CIT FARIDABAD vs. RENU MUKHERJEE

This order shall dispose of ITA Nos.303, 309, 336 and 340 of 2009 as according to the learned counsel for the parties, all the appeals arise out of one consolidated order dated 29.8.2008, Annexure A.III passed by the Income Tax Appellate Tribunal, Delhi Bench 'F', New Delhi (in short, “the Tribunal”) relating to the assessment years from 2000-01 to 2003-04 and the issues involved therein are similar. However, the facts are being extracted from ITA No.336 of 2009. 2. ITA No.336 of 2009 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 29.8.2008, Annexure A.III passed by the Tribunal in ITA No.3211/DEL./2007 for the assessment year 2000-01. All the appeals were admitted on 4.3.2010 to consider following substantial questions of law:- integrity of this document High Court Chandigarh “1. Whether on the facts and in the circumstances of the case,the learned ITAT mi irected itself in deleting the addition of ` 2,83,261/- under the head wages without recording its own independent findings being the final fact finding authority ignoring the fact that the assessee failed to prove the genuineness of the claim with documentary evidence and the Assessing Officer rightly made the addition on the basis of return filed with the ESI authorities?

Whether on the facts and in the circumstances of the case,the learned ITAT is right in law in confirming the order of the CIT(A) on the issue of payment of bonus of ` 75,168/- in absence of any documentary evidence of payment i.e. Salary register, bonus register and confirmation from the employees working with the assessee at the time of assessment proceedings and ignoring the fact that the confirmation furnished by the ex employer which too are not available for reconfirmation?

Whether on the facts and in the circumstances of the case,the learned ITAT is right in confirming the order of the CIT(A) without recording its own independent finding being the final fact finding authorities to the effect that the assessee did not cooperate during the assessment proceedings leaving no option to the Assessing Officer but to make the addition on estimate having rational to the raw material consumption and manufacturing expenses?

Whether on the facts and in the circumstances of the case,the learned ITAT is right in law in deleting the addition on account of Sundry Creditors to the tune of ` 13,74,048/- as the assessee failed to discharge the onus to prove the genuineness of the sundry creditors inspite of calling information under section 133(6) of the Income Tax Act, 1961 and the admission of the assessee that the parties are not available nor addresses are available that further ignoring the report of the Inspector deputed for the specific purposes?

Whether on the facts and in the circumstances of the case,the addition of ` 3,00,000/- on account of expenses debited to P&L account as the assessee did not furnish any explanation, documentary evidences, books of account, bills and vouchers despite numerous opportunities resulting into recording of perverse findings?

Whether on the facts and in the circumstances of the case,the learned ITAT was right in law in confirming the order of the learned CIT(A) in deleting the various additions even though the assessee had produced the books of account before the Sales Tax authorities and had not done so before the Income Tax authorities?

Whether the findings recorded by the learned ITAT are perverse and contrary to the evidence available on record and legally sustainable in the eyes of law?

A few facts relevant for the decision of the controversy involved, as narrated in ITA No.336 of 2009 may be noticed. The respondent assessee filed her original return on 25.10.2000 declaring total income of ` 4,19,620/- which was processed under Section 143(1) of the Act. Later on, on the basis of information received in the shape of tax evasion petition in the said case, the proceedings under section 147 of the Act were initiated. The assessee filed return in response to the notice under Section 148 of the Act on 28.4.2005 showing the same income as declared in the original return. In the proceedings under sections 143(3)/147 of the Act, the assessee did not produce the books of account despite giving adequate opportunities. The Assessing Officer framed assessment to the best of his judgment on the basis of material/information available on record. Assessment was completed vide order dated 27.3.2006, Annexure A.1 under sections 143(3)/147 of the Act at an income of ` 51,40,250/- effecting various additions. The assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 30.4.2007, Annexure A.II, the CIT(A) partly allowed the appeal. Not satisfied with the order, the revenue filed appeal before the Tribunal whereas the assessee filed Cross Objection. Vide order dated 29.8.2008, Annexure A.III, the Tribunal dismissed the appeal of the revenue and also the Cross Objection filed by the assessee. Hence the instant appeals by the revenue.

We have heard learned counsel for the parties and perused the record.

