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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI M. BALAGANESH & SHRI PAVAN KUMAR GADALE
Date of hearing 11/05/2022 Date of pronouncement 23/05/2022 O R D E R Per: PAVAN KUMAR GADALE (JM): These are the appeals filed by the assessee against the separate orders of CIT(A)-36, Mumbai passed u/s 143(3) r.w.s. 147 and 250 of the Income-tax Act.
2 ITA 797/Mum/2020 ITA 798/Mum/2020 2. Since the issues in these appeals are identical and similar, hence are clubbed, heard and consolidated order is passed. 3. For the sake of convenience, we shall take up ITA No.797/Mum/2020.A.Y.2014-15 as a lead case and the facts narrated. The assessee has raised the following grounds of appeal:- “The Appellant objects on the following grounds against the Order dated
29. November 2019 passed by the Hon'ble Commissioner of Income Tax-(Appeals)-36 [('hereinafter referred to as CIT{A)] and received by the Appellant on 5. December 2019 for the aforesaid assessment year: 1.0 Ground No.1: Confirming the addition On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case confirming the addition of 100% creditors totaling to Rs. 19.85 crores as unproved creditors. 2.0 Ground No. 2: Reassessment proceedings not based on any new material facts On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that reassessment proceedings were not based on any new material facts. 3.0 Ground No.3: Appellant has discharged the burden & proved qenuiness. Revenue has not given any evidence to discharge the burden On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate the fact that the Apex Court ruling of Sumati Dayal v. CIT relied is not applicable and Appellant has discharged the burden to prove the creditors and debtors are genuine and submitted all the necessary explanations, bank statements, ledger confirmations and documentary evidences; the Revenue has not given any evidence to rebut the same and discharge the burden of proof which lay on it. 4.0 Ground No,4: Unreasonable act, exorbitant addition & high pitched order passed without giving an opportunity of being heard On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate the fact that the Learned AO has made the aforesaid exorbitant addition and passed the high pitched order under section 143(3) r.w.s 147 of the Income Tax Act,1961 ('the Act') without giving an opportunity to the Appellant of being heard and acted unreasonably. 5.0 Ground No.5: Purchase & sale transactions are not on rotational pattern and not within specific group 3 ITA 797/Mum/2020 ITA 798/Mum/2020 On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the purchases for the year under appeal were Rs.80.52 crores & turnover of Rs.81.01 crores are with different entities not within a specific group. 6.0 Ground No.6: Debtors & Creditors- Purchases & Sales of the year under appeal On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the creditors of Rs.50.17 crores and debtors of Rs. 50.29 crores materialized from the purchases and sales made during the year under appeal and creditors paid within six months on receipt from the debtors/sale realization. 7.0 Ground No.7: Creditors cannot be unproved when purchases have been accepted as genuine On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the creditors cannot be unproved when purchases have been accepted as genuine in the assessment order passed under section 143(3) r.w.s 147 of the Act. 8.0 Ground No.8:Original Order u/s 143(3) passed after examination & verification of creditors On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the original order under section 143(3) of the Act was passed after examination and verification of the creditors. 9,0 Ground No.9: Addition is not made under any section of the Income Tax On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the aforesaid addition have not been ; made under any section of the Income Tax and non-mentioning the precise provision of law makes the impugned addition bad in law.”
4. The brief facts of the case are that the assessee is a proprietor of Supriyam Diamond and is engaged in resale of cut and polished diamonds. The assessee has filed the return of income on 29/11/2014 disclosing a total income of Rs.23,76,380/- and the return was processed u/s 143(1) of the Act. The assessment was completed u/s 143(3) of the Act with the assessed total income of Rs.35,65,060/-. The Assessing officer(A.O.) has received information with respect to transactions of Supriyam Diamond being high value transfers with 4 ITA 797/Mum/2020 ITA 798/Mum/2020 specific group consisting of seven entities and enquiry was conducted. The A.O. has reason to believe that the income has escaped assessment and issued notice u/s 148 of the Act. Whereas the assessee has filed a letter on 17/04/2018 to treat the return of income filed earlier as due compliance. Subsequently, notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the assessee has furnished the details and the case was discussed. The A.O. has information of high value transfers of group and to test the genuineness of information/ transactions has issued summons u/s 131 of the Act and called for the details referred at Para 4.1 of the assessment order.
