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Income Tax Appellate Tribunal, “A”, BENCH KOLKATA
Before: SHRI P. M. JAGTAP, V.P & SHRI S. S. GODARA, JM
Appellant by : Shri Manoj Dutt, CA Respondent by : Smt. Ranu Biswas, Sr. DR सुनवाईक�तार�ख/ Date of Hearing : 23/09/2019 घोषणाक�तार�ख/Date of Pronouncement :11/12/2019 आदेश / O R D E R Per Shri S. S. Godara: This assessee’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax (A) - 6, Kolkata’s order dated 30.10.2017 passed in case No.104/CIT(A)-6/Kol/14-15 involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
Heard both the parties. Case file perused.
The assessee’s former substantive ground pleaded in the instant appeal reads as under: “1. That the Ld. CIT (A) failed to consider that TDS amount of Rs. 338/- @ 0.01% as per Certificate u/s. 197(1) on sales commission of Rs. 33,89,205/- involving 31 Salesman (i.e. @ Rs. 10/- per head on average) is not a very significant issue in view of the procedural cost of compliance, and formalities involved, CPC Bangalore not inclined to consider any refund below Rs. 100/- minimum, and thus came to a very harsh conclusion confirming the addition u/s. 40(a)(ia) which action is totally unnecessary, impracticable and against the principles of fair and natural justice, cannot be accepted and has to be cancelled.”
Economic Medical Stores 3. This assessee is a firm engaged in medicines wholesale business. It has admittedly paid the impugned sales commission to 31 payees (details to this effect form part of case records) without deducting TDS u/s 194H of the Act. Its case is that the impugned sales commission payments required TDS deduction @0.01% coming to Rs.338/-, in aggregate, only. We are taken to the case records including Government of India, Ministry of Finance’s press note dated 05.01.2012 that when the refunds for amounts less than Rs.100/- are not issued by the department, then, the demands of rupees less than 100/- should also not be collected. Learned counsel next refers to the CBDT’s clarification/instruction dated 22.12.2009 No.7 of 2009 regarding certificate of lower deduction or non-deduction of tax at source vis-à-vis the corresponding jurisdiction u/s 197 of the Act. Learned authorized representative’s case accordingly is that since the impugned TDS deduction required involves a very miniscule percentage, both the learned lower authorities have erred in invoking the impugned disallowance on the entire sales commission of Rs.33,89,205/-.
The Revenue strongly supports both the lower authorities’ action in making impugned disallowance.
We have heard both the parties. Case file perused. We find no illegality or any irregularity in both the learned lower authorities’ action that assessee was required to deduct TDS on sales commission payments amounting to Rs.33,89,205/- u/s 194H of the Act. The assessee’s reliance on various clarifications (supra) also are devoid of merit since these nowhere deal with TDS on commission payment required under Chapter XVII of the Act. We observe in these facts and circumstances that the learned lower authorities have rightly invoked the impugned disallowance in principle so far as assessee’s commission payments made to 31 salesmen are concerned. We make it clear that TDS deduction is a statutory duty for the payer under the provisions of the Act. We thus uphold both the learned lower authorities’ action in issue invoking the impugned disallowance.
Economic Medical Stores 6. Next comes yet another significant aspect of quantification of the impugned disallowance. The legislature has itself amended section 40(a)(ia) by the Finance Act 2014 w.e.f. 01.04.2015 restricting the impugned disallowance from 100% of the corresponding expenses to 30% only. The Revenue’s case is that the same applies from 01.04.2015 only not having any retrospective effect in the impugned assessment year 2011-12. We find no substance in Revenue’s instant argument. This tribunal’s coordinate bench’s decision in Dipak Parui v. JCIT holds the above amendment as a curative one having a retrospective effect. We therefore direct the Assessing Officer to restrict the impugned disallowance to 30% only of the assessee’s expenditure claim amounting to Rs.33,89,205/-. Necessary computation to follow as per law. This former substantive ground is partly accepted in above terms.
Next comes the latter issue of section 68 unexplained cash credits addition of Rs.9,22,767/- made in the course of assessment as affirmed in the CIT(A)’s detailed discussion as follows:
“9. The material facts in respect of ground no. 3 of the instant appeal are like this. In the course of assessment proceedings, the AO found that the appellant had disclosed "Sundry Creditors" in the sum of Rs. 74,25,129/- in the Balance Sheet of the appellant. Out of such amount, it was found that notices issued u/s. 133(6) of the Act returned unserved. The amounts consisted of negative balance of Rs. 11,993/- in respect of Solvay Pharma India Ltd., Rs. 61,054/- in respect of B.A. Brothers (ESTN) Ltd., Rs. 26,208/- in respect of Wim-Medicare P. Ltd. and a balance of Rs. 9,22,767/- in respect of Joyasri Distributors. It was submitted by the appellant that ".....However, we have already submitted you ledger copies of such parties i.e. (a) Solvay Pharma India Ltd. (b) B.A. Brothers (ESTN) Ltd. and (c) Joyasi Distibutors. We are enclosing herewith copies of such ledger again for your perusal. Transaction with such parties were genuine and payment have been made by account payee cheques only." However, the AO was not impressed by such submission of the appellant. He was of the view that since the appellant failed to establish the outstanding balance claimed in respect of these four creditors and also that the parties did not respond to the notices issued and further that the appellant did not provide any new addresses, he went on to add the sum of Rs. 9,22,767/- in respect of Joyasri Distributor being bogus creditor by impliedly invoking the provisions of s. 68 of the Act.
