BIRENDRANATH SAMANTA,BURDWAN vs. ACIT, CIR-2, BURDWAN, BURDWAN

On the other hand, the ld. D/R opposed the request of the assessee for condonation of delay.

We have duly considered the rival submissions and gone through the record carefully.

Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression “sufficient cause” employed in this Section has also been used identically in sub-Section 3 of Section 249 of the Act, which provides power to the ld. Commissioner to condone the delay in filing of the appeal before the Commissioner. Similarly, it has been used in Section 5 of the Indian Limitation Act, 1963. Whenever interpretation and consideration of this expression has fallen for consideration before the Hon’ble High Courts as well as before the Hon’ble Supreme Court then, the Hon’ble Courts were unanimous in their conclusion that this expression has to be construed liberally. We may make reference to the following observations of the Hon'ble Supreme court from the Assessment Year: 2015-16 Birendra Nath Samanta 3 decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353:

Similarly, we would like to make reference to authoritative pronouncement of Hon'ble Supreme Court in the case of N.Balakrishnan Vs. M. Krishnamurthy (supra). It reads as under: "Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. Assessment Year: 2015-16 Birendra Nath Samanta 4 A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a ITA No.201, 202 and 203/Ahd/2020 salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss."

We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon'ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the delay, then such reasons are to be construed with a justice oriented approach.

In light of the above, if we examine the explanation of the assessee then, it would reveal that basically the delay has occurred on account of lacunae by the erstwhile tax consultant of the assessee Shri Debabrata Dan and the assessee did not have any malafide intention to cause the delay. Therefore, cumulative setting of all these factors would suggest that there is no deliberate delay at the end of the assessee because the assessee was not going to gain anything from delaying this appeal. It is also pertinent to note that the Hon’ble Assessment Year: 2015-16 Birendra Nath Samanta 5 quality of the explanation. If some valid reason is there, then any period can be condoned. In this case delay was caused due to fault of the erstwhile tax consultant of the assessee. Taking into consideration all these factors, we condone the delay and admit this appeal.

The assessee has raised the following grounds of appeal:- “1. That on the facts of the case and in law the order passed by the learned AO u/s 143(3) of the Act dated 29-12-2017 making additions of Rs.3,55,92,450/- u/s 68 of the Act in respect of Sundry Creditors and so sustained by the learned CIT(A) vide order dated 12-05-2022 is not as per law.

That, the Ld. AO erred in making the impugned addition u/s 68 of the Act of Rs.3,55,92,450/- on account of unexplained Sundry creditors when neither the purchases made by the assessee nor the corresponding Sales/Debtors were disputed by him and the learned CIT(A) erred in sustaining the said addition.

That the learned AO and the learned CIT(A) failed to appreciate the explanation given by the assessee that payment to Sundry Creditors of Rs.3,98,42,500/- was outstanding as at the yearend since the corresponding sale proceeds of Rs.4,20,76,538/- was not realized from Sundry Debtors during the year, thus resulting in short fall of working capital.

That the lower authorities failed to appreciate the fact that no addition is warranted u/s 68 of the Act w.r.t trade credits.

That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.”

Brief facts of the case are that the assessee is an individual engaged in the business of trading in rice. Income of Rs. 10,45,810/- declared in the return filed on 31/03/2016. Case selected for complete Assessment Year: 2015-16 Birendra Nath Samanta 6 scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings, ld. Assessing Officer noticed that in the balance sheet as on 31/03/2015, sundry creditors are stated at Rs.3,98,42,500/-. The ld. Assessing Officer asked the assessee to file the details of the sundry creditors along with their addresses, PAN and confirmation letters. Assessee filed all the details which mainly contained details of 115 sellers included farmers with their village names. Further, the assessee placed the confirmation for creditors amounting to Rs.42,50,050/- and for the remaining amount it was stated that all the purchases have been from the farmers and the goods were sold during the year and assessee did not realize the sale. Further, it was submitted that in the subsequent years sales were realized and most of the alleged sundry creditors have been paid and since the farmers have been paid, it is quite possible that they were not interested to carry out any further communication. The ld. Assessing Officer was, however, not satisfied and invoked the provision of Section 68 of the Act for unexplained sundry creditors and made addition of Rs.3,55,92,450/- and assessed income at Rs.3,66,38,260/-.

