ACIT, MEERUT vs. M/S. SAREEN SPORTS INDUSTRIES, MEERUT

The brief facts of the case are that the assessee filed return on 15.10.2010 declaring income of Rs.73,61,610/-. The case was selected for scrutiny and statutory notices were issued to the assessee. During the assessment proceedings, the Assessing Officer made additions of Rs.11,90,31,978/- under various heads and assessed the total income of the assessee at Rs.12,63,93,588/-. Against the above additions, the assessee filed appeal before the ld. CIT(A) and the ld. CIT(A) partly allowed the appeal of the assessee. The Revenue is in appeal before us only on the above noted three grounds of appeal. Therefore, we are confined to above grounds taken by the Revenue.

Further in respect of ground No.3 of the Revenue, the facts are that the Assessing Officer had made adhoc disallowance of 20% out of the following expenses : (i). Telephone expenses 5,53,908 (ii). Sales Promotion expenses 7,91,773 (iii). Misc. expenses 2,78,715 (iv). Advertisement expenses 4,06,887 (v). Traveling expenses 2,92,048 ------------ 23,23,331 ------------- 6. The Assessing Officer disallowed 20% of the above expenses, i.e., Rs.4,64,666/- by holding that the assessee did not file vouchers regarding the above expenditures. Therefore, the personal element cannot be ruled out. In appeal, the ld. CIT(A), the assessee filed additional evidences u/r 46A and a written submissions on all the additions made by the Assessing Officer. The ld. CIT(A) considered and accepted the additional evidences holding that sufficient time for producing the requisite details was not granted by the Assessing Officer. The written submissions of the assessee and additional evidences were sent to the Assessing Officer for calling remand report, which was submitted by the Assessing Officer on 11.03.2015. The assessee also filed rejoinder of the remand report. After considering the submissions and remand report and its rejoinder, the ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved, the Revenue is in appeal before us on three issues as per grounds of appeal.

The ld. DR relying on the order of the Assessing Officer submitted that the first appellate authority has wrongly accepted the additional evidence of the assessee. The assessee was given sufficient opportunity at the assessment stage, but he did not furnish the requisite details. He further submitted that the total turnover of the assessee is 21.56 crores and odds and total sundry creditors shown by the assessee during this year are of 19.6 crores and odds, which keeping in view the volume of turnover is prima facie very high and against the prudent decision of a businessman. Complete details of the sundry creditors were also not filed before the Assessing Officer. It was also submitted that the assessee was unable to substantiate that the advances were given without interest out of how own funds whereas the assessee is paying interest on unsecured loans and partner’s capital. Therefore, the deletion of interest disallowed by the Assessing Officer has wrongly been made without considering the true facts of the case.

It was next contention of the ld. DR that in the original assessment proceedings, the assessee did not produce complete bills/vouchers in support of expenses incurred under various heads. The assessee is a partnership firm and hence, personal element in the expenditure could not be ruled out. The ld. CIT(A) has accepted the bills/vouchers submitted by the assessee without verifying them. Rather, the ld. CIT(A) has observed that the expenditures are reasonable keeping in view the sales declared by him.

On the other hand, the ld. AR relied on the order of the ld. CIT(A) and submitted that the ld. CIT(A) has rightly deleted the additions made by the Assessing Officer. In the remand report, the Assessing Officer has not made any adverse comments, but has himself accepted that the creditors have been paid by way of banking channels and no adverse remark has been found in the subsequent years. The assessee had sufficient funds on current capital account. Therefore, the proportionate interest disallowed by the Assessing Officer has rightly been deleted by the first appellate authority.

After hearing both the sides and perusing the entire material available on record, we observe from the orders of the authorities below that in the initial stage of assessment proceedings, the assessee had not produced books of account and bills and vouchers and other information regarding sundry creditors, but at appellate stage he had produced the same. The ld. CIT(A) also called for the remand report. The Assessing Officer issued notices u/s. 133(6) to all the creditors, whose balance was outstanding above Rs.1 lacs and most of the creditors complied with the notices so issued. The assessee has total number of creditors approximately 1700 and some of the notices returned un-served. In the remand proceedings, the assessee had provided copy of ledger accounts of those creditors, from whom the notices were returned back. The Assessing Officer in the remand proceedings found that all the creditors have their running account with the assessee and the payments have been made to them by banking channels and the assessee had also filed reconciliation statements whose balances were not tallied with the creditors’ closing balances. No any adverse comments have been made by the Assessing Officer on this issue in the remand report. He stated that the detailed enquiry has been made by the Assessing Officer in subsequent assessment year 2011-12 without pointing out any discrepancies or adverse material found in the said enquiry. Therefore, in presence of all these facts, the ld. CIT(A) has rightly deleted the addition on account of bogus sundry creditors.

In respect of issue No. 2 regarding interest disallowed by the Assessing Officer, the ld. CIT(A) has given relief without examining availability of own funds as per the contentions of the assessee. Therefore, we think it proper to restore this issue back to the file of Assessing Officer. The assessee is directed to substantiate that the assessee had sufficient own funds for giving interest free advances to others. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, this ground is allowed for statistical purposes.

Regarding disallowance of 20%, we find that the ld. CIT(A) has deleted the addition without verifying the bills and vouchers submitted before him, which were not submitted before the Assessing Officer. In our opinion, unless the supporting bills and vouchers are got verified, the disallowance of expenditure cannot be fully deleted only on the reason that the expenditures claimed were in consonance with sales declared by the assessee. On the other hand, on perusal of the remand report, we find that the assessee has also incurred some of the expenditure in cash and no bills or vouchers thereof were submitted before the Assessing Officer. In the remand report, the Assessing Officer has also pointed out that self made vouchers were produced by the assessee in support of some of the expenditure. Keeping in view all these facts, in our considered opinion, it was not appropriate on the part of ld. CIT(A) to delete entire disallowance made by the Assessing Officer of the expenditure claimed by assessee. Keeping in view the aforesaid facts of the case, to our mind, it will be just and proper to restrict the disallowance to the extent of 10% of the total expenditure claimed by the assessee as against 20% disallowed by the Assessing Officer. Accordingly, this ground of appeal