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Income Tax Appellate Tribunal, DELHI BENCH : A : NEW DELHI
Before: SHRI R.K. PANDA & SHRI N.K. CHOUDHRY
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER Assessment Year: 2014-15 Ankit Kapoor, Vs ITO, B-102, RG City Centre, Plot No.4, Ward-63(4), Motia Khan, Paharganj, New Delhi. New Delhi. PAN: AUZPK1007E (Appellant) (Respondent) Assessee by : Shri Raj Kumar Gupta, CA & Shri Abhishek Choudhary, CA Revenue by : Shri Manu Chourasia, Sr. DR Date of Hearing : 02.02.2022 Date of Pronouncement : 16.03.2022 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 25th September, 2018 of the CIT(A)-20, New Delhi, relating to assessment year 2014- 15.
The grounds raised by the assessee are as under:-
“1. That on the facts and circumstances of the present case and in law, the Ld. C1T (A) erred in confirming the Order of the Assessing Officer who added back a sum of Rs.1,27,93,855/- on account of sundry creditors without even giving a finding that the assessee could not offer satisfactory explanation about the nature and source of Rs.1,27,93,855/- or that the explanation provided by the assessee is unsatisfactory. The AO did not even mention the section under which he made such addition. Therefore, this addition is liable to be set aside.
2. That on the facts and circumstances of the present case and in law, the Ld. CIT (A) erred in confirming the Order of the Assessing Officer who disallowed a sum of Rs.8942/- on account of vehicle maintenance/telephone expenses on an ad-hoc basis and also by violating the principle of natural justice.
3. That on the facts and circumstances of the present case and in law. The Ld. CIT (A) erred in confirming the Order of the Assessing Officer who had disallowed an ad-hoc sum of Rs.5,00,000/- on account of unverifiable purchases which is unjustified and illegal and also in violation of the principle of natural justice.
That on the facts and circumstances of the present case and in law, the Ld. CIT (A) erred in confirming the Order of the Assessing Officer who had disallowed a sum of Rs.11,18,170/- on account of expenses of the creditors.
5. That the appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
The ld. Counsel for the assessee at the time of hearing did not press the grounds of appeal No.2 to 5 for which the ld. DR has no objection. Accordingly, these grounds are dismissed as not pressed. Therefore, the only effective ground that remains for adjudication is regarding the order of the CIT(A) in confirming the addition of Rs.1,27,93,855/-.
4. This case has a chequered history. In this case, the AO passed the order on 29th December, 2016, vide order dated 28th December, 2016 determining the total income of the assessee at Rs.5,47,64,000/- against the returned income of Rs.14,54,130/-. The assessee filed an appeal before the CIT(A) who dismissed the appeal filed by the assessee. On further appeal by the assessee, the Tribunal, vide order dated 25th January, 2018, restored the issue to the file of the CIT(A) with a direction to decide the issue afresh and after giving due opportunity of being heard to the assessee. The CIT(A), vide order dated 25th September, 2018, gave part relief to the assessee against which the assessee filed an appeal before the Tribunal. The Tribunal, vide 6th February, 2019, dismissed the appeal filed by the assessee. The assessee filed an MA before the Tribunal and the Tribunal, vide MA No.183/Del/2019, order dated 27th February, 2020, dismissed the Miscellaneous Application. The assessee challenged the dismissal of the MA by the Tribunal before the Hon’ble High Court and the Hon’ble High Court, vide Writ Petition (C) 6370/2021 & CM Appl. 20030/2021, order dated 23rd July, 2021, set aside the order of the Tribunal and directed the Tribunal to hear the Miscellaneous Application afresh. Subsequently, the Tribunal, in MA No.183/Del/2019, order dated 27th October, 2021, allowed the Miscellaneous Application filed by the assessee and recalled the order dated 6th February, 2019 of the Tribunal. Hence, this is a recalled matter.
