M/S. CHANDAKA MEADOWS,BHUBANESWAR vs. ITO, WARD-4(2), BHUBANESWAR

This is an appeal filed by the assessee against the order of

the CIT(A),2, Bhubaneswar dated 27.6.2019 for the assessment

year 2015-16.

of appeal, but at the time of hearing, the solitary grievance of the assessee

has been confined to two issues i.e. addition of Rs.7,39,400/- u/s.69B as

unexplained investment and addition of same amount of Rs.7,39,400/- u/s.

40A(3) of the Act.

in confirming the addition of Rs.7,94,900/- u/s.69 B of the Act as P a g e 1 | 8 unexplained investment by the AO, when the sundry creditor has confirmed

that the closing balance of the assessee in his books as at 31st March, 2015

is at Rs.21,504/- as against the claim of the assessee that the liability

against Jagdamba Steelex is Rs.7,56,404/-. He submitted that in the

remand report, the Assessing Officer stated that the amount of

Rs.7,56,404/- was paid by M/s. Ganapati Multicomplex Pvt Ltd., on behalf of

the assessee, which proves that the assessee has not paid any amount to

the sundry creditor M/s. Jagadamba Steelex. Ld counsel reiterating the

above submissions submitted that the ld CIT(A) has directed the AO to

allow the assessee to cross examine Jagadamba Steelex and submit a

remand report. The remand report was submitted by the AO on 2.3.2019,

wherein, in 5th line onward at page 2 of the report, which is very relevant

for the purpose, the AO stated that “ the above said amount was paid by

M/s. Ganapati Multicomplex Pvt Ltd., on behalf of M/s. Chandaka

Meadows”. Ld counsel contended that it is undisputedly proved that the

assessee has not paid the amount to sundry creditor M/s. Jagadamba

Steelex during the impugned period. Therefore, it can be safely concluded

in favour of the assessee that addition of Rs.7,56,404/- in the books of the

assessee are not correct and hence, addition is liable to be deleted. Ld

counsel submitted that since addition u/s.69B is not correct, therefore,

consequential addition u/s.40A(3) of the Act for the equal amount is also

not justified and liable to be deleted.

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the ld CIT(A) and submitted that the explanation furnished by the assessee

was not plausible and acceptable because the statement of account has

been furnished after duly stamped and signed by Jagadamba Steelex,

wherein, Jagadamba Steelex has received the amount by cash from the

assessee and in each such dates aggregate payment exceeds Rs.20,000/-.

Hence, the addition u/s.40A(3) of the Act is sustainable. Supporting the

action of the AO in making the addition u/s.69B of the Act, ld DR submitted

that the partner of Jagadamba Steelex has signed on the first page on

25.11.2017, wherein, he clearly mentioned that the closing balance at

Rs.21,504, which clearly shows that the plea taken up by the assessee was

not acceptable and amount of Rs.7,34,900/- was rightly added to the

income of the assessee u/s. 69B of the Act and the AO was also right in

making addition of similar amount u/s. 40A(3) of the Act.

remand report vide dated 2.3.2019 submitted by the AO before the ld

CIT(A)-2, Bhubaneswar and submitted that after examining the books of

account and all relevant papers of the assessee, sundry creditor M/s.

Jagadamba Steelex and Ganapati Multicomplex Pvt Ltd., the AO clearly

observed that the amount of Rs.7,34,900/- was paid by Ganapati

Multicomplex pvt Ltd., to Jagadamba Steelex on behalf of the assessee and

hence, same was recorded in the books of Jagadamba Steelex in the ledger

P a g e 3 | 8 of the assessee in the credit side keeping the balance of Rs.21,504 (Dr). Ld

counsel strenuously contended that when Jagadamba Steelex is receiving

payment from Ganapati Multicomplex pvt Ltd , on behalf of the assessee

then if there is any violation of provisions of section 40A(3) of the Act in the

said transaction between the creditor and third party, who is making

payment on behalf of the assessee, no addition can be made in the hands

of the assessee for such violation. Ld counsel prayed that when the AO is

relying on the ledger of Jagadamba Steelex, wherein, total credit of

Rs.7,56,404/- has been shown and thereafter deducting the amount of

Rs.7,34,900/-, the remaining debit balance has been shown as Rs.21,504/-,

then how the addition u/s. 69B of the Act can be made in the hands of the

assessee by making allegation of undisclosed or unexplained investment.

