification from the said vendor and it was communicated that the no payment has been made by the applicant, however the fact is that applicant has made the payment on various dates of total sum of Rs. 5,46,169/- to vendor (copy of statement is at page No.7.). Further it is alleged in the order that the applicant has not furnished any documentary evidence in respect of payment made by them to its vendor, pertinent to mention here that purchases are never doubted by AO.
That as per sales tax returns, the purchases from vendor of Rs. 5,46,169/- are duly reflected in returns in quarter 2, returns attached at page.32. 6. That it is held by Hon'ble Delhi ITAT in Manoj Sharma vs ITO (2019) ITA No.:- 4342/Del/2018, where there are allegations that applicant has inflated purchase and received back cash, however where the quantity of opening stock and purchases on the debit side and sales and closing stock in the credit side in the books of account has been accepted, then it cannot be held that some quantity of purchase recorded in the books are not explained or outside books of account, crux at page no. 42 of compilation of case
6 ITA No. 774/Del/2020 laws.
That it is not a case of bogus purchases rather it is a matter of a civil dispute where one party is saying that, they have not received the payment and the other party is saying that they have cleared their dues, however there is no loss to the exchequer as there is no revenue leakage, it is a case of genuine purchase and a case of civil dispute where Income Tax department has no jurisdiction, pertinent to mention here that if there is any sum outstanding towards vendor then nothing is placed on records to show that vendor has done any efforts to recover the sum from applicant which clearly show that in actual nothing is outstanding, then it is beyond doubt that disallowance of purchases is not tenable merely on the pretext of third party statement without corroborating it with any other document.
Violation of section 40A(3). 8. That applicant had made the purchases of Rs.59,995/- from M/s Vasu Steel, AO made verification from the said vendor and it was communicated that the payment has been made by the applicant on a single date, however the fact is that applicant has made the payment on various dates of total sum of Rs.59,995/. Pertinent to mention here that purchases are never doubted by AO. 9. That provision of section 40A(3) is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash, however if transaction is verified and identity of payee is of no doubt then there is no violation of this section.
I. Hon'ble ITAT, Delhi in Shri Radhey Shyam Manchanda case (ITA No. 5238/Del/2016) taking cognizance of Attar Singh Gurmukh Singh vs. ITO reported in (1991) 191 ITR 667 (SC):-
It will be clear that the provisions are not intended to restrict business activities and genuine and bonafide transactions are kept out of purview of this section, crux at page no. 55 of compilation of case laws.
7 ITA No. 774/Del/2020 10. That AO himself admitted that the purchase made by applicant firm from M/s Vasu Steel is genuine which was supported by bill / evidence. The supplier also accepting the same by giving statement of account. The identity of the payee and genuineness of the transaction is not in doubt. Thus, as per view in Attar Singh Gurmukh Singh there is no tax evasion, therefore no such disallowance should be allowed.
Disallowance of sales: 11. That applicant had made the sales to its customer M/s Haryana Traders to the tune of Rs.39,13,787/- copy of ledge accounts of is at page No. 64, however as per the statement of the customer, they have shown purchases of Rs.28,63,255/- copy of ledge accounts of is at page No.66, therefore the difference of Rs.10,50,532/- is added to the total income on account of disallowance of sales.
That fact of the case is that during the assessment year applicant was maintaining a branch in Kosi (UP) Area along with its head office in Faridabad, for the year site wise sales of the applicant is:
Faridabad Location: : Rs. 28,63,255/- Kosi (UP) Location : Rs. 10,29,935/- Total : Rs. 38,93,190/-
Therefore, it is clear from above that M/s Haryana Traders has confirmed the sales affected from Faridabad Location only, however, inadvertently they have not shown the sales from Kosi (UP) location. It is general accounting practice to open site wise ledger of same company for statutory reporting purpose in accounting software, therefore ledger accounts of Faridabad location is provided same can be verified by ledger name as "Faridabad" in the statement mentioned (at page No ).
That further the sales of Kosi location have been duly verified by Asst. Commissioner rank Sales Tax officer whose order is attached at page No , therefore it is clear case of misstatement by third party which has been accepted blindfolded without appreciating other corroborated evidences.
That further following judicial pronouncements should be relied for deletion of additions of account of Sales:
8 ITA No. 774/Del/2020
I. Shree Sanad Textiles Industries Ltd. V. DCIT (Ahmedabad ITAT) ITA No. 1166/Ahd/2014, We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only crux at page no. 77 of compilation of case laws.
II. New Pooja Jewellers v. ITO (Kolkata ITAT) ITA No.1329/Kol/2018; held that when a receipt is accounted as income, no separate addition of the same amount as income of the assessee under any other Section of the Act can be made as it would be a double addition crux at page no. of compilation of case laws.