Facts of the case, in brief, are that the assessee is an individual and is engaged in the business of trading and export of processed and non-processed buffalo meat. He filed his return of income on 20th November, 2014 declaring the total incme at Rs.14,54,130/-. During the course of assessment proceedings, the AO noted that the assessee has shown sundry creditors as on 31.03.2014 to the tune of Rs.5,14,40,739/-. He, therefore, issued notice u/s 133(6) to 11 of the creditors the details of which are given as per page 2 of the assessment order. However, out of the 11 creditors to whom notices u/s 133 (6) were issued, confirmations in case of three creditors only were received and the AO did not receive any confirmation nor anybody attended in response to the summons issued u/s 131 in respect of the following creditors:-
Since these 8 creditors neither attended before the AO in response to the summons u/s 131 nor responded to notice u/s 133(6) of the IT Act, the AO held that an amount of Rs.5,14,40,739/- in respect of the above creditors remained unexplained. The AO further noted that one creditor, namely, Jameel Ahmed, who attended his office on 26.12.2016 stated that he has not done any sale or purchase of buffalo during the financial year under consideration with the assessee and refused to give further statement. In view of the failure of the creditors either to respond to the notice u/s 133(6) of the Act or summons u/s 131 of the Act, the AO made addition of Rs.5,14,40,739/- to the total income of the assessee.
Before the CIT(A), the assessee filed the appeal which was dismissed. The assessee approached the Tribunal who restored the issue to the file of the CIT(A) and, in the order passed by the CIT(A) on 25th September, 2018, he sustained an amount of Rs.1,27,93,855/- in respect of the following creditors and deleted an amount of Rs.3,86,46,884/- under the head ‘Other creditors’:-
S. NO. Name of Creditors Address AMOUNT IN RS. 46,42,400 Al Azlan Frozen Vill. Chimyawali, Moradabad Rd.,Sanbhal Moradabad (UP)-
1. 1. Foods 244302. Aabid & Others 1461330 Mohalla BajraiWard no.25,Hasanpur,Amroha(UP). 2.
3. Aashaqin & Others 1259190 Vill.Sathla, Thsil Mawana Distt. Meerut.
4. Izrail & Others 1,117,085 Mohll Qureshi, Wasu Dev Road,Near Minar Masjih, Amroha (UP).
5. Jameel & Others 1239055 lanta Biri Wale, Mohll. Samilliyan Moli Wala Hasanpura, Amroha
(UP). Kafeel & Others 983100 113, Mohalla Bakkar Khaswan, Tehsil, Sikandarabad, Distt. 6. Bullandsaha (UP). Shuaib & Others 1063745 7. Mohhalla sahib Chabutr, Near Ghuthe Dakhana, JP Nagar, Amroha (UP). Suleman & Others 1027950 Mohlla Ratiya, Lai Bagh,Hassanpur, Amroha (UP). 8. Total 1,27,93,855
The Revenue is not in appeal against the deletion of addition of Rs.3,86,46,884/-. Therefore, we are not concerned with the same. So far as the addition of Rs.1,27,93,855/- in respect of the 8 creditors mentioned above is concerned, the ld.CIT(A), while sustaining the addition, held that the AO had issued notice u/s 133(6) as well as summons u/s 131 of the Act and the creditors did not comply either before the AO by filing the confirmations or appearing before him and, therefore, the addition has to be sustained. According to him, the assessee could not discharge the onus cast on him by filing any documentary evidence and the assessee failed to substantiate the claim that the total credit entries of Rs.1,27,93,855/- shown against the 8 creditors are genuine. He also rejected the contention of the assessee that since Mr. Jameel Ahmed against whom an amount of Rs.12,39,055/- is appearing appeared before the AO and, therefore, this credit entry should be accepted on the ground that Jameel Ahmed could not confirm the transaction with the assessee by saying that he does not remember. Further, during the course of appellate proceedings also the assessee failed to produce any documentary evidence and confirmation of Mr. Jameel Ahmed regarding the credit shown against his name. Relying on various decisions, the ld.CIT(A) sustained an addition of Rs.1,27,93,855/- on the ground that the assessee failed to substantiate the above amount appearing against the name of 8 creditors.
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. counsel for the assessee strongly challenged the order of the CIT(A) sustaining the addition of Rs.1,27,93,855/-. He submitted that there were creditors for purchases totaling to Rs.5,14,40,739/- and the AO issued notice u/s 133(6) to selective 11 creditors only for Rs.2,58,45,298/-. Out of the above, certain creditors against whom amount totaling to Rs.1,27,93,855/- was shown did not respond for which the ld.CIT(A) confirmed the addition to the extent of Rs.1,27,93,855/- out of Rs.5,14,40,739/- made by the AO.
