SMT. KIRAN MAHAJAN,JAMMU vs. INCOME TAX OFFICER, WARD-1(2) JAMMU

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 319 & S.A. 15/(Asr)/2017 Assessment Year: 2012-13

Kiran Mahajan Vs. Income Tax Officer, D/o Joginder Pal Gupta Ward-1(2), Jammu Rishav Enterprises, Bari Brahamana, Jammu [PAN: AJFPM 5132R] (Appellant) (Respondent)

Appellant by : Sh. P. N. Arora (Adv.) Respondent by: Sh. A. N. Mishra (D.R.) Date of Hearing: 17.05.2018 Date of Pronouncement: 31.07.2018

ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee agitating the dismissal of her appeal by the Commissioner of Income Tax (Appeals), Jammu ('CIT(A)' for short) dated 31.01.2017, contesting her assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for Assessment Year (AY) 2012-13 vide order dated 27.03.2015.

2 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO 3. The facts of the case leading to the impugned addition are that the assessee, a Jammu based trader in mustard oil, as proprietor M/s. Rishav Enterprises, returned her income for the year on 01.10.2012 at Rs.5,71,678/-. The audited balance-sheet as at the year-end (31.03.2012/PB pgs. 13-16), disclosed sundry creditors at Rs.469.91 lacs (Annexure ‘A’ to the balance-sheet). In verification of the sundry creditors, detail of which was furnished by the assessee during the assessment proceedings (vide letter dated nil, in response to questionnaire dated 08.12.2014/ PB pgs. 73-74), notices u/s. 133(6) of the Act were sent thereto by the AO seeking confirmation of the accounts. The addition under reference pertains to the credit balances stated in the said list in respect of four persons, as under:

Sr. No. Particulars Amount (Rs.) 1. Parvez Ahmad Mattoo, Doru Shabad, Anantnag 25,80,470/- 2. Habibulla Mattoo, Doru Shabad, Anantnag 27,60,620/- 3. Manzoor Ahmad Khan, Tura Kapra, Bandipura 29,50,225/- 4. Abdul Rehman Baniya, Onegam, Bandipura 25,35,000/-

The first two creditors denied knowing the assessee, so that the question of having any transaction with her did not arise, denying the balances attributed to them. The assessee, on being confronted therewith, furnished new addresses of the said creditors (along with their mobile numbers), to which they were stated to have shifted due to extreme weather. Further, the persons to whom the letters by the AO had been delivered may be some other persons with the same names, residing in the same area (PB pgs. 3-4). Information was accordingly called for by the AO from the new addresses vide letters dated 16.02.2015. Meanwhile, the creditors at serial no. 3 & 4 above also filed their separate replies denying any transactions with the assessee who, again, replied stating that the letters may have been

3 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO delivered to some other persons with the same/similar names, residing in the same area, requesting the AO for seeking the required information again (vide letter dated 18.02.2015/PB pg.5). The confirmations, received from all of them together on 20.03.2015, were however not considered genuine by the AO who, accordingly, brought the impugned amount to tax as unexplained credit, i.e., as non-genuine/ bogus. In appeal, the some stood confirmed by the ld. CIT(A) for principally the same reasons; the operative part of his order, finalized after seeking the AO’s comments through remand report (dated 13/1/2017), reads as under:

‘All the grounds raised by the appellant pertain to the same issue and, thus, are taken up together. I have considered the facts of the case, appellant's submission and remand report submitted by the AO. I have also considered the rejoinder filed by the appellant on the remand report submitted by the AO. The facts of the case as per remand report are that the AO had issued letters u/s. 133(6) of the Income tax Act, 1961 to 24 creditors on the addresses furnished by the assessee, calling from them the copies of accounts of M/s. Rishav Enterprises, the appellant, in their books of account. Out of that one letter was received back un-served and replies only in four (04) cases were received as under:-

i. Abdul Rehman Baniya, Onegam, Bandipura ii. Manzoor Ahmad Khan, Tura Kapra, Bandipura iii. Parvez Ahmad Mattoo, Doru Shabad iv. Habibullah Mattoo, Doru Shabad, Anantnag.

