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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per Chandra Poojari, AM :
This appeal by the assessee is directed against the order of the CIT(A) dated 10.07.2017 for the assessment year 2013- 2014.
There is a delay of 3 days in filing appeal. The assessee has filed an Affidavit for condonation of delay. We have perused the reasons stated for filing the appeal belatedly. We find that there is sufficient cause for the delayed filing of the appeal and no latches can be attributed to the assessee. Hence, we condone the delay and proceed to dispose of the same on merits.
First issue for our consideration is as under:- “The purchase of timber for the year for a total value consideration of Rs.11,38,66,879/- is genuine and
ITA No.505/Coch/2017 2 Sri.C.Shaji. supported by valid documents. The disallowance of Rs.73,34,227/- and estimation of the said amount as taxable income is totally baseless and objectionable. The appellate authority ought to have deleted this estimation.”
The facts of the case in brief are that the Assessing Officer during the course of assessment proceedings specifically has taken out the purchases of Rs.73,34,227 made under the head "others" for verification and in the absence of names and address of the said other persons/ entities furnished and bills and vouchers in support of the purchases made produced for verification, he came to the conclusion that the parties from whom the assessee claimed to have purchased timber have not been identified by him and therefore, the purchases cannot be genuine. Hence, treated the alleged purchases made from "others" as bogus purchase and accordingly brought the value of the same to tax.
Aggrieved by the order of assessment, the assessee preferred appeal to the first appellate authority. During the course of appellate proceedings, the assessee has explained the reason for addition is that the assessee did not identify the sellers. It can be seen that in the notice dated 22.03.2016, the assessing authority has noted that the total purchase as per trading and profit and loss account is Rs.11,38,66,879. The amount now disputed would come under the said figure and it is the normal pattern in the timber business that there are purchases from different sources and the suppliers did not insist for any purchase bill. However, while considering
ITA No.505/Coch/2017 3 Sri.C.Shaji. the trading account, it can be seen that corresponding sale is accounted therein and in any case, any difference in the return filed under Kerala Value Added Tax Act (KVAT Act) cannot be taken as conclusive proof of suppression of purchase, as done in the assessment order. Hence there is no justification to disallow the purchase turnover of Rs.73,34,227 for the sole reason that details of sellers are not mentioned in the purchase list furnished. The assessing authority did not raise any such dispute or doubt in the notice issued on 22.03.2016. Regarding the difference in return filed under KVAT Act, the assessee explained the same in the reply submitted on 15.03.2016. On 29.03.2016, the assessee filed further reply stating that slaughtered and sized rubber woods are supplied by different suppliers and they did not issue any sale bill. The payments to them are either through cash or RTGS/NEFT and there is no suppression of these transactions, in the regular books of accounts. As a proof to show genuineness of the purchase the assessee has collected receipts and copy of land tax from 82 persons who were owners of the land and from whom assessee has purchased country wood during the year. This external evidence were not considered during the course of assessment. Hence, the addition made need be deleted.
However, the CIT(A) confirmed the addition made by the Assessing Officer by observing as under:-
“2.3. Seeing from the assessment order, it could be made out that the very addition was made in the absence of names and address of the sellers furnished and bills and vouchers in support of
ITA No.505/Coch/2017 4 Sri.C.Shaji. the purchases made produced for verification. Even now during the course of appeal proceedings, the appellant has not attempted either to furnish the address of the sellers or make available the bills and vouchers for verification. Instead, chosen to argue that the suppliers did not issue any sale bill. The argument of the appellant may be relevant only when the purchases are made in smaller quantity and for negligible amount. But, not in the instant case where substantial amount of Rs.73,34,227/- has been debited and claimed to have been spent for the purchases made from persons whose identity is not known to. To my understanding; the appellant has not discharged the responsibility casted upon him without which he cannot say that the purchases are genuine. His explanation in this regard as he collected receipts and copy of land tax from some of the owners of the land, is totally irrelevant and of no use unless it is proved that the timber worth of the said amount was actually purchased from these persons. Another argument of the appellant that the difference in the return filed under Kerala Value Added Tax Act, cannot be taken as conclusive proof for suppression of purchase, need not be given much importance as the alleged purchases have not been established with credible evidences and in the absence of same, nothing wrong to rely on another document the appellant himself has filed to another authority towards discharging his responsibility under the said Act. His further explanation that the payments to the sellers were made either through cash or RTGS/NEFT cannot simply be accepted sine no such details in this regard has ever been furnished by him. It is not the case of the appellant that the purchases made from "others” had rightly been accounted and sold or included in the closing stock. This is possible only when the appellant is able to furnish quantity wise purchase, sale and closing stock details. Having not furnished the same at any point of given time, the appellant
ITA No.505/Coch/2017 5 Sri.C.Shaji. cannot say that the purchases are genuine. It is also not the case of the appellant that the corresponding sale is accounted rightly in the trading account and no return suppressing the purchase has ever been filed under Kerala Value Added Tax Act. Considering all the above, I find no infirmity in the decision the Assessing Officer has taken to bring to tax a sum of Rs.73,34,227/- as bogus purchase and accordingly, the same is confirmed. As a result, appeal on this ground stands dismissed.”
