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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
ASSESSEE BY : Shri C.S. Aggarwal, Senior Advocate Shri Ravi Pratap Mall, Advocate REVENUE BY : Smt. Deepika Mittal, CIT DR Date of Hearing : 25.09.2019 Date of Order : 31.10.2019
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER :
Present cross appeals filed by the assessee as well as by the revenue are being disposed off by way of composite order to avoid repetition of discussion.
Appellant, M/s. Vatika Limited (hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 27.03.2014 passed by the Commissioner of Income - tax (Appeals)-XXXI, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :-
“1. That the learned CIT(A) has erred both on facts and in law in not only partially confirming the order of assessment but has further erred in enhancing the income of the assessee company by Rs.2,69,66,400/-.
2. That the learned CIT(A) has thus erred both on facts and in law in partially confirming the following disallowances made to the income returned by the learned DCIT, Central Circle -20, New Delhi: (i) Rs.12,24,329/- out of a disallowance made of Rs.15,02,9771- on account of expenditure incurred in respect of commission and brokerage. The aforesaid disallowance has been made without appreciating that admittedly the assessee had not been granted a valid and proper opportunity by the DCIT and further the learned CIT(A) has erred in failing to appreciate, the burden which lay upon it stood discharged when, it filed necessary evidence in support of the claim that the aforesaid expenditure has genuinely been incurred for the purposes of business and thus there was no justification to uphold a disallowance of Rs.12,24,329/-. The findings that the assessee had failed to establish the nature of expenditure by producing sufficient evidences is completely misconceived. (ii) Rs.14,38,050/- out of a disallowance made of Rs.1,19,94,194/-, under the head "commission and brokerage". The aforesaid disallowance effectively sustained by the CIT(A) is wholly erroneous and is by overlooking the documentary evidence that the assessee had genuinely incurred the entire expenditure for the purposes of its business. There was no valid justification to uphold the disallowance of the said expenditure.
(iii) Rs.14,38,050/-, out of the expenditure incurred under the head "advertisement and publicity" out of disallowance made (aggregating to Rs.1,19,94,194/-). The learned CIT(A) has failed to comprehend that the assessee had furnished necessary evidence in support that the expenditure had been incurred genuinely for the purposes of the business and the burden which lay upon it stood discharged. In fact the learned CIT(A) has failed to comprehend that, there was no adverse material on the basis of the said expenditure incurred could have been held as not a deductible expenditure. The aforesaid expenditure being business expenditure ought to have been held as allowable deduction.
(iv) Rs.5,96,175/-, out of a disallowance made of (Rs.4,11,814/- + Rs.7,60,73,615/- + Rs.75,85,28,462/-). The aforesaid 'addition' of Rs.5,96,175/- has been sustained on completely misconceived facts and is otherwise too, contrary to the law. In sustaining the aforesaid addition, the CIT(A) has overlooked that the burden to establish that the liability had ceased to be the liability of the assessee of the instant year was of the revenue which too had not been discharged by any material and as such, the addition made of Rs.5,96,175/- is thus untenable in law.
3. That the learned CIT(A) has further erred in 'enhancing' the income of the assessee company of Rs.2,69,66,400/. The aforesaid addition made and enhanced by the CIT(A) is without jurisdiction and is otherwise too untenable. The CIT(A) has overlooked the submissions of the assessee when making the aforesaid addition.
4. The CIT(A) in fact, without even appreciating that the learned A.O. has neither dealt the issue in the order of assessment nor even was the subject matter of appeal before him could not have any valid justification to enhance the addition since he had no jurisdiction to enhance the income which was neither the subject matter of appeal or even of assessment.
4.1 That the learned CIT(A) went into an error of law when he held that said sum was not new source of income.
5. That, even otherwise the learned CIT(A) has erred in enhancing the income by the aforesaid sum of Rs.2,69,66,400/-, as the expenditure was allowable a business expenditure for the instant assessment year.
6. That the learned CIT(A) has erred in initiating proceedings u/s 271 (1 )(c) of the Act in respect of the aforesaid sum even after recording that the assessee had made wrong claim
despite the fact otherwise too, no penalty was leviable, the initiation of proceedings is thus beyond jurisdiction. 7. That the learned CIT (A) has erred in upholding the levy of interest u/s 234B and 234D of the Act as no interest was leviable on the assessee. It is thus prayed that the addition made by the AO and sustained by the CIT (A) of sum aggregating to Rs.32,58,554/- and the enhancement of income made by the CIT Appeals of Rs.2,69,66,400/- be directed to be deleted.”
