PRANAVANANDA AGRO STORAGE PVT. LTD., ,JALPAIGURI vs. ITO, WARD - 1(3), JALPAIGURI, JALPAIGURI

आदेश / O R D E R Per Bench:

1. For that on the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the addition made by the Assessing Officer of Rs.

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 14,28,910/- wrongly treating the same as unexplained cash credit out of Rs. 25,50,349/- being sale of agricultural crops. 2.a) For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the addition of Rs. 25,04,195/- made by the Assessing Officer on account of bogus sundry creditors. b) For that on the facts and in the circumstances of the case, the ld. CIT(A) erred in directing the Assessing Officer to add brought forward sundry creditors balance amounting to Rs. 41,84,399/- in the A.Y. 2012-13.

3. Since the assessee has raised before us cumulative grounds of appeal against the addition of Rs. 1,14,44,050//- on account of various issues. These issues are interlinked and the ld. CIT(A) has adjudicated these combined issues together therefore it is appropriate for us to adjudicate these issues together as these issues are interconnected and interlinked. The decision of the ld. CIT(A) on these interlinked grounds are given below:

“In this case, no specific ground of appeal has been raised. The appellant has raised accumulated ground of appeal against the addition of Rs. 1,14,44,050/- on account of various issue. Perusal of statement of facts shows that the A.O. has made additions of Rs. 8,00,000/- on account of loan which is claimed as share application money; undisclosed investment of Rs. 14,19,634/- for investment in purchase of land; and on account of unaccepted Agri income of Rs. 25,50,349/-; along with unproved Sundry Creditors amounting Rs. 66,74,070/- totaling Rs. 1,14,44,050/-. Keeping in view of the aforesaid facts, the issue wise decision is as under : 4.1 First issuerelates to the addition of Rs. 8,00,000/- which was claimed by the company as a share application money from B.K. Das & Sons. The A.O. has not accepted the confirmation submitted from M/S Dilip kumar Das & Sons on the ground that the reply submitted by the appellant is an afterthought story. The A.O. has held that it was unexplained money of the appellant. The appellant in his submission has argued that the said firm has given two cheques of Rs. 50,00,000/- & Rs. 8,00,000/- to the appellant but the cheque of Rs. 8,00,000/- could not be en- cashed. That since the petitioner requires fund urgently for payment to the seller of land, he made deposit into the bank in cash on22/05/12 and issued cheque to the seller on even date which was en-cashed on 28/05/12, Xerox copy of bank statement and payment voucher of book were also submitted. Confirmation letter of said firm and journal voucher for issuing share to said firm have been Page | 2

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 submitted in paper book in pages 48 to 49 and 50 which have been not denied by the Ld. ITO in his remand report.

The aforesaid facts submitted were sent to the A.O. for his comment and the A.O. has simply confirmed the action of the earlier AO without making any corresponding enquiry. Simply relying on the fact that the partner of the firm was not produced and there is no share allotment pending in the F.Y. 2012-13 and there is no trace of any share application money.

I have perused the fact of the case. In this case, the identity of B.K. Das & Sons is confirmed. It is also seen that the lending of Rs. 50,00,000/- by the aforesaid firm has also been accepted. The A.O. has doubted the aforesaid transaction only due to the reason that it was received in cash without challenging the identity, capacity and creditworthiness of the lender. Therefore, if at all any action was required, it was required in the hand of the lender. The capacity, identity and creditworthiness is explained therefore, the A.O. is not justified to add in the hand of the appellant as unexplained. Hence, the addition deserves to be deleted. On this issue, it is further to point out that the aforesaid transaction has been made in cash though appellant has claimed it as share application money. The finding of the A.O. is that there is no fund lying in the balance sheet as a share application money which has not been controverted by the appellant which strengthen the observation of the A.O. for treating it as a loan. Even in appellate proceeding on commenting over the Remand Report, the appellant has not controverted the observation of the A.O. Therefore, the A.O. is directed to initiate the proceedings of provision of Section 269SS of the I.T. Act, 1961. The ground of appellant is partly allowed.