All the above 04 persons had denied to have made any transaction with the M/s. Rishav Enterprises. Later on, two more persons also filed affidavits to the same effect. When the assessee was confronted by the AO about the denial of transactions from above 04 parties, the assessee stated that the addresses furnished by the appellant counsel might be incomplete or possibility of having similar names in that area and thus, the letters might not have been served on the correct persons. The appellant therefore, provided the new addresses of the above four parties. The AO then issued letters u/s. 133(6) of the Income tax Act again to Sh. Parvez Ahmad Mattoo and Sh. Habibullah Mattoo. It has been stated by the

4 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO AO in the remand report that though fresh letters were issued only in two cases on the new addresses provided by the assessee, replies in the 19 cases were received. Four of these letters were addressed to the ITO, Ward 2(3) Jammu while letters were issued by ITO ward 1(2), Jammu. Out of these four parties only one party has furnished the ledger accounts and other three have only confirmed the closing balances on computer generated letter heads which are quite similar and all the three letters were delivered at ASK receipt counter on 20/03/2015. The replies from all other parties, received from different areas of the valley, i.e., from Anantnag, Bandipura, Srinagar, etc. have been addressed to the Income Tax Officer, Ward 2(3), Jammu, while the letters were issued by Income Tax Officer, Ward 1(2), Jammu. Incidentally all the parties have made the same mistake. The covering letters of all the replies are identical as if written and printed from the same computer system. Even the pencil tick marks, identifying the place for signature, are same and still present on all the letters. It is further noticed that none of envelops, in which these letters have been sent from different parts of the valley, bear any number, stamp or mark of any postal or courier service. Moreover, the statements of account furnished, except two-three parties are neither the photocopies of the manual ledgers nor the print outs from any accounting packages but they have been prepared in excel or word documents and are very similar to each other only the fonts have been changed. Even the handwriting, narration and style in the copies of account furnished by the assessee and the creditors are very similar. The AO thus, concluded that the similarities in handwriting style, narrations, covering letters, envelops and even the mistakes clearly disprove the genuineness of such statements of account and that is why the then AO did not consider the same as genuine and rightly added back the bogus creditors as shown by the assessee. I have considered the above findings of the AO and the submissions made by the appellant. In view of the facts stated above it is held that the appellant has failed to establish the genuineness of the creditors in respect of following persons:

5 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO 3. Sh. Abdul Rehman Baniya - Rs. 25,35,000/- 4. Sh. Manzoor Ahmad Khan - Rs. 29,50,525/- (actual figure is 29,50,225)

The AO, therefore, has rightly added a sum of Rs.1,08,26,315/- as bogus sundry creditors. The addition made by the AO is thus, confirmed.’ [emphasis, in italics, ours] Aggrieved, the assessee is in appeal, raising the following grounds:

‘1. That the order of the Assessing Officer as well as the order of Learned CIT(A) are both against the facts of the case and are untenable in law. 2. That the worthy CIT(A) has not appreciated the facts of the case and merely relied on order of the AO and without any rhyme & reason, the Ld. CIT(A) has confirmed the addition of Rs.1,08,26,315/- on account of so called bogus sundry creditors. As such order of the worthy CIT(A) is liable to cancelled. 3. That the addition made by the AO is unjustified and uncalled for and similarly the Ld CIT(A) has also grossly erred in confirming the order of the AO and the addition made may be deleted. 4. That the worthy CIT(A) did not appreciate that during the course of assessment proceedings it was admitted by the AO that the new address of all the 4 parties were provided and it is an admitted fact that notices u/s 133(6) were issued to 2 parties only, namely, Parvez Ahmed Mattoo and Abdullah Mattoo on 16/02/2015 and confirmation was received from these two parties. This is an admitted fact in the assessment order as well as in the remand report. As such the addition made may be deleted. 5. That the CIT(A) did not appreciate that no fresh confirmation letter was ever issued to Abdul Rehman Bania and Manzoor Ahmed Khan by the AO inspite of the fact that fresh addresses were given to the AO during the course of assessment proceedings and this fact is an admitted fact. These two parties have already filed the confirmed balances vide letter dated 18/02/2015. It was brought to the notice of the AO that no letter was received from Income Tax department by these parties. Thus, the order of the AO thereby making an addition of Rs.1,08,26,315/- is bad in law and similarly the CIT(A) has grossly erred in confirming the same without applying mind. As such the addition made may be deleted. 6. That the ld. CIT(A) did not appreciate that these were the business transactions and these were genuine business creditors and the addition made at Rs.1,08,26,315/- made by the AO in the names of following persons should have been deleted:- (i) Parvez Ahmed Mattoo Rs.25,80,460/- (ii) Habibullah Mattoo Rs.27,60,620/- (iii) Sh. Abdul Rehman Baniya Rs.25,35,000/- (iv) Sh. Manzoor Ahmed Khan Rs.29,50,525/- (actual figure is 29,50,225)

6 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO

Similarly, the worthy CIT(A) was wrong in confirming the addition without any rhyme & reason and without applying his mind. 7. That alternatively the addition made is very high & excessive.’

Further, the assessee, vide her application dated 07.11.2017, prayed for admission of additional ground, reading as under:

‘1. That the AO has grossly erred in making addition of Rs.1,08,26,315/- on account of so- called bogus sundry creditors without rejecting the books of accounts and without invoking the provisions of section 145(3) of the IT Act, 1961. As such the addition made is bad and is illegal in the eyes of law and the same may be deleted.’

