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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Dr. A.L. Saini, AM:
The captioned appeal filed by the Revenue, pertaining to assessment year 2014-15, is directed against the order passed by the Commissioner of Income Tax (Appeal)-6, Kolkata in appeal no. CIT(A), Kolkata-6/10186/2016-17, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 25/11/2016.
The grounds of appeal raised by the Revenue are as follows: 1. That on facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.2,24,79,975/- on account of unexplained cash credit u/s 68 of the I.T. Act, 1961.
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 2. That on facts and circumstances of the case, the ld. CIT(A) erred in rejecting the addition made by A.O. of Rs. 9,15,436/- against the clubbing of income u/s 56(2)(vii)(b) read with section 64(1A) of the I.T. Act, 1961.
That the appellant reserves the right to amend, alter or add to any ground(s) of appeal before or at the time of hearing of the appeal.
Ground no. 1 raised by the Revenue relates to addition of Rs. 2,24,79,975/- on account of unexplained cash credit u/s 68 of the Act.
Brief facts qua the issue are that on perusal of audited Balance Sheet as at 31- 03-2014 it was noted by assessing officer that the assessee had shown sundry creditors of Rs.2,24,79,975/-.The assessee was asked to furnish details of such creditors. In reply, the assessee furnished list of 38 sundry creditors along with total purchases with incomplete addresses. Being asked, the assessee again furnished list of creditors along with purchases with addresses. The Letters were sent by AO to the sundry creditors at the given addresses calling for information u/s.133(6) of the I.T. Act, 1961 but the letters returned un-served with postal remarks ‘not known’/’no such person’/insufficient address'/ ‘wrong address' etc. The matter was brought to the notice of the assessee and asked to establish identity and creditworthiness of the creditors. In reply, the assessee vide letter dated 02/11/2016 stated the followings: “As regards sundry creditors I like to state that after receiving your notice some of the creditors already appeared before you. Your honour will appreciate the undersigned cannot do the follow up neither can force them for attending before you. However I am trying to convince them but the farmers are not educated & they hardly understand the necessity of appearing before your honour”.
In the meanwhile, the assessee himself brought three persons as sundry creditors and deposition of them was recorded u/s. 131 of the Act. While recording
Shri NavaratanDugar ITA No. ITA No.2255/Kol/2018 Assessment Assessment Year:2014-15 deposition following discrepancies were following discrepancies were noticed by assessing officer: noticed by assessing officer:
Again, summon u/s 131 was issued to ten creditors but all returned un Again, summon u/s 131 was issued to ten creditors but all returned un Again, summon u/s 131 was issued to ten creditors but all returned un-served due to the reasons mentioned supra except one Shri Paresh Khamaru of Anandpur, to the reasons mentioned supra except one Shri Paresh Khamaru of Anandpur, to the reasons mentioned supra except one Shri Paresh Khamaru of Anandpur, P.O.-Singur, Hooghly-712409. Deposition of Shri Khamaru was also recorded and 712409. Deposition of Shri Khamaru was also recorded and 712409. Deposition of Shri Khamaru was also recorded and he stated that jute amounting to Rs. 17.68 lakh (approx) supplied to the assessee ounting to Rs. 17.68 lakh (approx) supplied to the assessee ounting to Rs. 17.68 lakh (approx) supplied to the assessee and there was no outstanding balance as on 31.03.2014. But the assessee claimed and there was no outstanding balance as on 31.03.2014. But the assessee claimed and there was no outstanding balance as on 31.03.2014. But the assessee claimed to have purchased from Shri Khamaru jute amounting to Rs. 21,12,300/ to have purchased from Shri Khamaru jute amounting to Rs. 21,12,300/ to have purchased from Shri Khamaru jute amounting to Rs. 21,12,300/- and outstanding balance as on 31/03/2014 is Rs outstanding balance as on 31/03/2014 is Rs. 8,62,300/-
Above mentioned discrepancies were discrepancies were also brought to the notice of the assessee also brought to the notice of the assessee during the assessment proceedings by the AO during the assessment proceedings by the AO vide his office letter d office letter dated 02/11/2016, which is as under: which is as under: “During the course of hearing in respect of the above proceedings you have During the course of hearing in respect of the above proceedings you have During the course of hearing in respect of the above proceedings you have furnished ‘list of (38) sundry creditors' including total purchase (63 Nos.) in furnished ‘list of (38) sundry creditors' including total purchase (63 Nos.) in furnished ‘list of (38) sundry creditors' including total purchase (63 Nos.) in response to this office notice U/s. 142(1) dt.3l/05/2016. As per given addresses of response to this office notice U/s. 142(1) dt.3l/05/2016. As per given addresses of response to this office notice U/s. 142(1) dt.3l/05/2016. As per given addresses of the sundry creditors, letters were issued calling for information u/s. 133(6) of the rs, letters were issued calling for information u/s. 133(6) of the rs, letters were issued calling for information u/s. 133(6) of the I.T. Act, 1961regarding genuineness of purchase as well as sundry creditors. Also I.T. Act, 1961regarding genuineness of purchase as well as sundry creditors. Also