4.2. Issue No. 2 of the appeal relates to the addition of Rs. 14,19,634/- on account of undisclosed investment. The A.O. found that Rs. 18,59,735/- was paid as stamp duty. The appellant has claimed that at the time of registration, it was required to pay urgently. The submission of the appellant is reproduced as under :-

"For purchase of land of the company, its director, Sri Jaydeep Das has made investment of Rs. 18,60,000/- from the share application money and the said director hasrecorded the said share application money in his statement of affairs as 31/03/2013. It is submitted that: a) The said investment of Rs. 18,60,000/- was urgently required to pay registration charges of land to the office of the District Registrar for purchase by the company. b) The Statement of Affairs of said director as on 31/03/2013 is part of PB in pages 51. c) The IT Acknowledgement for A.Y. 2013-14 of said director is also part of PB in pages 52. d) The said director personally appeared before the A.O. and confirmed said payment in cash for the purchase of payment of registration fee.

The above addition is against the natural justice and facts as such the addition ought to be deleted."

Keeping in view of the aforesaid fact that director of the company personally appeared and it was the director of the company who spend on behalf of company from his own account and the same has been duly confirmed by the director, his creditworthiness or identity has not been doubted by the AO. The AO has failed to examine the source of the fund in the hands of the director. Therefore, it cannot be Page | 3

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 treated as unexplained income of the company. Hence, the addition, if at all was required it was required in the hand of the director if its source was found unexplained. Therefore, the same is directed to be deleted. On this issue, appeal of the appellant is allowed.

4.3. Next Issue relates to the addition of Rs. 25,50,349/- on account of the observation of the AO that in the profit and loss account, the expenses claimed to generate the agriculture income is very low compared to the agricultural production/income. The AO concluded that the assessee company brings its undisclosed money into the business in the guise of agricultural income. There was in fact no such transaction and the assessee has taken this deceive of claiming agricultural income to make to believe that this amount of Rs. 25,50,349/- brought into the assessee's business is agricultural income. The AO further held that motive of the assessee company was to create a capital without the payment of tax by the introduction of its undisclosed income in the guise of agricultural income, which is exempted from income tax.

The appellant has submitted that a) A.O has no jurisdiction to assess or reassess the agricultural income and he can only include agricultural income to determine the tax liability, b) Books of account were produced before A.O. in which agricultural expenses have been shown and while making assessment, he did not reject books of account your petitioner. Ledger a/c of general expenses, Xerox of voucher of expenses and EPF payment receipt for labours included in paper book in pages 1 to 15, (hereinafter referred as PB). c) As per land record the classification of land is Danga/Sahari/Dahala/tea estate. Petitioner herein submits land khatian in the name of vendor and land revenue receipt which are attached in pages 16 to 33 of PB. d) As per circular dated 21/11/1973 issued by Govt, of West Bengal, "DANGA" means "High arable land growing jute or spring crop or vegetable". Circular submitted in page 34 to 37 of PB. e) With other objects of company, there is object of FARMING according to page 8 of Memorandum of Association which object is being purused by the company. Memorandum of association attached in PB being pages 38 to 46. f) It is worthwhile to note that Ld. ITO found the nature of Business of your petitioner as 'Trading of green tea leaf and production of green tea leaf and other agricultural products." g) Total sale receipt from the agriculture crops was Rs. 25,50,349/-, out of which payment amounting Rs. 11,21,439/- received through bank, a copy of ledger a/c attached in page 47 of PB. Hence, no additions are called for as it is also against the facts, evidences and natural justice.

In this case, the appellant has stated that payment amount to Rs. 11,21,439/- was received through banking channel. The AO has not made any attempt to verification of sale made through baking channel. Over remaining sale, the appellant has not been able to establish the receipt as the same was not verifiable. The sale receipt on account of agricultural income through cheque is verifiable therefore, to the extent of income received through cheque cannot be treated as unexplained income. Therefore, out of total addition of Rs. 11,21,439/- deserves to be deleted.

