M/S CBR CONSTRUCTIONS,BANGALORE vs. ASST.C.I.T., BANGALORE

O R D E R Per Shri A.K. Garodia, Accountant Member; This is an assessee’s appeal directed against the order of ld. CIT (A) – II, Bangalore dated 16.09.2014 for Assessment Year 2009-10.

by the assessee are as under. “1. The order of the CIT (A) in so far as they are against the appellant are opposed to law, equity, and weight of evidence, probabilities, facts and circumstances of the case.

2. The appellant denies to be assessed at Rs. 1,98,66,401/-against the declared total income of Rs.33,37,930/- on the facts and circumstances of the case.

3. The learned CIT (A) is not justified in confirming the disallowance of Rs.1,59,43,471/- in respect of sundry creditors, despite confirmation of their balances and the expression of objective satisfaction by the AO in the remand report on the facts and circumstances of the case.

Page 2 of 17 4. The learned CIT(A) has erred in confirming the addition to the tune of Rs.5,00,000/- in respect of the sworn statement of Mr. Manjunath and is not justified in not relying on the entries in the books of accounts of the appellant on the facts and circumstances of the case.

5. The learned CIT (A) erred in confirming the additions to the tune of Rs. 85,000/-in respect of purchases made during the year on the facts and circumstances of the case.

8. In view of the above and other grounds that may be taken at the time of the hearing the appeal, the appellant prays that the appeal be allowed in the interest of justice and equity.”

14) ISSUE No 1: The learned CIT (A) erred in confirming addition of Rs 5,00,000/- in respect of Mr. Manjunath, as no confirmation was submitted in respect of the creditor. a) The learned Assessing Officer while passing the order of assessment has obtained a sworn statement from Sri Manjunath, that no amounts were due to him, for which the appellant had sought an opportunity to rebut the same by way of cross examination, which was denied and additions made to the extent of Rs.5,00,000/-. b) The appellant during remand proceedings has stated his inability to furnish the confirmation of Sri Manjunath due to differences over work related issues but stated that the amounts were due and the additions made in the assessment order ought to be deleted as no opportunity to rebut the statements were given to the appellant. c) The AO in his remand report has advised the CIT(A) to confirm the additions as no confirmation of accounts were provided during remand proceedings, which was confirmed by the learned CIT(A). d) The appellant submits that, it is settled law that no information may be used against the assessee, which was obtained behind his back, without providing an opportunity to rebut the same. The appellant relies on the below authorities to buttress the point that the additions ought to have been deleted by the learned CIT(A); 1. Andaman Timber Industries in CA No.4228 of 2006, pronounced on 02nd September 2015, reported in 62 Taxmann.com 3 and in 52 GST 355.

2. Geethanjali Education Society (2008) 174 Taxmann 440 (Raj -HC) 3. Laxmanbhai S Patel V CIT 2008 174 Taxmann 206 (Guj -HC) "Veracity of genuineness must be tested at the touch stone of evidence and not otherwise" "The sworn statement which was relied upon by the authorities must have been provided to the assessee and he must have been provided an opportunity to rebut the sworn statements and not doing so had denied the assessee an opportunity to prove his case and thus the additions was to be considered as NIL." e) The appellant submits that in view of the above the additions confirmed in respect of Mr. Manjunath, of Rs.5,00,000/- be deleted in the interest of justice and equity. f) The appellant wishes to bring to the attention of the Page 4 of 17 Hon'ble Tribunal, that the learned CIT(A) while giving relief of Rs.74,99,133/- (i.e. Rs.79,99,133/- - Rs. 5,00,000/-) has erroneously mentioned the relief as Rs.69,99,133/- which is a mistake.

15) ISSUE NO 2 : The learned CIT (A) erred in confirming the addition of Rs 1,59,43,471/- despite confirmation of balances by sundry creditors and a favourable remand report from the assessing officer for all of the amounts. a) The learned AO in the original appeal made additions of Rs. 2,53,62,291/- out of which a sum of Rs. 94,18,820/- was deleted by the learned CIT(A) and Rs.1,59,43,471/- confirmed. b) The details of the said sum of Rs 1,59,43,471/ - are detailed in the appeal memo at page 7 - 8 and are reproduced for convenience;

Paper Book, Name Amount Document Pg No Confirmation, ITRV, KRISHNA 7,00,000 25-27 Computation Confirmation, ITRV, C THIRUPAL REDDY 12,00,000 28-30 Computation

Confirmation, ITRV, CHOTULAL 5,00,000 31-33 Computation VENKATA KRISHNA Confirmation, ITRV, 25,95,338 34-37 REDDY Computation, PAN

Confirmation, ITRV, 38-40 RAMANIAH 10,45,000 Computation

Confirmation, ITRV, RAGHAV REDDY 18,50,000 41-43 Computation Confirmation, ITRV, P HARIKRISHNA 12,00,000 44-46 Computation Confirmation, ITRV, RAMANA REDDY 16,00,000 47-49 Computation Confirmation, ITRV, R.NARASAPPA 10,00,000 50-51 Computation MOORTHY/MARUTHI 5,00,000 Confirmation, ITRV 52-53

