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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
This appeal preferred by the revenue is against the order of the Ld. CIT(A)-4, Kolkata dated 13.02.2018 for AY 2013-14.
The first grievance of the revenue is against the action of Ld. CIT(A) in holding that employees’ contribution deposited by employer beyond due date is an allowable deduction.
Briefly stated facts are that in this case the AO disallowed a sum of Rs.2,49,255/- for delayed payment of employees PF and ESIC since the assessee has made payment of the employees provident fund and ESI contributions beyond the statutory date as provided in the respective provident Fund Act and ESIC Act, but within the due date of filing of Income Tax Return u/s. 139(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). On appeal, the Ld. CIT(A) following the decision of Hon’ble Calcutta High Court in the case of CIT Vs. M/s. Vijay Shree Ltd. in ITAT No. 245 of 2011 held that the additions of Anjan Infrastructure Pvt. Ltd.. AY- 2013-14 Rs.2,49,255/- made on account of payment of employees PF & ESI contributions after due date as prescribed in the relevant legislation but before filing return of income satisfies the requirement of law and so no disallowance was warranted and ordered to delete the addition/disallowance. Aggrieved, revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that issue is regarding the action of the Ld. CIT(A) in deleting the disallowance made by the AO in respect of delayed payment of employees’ contribution which was deposited by the employer beyond the due date as per the respective Acts as allowable deduction since assessee remitted the same before filing of the Return of Income (in short “ROI”) u/s. 139(1) of the Act. We note that the Ld. CIT(A) has taken note that a sum of Rs.2,49,255- for delayed remittance of EPF and ESIC respectively as provided in the respective PF Act and ESIC Act was disallowed by AO. However, we note that the Ld. CIT(A) after appreciating the fact that the assessee had remitted the amount before the date of filing of income tax return u/s. 139(1) of the Act have given relief to the assessee. In the light of the aforesaid facts, we asked the Ld. DR, as to any infirmity in the factual finding recorded by the Ld. CIT(A), for which query he could not point out any error. And, moreover, from a perusal of the assessment order itself, we find the fact that the assessee had remitted the EPF and ESIC contribution before the date of filing of Income tax return as contemplated in section 139(1) of the Act. In such a factual scenario, relying on the decision of the Hon’ble jurisdictional High Court in CIT Vs. M/s. Vijayshree Ltd. cited supra, and the Hon’ble Supreme Court decision in the case of CIT Vs. Alom extrusions, we confirm the order the Ld. CIT(A) and dismiss this ground of appeal
of the revenue.
5. Ground no. 2 and 3are against the action of Ld. CIT(A) in deleting the addition of Rs.6,20,63,000/- u/s. 41(1) of the Act.
6. Briefly stated facts as observed by the AO are that the assessee had taken unsecured loans in past years and Interest on the said “Brought Forward Loan” has been paid by the assessee. Accordingly, AO in order to verify the genuineness of unsecured loans deputed departmental Inspectors to investigate the genuineness of such loan creditors with reference to their existence in reality. According to AO, the Inspectors went to the address given by the assessee for verification of the loan creditors who in turn filed a report to the AO that Anjan Infrastructure Pvt. Ltd.. AY- 2013-14 these creditors are not traceable in the given address. The AO confronted the assessee with the inspectors report for which the assessee replied vide letter dated 15.02.2016, which was reproduced by the AO in the assessment order at page 6 to 9. After considering the reply of the assessee, the AO corrected himself that it was not loan creditors but sundry creditors from whom assessee has purchased iron and steel goods required for construction in earlier year i.e. AY 2010-11 from M/s. Tara Metal Trading, by M/s. Anjana & Co. which has been taken over as a going concern by M/s. Anjan Infrastructure (i.e. the assessee itself) w. e. f. 01.04.2011 along with the assets and liabilities of M/s. Anjana &Co to the tune of Rs.7,15,63,000/- and took note of the averment of the assessee company that though some payments were made to M/s. Tara Metal Trading in AY 2012-13 thereafter no payments were made by the assessee to the sundry creditor and that the liability still exist in its books. The reply of the assessee reproduced by AO in the assessment order at page 9 is as under: “M/s Ma Tara Metal Trading Co. M/s Anjana & Co. made purchase of iron & steel goods required for the construction at different sites during the Financial Year 2009-10 the tune of Rs.8,33,31,107.50 and used all the materials for the purpose of business. M/s Anjana & Co. was taken over by M/s. Anjan Infrastructure Pvt. Ltd. w.e.f. 01.04.2011 with all assets & liabilities as a going concern. The liability taken over by us in the case of Ma Tara Metal Trading Co. as on 01.04.2011 was Rs.7,15,63,000/-. Ma Tara Metal Trading Co. was registered under West Bengal VAT Act R.C. No. 19551206026. The addresses provided by us are as mentioned in the invoice of the party. A copy of invoice is attached here with for your perusal. We have also searched from the portal of Directorate of Commercial Taxes and find that the addresses given by us are also as per the records under West Bengal VAT Act. Some payments were also made during the Financial Year 2011-12 and thereafter no payments were made by us. The liability exist in our books remains to be paid. Ledger copy of the party for the Financial Year 2011- 12 and 2012-13 are attached. Genuineness and creditworthiness of Sundry Creditors cannot be doubted where party is registered under West Bengal VAT Act and some payment were made by banking mode only because the party is not available on given address. We have no transaction in future year with the party and we are also not supposed to track each and every party where liability exists in our book.”
