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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 12.02.2014 of ld. CIT(A)-28, New Delhi.
Following grounds have been raised in this appeal: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) is bad both in the eye of law and on facts.
2. That the assessment order having been passed in gross violation of the principle of natural justice is illegal and untenable in the eyes of Law.
3. (i) On the facts and circumstances of the case, the learned CIT(A) erred both in eyes of law and facts in confirming the addition of Rs.36,23,600/- on account 2 Shri Gems of purchases made by assessee treating the same as bogus. (ii) That the above addition has been confirmed by not considering the submissions made by the appellant before the Ld. CIT (A). (iii) That the above addition is untenable in the eye of law having been confirmed without providing opportunity to cross examine the person on the basis of whose statement the allegations have been made against the appellant and without following the principle of natural justice. (iv) That the addition made mere on basis of statement of any person without supported by any corroborative evidences is untenable in the eyes of law.
4. (i) On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming an addition of Rs.54,898/- on account of commission on bogus purchases under section 69C of Act. (ii) That the above said addition has been confirmed by the Ld. CIT (A) without bringing any material or evidence on record to apply the said rate of commission.
5. (i) On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law .in confirming addition of Rs.4,25,000/- on account of capital introduced by Sh. Rishi Sachdeva.
3 Shri Gems (ii) That the above said addition has been made despite the assessee bringing all material and evidence to prove the same and ignoring the fact that no such addition on account of capital introduced by a partner can be made in the hands of the firm. 6. On the facts and circumstances of the case the Ld. A.O. has erred both on facts and in law in charging interest u/s 234B and 234D. 7. That the appellant craves leave to add, amend or alter any of the grounds of appeal
.”
3. Ground Nos. 1, 2 & 7 are general in nature, so do not require any comment on our part.
4. Vide Ground No. 3, the grievance of the assessee relates to the confirmation of addition of Rs.36,23,600/- made by the AO by treating the purchases as bogus.
Facts of the case in brief are that the AO during the course of assessment proceedings noticed that the assessee firm made total purchases of Rs.70,09,040/- out of which purchases of Rs.36,23,600/- were made from M/s Parshanath Enterprises. The AO asked the assessee to produce ledger account of M/s Parshanath Enterprises which was furnished by the assessee. The AO also asked the assessee to submit the bills of purchases. The assessee furnished copies of the bills vide letter dated 27.10.2009. The AO observed that out of the total purchases from M/s Parshanath Enterprises, Rs.28,47,698/- were of Rudraksh Kawach 4 Shri Gems Chain. However, no such material was there in the closing stock of the assessee. The AO alleged that most of the sales had been made to the assessee by M/s Parshanath Enterprises during the period from 15.01.2007 to 24.01.2007 and there were only two sales bills issued by the assessee between 24.01.2007 to 02.02.2007. He considered the transaction as suspicious and issued summons u/s 131 of the Income Tax Act, 1961 (hereinafter referred to as the Act) to M/s Parshanath Enterprises. In response to the said summons, Sh. Mukesh Mangla attended the proceedings on 17.11.2009 and his statement was recorded under oath. The AO mentioned that Sh. Mukesh Mangla in answer to question No. 17 has stated as under: “I want to tell you that M/s Parshanath Enterprises does not enter into any sales or purchase in real terms. This firm is on papers only. We have not made any sales to M/s Shri Gems. We had only provided the sale bills to them. We get one and half percent commission from them. Out of this about one percent is our expenses. We had received a commission of Rs.54,898/- from M/s Shri Gems which is 1½% of Rs.36,59,836/-”
On the basis of aforesaid statement, the AO asked the assessee to show cause as to why the purchases made from M/s Parshanath Enterprises amounting to Rs.36,23,600/- be not treated as bogus purchases and disallowed. The AO observed that no explanation was given by the assessee, therefore, by remaining silent, the assessee tacitly admitted the fact that the purchases made by it with M/s Parshanath 5 Shri Gems Enterprises were bogus. He, therefore, made the addition of Rs.36,23,600/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and moved an application for admission of the additional evidence under Rule 46A of the Income Tax Rules, 1962. The ld. CIT(A) forwarded the evidences to the AO for his report, in response, the AO vide letter dated 05.12.2013, furnished the report which had been reproduced in para 5.1 of the impugned order. The assessee also furnished rejoinder to the remand report which has been reproduced in para 5.2 of the impugned order. Thereafter, the AO also furnished his comments vide letter dated 16.01.2014 and the assessee filed rejoinder to the remand report which have been reproduced by the ld. CIT(A) in paras 5.3 & 5.4 of the impugned order, for the cost of repetition, the same are not reproduced herein.