That thus in light of the judgments above it can be concluded that once the sales are reflected in credit side of profit and loss account it automatically gets offered to tax. If the purchaser did not account for the transaction in their books, the assessee cannot be penalized. The applicant is responsible for his books only and not for the books of other parties which is beyond the control. The applicant is making necessary entries in its regular books of accounts and in the stock register. Applicant has furnished the evidence in support of its contentions and established the genuineness of the transaction.”
On the contrary, learned DR opposed the submissions and heavily supported
the orders of the authorities below, submitting that there is no infirmity into the
order of the learned CIT(Appeals) as the learned CIT(Appeals) has considered all
the submissions of the assessee. He contended that the assessee failed to reconcile
the difference in purchases as pointed out by the learned CIT(Appeals).
I have heard rival submissions and perused the material available on record.
The contention of the assessee is that the authorities below in respect of addition of
9 ITA No. 774/Del/2020 Rs. 10,50,532/- qua purchases have purely relied upon third party statement
without giving opportunity to the assessee to rebut such statement. I find that the
learned CIT(Appeals) in paras 9 & 10 of the order has decided the issue as under:
“9. Ground Nos. 3 and 4 The appellant has shown sales of Rs.39,13,787/- to M/s Haryana Traders during the year and has shown receipt of Rs.34,11,7107- in cash from the said entity. In the ledger account of M/s Haryana Traders, in the books of the appellant, cash receipt of Rs.20,000/- has been shown on various dates. On verification from M/s Haryana Traders it was noted by the AO that the said entity has shown cash payment of Rs.23,63,255/- to the appellant on 30.03.2016. Further M/s Haryana Traders has shown purchases of Rs.28,63,255/- from the appellant in its books of account. The above discrepancies were confronted to the appellant. No satisfactory explanation has been furnished to reconcile the difference of sales of Rs.10,50,532/-. Thus the AO had observed that the appellant has shown excess cash receipts in its books of account from unexplained sources and therefore, made addition for Rs.10,52,532/-. It has been stated during the appellate proceedings that the appellant has maintained regular books of account and the sales were supported with the purchase/ sale bills, VAT returns. It was explained that Haryana Traders might have suppressed their purchases. The entire submission of the appellant has been reproduced as above.
From the facts of the case it is noted that the appellant has shown receipt of cash of Rs.34,11,710/- against sales made of Rs.39,13,787/- to M/s Haryana Traders. As a result of enquiries made by the AO it was found that M/s Haryana Traders has made purchases of Rs.28,63,255/- from the appellant and has made cash payment of Rs.23,63,255/-. Thus the appellant has shown unexplained cash receipts in its books of account for Rs.10,52,532/-. The appellant could not furnish any documentary evidence for the receipt of such cash payments from M/s Haryana Traders has claimed. The onus was on the appellant to explain the source and nature of such cash receipts credited in its books of account, duly supported with documentary evidence. The appellant has failed to do so. The results of enquiries have been communicated to the appellant. In the circumstances, there is merit in the addition of Rs.10,52,532/- made by the AO. The same is
10 ITA No. 774/Del/2020 hereby confirmed u/s 68 of the Act. Ground No. 3 of the appellant is Dismissed.”
It is stated by the assessee that requisite sale was duly reflected in the
statutory return filed before the Excise and Sales-tax authorities. The assessee has
stated that sales are duly supported by the requisite evidences. The fact that the sale
was made and it is supported by the evidences, is required to be verified by the
assessing authority. Therefore, the issue is restored to the file of the Assessing
Officer to verify the correctness of the claim of the assessee that he had sold the
material to M/s Haryana Traders and also reflected the sales in Excise/WAT
returns. The Assessing Officer will verify from the record of the assessee whether
such return was filed related to the transactions in question and other supporting
evidences. This ground of the assessee’s appeal is allowed for statistical purpose.
Now coming to the ground relating to addition made by invoking the
provisions of Section 40A(3), learned counsel for the assessee submitted that
payments were made on different dates. However, the vendor has recorded the
transactions on single date.
On the contrary, learned DR has relied upon the orders of the authorities
below.
11 ITA No. 774/Del/2020 10. I have heard rival submissions. The learned CIT(Appeals) has given a finding of fact by observing as under:
“12. From the facts of the case it is noted that the appellant could not produce any documentary evidence to show that payments have been made on different dates below Rs. 20,000/- in respect of purchase of Rs. 59,995/-. The AO has verified from M/s Vasu Steel that appellant has made cash payment of R.s 59,995/- on 01.12.2016. Thus the appellant has in violated the provisions of section 40A93) of the Act. In the circumstances there is merit in the disallowance made by the AO the same is hereby confirmed. Ground no. 4 of the appellant is Dismissed.”
The finding of fact recorded by the learned CIT(Appeals) is not rebutted by the assessee by filing contrary evidence. In the absence of such evidence, I do not see any reason to interfere in the finding of the authorities below. Ground raised by
the assessee is rejected. 12. Appeal of the assessee is partly allowed.
Order pronounced in open court on 19th January, 2023. Sd/- (KUL BHARAT) JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI
12 ITA No. 774/Del/2020