Confirmation, ITRV, CHENCHULU 6,00,000 54-56 Computation VENKAT REDDY 24,55,000 Confirmation, PAN 57 Confirmation, ITRV, P MAHESH 6,98,133 58-60 letter to AO Total 1,59,43,471 c) The appellant submits that it has filed all the details such as confirmation of accounts, copies of ITRV and PAN to establish that the creditors were genuine as per its books of accounts, which has also been affirmed by the AO in his remand report at Para 2.2 and 2.3 (page - 62 paper book), where he categorically states that the documents have been furnished for the relevant AY 2009-10 in all cases in respect of sundry creditors of Rs.2,53,62,291/- (i.e. 94,18,820/- + 1,59,43,471/-). d) The remand report clearly states that : "In respect of cases where notices are returned unserved, the authorised representative has furnished copies of confirmation, return of income relevant to A.Y 2009-10." (Emphasis supplied) e) It is submitted that the AO has made a mention that the confirmation of Sri Moorthy (Maruthi) was for an amount of Rs.10,00,000/- in place of the addition of Rs.5,00,000/-, to which the appellant has rightly pointed out that the balance outstanding in the books was Rs.10,00,000/- (paper book Pg-6 and Pg 52-53). f) The AO has stated that the confirmation in respect of Sri P Mahesh was in the name of Sri Maheshwar Reddy, for which the appellant has submitted that the names were aliases in daily life, and in fact the letter by the creditor filed before the AO during assessment goes to prove that both were one and the same person (paper book Pg58-60). g) The AO in the remand report while affirming the compliance made by the appellant stopped short of stating that relief ought to be allowed, and sought the CIT(A) to decide on the merits of the above two creditors, which the learned CIT(A) has presumed to be for all the creditors and confirmed the additions. h) The Hon'ble CIT (A) has erroneously upheld the disallowance of Rs 1,59,43,471/- made by the learned assessing officer without considering the documentary evidences provided by the assessee during the stage of remand proceedings and in fact for drawing attention to two items the assessing officer has not made any adverse

Page 6 of 17 findings on any of the creditors. Hence the below finding of the CIT(A) was not warranted and was without appreciating the remand report in letter and spirit. "Even before me, during the appeal proceedings, the appellant has not been able to produce any documentary evidence in support of the claims made in respect of sundry creditors over and above Rs.94,18,820/- which, according to the AO, could be treated as genuine. I am convinced with the stand taken by the AO in the remand report. Hence, while addition to the extent of Rs.1,59,43,471/- is confirmed, addition to the extent of Rs.94,18,820/- is deleted". i) The Hon'ble CIT(A) has erred in confirming the above items of outstanding sub-contractor creditors, in spite of providing documentary evidences and by proving beyond reasonable doubt, documents such as ITR V, computation sheet and returns filed by respective sub-contractors. The fact that taxes have been paid by the said persons fortify our claims. j) In view of the above the appellant submits that it has discharged its onus of proving that the creditors were genuine, have offered the income to tax and have also affirmed the balances to the satisfaction of the AO, who has also affirmed the veracity of the PAN in his remand report. g) The Appellant has discharged its onus of establishing the identity and proved the genuineness of the liabilities with respect to above referred sub-contractor as required under the provision of Indian Evidence Act. h) The appellant also submits that the creditor for sub-contract for Rs 6,98,133/- represented by the name P Mahesh in books of appellants as against the name appearing in return of income as Maheshwarareddy, is in fact, as already explained by Authorised representative apparent in remand report, is in reality aliases. Hence the short name entered in books must not be criteria to disallow the expenditure, by mere surmise that are of different two parties. i) The appellant reiterates that that the Hon'ble CIT-(A) by looking at the above two discrepancies (has disallowed the entire amount of Rs1,59,43,471/-) which is contrary to the remand report of the assessing officer and material on record. j) The Appellant has discharged its by providing the details of ITR- V and Computation and confirmation letters from respective creditors.

Page 7 of 17 k) The respective sundry creditors have offered the amount in their respective return of income. l) It is submitted that the appellant has furnished the confirmation of all the creditors and the contractors as required by the Assessing officer as on the date of the balance sheet. The Assessing officer has verified the PAN, return of income, confirmation of accounts etc of all the creditors and had made a note in remand report that the assessee has furnished the details of confirmation of all the parties. m) The Learned Assessing officer verified all the relevant records and has in the remand report stated that the assessee has submitted all the requested documents to the satisfaction of the AO. n) The appellant relies on below decisions to buttress the facts of the case wherein it has been held that "Liability of appellant is fulfilled once the confirmation and PAN are submitted and verified by AO"

c) The appellant submits that the total purchases made at M/s SRK Agencies was to the tune of Rs.3,87,553/- which was supported by valid bills and filed along with the ledger account for the year and when compared with the vendors ledger account, the difference notice to the extent of approximately 20,000/- was due to an erroneous entry made by the vendor, whose ledger account reflected a lower sum. d) The appellant submits that it has accounted for the bills meticulously and the balance of M/s SRK Agencies, as on the date of balance sheet was true and accurate and that the vendor had a running account with the appellant in the following years. e) The appellant further submits that an advance of Rs.65,000/- was made during the year prior to the AY 2009-10 for supplies, which were not received within the close of the year and upon receipt of the goods, the said advance was transferred to the appropriate head of account, and inadvertently claimed as paid for materials purchased during the year. f) It is submitted that the additions confirmed was erroneous and needs to be deleted as Rs 65,000/- paid as advance was not claimed in any earlier year, but only adjusted during the impugned assessment year. g) In view of the above submission and the findings in the remand report the disallowance of Rs.85,000/- is without any basis. Hence the order of the CIT(A) is contrary to the remand report and the additions confirmed needs to be deleted on the facts of the case.