The ld. CIT(A) after considering the submissions of the assessee and the remand report of the AO, sustained the addition by observing in para 5.5 of the impugned order as under: “During appellate proceedings the appellant claimed • Purchases of Rs. 36,23,600/- were made from M/s Parshanath Enterprises • Silver and Rudraksh Kavach Chain were purchased from M/s Parshanath Enterprises • All bills, ledger account and other details of the transactions were produced 6 Shri Gems • The item was a trading item and the profit was shown as income • The Assessing Officer recorded the statement of some Mukesh Mangla and on the basis of this statement treated as the transaction as bogus • No opportunity of cross examination was provided to the assessee • The assessee produced evidence in the form of books, bank statement confirming the payment made to the said party, copies of bills, confirmation and copy of DVAT return of the party • It was stated that Mr. Mangla did not have power of attorney of the proprietor of M/s Parshanath Enterprises that is Mr. Sachin Jain • The entire item purchased was sold and was therefore not available in the closing stocks A remand report on the submissions and the documents filed by the appellant was called for the Assessing Officer wherein he reiterated and placed reliance on the statement of Mr. Mangla and the opportunities provided to assessee to contradict the evidence. Inspite of repeated opportunities the assessee did not produce any evidence against the statements made by Sh. Mukesh Mangla and did not furnish confirmation of M/s Parshanath Enterprises and did not file evidence in regard to the payment made to M/s Parshanath Enterprises in subsequent years. In response the appellant claimed that the sales have been disclosed by M/s Parshanath Enterprises in its DVAT return which shows its authenticity. A confirmation of M/s Parshanath Enterprises from the proprietor was also filed. It was also claimed that the bank statement placed in the paper book shows payment to M/s Parshanath Enterprises. A perusal of the bank account filed by the appellant for the period 03.04.2006 to 30.08.2007 showed that there was a single payment to M/s Parshanath Enterprises on 30.06.2007 7 Shri Gems vide cheque No.0130435 for Rs.50,000/-. There was no evidence of any other payment made to M/s Parshanath Enterprises. The appellant had also not filed copy of account of M/s Parshanath Enterprises as appearing in its books or any confirmation from M/s Parshanath Enterprises to show authenticity of the transaction. The only evidence relied upon by the appellant is the D-VAT return of M/s Parshanath Enterprises which reflect the sale transaction. Keeping in view the allegation and the statement of the employee of M/s Parshanath Enterprises that it is only entering into paper transaction of sale , the sale are bound to be reflected in the D-VAT return. Therefore simply on the basis of the D-VAT return the sale cannot be accepted as authentic, especially in view of the fact that there is no evidence of payment except the payment of Rs.50,000/- to M/s Parshanath Enterprises. In fact the payment of Rs.50,000/.- confirms the statement of Mr. Mangla that Rs.50,000/- was paid as commission for the sale bills. The treatment of Rs.36,23,600/- as bogus purchases by the Assessing Officer is therefore upheld. The ground of appeal
are dismissed.”
9. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO made the impugned addition only on the basis of statement of Sh. Mukesh Mangla without providing an opportunity to cross examine although the assessee vide letter dated 11.12.2009, requested the AO to provide an opportunity to cross examine. A reference was made to page no. 61 of the assessee’s paper book which is the copy of the said letter written by the assessee to the AO. It was further submitted that the assessee furnished a number of additional evidence in the form of DVAT return, sales tax return, certificate of 8 Shri Gems registration, sales transfer register and purchase transfer register of M/s Parshanath Enterprises in order to prove the genuineness of the purchase transaction. It was further submitted that out of the total purchases amounting to Rs.70,09,040/-, the assessee had the purchases amounting to Rs.36,23,600/- from M/s Parshanath Enterprises and if the same was to be taken as bogus, the gross profit would jump to a very high rate of 62.5%, which was not possible in such type of cases. It was further submitted that the assessee in its rejoinder gave reply to all the six allegations levied by the AO and also offered to produce the concerned party i.e. M/s Parshanath Enterprises before the ld. CIT(A) or the AO as per their convenience. A reference was made to page no. 103 of the assessee’s paper book which is the copy of the rejoinder to the remand report. It was further submitted that the assessee furnished copy of confirmation from M/s Parshanath Enterprises, its bank account, copy of ledger account of the assessee in the books of M/s Parshanath Enterprises as well as copy of ITR of the proprietor of M/s Parshanath Enterprises which are placed at page nos. 109 to 134 of the assessee’s paper book. It was contended that in order to prove the genuineness of the purchases, the assessee filed various evidences before the AO vide its letter dated 6.10.2009 & 27.10.2009. A reference was made to page nos. 23 to 45 of the assessee’s paper book. It was contended that the AO had not pointed out any defect or any error in those documents, and never asked the assessee to produce the proprietor of M/s Parshanath Enterprises and that he did not provide opportunity to cross examine Sh.