The A/R of the appellant argued the issue at length. The relevant portion of his arguments on the issue is reproduced hereinbelow: - 1) "The Ld. A.O. has verified the Sundry Creditors. Notices u/s 133(6) were issued by registered post to the creditors for verification. Out of which four (4) letters of Sundry Creditors were returned back with postal comment. The assessee gave a written reply stated that " we have been informed that our three creditors (a) Solvay Pharma India Ltd. (b) Jogasri Distributors and (c) B.A. Brothers (ESTN) Ltd. have not accepted the letter from Income tax Department. It is noticed that the name of the company Solvay Pharma India Ltd. has been changed to Abott. India Ltd. and B.A. Brothers (ESTN) Ltd. have Economic Medical Stores shifted from CNF agents of Fulfond Ltd. to MSD Pharmaceuticals and as a result they did not understand that such letter was served on behalf of Economic Medical Stores. When we have communicated them, they asked for re-sending such letter u/ s 133(6) of the Income Tax Act, 1961". The Ld. A.O. did not re-send letter to those four creditors instead the Ld. A.O. have asked the assessee to produce them before the Ld. A.O, with relevant documents. The Assessee submitted letter on 26/03/2014 and stated that "with reference to your letter No. JCIT/R-l/Hg./133(6)/2013-14/902 dt 21/03/2014, we would like to inform you that our three creditors (a) Solvay Pharma India Ltd. (b) Jogasri Distributors and (c) B.A. Brothers (ESTN) Ltd. have sent their ledger confirmation. In spite of our request they did not agree to, appear before you with us without proper notice served to them. However, we have been already submitted you ledger copies of such parties i.e.(a) Solvay Pharma India Ltd. (b) B.A. Brothers (ESTN) Ltd. and (c) Jogasri Distributors. We are enclosing herewith copies of such ledger again for your perusal. Transactions with such parties were genuine and. payments have been made by account payee cheques only".
Purchase of the above parties have been accounted for, sales of such items have been accounted for and no objection has been raised by the Ld. A.O. only Closing balance as on 31.03.2011 has been disallowed as bogus creditors. The above additions were made purely on assumption and surmise only. Such addition has no legal basis at all. Therefore such addition may be deleted.
The issue was remanded to the AO for ascertaining the veracity of the contention of the appellant. The AO after taking into consideration the submissions made by the A/R of the appellant along with enclosures submitted his reply on the issue in the report which is as under: - "In pursuant to your kind instruction, letters u/s 133(6) were issued to the 4 sundry creditors i.e. M/s Abot India Ltd.(previously Solvey Pharma India Ltd. on 07.04.2017 to submit their reply within 3 days of receipt of the letters. However, the above letters were returned unserved by the postal authority. However, letter sent to B.A. Brothers(ESTN)Ltd returned unserved by the postal authority with remark "Company not postal verified'. No reply is received from Soluey Pharma India Ltd. On 04.07.2017, Shri Prabir Goswami, A/R of the assessee appeared and contended that the assessee had already submitted reply from Solvey Pharma India Ltd vide letter dt. 19th March, 2014, during the course of scrutiny assessment itself. He once again brought to the notice of the undersigned, the copies of the statement of accounts of Solvey Pharma India Ltd and B.A Brothers (ESTN) Ltd. which were submitted before the AO on 18.03.2014 and he reiterated the fact the sundry creditor figure of the above parties which is very much correct and well tallied which the figures of the assessee firm. On examination of the sundry creditors balance of the above cited 4(four) creditors, the actual balance of disallowance should be Rs. 8,23,512/- in place of Rs. 9,22,767/-. The creditors balance in respect of Jogashri Distibutors and Wiim Medicare Pvt. Ltd. have been verified by issuing notice u/ s 133(6) of the I.T. Act and found to be Rs.(61,054/ ) and Rs. (26,208/ -) respectively as per table above. As regards the credit balance of Solvey Pharma India Ltd and Joyastri Distributors, the assessee has insisted on the confirmation submitted by them during the course of assessment proceedings on 18th March, 2014 is placed in assessment folder for your kind perusal. However, the transaction with above two parties i.e. Solvey Pharma India Ltd and Joyastri Distributors, could not be verified though noticed were issued u/ s 133(6) of the I. T. Act, 1961.”