After taking note of the reply of the assessee, the AO concluded in his assessment order dated 19.02.2016 while adding Rs.6,20,63,000/- on account of cessation of liability u/s. 41(1) of the Act for the reasons stated as under:
“6.4. The assessee has explained the factual position of transactions in respect of both the sundry creditors i.e. M/s Nib Vinimay Pvt. Ltd. & M/s Ma Tara Metal Trading Co. in its Anjan Infrastructure Pvt. Ltd.. AY- 2013-14 written contention. The written contention dated 15-02-2016 has revealed that the assessee has already squared up the accounts with M/s. Nib Vinimay (P) Ltd. but in the case of M/s. Ma Tara Metal Trading Co., the sundry creditor since F.Y. 2009-10 in respect of a business concern M/s. Anjana & Co. which was taken over by the assessee company with effect from 01-04-2011 and the trading liability against the purchase is still existing as on today by an amount of Rs.6,20,63 ,000/-. Thus, the said liability of Rs.6,20,63,000/- carried by the assessee in its books of account is related to six years old as on today and no payment for the said amount has been made by the assessee to that party and the identical amount is payable since then. Now the crux of the issue is that the said party stood in the books of the assessee is not traceable at the given address at 82, Phears Lane, Ground floor, Kolkata-7000 12 and the assessee has also not shown an iota of interest to produce the party physically in response to the show-cause notice to substantiate the existence and genuineness of the trading liability. It is pertinent to mention that the said address is a paradise of the entry operators in Kolkata for providing accommodation entries on papers (according to the result of various enquiries made by the Department in different occasions and market information). 6.5. Therefore, in view of above facts and discussions made thereof it is crystal clear that the trading liability to the extent of the RS.6,20,63,000/- appeared in the books of the assessee does not exist physically and really otherwise the assessee could produce the party physically or would be able to furnish the actual address to trace out the sundry creditor who is payable such huge amount for a long time. No prudent business man/house will allow to his buyer to take away such huge amount without any legal action and the truth is also evident from the case of other sundry creditor where the assessee has paid the balance amount within a reasonable period. Hence, the aforesaid trading liability of Rs.6,20,63,000/- is being treated as already ceased as on 31-03-2013, after considering the submission of the assessee and the case laws cited therein. The ratios of the judgments in those cases are not applicable in the case of assessee due to difference circumstances. Here the assessee has been given the benefit of judicious view and both the alleged sundry creditors are dealt judiciously. Thus the addition is hereby made to the extent of Rs.6,20,63,000/- u/s.41(1) of I.T. Act, 1961 on account of Cessation of Liability and being the income of the assessee for this year which was not offered by the assessee in its returned income for this year.”
Aggrieved, by the aforesaid addition of Rs.6,20,63,000/- by the AO, the assessee preferred an appeal before the Ld. CIT(A), who rejected the books of account of the assessee after giving notice to the assessee/Ld. AR which fact is recorded by Ld. CIT(A) at para 5.2 of impugned order at page 13 and the Ld. CIT(A) directed the AO to reopen assessment for AY 2010-11 after taking necessary approvals and estimated the net profit of the assessee @ 8% instead of 6.8% declared by the assessee by holding as under: “5.3 Assessee has shown to have made purchase from non existent party purchases made from Maa Tara Metal Trading ,is doubtful and has not been proved. The assessee has shown to have made the purchases from Maa Tara Metal Trading Company in the Financial Year 2009- 10. I also agree with the contention of the assessee that if the entire purchases are disallowed then the profit of the assessee for assessment year, 2010-11 would come to 42.76%. These indicates that the assessee might have shown purchases from some bogus parties while actual purchases might have been made from some other party without bills. However, since the assessee has shown purchases from bogus parties, therefore, books of accounts of the assessee needs to be rejected. The next issue would be as to what would be reasonable profit which can be estimated. It is seen that the assessee is showing a net profit of 6.8 % in assessment year 2010-11;
Anjan Infrastructure Pvt. Ltd.. AY- 2013-14