A perusal of the findings recorded by the authorities below shows that in all the appeals, there were a total of five issues on which the Assessing officer had made additions with varying amounts in each assessment year. The CIT(A) had deleted the same and the Tribunal had sustained the order of CIT (A). The additions were on following counts in assessment year 2000-01:- (i) Addition of ` 3,20,391/- under the head wages. (ii) Addition of ` 52,741/- on account of bonus expenses. (iii)Addition of ` 15,50,151/- on account of manufacturing and trading expenses. (iv)Addition of ` 26,15,349/- on account of sundry creditors. (v)Addition of ` 2,00,000 on account of expenses debited to profit and loss account.

In order to effectively adjudicate the controversy raised in these appeals, it would be advantageous to notice the findings of the Assessing Officer making the additions and the CIT(A) deleting the same on each addition separately. However, the findings of the CIT(A) deleting the additions have been affirmed by the Tribunal. (i) A. Addition of ` 3,20,391/- under the head wages

The assessee has also given a chart of wages separately for the employees who are covered under ESI and the wages relating to employees not covered under ESI as under:- Wages claimed 645902/- Wages under ESI 313511/- Wages not covered under ESI 302391/- 615902/- In support of her above contention the assessee has not furnished any documentary evidence. Further, the assessee vide letter dated 16.3.2006 received in this office on 20.3.2006, has reiterated the same reasons as explained in her reply dated 09.03.2006. The wages claimed by the assessee is not verifiable as the assessee failed to produce the books of account inspite of repeated opportunities. Any claim of the assessee must be proved with documentary evidence. Unless and until the A.O. is satisfied that the claim of the assessee is genuine, the expenditure claimed by the assessee under a particular head cannot be allowed in full. Here the assessee neither produced the books of account integrity of this document High Court Chandigarh nor the detail of the employees who are claimed to be not covered under ESI. Therefore, I have no other alternate in the absence of books of accounts/documents but to resort to the information available on record/obtained from ESIC, Faridabad. Accordingly I disallow a sum of Rs.302391/- (Rs.615902/- claimed by the assessee minus Rs.313511 as per form No.6). In view of the above facts, I am of the opinion that the assessee has furnished inaccurate particulars of her income which resulted into a concealment of Rs.302391/-.Therefore, penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income have been initiated.”

The CIT(A) while deleting the addition observed as under:- “7.3 I have carefully considered the submissions of the Ld. ARs and find that the Ld. ARs had during the course of assessment proceedings on their own had submitted the affidavit from one of the employees, Mr. Sazid Ali to prove the point that the wages mentioned in the form No.6 are covered only of those persons who are covered under ESI and this is quite understandable through the common sense. The Ld. ARs have given the example of earlier year i.e. A.Y. 98-99 which shows from the form No.6 that total wages paid were more than the wages covered under ESI. Since the appellant had no books of account, the Ld. ARs have resorted to the instance of allowance of wages in the earlier years where they constituted 7% of the job receipts and which have been accepted by the Department, whereas during the year the claim was only to the extent of 6.83% as admitted by the AO in the assessment order. But for the disallowance made by him the claim will be reduced to 3.48% of job receipts, which is not justifiable in the case of the appellant compared to the earlier years. The Id. ARs have submitted form No.6 at pages 39-42 of the paper book for the A.Y. 98-99 in support of their contentions, which shows that the actual claim of wages was more i.e. wages were always higher than the wages reported to ESI and this fact was accepted by the Department. In my view and finding, the AO has not proved his case and made the disallowance simply integrity of this document High Court Chandigarh because he has not understood the nature of expenditure of wages and also not examined the expenditure properly, which the Id. ARs have substantially established by documentary evidences and comparative figures in the appellant's own case. Therefore, the disallowance of Rs. 3,02,391/- made by the AO is not justified and hence, is deleted.” (ii) B. Addtion of ` 52,741/- on account of bonus expenses.

The assessee claimed to have paid bonus amounting to ` 52,741/- to her employees during the year for which she was required to furnish proof of payment of bonus to the employees. The Assessing Officer disallowed the claim as the assessee had failed to adduce to establish payment of bonus to the employees. The CIT(A) on appeal deleted the addition holding that in case the Assessing Officer had any doubt about the workers, he could have examined them under Section 131 of the Act. The relevant finding recorded by the Assessing Officer on this issue reads thus:- “The assessee has claimed to have paid bonus amounting to Rs.52741/- to -her employees during the year for which she was required to furnish proof of payment of bonus to the employees. In response to show cause notice the assessee has stated that she has been regularly paying bonus to all the employees ranging between 8.33% to 10% as per statutory requirement and normal practice. The assessee did not produce salary register/bonus register on the plea that the register is not in her, possession as the same has not been handed over to her by Sh. R.C. Garg, Advocate (Previous Counsel). However, the assessee has furnished confirmations from four persons stating that they have worked with M/s BGM Engineers during the F.Y. 1999-2000 to 2002-03 and the firm was paying one month's salary as bonus.From the perusal of confirmations filed by the assessee, it is noticed that they are not presently working with the assessee. The assessee has not produced any worker before me for cross examination.