Aggrieved by the order of the CIT(A), the assessee is in appeal before us. The learned Counsel for the assessee relied upon the grounds raised before the Tribunal. On the other hand, the learned Departmental Representative strongly supported the orders of the lower authorities.
We have heard the rival parties and perused the material on record. In the present case, the assessee has shown total purchase at Rs.11,38,66,879. Out of this, the purchase of Rs.73,34,227 was not supported by relevant bills and vouchers and also the assessee has not furnished the names and addresses of the purchasers. It was argued that the sellers did not issue any sale bill. In our opinion, it is the duty of the assessee to produce all the bills and vouchers in support of purchase entries found in the books of account. In the absence of the details, the Assessing Officer considered it as bogus purchase. Even before us, the assessee was not able to lead any evidence regarding the genuineness of the purchasers, though the burden is on the assessee to prove the genuineness of the transactions. In view of these, we are inclined to confirm the addition made towards bogus
ITA No.505/Coch/2017 6 Sri.C.Shaji. purchases. Accordingly, this ground raised by the assessee is dismissed.
The next issue for our consideration reads as follow:-
“The disallowance of Rs.2,81,63,141/- as cash purchase in excess of Rs.20,000/- citing the provisions of Section 40A(3) is highly unreasonable and against law. As per Section 40A(3) and 40A(3A) and Rule 6DD, there are certain exceptions and the case of the appellant is within such exceptions.”
The facts of this issue are that the Assessing Officer has invoked the provisions of section 40A(3) of the Act and thereby, brought to tax a sum of Rs.2,81,63,141 representing cash purchases made between 08.07.2012 and 31.03.2013 in the absence of satisfactory explanation the assessee had offered in this regard. The said amount was brought to tax according to the Assessing Officer for the reason that bills and vouchers relates to cash purchases had specifically been called for but not been produced for verification. Further reason adduced is that the genuineness of the expenditure incurred in cash is in doubt therefore, the provisions of Section 40A(3) are attracted. The Assessing Officer further has contended that the assessee’s proprietary concern, MIS Sthuthi Associates is in Kattakada where there are several banks such as Federal Bank, Syndicate Bank etc. The assessee himself has a current account with Federal Bank, Kattakada. Therefore, non availability of banking facility, business expediency and other relevant factors are not applicable in this case.
ITA No.505/Coch/2017 7 Sri.C.Shaji. 11. Aggrieved by the order of assessment, the assessee preferred an appeal before the CIT(A). Before the CIT(A) it was submitted by the assessee that the assessee is not in agreement with the Assessing Officer and his explanation in this regard is that an amount of Rs.2,81,63,141 has been added to the total income on the allegation that there are 82 instances of cash purchases throughout the year from 08.07.2012 to 31.03.2013. It can be seen that the figures shown in the list provided in para 7.6 of the assessment order would clarify that the said purchases are on different dates and on different amounts, which are normal business pattern in the timber business. It can be seen that the assessee has his timber depot and saw mills at Kattakada around 28 Kms from Thiruvananthapuram City. The suppliers of the assessee are mainly owners of the land and they are used to supply the standing tree directly to the assessee, which will be cut and remove later only. The assessee used to purchase slaughtered rubber woods also from local persons. Since such business is carried out in the local and remote areas, the vendors would insist for cash on purchase and it is the usual line of business in the timber industry. When the sellers and land owners refuses to accept the payment by cheque of draft, the assessee without having any other alternative options, was compelled to pay the price in cash. There was no deliberate attempt to violate Section 40A(3) read with Rule 6DD.It is only due to the compelling circumstances of the assessee, he paid in cash. The assessing authority did not have any objection on the purchases accounted in the regular books of accounts with respect to these transactions. However the assessing
ITA No.505/Coch/2017 8 Sri.C.Shaji. authority raised a technical objection for disallowing the expenses. The cash transaction made by the assessee is strictly within the realm of Rule 6DD and as such the addition of Rs.2,81,63,141 to the total income is highly unjustifiable and liable to be deleted.
