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Income Tax Appellate Tribunal, MUMBAI BENCH “H”,MUMBAI
Before: SHRI VIKAS AWASTHY & SMT. PADMAVATHI S.
O R D E R Per Padmavathi S (AM): This appeal is against the order of Commissioner of Income-tax, National faceless Appeal Centre (NFAC)[hereinafter ‘the Ld.CIT(A)’] dated 17/03/2023 for A.Y. 2015-16.
2 ITA 1095/Mum/2023 Kheresh Abhay Chheda 2. The issue contended in this appeal through various grounds is the addition made by the Assessing Officer under section 68 by treating certain sundry creditors as non-genuine.
The assessee is an individual engaged in civil engineering business of repairing old buildings. The assessee filed the return of income for the year under consideration on 30/09/2015 declaring a total income of Rs.46,79,010/-. The case was selected for limited scrutiny under CASS in order to verify large increase in sundry creditors with respect to turnover as compared to preceding year and certain TDS and turnover related issues. The Assessing Officer, during the course of assessment proceedings issued notice under section 133(6) of the Income-tax Act (the Act, in short) to few of the sundry creditors namely M/s Mehta & Sons,M/s New Faizi Timber Traders and Mahavir Rand Bhandar in order to verify the genuineness. The notices issued in the case of M/s Mehta & Sons returned unserved. The Assessing Officer further called on the assessee to furnish copies of bills / invoices, bank statements, balance-sheet, audit report and other documentary evidences to justify sundry creditors. After perusal of details submitted the Assessing Officer held the transactions with M/s Mehta & Co and M/s Mahavir Rang Bhandar Pvt Ltd to be non genuine for the reason that – M/s Mehta & Co The assessee has not given alternate addresses for serving the notices u/s.133(6) The financial statements of M/s Mehta & Sons were not furnished The assessee has neither furnished any alternate address of these parties nor produced these parties to the undersigned to justify his claim M/s Mahavir Rang Bhandar Pvt Ltd The assessee has not produced any additional detail or supporting evidences to substantiate the genuineness of the party.
3 ITA 1095/Mum/2023 Kheresh Abhay Chheda Only the copy of bills for an amount of Rs. 9,80,584/- and no other supporting evidences have been filed. In response to the notice u/s 133(6) no reply was filed by the vendor The schedules and annexure to the financial statements have not been submitted and therefore the list of debtors is not available and thus not verifiable. Only the payment by bank is not sufficient to prove a transaction to be a genuine transaction. .
The Assessing Officer held that the assessee has not discharged the onus put on him by virtue of section 68 and held the purchases made during the year from M/s Mehta & Co and M/s Mahavir Rang Bhandar Pvt Ltd to the tune of Rs.2,91,458/- and Rs.9,60,620/- respectively to be treated as unexplained u/s 68.
Aggrieved, the assessee filed appeal before the CIT(A). The Ld.CIT(A) upheld the decision of the Assessing Officer for the reason that – The assessee has not proved the genuineness of credit party by submitting the necessary documentary evidence such as copy of balance-sheet, P&L Account, return of income, etc. The plea of the assessee that the subsequent payment has been made is also not tenable since only the payment made through bank is no sufficient to prove a transaction to be genuine. The onus of proof as shifted to the assessee was not properly discharged since the assessee is not produce the confirmation letter from the party.
With regard to the plea by the assessee that the addition could not have been made under section 68 the Ld.CIT(A) held that – “VI. 1 The moot question is whether credit purchases recorded in the books of account can be added back under sec 68. Recent decision by the ITAT, Mumbai in the case of ITO vs Solid Machinery Co Pvt Ltd upheld sec 68 addition for purchase from creditors of unknown location & who are not paid. This judgment was delivered on 19/10/22. Assessee could not prove the identity and existence of the creditors shown in the B/s after providing
4 ITA 1095/Mum/2023 Kheresh Abhay Chheda the reasonable opportunity. The ITAT held that sec 68 categorically provides that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source there of or the explanation offered by him is not in the opinion of the AO satisfactory, the sum so credited may be charged to income tax as income of the assessee of that previous year. When a sum is credited in the books he has to explain the same. When something is purchased from a vendor the vendors account is credited and the purchases are debited and therefore when the assessee does not have a reasonable explanation about the credit appearing in the accounts of the vendor the AO is perfectly justified in making addition under sec 68. These vendors keep changing their offices and they are untraceable. When some one owes huge money and they are untraceable doubts are cast on their genuineness. They say entire supplies are defective, goods are returned, but these payments are not evidenced. Taxpayer expressed inability to file confirmations from the parties. Identity could not be established, no proof that payments are made subsequently. Taxpayer has miserably failed in discharging the onus. The addition made by the assessing officer is upheld based on the decision above. Since the appellant has not succeeded in proving a tainted transaction with additional evidence, the conclusion of the Assessing Officer is in order. Rs 960620 which is purchases made from Mahavir Rang Bahadur Pvt ltd and Rs 291458 which is purchases made from Mehta and Sons is disallowed u/s 68 because these purchase credits could not be proved/The case laws cited by the assessee in its grounds of appeal is considered, since there is a direct judgment on the issue in the case of Solid Machinery Pvt Ltd the same is followed. Therefore I confirm the addition of Rs.l2,52,078 made by the Assessing Officer.”