Aggrieved the assessee preferred appeal before the ld. CIT(A) challenging the additions for unexplained sundry creditors and gave the details in the statement of facts. However, to the notice of hearing sent through e-mail, the assessee did not attend to the same. Since no submissions were filed on the given dates, as the appellate proceedings were faceless, ld. CIT(A) considering the assessment Assessment Year: 2015-16 Birendra Nath Samanta 7 records and the details filed by the assessee before the lower authorities as well as the detailed submission, passed a speaking order confirming the action of the Assessing Officer observing as follows:- “6 In view of the above facts, it appears that the appellant is not interested in prosecuting its appeal as it failed to avail the opportunities provided to it for making submissions in support of the grounds of appeal filed by it. The appeal is thus dismissed on the above grounds. Nonetheless, despite lack of response to the five notices for furnishing of submissions, the appeal is also examined on the basis of material available on record and merits. The matter has been considered. The assessment order and the statement of facts given by the appellant in Form 35 have been carefully examined. The three grounds of appeal being interlinked are taken up together for adjudication.

1 The appellant in the Statement of facts while accepting the following "It is true that confirmatory letters in respect of all Sundry Creditors were not furnished during assessment" has also failed to furnish any information, submissions or documents in respect of his grounds of appeal. The appellant's contention that by accepting purchase and sales the amount of sundry creditors of Rs. 3,55,92,450/- cannot be treated as explained is also not acceptable as it is seen from para 3 of the Assessment Order that despite being issued summons to appear and to present the books of accounts along with evidence in respect of sundry creditors, the same was not complied with by the assessee and no evidence/ book of accounts was furnished. Para 4.1 of the Assessment Order reproduced below also shows that no information/details as sought by the AO were provided by the assessee to the AO “Information along-with evidences were solicited from the assessee through notice u/s 142(1) dated 14-09-2017, fixing hearing on 21-09-2017, wherein the following was sought: Give details of sundry creditors in the following format:

2 Thus during assessment proceedings the appellant has failed to show that these parties - reflected as sundry creditors in the balance sheet, were indeed so. In the quest to verify the sundry creditors, the AO repeatedly requested for furnishing of the confirmations and details like complete address and PAN so as to examine the genuineness of the transactions and the outstanding amount. However, confirmations amounting to Rs. 42,50,050/- were only furnished by the assessee before the AO, who accepted the same. In respect of the remaining sundry creditors of Rs. 3,55,92,450/- despite being called upon to furnish details by the AO during assessment proceedings time and time Assessment Year: 2015-16 Birendra Nath Samanta 8 again they were not furnished. By failing to furnish details like the complete address and PAN the appellant has failed in discharging its responsibility of showing the amounts due from him as being a consequence of transactions undertaken by him. The assessee thus failed to prove the authenticity of the transactions with the parties claimed as sundry creditors before the AO, as no copy of account, bills and payments in respect of any amounts to these parties by cheque, were shown to the AO during assessment proceedings. Thus, the appellant's statement that they are sundry creditors remains not proved as no evidence to establish the same was presented by the appellant before the AO. Even during these appeal proceedings, no response has been filed by the appellant except for seeking of two adjournments - one on 27.04.2021 and the other on 14.09.2021. Thus, despite being aware of requests for submissions on the grounds of appeal in these appellate proceedings, it is seen that no details were filed by the appellant during the present appeal proceedings despite five opportunities being given to him vide notices issued over a span of sixteen months. Therefore, in the absence of any details being furnished by the appellant, the appellant's statement that these are sundry creditors cannot be accepted as no evidence what so ever has been furnished by the appellant to establish the claim. In the light of all of the above, there is no reason available on record for any change in the order of the AO and therefore the grounds of appeal 1, 2 and 3 are dismissed.”

Aggrieved, the assessee is now in appeal before this Tribunal.

The ld. Counsel for the assessee referring to the written submissions as well as paper book filed on 02/05/2023 containing 26 pages, submitted that the ld. CIT(A) ought to have considered the fact that the sales and purchases of the assessee have almost doubled during the year. Out of the total sales of Rs. 12,35,14,252/-, major sales were made to S.G. Traders and the outstanding amount receivable from S.G. Traders was Rs.4,07,77,398/-. The assessee being a trader generally makes payment to the creditors out of the funds received from the debtors. Against the outstanding trader debtors of Rs.4.21 Crores, the sundry creditors were Rs.3.98 Crores. The sale realization from the debtors were in the subsequent financial year and the creditors were paid accordingly. All the creditors are farmers and the details of their name and addresses were filed. It was also stated that Section 68 of the Act cannot be applied on the sundry creditors as there is no cash/bank transfers from the farmers. At the most, ld. Assessing Officer may have invoked Section 41 of the Act for applying Assessment Year: 2015-16 Birendra Nath Samanta 9 provisions pertaining to remissions or cessation of trading liability but that too cannot stand as the assessee has not written off the liability in the books and the sundry creditors have been paid in subsequent year and sufficient evidence has been placed on record to prove that the creditors are genuine and have been paid. Reliance was placed on the judgments in the case of CIT vs. Mahindra and Mahindra Ltd. reported in [2018] 93 taxmann.com 32 (SC), judgment of the Hon’ble Gujarat High Court in the case of PCIT vs. Adani Agro (P) Ltd. reported in [2020] 118 taxmann.com 307 (Gujarat) and on the decision of the ITAT No. 1657/Kol/2011. 14. On the other hand, the ld. D/R vehemently argued referring to the detailed finding of the ld. CIT(A) extracted (supra) and stated that the assessee failed to explain the genuineness of the sundry creditors and thus rightly added by the Assessing Officer u/s 68 of the Act.

