M/S SANJAY ENTERPRISES,KOLKATA vs. ITO., WARD-44(2), KOLKATA

The issue involved in Ground No. 1 relates to the disallowance made by the Assessing Officer under section 40A(3) of the Income Tax Act, 1961, which is sustained by the ld. CIT(Appeals) to the extent of Rs.25,01,156/-.

The assessee in the present case is a partnership firm, which is engaged in the business of trading in Till Oil. The return of income for the year under consideration was filed by it on 31.10.2007 declaring total 1 Assessment Year: 2007-2008 M/s. Sanjay Enterprises income of Rs.1,91,200/-. During the course of assessment proceedings, the purchases claimed by the assessee were verified by the Assessing Officer. On such verification, he found the purchases claimed by the assessee to be unverifiable in the absence of relevant details. He also found that cash payments were made by the assessee against purchases of Rs.1,25,05,785/-, which were in violation of section 40A(3). Although it was explained by the assessee that the said purchases were directly made from the farmers, the Assessing Officer found that no evidence was placed by the assessee to prove that the said purchases were directly made from the farmers and not from the middleman. He, therefore, invoked the provisions of section 40A(3) and made a disallowance of Rs.1,25,05,785/- . On appeal, the ld. CIT(Appeals) restricted the same to 20% in view of the amended provisions of section 40A(3) applicable to the year under consideration.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has invited our attention to the copy of the cash book of the assessee placed at pages no. 46 to 78 of the paper book to show that none of the payments made by the assessee in cash exceeded Rs.20,000/- to a single person on a single day. He has contended that the provision of section 40A(3) is, therefore, not applicable to the said payments and the disallowance made by the Assessing Officer, which is partly sustained by the ld. CIT(Appeals), is liable to be deleted. The ld. D.R., on the other hand, has submitted that this stand now being taken by the ld. Counsel for the assessee was never specifically taken either before the Assessing Officer or before the ld. CIT(Appeals) and in the absence any specific finding given by them is the respective order, the stand taken by the assessee requires verification. He has urged that this matter, therefore, be sent back to the Assessing Officer for such verification. We find merit in this contention of the ld. D.R. and since the ld. Counsel for the assessee has also not raised any objection in this regard, we set aside the Assessment Year: 2007-2008 M/s. Sanjay Enterprises impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the stand of the assessee from the relevant record. Ground No. 1 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.

The issue raised in Ground No. 2 relates to the addition of Rs.2,74,500/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of unexplained cash credit under section 68.

The credit balance appearing in the name of three creditors aggregating to Rs.2,74,500/- was treated by the Assessing Officer as unexplained as the assessee failed to establish on evidence the creditworthiness of the concerned creditors as well as the genuineness of the relevant transactions. On appeal, the ld. CIT(Appeals) upheld the action of the Assessing Officer on this issue and confirmed the addition of Rs.2,74,500/- made by the Assessing Officer by invoking the provisions of section 68.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has contended that all the three amounts in question aggregating to Rs.2,74,500/- were received by the assessee from the concerned creditors in the earlier years and the same, therefore, cannot be added to the total income of the assessee in the year under consideration by treating the same as unexplained cash credit under section 68. The ld. D.R. agreed that if the amounts in question were received by the assessee in the earlier years, the same cannot be added as unexplained cash credit under section 68 in the year under consideration. He, however, has contended that this matter also requires verification by the Assessing Officer as there is no finding recorded by him on this aspect. We accordingly set aside the impugned order of the ld. Assessment Year: 2007-2008 M/s. Sanjay Enterprises CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for verifying the stand of the assessee that the amounts in question were received in the earlier years and not in the year under consideration. If the stand of the assessee is found to be correct, the Assessing Officer shall delete the addition made to the total income of the assessee under section 68. Ground No. 2 of the assessee’s appeal is accordingly treated as allowed.

As regards the issue involved in Ground No. 3 relating to the addition of Rs.63,49,000/- made to the total income of the assessee under section 68 on protective basis, the ld. Representatives of both the sides have agreed that the ld. CIT(Appeals) vide his impugned order has already given a direction to the Assessing Officer to ascertain as to whom the relevant transactions belong and to allow appropriate relief to the assessee after identifying the real beneficiary. Keeping in view this direction given by the ld. CIT(Appeals), we are of the view that the assessee cannot be said to have any grievance on this issue and even the ld. Counsel for the assessee has accepted this position. We, therefore, find no merit in Ground No. 3 of the assessee’s appeal and dismiss the same.

In the result, the appeal of the assessee is treated as partly allowed for statistical purposes. Order pronounced in the open Court on November 06, 2019.