As regard the remaining additions are concerned of Rs. 14,28,910/-. In this regard, the A.O., in his report dated 03/11/2017, has argued that evidence of expenses were not submitted by the appellant. The appellant has shown very meager expense of Rs. 5,97,014/-. It is also a fact that remaining sale receipt is Page | 4

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 not produced neither appellant has produced relevant evidences against sale. Therefore, the appellant can get benefit of only Rs. 11,21,439/- which is explained sale. Remaining amount is directed tobe added in the income of the appellant as unexplained credit on account of unverifiable sale as it is held by various Hon'ble Courts that in case of agricultural income not only the primary operation but the sale has also to be proved. In this case, the sale to the extent of Rs. 14,28,910/- is not verifiable. Therefore, the addition to this extent of Rs.14,28,910/- made by the A.O is upheld. The ground of appeal is partly allowed.

4.4) Next issue of the appeal relates to the issue of addition on account of bogus sundry creditors. The A.O. has made the addition of Rs. 66,74,000/- while making addition. The A.O. has observed as under:

"During the course of scrutiny proceedings the A/R gave the name and address of eleven sundry creditors. Notice under section 133(6) sent to all of them in the address given were returned unserved with the postal remarks "Insufficient Address". Thereafter, in the hearing dated: 01/03/2016, the A/R gave the complete address and again the notice under section 133(6) was sent to all of them, vide letters dates: 01.03.2016. Since, reply was not received from any of the sundry creditors even after the lapse of reasonable period of time a show cause was issued to the assessee company vide letter dated: 17.03.2016, asking why the sundry creditors amounting of Rs. 66,74,070/- should not be added to the total income as unexplained. In reply the assessee stated:

These are not unexplained sundry creditors, we are to state that we gathered from our sundry creditors that they have received your notice u/s 133(6) and some of them has given reply and rest are in process to reply the same."

The above reply submitted by the assesse company is not tenable. However, confirmation was received from 10(10) sundry creditors, with the ledger attached of the assessee company except one, namely Sri Premandra Sarkar, in order to judge the authenticity of sundry creditors, summon u/s 131 were issued on 21.03.2016 to all the eleven sundry creditors and processed to be served on them throught the inspector of this office. Out of 11 (Eleven) summons, 6 (Six) were returned back 'unserved' with the note that the persons are not found. He could serve to only five of them and nobody turned up during the fixed date. As per the report submitted by the inspector it is seen that he could not find the remaining six sundry creditors. As regard the authenticity of sundry creditors, three basic things have not been established: a) Identity of the sundry creditors b) Credit worthiness of the sundry creditors. c) Genuineness of the transaction.

The burden to prove the identity, Credit Worthiness and genuineness of the transactions rests on the assessee but the assessee completely failed to prove the same. a) Identity of the sundry creditors: The identity of the sundry creditors could not be established at all. Summons under section 131 could be served to only five sundry creditors who even did not turned up on the hearing date fixed.

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 b) Credit worthiness of the sundry creditors: As per reply submitted in response to notice under section by the ten sundry creditors, it is seen that none of them have PAN Number and that nobody file their return of income. No payment has been received by any of the sundry creditors against the brought forward balance as on 01.04.2012. Rather, more credits have been given by them, to the assessee company. For giving such a good credit facility a person has to be financially sound. The assessee company could not establish the credit worthiness of the sundry creditors. c) Genuineness of the transaction: On perusal of the Voter Identity card and the confirmation letter of Shri Ajay Das, Shri Mithu Majumder, Shri Ranabir Majumder and Shri Nilanjan Dey Sarkar, it is seen that the Signatures done in the confirmation letters does not match with the signatures done in the respective voter identity cards. This indicates that the confirmation letters are signed by some other person and that those are not genuine.

The assessee company had, in fact, failed to establish the genuineness of these liabilities of sundry creditors by citing credible evidence. Simply the liabilities being reflected against certain names in the books of accounts would not vouch the genuineness of such liabilities. This is a clear case of the assessee company who brings its undisclosed money into the business in the guise of sundry creditors. There was in fact no such transaction and the assessee has taken this ruse to deceive the Department to believe that this amount ofRs. 66,74,070/- brought into the assessee's business is sundry creditors.