We have heard rival contentions and perused the record placed before us. Though the assessee has raised four (4) grounds of appeal but the grievance is only with regard to the addition made for unexplained sundry creditors u/s 68 of the Act at Rs.3,55,92,450/-. We observe that the assessee is engaged in trading of rice. The purchases made during the year under appeal and the preceding financial year and the position of sundry creditors is as under:- F.Y. 2014-15 F.Y. 2013-14 Purchases 12,23,35,350 5,54,39,853 Sundry Creditors 3,98,42,500 14,13,894 Assessment Year: 2015-16 Birendra Nath Samanta 10 Credit period in days 119 9

Further the details of purchases, sales, sundry debtors and creditors for the current and preceding year is as under:- Particulars F.Y. 2014-15 F.Y. 2013-14 Purchases 12,23,35,350 5,54,39,853 Sundry Creditors 3,98,42,500 14,13,894 Sales 12,35,14,252 5,71,78,470 Sundry Debtors 4,20,76,538 12,99,140

Further, we notice that the sundry debtors of Rs. 4,20,76,538/- comprised of following three parties:-

We also notice that sundry creditors at the close of the year consisted of around 115 persons. The details of which are available at page 7-9 of the paper book and as stated by the ld. Counsel for the assessee, these are mostly farmers who sold their agricultural produce of rice to the assessee and the details contain names, addresses and amount outstanding to be paid. We note that the ld. Assessing Officer has not doubted the book results, accepted the sales as well as the quantity appearing in the trading and loss account. So the genuineness of the sale transactions has not been doubted nor the percentage of profit earned during the year has been doubted and the addition has been made u/s 68 of the Act for unexplained sundry creditors for the sole reason that confirmations could not be received from these sundry Assessment Year: 2015-16 Birendra Nath Samanta 11 creditors who are mainly farmers. The ld. Assessing Officer has invoked the provisions of Section 68 of the Act, which reads as follows:- “68. 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 thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : [Provided that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: [Provided further] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.]”

Now, so far as the above provision is concerned, ld. Counsel has firstly contended that it should not be applied for the sundry creditors since there is no cash transactions or any banking transactions. We, however, do not find any merit in this contention since in the above provision, it is stated that “any sum is found credited in the books of an assessee” and in our humble understanding it refers to a particular entry in the books of account and since the entries are only in the form of an amount, the same can be towards actual amount received through banking channels or any journal entry but the crux in that there is a credit entry appearing in the books for which the assessee needs to offer an explanation.

Now, coming to the facts of the case, the ld. Assessing Officer asked the assessee to offer an explanation about the sundry creditors to which necessary reply was filed stating that the nature of the said Assessment Year: 2015-16 Birendra Nath Samanta 12 credit was purchases and source of the credit was purchases from the farmers, whose names and addresses were filed. The next part of the section is that the explanation offered by the assessee is found to be satisfactory by the Assessing Officer. Once the assessee has discharged its primary onus by giving the details of nature and source of the credit, it is upon the Assessing Officer to first rebut those details and then should ask the assessee to furnish any other details with the help of which the ld. Assessing Officer can be satisfied. In the given case, ld. Assessing Officer was satisfied with the confirmation received in the case of few of the sundry creditors but for the remaining, confirmation letters could not be received. There is no straight jacket formula provided under the Act through which one can be satisfied that Section 68 of the Act is not applicable and thus it varies from case to case as well as the facts and the satisfaction level of the Officer.

