RAM NIWAS GUPTA,NEW DELHI vs. ACIT CIRCLE-46(1), NEW DELHI

In the grounds of appeal, the assessee has challenged; firstly, addition of Rs.15,29,13,896/- on account of difference in credit balance with one of the sundry creditor, M/s. Arcotech Limited which has been treated as bogus purchases by the Assessing Officer; secondly, addition of Rs.25 lacs on account of difference in credit balance with sundry creditor, M/s. A.V. Infraprojects Pvt. Ltd. which too has been treated as bogus purchases; and lastly, addition of Rs.3,15,25,170/- being amount of additional credit balance in the account of M/s. Progressive alloys India Pvt. Ltd. as bogus purchases.

The facts in brief are that assessee is an individual engaged in the business of trading of metals and alloys. The Assessing Officer in the assessment order has first of all, compared the total sales and net profit rate for the Assessment Years 2014-15 and 2015-16 in the following manner: A.Y. 2014-15 A.Y. 2015-16 Sales Rs.901,184,322 Rs.4,910,951,501 Net Profit Rs. 1,251,627 Rs.1,853,780 NP ratio 0.14% 0.04% The ld. Assessing Officer then further noted that assessee had shown outstanding balance in the account of the sundry creditors amounting to Rs.1,66,84,33,017/-, the information and list of the sundry creditors have been reproduced in the assessment order at pages 2 and 3. There were overall 30 parties and at the year end the balance shown under the head ‘sundry creditors’ of Rs.161,84,38,017/-. The assessee was required to provide the details of all the sundry creditors and file their confirmations. As noted by the Assessing Officer, most of the parties have filed their confirmations. However, on the perusal of the same, the Assessing Officer noted that; firstly, in the case of M/s. Metal Impex, outstanding balance of Rs.2,68,14,003/- was shown, whereas the confirmation given by the said party showed balance of Rs.1,27,21,140/- as on 31.03.2015. Accordingly, Assessing Officer added the difference of Rs.1,40,92,683/- by invoking provisions of Section 68. Secondly, on perusal of confirmation balance in the case of M/s. Arcotech Limited, the Assessing Officer has made addition of Rs.15,29,13,896/- on the ground that there was no response by the assessee and accordingly the same was added on the ground that there was increase in credit balance by this amount. Thirdly, the Assessing Officer made an addition of Rs.25 lacs on account of credit balance with M/s. A.V. Infraprojects Pvt. Ltd., holding that confirmation submitted by the assessee did not have either any signature or stamp of the party. Lastly, addition was made on account of credit balance of Rs.3,15,25,170/- in the account of M/s.

Before the ld. CIT (A), assessee had filed following documents as additional evidences with regard to the four sundry creditors on which Assessing Officer has made the addition. “1. Copy of ledger account of Metal Impex (Prop. Naveen Tayal) from the books of appellant and contra confirmation along with copy of their ITR. 2. Copy of Ledger Account of M/s Arcotech Ltd. from the books of Appellant and contra confirmation along with copy of their ITR. 3. Copy of the Ledger Account of M/s A.V. Infraprojects Pvt. Ltd. from the books of Appellant and contra confirmation and bank statement indicating the payment of outstanding as on 31.03.2015. 4. Copy of Ledger Account of M/s. Progressive Alloy India Pvt. Ltd. form the books of Appellant and contra confirmation along with copy of their ITR. 5. Copies of bank accounts of the appellant showing the details of transactions with the aforementioned parties.”

Ld. CIT (A) forwarded the additional evidences to the Assessing Officer to submit his remand report. However, the Assessing Officer in his first remand report stated that these evidences should not be admitted. Thereafter, ld. CIT (A) again sent back the matter to the Assessing Officer to comment on merits of the additional evidences and verify the same. Then in the second round of remand proceedings, Assessing Officer conducted his own inquiry and again sent notices u/s.133(6) to these four parties to which all of them responded and submitted his remand report which has a very vital bearing on the issues involved before us, which is reproduced here under:-

M/s A.V. Infraprojects Rs.25,00,000/ The confirmation was Pvt. Ltd (Confirmation - received which is duly was considered signed and stamped incomplete as it was also the credit balance unsigned and was not tallies. bearing any stamp of 4. M/s Progressive Alloy Rs.3,15,25,17 The confirmation India Pvt. Ltd 0 received has details of (Confirmation received the transactions and was not having details the credit balance of transaction) tallies.

Ld. CIT (A) after detailed discussion and reasoning admitted the additional evidences and took all the documents on record including the remand report and submissions /explanation of the assessee. The Ld. CIT (A) has even incorporated the submissions and the reasoning given by the assessee in rebuttal of Assessing Officer’s finding against the assessment order and the remand report which for the sake of ready reference is reproduced hereunder:

Ld. CIT (A) after incorporating the confirmation of accounts by the parties has decided independently all the creditors. In so far as M/s. Metal Impex is concerned, the same has been deleted on the ground that discrepancy in credit balance was merely on account of difference of timings of posting the credits of the cheque amount in the respective accounts, because cheques issued for payments were not considered at the time of assessment. The mismatch was on the ground of that cheques were paid on 31.03.2015, but was cleared in April/ May of 2015 and since cheques were considered by the assessee in the ledger account as on 31st March 2015 and party has shown these amounts in April and May, 2015. Assessee to prove this had filed copy of bank statement to substantiate the claim that cheque issued on 31.03.2015 were debited in April/May, 2015. Hence, account was reconciled. After verifying the accounts of both the parties and bank statement, CIT (A) has deleted this amount. Against these findings the Department has come in appeal.

In so far as M/s. Archotech Ltd. is concerned, the Ld. CIT (A) despite noting that Assessing Officer had made inquiry directly from the party and has commented that credit balance of the creditor matches with the assessee after reconciliation and ledger account of the assessee in the books of account of the creditor does match with the account of the assessee and also matched with the confirmation account sent by the creditors in response to the notice u/s.133(6), has still proceeded to confirm the addition. She has inferred that it was an attempt only to match the individual entry which has no evidentiary value and without any proper rebuttal of these vital facts the addition has been confirmed.

Similarly with regard to A.V. Infraprojects Pvt. Ltd., she noted that Assessing Officer has commented that the confirmation received is now duly signed and stamped and also the credit balance are tallying and despite noting all that the ledger account in the books of the creditor and in the books of the assessee are matching, but still held that there are some variation in the dates and on this basis she has confirmed the addition.

Lastly, with regard to M/s. Progressive Alloys India (P) Ltd again Assessing Officer in his remand report has stated that confirmation received has all the details of the transaction and the credit balances are tallying. However, the Ld. CIT (A) proceeded to confirm the addition on the ground that purchase bills etc. were not provided by the assessee.

We have heard both the parties at length and also perused the relevant material and findings given in the impugned order referred to at the time of hearing. The main contention of the ld. CIT-DR was that Assessing Officer had made inquiry and even though in the remand proceedings the account got tallied, but mere submission of ledger accounts and bank statement does not prove the genuineness of the purchase because bill-wise entries could not be proved and confirmation of account received during the course of remand proceedings were merely make believe explanation. He thus, strongly relied upon the observations and findings of CIT (A).

On the other hand, ld. counsel for the assessee submitted that once an independent verification has been made by the Assessing Officer by calling the confirmation u/s.133(6), then genuineness of the transaction of the sundry creditors cannot be doubted. He further submitted that for the assessment year 2014-15, re-assessment proceedings u/s 147 were re-initiated precisely on the same ground and after detailed inquiry from the same very parties the Assessing Officer has not made any addition. In sum and substance, his main contentions were as under: (i) The additions were made mainly for the reasons that confirmation was not received from the purchase creditors in response to notice u/s 133(6), which were subsequently provided to Ld. CIT (A) as additional evidence which were accepted by him.

Now here in this case, the additions have been made by the Assessing Officer on account of four sundry creditors on the ground that the accounts submitted by them are not tallying with the books of account of the assessee and there were certain differences in the balances between the accounts of the parties and the assessee. One very important fact is that nowhere the Assessing Officer has rejected the trading result or the books of account. If entire books of account along with sale and purchase bills, ledger accounts and bank statement, etc. have been filed, then merely because there were some difference either in opening and closing balance in the accounts of the creditors, it can be held that the purchases made from the parties qua those amounts are bogus. If purchases are bogus, that means assessee must have made investment outside the books of account and in that situation, Section 68 cannot be invoked and if any addition at all could have been made can be u/s.68. Here in this case assessee has duly explained the nature and source of the credit that these were on account of purchases made by the assessee from these parties who have not only confirmed the purchases but also was tallied with their respective account with the purchase and sales bills.

One very important fact that here in this case is that, during the course of appellate proceedings and in remand proceedings, inquiry was conducted by the Assessing Officer directly from these parties, who have not only confirmed the transaction but have also filed their copy of ledger accounts along with details and bank statements. After verifying these details, the Assessing Officer has categorically accepted in his remand report that the confirmations have been received from the parties and they are matching with the credit balance of the assessee and both the accounts are tallying. Despite such a categorical finding, Ld. CIT (A) has still proceeded to confirm the addition on a very lame reason. On one hand, Ld. CIT (A) accepts that the confirmation of credit balances of the creditor have been received directly from the inquiry made by the Assessing Officer and ledger account as appearing in the books of account of the creditors matches with the account of the assessee and also matches with the confirmation account submitted by the creditor, but still proceeds to draw adverse inference. The premise of the addition made by the Assessing Officer was that certain balances do not match with the accounts of the creditors. Now when the difference has been reconciled and balance has been explained and accounts got tallied, then where is the question of drawing any adverse inference. Even if in the first instance the balance was not tallying with the accounts of the creditors, then also, how the authenticity and credibility of third party accounts is given more precedence to the assessee’s account when assessee has shown purchase bill wise details and corresponding sale and stock, matching with the bank accounts and entire transaction is through cheque. If the books accounts alongwith purchase and sales have not been doubted then account of sundry creditors cannot be doubted when there is running account and all the purchase have been settled either in this year or in subsequent year.

In so far as the allegation of purchase bills are concerned, the ld. counsel before us has categorically pointed out that the assessee vide submission dated 17.09.2018 had specifically stated before the Ld. CIT (A) that all the bills of purchase and sales were available which were also produced before the Assessing Officer and same can also be produced once again if so desired for necessary verification. He especially drew our attention to the letter written to the Ld, CIT (A). Despite such a categorical averment, and without any such verification of the material on record, the addition has been confirmed.

Coming to the addition of Rs.15,29,13,806/- on account of M/s. Arcotech Ltd., the assessee during the course of assessment proceedings had filed ledger account of the said party from which certain balance outstanding were noted by the Assessing Officer. At the fag end he had tried to send notice u/s. 133(6) to the said creditor but the response could not be received by the Assessing Officer till the completion of the assessment. However, in the remand proceedings again inquiry was conducted by the Assessing Officer and the confirmations along with bank statements, ITR’s and ledger account was received in response to notice u/s 133(6) and after verification he found that the credit balance have been reconciled or is matching with the books of account of the assessee. The assessee had also stated that bills of purchase and sales were available and are tallying with the accounts. Thus, when accounts and the amount stands reconciled and purchases are not in doubt, then no adverse inference can be drawn on the basis of finding given in the assessment proceedings that balance could not be reconciled. Under these circumstances, we do not find any reason as to how addition could be made or confirmed.

Similarly, with regard to the A.V. Infraprojects Pvt. Ltd. and M/s. Progressive Alloys India Pvt. Ltd. also similar confirmations with the ledger account, bank statements, ITRs etc. have been received and Assessing Officer has found that the balance shown by the party and the assessee are tallying and all the transactions are matching from the bank statement. Thus, under these circumstances, no addition could have been made. Otherwise also, if the amount represents purchases made by the assessee on credit that does not mean that provision of Section 68 are attracted, if on inquiry made in the remand proceedings there is no adverse material against the assessee. Thus, no addition can be made. Accordingly, the additions made by the Assessing Officer and confirmed by the Ld. CIT (A) are directed to be deleted.

In so far as Revenue’s appeal is concerned, first of all on the merits, no addition is warranted, as it was found that difference was on account of cheques issued for payments which has been debited in the books of account of the assessee on 31.03.2015, but was cleared in the subsequent month and has been shown by the creditors in those months, hence no addition is called for. Moreover, now in the light of the new CBDT Circular No.17/2019, the tax effect on the disputed issue is much below Rs.50 lacs, and therefore, the appeal of the Revenue is not maintainable.

Accordingly, the appeal of the assessee is allowed and appeal of the Revenue is dismissed. 20. In the result, the appeal of the assessee is allowed and appeal of the Revenue is dismissed. Order pronounced in the open Court on 11th September, 2019.