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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
order Tollways Pvt. Ltd., # 702, Provident The Income-tax Welworth City, Officer, Yelahanka- Ward – 7[1][4], Doddaballapur Road, Bengaluru. Vs. Marashandra, Bengaluru – 562 163. PAN: AAACY7243E APPELLANT RESPONDENT Assessee by : Shri V. Srinivasan, Advocate : Shri Sankar Ganesh K, JCIT Revenue by DR ITAT Date of Hearing : 08-08-2022 Date of Pronouncement : 22-08-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal by the assessee has been filed by assessee against the order dated 28/03/2022 passed by the Ld.CIT(A)-11, Bangalore relating to Assessment Year 2016-17 on following grounds of appeal:
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
The learned CIT[A] is not justified in sustaining the addition in respect of the amount due to creditors of Rs 1 34,62 545/- that was made u/s. 41[1] of the Act by the learned A.O. by holding that the same was liable to be treated as unexplained cash credits u/s. 68 of the Act under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] failed to appreciate that the appellant had submitted the ledger extract and copies of the bills for works carried out by the creditors along with the payments made to these creditors in subsequent years to prove the genuineness of creditors and consequently, the learned CIT[A] erred in upholding the impugned addition u/s. 68 of the Act. 2.2 The learned CIT[A] ought to have accepted the confirmation letter dated 24/06/2016 from M/s Ayesha India Private Limited in support of the outstanding credit balance of Rs. 1,30,78,145/- and not to have rejected the same merely because there was no response by the creditor to the notice u/s 133[6] issued by the learned A.O. under the facts and in the circumstances of the appellant's case.
3. The learned CIT[A] is not justified in rejecting the bonafide explanation tendered by the appellant and holding the outstanding balance of creditors of Rs.1,34.62,545/- to be unexplained cash credit u/s 68 of the Act especially considering that payments have been made to creditors in the subsequent years via banking channels and thus no addition could be made under the facts and in the circumstances of the appellant's case. 4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 2. Brief facts of the case are as under: 2.1 The Assessee is a Private Limited Company, engaged in the business of execution and improvement of Toll Road from Yelahanka to AP Border under Design, Build, Operate & Transfer (DBOT) basis. The Concession Agreement is entered into between Karnataka Government, Karnataka Road Development Corporation and Yelahanka AP-Border Tollways Private Ltd (Assessee) in June, 2015. During the years 201516, 2016-17 & 2017-18 the assessee was engaged in execution and improvement of Toll Road and all the expenses incurred towards execution of Toll road was capitalized as 'Capital Page 3 of Work in Progress'. However, assessee has undertaken certain ancillary work, which has been accounted as revenue during the respective years. 2.2 During the assessment year 2016-17, the assessee filed the Return of Income on 29/09/2016 declaring Total Income of Rs.7,66,140/- 2.3 The return of the Assessee was selected for limited scrutiny under CASS by serving a notice under section 143(2) on 10.07.2017 for the following reasons: i) Large amount of Sundry creditors ii) Large Current Liability in comparison to total assets. iii) Large value of specified domestic transactions. The reply to the above notice was submitted on 27.07.2017. Subsequently, a notice u/s 142(1) was served by ITO Ward 7(1)(4), Bangalore on 26.07.2019, against which the details were furnished on 06.08.2019 through e- Proceedings. 