The CIT(A) while deleting the addition recorded as under:- “8.3 I have carefully considered the submissions of the Ld. ARs and perused the order of assessment. In the absence of the books of account or documentary evidences, the AO should have gone by the statutory requirements of the bonus expenditure which the Ld. ARs have brought about as above and according to which the expenditure comes to Rs. 48,786/-. Moreover, if the AO had any doubt about the confirmations of workers, he could have examined them u/s 131(1), which is not evident from the assessment order itself. Moreover, all the objections of the AO are properly met by the Ld. ARs in their written submissions as above.As in the case of wages, the AO has not been able to prove his case and rather the Ld. ARs have all the way been able to justify the expenditure of bonus. Therefore, the action of the AO in disallowing the bonus at Rs. 52,741/- on flimsy ground is also not justified and therefore, is deleted.”

The Assessing Officer allowed under the head manufacturing and consumption of raw material at the rate of 50% on gross receipts of ` 90,11,834/- i.e. ` 45,05,917/ as against total expenses claimed at ` 60,56,068/-. The excess expenditure of ` 15,50,151/- was disallowed by the Assessing Officer. On appeal, the CIT(A) deleted the addition.

The finding recorded by the Assessing Officer hereunder reads thus:- “11. From the perusal of Mfg. & Trading account for three years, it is seen that there is huge variation in the various expense debited to P&L A/c. Assessee did not offer any explanation for the said variation under various heads. The analysis of expenses shows that assessee claimed the total expenses on uniform basis. In absence of books of accounts and other documents, I adopt the minimum ratio percentage of Mfg. Expenses and consumption expenses to determine the concealment of income. On the basis of ratio analysis of expenses for four years the allowable expenditure under the head manufacturing expenses & consumption of raw material was worked out at 48.33% by adopting the least percentage of different years as under:- Mfg. Expenses 11.58% (for the A.Y.2001-02) Consumption 36.75% (for the A.Y.2002-03) Total 48.33% However, to be fair & judicious, I adopt the percentage of allowable expenditure @ 50% under these two heads as the assessee failed to establish the genuineness of the expenses claimed by the assessee. In response to show cause notice dated 2.03.2006, it was contended by the assessee that consumption of raw material and manufacturing expenses are complementary to integrity of this document High Court Chandigarh each other and the percentage of variation in any particular head over a period of years cannot be looked in isolation. The assessee has given the chart of percentage under the above two heads which was prepared by me while issuing show cause notice. In support of her contentions no satisfactory explanation has been offered by the assessee to prove the genuineness of these expenses. The onus to establish/prove the genuineness of expenditure claimed is entirely on the assessee. Since the assessee has not discharged her onus, the claim of the assessee cannot be accepted in-toto because inspite of spate of opportunities provided the assessee, no documentary evidence i.e. books of accounts/vouchers have been produced for verification. Therefore, I have no other option but to allow the expenditure on the basis of ratio analysis @ 50%. Accordingly the expenses under the head manufacturing & consumption of raw material is allowed at 50% on total gross receipts of Rs.9011834/- which comes to Rs. 4505917/- as against total expenses claimed at Rs.6056068/- (4376825 + 1679243). Thus, the assessee has claimed excess expenses amounting to Rs. 1550151/- (6056068- 4505917) which is added to the income of the assessee. Since the assessee has furnished inaccurate particulars of her income, penalty proceedings u/s 271(I)(c) have been initiated.”