7 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO assessee’s counsel, Sh. P. N. Arora, Advocate, that the said list was not final, but only as per the trial balance (a listing of all account balances as per books of account) as on 31.03.2012, and had been filed inadvertently. On being asked of the Annexure ‘A’ to the audited balance-sheet, he would submit that the balance-sheet, filed along with the return of income, did not include the said Annexure ‘A’, and that being the reason for it being filed separately in the assessment proceedings, i.e., on being asked by the AO. The assessee was, accordingly, vide order-sheet entry dated 10.03.2018, required to furnish the attested true copy of the audited balance-sheet as on 31.03.2012, as well as to produce the books of account. Further, on a query qua the basis of the said credits, it was, with reference to the assessment record, also called for, submitted by the ld. DR that the same represent sums received in cash by the assessee in installments of Rs.20,000/- (or close thereto) on a regular basis? How and why would, he would asseverate, parties located at far-flung places transmit cash and that too at Rs.20,000/- (or roundabout) per day, almost on a daily basis? He was asked of the basis on which it was being so stated, and for which he would advert to the ledger accounts filed by the creditors in confirmation of the balances, filed on 20/3/2015, which he was asked to place on record, and which was complied with (DPB pgs. 22-27, 29-37, 38-44, 45-53). It was explained by Sh. Arora that the credits represent the advances against supplies, which were made in the following year, adjusting the entire credit/s, referring to the ledger accounts of the said parties for the subsequent year at pgs. 17 to 20 of the assessee’s paper-book, as well as the copies of the sale bills raised (PB pgs. 39-72). On being queried that the same would in fact constitute additional evidence, he would agree to it being so, praying for its admission, and remission back to the file of the AO for his consideration. Meanwhile, as the books of account for the relevant year were not being produced by the assessee, she was called upon to furnish an affidavit, averring the facts. The assessee filed an

8 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO affidavit dated 14.04.2018, stating that the detail of the sundry creditors was never furnished before the Revenue authorities (impliedly, as a part of the balance-sheet filed along with the return), and what had been filed (at pg. 15 of its paper-book) was a provisional detail of sundry creditors, i.e., before completing the books of account; before making adjustment entries; and before getting the same audited. Further, that the detail of the sundry creditors furnished during the assessment proceedings (PB pgs. 73-74) was the correct and complete detail as per the audited balance-sheet, also filed along with. The same were taken on record. Also, the Annexure ‘A’ to the audited balance-sheet (as on 31.03.2012) dated 29.09.2012, since filed, was confirmed by the Bench to be in agreement with the said detail, i.e., as filed during the assessment proceedings (PB pgs. 73-74). The non- furnishing the said Annexure ‘A’, i.e., along with the audited balance-sheet accompanying the return of income, was also confirmed with reference to the assessment record. And the hearing closed.

9 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO 249 CTR 326 (Chatt), reference stands made by the tribunal in Dy. CIT v. Harpreet S. Gulati (in ITA No. 317/Asr/2013, dated 28.02.2014), relied upon by the assessee (in-as-much as it stands placed at PB pgs. 21-27). The said order by the tribunal, as well as the decisions by the Hon’ble High Courts ‘relied’ upon by it, are on facts supportive of the Revenue’s case rather than that of the assessee, even as in that case – which was one of estimation of income, the decision, on facts, turned in favour of the assessee-respondent. Reference in this context was also made by the Bench to the order by the tribunal in Abdul Hafiz v. Dy. CIT (in ITA No. 465/Asr/2017, dated 19.03.2018), the relevant part of which we may reproduce for ready reference: ‘Before parting, we may also address an argument raised by the ld. AR during hearing, i.e., that the addition is not sustainable in law as the assessee’s books of account have not been ‘rejected’ by the AO during assessment. The assessee’s books of account reflect a credit and, placing reliance thereon, is required by the assessing authority to prove the genuineness thereof - nothing more and nothing less. The same is as per the mandate of law (s.68), which thereby makes a departure from the normal rule that the apparent is real unless shown otherwise, and the burden to show so (otherwise) is on the person who so claims/alleges. As explained by the Apex Court time and again, it is on account of the credit appearing in the assessee’s books of account, so that he is the beneficiary of the sum credited, that the law deems it to be the assessee’s income unless he satisfactorily explains the same (credit) as to its nature and source. Reference in this context may also be made to the decision in CIT v. S. Kamaraja Pandian [1984] 150 ITR 703 (Mad), wherein it stands explained that in spite of the entries to that effect in his accounts, an assessee, in view of section 68, will have to establish the identity of the creditor; the capacity of the creditor to advance; and the genuineness of the transaction/s, and where the assessee does not offer any explanation about the nature and source of the cash credits or the explanation offered is not satisfactory, the same may be charged to tax as the income of the assessee of that previous year. Where and how, then, one may ask, does the question or the need for the AO to regard the assessee’s books of account as not reliable arise for invoking the provisions of section 68 or, for that matter, sections 69, 69A, et. al, which are essentially rules of evidence. The other provisions, viz. section 69, 69A, etc. can in fact be invoked only where the Revenue discharges the primary onus on it to show the assessee to be owner of the relevant asset. As explained in Chuharmal v. CIT [1988] 172 ITR 250 (SC), the same seek to provide statutory recognition to the principles of common law jurisprudence as enshrined in the Evidence Act.’ [emphasis, ours] The Apex Court in CIT v. Devi Prasad Vishwanath Prasad [1960] 72 ITR 194 (SC) clarified that once a cash credit remains unexplained, the AO can assess it as