2.4 Subsequently, a show cause notice was issued on 27.11.2019, asking the assessee to produce the following details: i) Details of the following Sundry Creditors: M/s. Ramalingam Construction Co. (P) Ltd : Rs.46,79,24,480 M/s. Ayesha India Pvt Ltd : Rs.1,30,78,145 M/s. Asvika Advisory Services (P) Ltd : Rs.54,200 M/s. Asvika Corporate Consultancy Services : Rs.82,500 M/s. Frischmann Prabhu India (P) Ltd : Rs.87,000 M/s. MDP Partners LLC : Rs.1,60,700 ii) Details of Current Liability: Salary : Rs.9,37,742 Rent Payable : Rs.1,77,850 Tax Deducted at Source : Rs.1,41,12,312 2.5 Against the above show cause notice, detailed reply was furnished through e-Proceedings on 05.12.2019 and further clarification on TDS on 17.12.2019. As per the requirement of the notice, the assessee has furnished the details of sundry creditors such as ledger extracts of sundry creditors and purchase bills raised for work done to prove the Page 4 of genuineness of the creditors mentioned in the notice. The assessee also produced confirmation from M/s Ramalingam Construction Co. (II Ltd. 2.6 The assessee also furnished details of Tax Deducted at Source and remittance details as per the details called for in the notice. The learned assessing officer sought additional details of interest paid on delay in remittance of TDS and whether the same has been disallowed in computation of income. Towards this, a reply was filed on 17.012.2019 providing the TDS reconciliation statement. The assessee also clearly mentioned in the reply that Rs.54,092/- has been disallowed in computation statement for the AY 2016-17 on account of interest on delayed payment of TDS debited to Profit & Loss Account. Regarding interest payment of Rs.6,95,952/- which was paid on 18.05.2016, the same was debited to Profit & Loss Account of FY 2016-17 and hence the disallowance was made in computation of income of A.Y. 2017-18. 2.7 The Learned Assessing Officer passed assessment order under by making addition of Rs.1,41,58,497/- as under: i) Addition of Rs.1,34,62,545/- towards balance outstanding to Sundry Creditors, which is not proved by confirmation from third parties. ii) Addition of Rs.6,95,952/- towards interest paid on delayed remittance of TDS. Aggrieved by the order of Ld.AO, the assessee filed appear before the Ld.CIT(A). 2.8 As regards disallowance of balance outstanding to Sundry Creditors, the assessee has furnished ledger extract and all bills of creditors for work carried out to prove the genuineness of creditors. However, the learned assessing officer has made addition of amount outstanding to creditors in all cases, except M/s Ramalingam Construction Co. (P) Ltd, for the simple reason that third party confirmation is not made available. The Ld.A.O. mentioned that the he has not received response from M/s Ayesha India (P) Ltd for his letter asking for confirmation of the transaction, and hence the liability is not proved. The assessee had submitted that all the Page 5 of Toll road and has been capitalized as 'Capital Work in Progress' in Balance Sheet and none of these expenses has been debited to Profit & Loss Account. Further, these expenses were incurred during the year, the bills for such expense has been submitted and these bills/ or work done by the creditors were not disputed by the Ld. A.O. and payments were also made on regular basis. In spite of all these submissions, the Ld.A.O. has made the addition of large sum of Rs.1,34,62,545/- only on the basis of third party has not replied to the letter sent to them and confirmation not available, on which the assessee has no control. He thus deleted the addition. 2.9 As regards addition of Rs.6,95,952/- towards interest on late payment of TDS. The assessee, in his reply on 17.12.2019 has clearly stated that out of Rs.7,50,044/- interest paid on delayed remittance of TDS, an amount of Rs.54,092/- has been debited to Profit & Loss Account for the FY 2015-16 and Rs.6,95,952/- has been paid (on 18.05.2016) and debited to Profit & Loss Account of F.Y. 2016-17. Therefore, Rs.54,092/-which has been debited to Profit & Loss Account of F.Y. 2015-16 has been disallowed in the computation of income for the AY 2016-17 and Rs.6,95,952/- which was debited to the Profit Sr Loss Account of F.Y. 2016-17 has been disallowed in the computation of income of A.Y. 2017- 18. In spite of the above clarification, the learned assessing officer has disallowed Rs.6,95,952/- which was not debited to Profit & Loss Account of F.Y. 2016-17 at all. The question of disallowance of an expenditure, which was neither debited to Profit & Loss account nor claimed as deduction, does not arise at all. This shows clear lack of application of mind by the learned assessing officer.