The CIT(A) while deleting the addition noticed as under:- “I have carefully considered the submissions of the Ld. AR and those of the AO. The AO's contentions are based only on suspicions and false notions and assumptions. He forgets that the appellant is doing this business from the last many years and that her books of account were not with her but with the complainant and therefore, the ratio analysis of expenses itself shows that the expenditure was incurred by the appellant but the AO allowed the expenditure according to his own yardsticks and whims. I have gone through the chart of comparative manufacturing the trading expenses as reproduced by the AO in his assessment order itself, which shows that the AO has taken the minimum percentage of such creditors which do not pertain to the year under appeal, could not be integrity of this document High Court Chandigarh added in the year under appeal under any circumstances. The action of Ld. A.O. disallowing various expenses and yet making addition on account of creditors again is nothing but double and duplicate addition". (iv) D Addtiion of ` ` ` ` 26,15,349/- on account of sundry creditors.

The assessee showed sundry creditors amounting to ` 29,25,704/- in her balance sheet as on 31.3.2000 relevant to the assessment year 2000-01. The Assessing Officer made addition of ` 26,15,349/- as income from undisclosed sources. The CIT(A) deleted the said addition holding that all the creditors were old creditors relating to earlier years which had been accepted in those years, which was confirmed by the Tribunal. The finding recorded by the Assessing Officer on this issue reads thus:- “12. The perusal of balance sheet as on 31.3.2000 relevant to assessment year 2000-01 reveals that the assessee has shown sundry creditors amounting to Rs.29,25,704/-. During the course of assessment proceedings letters calling information under section 133(6) were issued to from various creditors which were received back with the remarks "not traceable or incomplete address". The Inspector of this office was also deputed to make spot inquiries in respect of some sundry creditors who after making inquiries stated that the parties mentioned in show cause notice did not exist at the given addresses or could not be traced out inspite of his best efforts.

1 The assessee was duly confronted with these facts and she was required to furnish complete addresses with telephone numbers vide showcause notice dated 2.3.2006. In response to show cause notice, it has been stated by the assessee as under:- "In connection with the sundry creditors, the assessee is trying hard to obtain the confirmations from the creditors since the same are old and the parties are small and it is becoming difficult to collect the same. In some of the cases, the parties have shifted integrity of this document High Court Chandigarh their business premises and the latest address and telephone numbers are not available with the assessee. We are trying to get the latest addresses and telephone numbers of the parties through our contacts and knowledge which will be submitted soon after that. The confirmations collected by the assessee are being submitted to your goodself. Moreover the addresses and telephone numbers available in the records with the assessee are also being submitted. In the list of creditors, it is seen that Sh. R.C Garg and M/s Machine Age India, the firm belonging to the son Sh. R.C. Garg are also appearing. Since we are not at good relation with Sh. R.C. Garg as your good self is aware, the confirmation in this regard, may kindly be obtained by your good self directly.As already mentioned that there is a lapse of 2-3 years and the suppliers who were in most of the cases are small parties having small workshop might be shifted their office/premises. We are enclosing the confirmations received some of the creditors and also enclosing the list of creditors with addresses and telephone no. which are available with the assessee and the addresses be kindly verified whether inquiries have been made at the right place. Moreover the list of parties and addresses mentioned by your good self in the notice are not complete only the area and the city is mentioned. Therefore, it could be possible that it was difficult for the Inspector to locate the party in that particular area. However, we are making efforts to get the latest addresses and location and shall inform your good self as soon as the same is available."

2 Vide letter dated 16.03.2006 received in this office on 20.03.2006 the assessee filed a list of 163 creditors which contains incomplete addresses in most of the cases. In this list, the assessee has not mention the telephone numbers of the parties. In some of the cases the assessee has mention the name of the city only, e.g. in the case Aasthana Steel Industries the address of the party has been shown as "DELHI" the whereabouts of the party cannot be located. Further in the cases of G.N.Casting and SLR Finlease Ltd., no address thereof has been shown in the list. In integrity of this document High Court Chandigarh one case mentioned at serial No.135 i.e. U.P.Industrial Corporation, the address has been shown, as "LUCKNOW (U.P.)" which also cannot be traced out. No copies of accounts of the parties mentioned in the list except in few cases have been furnish by the assessee. The assessee has filed copies of account in some cases which have been placed on record and have been verified from the list of creditors available on record. However, on perusal of these accounts it is noticed that the sundry creditors appearing at serial No.9, 13, 14, 25, 28, 29,32, 33, 35, 36, 37, 40, 41, 46 & 47 of show cause notice dated 02.03.2006 which has been reproduced above, appear to be genuine. The total amount of above mentioned creditors comes to Rs.3,09,712/-. As per list sundry creditors the assessee has claim total amount of Rs.2925061/- under the head sundry creditors out of which a sum of Rs.309712/- seems to be genuine. For the remaining amount of Rs.2615349/- the assessee failed to establish the genuineness of these sundry creditors.