10 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO his income and no further burden lies on him to show the source of the said credit. It was for the assessee to show that the source of the said cash credit, where so claimed, was his business income, for which – assessed separately, he may, in the facts of its case, be given credit for. That is, and on the contrary, addition u/s. 68 could be made inspite rejection of accounts, estimating the business income, and the assessee’s claim for being allowed a telescoping benefit is to be considered on merits; the matter being factual.

5.2 As regards the second argument (b), how, we wonder, does its support the assessee’s case? Does it mean, i.e., by implication, that the balances of the first two ‘creditors’, to whom fresh notices had admittedly been sent at the revised addresses, stand rightfully doubted by the Revenue, regarding them as unproved? This is as the subsequent confirmations from them have been found as ungenuine. In fact, nothing turns on the non-sending of the fresh notice to these two creditors. To begin with, there was no reason for sending fresh notices, even as observed by the Bench during hearing, as the revised addresses of these two parties were the same as the original addresses (refer pg. 2 of the assessment order, extracting the assessee’s reply dated 18.02.2015). Then, again, how and why did they file their confirmations when no fresh notices were admittedly sent to them? Would it thus imply that the same are to be ignored? The assessee’s argument neither substantiates nor furthers her case in any manner. The Revenue’s case is in fact based on the inference as to the non-genuineness of the (subsequent) confirmations, filed simultaneously, with a different Assessing Officer (ITO, Ward 2(3), Jammu), while the assessee’s AO, and who had sent the notices, is ITO, Ward 1(2), Jammu, on 20.03.2015 and, at the same time, the genuineness of the replies and affidavits received earlier from the respondents, averring to have not made any transaction with the assessee. We shall advert to this aspect of the matter later.

11 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO 5.3 We think that the matter, in view of the discovery of the balances in the assessee’s regular accounts being at a substantial variance with that as per the audited accounts, as would be apparent from the Annexure ‘A’ to the balance-sheet as on 31/3/2012 (sundry creditors), drawn from the books (prior to their audit and finalization) and the audited accounts, detailed as under, acquires a new dimension, which has a direct bearing on the genuineness of the impugned credits: Detail of Sundry Creditors as on 31.03.2012