The Assessee has submitted Financial year wise reconciliation statements with the parties ,the payments and deposits in bank account, and ledger account copy of the party from the books of account of assessee’s proprietary firm and invoice copies are also furnished to substantiate the transactions of purchases with the sundry creditors .Subsequently, the A.O. found that the assessee has closing balance of sundry creditors of Rs. 50,17,58,864/- and debtors of Rs.50,29,07,962/- and the assessee was asked to file the justification of creditors & debtors and the assessee has filed details with reasons on 06/12/2018 referred at page 3 Para 5 of the order. The AO dealt on the list of sundry creditors and sundry debtors and the explanations on the transactions and settlement of sundry debtor’s receivables and sundry creditors payable in the financial year. Finally the AO found that the assessee could not substantiate the genuineness of high value transactions in the bank account in respect of these parties and made addition of closing sundry creditors payable in respect of 4 parties aggregating to 5 ITA 797/Mum/2020 ITA 798/Mum/2020 Rs.19,85,40,189/- and assessed the total income of Rs.20,21,05,2150/- and passed the order u/s 143(3) r.w.s. 147 of the Act dated 28/12/2018. 6. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the assessee has filed the grounds of appeal
challenging the validity of assessment and the addition of sundry creditors balances. Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the A.O, But finally is of the opinion that the action of the A.O is tenable and confirmed the validity of assessment and addition of balances of sundry creditors and dismissed the appeal. Aggrieved by the CIT(A) order, the assessee has filed appeal before the Honble Tribunal.
7. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the validity of re-assessment proceedings on the same set of facts available in the original assesseement and on merits, the assessee has proved the genuineness of transactions and submitted the detailed information of creditors outstanding balances before the lower authorities and the creditors balances are paid in the subsequent years. The Ld.AR substantiated the submissions with the voluminous paper book and judicial decisions and prayed for allowing the appeal. Contra, the Ld.DR supported the order of the C IT(A).
8. We have heard the rival submissions and perused the materials on record. The Ld.AR submitted that the CIT(A) has erred in confirming the disallowance of sundry creditors balances overlooking the factual submissions and the material information on the bills and the valid reasons for delay in making the payments to sundry creditors. The Ld.AR has argued on the merits of the case explaining 6 ITA 797/Mum/2020 ITA 798/Mum/2020 the opening balances carried forward from earlier years and transactions and payments made during the current financial year. The Ld.AR demonstrated the copy of confirmation of creditors ledger accounts for F.Y.2013-14 at page 96, 97, 98 & 99-102 of the paper book . The Ld.AR emphasized that the payments were made to the creditors, which is a running account and the bills were raised during the year and the closing balance as on 31/03/2014 is confirmed by the sundry creditors. Further in respect of one sundry creditor there is no opening balance carried forward from the earlier year and the transactions pertains to the F.Y. 2013-14 only. Further, the Ld.AR submitted that the outstanding sundry creditors payable are cleared in the F.Y.2014-15 and highlighted the copy of the statements at page 131,132,133 & 134 of the paper book. The Ld.AR contentions that the A.O. has disbelieved the facts that they are the running sundry creditors and the assessee is carrying on the business from the earlier years. Since for various business reasons, trade practices and financial constrains the outstanding amounts could not be cleared immediately and were paid/cleared in the FY 2014-15.
9. We find that the requisite material papers were filed by the assessee and placed before the CIT(A) in the appellate proceedings, but there was no reasons recorded by the CITA) on rejecting the material information which goes to the roots of the case. Prima facie we find that the additions made by the AO is not supported with any valid reasons except on assumptions and presumptions as the amounts are being carry forwards from earlier years. The Ld.AR submissions are realistic and duly supported by the material information having evidenceial 7 ITA 797/Mum/2020 ITA 798/Mum/2020 values. We considering the facts, circumstances, provisions of law are of the opinion that the creditors are trade creditors and the payments are made by the assessee in F.Y. 2014-15 cannot be doubted and the revenue has also accepted the payments. Accordingly, we set aside the order of the CITA) on this disputed issue and direct the Assessing officer to delete the addition.
Since we have decided on the merits of the case, the grounds of appeal with respect to validity of re-assessment proceedings raised by the assessee becomes academic and are left open.
In the result, assessee’s appeal is allowed.
ITA 798/Mum/2020 (A.Y. 2013-14)
The assessee has raised the following grounds of appeal “The Appellant objects on the following grounds against the Order dated
29. November 2019 passed by the Hon'ble Commissioner of Income Tax-(Appeals)-36 [('hereinafter referred to as CIT(A)] and received by the Appellant on 5. December 2019 for the aforesaid assessment year: 1.0 Ground No.1: Confirming the addition On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case confirming the addition of Rs.31,17,795 being 0.55% of closing creditors and debtors as bogus. 2.0 Ground No. 2: Reassessment proceedings not based on any new material facts On the facts and in the circumstances of the case, the Hon'ble CIT{A) has erred in law and in facts of the case failed to appreciate that reassessment proceedings were not based on any new material facts and conditions required for reassessment proceedings were not fulfilled. 3.0 Ground No.3: Appellant has discharged the burden & proved genuiness. Revenue has not given any evidence to discharge the burden On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate the fact that the Apex Court ruling of Sumati Dayal v. CIT relied is not applicable and Appellant has discharged the burden to prove the creditors and debtors are genuine and submitted all the necessary explanations, bank statements, ledger confirmations and documentary evidences; the Revenue has not given any evidence to rebut the same and discharge the burden of proof which lay on it.