The Ld.CIT(A) decided the issue in respect of cessation of liability as under: “5.4 As regards the relevant provision of the Act, the AO has invoked provisions of Section 41 of the Act. A perusal of the ledger accounts of these creditors shows that an amount to the extent of Rs 37,500/- relating to M/s Asvika Advisory Services Private ltd, was the brought forward Page 6 of 01.04.2015, which was still outstanding as on 31.03.2016. As regards the balance outstanding balances as on 31.03.2016 (being Rs 1,34,25,045/-) the same related to the year under consideration only. The details are tabulated as follows: Outstanding Opening Bal as Debits during Credits during balances Creditor on 01.04.2015 the year the year as on 31.03.2016 Ayesha India Pvt 1,98,366 1,88,22,243 3,13,00,388 1,30,78,145 Ltd Asvika Advisory 37,500 - 16,700 54,200 Services Private Ltd Asvika Corporate Consultancy - 6,90,000 7,72,500 82,500 Services Frischmann Prabhu - 6,00,000 6,87,000 87,000 India Pvt Ltd MDP Partners LLC 2,50,000 4,10,700 1,60,700 5.5 Now as regards outstanding credits of Rs 1,34,25,045/- relating to the year under consideration, Section 68 of the Act is squarely applicable. Although the heading of this section is 'Cash Credits', the language of the section is unambiguous in that it refers to 'any sum is found credited in the books of an assessee maintained for any previous year' in respect of which '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'. So the section does not make any distinction regarding the nature of the sum credited and it is immaterial whether the sum credited is with reference to expenditure capitalized or claimed in the profit and loss account. The basic recondition for the Section 68 is that the assessee should file a valid confirmation. The AO has right to verify the same from the creditor. However, in the case under consideration, admittedly the appellant failed to provide any such confirmations. The notices sent by the AO to the creditors also remained un-responded. In the case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC), the SC had laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Considering above the action of the AO in making addition to the extent of Rs 1,34,25,045/- is upheld, although the relevant provision would be Section 68 of the Act and not Section 41(1) as done by the AO. In the case of Suresh Kumar T. Jain [2011] 128 ITD 74, Bangalore dated 08.01.2010 the Page 7 of ITAT, Bangalore upheld the action of the AO in similar circumstances. The said decision has already been upheld by the jurisdictional Karnataka High Court in the case of Suresh Kumar T Jain v. Income-tax Officer, Ward 2(1), Bengaluru [2019] 101 taxmann.com 164 (Karnataka). 5.6 As regards the balance amount of Rs 37,500/- pertaining to the brought forward credit balance, outstanding as on 31.03.2016, the Hon'ble jurisdictional High Court in the case of Southern India Plywood Co. v. Asstt. CIT [IT Appeal No. 180 of 2002, dated 16-11-2007] while considering the following substantial question of law: "Whether the authorities were justified in making an addition of Rs. 13,03,008 as unproved creditors when the same had been accepted for the previous year?" held as follows at para 10 of its judgment: "So far as the last question of law is concerned, we are of the opinion that the Assessing Officer has a right to inquire about the correctness of the entry shown by the assessee. Even if the Assessing Officer had accepted the credit entries shown by the assessee for the previous assessing years, there is no prohibition for the Assessing Officer to call upon the assessee to prove the existence of such credits and to confirm whether the credit shown in the entries are really in existence or not. When the Assessing Officer has found that such entries are incorrect, when an opportunity was given to the assessee to prove such entries, when the assessee has failed to prove the same in spite of giving an opportunity by the Assessing Officer, we are of the opinion that all authorities were justified in holding that the amount of Rs. 13,03,008 as an unproved credit. In the circumstances, we have to answer the question No. 3 against the assessee." 5.7 As discussed supra, in the case under consideration, the appellant had failed to discharge the onus of proving the outstanding liability. So it is fair to presume that the same was either bogus or already been discharged by the appellant with its unaccounted income i.e. outside the books of account. So the ratio of the above decision squarely applies and the amount is treated as income of the appellant as per provisions of Section 68 of the Act.” Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before this Tribunal.
The only issue alleged by the assessee is in respect of amount due to creditors that was disallowed by the Ld.AO u/s. 41(1) of the Act which was treated as unexplained cash credits u/s. 68 by the Ld.CIT(A).
Page 8 of We have perused the submissions advanced by both sides in the light of records placed before us.
It is noted that the authorities below have not followed the due process of law before invoking the provision that does not arise out of the order of Ld.AO. We also note that due regard has not been given to the evidence filed by the assessee in order to consider this claim of disallowance of the amount due to the creditors. In the interest of justice, we remand this issue back to Ld.AO. The Ld.AO is directed to carry out necessary verification in respect of the evidences filed by the assessee and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. In the result, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 22nd August, 2022.