I.T. Act, 1961regarding genuineness of purchase as well as sundry creditors. Also summons u/s. 131 were issued to ten (10) creditors but all the letters and summons summons u/s. 131 were issued to ten (10) creditors but all the letters and summons summons u/s. 131 were issued to ten (10) creditors but all the letters and summons returned un-served with served with postal remarks either ‘insufficient address’ or ‘no trace’ or postal remarks either ‘insufficient address’ or ‘no trace’ or 'wrong address' or ‘not known'. The matter was brought to the notice of the 'wrong address' or ‘not known'. The matter was brought to the notice of the 'wrong address' or ‘not known'. The matter was brought to the notice of the Authorized Representative over telephone and asked to produce the sundry Authorized Representative over telephone and asked to produce the sundry Authorized Representative over telephone and asked to produce the sundry Page | 3
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 creditors before the undersigned to establish identity and creditworthiness of the creditors. In response thereto, you could produce only three (3) sundry creditors and statement of the three creditors was recorded u/s. 131. While recording their statements, it was found that names and addresses of the above three creditors are not fully matched with your list of sundry creditors. Even purchases shown in respect of the above three creditors are not matched with their statement. Lastly, all the three creditors stated on oath that there was no outstanding balance due to you as on 31-03-2014. The above facts were also brought to your notice vide this office letter dt.23/09/2016. Onus to prove the authenticity of any claim lies on you which you could not discharge till date. Even, you could not furnish any confirmation from the creditors. Hence, without establishing identity and creditworthiness of creditors, genuineness of the claim will not stand good. You are hereby accorded another/last opportunity to establish identity, creditworthiness and genuineness of sundry creditors on/or before the next date of hearing.”
In response to the above letter, the assessee vide his letter dt.l 5/11/2016 stated that “...agriculturist who delivered the jute goods to us is delivering the goods as per my requirement & after acceptance of jute by jute mills our bills are being settled. I am carrying business & all the materials are supplied to jute mills which are evident from records. So far my information goes that eight jute suppliers attended your office.”
The assessing officer rejected the contention of the assessee and noticed that only threeSuppliers could produce by the assessee and one appeared in response to summon u/s.131 of the Act. It is true that the above persons supplied jute to the assessee but quantum of amount supplied as claimed by the assessee does not tallied with any of the above four suppliers. Even all the above suppliers stated thatmost of the supplied jute was procured from other farmers in addition to own produce. Hence, they cannot be termed as fully agriculturist; rather trader cum agriculturist is more appropriate. Therefore, AO treated purchase of Rs. 2,24,79,975/-as bogus, and added back to the total income of the assessee as unexplained cash credit u/s 68 of the Act.
On appeal, the ld. CIT(A) deleted the addition observing the following: “I have gone through the assessment order, written submissions and paper book containing page 1 to 93 filed by the A/R of the appellant. I find that the appellant is engaged in the business of trading of raw jute. Most of the purchases are from farmers. I find that in course of assessment proceedings, the A.O. has obtained Page | 4
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 details of such creditors from the appellant. AO issued notices u/s 133(6) as well as summons u/s 131 of the Act to few parties. In course of examination, AO has stated in para 3(a) and (b) of the assessment order that few dispositions were recorded by him wherein discrepancies in respect of purchases made by the appellant were found. In some cases, names were also different. After pointing out the discrepancies the AO considered entire purchase creditors amounting to Rs. 2,24,79,975/- as bogus and non-genuine. It was stated by the A/R of the appellant that the appellant had produced entire documents relating to purchase and sales, stock etc before the AO. A/R also stated that entire stock register which is also part of paper book was before the AO from examination of such stock register. It can be seen that there is complete tally of opening stock, purchases and sales etc. No discrepancy has been pointed out by AO. It was stated that the AO himself has stated that in para 3(f) “that the assessee obviously purchased goods (jute) otherwise sale could not happen”. Therefore, the AO cannot accept the sales made out of alleged bogus purchases / creditors & treat the genuine purchases as bogus purchases. In any event, it was submitted that only the net profit thereon could be brought to tax. In support of his proposition the A/R placed reliance to various decisions including the decision of Gujarat High Court in the case of CIT vs. Bholanath Poly Fabric Pvt. Ltd. reported in 355 ITR 290 wherein it was held that even if it is presumed that the purchase was made from bogus parties, the purchase themselves cannot be treated as bogus as quantitative tally of goods purchased and sold are available and therefore, the addition should not be the entire amount but only the profit margin embedded in such purchases should be subjected to tax.