The assessee has not discharged her onus to furnish the complete details in respect of sundry creditors amounting to Rs.2615349/- (2925061 - 309712).Furnishing part information that too incomplete about the creditors does not absolve the assessee from discharging of her onus inspite of the fact that sufficient opportunity was provided to the assessee to prove her case with documentary evidence.Therefore, I am of the considered view that the sundry creditors to the extent of Rs.2615349/- are of dubious nature and the same are added to the income of the assessee by treating the same as bogus liabilities in the garb of sundry creditors because the assessee failed to discharge her onus to prove the genuineness of the remaining sundry creditors. Accordingly an addition of Rs.2615349/- is made as Income from undisclosed sources. The assessee has concealed her income by furnishing inaccurate particulars of her income, penalty proceedings u/s 271(1)(c) are being initiated.”

The CIT(A) while deleting the addition held as under:- integrity of this document High Court Chandigarh “I have carefully considered the submissions of the Ld. ARs and those of the AO. I have also gone through the details of sundry creditors for the year under consideration with their opening balances and the names of all those creditors, which show that the opening balances of all those creditors are more or less the same and the AO was thus not justified in making the disallowance out of the old creditors balances which have been accepted in earlier years. Moreover, the AO himself has disallowed the expenditure out of raw material in ground No. 4(c),which is on account of purchases and therefore, it relates to creditors. Therefore, there cannot be a double or duplicate addition. Hence, the AO was not justified to make such a disallowance without understanding the facts and circumstances of the case. Hence, it is deleted.” (v) E. Addition of ` ` ` ` 2,00,000 on account of expenses debited to profit and

The finding recorded by the Assessing Officer on this issue reads thus:- “13 The assessee has not furnished any explanation regarding the disallowances of Rs.2,00,000/- proposed out of the expenses debited to profit and loss a/c at Rs.705315/- vide show cause dated 02.03.2006. Therefore, a disallowance of Rs.2,00,000/- is made to the income as the assessee failed to substantiate the claim of expenses debited to P&L A/c with documentary evidence.

With these observations, the income of the assessee is computed as under:- Income shown in the return filed in response to notice u/s 148 4,19,620/-

The CIT(A) deleted the addition in the following terms:- “I have carefully considered the submissions of the Ld. AR and perused the order of assessment and comments of the AO. First of all, the AO has made an adhoc disallowance without any basis. Secondly, I have gone through the chart of expenses debited to P & L account in earlier years of the appellant and their percentage with turnover, which show that the percentage more or less is the same. Hence, there is no basis for disallowing them on this count also. Further, the AO has already made a disallowance of bonus and which is included in such disallowance. Keeping in view all these factors, such disallowance made by the AO is quite baseless and hence, it is deleted.”

While upholding the findings recorded by the CIT(A) on all the issues, the Tribunal vide order dated 29.8.2008, Annexure A.III recorded thus:- “8.3 Therefore,on facts and circumstances of the case, we do not see any good ground to restore the disallowances under various heads made by the A.O. All the disallowances were arbitrarily made without any basis and were rightly deleted by the learned CIT(Appeals). It was open to the revenue authorities to plead and show that higher net profit rate should have been applied in this case having regard to material available on record. But no such integrity of this document High Court Chandigarh ground is raised and relevant observation of learned CIT (Appeals) had not been challenged in the grounds of appeal. We are, therefore, not called upon to consider whether net profit rate applied in this case is reasonable or not. We therefore, do not find any error in the approach of the learned CIT(Appeals) in deleting various disallowances/additions made by the AO. The action of learned CIT(Appeals) is confirmed in all the four years.”

The findings recorded by the CIT(A) and upheld by the Tribunal on all the issues are based on appreciation of evidence on record which have not been shown to be illegal or perverse in any manner. The findings and the approach of CIT(A) and the Tribunal are plausible one. Only an effort has been made to reappraise and reappreciate the evidence which is not permissible under Section 260A of the Act. As a result, the first five substantial questions of law are answered against the revenue and consequently, questions No. (6) and (7) do not arise for consideration. Thus, the appeals being devoid of any merit stand dismissed. (Ajay Kumar Mittal) Judge September 17, 2014 (Fateh Deep Singh) 'gs' Judge integrity of this document High Court Chandigarh