The ld. Counsel for the assessee, referring to the assessment order, submitted that the AO has not accepted the declared trading account results and has made an addition of Rs.2 lakh to cover the leakage in the trading results and has also separately disallowed an amount of Rs.5 lakhs out of the purchases which is evident from the assessment records. He submitted that where trading account and the trading result has been rejected by the AO, the AO cannot make any separate addition for the creditors. He submitted that the creditors are the results of purchases and, therefore, after non-acceptance of declared results and after making the addition with respect to trading account, no separate and independent addition can be made in trading creditors for any reason whatsoever since it will amount to double addition for the same reason.
Referring to the decision of the Hon’ble Rajasthan High Court in the case of CIT vs. GK Contractors (2009) 19 DTR (Raj) 305, he submitted that the Hon’ble High Court has held that after estimating the profits by applying higher net profit rates, no separate addition can be made u/s 68 for creditors even though the assessee failed to discharge the onus of explaining the amount. Referring to the decision of the P & H High Court in the case of CIT vs. Agarwal Enggg. Co., 302 ITR 246, he submitted that in case of computation made on net profit rate no further addition on account of unexplained cash and purchase allowable u/s 68 and 69B.
The ld. Counsel for the assessee, without prejudice to the above and in his alternate argument, submitted that the assessee was never put to notice for compliance of notices u/s 133(6) by these creditors. He submitted that the AO, after non-receipt of reply from creditors added the same without any opportunity to the assessee by holding that it is a time barred assessment. Referring to page 8 of the assessment order, the ld. Counsel drew the attention to the following observation at the top o the page 8 of the assessment order:-
“Only one creditors Sh. Jameel Ahmed attended on 26.12.2016 and stated as above that he has not done any correspondence of sale and purchase of 8 buffalo during the period 1.4.2013 to 31.3.2104 and refused to give any further statement. As other creditors not attended on the above dates and this is a time barring assessment, I have no other alternative but to complete the assessment by 31.12.2016. In the absence of proper details of the above creditors and after issuing the notices u/s 133(6) and Summons u/s 131 of the IT Act 1961, and no-one bothered to attend the office on the dates of hearings I, therefore disallow the total amount of the creditors which comes to Rs.5,14,40,739/- and the same is added to the income of the assessee and treating the same as income from other sources.”
He submitted that no notice for non-compliance and no further opportunity was given to the assessee which is gross violation of principles of natural justice. Referring to the Miscellaneous Application No.183/Del/2019, order dated 27.10.2021 wherein the Tribunal has recalled the order, he drew the attention of the Bench to the following:-
“From the record, we find that the fact of non-receipt of response from the “sundry creditors” has not been intimated to the assessee neither any show cause notice has been issued before making the addition which is a clear infraction of the principles of natural justice”
The ld. Counsel for the assessee submitted that all the notices issued u/s 133(6) stood served. Therefore, non-response to notices issued u/s 133(6) cannot be a reason for disbelieving the genuineness of creditors and consequently for making the addition for the same.
Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd., 299 ITR 268, he submitted that the Hon’ble High Court in the said decision has held that if the Revenue merely issues summons u/s 131 of the Act and does not pursue the matter further, the assessee 9 does not become responsible for the same even if the creditors do not appear and addition cannot be made u/s 68 of the Act. Referring to the decision of the P&H High Court in the case of CIT vs. GP International Ltd., he submitted that the Hon’ble High Court in the said decision has held that merely because some of the persons did not respond to the notice issued by the AO u/s 133(6) of the Act, it cannot be taken that the said transaction was ingenuine. Referring to the decision of the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation (P) Ltd., reported in 1986 air 1849, he drew the attention of the Bench to the following:-
“ The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”
He accordingly submitted that the addition sustained by the CIT(A) to the tune of Rs.1,27,93,855/- should be deleted.
The ld. DR, on the other hand, heavily relied on the order of the AO and the CIT(A).