Hence, the sundry creditors added during the year amounting of Rs. 24,89,671/- is treated as unexplained cash credit u/s 68 of the Income Tax Act and brought forward sundry creditors of Rs.41,84,399/- is treated as cessation of trading liability under section 41(1) and added back to the assessee's income. The sundry creditors amounting of Rs. 66,74,070/- (2489671 + 4184399) is therefore added to the total income of theassessee. The said addition is made under two heads, i.e., 'brought forward creditorsbalances of Rs. 41,84,399/- treated as cessation of trading liability undersection 41(1)and current creditors of Rs. 24,89,671/- treated as Unexplained Cash Credit under section 68’.

Similar report was obtained at remand stage too.

During the course of appellate proceedings, the appellant was asked to submit details of purchase parties and to produce the parties along with their proof of trading activity or agricultural activity which can prove that the aforesaid sale were made to the appellant by those creditors. The appellant failed to produce any of the creditors or their corresponding purchasing or proof of their activity of doing trading of agricultural produce or agricultural activity rather their genuinity of transaction could not be proved. Therefore, it is held that creditors could not be proved by the appellant. It is also a matter of fact that total creditors are claimed at Rs. 66,74,070/- out of which the appellant claims that the aforesaid creditors also includes the opening creditors of F.Y. 2011-12. The chart is as under:

M/s Pranavananda M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 During the course of appellate proceedings, the app During the course of appellate proceedings, the appellant was asked to prove the ellant was asked to prove the sources of payment and date of payments made to aforesaid creditors and the sources of payment and date of payments made to aforesaid creditors and the sources of payment and date of payments made to aforesaid creditors and the appellant failed to do so. Even their corresponding purchase was not supplied by appellant failed to do so. Even their corresponding purchase was not supplied by appellant failed to do so. Even their corresponding purchase was not supplied by the appellant therefore addition of during the F.Y. 2012 the appellant therefore addition of during the F.Y. 2012-13 Rs. 25,04 13 Rs. 25,04,195/- is to be confirmed as a bogus sundry creditors. be confirmed as a bogus sundry creditors. As far as the creditors of A.Y. 2012 As far as the creditors of A.Y. 2012-13 are concerned, the A.O. is directed to take 13 are concerned, the A.O. is directed to take action in the A.Y. 2012 action in the A.Y. 2012-13 for which I am directing the A.O. u/s 150(1) of the I.T. 13 for which I am directing the A.O. u/s 150(1) of the I.T. Act, 1961 on the ground that the Act, 1961 on the ground that the aforesaid claim of creditors are brought forward aforesaid claim of creditors are brought forward from the previous of 2011 from the previous of 2011-12. The appellant has failed to prove their identity and 12. The appellant has failed to prove their identity and genuineness of the transaction and subsequent payment made to them. It is also a genuineness of the transaction and subsequent payment made to them. It is also a genuineness of the transaction and subsequent payment made to them. It is also a fact that the appellant has failed to prov fact that the appellant has failed to prove the trading or agricultural activity of e the trading or agricultural activity of the aforesaid sundry creditors and their capacity or genuinity of transaction to the aforesaid sundry creditors and their capacity or genuinity of transaction to the aforesaid sundry creditors and their capacity or genuinity of transaction to make sale to the appellant. make sale to the appellant. Therefore, the Assessing Officer is directed to add the brought forward creditors Therefore, the Assessing Officer is directed to add the brought forward creditors Therefore, the Assessing Officer is directed to add the brought forward creditors in the F.Y. 2011-12. T 12. The addition to the extent of brought forward sundry he addition to the extent of brought forward sundry creditors is deleted in this assessment year as the same is to be added in the A.Y. creditors is deleted in this assessment year as the same is to be added in the A.Y. creditors is deleted in this assessment year as the same is to be added in the A.Y. 2012-13. The ground of appeal is party allowed. “