4.3. In the instant case, I find that the appellant deals in trading of raw jute where the net profit are not very high. The appellant has produced supporting material in the form of quantitative tally of goods purchased from farmers in paper book. Sales themselves have not been doubted nor any other defects found in the other accounting tallies of the appellant. The fact is that the appellant has filed details of the party and their identity has been found to be correct since some parties did appear before the AO. The only reason provided for the treatment of purchases as completely bogus is that the parties balances did not tally with assessee’s balances. But if this was to be accepted, then the appellant would truly declare a phenomenally high net profit rate unachievable in this trade. In cases such as these, it has been held that the AO has to take a more circumspect and judicious view and see what recourse is left to an assessee whose seller, for reasons of his own, denies the transaction. I find that even before me the appellant has not been able to explain the discrepancies in balances of purchase creditors. But at the same time sales has not been doubted. Therefore, the finding of AO that the appellant obviously purchased goods otherwise sale cannot happen is upheld. Be it as it may, in view of the surrounding facts as discussed above, and respectfully following the ratio of judgment of Gujarat High Court as well as theother authorities cited, I am of the view that only the profit embedded in such transaction can be brought to tax. I find that this is a case where accounts cannot be said to be correct and complete. Thus only option available to me is to estimate the income by rejecting books of accounts of the appellant. I find that the turnover of the appellant is properly verifiable & the payment are also received through a/c payee cheques thus the estimation of net profit is the best way to determine the income of the appellant. From the details of turnover and net profit rates furnished by the appellant I find that net profit rates are as follows: Page | 5
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15
A.Y.2012-13 A.Y.2013-14 A.Y.2014-15 Turnover 5,39,77,391 11,39,30,152 11,38,38,599 Net profit/Turnover 0.011% 0.37% 0.35%
I find that although the net profit rate is almost comparable with last years net profit, but since the admitted position is that certain discrepancies were detected in course of scrutiny assessment u/s 143(3) & therefore a larger disallowances is attracted. Considering the extent of incorrectness, I am of the opinion that net profit rate of 1.00% is appropriate in this case. The figure of 1.00% of turnover of Rs.11,38,38,599/- works out to Rs. 11,38,386/- which in my view is sufficient to absorb all the inaccuracies in the improper and doubtful accounts. Accordingly, the AO is directed to assess the net profit at Rs. 11,38,386/- and the rest of the addition of Rs. 2,13,41,589/- (2,24,79,975 - 11,38,386/-) is deleted. This is ground is partly allowed.
Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.
The ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand, the ld. Counsel for the assessee has defended the order of the ld. CIT(A).
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the fact is that suppliers (farmers) living in rural areas are not educated and not even organized enough to give / keep correct accounts at their end. This position was explained by assessee which the AO has also incorporated in Assessment Order.We note that the AO examined few farmers u/s 131 of the Act and based on their statements the Ld. AO sought to treat the entire creditors as bogus. The discrepancies are noted in para 3(a) of the Assessment order at page 3. It is submitted by ld Counsel that the assessee has purchased jute goods and had received bills & challans for these purchase creditors copy enclosed in paper book. The appellant had actually received these goods in its premises. The assessee is duly maintaining proper Page | 6
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 quantitative details to record purchase as well as sales made out of such purchases. If is further submitted that since these farmers do not maintain any proper books of accounts probably that is why some anomalies were pointed out by the Ld. AO while recording their deposition. It is further submitted that the Ld. AO has verified the books of accounts of the appellant and did not find any discrepancy in relation to sale of purchased goods to all the parties.The assessee had made total sales of Rs. 11, 38,38,599/- which has been credited in the profit and loss account. The entire sales ofRs. 11,38,38,599/- has been accepted by the AO. We note that only the profit embedded in such transaction can be brought to tax. Therefore,ld CIT(A) has rightly rejected books of accounts of the assessee and made estimate 1% of net profit taking into account past net profit history of the assessee. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).
