INCOME TAX OFFICER, WARD-2(2), HYDERABAD vs. GENESIS CROP SCIENCES (INDIA) PRIVATE LIMITED , HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER Income Tax Officer, Vs. Genesis Crop Sciences Ward-2(2), (India) Pvt Limited, Hyderabad. Hyderabad. PAN: AACCG 7207 N (Appellant) (Respondent) Assessee by: Sri K.A. Sai Prasad Revenue by: Sri Sunil Kumar Pandey Date of hearing: 17/02/2021 Date of pronouncement: 03/05/2021 ORDER PER A. MOHAN ALANKAMONY, AM.:

This appeal is filed by the Revenue against the order of the Ld. CIT(A)-9, Hyderabad in appeal No. 10021/CIT(A)-9/Hyd/2017-18, dated 12/11/2018 passed U/s. 143(3) r.w.s 250(6) of the Act for the A.Y. 2012-13.

“The Ld. CIT (A) has erred in deleting the addition made by the Ld. AO for Rs. 4,42,69,513/- invoking the provisions of section 68 of the Act.”

3. The brief facts of the case are that the assessee is a Private Limited company engaged in the business of producing parental seed and developing the same through several agriculturists and thereafter marketing the same through its sister company M/s. Satya Agri Biotech Private Limited across the country. The assessee filed its return of income for the AY 2012-13 on 30/09/2012 admitting income of Rs. 6,35,085/-. Thereafter the case was selected for scrutiny under CASS and the assessment was completed U/s. 143(3) of the Act on 28/03/2015 wherein the Ld. AO made addition of Rs. 4,42,69,513/- invoking the provisions of section 68 of the Act because the assessee could not establish the genuineness of its sundry creditors. On appeal Ld.CIT(A) deleted the addition.

4. During the course of scrutiny assessment proceedings, it was observed by the Ld. AO that the assessee had disclosed the names of six persons as its sundry creditors and the aggregate of the sundry creditors stood at Rs. 4,42,69,513/-. From the particulars of the sundry creditors furnished by the assessee the Ld. AO sent letters to all of them calling for the details of the transaction transacted with the assessee. With respect to the letter sent to Shri P. Madhusudana Rao, Nuziveedu (sundry creditor for Rs. 91,59,655/-) and Shri K. Kondala Rao, Mylavaram (sundry creditor for Rs. 45,55,353/-), the letters were returned as ‘unserved’ by the Postal Authorities. With respect to the other sundry creditors viz., (i) K. Swamulu (Sundry creditor for Rs. 1,10,63,950/-; (ii) Sri K. Gangaraju (sundry creditor for Rs. 25,19,000/- ); (iii) Sri L. Nagesh (sundry creditor for Rs. 25,14,160/-) and (iv) Sri K. Satyanarayana (sundry creditor for Rs. 1,44,57,395/-) the letters were served by the Revenue however they did not respond. The assessee also could not produce any of the sundry creditor before the Ld.AO during the course of assessment proceedings. Since, the assessee and its creditors did not co-operate before the Ld. AO to establish the genuineness of their transaction, the ld.AO invoked the provisions of section 68 of the Act and made addition in the hands of the assessee with respect to the aggregate amount of Rs. 4,42,69,513/- standing to the credit of the sundry creditors.

“5.1 It is submitted that the learned Assessing Officer did accept the book results purchases and sales. Thus, there is no dispute about the genuineness of the purchases. The creditors were paid in the subsequent years through banking channels, details of which were also furnished before the learned Assessing Officer. 5.2 It is a well-settled proposition that provisions of section 68 would not be attracted in cases of credit purchases. In this connection, kind attention of the Hon'ble Commissioner of Income tax(Appeals) is invited to the following decisions of various judicial authorities. i. Commissioner of Income-tax, Agra v. Pancham Dass Jain(2006] 156 TAXMAN 507 (ALL. HC) Section 68 of the income-tax Act, 1961 Cash credits Assessment year 1976-77 Assessee was a dealer in iron goods and agricultural implements ITO while framing assessment of assessee for relevant assessment year found certain deposits appearing in books of account of assessee in name of two persons and, therefore, asked assessee to explain nature and source of various deposits As assessee was not able to give satisfactory explanation with regard to nature and source of aforesaid deposits, ITO made addition under section 68 Tribunal, however, recorded a categorical finding of fact based on appreciation of materials and evidence on record that said amount: represented purchases made by assessee on credit; therefore, it held that provisions of section 68 would not be attracted in such cases and. Accordingly, it deleted additions - Whether, on facts, Tribunal was justified in deleting additions Held, yes

ITO Vs. Standard Leather (P) Ltd., Kolkata 76 Taxmann.com 109/162 lTD 285 ITAT Kolkata.