13. The ground of appeal is party allowed. “

4. We heard both the parties and carefully gone through the submission put forth We heard both the parties and carefully gone through the submission put forth 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 on behalf of the assessee along with the documents furnished and the case laws 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 relied upon, and perused the fact of the case including the findings of the ld relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. terials brought on record.We note that the AO could have We note that the AO could have ventured into estimation and suspicion only after rejecting the books of accounts ventured into estimation and suspicion only after rejecting the books of accounts ventured into estimation and suspicion only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of the Act. Here in this case, the AO h the Act. Here in this case, the AO has not passed any order u/s 144 of the Act. The as not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for on AO thus without rejecting the books of account of the assessee has gone for on AO thus without rejecting the books of account of the assessee has gone for on suspicion and conjectures that the assessee may be inflating its expenses suspicion and conjectures that the assessee may be inflating its expenses suspicion and conjectures that the assessee may be inflating its expenses and introducing black money by showing agricultural inc introducing black money by showing agricultural income. While scrutinizing the While scrutinizing the Page | 7

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 expenditure if the expenses claimed are not having any nexus to the business of the assessee, at the most, expenses to the extent can be held to be non-genuine.

5.So far addition sustained by CIT(A) Rs.14,28,910/- out of total addition of Rs.25,50,349/- being sale of agricultural crops, in concerned. We note that in India it is a general phenomenon that workers/Labour working in the Agricultural field are paid in cash, as the workers/labors do not have bank account. In farming activities most of the expenses are incurred in cash and receipts/income by way of selling the agricultural produce, is also in cash. We note that books of accounts were produced before A.O. in which agricultural expenses have been shown and while making assessment, AO did not reject books of account. Ledger account of general expenses, Xerox of voucher of expenses and EPF payment receipt for labours included in paper book in pages 1 to 15. As per land record the classification of land is Danga/Sahari/Dahala/tea estate. Petitioner herein submits land khatian in the name of vendor and land revenue receipt which are attached in pages 16 to 33 of PB. As per circular dated 21/11/1973 issued by Govt, of West Bengal, "DANGA" means "High arable land growing jute or spring crop or vegetable". Circular submitted in page 34 to 37 of PB. With other objects of company, there is object of FARMING according to page 8 of Memorandum of Association which object is being pursued by the company. Memorandum of association attached in PB being pages 38 to 46. It is worthwhile to note that Ld. ITO found the nature of Business of assessee as 'Trading of green tea leaf and production of green tea leaf and other agricultural products." Total sale receipt from the agriculture crops was Rs. 25,50,349/-, out of which payment amounting Rs. 11,21,439/- received through bank, a copy of ledger account attached in page 47 of PB. The ld DR however, reiterated the stand taken by the AO. The assessee has submitted these all significant evidences during the appellate proceedings. Neither the AO nor the CIT(A) disputed the fact that the assessee is not owner of land. Considering this factual position, we delete the addition of Rs.14,28,910/-.

M/s Pranavananda Agro Storage Pvt. Ltd. Assessment Year:2013-14 note that assessee`s purchases were not doubted by the assessing officer. Assessee`s books of accounts are audited by a chartered accountant. Books of accounts of the assessee has not been rejected by assessing officer. Once the transaction gets completed, it may happen that the creditor may not cooperate in income tax proceedings and does not respond to notice under section 133(6) of the Act issued by AO during scrutiny assessment. The assessee submitted before the bench that brought forward balance of Rs.41,84,399/- relates to assessment year 2012-13 and AO had already examined them in the assessment proceedings for A.Y.2012-13, therefore, these should not be treated bogus sundry creditors. In assessee`s case some of the creditors also replied the notice under section 133(6) of the Act. The ld DR for the Revenue did not doubt the factual position narrated above. Therefore, considering the entirety of the facts and circumstances of the case, we delete the addition of Rs. 66,88,594/- (Rs.25,04,195 +Rs.41,84,399).

Order pronounced in the Court on 24.12.2019