8 ITA 797/Mum/2020 ITA 798/Mum/2020 4.0 Ground No.4: Purchase & sale transactions are not on rotational pattern and not within specific group On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the purchases for the year under appeal were Rs.48.42 crores & turnover of Rs.48.67crores are with different entities not within a specific group. 5.0 Ground No.5: Debtors & Creditors- Purchases & Sales of the year under appeal On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the creditors of Rs.28.54 crores and debtors of Rs.28.13 crores materialized from the purchases and sales made during the year under appeal and creditors paid within six months on receipt from the debtors/sale realization. 6.0 Ground No.6: Creditors & Debtors cannot be bogus when Purchases & Sales have been accepted as genuine On the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in law and in facts of the case failed to appreciate that the creditors & debtors cannot be bogus when purchases & sales have been accepted as genuine in the assessment order passed under section 1 43(3) r.w.s 1 47 of the Act.”
The assessee has filed the return of income for A.Y. on 30-10-2013 with the total income of Rs.9,31,300/- and the assessment was completed u/s 143(3) of the Act with the assessed total income of Rs.35,57,070/-. Whereas the AO has issued a notice u/s 148 of the Act on the same reasons as dealt by us in the above paragraphs. Whereas in the A.Y.2013-14, the Assessing officer (A.O.) has estimated the addition considering both creditors and debtors balances as unproved and observed at page 7 Para 9 of the order read as under:-
9, In the light of the above, and after consideration of the case, I hold that the creditor and debtors, having regard to the facts and circumstances of the case and considering the gross profit @ 0.5% shown by the asseasee, I estimate the gross creditor and debtors at the rate of 0.55% of the unproved creditors and debtors treating them as bogus. Accordinlgy 0.55% of creditors of Rs.28,54,86,774/- and debtors of Rs.28,13,85,068/-, which comes to Rs.31,17,795/-are added to the total income of the assessee. Penalty proceedings u/s.271(l)(c) of the I.T. Act, 1961 are initiated separately for furnishing inaccurate particulars of income.
The A.O. has made addition of Rs.31,17,795/- by estimating Gross profit(GP) @ 0.55%, treating both the sundry creditors and sundry debtors as bogus and passed order u/s 143(3) r.w.s. 147 of the Act determining the total income of Rs.66,74,870/- vide order dated 31/12/2018. Aggrieved by the order, the 9 ITA 797/Mum/2020 ITA 798/Mum/2020 assessee has filed appeal before the CIT(A). The CIT(A) considered the grounds of appeal
, findings in the scrutiny assessment and submissions of the assessee and has confirmed the action of the AO and dismissed the assessee’s appeal. Aggrieved by the order of the CIT(A) order, the assessee has filed an appeal before the Honble Tribunal.
15. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the addition @ 0.55% of both debtors and creditors balances, where the A.O. has applied the same ratio for debtors and such impugned addition cannot be made in respect of sundry debtors. Prima facie, the A.O. has overlooked the facts that the sundry creditors are brought forward from earlier years and sundry debtors cannot be a part of addition. Further, the Ld.AR submitted that for A.Y. 2011-12 & 2012-13 in assessee’s own case, the Hon’ble Tribunal on similar issue, where the A.O. has made addition @0.55% of creditors and debtors balances treating them as bogus, the Hon’ble Tribunal has granted the relief and the methodology adopted by the A.O. is incorrect. The Ld.AR substantiated the submissions with the factual paper book and the assessee’s own case for the earlier years and prayed for allowing the appeal. Contra, the Ld.DR supported the order of CIT(A).
16. We have heard the rival submissions, perused the materials on record. The Ld.AR submitted that the CIT(A) has erred in confirming the addition @ 0.55% of closing balances of creditors and debtors as bogus irrespective of the fact that the creditors are being carried forward to subsequent assessments year and paid. We find the Honble Tribunal in & 804/Mum/2020 .A.Y.2011-12&2012-13 10 ITA 797/Mum/2020 ITA 798/Mum/2020 vide order dated 06-01-2022 has dealt on identical issue and deleted the addition and observed at Page 5 Para 7 of the order , which is read as under: 7. I have heard both the parties and perused the records. I find that the disallowance of creditors @.55% of the total value is absolutely based upon the surmise and conjectures. If the AO is not satisfied about the books of the assessee,he can reject the same and make an estimate of the income based upon industry trend or past record of the assessee. No such exercise has been done by the AO. This is fatal to the assesseement here. More ever, outstanding creditors which are trade creditors can be added only under the provisions of section 41(1) of the Act. No case has been made out that section 41(1) has been invoked and there is disallowances as per provisions of section 41(1).Hence I do not find any merit in additions. Hence, I set aside the orders of the authorities below and direct that the addition in this regard should be deleted.
17. We find the facts in the present assessement year are identical and similar to the earlier assesseement years dealt by the Honble Tribunal. We respectfully fallow the judicial precedence and accordingly set aside the order of the CIT(A) and direct the assessing officer to delete the addition.