In first appeal, the CIT(A) confirmed the addition made by the Assessing Officer by observing as under:-
“3.3. I considered the appellant's explanation very judiciously and I am not in agreement with him for the following reasons,
a). The appellant has not brought out the compelling circumstances under which the cash payments were made so as to consider the same under Rule 6DD.
b). Each instance of cash payment exceeded to Rs.20,000/-and it is not the case of the appellant that the payments were made to many more persons and each payment never exceeded to Rs.20,000/-
c). Payments seems to have been made to bigger suppliers of timbers and not to the smaller venders to whom Rule 6DD may apply.
d). It has not been established that owners of the land used to supply standing trees directly to the appellant and thereby the appellant had no other option but to make payment by cash.
e). It is also not the case of the appellant that the vendors either insisted for cash payment or refused to accept the payment by cheque or draft.
f). The appellant has not established that the business was carried out in the remote rural area where payment by cash is unavoidable.
ITA No.505/Coch/2017 9 Sri.C.Shaji. g). Cash payments seems to have made mostly to business groups and entities who may also very well aware of constraints and limitations of the Act on payment and receipt by cash.
h). It is not the case of the appellant that the cash payments were made to small farmers and individuals in villages where no banking facility is available.
i). The appellant's proprietary concern, M/S Sthuthi Associates is in Kattakada where there are several banks such as Federal Bank, Syndicate Bank etc. The appellant himself has a current account with Federal Bank, Kattakada. Therefore, non availability of banking facility, business expediency and other relevant factors as opined by the Assessing Officer are not applicable in this case.
3.4 For the reasons mentioned above, I am of the considered opinion that the appellant has violated the provisions of section 40A(3) of the Act. The Assessing Officer is fully justified in making the addition as Rule 6DD is not applicable to the case of the appellant. Appeal on this ground in view of the above, again stands dismissed.”
Aggrieved by the order of the CIT(A), the assessee is in appeal before us. The learned Counsel for the assessee relied upon the grounds raised before the Tribunal. On the other hand, the learned Departmental Representative strongly supported the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. Before us, the assessee filed receipts from parties confirming the receipt of cash payments and also confirming that they do not have bank accounts. The learned DR objected to this contention of the assessee and contended
ITA No.505/Coch/2017 10 Sri.C.Shaji. that the receipts filed by the assessee are stereotype and also they do not have dates. The learned DR further submitted that these receipts were not produced before the Assessing Officer for verification. In our opinion, these receipts need to be verified at the ends of the Assessing Officer. Hence, in the interest of justice and equity, we remit this issue to the A.O. to examine it afresh and if the assessee is able to prove the reasonable cause for making such cash payments, the same may be deleted. Further the amount paid towards bogus purchases by way of cash cannot be once again considered u/s 40A(3) of the I.T.Act, which amounts to double addition. To that extent the assessee gets relief. With these observations, the issue is remitted to the A.O. for fresh consideration. This ground is partly allowed for statistical purposes.
The next issue for our consideration is as under:-
“The stock difference of Rs.94,77,500/- as found by the assessing authority is not supported by any actual verification, except on the basis of a statement available with the banker. The appellate authority ought to have found that the figures in the audited final statement would reflect the correct and acceptable figure. The stock given to the bank is not an audited figure and it is given to avail the CC faculties with the projected figures. It is the settled law that the projected figures which are unreal and furnished to the financial institutions cannot be taken for estimation of income, if the assessing authority has no other corroborative evidences.”
The facts of this issue are that the difference between value of the stock hypothecated to the bank to avail loan and
ITA No.505/Coch/2017 11 Sri.C.Shaji. the value of the stock found reflected in the trading account as on 31.03.2013 has been treated as value of unaccounted stock amounting to Rs.94,77,500/- and subsequently been brought to tax. According to the Assessing Officer, the stock hypothecated to bank was physically verified by the bank which given loan, on 20.03.2013 and the inspection report of the Bank Officer along with copy of security verification register for the month of March, 2013 has been submitted by the Tamilnadu Mercantile Bank Ltd. Trivandrum Branch to him. Copies of stock statement for the financial year 2012-13 were also furnished to him. perusal of the stock statement submitted to the bank by the assessee as on 31.03.2013 revealed that total stock on that date was of the value at Rs.4,51,77,500/- as against Rs.3,57,00,000/- reflected in the trading and profit and loss account. Thus, the Assessing Officer has worked out the stock difference at Rs.94,77,500/- and brought the same to tax.
