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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Rama Kanta Panda & Shri Laliet Kumar
Per Shri Rama Kanta Panda, A.M. This appeal filed by the revenue is directed against the order dated 14.11.2019 of Learned Commissioner of Income Tax (Appeals)-4, Hyderabad relating to AY 2016-17.
Grounds raised by the revenue are as under:-
“On the facts and circumstances of the case, the Ld.CIT(A) is not justified in deleting the addition of Rs.4,56,87,813/- being the unexplained purchases/sundry creditors holding that these parties have proved their identity, capacity and genuineness without appreciating the fact that none of these parties have furnished any evidence to prove their capacity as well as genuineness of these transactions with supporting evidence such as sale bills ect. 2. On the facts and circumstances of the case, the ld.CIT(A) failed to appreciate the fact that mere confirmation by the parties they have carried out the transactions without supporting documentary evidence could not prove the same as genuine. 3. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of trading in buffalo
2 ITA 168/Hyd/2020 meat and hides. It filed its return of income on 03.10.2016 declaring loss at Rs.9,22,350/-. The case was selected for Limited Scrutiny and statutory notices u/s. 143(2) & 142(1) were duly served on the assessee. In response to the same, the AR of the assessee appeared before the AO and filed the relevant details as called for.
During the course of assessment proceedings, the AO noted from the trading and profit & loss account that the assessee has shown purchase of Rs.10,86,45,814/- and has shown sundry creditors in the balance sheet at Rs.14,66,60,645/-. He, therefore asked the assessee to furnish the party wise break-up of purchases made during the year and payments made to these parties. From the details furnished by the assessee, the AO noted that assessee has purchased from nine parties totaling to Rs.4,56,87,813 and the entire amount was outstanding as on 31.03.2016. He, therefore asked the assessee to furnish the complete address of the above parties, which was duly furnished by the assessee. In order to verify the genuineness of the above purchase transactions, he issued notices u/s. 133(6) to the above parties asking them to furnish the details of transactions made with assessee firm and details of their PAN and ITR filed. However, all the above notices were returned unserved with remarks “no such person”/”insufficient address” by the postal authorities.
4.1 During the course of assessment proceedings, the assessee filed an affidavit stating as under:-
“The firm M/s. Salem & Company is carrying on business in supply of live buffalo meat for the purpose of export. The firm purchases raw buffalo meat from various local butchers at different places. Majority of the persons from whom the firm purchases the meat are from the family of butchers and most of them are illiterate and this business involves in an unorganized sectors. Most of the suppliers are not assessed to Income
3 ITA 168/Hyd/2020 Tax and they are carrying on their family business. The firm purchases the buffalo meat on credit basis and the firm will settle the amounts of the creditors as and when the firm realizes the funds from the sundry debtors. The detailed list of sundry creditors are herewith annexed separately. All the creditors are genuine and the same were shown as outstanding as on 31.03.2016 by the firm.”
The assessee also filed confirmation letters from some of the creditors. The AO observed from the confirmations filed before him that none of the parties mentioned above have given their PAN and return of income stating that they belong to poor butcher family and are not filing income tax returns and hence, the same are unverifiable. According to the AO, it is strange that all these parties are transacting in lakhs of rupees with assessee and claiming that they belong to poor butcher family and not filing returns of income. In view of the above, the AO held that assessee grossly failed to discharge the onus cast on it by providing correct whereabouts/addresses, their identity etc., to establish the genuineness of the purchases. According to him, mere filing of confirmation letters without PAN is not sufficient for the purpose more particularly when the assessee is showing entire purchases as outstanding and all the notices were returned unserved. Since the assessee failed to establish the genuineness of any claim of expenditure by providing the identity, capacity and genuineness of transactions, the AO added the entire purchase of Rs.4,56,87,813/- as unexplained purchases.
Before the ld.CIT(A), the assessee filed certain additional evidences under Rule 46A of the I.T.Rules which were forwarded by the ld.CIT(A) to the AO to furnish a remand report. After considering the remand report of the AO and rejoinder of the assessee to such remand report, the ld.CIT(A) deleted the addition. While doing so, he noted that the AO in his remand report has confirmed that the parties have confirmed to have supplied the livestock/meat to the assessee as middle men and
4 ITA 168/Hyd/2020 their identity were proved since they appeared before the AO in response to summons issued. Further, the AO has recorded the sworn statements and all the parties have confirmed the sales to the assessee. The ld.CIT(A) accepted the contention of the assessee that all the suppliers belong to poor butcher family and are not educated people and therefore invoices and delivery challans are not maintained by them. So far as the capacity of the creditors are concerned, he observed that in subsequent financial year they have been paid an amount of Rs.68,12,808/-. Therefore, all these parties were very much in existence, their statements were recorded during the remand proceedings, the parties have complied with the summons issued u/s.131 of the Act and they categorically stated their transactions with the assessee. Therefore, the AO should not have doubted the purchases. Further, the assessee could not realize the outstanding amounts from the debtors namely Al Nafeez Frozen Foods Exports Pvt.Ltd. and Al Tamash Exports Pvt.Ltd for the materials supplied to them. According to him, the assessee was yet to receive Rs.4.55 crores from Al Nafeez Frozen Foods Exports Pvt.Ltd. and Rs.6.04 cores form Al Tamash Exports Pvt.Ltd. which were outstanding as on date from the year 2015 onwards. The non-payment to creditors has occurred due to non-realization of funds from the debtors. In view of the above, the ld.CIT(A) deleted the addition.