The appellant fervently disputed the comments of the AO on the issue in its rejoinder to the remand report, the relevant portion of which is as follows: - "In the remand report the Ld. A.O has stated that the Creditors balances in respect of Joyastri Distributors and Wim Medicare Pvt. Ltd. have been verified by issuing notice u/s 133(6) of the LT Act and found to Rs. (61,054/-) and Rs. (26,208/-) respectively as per above table (out of 4 creditors). As regards the credit balance of Solvay Pharma India Ltd. and Joyasri Distributors the Economic Medical Stores assessee has insisted on the confirmation submitted by them during the course of assessment proceeding on 18th March 2014. The Submission on 18th March 2014, is placed in Assessment folder for your kind perusal. However, the transaction with above two parties i.e; Solvay Pharma India Ltd. and Joyasri Distributors, could not be verified though notice were issued u/s 133(6) of the I.T. Act, 1961. Hence, the confirmation of ledger had already been submitted for such Parties i.e. (a) Solvay Pharma India Ltd. (b) B.A Brothers (EST) Ltd. and (c) Joyasri Distibutors. Further, Purchase of the above parties have been accounted for, sale of such items have been accounted for and the Ld. A.O had accepted such purchase and only disallowed closing credit balance as on 31.3.2011 as bogus creditors. And the Submission dated 26.05,2016 may kindly be considered. The above additions were made purely on assumption and surmise only. Such addition has no legal basis at all. Therefore, such addition may be deleted.
The issue raised in the assessment order and the remand report of the ASSESSING OFFICER Vis-a-vis the arguments advanced by the A/R and the subsequent rejoinder of the appellant to the remand report were duly considered carefully in view of the materials adduced on record. The addition of Rs. 9,22,767 l- was made in respect of Joyasri Distributor only and not in respect of any other parties. However, in the ledger account of Joyasri Distributors, the closing balance shows at Rs.(-)61,O541- whereas in the ledger account of Solvay Pharma India Ltd. the amount is Rs. g,22,76U-. Therefore in my opinion, the addition was made in respect of Solvay Pharma India Ltd. and not Joyasri Distributor as mentioned by the AO in his assessment order. It is observed that the only basis of the AO for making and adhering to the addition of Rs.9,22,767 1/- as bogus creditor since the appellant was unable to discharge the burden of proving the genuinity of the credit balance appearing in the name of Solvay Pharma India Ltd. In the facts of the instant case, it is observed that the appellant was unable to provide the details as sought by the AO for the purpose of verification of such credit. In fact, there was an admission by the appellant showing its inability. Thus, the appellant failed to discharge the primary burden by producing the basic details as envisaged by the A.O. for the purposes of sec. 68 of the Act. Sec. 68 empowers the A.O. to treat any sum found credited in the books of accounts of the assessee for any previous year, if the assessee fails to offer explanation about the nature and sources of such fund or if explanation offered by the assessee is not, in the opinion of A.O., satisfactory, as income from undisclosed sources and charge the same to tax as income of the assessee of that previous year. Therefore, it appears that the power of the AO under s. 68 is not an absolute one. It is subject to its satisfaction where explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to explanation is in effect an in-built safeguard in s. 68 protecting the interest of the assessee. It provides for an opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent on the AO to consider the same and form an opinion whether the explanation is satisfactory or not. The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless explanation is offered, the AO is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once explanation is offered, the AO is bound to consider the same. Such consideration is guided by sound principle of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the AO while considering the materials produced by the assessee is very wide. In the process, it may exercise its power of examining the materials. It may require the assessee to produce further materials if so required. It may seek information from other sources on the basis of the material produced. However, in the present case, the appellant was unable to provide the details as required by the AO for the purpose of enquiry. That being so, it is construed that this is a thorough planning and design and the transactions have been orchestrated with the only intent i.e. to show these transactions as genuine. The preponderance of probabilities militated against such transactions. It was also asserted that the appellant had failed to produce any detail as desired by the A.O. in the assessment proceedings and even at the appellate stage. Therefore, the transactions undertaken by the appellant do not appear to be real. There is more than one consideration to come to a conclusion that apparent is not real. There are distinct reasons to disbelieve the transactions undertaken with Solvay Pharma India Ltd. is not being real in nature and as such, the conclusion reached by the AO basing on the surrounding circumstances to find out the reality is in consonance with law.