9 Shri Gems Mukesh Mangla. Therefore, the addition sustained by the ld. CIT(A) was not justified. The reliance was placed on the following case laws: � Andaman Timber Industries Vs CCE in Civil Appeal No. 4228 of 2006 order dated 02.09.2015 (SC) � Pr. CIT Vs Best Infrastructure (India) Pvt. Ltd. in order dated 01.04.2017 (Del.) � Pr. CIT Vs DKB Infrastructure Pvt. Ltd. in ITA No. 459/2016 order dated 27.07.2016 (Del.) � Pr. CIT Vs Uma Singal, Brijbhushan Singal in ITA Nos. 689 to 692, 694 & 744 of 2015 order dated 05.10.2015 (Del.) � Prakash Chand Nahata Vs Union of India 163 CTR 310 (SC) � Kishan Chand Chellaram Vs CIT 125 ITR 713 (SC) � CIT Vs SMC Share Brokers Ltd. 288 ITR 345 (Del.) � Alok Aggarwal Vs DCIT (2000) 67 TTJ 109 (Del.) 10. In his rival submissions, the ld. DR strongly supported the orders of the authorities below and reiterated the observations made in their respective orders.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the AO doubted the purchases made by the assessee from M/s Parshanath Enterprises only on the basis of statement of one Sh. Mukesh Mangla. However, it is not brought on record, in which capacity Sh. Mukesh Mangla has given statement when Sh. Sachin Jain was the proprietor of M/s Parshanath Enterprises. The assessee furnished the copy of ledger account of the assessee in the books of M/s Parshanath Enterprises and also filed confirmation as well as its bank account 10 Shri Gems alongwith copy of ITR of the proprietor of M/s Parshanath Enterprises. The AO did not make any inquiry from the proprietor of M/s Parshanath Enterprises. It is also not in dispute that the sales made by the assessee from the purchases under consideration and the gross profit rate has been accepted then there was no reason to consider the purchases amounting to Rs.36,23,600/- as bogus purchases. In that view of the matter, the addition sustained by the ld. CIT(A) amounting to Rs.36,23,600/- is deleted.
The next issue vide Ground No. 4 relates to the sustenance of addition of Rs.54,898/- on account of commission on bogus purchases u/s 69C of the Act.
Since, the addition amounting to Rs.36,23,600/- made by the AO considering the purchase as bogus has been deleted in the former part of this order. Therefore, the impugned addition is also deleted being co- related with the said purchases.
The next issue vide Ground No. 5 relates to the confirmation of addition of Rs.4,25,000 made by the AO on account of capital introduced by Sh. Rishi Sachdeva.
The facts related to this issue in brief are that the assessee raised capital of Rs.4,25,000/- which had been invested by Sh. Rishi Sachdeva and was received by assessee firm in cash. The AO observed that the 11 Shri Gems assessee failed to substantiate the source of cash. He, therefore, made the addition of Rs.4,25,000/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the addition by observing that no evidence in regard to the source of cash in the hands of Sh. Rishi Sachdeva whose gross total income declared was at Rs.1,13,623/-, had been explained by the assessee. The reliance was placed on the following orders of the Hon’ble Delhi High Court: � CIT Vs N. Tarika Properties Investment Pvt. Ltd. in order dated 28.11.2013 � CIT Vs NR Portfolio Pvt. Ltd. in ITA No. 1018 & 1019 of 2011 order dated 22.11.2013 � CIT Vs Nova Promoters and Finlease Pvt. Ltd. (2012) 342 ITR 169 17. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the identity of the partner who made the contribution of his capital was not in doubt and that the assessee had proved the genuineness and creditworthiness of the transaction by producing every document related to the source of the credits in the form of copy of Income Tax Return, details of drawings etc. of Mr. Rishi Sachdeva and the copy of his statement of affairs for the period ending on 31.03.2005, 31.05.2006 and 31.06.2007. A reference was made to page nos. 5 to 58 12 Shri Gems of the assessee’s paper book. The reliance was placed on the following case laws: � CIT Vs Shiv Dhooti Pearls & Investments Ltd. in ITA No. 429/2003 order dated 21.12.2015 of Hon’ble Delhi H.C. � CIT Vs Real Time Marketing (P) Ltd. 306 ITR 35 (Del.) � CIT Vs Diamond Products ltd. (2008) (9) TMI 943 (Del.) � CIT Vs Metal & Metals of India (2006) (11) TMI 630 (P&H) 18. In his rival submissions, the ld. DR supported the orders of the authorities below.