In the case of Samurai Techno Trading corporation Ltd. vs. CIT (2010) 37 DTR 386, Kerala High court, the Kerala High court held that in estimation of income in the case of building contractors a percentage of 8 per cent can be adopted even where the turnover exceeds 40 lakhs. In CIT vs. Vinod Kr. Bhatia 211 ITR 253 (Punjab) tribunal’s acceptance of 10% profit in case of building contractor was upheld. Even otherwise in case of contractors, government while making estimate for the work, provides for a margin of 8%. Further under section 44AD a profit margin of 8% has been stipulated. Ld AR had argued that the assessee is showing reasonable profit of 6.8% and there are case laws where profit of 2.5% has been found to be reasonable in case of contractors. It would be travesty of justice if despite finding of" such massive irregularity the profit is adopted at 6.8%. At the same time the 'additions if all upheld will push the profit of .the assessee to more than 40% , which would be really unjustified. Therefore to take a middle path a profit rate of 8% would be just in assessee's case . In view of the above the Assessing Officer is directed to reopen assessment for AY 2010-11 after taking necessary approvals and estimate the net profit of the assessee @ 8% instead of 6.8% declared by the assessee.” Aggrieved by the aforesaid action of Ld CIT(A), the Revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. The facts of the case we note are that assessee has shown pre-existing trading liability from a concern namely M/s. Ma Tara Metal Trading Co. to the tune of Rs.6,20,63,000/- which entity the AO on an enquiry by an Inspector could not be traced or found in the address furnished by the assessee. So, the AO was of the opinion that M/s. Tara Metal trading is now non-traceable/non-existing and after going through the reply of assessee has treated the said liability as cessation of liability u/s. 41(1) of the Act since six (6) years had elapsed [when he framed the assessment order on 19.02.2016] and added to the income of the assessee. On appeal, the Ld. CIT(A) deleted the addition by estimating the income after rejecting the books of account which action cannot be countenanced. We note that the Ld. CIT(A) has no where given a finding that the assessee has not regularly followed the method of accounting as mentioned u/s. 145(1) of the Act. It is also not the case of the Ld. CIT(A) that the assessee has not computed the income in accordance with the accounting standard notified u/s. 145(2) of the Act. Thus, we note that condition for invoking section 145(3) of the Act is not satisfied in respect to the correctness and completeness of the books of account of the assessee. Since the liability in question is carried forward from earlier years, according to us, cannot be the basis for rejecting the books of the current financial
Anjan Infrastructure Pvt. Ltd.. AY- 2013-14 year. So, the action of the Ld. CIT(A) in rejecting the books of account was per se illegal and had no sanction of law. Moreover, the action of the Ld. CIT(A) in rejecting the books of account in the facts as noted by the Ld. CIT(A) cannot be accepted since the assessee had shown to have purchased the goods in the AY 2010-11 and not even this assessment year under consideration and since the purchase of goods is supposed to have taken place during AY 2010-11 and allowed as a deduction AY 2010-11 itself and the fact that Rs. 6.20 cr is the opening balance of this AY [i.e. AY 2013-14] the trading result which happened in this assessment year would not get affected. Therefore, the argument of the Ld. CIT(A) that if the entire amount is disallowed it will amount to 42.6% of the Net Profit is also fallacious and thus an incorrect view. Be that as it may be, however we note that AO has made the addition only on the basis of the Inspector’s report that M/s. Tara Metal Trading Co (sundry creditor) could not be found in the address furnished by the assessee and the AO has not dealt with the explanation of assessee that M/s. Tara Metal Trading Co was registered under West Bengal VAT Act and payments were made by assessee even in the previous year AY 2012-13 through banking channel. So the AO concluding that the sundry creditor does not exist cannot be accepted without the AO dealing with the explanation given by assessee about registration of it under VAT Act and payments made by assessee through bank to it. So, according to us on this issue proper inquiries was not made by the AO during assessment stage.
In the aforesaid scenario, in our considered opinion the issue needs further and proper examination so as to ascertain as to whether the liabilities shown by the assessee as payable at the end of the year are real or in fact are payable by the assessee to the person/entity concerned as claimed by the assessee. We, therefore, set aside the impugned order of CIT(A) and remand the issue back to the file of the AO for fresh adjudication, who will decide the issue after ascertaining and examining all the relevant facts and circumstances of the case. Needless to say that AO shall provide reasonable opportunity of being heard to the assessee, who shall be at liberty to produce all evidences, materials and accounts before the AO to establish that no liability had ceased in favour of the assessee so as to attract the provision of section 41(1) of the Act. The AO shall take into account the Anjan Infrastructure Pvt. Ltd.. AY- 2013-14 judicial precedents laid down by the various courts/tribunal with regard to the question as to when and how the cessation of liability occurs. The AO shall pass a reasoned and speaking order in this aspect.
In the result, revenue appeal is allowed for statistical purposes.
Order is pronounced in the open court on 31st December, 2019.