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has shown creditors for the purchases to the tune of Rs.5,14,40,739/-. The AO issued notices u/s 133(6) to 11 creditors in respect of whom the amount was shown payable at to Rs. Rs.2,58,45,298/-. Out of 11 creditors, only three creditors responded and the 8 creditors to the tune of Rs.1,27,93,855/- did not respond. The AO, therefore, made addition of Rs.5,14,40,739/- to the total income of the assessee. We find the CIT(A) held that since the AO had issued notice u/s 133(6) to 11 creditors totaling to Rs.2,58,45,298/-, therefore, the addition to the tune of Rs.2,55,95,441/- cannot be added. Similarly, out of the total creditors of Rs.2,58,45,298/- three creditors totaling to Rs.1,30,51,443/- have responded, therefore, he deleted an amount of Rs.1,30,51,443/- in respect of the three creditors who confirmed the transaction in response to notice u/s 133(6) of the Act. He, however, sustained an amount of Rs.1,27,93,855/- in respect of the 8 creditors for which the AO has issued notice u/s 133(6) as well as summon u/s 131 of the Act and who did not comply before the AO nor filed any confirmation nor any adjournment letter before him. It is the submission of the ld. Counsel that since the AO has rejected the trading results, therefore, no separate addition can be made for the creditors. It is also his alternate contention that since the AO has not given any opportunity to the assessee after non-compliance of notice u/s 133(6) or notice u/s 131 and it was not confronted to 11 the assessee regarding such non-compliance and addition was made, no addition for creditors can be made.
We find some force in the above argument of the ld. Counsel. A perusal of the assessment order shows that the AO on page 1 of the assessment order, has made addition of Rs.2 lakhs to cover the leakage in the trading results by observing as under:- “ The assessee is engaged in the business of Trading and Export of processed and non-processed Buffalo Meat During the year the sales of the assessee was increased from Rs.823.69 lacs. to Rs.5881.04 lacs. Therefore increase was more than 700% whereas GP has gone down by 2.3% due to competition in the market. I am not satisfied with the submission of the assessee that due to competition in the market when the sales increase more than 700%. In the absence of proper submission and details, I disallow a sum of Rs.2,00,000/- to cover the leakage in the trading results and is added to the income of the assessee.”
Similarly, the AO has made addition of Rs.5 lakhs on account of unverifiable purchases by observing as under:-
“ 4. DISALLOWANCES UNDER PURCHASES:- In the profit and loss account, the assessee has purchases of Rs.53,48,32,610. During the assessment proceedings the AR of the assessee was asked to produce the bills/vouchers of the so high purchases. The bills/vouchers were produced which the bills/vouchers have not been submitted by proper bills/vouchers. In the absence of proper bills and vouchers, I disallow a sum of Rs.5,00,000/- and added to the income of the assessee.”
Since the AO has made addition of Rs.2 lakhs to cover the leakage in the trading results and separately disallowed Rs.5 lakhs out of purchases and this addition have attained finality, therefore, we are of the considered opinion that no separate addition on account of sundry creditors should have been made by the AO due to non-response to notice u/s 133(6) or summon u/s 131 of the IT Act, 1961.
22.1 We find, the Hon’ble Rajasthan High Court in the case of CIT vs. GK Contractors (supra) has held that after estimating the profits by applying higher net profit rate, no separate addition can be made u/s 68 of the Act for creditors even though the assessee failed to discharge the onus of explaining the amount.
22.2 We find, the Hon’ble P&H High Court in the case of CIT vs. Agarwal Engg. Co. (supra) has held that once computation made of net profit rate, no further addition on account of unexplained cash and purchases can be made u/s 68 or u/s 69B.
22.3 We further find the AO after non-receipt of reply from the creditors did not confront the same to the assessee before making any addition by holding that it is a time barring assessment. This, in our opinion, is a gross violation of principles of natural justice. We find, all the notices issued u/s 133(6) were served on the parties. Therefore, mere non-response to notice issued u/s 133 (6) cannot be a reason for disbelieving the genuineness of the creditors and consequently for making the addition for the same especially when the sales have not been doubted. 13 22.4 We find, the Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd. (supra) has held that if the Revenue merely issues summons u/s 131 of the Act and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear and addition cannot be made u/s 68 of the Act. The relevant observations of the Hon’ble High Court read as under (short notes):-
Held, “If the Revenue merely issues summons Under Section 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made under Section 68.”
We find, the Hon’ble P&H High Court in the case of CIT vs. GP International Ltd. (supra), has held that merely because some of the persons did not respsond to the notices issued by the AO u/s 133(6) of the Act, it cannot be taken that the said transaction was ingenuine. The various other decisions relied on by the ld. Counsel also supports his case to the proposition that non-response to notice issued u/s 133(6) cannot be a reason for disbelieving the genuineness of the creditors and consequently for making the addition of the same. We accordingly set aside the order of the CIT(A) and direct the AO to delete the addition.