Unaudited Audited S. No. Name/ Particulars 1. Nirmal Packing Ind., Bari Brahmana 15,420.00 15,420.00 2. Mahajan Printers, Amphalla, Jammu 10,000.00 10,000.00 3. Parvez Ahmed Mattoo, Doru Shahabad, Anantnag - 25,80,470.00 - 4. Ashid Hussain Wange, Lai Chowk, Anantnag 29,97,046.00 5. Rainbow Metal Works, Gangyal, Jammu 67,174.00 67,174.00 - 6. Umar Fayaz, Lai Chowk, gangi Bar, Anantnag 26,00,020.00 7. S.R. Enterprises, 223, Street No.25, Rajpura, Jammu 6,76,073.00 9,76,073.00 8. Trikuta Tin Works, Amphalla, Jammu 92,859.00 92,859.00 - 1,30,327.00 9. Manish Trading Co., Gangyal, Jammu 1,30,327.00 1,30,327.00 - - 10. Ashiq Nazir Wande, Gangi Bar, Lai Chowk, Anantnag 26,26,236.00 11. Habib Ulla Mattoo, Doru Shahabad, Anantnag - 27,60,620.00 - 12. Gulzar Ahmed, Court Road, Srinagar 28,50,160.00 - 13. Mir Traders, Batmalloo, Srinagar 26,40,320.00 - 14. Fayaz Ahmed & Co., lal Chowk, Anantnag 26,80,973.00 - 15. Aziz Ahmed, Near Fair Price Shop, Khanyar, Srinagar 29,90,230.00 16. Khursheed Ahmed, Near Fair Price Shop, Khanyar, Srinagar - 26,83,902.00 - 17. Minhaj Aziz, Near Fair Price Shop, Khanyar, Srinagar 28,46,240.00 - 18. Jahangir & Co., Bandipura 26,25,230.00 19. Firdose Ahmed Ganni, Chattibana, Bandipura - 28,20,230.00 - 20. Manzoor Ahmed Khan, Tura kapra, Bandipura 29,50,225.00 21. Abdul Rehman Baniya, Onegam, Bandipura - 25,35,000.00 22. Mustaq Ahmed Lone, Mantri Gam, Bandipura - 26,40,000.00 23. K.L. Oil Mills, Bari Brahmana, Jammu 16,50,174.95 16,50,174.95 2,22,453.31 24. Jandial Trading Co., Palli Morh, Bari Brahmana 2,22,453.31 Pee Box 1,43,936.00 25. - Packing Concepts 13,526.00 26. - Bhagwati trading Co. 18,59,730.00 27. - Din Mohd. & Sons, Kupwara 18,70,890.00 28. - Mohd. Akram & Sons, Bandipora 15,80,400.00 29. - Abdul Rahim & Bros., Kupwara 19,30,000.00 30. - Mohd. Mustaq & Sons, 20,10,000.00 31. - Mohd. Nisar & Bros., Bandipora 19,40,000.00 - 32. Khan Bros., Bandipura 18,90,000.00 33. - Abdul Hamid & Sons, Kupwara 16,42,000.00 34. - Alla Baksh & Sons, Bandipora 19,35,000.00 35. -

12 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO Altaf & Bros., Kupwara 18,90,000.00 36. - Faarooq Ahmed, Asar, Bandipur 18,30,000.00 37. - Gulzar & Sons, Kupwara 2,49,420.00 38. - Bhatt & Co. 18,39,000.00 39. - 40. Mohd. Fiaz & Bros., Kupwara 15,40,000.00 - Habibul & Sons, Kupwara 16,80,000.00 41. - Quresh & Bros. 18,70,000.00 42. - Akbar & Sons, Kupwara 16,75,000.00 43. - 44. Javed & Bros., Bandipora 18,40,000.00 - Niserudin & Sons, Badgam 17,95,000.00 45. - Hazi Mir & Sons, Handwar 18,76,000.00 46. - Rawatull Khan & Bros., Handwar 19,45,000.00 47. - Bashir Ahmed & Sons, Bandipura 18,70,000.00 48. - Meraj Din, Lasipora 18,47,000.00 49. - Ajjal Begh & Sons 18,25,000.00 50. - Abdul Gani & Sons, Badgam 17,40,000.00 51. - 4,69,91,383.26 4,69,91,383.26 The matter, accordingly, for verification and determination, shall have to travel back to the file of AO. How have the balances as on 31.03.2012, admittedly as per the books of account maintained by the assessee in the regular course of her business, transformed into an almost new set of balances? This is extremely intriguing. What are the so called adjustment entries passed by the assessee while finalizing her accounts? This is more so qua the credits, as the four added back, regarding them as non-genuine, arising on account of receipt of money. That is, the stated basis of the said credits being receipt of cash, how is it that none of them find mention in the assessee’s regular books of account (at PB pg. 15). Only the books of account can tell in-as-much as only with reference to them the nature of the adjustment/s and, correspondingly, the validity thereof and, thus, of the large scale changes in the profile of the sundry creditors that have occurred (on finalization/audit) could be ascertained and considered. The AO may, for the purpose, call and examine the assessee, her Accountant, or even her Auditor. Further, the denial of the credits attributed to them by each of the four ‘creditors’ assumes considerable significance in this regard. The same, coupled with the non- production of the books of account as well as the apparent non-genuineness of the

13 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO confirmations, raise serious doubts as to the genuineness thereof, i.e., as representing the assessee’s liability as at 31.03.2012, the year-end. Interestingly, the aggregate credit on account of sundry creditors as at the year-end remains the same, and which confirms and validates the existence of the corresponding assets, aggregating to Rs.598.18 lacs (as on 31/3/2012). Further, it is also relevant to note that the 19 of the 24 balances stand confirmed. Or is it that the confirmations were contrived, as would occur to one on account of, firstly, the non-submission of the list of creditors along with the balance-sheet filed with the return and, two, as afore-noted, an almost complete variance with that submitted in the assessment proceedings, besides of course the non-production of the books of account. At this stage, it may be relevant to state that the ld. AR would during hearing contend that in that case, i.e., assuming that the impugned credits are not existing, no addition could be made u/s. 68. The argument is misconceived. The amount credited in the accounts and, in fact, the existence of the assets with the assessee, representing the corresponding debit, the receipt of the money to that extent, is not in dispute. It is the genuineness of the said credits/receipt, i.e., as representing a genuine liability, that is to be proved, the onus of which, in view of the deeming fiction of section 68, is on the assessee. As explained by the Hon’ble jurisdictional High Court in CIT v. Lachhmandass Oswal [1980] 126 ITR 446 (P&H), quoting from Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) (at page 448 of the reports), that the onus of proving the source of the sum of money found to have been received by the assessee is on him. If he disputes being liable to tax, it is for him to show that the receipt was either not income, or if it is so, it was exempt from taxation under the provisions of the Act. In the absence of such a proof, the AO is entitled to treat it as taxable income. As afore-noted, from the stand-point of section 68, it is in fact immaterial whether the amount credited continues to outstand as at the