Aggrieved with such order of the ld.CIT(A), the revenue is in appeal before the Tribunal.
The ld. DR strongly challenged the order of the ld.CIT(A) in deleting the addition made by the AO. He submitted that the assessee during the impugned assessment year has made purchase of Rs. 4,56,87,813/- and not a single rupee has been paid to the parties to whom assessee has made purchases. He
5 ITA 168/Hyd/2020 submitted that even the outstanding for earlier years also not paid to these parties. Therefore, it cannot be said that the purchases are genuine especially when the sellers, who according to the assessee are coming from poor families, cannot wait for such a long time to get their payments and will keep on supplying the assessee on credit without receiving a single rupee. He submitted that the order of the ld.CIT(A) is contrary to facts on record. Therefore, the same should be reversed and that of the order of the AO be restored.
The ld. Counsel for the assessee on the other hand heavily relied on the order of the ld.CIT(A). He submitted that the AO has not made the addition u/s. 68 of the I.T.Act but has made the addition by disallowing the entire purchases. He submitted that when the sales have been accepted, the purchases could not have been disallowed. The ld. Counsel for the assessee submitted that during the remand proceedings, all the parties appeared before the AO and confirmed to have supplied the material to the assessee. They have also confirmed that since they come from poor butcher families and are not acquainted with the intricasis of income tax Act, they have not maintained any sales bill, ledger extracts and delivery challans. Therefore, once the assessee has proved their identity by producing them before the AO in response to summons u/s. 131 and since the parties have confirmed to have sold the goods to the assessee, therefore, the purchases could not have been doubted. In his alternate contention, he submitted that even if the purchases are doubted, however the entire purchase could not have been added by the AO especially when he has not doubted the sales. Relying on various decisions, he submitted that since the order of the ld.CIT(A) is in consonance with law, therefore, the grounds raised by the revenue should be dismissed.
6 ITA 168/Hyd/2020 10. We have heard the rival arguments made by both the sides, perused the orders of the AO and ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made addition of Rs.4,56,87,813/-, on the ground that assessee has made purchases from nine parties and not a single rupee has been paid to them during the year and the entire amount was outstanding. Further, the notices issued u/s. 133(6) were returned unserved with the postal remarks, “no such person”/ “insufficient address” by the postal authorities. The so called confirmations filed by the assessee do not contain the PAN numbers and return of income stating that they belong to poor butcher family and are not filing income tax returns. Since the assessee failed to substantiate the genuineness of the purchases by proving the identity and capacity of the sellers and genuineness of the transaction, the AO made the addition. We find the ld.CIT(A) deleted the addition on the ground that all the above parties appeared before the AO in response to summons u/s. 131. During the remand proceedings, they confirmed to have sold the goods to the assessee, in the subsequent assessment year, the assessee has paid an amount of Rs.68,12,808/- and that the non-payment to the creditors is on account of non receipt of amounts from the debtors. It is the submission of the ld. DR that when the assessee is showing sundry debtors to the tune of Rs.12,01,28,285/- and the sundry creditors at Rs.14,66,60,644/- and bank balance of Rs.1,83,66,200/-, it cannot be said that only due to non-receipt of amounts from the debtors, the assessee could not make any payment to the creditors.
We find some force in the above argument of the ld.Counsel for the assessee. A perusal of the balance sheet, copy of which is placed at page 5 of the paper book, shows that assessee was having huge bank balance of Rs.1,83,66,200/- as on 31.03.2016.
7 ITA 168/Hyd/2020 Further, the sundry debtors shown at Rs.12.01 crores is less than the sundry creditors of Rs.14.67 crores. In other words, the debtors are less than the sundry creditors. We, further find in the subsequent year, the assessee has paid only a meager amount of Rs.68,12,808/- out of the total purchase of Rs.4,56,87,813/- and the payment of Rs.68,12,808/- includes the payments towards earlier outstanding also. Under these circumstances, the order of the ld.CIT(A) according to us is not on sound footing. At the same time, the argument of the ld. counsel for the assessee that when the sales have been accepted, the entire purchases could not have been doubted also find some force. Since the power of the AO during remand proceedings is limited and since the order of the ld.CIT(A) in our opinion is not on sound footing on account of non consideration of various factors including the analysis of the balance sheet, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of AO with the direction to decide the issue afresh. Needless to say, the A.O. shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the revenue are accordingly allowed for statistical purposes.
In the result, the appeal filed by the revenue is allowed for statistical purposes.
Order pronounced in the Open Court on 20th September, 2022.
Sd/- Sd/- (LALIET KUMAR) (RAMA KANTA PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 20th September, 2022. Thirumalesh/sps
8 ITA 168/Hyd/2020 Copy to:
S.No Addresses 1 ITO, Ward-5(2) Room No.347, 3rd floor ‘D’ Block, I.T.Towers AC Guards Hyderabad-500 004 2 M/s.Saleem & Company 5-9-20/A, Saifabad Hyderabad-500 004 3 CIT(A)-4, Hyderabad 4 Prl.CIT-4, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File
By Order