7. The ld AR during the course hearing presented twofold arguments firstly to contend that the additions should not have been made under section 68 since the impugned transaction is with regard to the genuineness of the purchases and not any unexplained credits in the books of account. The ld AR submitted that the addition made pertains to the purchase transactions made by the assessee where the assessee has credited the vendor account as a liability. The ld AR therefore argued that the amount standing in the credit of vendor account cannot be treated as 5 ITA 1095/Mum/2023 Kheresh Abhay Chheda unexplained. The ld AR in this regard relied on the decision of the Cochin Bench of the Tribunal in the case of Bafakayh Export House vs ITO (53 TTJ 293)
8. Secondly the Ld.AR argued that the assessee submitted all the relevant details before the Assessing Officer which have not been properly appreciated before making the addition under section 68. The ld AR further submitted that the business operations of Mehta & Sons have been closed and this fact has been brought to the notice of the Assessing Officer during the course of assessment and the same as the reason for non-response to notice under section 133(6). In this regard, the Ld.AR drew our attention to the submission made before the Assessing Officer vide letter dated 11/12/2017 and the confirmation from Mehta & sons that they have closed the business (Pages 28 & 29 of the paper book).
9. With regard to purchases from M/s Mahavir Rang Bhandar Pvt Ltd, the Ld.AR submitted that all the details pertaining to the purchases have been furnished before the Assessing Officer. The Ld.AR submitted that there was a dispute going on between the assessee and M/s Mahavir Rang Bhandar Pvt Ltd towards the some payments and therefore, the vendor chose not to reply to notice under section 133(6). The Ld.AR also submitted that due to this reason, the assessee furnished the details of AO of M/s Mahavir Rang Bhandar Pvt Ltd including his contact number, email ID etc., and the assessee also furnished the PAN details of M/s Mahavir Rang Bhandar Pvt Ltd. The Ld.AR, therefore, submitted that with all these information, the Assessing Officer could have obtained the required details for the purpose of assessment. The ld AR also submitted that the addition of amount standing to the credit of M/s Mahavir Rang Bhandar Pvt Ltd is made for the reason that the assessee has not furnished the 6 ITA 1095/Mum/2023 Kheresh Abhay Chheda schedule to the Balance Sheet of the said vendor and that the vendor has not responded to the notice under section 133(6). In this regard the ld AR relied on the decision of the Bombay High Court in the case of CIT vs UM Shah Proprietor Shrenik Trading Company (90 ITR 396) to submit that non-response to notice under section 133(6) cannot be the sole reason for making the addition.
The Ld.DR, on the other hand, submitted that the assessee has not proved the genuineness of the transaction and the evidences in this regard were not produced. The Ld.DR, therefore, submitted that the assessee has not discharged the onus and accordingly, the lower authorities are justified in making the addition.
We heard the parties and perused the material on record. On perusal of the assessment order we notice that the Assessing Officer made addition towards purchases from Mehta & Sons for the reason that the supporting documents have not been furnished and that the notice under section 133(6) could not be served. However, it is noticed that the assessee had vide letter dated 11/12/2017 brought to the notice of the Assessing Officer that Mehta & Sons has stopped its business operations and also produced the confirmation from the vendor. It is further noticed that the assessee has furnished ledger copies, bills, confirmation of balance, tax returns of the proprietor of M/s Mehta & Sons etc., before the Assessing Officer. During the course of hearing, the ld AR drew our attention to the finding of the Assessing Officer that both M/s Mehta & Sons and M/s New Faizi Timber Traders are under the proprietorship of Mr Shafiahmed Jabiullah Khan and that the Assessing Officer has accepted purchases from M/s New Faizi Timber Traders to be genuine while purchases from Mehta & Sons are held as non- genuine. From these facts it is clear that though the Assessing Officer had other
7 ITA 1095/Mum/2023 Kheresh Abhay Chheda details pertaining to the purchases he held the same to non-genuine for the reason that the notice under section 133(6) could not be served and that the financial statement is not produced. However, we notice that the Assessing Officer had not recorded any adverse finding with regard to the details furnished by the assessee and that he has accepted the transactions with M/s New Faizi Timber Traders which is under the same proprietorship. Considering the specific facts of the issue, we are of the view that the Assessing Officer is not correct in treating the purchases from M/s Mehta & Sons as non-genuine without examining the details submitted by the assessee and without bringing any adverse findings on record. Accordingly we direct the Assessing Officer to delete the addition made under section 68 with respect to purchased from M/s Mehta & Sons to the tune of Rs.2,91,458/-.
With regard to M/s Mahavir Rang Bhandar Pvt Ltd, we notice that the Assessing Officer has made the addition for the reason that there was no response to notice under section 133(6) and that the assessee has not submitted the schedules to the balance sheet. On perusal of details, it is noticed that the assessee has shared all the relevant details pertaining to M/s Mahavir Rang Bhandar Pvt Ltd including the contact details of the Assessing Officer of M/s Mahavir Rang Bhandar Pvt Ltd, PAN etc. The assessee had also submitted that due to the dispute between the assessee and M/s Mahavir Rang Bhandar Pvt Ltd, there may be issues in receiving the reply to notice under section 133(6). We further notice that the assessee has submitted the ledger extract and the bank statements, etc. in order to substantiate the transaction with M/s Mahavir Rang Bhandar Pvt Ltd and it is also noticed that all the purchases are subject to VAT which have also been accounted in the ledger account of the assessee. Therefore, we are unable to appreciate that the Assessing
8 ITA 1095/Mum/2023 Kheresh Abhay Chheda Officer, without examining the details produced by the assessee has held the purchases to be non genuine. The non-response to 133(6) cannot be the reason for treating a transaction to be non-genuine, when there are other materials available with the Assessing Officer to check the genuineness of the transaction. In view of this discussion we hold that the addition made under section 68 towards purchases made from M/s Mahavir Rang Bhandar Pvt Ltd is not tenable and accordingly deleted.