14 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO year-end, or not, i.e., credit stand since neutralized, as by repayment of the money, or in any other manner.

5.4 It may, at this stage, also be relevant to, in view of the aforesaid facts, examine the facts of the case. The assessee is trading in a competitive market, selling a regular item as mustard oil. The same is, as apparent from the existence of sundry debtors in her balance-sheet, sold on credit and, again, making purchases on credit, i.e., in view of the large scale sundry creditors (at Rs.469.91 lacs as on 31.03.2012) which sum, along with bank credit (Rs.83.94 lacs) and sale-tax payable (Rs.10.40 lacs), finances nearly the whole of the stock as on 31.03.2012 (Rs.577 lacs), comprising almost the entirety of the assets as on that date (Rs.598.18 lacs) (PB pg. 13). Why, then, would a trader – which each of the four creditors are stated to be, buying goods from the assessee, give an advance and, further, in an amount which has no proportion to the purchases made by them, i.e., granting so. As apparent from the copies of the accounts stated to be furnished by them, and which match with the assessee’s books, the sales to them are in consignments of Rs.18000 to Rs. 25000 each, say at an average of Rs. 22000. The credit balance of each is between rs. 25 to rs. 30 lacs, implying an advance for 120+ consignments. This is absurd. There is nothing on record to evidence the booking of goods, or of it being a normal feature or regular incidence of the assessee’s trade, or even of the supply being against purchase orders. Further, while a trader could, assuming so, understandably extend credit for one or two consignments, in the present case the same suffices supplies that would, at the current rate, be made over the one-and-a-half to two years. Clearly, an abnormality. In fact, an advance, even for the next few consignments, would understandably only be in view of trade circumstances, viz. shortage; considerable time lag in supply, etc. while we find the sales being made to them on a regular

15 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO basis. For example, 8 consignments, aggregating to Rs.1.89 lacs, as stated, were made to Habib Ullah Mottoo in April, 2011 (a total of 80 (eighty) consignments during the year). That is, there is nothing to suggest a time lag, with his credit balance as on 01.04.2011 and 30.04.2011 is shown at rs. nil and rs.1,98,800/- respectively. The said time lag is in fact inextricably linked to the lead time for purchases, which is not known and, besides, would be the same for all supplies by the assessee. Rather, the initial sales to the said customer are on credit. Again, rather than a shortage, the assessee has a surfeit of stock, the stock held, even as on 31/3/2011, being at Rs.192.27 lacs. A stock level of Rs.577 lacs (as on 31/3/2012) represents supplies sufficient for the next 30 months;, i.e., at the current rate; the total cost of the goods sold during the year being at Rs.232.54 lacs. As afore-noted, the purchase of goods is, to that extent, funded by the advance from the customers. All this adds to the intrigue. Then, is the logistics of the transmission of cash, which is admittedly from far-off places, even as emphasized by the ld. DR. The regular receipt of cash (by the assessee) indicates existence of firm arrangements for the same. What are these? Payment in cash, particularly over long distances, would entail both risk and cost and, further, much higher in comparison with the banking channel, which is now even more facilitated by the inter-net. This would require clarification, as well as, as to why is the same completely unevidenced, i.e., apart from the entries in the assessee’s books of account, the truth and veracity of which, in reflecting the actual state of affairs, it is being called upon to prove. Coincident to the high level of credit, i.e., in relation to the business requirement, and which therefore became the starting point of the investigation by the AO (refer para 1 of the assessment order), is the concomitant business risk. Not only therefore does the customers giving advance assume a high level of credit risk in- as-much as the said funds are at the disposal of another, presumably invested in his business and, thus, subject to the risk to which his (the latter’s) business is, he also

16 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO incurs a very disproportionate business risk, which any business is subject to. Holding stocks far in excess of the needs, besides incurring additional carrying cost, viz., toward storage, interest, insurance, etc. (in respect of the goods), entails business risk in terms of adverse price movement; loss of quality over time/due to improper storage conditions, etc. Any man of business or commerce and, in fact, any prudent person would take steps to mitigate or reduce his risk, rather than, as we observe in this case, court. All this is highly inexplicable, impinging directly on the genuineness of the credits. The assessee would be required to reasonably explain the circumstances leading to the said conduct of the business, i.e., as borne out by her regular books of account.