Economic Medical Stores Therefore after considering the surrounding circumstances and applying the test of human probabilities, it is concluded that the claim of the appellant in respect of the bogus creditors are not genuine and hence, the conclusions reached by the AO is liable to be upheld. 13.1 The conclusions reached in respect of the specious transactions undertaken by the appellant are fortified by the decision of the Apex Court in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), wherein it was observed as under: - "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But, in lieu of s. 68, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. In the instant case the amount is credited in capital account in the books of the appellant. The appellant has offered her explanation about the said receipts being her winnings from races. The said explanation has been considered in the light of the sworn statement of the appellant and other material on record. The ITO and the AAC have not accepted the explanation offered by the appellant. The two members constituting the majority in the Settlement Commission have also taken the same view. There is no dispute that the amounts were received by the appellant from various race clubs on the basis of winning tickets presented by her. What b disputed is that they were really the winnings of the appellant from the races. This raises the question whether the apparent can be considered as real. Apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The Chairman of the Settlement Commission in his dissenting note has emphasised that the appellant did possess the winning ticket which was surrendered to the race club and in return a crossed cheque was obtained. It is a neutral circumstance, because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the race club. The observation by the Chairman of the Settlement Commission that 'fraudulent sale of winning ticket is not a usual practice but is very much of an unusual practice" ignores the prevalent malpractice that was noticed by the Direct Taxes En4uiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act of 1972 whereby the exemption from tax that u.tas available in respect of winnings from lotteries, crossword puzzles, races, etc., u)as withdrawn^ Similarly the observation by the Chairman that if it is alleged that the tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record on inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. It is, therefore, not possible to agree with the view of the Chairman in his dissenting opinion. The majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant’s claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. 13.2 Further, in the case of CIT ys. Sat. Arati Jana 2013) 216 Taxman 109 Cal), it was held as under:- "The assessee was directed to explain as to why should the sum of Rs. 42,78,717/-and the sum of Rs. 4.74.631/- be not added to her income. The assessee contented herself by furnishing a list indicating names of sellers and buyers who, according to her, had made the investment She did not, however, produce any supporting material in favour thereof. The contention of the assessee that the AO should have called upon those persons to verify the statement of the assessee was rejected It Economic Medical Stores was for the assessee to produce all relevant materials in support of the claims and contentions put forward by it. Until prima facie evidence in support of the claim or contention is adduced, the onus does not shift to the AO to disprove the same. The assessee, by merely furnishing a list, did not discharge her burden Acceding to the contention of the learned counsel would amount to laying down a rule that it is for the Revenue to find out whether the assessee has or may have an explanation to offer. When an explanation is called for from the assessee, he or she must take care to substantiate her explanation by such supporting evidence as may be in his or her power to produce. Who are the buyers; how or in what circumstances did they advance the sum of Rs. 4,74,681/- and who are the sellers? How and in what circumstances did the sum of Rs. 42,78,717/- become payable to them was in the special knowledge of the assessee. It was, therefore, her obligation to disclose cogent evidence in that regard She claims to be a commission agent. The column 5 of GTI-1 provides for deduction of commission. Therefore it should not have been difficult for the assessee to disclose the relevant evidence about the transactions allegedly made by the assessee on behalf of suppliers of fish or the trawler owners. Her failure to do so even prima facie amounts to no explanation at all.”
Therefore taking into consideration the circumstances of the present case and the applicable legal position on the issue, it can be safely concluded that the A.O was correct in law in resorting to the addition of Rs.9,22,767/- by applying the provisions of s. 68 of the Act since the criteria of identity of such creditor creditworthiness and the genuineness of the transaction in that respect remained unproved and after due deliberation, I am inclined to uphold the same. The ground no.3 of the appeal is hereby dismissed.”
We have heard rival submissions. Both parties reiterate their respective stands against and in support of the impugned addition. The assessee’s case is that the impugned credit balance of Rs.9,22,767/- was in order in view of the corresponding opening balance of purchases and payments by account payee cheques. It also refers to necessary confirmations filed before the Assessing Officer during the course of scrutiny itself. The Revenue’s case on the other hand is that the assessee has failed to prove the impugned sum as genuine right from scrutiny to remand proceedings as well as the CIT(A)’s order and therefore, this addition is liable to be confirmed.
After giving our thoughtful consideration to the foregoing rival pleadings, we find no reason to sustain the impugned disallowance. Page 59 in paper book suggests that the opening balance sum of Rs.9,22,767/- involving four entries of Rs.3,70,446/-, 98,668/-, 3,72,438/- and 81,215/- stood paid between 01.04.2011 to 23.04.2011 as per the corresponding ledger entries. Coupled with this, the concerned party(ies) have also filed necessary confirmation before the Assessing Officer at the first instance. We keep in mind all these facts and circumstances; more particularly the assessee’s repayment through banking channel, to hold that Economic Medical Stores both the lower authorities have erred in treating the impugned sum as unexplained cash credits u/s 68 of the Act. We direct the Assessing Officer to delete the same.
10. This assessee’s appeal is partly allowed in above terms.
Order is pronounced in the open court on 11.12.2019.