Ground no. 2 raised by the revenue relates to addition of Rs. 9,15,436/- made by the Assessing Officer against the clubbing of income u/s 56(2)(vii)(b) read with Section 64(1A) of the Act.
Brief facts qua the issue are that during the scrutiny assessment, the AO noticed that stamp value (market value) of the property (Flat measuring 1453 Sq. ft. on the fifth floor under Dag No.3782, Khatian No.1229, JL No.27, PO & Mouza - Rishra, Hooghly) was Rs.26,15,436/- and consideration paid by Sri Ratanlal Dugar was to the tune of Rs. 17,00,000/-. Therefore, AO made addition(stamp value in excess of consideration price) of Rs.9,15,436/- (Rs.26,15,436 - Rs. 17,00,000), under the head income from other sources under the provisions of section 56(2)(vii)(b)(ii) of the I.T. Act in the hands of Sri Umang Dugar (Minor son of the assessee) and that too would not be clubbed with the income of the assessee under the provisions of section 64 (1A) of the Act. 13. On appeal, the ld. CIT(A) deleted the addition made by the Assessing Officer observing the following:
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 “Ground no. 3 is directed against clubbing of income of minor child under the head other sources amounting to Rs. 9,15,436/- under the provisions of section 56(2)(viib) of the Act. Ld. AO noticed that an immovable property was purchased by assessee's father in the name of assessee’s minor son and then he added Rs. 9,15,436/- being the difference of stamp value of Rs. 26,15,436/- and purchase price of Rs. 17,00,000/- as paid by the assessee's father. In other words, this is a case where a grandfather (Ratanlal Dugar) purchased a flat in the name of his minor grandson (Umang Dugar) and assessee's name (Navratan Dugar) incidentally appeared as guardian - father in the conveyance.AO made addition of Rs. 9,15,436/- as stated above u/s 56(2)(viib) and considered as income of assessee by provisions of clubbing u/s 64(1A) of Income Tax Act, 1961.The A/R appearing on behalf of the appellant submitted as under: -
(I) Grandfather (Ratanlal Dugar) purchased the fiat from his own fund and a declaration in this regard is already submitted to you on 21.11.2016 by him. (II) The gift of flat to a grandson (Umang Dugar) does not come within the clutches of sec. 56(2)(viib) since grandfather and grandson are relative, (being lineal descendant ascendant) as clearly defined in the particular section itself.As such, the addition by AO is beyond the scope of sec. 56(2)(viib) and covered by the exceptions to the section. The addition ofRs, 9,15,436/- is wrong, misconceived in law and requires deletion. Further, the question of clubbing of income u/s 64(IA) in assessee's (as guardian) hand, being consequential, does not arise/ stand at all. The addition of Rs. 9,15,436/- should be deleted.
I have considered the submissions of A/R as well as findings of AO. I find that since the grandfather and grand children are relative, the addition of Rs. 9,15,436/- (being the gift made by grandfather to grandchildren) made by AO is beyond the purview of section 56(2)(viib). The circumstances in the instant case is covered by the exceptions of provisions contained in section 56(2)(viib). Clubbing of gift received by the son of appellant from his grandfather to the income of appellant is also without any basis. The AO is accordingly directed to delete the addition. This ground is allowed.”
Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. Before us, ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on
Shri NavaratanDugar ITA No.2255/Kol/2018 Assessment Year:2014-15 the other hand the ld. Counsel for the assessee has defended the order of the ld. CIT(A). We note that the gift of flat to a grandson (Umang Dugar) does not come within the clutches of sec. 56(2)(viib) since grandfather and grandson are relative, (being lineal descendant ascendant) as clearly defined in the particular section itself. Therefore, there is no infirmity in the order of the ld. CIT(A). That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the Revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 05.02.2020
Sd/- Sd/- (S.S.GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 05/02/2020 (SB, Sr.PS)
Copy of the order forwarded to: 1. ITO, Ward-23(2), Hooghly 2. Shri Navaratan Dugar 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), KolkataBenches, Kolkata. 6. Guard File.