5.5 Trade imperatives apart, noted as the transactions apparently do not correspond with the trade realities, the payment of cash has to be evidenced and, besides, shown to be emanating from the stated creditors, with reference to their identity and capacity; the same being apparently only small traders (kirana merchants) and, as stated, making their livelihood therefrom, much less with a capacity to extend credit worth lakhs of rupees. In fact, none of them are assessees with the Income Tax Department. Besides their letters addressed to the AO, this is also apparent to a certain extent from the value of the individual consignments sourced by them from the assessee (from Rs.18,000/- to Rs.25,000/- each). The same, i.e., the capacity, would in any case have to be substantiated with credible materials, toward which there is nothing on record. Then, is the ‘incidence’ of the subsequent sale to them, toward which we have admitted evidence in the form of sale bills stated to be raised by the assessee on, and the ledger accounts of, the said parties, on record. Though, as afore-noted, subsequent adjustment/neutralization of the credit/s under reference is of little consequence where the credit/s itself remains unproved, the same, without doubt, where genuine, would lend credence and go to

17 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO establish the genuineness of the original credit/s. It is precisely for this reason, i.e., considering its’ relevance, that the same stand admitted by us as additional evidence. The subsequent sale to them is observed to be in lots valued at Rs. 2.31 lacs (at the minimum) to Rs. 5.90 lacs (at the maximum), i.e., 10 (to nearly 30) times that during the current year. Are they of the same goods? What explains the quantum jump, which would imply a corresponding increase in their sales as well? Why did not the assessee supply the goods, paid for in advance, when it had sufficient stock? Why, even so, did it take up to February, 2013, i.e., nearly 11 months into the next year, to supply the goods? That is, considering the build-up of the credit during the current year, it has taken, on an average, nearly 1½ years to supply the goods, and for a regular item as mustard oil – a complete abnormality. Did the assessee offer them any special price, or extend cash or quantity discount, i.e., vis-à-vis these supplies? Are the good sold at the same rate/s charged to other parties from whom no advance stands received? Are the parties well known to each other for them to have extended credit to the assessee? As it appears, there are no transactions with them either in the past or subsequent to the adjustment of the impugned credits, which is itself quizzical? No business man would like to loose a customer, especially with one with whom trade on such favourable terms is being transacted? Then, just as for the cash payment, what is the evidence, i.e., apart from sale bills, evidencing the supply of the goods to the creditors. The bills (which do not bear any sale (trade) registration number of the buyer) bear a number which appears to be the registration number of the transport vehicle. Is it so? What are the transport documents; payment documents; the delivery documents, payment of octroi, toll tax, etc. evidencing the supply of goods? Who bore the freight, octroi and other charges, etc. that the transport of goods entails. It needs to be appreciated that it is the genuineness of the transaction/s, i.e., of the entries representing the actual transaction/s between the parties, in the course of the

18 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO trade, that is to be established with credible, contemporaneous evidence. This would also clarify that that the credit/s, stated to be from a trade customer, to whom the sales were made subsequently, i.e., to extent it represented advance receipts, as contended, is the question. We are cognizant that there are sales to these creditors during the current year as well. The same have not been verified. Further, whether these were also paid for in advance and, if so, the number of consignments that were so, would be the question. In short, all gets subsumed in proving the genuineness of the transactions, stated to be in the course of trade. In Vijay Kumar Talwar v. CIT [2011] 330 ITR 1 (SC), the Apex Court examined the assessee’s explanation of the receipt of money as being from a trade debtor, and finding the same as not proved, confirmed the addition u/s. 68. The books of account of the customers, extracts from which for the current year, stated to be furnished by them, for both the current and the following year, shall be extremely relevant in this regard.

5.6 We may finally revert to the aspect of the confirmations. The assessee has not, either before the ld. CIT(A) or before us, stated a word about the confirmations filed on 20.03.2015, which are regarded by the Revenue as un- genuine/fake. The ld. AR, when queried on this, would submit that the assessee has not been furnished a copy thereof by the Revenue. It is unthinkable that the assessee, who is admittedly in regular contact with the parties, claiming them as having not received the impugned notices, citing some reasons for the same, as well as communicating their present location with mobile numbers, is not aware of the confirmations filed. The same, filed together, could not therefore be separately by each of the four parties, but through some common agency, or perhaps even by any one of them acting for and behalf of the self and others, implying they being in contact with each other qua this matter. It is only the assessee who, under the