Section 68. read with section 133 of the income-tax Act. 1961 Cash credit (Sundry creditors) Assessment year 2010-11 Assessing Officer issued notice to sundry creditors which could not be served on them He held them as non-existing bogus sundry creditors and made addition to assessee's income Corresponding purchases were admitted and payments made to many sundry creditors continuing from earlier years were accepted by Assessing Officer which meant genuinity of payments to these creditors Whether sundry creditors could not be treated as bogus sundry creditors and amount standing against them could not be added to income of assessee Held, yes iii. Income-tax Officer v. Smt. Umadevi Thimmaiah* (49 taxmann.com 496 (Bangalore Trib.)

Section 68 or the income-tax Act, 1961 Cash credit trade credits) Asst. year 2008-09 - All credits was trade credits and none of said credits was cash credit - Moreover, we had produced ledger details of trade creditors as well as confirmatory letter from major trade creditors Whether In view of aforesaid, impugned order of Commissioner (Appeal) was to be upheld Held, yes.

5.3 Further, kind attention of the Hon'ble Commissioner of Income tax(Appeals) is invited to the observation of the following observation at para 7 its order of the jurisdictional Income tax Appellate Tribunal, Hyderabad, in the case of ITO, Sangareddy Vs. Ann Stones, Hyderabad (ITA No.26/Hyd/2015) dated 08-07-2015: « ...At the outset, It needs to be observed that sundry creditors, since represent purchases made by assessee are in the nature of trade credits, hence, could not have been treated as cash credits and subjected to addition u/ s 68 of the Act... " 5.4 Keeping in view the facts of the case and the various judicial propositions submitted above, it is prayed that the Hon'ble Commissioner of Income tax(Appeals) be pleased to direct the learned Assessing Officer to delete the addition of Rs.4,42,69,513/ -.”

6. Considering the submissions of the assessee the ld. CIT (A) called for a remand report from the Ld. AO. In response the Ld. AO in his remand report stated as under:-

The assessee, a Private Limited Company, has filed its Return of Income for the Assessment Year 2012-13 on 30-09-2012, declaring an income of Rs. 6,35,085/-. This case was selected for scrutiny and the assessment was completed U/s 143(3) of the 1.T. Act on 28-03-2015, assessing the total income at Rs. 4,49,04,600/-. While completing the assessment, an amount of Rs. 4,42,69,513/- was added on account of unexplained cash credit u/ s 68 of the I T. Act. During the relevant assessment year, the assessee introduced six sundry creditors for an amount of Rs. 4,42,69,513/- in its books of accounts. On verification, it was found that these sundry creditors are not genuine. Hence, the assessee was requested to produce the above persons for examination. Since the assessee could not produce them, the assessment was completed by adding the outstanding amounts in the names of the above sundry creditors as unexplained cash credits u/ s 68 of the IT. Act, in the hands of the assessee. Aggrieved, the assessee has filed an appeal. Subsequently, the CIT(A) has directed to submit a remand report on the additional evidence filed by the assessee before the CIT(A). The assessee was requested by a letter dated 23-10-2017 to produce the additional evidence filed before the CIT(A). There was no response from the assessee. However, Sri M. Sreekrishna, Tax Consultant, said to be the assessee's AR, appeared on 15-02-2018. He produced three sundry trade creditors for examination. He was requested to produce the balance sundry creditors for examination and the case was posted for hearing on 22-02-2018. However, there was no compliance from the assessee on that date. Subsequently, a letter was issued to the assessee on 12-03-2018, to produce the balance sundry creditors-for examination. It was made clear to the assessee that this is the final opportunity to present its case, failing which the case will be decided as per the material available on record. However, there was no compliance from the assessee to this letter also. In view of this, the remand report is submitted as under. The only issue in appeal is the genuineness or veracity of the sundry trade creditors numbering six for a total amount of Rs. 4,42,69,513. The details are as under. Sl Name of the sundry creditor Amount in No. Rs.

1. P. Madfhusudana Rao 91,59,655 2. K. Swamulu 1,10,63,950 3. K. Satyanarayana 1,44,57,395 4. K. Kondal Rao 45,55,353 5. K. Gangaraju 25,14,160 6. L. Nagesh 25,14,160 Total 4,42,69,513