Aggrieved, the assessee has preferred an appeal to the first appellate authority. The explanation of the assessee not only during the course of assessment proceedings but also during the course of the appellate proceedings in this regard is that the stock value furnished to the bank is the projected one. According to the assessee, it was given only for the purpose of maintaining the cash credit facility with the bank and to avail higher amount of loan. The further explanation of the assessee was that addition of an amount of Rs.94,77,500/- has been made into the total income on ground of unexplained difference in closing stock. The stock
ITA No.505/Coch/2017 12 Sri.C.Shaji. value in the business is Rs.3,57,00,000/- as reported and the value taken by the assessing authority at Rs.4,51,77,500/- is the stock value furnished to the Tamilnadu Mercantile Bank Ltd. for retaining the cash credit limit of RS.2S0 lakhs and an adhoc limit of Rs.50 lakhs. There were no cases for the assessing authority that there is purchase suppression or sale suppression in the course of business but only the legality of the mode of payment through cash has been questioned. The actual stock on verification is only Rs.3,57,00,000/- which is evident from the final audited account statement. The projected value of the stock, which is only for the purpose of maintaining the cash credit facility with the bank, cannot be taken as the trading result in regular course of business. Hence, the assessing authority ought to have been taken the value of the stock, as per the audit statement, as final value without referring to the projected value cited only for the purpose of cash credit facility with the banker. The banker on 20.03.2013 has physically verified the stock and inspection report along with security verification register for the month of March, 2013 is correct. But it is to be noted that the Banker went to assessee's premise to verify the stock for the month of March on 20.03.2013 and the Banker has not quantified the value of stock as on that date. The banker mentioned that enough stock is available to cover the CC facility of Rs.2.50 crores to be given to Shaji. The margin for CC facility as per Bank's sanction letter is 25%. Thus, stock of around Rs.3.35 crores will cover the CC facility of Rs.2.20 crores and this stock can be considered as enough stock to cover sanctioned limit. Moreover, stock verified by the banker
ITA No.505/Coch/2017 13 Sri.C.Shaji. on 20.03.2013 cannot be taken as closing stock as on 31.03.2013 and the bank officer at the time of assessment does not verify the stock register of the assessee. Hence the addition of Rs.94,77,500/- to the total income is also highly inappropriate and liable to be deleted. The assessee further relied mainly on the following decisions of the Hon'ble High Courts namely, 1. CIT vs Prem Singh Co (163 ITR 434 (Del). 2. CIT vs N.Swamy (2411TR 363 (Mad). 3. CIT vs Veerdip Rollers Pvt Ltd (323 ITR 341 (Guj).
In first appeal, the CIT(A) confirmed the addition made by the Assessing Officer by observing as under:-
4.3. I carefully considered the appellant's explanation. His argument is completely centered around the Hon'ble High Courts decisions which he relied on. The Hon'ble High Courts decisions are on closing stock details furnished in a statement to the banks for availing credit facility and that shown in the books of account furnished before the Income Tax Authority. But, the case of the appellant is the different one and cannot be equated with the above mentioned decisions of the Hon'ble courts. Hence, the decisions relied on by the appellant are not applicable to him. Here is the case, it is not the stock statement which were either estimated or inflated submitted to the bank for availing the loan. But, the stock hypothecated to the bank, as mentioned in para 8 of the assessment order, was physically verified by the banker on 20.03.2013 and the inspection report of the Bank Officer along with the copy of security verification register for the month of March, 2013 has been submitted by the Tamilnadu Mercantile Bank, Trivandrum Branch to the Assessing Officer for verification. It is based on this verification, the Assessing Officer found the suppressed stock worth of Rs.94,77,500/- and brought the same to tax u/s 69B. It is not the case of
ITA No.505/Coch/2017 14 Sri.C.Shaji. the appellant that the inspection report of the Bank Officer is factually incorrect and quantitatively inflated one and the appellant had raised objection to the higher amount of stock quantified either during the course of inspection carried out or before the loan was sanctioned. In the circumstances, the objection raised during the course of assessment proceedings is only an outcome of afterthought and intended to reduce the tax liability. It is also not the case of the appellant that the stock to the extent addition was made got reduced due to sale of timber carried out between 20.03.2013, the date on which the bank has physically verified the stock and 31.03.2013, the last day of the year. In the absence of no such sales details furnished in this regard, I have no other option but to agree with the Assessing Officer that there is difference between stock declared to the bank and stock reflected as closing stock. The addition of Rs.94,77,500/- in the back ground of foregoing is hereby confirmed and accordingly, this ground of the appeal is also dismissed.
