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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. S. Saini
ORDER This is an appeal and Stay Petition filed by the assessee, the appeal filed against the order of Commissioner of Income Tax (Appeals)-16, New Delhi dated 31.08.2018.
The sole issue involved in this appeal is that the Commissioner of Income Tax (Appeals) erred in confirming addition of trade credits of Rs.34,34,837/- made by the Assessing Officer.
2 SA No. 199/Del/2019 Royal Rubber Works 3. The Assessing Officer observed that the assessee has shown sundry creditors of Rs.88,97,485/-. On the basis of the address provided by the assessee in order to verify genuineness and the creditors information was called for u/s 133(6) of the Act from the following persons: S. Name Address Reply/Reply Amount No. not received 1. M/s ASG Health 1546, Princess Reply not Rs.6,73,000/- Care Co. Ltd. Street, Mumbai received 2. M/s Hospital B-4/263C, Reply not Rs.6,07,500/- Supply Lawrence Road, received Company Delhi 3. M/s Hospital 1413, Ground Reply not Rs.7,02,300/- Traders Floor, Shora received Kothi, Subji Mandi, Delhi 4. Rama Surgical 1542, Bhagrirath Reply not Rs.2,69,075/- Palace, Delhi received 5. M/s Rex 19, Khajoor Wali Reply not Rs.4,01,250/- Surgico Building, received Bhagirath Palace, Delhi 6. M/s Shree Baba 1933/12, Mohan Reply not Rs.2,48,399/- Trading Co. Bazar, Bhagirath received Palace, Delhi 1 s t 7. M/s White 15, Floor, Reply Rs.1,24,600/- Signature Inc. Ashish Building, received but 40, Babu Genu deny, no Road, Mumbai such transactions 8. M/s Rahul 40/8745, Atds Reply Rs.1,33,500/- Drugs East Sannidhi received but Road, deny, no Earnakulam, such Kerala transactions 9. M/s OM 88, KM Stone, Reply not Rs.1,59,350/- Surgical Village Titoli, received Company Rohtak, Haryana 10. M/s J.M.S. 124, Ground Reply not Rs.49,567/- Health Care Floor, Nettu received Products Street, Chennai, Tamil Nadu 3 r d 11. M/s National D-22/23, Reply not Rs.66,296/- Baby Products Floor, Acme received Industrial Estate, Sewri(E), Mumabi
He observed that notices sent through post were returned back with the remarks “no such person/left”. Therefore, he made addition of Rs.34,34,837/- to the income of the assessee u/s 68 of the Act.
3 SA No. 199/Del/2019 Royal Rubber Works 5. On appeal, the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer observing that he agreed with the Assessing Officer that the creditors are not genuine.
Before me, the Authorized Representative of the assessee relied on the decision of Lucknow Bench of the Tribunal in the case of ITO Vs Zazsons Exports Ltd. reported in (2016) 158 ITD 0001 (Lucknow) where it was held as under: “15. If Id. JM's view is accepted then it would lead to an anomalous situation inasmuch as the income of assessee will jump spirally to an astronomical figure which is unthinkable particularly when nexus between sundry creditors and purchases is clearly established. The sundry creditors have direct nexus with the trading results and, therefore, they cannot be examined on the same footing and criteria on which loans and deposits appearing in books are to be examined. The primary onus lay on assessee to establish the sundry creditors but if assessee fails to discharge that onus then considering the entire facts and circumstances of a case, a fair conclusion has to be drawn by AO to find out whether unexplained sundry creditors represent assessee's income or not. It would be travesty of justice if the addition on account of both trading results as well as sundry creditors is simultaneously sustained without telescoping the both because sundry creditors are directly related to trading results. 15.1 In view of these facts, first of all the decision of Hon'ble Jurisdictional High Court in the case of Pancham Dass Jain (supra) is to be considered, on which heavy reliance has been placed by Id. A.M. but Id. J.M. has merely stated that the said decision is not applicable to the facts of the case. In this case, the assessee was a dealer in iron goods and, agricultural, implements. The assessee filed its return of income for the AY. 1976-77. While framing the assessment of the assessee, the ITO asked the assessee to explain the nature and source of the cash deposits appearing in the books of account of the assessee in the name of two persons. As the assessee failed to give satisfactory explanation with regard to nature and source of aforesaid deposits, the ITO made addition u/s 68. On appeal, the assessee contended that the credits appearing in the name of the said two persons did not represent deposit of cash by 4 SA No. 199/Del/2019 Royal Rubber Works them with the assessee and that they represented the value of goods supplied by them to the assessee and, therefore, the addition in question u/s 68 was not warranted. The assessee's contentions were accepted by Id. CIT(A) and the Tribunal which were confirmed by the Hon'ble Allahabad High Court observing as under: 8. "The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent- assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted .by the department, the question of addition of the aforesaid two amounts u/s 68 of the Act did not arise inasmuch as the provisions of section 68 of the Act would not be attracted on the purchases made on credit." 15.2 Keeping in view the fact that in the present case also there being no dispute as regards the purchases and the trading results having been accepted, in my opinion, the decision of Hon'ble Allahabad High Court is squarely applicable to the facts of the case. The decision relied upon by Id. DR in the case of Smt. Annam-kuty Jose (supra) holding that the principles contained in section 68 as well as in section 69C are squarely applicable to sundry creditors has been rendered on the facts obtaining in the said case and has no application to the present case. 15.3 Now, I will refer to various case laws relied upon by Id. CIT(DR), to examine the applicability of them to the facts of the present case: (A) Grover Fabrics (India) (P.) Ltd.'s (supra) "The assessee derived income from trading in handloom products. The Assessing Officer did not accept the trading results reflected in the books of account and accordingly, made an addition to the declared income. Apart