Appellant, DCIT, Central Circle 20, New Delhi (hereinafter referred to as the ‘Revenue’) by filing the present appeal sought to set aside the impugned order dated 27.03.2014 passed by the Commissioner of Income - tax (Appeals)-XXXI, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :-
“1. The order of the Ld. CIT (A) is not correct in law and facts.
2. On the facts and circumstances of the case, the Ltd. CIT(A) has erred in deleting the addition of Rs.64,0,84.000/- made by the AO by disallowing interest paid on loans debited in Profit and Loss Account.
3. On the facts and circumstances of the case. the Ltd. CIT(A) has erred in deleting the addition of Rs.19,89,044/- on account of disallowance of Advertisement & Publicity expenses.
4. On the facts and circumstances of the case, the Ltd. CIT(A) has erred in deleting the addition of Rs.1,44,87,193/- on account of disallowance of Advertisement & Publicity expenses.
5. On the facts and circumstances of the case. the Ltd. CIT(A) has erred in deleting the addition of Rs.94,31,332/- on account of disallowance of Advertisement & Publicity expenses.
6. On the facts and circumstances of the case. the Ltd. CIT(A) has erred in deleting the addition of Rs. 4,11,814/- on account of un-verifiable sundry creditors.
On the facts and circumstances of the case. the Ltd. CIT(A) has erred in deleting the addition of Rs.7,54,77,440/- out of total addition of Rs.7,60,73,615/- on account of un-verifiable sundry creditors.
On the facts and circumstances of the case. the Ltd. CIT(A) has erred in deleting the addition of Rs.75,85,28,462/- on account of un-verifiable sundry creditors. 9. On the facts and circumstances of the case, the Ltd. CIT(A) has erred in deleting the addition of Rs.19,12,47,485/- made by the AO on account of un-verifiable security deposits.”
Briefly stated the facts necessary for adjudication of the issue at hand are : The assessee company is into real estate business and running several state and commercial projects.
Assessing Officer (AO) noticed that the assessee has debited an amount of Rs.1,77,28,000/- under the head commission and brokerage in the profit and loss account. On the Query No.36 of question dated 07.10.2011 raised by AO, assessee furnished the details which the AO found incomplete as to whom the commission and brokerage had been paid. AO reached the conclusion that assessee company had failed to furnish the addresses of ABC Real Estate, Real Estate Opportunities & Investment and Rajiv and consequently made an addition of Rs.15,02,977/-. AO also disallowed an amount of Rs.1,19,94,194/- on the ground that 24 parties to whom assessee stated to have paid the commission and brokerage have not responded or denied the transaction in response to the letter issued under section 133(6) of the Income-tax Act, 1961 (for short ‘the Act’). It is also the case of the assessee that Rs.14,38,050/- was the amount of expenditure incurred under the head ‘commission and brokerage’ out of disallowance of Rs.1,19,94,194/- qua which sufficient evidence has been brought on record. AO also made addition of Rs.83,50,13,891/- by way of making disallowance on account of unverifiable sundry creditors and thereby assessed the total income of the assessee at Rs.197,57,99,900/-.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has partly allowed the appeal and has also enhanced the income of the assessee company to the tune of Rs.2,69,66,400/-. Feeling aggrieved, the assessee as well as the Revenue has come up before the Tribunal by way of filing the present appeals.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1 OF ASSESSEE’S APPEAL (ITA NO.2489/DEL/2014) 7. Ground No.1 is general in nature and do not require any adjudication.
GROUNDS NO. 2 (i), (ii), (iii) & (iv) OF ASSESSEE’S APPEAL (ITA NO.2489/DEL/2014)
GROUND NO.2 (i) 8. Assessee company had challenged the disallowance of claim of Rs.12,24,329/- made by the ld. CIT (A) out of disallowance of Rs.15,02,977/- made by the AO on account of expenditure incurred qua commission and brokerage on the grounds inter alia that the ld. CIT (A) has failed to appreciate that the aforesaid expenditure were incurred for the purpose of business and as such an allowable expenditure; that the payment of such expenses has been made through banking channel on 07.07.2008. that ld. CIT (A) has also failed to appreciate that the notices issued under section 133(6) have been served on both the payees, ABC Real Estate and Real Estate Opportunities & Investment and that TDS on these payments have been duly deducted and paid.
Ld. DR for the Revenue in order to repel the arguments addressed by the ld. AR for the assessee relied upon the orders passed by the AO and ld. CIT (A).
When we examine the impugned order passed by the ld. CIT(A) on this issue, the ld. CIT (A) disallowed these expenses on the premise that the assessee has failed to furnish copy of bills raised by the payees and that notices issued under section 133(6) have not been responded by the payees. During the appellate proceedings, comments of the AO were called on the submissions filed by the assessee company. AO, in his remand report, stated that out of the amount of Rs.12,24,329/- disallowed by the ld. CIT (A), amount of Rs.2,78,648/- is allowable. When we examine the findings returned by the ld. CIT (A) on this issue in para 4.9.1, it is categorically mentioned in the remand report that AO had not commented adversely on this submissions of the assessee.
In para 4.9.2, ld. CIT (A) recorded the findings that admittedly assessee had not provided the addresses of the two parties to whom brokerage and commission payments were made in the initial submission before the AO but the same was filed at the end of time barring month on 16.12.2011. It is also recorded that during the remand proceedings, the letter sent by AO u/s 133(6) has remained unanswered but the assessee has submitted ledger accounts of the parties from its books and bank statement showing payment and the AO in the remand report has categorically recorded that the payments are verifiable from the books.
With this background, we are of the considered view that first of all, the ld. CIT (A) was required to return finding if the expenditure are genuine and have been incurred for the purpose of business and then to record the finding that the payment has been made. Answers to both these questions have been given by the AO that payment to both the parties, namely, ABC Real Estate and Real Estate Opportunities & Investment on account of commission and brokerage has been proved from the books of account of the parties and from bank statement. So, merely on the ground that letter sent to the parties under section 133(6) of the Act by the AO remained unanswered and bills issued by the payees and details of transactions in respect of brokerage and commission payments have been made, the expenses cannot be disallowed. Moreover, assessee has given confirmation from both the aforesaid parties along with bank statement available at pages 373 to 376 of the paper book. Furthermore, the assessee has duly deducted the TDS on these payments. So, in these circumstances, we are of the considered view that the ld. CIT (A) has erred in confirming the disallowance of claim of Rs.12,24,329/- out of disallowance of Rs.15,02,977/- made by the AO on account of expenditure of commission and brokerage, hence ordered to be deleted.
GROUNDS NO. 2 (ii) & (iii)
Ld. CTI (A) confirmed disallowance of Rs.14,38,050/- out of disallowance of Rs.1,19,94,194/- under the head ‘commission and brokerage’ paid to six payees on the ground that there had been non-compliance of notices issued u/s 133 (6) of the Act by the six of the payees and assessee has not submitted bills and vouchers for making such payment. Assessee has also not given the details as to qua which of the properties booking was made and commission was paid and what was the rate of commission and proof of rendering actual services.
Ld. AR for the assessee contended that the notices u/s 133 (6) issued by the AO during the remand proceedings have been duly served though not responded by the payees and as such, cannot be a valid ground for making such disallowance. However, ld. AR for the assessee brought on record confirmation of the payees qua all the six parties, available at pages 377 to 384 of the paper book, and these facts have been brought on record before the AO during the remand proceedings.
Again, when the AO has categorically mentioned that all the payments made by the assessee are verifiable being duly recorded in the books of assessee, which have not been otherwise disputed and the same are duly corroborated with bank statement and ledger account. Moreover, out of 22 payees to whom the brokerage have been paid, only 6 payees did not respond. However, their confirmation is available on record. So, when there is no dispute as to the identity of the payees and genuineness of the expenditure has nowhere been disputed by the ld. CIT (A) and these expenditure made under the head ‘commission and brokerage’ have not been disallowed in the preceding or succeeding year, the same cannot be disallowed. In these circumstances, we are of the considered view that the ld. CIT (A) has erred in making disallowance of Rs.14,38,050/- out of disallowance of Rs.1,19,94,194/- on account of commission and brokerage, hence ordered to be deleted.
GROUND NO. 2 (iv) 16. Assessee has challenged the disallowance of Rs.5,96,175/- made by the AO from sundry creditors of Rs.75,85,28,462/-. Ld. AR for the assessee contended that the disallowed amount was payable to the auditor, M/s. I.M. Puri & Co. for auditing the accounts. Ld. CIT (A) sustained the addition on the ground that in response to the summon issued u/s 133(6), I.M. Puri & Co. stated that the summon has not yet been received by them and as such, they have not issued any bill.
When assessee has undisputedly maintaining its books of account on the basis of mercantile system of accounting and the amount in question is shown as opening balance in the books of assessee in the account of I.M. Puri & Co. and such expenses having been incurred in the preceding years had not been paid, was shown as outstanding to the creditor’s account. In these circumstances, the addition could not be sustained as there is no evidence on record that such liability has ceased to exist. We have examined opening balance of the assessee, available at page 212 of the paper book, in the account of I.M. Puri & Com. wherein amount in question has been shown as opening balance in the account of I.M. Puri & Co. So, in these circumstances, we are of the considered view that disallowance made by the ld. CIT (A) is not sustainable, hence ordered to be deleted.
Grounds No.2 (i), (ii), (iii) and (iv) of the assessee’s appeal is determined in favour of the assessee.
GROUNDS NO. 3, 4 & 5 OF ASSESSEE’S APPEAL (ITA NO.2489/DEL/2014)
Ld. CIT (A) during the appellate proceedings noticed that the AO has omitted to disallow an amount of Rs.2,69,66,400/- being 1/5th of Rs.13,48,31,998/- incurred during the AY 2007-08 and claimed as deduction u/s 35D of the Act during the year under assessment. Ld. CIT (A) also recorded the fact that in AY 2008-09, the same issue has been decided against the assessee vide order dated 15.10.2013 vide which entire expenditure of Rs.13,48,31,998/- incurred during the previous year relevant to AY 2008-09 has been held to be capital expenditure thus not eligible for deduction under section 35D of the Act. Declining the contentions raised by the assessee, ld. CIT (A) reached the conclusion that the AO had considered and allowed the present claim of the assessee under section 35D of the Act and completed the assessment which was disallowable expenditure as per reasons given under order dated 15.10.2013 for AY 2008-09 in assessee’s own appeal bearing No.396/12-13 and thereby made disallowance of Rs.2,69,66,400/- being 1/5th of the expenditure claimed by the assessee.
Ld. AR for the assessee challenging the impugned enhancement made by the ld. CIT (A) contended inter alia that ld. CIT (A) has exceeded his jurisdiction under section 251(2) of the Act; that an amount of Rs.269,66,400/- was not even the subject matter of the appeal before the ld. CIT(A) and as such, he was not empowered to enhance the income which is a different source of income and relied upon the decisions of CIT vs. Sardari Lal & Co.
(2001) 251 ITR 864 (Del.), CIT vs. Union Tyres 240 ITR 556 and CIT vs. Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443.
However, on the other hand, ld. DR for the revenue in order to repel the arguments advanced by the ld. AR for the assessee contended that Ld. CIT (A) had got the statutory power to make enhancement and in case, the AO was silent about an item on which enhancement was made by the ld. CIT (A), it does not mean that the AO had not considered the same and relied upon the decision rendered by Hon’ble Delhi High Court in case of Gurinder Mohan Singh Nindrajog vs. CIT reported in 348 ITR 170.
When we examine para 5 of the impugned order at pages 175 to 177 passed by the ld. CIT (A), it is a fact on record that the ld. CIT (A) has himself admitted that, “the AO has omitted to disallow Rs.2,69,66,400/- being 1/5th of Rs.13,48,31,998/- incurred during the FY 2007-08 and claimed as deduction u/s 35D of the Act for the present year. During the appeal proceedings in the appellant’s own case for AY 2008-09 same issued has been decided against the assessee vide order dated 15.10.2013.” So, when the AO stated to have not considered the claim of the assessee obviously he had omitted to disallow the same. So, when the AO has not considered the claim made by the assessee, it does not become the subject matter of the appeal decided by the ld. CIT (A) vide impugned order.
Hon’ble Full Bench of Delhi High Court in case of CIT vs. 23. Sardari Lal & Co. (supra) is very categoric on this issue that whenever a question of taxability of income from a ‘new source of income’ arises, which had not been considered by the AO, the jurisdiction to deal with the same in appropriate cases may be dealt with u/s 147/148 of the Act, if requisite conditions are fulfilled.
We fail to agree with the ld. CIT (A) that the proposed enhancement is not a new source of income and is very much part of the income assessable under the head ‘income from business and profession’. Bare perusal of the assessment order goes to prove that when the AO has computed the business income of the assessee, question of allowability or dis-allowability of claim in question has not been discussed and decided. So, we are of the considered view that the expenditure disallowed by the ld. CIT (A) by way of enhancement certainly amounts to new source of income.
Furthermore, ld. CIT (A) has recorded the finding that when the deduction has been claimed in the computation of income under section 35D of the Act rather ignored to examine the claim.
Again, the identical issue has been decided by Hon’ble Supreme Court in case of CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (supra) by holding that, “the Appellate Assistant Commissioner has no jurisdiction under section 31 (3) of the I.T.
Act, 1922 which is pari-materia with section 251(1) of the Act to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order”.
Operative part of the findings returned by Hon’ble Apex Court in the aforesaid case is extracted as under :-
“APPEAL TO APPELLATE ASSISTANT COMMISSIONER- POWER OF ENHANCEMENT-SCOPE OF-INDIAN INCOME-TAX ACT, 1922. s. 31(3). The Appellate Assistant Commissioner has no jurisdiction under section 31(3) of the Indian Income-tax Act. 1922, to assess a source of income which is not disclosed either in the returns filed by the assessee or in the assessment order. It is not therefore open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income-lax Officer, with a view to finding out new sources of income and the power of enhancement under section 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the Income-tax Officer from the point of view of taxability. In this context "consideration" does not mean “incidental” or “collateral” examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject- matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. In proceedings for the assessment for the assessment year 1952-53, the respondent claimed, on the basis of entries in the books of his Forbesganj branch, that he had borrowed three sums of Rs.2,50,000, Rs.1,50,000 and Rs.30,000 from three parties. In considering the genuineness of these borrowings the Income-tax Officer noticed that the respondent had withdrawn at Calcutta on March 31, 1952, the sum of Rs.5,30,000 from a Calcutta bank and had sent a sum of Rs.5,85,000 to his Forbesganj branch in Bihar on the same day, to enable that branch to make payments including repayment of the sum of Rs, 2,50,000. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj in Bihar on the very same day. He therefore treated the entries in the books as not genuine and added to the assessable income the sums of Rs.2,50,000, Rs.1,50,000 and Rs. 30,000. When the assessee took the mailer in appeal, the Appellate Assistant Commissioner considered that the amount of Rs.5,85,000 should also be included in the total income of the assessee after giving a deduction of Rs.1,80,000: Held, on the facts, that as the Income-tax Officer had not considered the entry of Rs.5,85,000 from the point of view of its taxability and had referred to the remittance of Rs.5,85,000 only with a view to testing the genuineness of the entries relating to Rs.4,30,000 in the books of the Forbesganj branch, the Appellate Assistant Commissioner had no jurisdiction under section 31 of the Act to enhance the assessment by reference to the sum of Rs.5,85,000.”
So, in view of what has been discussed above and following the principles laid down by Hon’ble Apex Court & Hon’ble Delhi High Court in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria & CIT vs. Sardari Lal & Co. (supra) respectively, we are of the considered view that CIT (A) has erred in enhancing the income by travelling beyond his jurisdiction by making enhancement on the item which was not subject matter of the appeal rather enhanced the income on the new source of income because in this case when the AO has neither dealt with the issue in the assessment order nor this issue was raked up before the ld. CIT (A). Consequently, Grounds No.3, 4 and 5 are determined in favour of the assessee.
GROUND NO.6 OF ASSESSEE’S APPEAL (ITA NO.2489/DEL/2014)
Ground No.6 being premature needs no specific findings.
GROUND NO.7 OF ASSESSEE’S APPEAL (ITA NO.2489/DEL/2014)
Ground No.7 qua levy of interest u/s 234B and 234D of the Act need no specific finding being consequential in nature.
Resultantly, the appeal filed by the assessee is allowed.
Ld. CIT (A) has deleted the addition of Rs.64,05,84,000/- made by the AO on account of disallowance of interest paid on loans debited in the profit & loss account. The ld. CIT (A) also deleted the addition of Rs.19,89,044/-, Rs.1,44,87,193/- and Rs.94,31,332/- on account of disallowance of advertisement and publicity expenses and deleted the addition of Rs.4,11,814/-, Rs.7,54,77,440/- & Rs.75,85,28,462/- on account of unverifiable sundry creditors and deleted an addition of Rs.19,12,47,485/- made by the AO on account of unverifiable security deposits.
Undisputedly, aforesaid deletions of additions have been made by the ld. CIT (A) on the basis of additional evidence led by the assessee during appellate proceedings before the ld. CIT (A) and issue of admission of additional evidence has never been challenged by the Revenue. So, when the ld. CIT (A) has deleted the addition on the basis of additional evidence led by the assessee which has not been challenged, the Revenue has no right to challenge the deletion.
GROUND NO.1 32. Ground No.1 is general in nature and do not require any adjudication.
GROUND NO.2 33. So far as addition of Rs.64,05,84,000/- on account of disallowance of the interest paid on loans is concerned, the ld. CIT (A) has thrashed the issue in entirety by perusing the closing balance of the assessee at Rs.459.77 crores whereas interest free loan was of Rs.229.4 crores and the assessee company was having share capital and reserves of Rs.759.93 crores and when the loan was given for business expediency of subsidiaries duly explained by the assessee and appreciated by the ld. CIT (A) that the amount paid during the year under assessment was Rs.275.16 crores from internal accruals, the ld. CIT (A) has rightly deleted the addition by relying upon the decision rendered by Hon’ble Supreme Court in SA Builders 288 ITR 1 (SC). Moreover, the AO in remand proceedings has not given any comments, for the reasons best known to him rather raised a bald objection that additional evidence sought to be led by assessee be not admitted as the assessee had already been granted adequate opportunity, thus has impliedly admitted the submissions of the assessee explaining aforesaid facts that addition was not sustainable, hence ld. CIT (A) has rightly deleted the addition and ground no.1 is determined against the Revenue.
GROUNDS NO.3, 4 & 5 34. AO noticed the steep increase in advertisement and publicity expenses by the assessee during the year under assessment from Rs.6.32 crores to Rs.26.02 crores (total increase Rs.19.70 crores).
AO proceeded to make the addition on the ground that the assessee has failed to furnish complete information in respect of some of the parties to whom the payment has been made qua advertisement and publicity expenses and given the details of 14 such parties and thereby made an addition of Rs.19,89,044/-. Similarly, AO issued letter u/s 133 (6) of the Act for verification of advertisement and publicity expenses qua 33 parties for a total amount of Rs.1,44,87,193/- but they have not responded and thereby made an addition of Rs.1,44,87,193/-.
Likewise, the AO made further addition of Rs.94,31,332/- on account of disallowance of advertisement and publicity expenses on the ground that in case of 8 parties, letter issued u/s 133 (6) has been received back unserved either with remarks ‘incomplete address’ or ‘the addressee had left the place of its last address’.
However, when we examine the findings returned by ld. CIT(A) on this issue particularly para 4.13.13, he has deleted the addition merely on the ground that:-
“the assessee cannot be punished for the failed efforts of the AO to collect evidence against the appellant”.
The ld. CIT (A) also recorded in the impugned order that:-
“the AO has not been able to proceed with the proper process of collecting evidences. He has stuck in the initial stage itself for want of responses to his notices u/s 133 (6) and the right course for the AO was to explore further means of collecting independent evidences.”
We are constrained to observe that in case, AO has not conducted proper enquiry before making the addition in question, the ld. CIT (A) who is having co-terminus powers was required to conduct the enquiry himself or would have called the remand report before deleting such addition. Ld. CIT (A) rather harped upon the case laws without thrashing the facts of the case and deleted the addition, which order is not sustainable in the eyes of law. In view of the matter, we are of the considered view that the issue is required to be remanded back to AO to decide afresh after providing adequate opportunity of being heard to the assessee.
Consequently, grounds no.3, 4 & 5 are determined in favour of the Revenue for statistical purposes.
GROUNDS NO.6, 7 & 8 37. So far as additions of Rs.4,11,814/-, Rs.7,54,77,440/- and Rs.75,85,28,462/- on account of unverified sundry creditors made by the AO and deleted by the ld. CIT (A), challenged vide grounds no.6, 7 & 8 are concerned, again on the ground that the assessee has failed to furnish complete information qua 11 sundry creditors and made addition of Rs.4,11,814/-, made addition of Rs.7,54,77,440/- again on account of non-confirmation by the 39 sundry creditors despite issuance of letter u/s 133 (6) which were received back with the remarks ‘incomplete address’ or addressee left the last place of addresses’ etc. and further made addition of Rs.75,85,28,462/- in case of 124 parties whom letters u/s 133 (6) were issued but the sundry creditors have not responded to the same.
Ld. CIT (A) during the appellate proceedings had called remand report from the AO who has issued notices u/s 133 (6) afresh to the parties concerned and got confirmation of the parties and in the cases where no replies were received, AO has confronted the assessee during remand proceedings and submitted that :-
“The appellant submitted further evidences namely ledger account of the said parties form its books of accounts and the confirmations obtained by the party at the time of audit. The AO has reported that the submissions of the appellant were verifiable from the books of accounts.”
Ld. CIT (A), after examining the remand report, rejoinder filed by the assessee thereto and after thrashing the facts in detail discussed in paras 4.15.1 to 4.15.24 of the impugned order, deleted the addition by returning following findings :-
“4.15.23 From the above, it is noted that the discrepancy could be on account of cash system of accounting being followed by the said party. However, the appellant has not produced any confirmation from them, inspite of their denial obtained by the AO. In view of this it cannot be said that the said amount is outstanding as on the beginning of the year. Since, no further details have been submitted by the appellant, the said RS.5,96,175/- is liable to be added to the total income u/s 41 (1) of the Act. Hence addition of Rs.5,96,175/- is hereby confirmed.” 4.15.24 In the result, out of the addition of Rs.83,50,13,891/- as unverifiable creditors (Rs.4,11,814 + RS.7,60,73,615/- + Rs.75,85,28,462), the addition of Rs.5,96,175/- alone is confirmed and the balance amount is deleted.”
During the course of arguments, ld. DR for the Revenue has failed to controvert the findings returned by the ld. CIT (A) which are purely based upon remand report given by the AO, ledger account of the aforesaid sundry creditors from their books of account and confirmation obtained from the parties in question at the time of audit and AO has specifically recorded the fact that the submissions of the assessee were verifiable from the books of account. Moreover, ld. CIT (A) has confirmed the addition in case of the parties whose confirmations have not been brought on record by the assessee rather their denial has been obtained by the AO. In these circumstances, we are of the considered view that there is no perversity or illegality in the deletion made by the ld. CIT (A) to the tune of Rs.4,11,814/-, Rs.7,54,77,440/- and Rs.75,85,28,462/- on account of unverifiable sundry creditors. Consequently, grounds no.6, 7 & 8 are determined against the Revenue.
GROUND NO.9
So far as deletion of addition of Rs.19,12,47,485/- made by the AO on account of unverifiable security deposits is concerned, again AO made the addition on the ground that despite issuance of notices to 99 parties u/s 133 (6), parties concerned have not responded.
Ld. CIT (A) deleted the addition by calling remand report from the AO during appellate proceedings. In the remand proceedings, AO has confirmed that all the balances in question are verifiable and has not given any adverse opinion on the confirmations filed by the assessee obtained at the time of audit. It is admitted fact that out of disallowance of Rs.19,12,47,485/-, AO received confirmation to the tune of Rs.12,73,00,254/- directly from the parties and for the balance amount of Rs.6,39,47,231/-, assessee had submitted confirmations which have been accepted by the AO. Assessee has also brought on record account extracts, books of account, bank statements along with PAN of the parties concerned and copies of rent agreement in some cases in support of security deposits and it is proved on record that the payments have been made through banking channel.
We are of the considered view that the ld. CIT (A) has decided the issue in question by thrashing the facts in detail in paras 4.17.1 to 4.17.5. Ld. DR for the Revenue has again failed to controvert the findings returned by the ld. CIT (A) which are purely factual findings based upon the evidence on record. So, we find no illegality or perversity in the deletion of addition of Rs.19,12,47,485/-, hence ground no.9 is determined against the Revenue. 44. Resultantly, the appeal filed by the Revenue bearing is partly allowed for statistical purposes. Order pronounced in open court on this 31st day of October, 2019.