Aggrieved by the order of the CIT(A), the assessee is in appeal before us. The learned Counsel for the assessee relied upon the grounds raised before the Tribunal. On the other hand, the learned Departmental Representative strongly supported the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. In the present case, the stock is hypothecated to the bank and the bank official physically verified the stock on 20.03.2013 and thus there was a difference between the stock value shown in the stock statement furnished to the bank and the value of stock shown by the assessee in his books of account as on 31.03.2013 at Rs.94,77,500. Even after giving opportunity to the assessee,
ITA No.505/Coch/2017 15 Sri.C.Shaji. the assessee was not able to reconcile the stock difference. In our opinion, when there is a difference in the value of stock shown in the statement given to the bank and the books of account of the assessee, the assessee is bound to explain the differences. In the absence of any explanation furnished by the assessee, the CIT(A) is justified in confirming the addition made by the Assessing Officer. We rely on the judgment of the Hon’ble Madras High Court in the case of Coimbatore Spinning & Weaving Co. Ltd. v. CIT 95 ITR 375 (Mad.)], wherein the Hon’ble Court held as under:-
“The practice of exagerating inflation of stocks in statements given to banks to get loan is not shown to exist or that it has been recognised in the commercial circles or by Courts. Even assuming that such a practice exists the Tribunal is not expected to take judicial notice of such sub-standard morality on the part of the assessee so as to enable them to go back on their own sworn statements given to the banks as to the stocks held and hypothecated by them to the banks. In a case like this where the assessee is confronted with his own sworn statements which show a different state of affairs than the one shown in his own books of account, heavy burden lies on the assessee to prove that the books of account alone give the correct picture, and the sworn statements given to the banks were motivated. In this case the assessee's books of account have not been accepted by the ITO for various reasons. The AAC also holds that the rejection of the books of account is quite justifiable on the facts and circumstances of this case. Having regard to the assessee's own statements given to the banks which show a larger stock than had been actually shown in the account books, it cannot be said that the rejection of the stock account of the assessee is not warranted, so long as the assessee's explanation that the stocks were purposely inflated for the purpose of getting higher overdraft facilities from the banks has not been accepted. Even though the assessee's account books do not show any dealing in cotton, a transaction of sale of suppressed cotton cannot altogether be ruled out especially when the account books have been rejected. If the excess stock of cotton had not been utilised in the manufacture of yarn, the out-turn would not indicate any difference. There is no reason for assuming that the excess cotton could not have been sold as such. As regards the mixing books, the AAC has specifically found that no reliance can be placed on the mixing records in view of the enormous amount of manipulations found therein. Once the Tribunal finds that there were excess stocks after rejecting the explanation of the assessee, the conclusion is inescapable that the excess stocks should have come from undisclosed sources. The finding of the Tribunal that there were excess stocks cannot be interfered with by this Court, as it is
ITA No.505/Coch/2017 16 Sri.C.Shaji. exclusively a matter for the Tribunal to accept or reject the assessee's explanation on the facts and circumstances of this case. The Tribunal is justified in taking the view that the excess stocks should represent the income of the assessee from undisclosed sources.”
In view of the foregoing reasons and following the judgment of the Hon’ble Madras High Court in the case of Coimbatore Spinning & Weaving Co. Ltd. (supra), we uphold the order of the CIT(A). Accordingly, this ground raised by the assessee is rejected.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 20th day of September, 2019.
Sd/- Sd/- (George George K) (Chandra Poojari) JUDICIAL MEMBER ACCOUNTANT MEMBER
Cochin ; Dated : 20th September, 2019. Devdas*
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT (Appeals) Thiruvananthapuram. 4. The Pr.CIT Thiruvananthapuram. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin