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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 26.03.2018 passed by the Commissioner of Income Tax (Appeals) -32, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The revenue has raised the following grounds: - "
1. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is justified in confirming the addition of 10% of the amount of Sundry Creditors of Rs. 4,51,18,981 /- as on A.Y.2012-13 31.3.2012 and deleting the balance 40% without appreciating the action of the Assessing Officer in this regard.
2. Whether on the facts and circumstances of the case and in law, the Id CIT(A) erred in not appreciating the fact that the initial burden lies on the assessee to prove the genuineness of the purchases as held by the Hon'ble Rajasthan High Court in the case of Indian Woollen Carpet Factory.
3. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) erred in not appreciating the fact that the Sundry Creditors who could not be verified by the Assessing Officer, even after the issue of notices u/s 133(6) of the Act ( as these notices were either unserved or not replied to or where these parties were not produced by the assessee before the Assessing Officer) were correctly disallowed by the Assessing Officer and added back as assessee's income u/s 41(1) of the Income Tax Act, 1961. 4. "The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored". 5. "The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary"
3. The brief facts of the case are that the assessee filed his return of income on 26.09.2012 declaring total income to the tune of Rs.5,57,920/- for the A.Y.2012-13. The return was processed u/s 143(1) of the I. T. Act, 1961. The case was selected for scrutiny through CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is an individual and engaged in the business of Metal and Furniture Fabrication and Civil Work contracts under the name and style of Proprietary Concern M/s. Metallaire. On appraisal of the details filed, it was observed that the sundry creditors outstanding as on 31.03.2012 was of Rs.4,48,65,975/-. The corresponding period, the Sundry Debtors was Rs.1,23,08,835/-. There was wide gap between the outstanding amount of 2 A.Y.2012-13 sundry debtors and creditors in the account as on 31.03.2012. In order to verify the claim, the notices were issued to the sundry creditors u/s 133(6) of the Act. The notices were issued to the following parties: - S. No. Name of the Party Amount of Status of notice Difference in Credit as per u/s 133(6) assessee’s books book (Rs.) shown as excess 1 Ambika Enterprises 5,62,825 Notice returned 5,62,825 2 Ami Traders 1,71,30,378 Notice returned 1,71,30,378 3 Asma Engineering Work 87,756 Reply received 6,380 4 Augyesha Sales 18,05,198 Notice returned 18,05,198 5 Concepts 24,59,777 No reply 24,59,777 received 6 Donnies Trading Pvt. 10,01,094 Notice returned 10,01,094 Ltd. 7 Innovative Engineers 4,69,687 Reply received 0, 8 Jai Malhar Enterprises 4,80,000 Notice returned 4,80,000 9 Kotsons Impex Pvt. Ltd. 84,18,916 Notice returned 84,18,916 10 Mahasati Marbles 1,53,000 No reply 1,53,000 received 11 Mahavir Sales ,23,19,910 No reply ,23,19,910 Corporation received 12 Manju Enterprises 10,65,654 Notice returned 10,65,654 13 Metro Ispat Pvt. Ltd. 2,72,887 Partly stated that 2,72,887 no transaction made with assessee 14 Midas Metals 1,06,913 Reply received 62,696 15 Moksha Impex 7,01,324 Notice returned 7,01,324 16 New India Security 2,67,000 Reply received 2,24,486 Services 17 Noor Creation 6,15,172 No reply 6,15,172 3 A.Y.2012-13 received 18 Parth Steel & 62,480 Notice returned 62,480 Engineering Co. 19 Perfect Metal Found 3,07,154 no transaction 3,07,154 made with assessee 20 Prakash Metal Works 2,98,361 Partly stated that 2,98,361 no transaction made with assessee 21 Remi Steel (India) 1,36,082 Notice returned 1,36,082 22 Rishab Sales 2,67,298 No reply 2,67,298 Corporation received 23 Shashwat Metal Craft 92,411 Notice returned 92,411 24 S.M. Industries 10,84,760 Notice returned 10,84,760 25 Team Trading Est. 81,478 Notice returned 2,844 26 Tisha Enterprises 47,50,926 No reply 47,50926 received 27 Worldwide Enterprises 1,20,540 No reply 1,20,540 received Total 4,51,18,981 4. The notices were not served to most of the parties however some of the parties changed their address. Notice served to parties who claim that they did not do business with the assessee. In majority of the cases negative reply was received. The assessee was asked to produce the parties personally with ledger account, bank statements, residence address to prove genuineness of the claim. The assessee failed to produce the parties. No one response to the notice u/s 133(6) of the Act. Thereafter, further notice was given for the rejection of the books of account u/s 145(3) of the Act. In response to the notice, the assessee produce the copy of invoices issued against the purchases of Rs.4,69,687/- during financial year 20010-11 by 4 A.Y.2012-13 one party namely M/s. Innovative Engineers. On verification, it was found that the some of the creditors were outstanding in the books of account of the assessee since F.Y. 2006-07 onwards. In connection with the sundry creditors namely M/s. Ambika Enterprises, the liability was existing w.e.f. F.Y. 2007-08 of Rs.8,60,819/-. During the F.Y. 2011-12, the liability was Rs.5,62,825/-. In the case of Manju Enterprises, the credit liability was existing since F.Y. 2006-07 of Rs.17,51,705/-. The existing liability for the A.Y. 2011-12 was Rs.10,65,654/-. There are several other creditors still exists in the books of the assessee. Out of the total creditors of Rs.4,51,18,981/- for the A.Y.2011-12 confirmation from the creditors has been received to the extent of Rs.5,16,785/- Out of the creditors for the F.Y.2010-11 of Rs.2,77,51,872/- confirmation has been received to the extent of Rs.5,73,573/-. In the remaining cases, the party denied or reply was not filed which has been shown in the Chart: - Name of Amount Status of F.Y 10- F.Y.09 F.Y.08 F.Y.07 F.Y Differenc the Party of Credit notice 11 -10 -09 -08 06-07 e in as per u/s assessee’ book 133(6) s books (Rs.) shown as excess Ambika 5,62,825 Notice 562825 56282 73432 86081 Nill 5,62,825 Enterprise returned 5 5 9 s Ami 1,71,30,3 Notice 1,71,30,3 Traders 78 returned 78 Asma 87,756 Reply 6,380 Engineeri received ng Work Augyesha 18,05,198 Notice 180519 18,05,198 Sales returned 8 Concepts 24,59,777 No reply 245977 19229 24,59,777 5 A.Y.2012-13 received 7 13 Donnies 10,01,094 Notice 10,01,094 Trading returned Pvt. Ltd. Innovativ 4,69,687 Reply 0, e received Engineers Jai 4,80,000 Notice 4,80,000 Malhar returned Enterprise s Kotsons 84,18,916 Notice 84,18,916 Impex returned Pvt. Ltd. Mahasati 1,53,000 No reply 1,53,000 Marbles received Mahavir ,23,19,91 No reply ,23,19,91 Sales 0 received 0 Corporati on Manju 10,65,654 Notice 106565 10656 11426 11433 17517 10,65,654 Enterprise returned 4 54 54 83 05 s Metro 2,72,887 Partly 106565 2,72,887 Ispat Pvt. stated 4 Ltd. that no transacti on made with assessee Midas 1,06,913 Reply 49127 62,696 Metals received Moksha 7,01,324 Notice 701324 7,01,324 Impex returned New Reply 2,67,000 53000 2,24,486 India received Security Services Noor 6,15,172 No reply 615172 61517 84717 84717 84717 6,15,172 6 A.Y.2012-13 Creation received 2 2 2 2 Parth 62,480 Notice 62,480 Steel & returned Engineeri ng Co. Perfect 3,07,154 no 307154 3,07,154 Metal transacti Found on made with assessee Prakash 2,98,361 Partly 297923 29668 2,98,361 Metal stated 9 Works that no transacti on made with assessee Remi 1,36,082 Notice 1,36,082 Steel returned (India) Rishab 2,67,298 No reply 267298 26729 2,67,298 Sales received 8 Corporati on Shashwat 92,411 Notice 92411 92,411 Metal returned Craft S.M. 10,84,760 Notice 108476 10,84,760 Industries returned 0 Team 81,478 Notice 1759 1685 1685 2,844 Trading returned Est. Tisha No reply 475092 47,50,926 47,50926 Enterprise received 6 s Worldwid No reply 1,20,540 1,20,540 e received Enterprise s Total 4,51,18,9 285446 39 81 7 A.Y.2012-13 Reply 516785 573573 1685 1685 0 0 received 279710 47305 30546 28513 17575 44399709 Net 44602196 66 51 21 74 67
During the year under consideration, the assessee made the purchase of Rs.2,74,31,852/- and opening stock was of Rs.2,27,02,139/-. The notice u/s 133(6) of the Act was issued to the purchasers to verify the transactions. One of the seller M/s. Ambika Enterprises denied the transactions. Notice u/s 133(6) of the Act was also issued to M/s. Ujjwal Sales Corpn, Sai Enterprises, Comet Corporation, Zenit Enterprises, Ami Traders and Kaison Solution which were returned back with the address left and or not known, therefore, the purchase could not be verified. Therefore, in the said circumstances, 50% of the sundry creditors to the tune of Rs.2,25,59,490/- were treated as bogus purchase. The total income of the assessee was assessed to the tune of Rs.2,31,17,410/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NOs. 1 to 3
All the issues are inter-connected, therefore, are being taken up together for adjudication. In fact in all the issues, the revenue has challenged the allowance of disallowance of 40% of the sundry creditors in sum of Rs.4,51,18,981/-. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly allowed the claim of the assessee specifically in the circumstances, when the assessee has failed to prove the claim of the sundry creditors in the relevant financial year. However, on the other hand, 8 A.Y.2012-13 the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - “5. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. 5.1 Ground No. 1 - Addition of Rs.2,25,59,490/- being 50% of the sundry creditors. In this ground, the appellant has challenged the addition made by the AO of Rs 2,25.59,490/-, being 50% of the sundry creditors as on 31/03/2012. treating the same as bogus purchase. At this stage. it is important to examine the provisions of section 41(1) of the Act. A plain reading of the aforesaid provisions would make it clear that before coming to the conclusion that a liability has ceased to exist or there is remission/cessation of a particular liability, the following three conditions are to be fulfilled: a. It must be a trading liability: b. The person showing such liability must have obtained some benefit either in cash or in any other manner in respect of such liability and c. Such benefit by way of cessation has accrued to the appellant in the relevant financial year. Further, the burden is on the AO to prove that conditions of section 41(1) of the Act have been satisfied to treat a liability as an income on account of remission or cessation of liability in a particular assessment year. In the present case, the liability shown by the appellant is no doubt a trading liability. There is also nothing to show that the creditors have written-off the liabilities in their books. Therefore, it cannot be said that any benefit on account of the liability has accrued to the appellant. The third and the most crucial condition is whether the liability has ceased to exist in the impugned assessment year. As per AO's own observation, the sundry creditors have remained outstanding for more than three years. In fact, in the course of assessment proceedings itself, the appellant has furnished evidence before the AO to demonstrate that payments have 9 A.Y.2012-13 been made to creditors subsequent to the relevant financial year through legitimate banking channels. Also, the AO has accepted the sales of the appellant while treating the purchases as bogus. The AO stated that he has issued notices u/s 133(6) in respect of the purchases made during the year and at the end, he chose to disallow 50% of the sundry creditors as on 31.03.2012. He was therefore not clear whether this amount of Rs. 4,51,18,981/- sundry creditors included the brought forward amounts/creditors at the beginning of the financial year. On the contrary, the Ld AR has contended that the closing sundry creditor balance included the earlier amounts and the gist of the submissions is as under: Closing Balances of sundry creditors as on 31.03.2011 - Rs. 3,57,64,404/- Purchases made during the financial year 2011-12 - Rs. 2,74,31,852/- Payments/debits during the year 2011-12 Rs. 1,84,10,281/- at the end of the year 2011-12 Rs.4,47,85,975/- From the above, it could be inferred that the closing balance of sundry creditors as at end of the year included some pan of earlier balances also. Hence it is considered that the basis of the addition made has no strong footing. There is force in the arguments put forward by the Ld AO in this regard. In view of the above stated facts and the decisions relied upon by the appellant, I am of the considered view, that the allegation made by the AO are not fully justified and hence. I confirm the addition of 10 percent and not 50 percent levied by the AO and allow the balance 40 percent. Thus, this ground of appeal
is partly allowed.”
7. On appraisal of the above mentioned finding, we find that the CIT(A) has decided the matter of controversy in view of the provisions u/s 41(1) of the Act. It is not in dispute that the liability exists at the relevant time. The assessee nowhere got any benefit nor liability discharged. There is no cessation of liability because liability exists in the books of account. The liability nowhere ceased to exists sppecifically, in the circumstances when the assessee has shown the liability in his books of account. No parameter has been given on account of disallowance of 50% of the sundry creditors. The liability was of the earlier years even if w.e.f 2006-07