from making the addition, the AO made a further addition in 5 SA No. 199/Del/2019 Royal Rubber Works respect of credit entries from bogus entities. The Commissioner (Appeals) deleted the trading addition after giving the benefit of telescoping against the addition in respect of unexplained credit entries. On further appeal by both parties, the Tribunal remanded the matter to the Assessing Officer observing that there was contradiction in the documents submitted by the assessee. On appeal: Held, dismissing the appeal, that unexplained credit entries may or may not have a nexus with the trading results, as assessed. The Commissioner (Appeals) deleted the additions in respect of trading results after giving the benefit of telescoping. It would, thus, be a question of fact in each case whether the addition on account unexplained credit entries was justified, in spite of the addition made to the declared trading results. No substantial question of law arose." Thus, the entire controversy revolved around the fact whether trading additions could be telescoped against the additions made for unexplained cash credits or not. Hon'ble P&H High Court held that it would depend on facts of each case as to whether nexus with sundry creditors had been established or not. This decision was rendered on entirely different set of facts where AO had recorded a finding that the credit entries were from bogus entities. In the present case, there is no finding by AO that the sundry creditors were bogus. Here AO had only drawn an adverse conclusion only on account of non-verifiability of sundry creditors but no finding was given that creditors were bogus. On the contrary the AO had accepted assessee's contention regarding payment of opening creditors during the year. Therefore, this decision is of little assistance to the Department. (B) Smt. Annamkuty Jose's case (supra) In this case main issue before Hon'ble Kerala High Court was as to on whom the onus to prove the sundry creditors shown in the books lay - whether on assessee or department. It was held that burden lies on assessee to establish the genuineness of sundry creditors, with which there cannot be any dispute, and not on AO to prove that sundry credits represent income of assessee. Hon'ble High Court observed as under:
6 SA No. 199/Del/2019 Royal Rubber Works "In the present case AO has not disputed the prevalent trade practice of credit purchases in this line of business. Therefore, this decision is of little assistance to Department." (C) Jai Prakash Sahu's case (supra) In this case it was, inter-alia, held that mere non- mentioning of section 145 could not vitiate the proceedings because criteria set out in section had been met - In the present case addition u/s 68 was not disputed on the ground of wrong mentioning of section but on the ground that proper opportunity was not afforded to assessee to establish the genuineness of sundry credits once the AO did not proceed further with the addition u/s 41. Therefore, this decision has no application to the facts of present case. (D) Kachwala Gems, case (supra) "11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities." 15.4 In my opinion this decision primarily supports the assessee's case that income cannot be determined at astronomical figures unless assessee's explanation has been proved to be false. 15.5 In view of above discussion, I agree with the view taken by Ld. Accountant Member in view of the decision of Hon'ble Jurisdictional High Court in Pancham Dass Jain's case (supra).”
The ld. Departmental Representative supported the orders of the lower authorities.
7 SA No. 199/Del/2019 Royal Rubber Works 8. I have considered the rival submissions and perused the orders of the lower authorities and materials available on record. The Assessing Officer added Rs.34,34,837/- by invoking the provisions of Section 68 of the Act being amount of credit balance in respect of 11 persons which was confirmed by the Commissioner of Income Tax (Appeals).
The Authorized Representative of the assessee submitted that there was no fresh credit of even a single rupee in respect of 11 persons in question during the year. Therefore, the addition made by invoking the provisions of Section 68 of the Act is bad in law.
The Authorized Representative of the assessee filed copy of ledger account of 11 persons placed at page nos. 37 to 73 of the paper book. The position revealed by the said ledger accounts are tabulated as under: S. Name Opening Fresh credit Payment Closing No. balance during the during the balance year year 1. M/s ASG 8,04,000 Nil 1,31,000 6,73,000 Health Care Co. Ltd. 2. M/s Hospital 6,56,500 Nil 49,000 6,07,500 Supply Company 3. M/s Hospital 8,16,300 Nil 1,14,000 7,02,300 Traders 4. Rama 2,69,075 Nil Nil 2,69,075 Surgical 5. M/s Rex 1,35,000 10,74,375 8,08,125 4,01,250 Surgico 6. M/s Shree 1,71,360 1,12,844 3,35,805 2,48,399 Baba Trading Co. 7. M/s White 2,86,600 Nil 1,62,000 1,24,600 Signature Inc. 8. M/s Rahul 1,79,000 Nil 45,500 1,33,500 Drugs 9. M/s OM 1,59,350 Nil Nil 1,59,350 Surgical Company 10. M/s J.M.S. 87,967 Nil 76,800 49,567 Health Care Products 11. M/s National 66,296 Nil Nil 66,296 Baby Products
8 SA No. 199/Del/2019 Royal Rubber Works 11. The ld. Departmental Representative has not disputed the above facts.
A perusal of provisions of Section 68 of the Act shows that the addition under that section can be made only of that sum which has been credited during the year in the books of account of the assessee. My above view finds support from the decision of the Hon’ble Delhi High Court in the case of CIT Vs Usha Stud Agricultural Firms Ltd. reported in (2008) 301 ITR 384 (Del.). Therefore, the addition of Rs.30,91,548/- made by invoking provisions of Section 68 of the Act is bad in law and unsustainable. I, therefore, delete the addition of Rs.30,91,548/- and confirm the addition of Rs.3,43,289/-. Hence, this ground of appeal of the assessee is partly allowed.
In view of our decision in the appeal of the assessee itself the Stay Petition filed by the assessee is infructuous and therefore, dismissed.
In the result, the appeal of the assessee is partly allowed and Stay Petition of the assessee is dismissed. (Order pronounced in the Court on 30 t h day of April, 2019 at New Delhi)