In the instant case, the ld. AO has failed to take note of the fact that books of accounts were audited and the same have not been rejected, sales are not in dispute. The assessee is engaged in trading of rice and is operating from a place called Burdwan in West Bengal, purchases have been made from farmers who are not well versed in such kind of technical formalities and most importantly, before the conclusion of the assessment proceedings, most of the alleged sundry creditors i.e., the farmers were paid. Therefore, under these given facts and circumstances, the ld. AO ought to have considered the facts of the case and should have accepted the genuineness of the sundry creditors. Assessment Year: 2015-16 Birendra Nath Samanta 13

Even for the sake of argument or academic discussion, we deem that the ld. Assessing Officer inadvertently invoked Section 68 and ought to have invoked the provision of Section 41(1) of the Act, regarding the remission or cessation of liability, as the assessee failed to explain the sundry creditors during the course of assessment proceedings but even that will not sustain as the assessee has not written off the sundry creditors in its books and there is no evidence that the liabilities as on the year-end extincted. Further since the said liabilities towards the sundry creditors have been paid in the subsequent years, the details of which have been filed in the paper book in the summary of the details of the payments as mentioned below, there remains no basis to even invoke the provisions of Section 41(1) of the Act. The details of year-wise payments to outstanding creditors are extracted below for ready reference:- Particulars FY 2014-15 FY 2015-16 Sundry Creditors as per audited accounts 3,98,42,500 1,34,00,000 Purchases as per audited accounts 94,45,200 Sundry Creditors pertaining to FY 2015-16, being purchases 94,45,200 made during FY 2015-16 Sundry Creditors pertaining to FY 2014-15 (Rs.1,34,00,000/- 39,54,800 minus Rs.94,45,200/-) Payment made to Sundry Creditors pertaining to FY 2014-15 in 3,58,87,700 FY 2015-16 (3,98,42,500/- minus 39,54,800/-)

Hon’ble Supreme Court in the case of Mahindra and Mahindra Ltd. (supra) under identical circumstances, has held as under:- “On a perusal of section 41(1), it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under section 41. The objective behind this section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed Assessment Year: 2015-16 Birendra Nath Samanta 14 fact that the assessee had been paying interest at 6 per cent per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under section 36(1)(iii). In the case at hand, the Commissioner(Appeals) relied upon section 41(1) and held that the assessee had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the assessee in previous assessment years was due to the deprecation of the machine and not on the interest paid by it.[Para 15] Moreover, the purchase effected from the KJC is in respect of plant, machinery and tooling equipments which are capital assets of the assessee. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. It is to be noted that there is difference between 'trading liability' and 'other liability'. Section 41(1) particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, there is no force in the argument of the revenue that the case of the assessee would fall under section 41(1).[Para 16]”

The Hon’ble High Court of Gujarat in the case of PCIT vs. Adani Agro (P.) Ltd. (supra) has held as under:- “Merely because liability had remained outstanding for more than three years and same was not written back in profit and loss account, application of provisions of section 41(1) could not be made to consider such liability as income for year under consideration without there being any remission or cessation of liability”

The ITAT Kolkata in the case of Sharda Commercial Co. Ltd. (supra) has held as under:- “Once it is a fact that these sundry creditors are outstanding and assessee has not written off those creditors, these cannot be assessed as income of the assessee. All the parties have confirmed these sundry creditors u/s. 133(6) of the Act as notices were issued by the AO as replied by these sundry creditors. Once this is the position, the sundry creditors cannot be considered as bogus or cannot be assessed as income of the assessee. Hence, we delete the addition and allow this issue of assessee's appeal.”

In view of the above discussion and considering the facts of the case, we are of the considered view that ld. Counsel for the assessee has successfully demonstrated before us about the genuineness of the transactions with the sundry creditors with the help of the facts that Assessment Year: 2015-16 Birendra Nath Samanta 15 there was a steep increase in the purchase and sale, as well as sundry creditors and debtors during the year and amount more than the alleged sundry creditors was outstanding to be received from the sundry debtors and in the subsequent year on the realization of the sundry debtors, most of the alleged sundry creditors have been paid which is reflected from the fact that sundry creditors which was standing due at Rs.3.99 Crores, during the financial year 2014-15, came down to Rs.1.34 Crores and remained paid subsequently. Therefore, in the given case, since the assessee has successfully explained the source and identity of sundry creditors, nature and genuineness of the transactions, proved that the payments to the sundry creditors have been made and since the revenue has not doubted the genuineness of the sale and correctness of the book results, we do not find any justification in the action of the Assessing Officer in making the addition u/s 68 of the Act. We thus, set aside the finding of the ld. CIT(A) and delete the addition of Rs.3,55,92,450/- made u/s 68 of the Act and allow Ground Nos. 1,2,3 & 4 of the assessee’s appeal.

Ground No. 5 is general in nature.

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 6th June, 2023 at Kolkata. (SANJAY GARG) ACCOUNTANT MEMBER Kolkata, Dated 06/06/2023 *SC SrPs Assessment Year: 2015-16 Birendra Nath Samanta 16

""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाई/ Guard file.