During the course of remand proceedings, the assessee was requested to produce the sundry trade creditors for verification by letters and hearings as discussed above. However, the assessee could not produce three sundry creditors for examination namely Sri P. Madhusudhana Rao, Sri K. Swamulu and Sri K. Satyanarayana, even after giving sufficient opportunities to produce them. Hence, it can be concluded that the assessee could not prove the genuineness of the above three sundry creditors amounting to Rs. 3,46,81,000 and the appeal of the assessee may not be entertained in this regard. Regarding the balance three sundry creditors namely Sri K. Kondala Rao, Sri K. Gangaraju and Sri L. Nagesh, the assessee produced them for examination. Summons u/ s 131 were issued to them and statements were recorded from them. All the above three confirmed that they have sold their agricultural produce in the form of cotton seeds to the assessee and the sale amount is outstanding as on 31- 0..3-2012. All the three are farmers and claimed to have land holdings of about' 4 to 6~ acres. However, they could not produce any evidence regarding land holdings in their names or their family members' names. All of them stated that they along with some others cultivated cotton seeds in their respective lands and sold the produce to the assessee company. They further stated that there was no written agreement, except oral agreement, between them and the assessee company for cultivation of seeds. It is not known why the assessee company has made oral agreement with the above three only, when actually there were 18 cultivators for purchase of seed. Further, they could only give the names of other co-cultivators. There were no agreements between the sundry creditors and co-cultivators. They could not state whether the co-cultivators have land holdings in their names or taken land on lease. Also, they could not produce any sale bills of seeds for verification. Except stating that they have cultivated cotton seeds and sold to the assessee, they could not furnish any evidence that they have indeed cultivated seeds and sold them to the assessee. In the absence of any verifiable evidence, the sundry creditors are treated as not genuine and the appeal of the assessee may not be entertained in this regard. The copies of statements are enclosed herewith for ready reference)' Submitted for the kind consideration of the Commissioner of Income Tax (Appeals).”

7. Thereafter, the Ld. CIT (A) obtained rejoinder from the assessee which is extracted herein below for reference: -

"The appellant has been directed to submit a reply/ rejoinder on the remand report dt. 20-3-2018 of the learned Assessing Officer. 2. The learned Assessing Officer was required by the Hon'ble Commissioner of Income Tax (Appeals) was directed "to examine the credits once again keeping in view of the correctness of purchases / sales made by the assessee" and a copy of the written submissions made by the appellant was also forwarded to the learned Assessing Officer.

9. In these circumstances, it is prayed that the Hon'ble Commissioner of Income Tax (Appeals) be pleased to direct the learned Assessing Officer to delete the addition of Rs. 4, 42,65,685/ - representing these purchase credits.

8. After examining the submission and rejoinder of the assessee and the remand report of the Ld.AO, the Ld CIT (A) deleted the addition made by the Ld. AO for the following reasons: -

2. The assessee has produced before the Ld.AO three out of the six sundry creditors during the remand proceedings. 3. The Assessing Officer has recorded statements from the three sundry creditors justifying the transactions made with the assessee. 4. The three sundry creditors who appeared before the Ld. AO had submitted their bank accounts for verification. 5. Therefore, the identity, capacity and genuineness of the sundry creditors are established. 6. The Assessing Officer has not commented in his remand report with respect to the correctness of the purchases and sales made by the assessee thought the CIT(A) had directed the Ld.AO to do so.

7. For the above stated reason, the Ld. AO has not doubted the sale / purchases made by the sundry creditors from the assessee.

8. The assessee has submitted its ledger account copy and bank account to prove the genuineness of the transaction wherein all the transactions are made by RTGS / NEFT / Cheque.

9. Before us, the ld. DR vehemently argued that the genuineness of the sundry creditors was not established even before the ld. AO in the remand proceedings. It was therefore, submitted that the order of the Ld. CIT (A) does not have any merit. Hence it was pleaded, that the order of the Ld. AO may be reinstated. The Ld. AR on the other hand relied on the order of the Ld. CIT (A) and prayed for confirming the same.

10. We have heard the rival submissions and carefully perused the materials on record. From the facts of the case it is apparent that the sundry creditors are farmers who had carried out certain job work with respect to processing of seeds meant for agricultural purpose. Therefore, these transactions are not cash credits but it is with respect to either purchase of seeds/processed seeds from the farmers or with respect to processing charges of the seeds by the farmers. It is also evident that the sundry creditors (six farmers) had also taken the help of various other farmers to carry out these activities. The Ld. CIT (A) after considering all these aspects and obtaining a remand report from the Ld. AO has deleted the addition for the reasons stated in para 8 herein above. It is also apparent that the assessee has produced three sundry creditors before the Ld. AO and also produced the bank accounts of the sundry creditors for verification. The Ld. AO has not made any negative remarks with respect to the bank accounts produced by the sundry creditors. The assessee have also paid the entire outstanding balance of the sundry creditors subsequently and there is no negative finding by the Ld.AO on that regard. Further there is no negative finding by the Ld.AO that the assessee had not made purchases from the farmers. The Ld. DR also could not controvert to the findings of the Ld.CIT(A) with cogent evidence. Therefore, keeping in view of these facts and circumstances of the case, We do not find it necessary to interfere with the elaborate finding of the Ld. CIT (A) on the issue. Accordingly, We hereby sustain the order of the Ld. CIT (A).

Pronounced in the open Court on the 03rd May, 2021.