19 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO circumstances and in all probability, can be said to have filed the same. Rather, filing with another Ward is itself quizzical, and rightly discountenanced by the Revenue, as the assessee as well as the creditors were well aware that the AO is, as well as that the letters were issued by, ITO, Ward 1(2), Jammu. In fact, to contend, as the assessee does, that the notices were received by some person/s with the same name/s, residing at the same address, itself sounds specious and unconvincing. The revised addresses are only some distance away from the original addresses, where the climate would the same. Further, nobody would in the normal course give or take delivery of a letter, much less an official communication, unless it pertains to him, while in the instant case the parties have issued a categorically denial, with two of the four under reference having in fact filed sworn affidavits to that effect, i.e., the same appears to be genuine. The signatures of each of the four creditors on the two sets of confirmations, now available, would again be relevant and would therefore also require being verified. There is, under the given circumstances, little merit in both – the assessee’s case qua the confirmations on merits as well as the plea urged before us, i.e., the non-furnishing of the confirmations considered non- genuine by the Revenue. Why, even the identity of the creditors cannot be said to be proved.

5.7 On the basis of the consideration of the facts on record and the explanations furnished, the impugned credits are completely unproved, if not disproved. However, some new facts have come to surface, viz. the changes in the creditors and/or the credit balances on audit/finalization of accounts, as well as the sales stated to be made to them subsequently. We, accordingly, only consider it proper to set aside the matter back to the file of the AO for determination afresh after allowing the assessee proper opportunity to represent her case, who shall extend full cooperation in the matter. The matter, it may emphasized, is primarily and

20 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO principally factual, to be decided by issuing definite findings of fact upon due verification and consideration.

In sum 6. The issue arising for determination is the genuineness of the four credit balances, outstanding in the name of the four sundry creditors, at Rs.108.26 lacs, as on 31.03.2012, the year-end, in the books of the assessee, a Jammu-based trader in mustard oil, regarded by the Revenue as bogus. The same were considered ungenuine, i.e., as not representing an actual liability of the assessee to the concerned persons in view of their disowning having any transaction with the assessee, supplemented in two of the four cases by sworn affidavits, coupled with the confirmations filed subsequently with the Revenue being regarded by it as ungenuine/fake on account of several factors attending them, including the manner of their furnishing. Several questions arise in this regard and remain unanswered, including as to how the four confirmations were filed when admittedly revised letters were issued by the AO to only two of them. The impugned credits appearing in the assessee’s audited final accounts, were during the course of hearing found to be non-existent in the assesseee’s regular books of account. The anomaly, which is a clear pointer to the impugned credits being bogus, needs to be satisfactorily explained. Each of the four credits is on account of amounts admittedly received in cash and, further, in installments varying from rs.18,000/- to rs.20,000/-, received from areas located at 200+ and 300+ kilometers from Jammu, spanning a difficult terrain, with no more than one installment on any given day, making it a regular, if not daily, affair. The same, apart from logistics, raises several issues with regard to the capacity (of the stated creditors) and the genuineness (of the transactions), the receipt of cash from them being admitted, which we have been found to be utilized for the purchase of goods.

21 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO In fact, the subsequent sales prove the inventory as on 31/3/2012, i.e., the stated utilization. The assessee’s claim of having sold goods to them subsequently would need to be corroborated and exhibited with credible materials arising in the normal course of the trade. The books of account of the creditors, ledger accounts of the assessee from which for the current year stand ostensibly furnished by them, for both the years, i.e., the current and following year, as any other corroborative material qua the trade with the assessee, maintained by them, shall be relevant in this regard. The preponderance of probabilities on a conspectus of the case, as afore- discussed, is, in view of the foregoing, highly skewed against the assessee. On account of new facets of the case coming to light, it is considered proper that the matter be determined taking all the facts on record. The onus to establish the genuineness of the said impugned credits in its books of account and, thus, of it representing a genuine liability, by establishing the nature and source thereof, is on the assessee. The matter for the purpose is restored to the file of the AO. We decide accordingly. We decide accordingly. In view thereof, we do not consider it necessary to adjudicate the assessee’s stay application separately inasmuch as no demand would survive this order. 7. In the result, the assessee’s appeal is allowed for statistical purposes. Order pronounced in the open court on July 31, 2018

Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 31.07.2018 /GP/Sr. Ps. Copy of the order forwarded to:

22 ITA No. 319/Asr/2017 (AY 2012-13) Kiran Mahajan v. ITO (1) The Appellant: Kiran Mahajan D/o Joginder Pal Gupta Rishav Enterprises, Bari Brahamana, Jammu (2) The Respondent: Income Tax Officer, Ward 1(2), Jammu (3) The CIT(Appeals), Jammu (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order