I have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the identity of the partner Mr. Rishi Sachdeva was not in dispute. He contributed a sum of Rs.4,25,000/- as a partner in the assessee firm. He was assessed to income tax in his individual capacity. The assessee furnished the copies of his statement of affairs for the years ending on 31.03.2007, 31.07.2006 and 31.03.3005 which are placed at page nos. 51 to 53 of the assessee’s paper book. The assessee also furnished copies of the income tax returns filed by Sh. Rishi Sachdeva which are placed at page nos. 56 to 58 of the assessee’s compilation. In the present case, in my opinion, if the AO was not satisfied regarding the transaction relating to the cash deposited by partner whose identity was not in doubt and the assessee furnished all the relevant documents then the addition could have been made in the hands of the said partner and not in the hands of the assessee.
13 Shri Gems The aforesaid view is also supported by the decisions of the various Hon’ble Courts as discussed hereinafter.
On a similar issue, the Hon'ble Allahabad High Court in the case of CIT vs. Jaiswal Motor Finance 141 ITR 706 (All) has held as under: "If there are cash credit entries in the books of a firm, in which the accounts of the individual partners exist, and it is found as a facts and circumstances that cash was received by the firm from its partners, then, in the absence of any material to indicate that they were the profits of the firm, it could not be assessed in the hands of the firm."
Similarly the Hon'ble Allahabad High Court in the case of India Rice Mills vs. CIT [1996] 85 Taxman 227 (All) has held as under: "The Tribunal should have taken note of the facts and circumstances that all the deposits represented the capital before the firm started its business. It was for the partners to explain the source of the deposits and if they failed to discharge the onus then such deposits could be added in the hands of the partners only. The Tribunal erroneously came to the conclusion that the deposits represented the undisclosed income of the assessee firm. The Commissioner (Appeals) had rightly held that unexplained deposits in no case could be the the income of the assessee firm, because the firm started its business only after the credits had been made in its books." 22. Similar view has been taken by the Hon'ble Patna High Court in the case of CIT & Another vs. Md. Perwez Ahmad and Others [2004] 268 ITR 381 by holding as under: "The Tribunal after having considered the materials on record has found that section 68 of the I.T. Act, 1961, is not attracted 14 Shri Gems in the case for the reason that in this case credit in the books of account of the assessee-firm is on account of introduction of capital by the partners and the firm has failed to prove the amount credited in the books of account and as such it would be assessed in the hands of the partners as unexplained investment."
On a similar issue, the Hon'ble Madhya Pradesh High Court in the case of CIT(A) vs. Metachem Industries [2000] 245 ITR 160 has held as under: "Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income-tax payer or not and where he had brought this money from, is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the treated to be the income of the firm for the purposes of income-tax."
Similarly, the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Barna Electro Corporation [2001] 252 ITR 344 affirmed the view of the Tribunal by holding that: “The Tribunal deleted the addition n the ground that thought there was no evidence to show that on the date of investment, the partners had sufficient funds in their possession to prove that the investments were made from that amount in the capital account, since these partners admitted to have made these investments in the assessee-firm and since there was no material to indicate that the cash credits were the profit of the firm, they could not be assessed as the firm's income and that the unexplained investments could be assessed in the 15 Shri Gems individual hands of the partners under section 69 Income-tax Act, if that was permissible.”
On a similar issue, the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Metal & Metals of India (supra) observed in para 5 as under: “5. In the present case, the firm has given explanation about the source namely Suresh Bhandari, partner, who himself is an assessee. The said partner has admitted having made deposit with the firm. Thus, as far as the firm is concerned, even if the gift claimed to have been received by Suresh Bhandari is to be rejected, the said Suresh Bhandari may be liable to be taxed by treating the said amount as undisclosed income, but the firm cannot be subjected to tax on that ground.”
In the present case also the amount in question was deposited by the partner as his capital, therefore, even if the Assessing Officer was not satisfied with the explanation of the assessee, it cannot be added in the hands of the assessee firm. At the most it cannot be considered in the hands of the individual partner of the assessee firm.
I, therefore, considering the totality of the facts, as discussed herein above, am of the view that the learned CIT(A) was not justified in confirming the addition made by the Assessing Officer on account of capital contributed by the partner in the assessee firm. Accordingly, the addition made by the Assessing Officer and confirmed by the learned CIT(A) is deleted.
16 Shri Gems 28. In the result, the appeal of the assessee is allowed. (Order Pronounced in the Court on 20/12/2017)