the record of the case. The Assessing Officer made addition of

Rs.7,34,900/- u/s.69B of the Act as unexplained investment on the ground

that the assessee had shown credit of Rs.7,56,404/- as on 31.3.2015

against Jagadamba Steelex. In reply to Assessing Officer query, Jagadamba

Steelex replied that the opening balance for the year was Nil, whereas the

total purchases made by the assessee was of Rs.7,56,404/- and total

payments received in cash from the assessee was Rs.7,34,900/- leaving a

balance of Rs.21,504/-. It was in this backdrop that the Assessing Officer

asked the assessee to reconcile the statement of Jagadamba Steelex with

P a g e 4 | 8 its books of account. The assessee replied that it has not made any

payments to Jagadamba Steelex and the payments made to Jagadamba

Steelex were made through banking channel during next assessment year

2016-17 and there is no question of payment in cash. The above

explanation of the assessee did not find favour by the AO and in turn, he

made addition of Rs.7,39,400/-.

that when during remand proceedings before the AO on 14.12.2018,

Jagadamba Steelex produced xerox copies of cash book for financial year

2014-15 relevant to assessment year 2015-16, alongwith copies of bank

statement for the same financial period then the existence of Jagadamba

Steelex cannot be denied. The AO in the remand report, also stated that

the said amount was paid by M/s. Ganapati Multicomplex Pvt Ltd., on

behalf of the assessee” and same was correctly recorded in the books of

account of M/s. Jagadamba Steelex and xerox copy of cash book was

placed on record and sent to ld CIT(A) for his perusal. Para 4 of the

remand report also reveals that on 27.12.2018, the Managing Partner of

the assessee firm appeared and produced the ledger copy of M/s.

Jagadamba Steelex, wherein, it was seen that the assessee has paid

Rs.7,56,404/- in the next financial year i.e. 2015-16 on different dates and

in each such date total amount paid by cash is below Rs.20,000/-. In para

5 of the remand report, the AO noted that the outstanding liability was

P a g e 5 | 8 never paid through bank account but same was paid in cash in the next

financial year 2015-16 relevant to assessment year 2016-17. In such

situation, it is not an issue for my adjudication that when the assessee paid

amount to Jagadamba steelex, the issues for my consideration are that

firstly, as to whether the assessee has falsely shown credit amount of

Rs.7,56,404/- due to M/s Jagadamba Steelex without any basis and without

disclosing payment of Rs.7,34,900/- and secondly said payment of

Rs.7,34,900/- was made in violation of section 40A(3) of the Act. The

remand report para 2 shows that the amount of Rs.7,34,900/- was paid by

Ganapati Multicomplex pvt Ltd., to Jagadamba Steelex on behalf of the

assessee and it was the contention of the assessee that the amount was

paid during next financial year 2015-16. Be that as it may, first of all, I

observe that the existence of Jagadamba Steelex cannot be denied and this

fact also cannot be denied that there was credit balance of Rs.7,56,404/- in

the books of the assessee in the name of Jagadamba Steelex during

financial year 2014-15. When the AO is deeming that the assessee has

made payment of Rs.7,34,900/- in cash without disclosing the same in the

books of account and making addition of same amount u/s.69B of the Act,

then it is the duty and onus on the shoulders of the AO to establish factum

of undisclosed investment by assessee. I am unable to see any positive

evidence in this regard. For the sake of arguments, it is accepted that M/s

Ganapati Multicomplex Pvt KLtd., made payment on bejhalf of the assessee

P a g e 6 | 8 then also the credit at M/s. Jagadamba Steelex will be reduced and the

same amount will have to be shown as due to M/s. Ganapati Multicomplex

resulting into same amount of sundry creditors. There is no positive

evidence on record that the M/s. Ganapati Multicomplex took amount from

assessee and further paid to M/s. Jagadamba Steelex and this amount was

undisclosed investment of assessee attracting provisions of section 69B of

the Act. Therefore, I am unable to agree with the contention of the AO and

ld CIT(A) treating this entire amount or part of amount of Rs.7,34,900/- as

unexplained investment by the assessee attracting the provisions of section

69B of the Act.

placed on record alongwith remand report dated 2.3.2019, I am unable to

see any valid reason, supported by any positive evidence, showing and

establishing that during the relevant period, the assessee has made

payment of Rs.7,34,900/- in cash to Jagadamba Steelex in violation of

provisions of section 40A(3) of the Act. Therefore, I am compelled to

incline to hold that the AO was not correct in making addition of similar

amount u/s.69B and u/s 40A(3) of the Act and ld CIT(A) was not correct in

confirming the same. However, I may state that if the assessee has paid

amount in next financial year, the AO is directed to examine the issue in the

said financial year while making the assessment. With these observations,

the AO is directed to delete the addition.

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Order pronounced on 31 /12/2019.

Sd/- (Chandra Mohan Garg) JUDICIAL MEMBER

Cuttack; Dated 31/12/2019 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : /s. Chandaka Meadows, Plot No.300, Kharvel Nagar, Unit-III, Bhubaneswar

By order

Sr.Pvt.secretary ITAT, Cuttack

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