6. Regarding ground no. 3 in respect of major addition of Rs. 1,59,43,471/-, we find that the remand report submitted by the AO is available on pages 61 to 64 of paper book. The relevant paras in the remand report are in Para nos. 2 to 2.10 and these paras are reproduced below for the sake of ready reference.

“2) Sundry creditors Rs.2,53,62,291/- 2.1 The assessee had debited an amount of Rs.2,53,62,291/- as payable. The AO called for information u/s.133(6) and summons requiring the presence of the subcontractors. Some notices were served and acknowledgements placed on record, but no one appeared before the assessing officer. Some of the notices returned back unserved by the postal authorities. Hence, the AO made the addition of Rs.2,53,62,291/-.

2.2 During the course of remand proceedings, the assessee’s authorised representative has furnished the copies of confirmation, PAN details, returns of income relevant to A.Y.2009-10 in all the cases. The same have been verified. Copy of return of income in the case of Sri Surendra and Sri. Ashok Kumar has not been furnished. As verified the PAN of the above parties are in the jurisdiction of Range- 7. In view of the above, the amount of sundry creditors to the tune of Rs.94,18,820/- may be treated as genuine.

2.3 In respect of cases where notices are returned unserved, the authorised representative has furnished copies of confirmation, return of income relevant to A.Y.2009-10. On verification of the details submitted, it is noticed that in the case of Sri. Moorthy (Rs.5,00,000/-), the return of income submitted bears the name of Sri. Maruthi and the confirmation given is for Rs.10 lakhs as against Rs.5 lakhs. With regards to the name, the AR submitted that it is a typographical error because TDS has been done in this case and return has also been filed by the party. With regards to the difference of Rs.5 lakhs, AR has submitted that the actual balance outstanding as per the Schedule forming part of the financial statements is Rs 10 and hence the same should be accepted. In the case of Sri. Mahesh, the return of income submitted by the authorised representative is in the name of Sri. Maheshwara Reddy where as the name appearing in confirmation is that of P Mahesh. However, the authorized representative, submitted that they are nothing but aliases in day to day life. Hence I request learned CIT(A) to decide the case on merits. 2.4 Regarding addition of Rs 8,81,795/. The assessee had shown

Page 10 of 17 purchases with the amounts paid to various parties to the tune of Rs.17,86,011/-. The AO during the course of scrutiny proceedings, called for confirmation u/s.133(6) from the corresponding parties from whom the assessee claimed to have made purchases. The confirmations from the parties was received to the extent of Rs.9,04,216/-. Hence, the difference of Rs.8,81,795/- was added back to the total income of the assessee.

2.5 During the course of remand proceedings, the assessee's authorised representative has submitted a note enclosing ledger extracts in respect of M/s. Meenakshi Paints and Suppliers, M/s SRK Agencies, M/s. S R Enterprises, M/s. Shree Renuka Enterprises, Sree Balaji Plywoods. After examining the details furnished, my comments are as under.

2.6 In respect of M/s. Meenakshi Paints and suppliers, the authorised representative has submitted ledger extract reflecting the total payments made for purchase of paint. Out of the total amount of Rs.5,64,483/- incurred towards paint, the amount of Rs.2,11,184/- pertaining to the said party is confirmed by the above party. The balance amount of Rs.3,53,299/- are expenses incurred towards paints purchased from other suppliers.

2.7 In respect of M/s.SRK Agencies, out of Rs.3,87,553/- claimed by the assessee, the party has confirmed an amount of Rs.3,67,832/-. In the note submitted by the authorised representative, he states that the amount of supplies made by the party during the year was Rs.3,67,832/-, but the amount was wrongly typed as Rs.3,87,832/- while making the submissions during the course of scrutiny proceedings.

2.8 In respect of S.R.Enterprises, it is submitted by the assessee that the amount of Rs.65,000/- was the advance paid in the preceding year for supplies which was adjusted during the year. The assessee inadvertently claimed the above amount as payment made for materials purchased during the year.

2.9 As seen from the ledger extracts of M/s. Shree Renuka Enterprises, an amount of Rs.3,25,200/-, as against Rs.5,69,120/- claimed by the assessee, has been received by them from the assessee on account of purchase of materials. The assessee is stating that opening balance of Rs.2,65,420/- was wrongly included in the details of payments during the year.

2.10 In the case of Sree Balaji Glass &Plywoods, the assessee has submitted that the transaction pertains to M/s. Sree Balaji Plywoods and confirmation has been filed and he further submitted that it does not pertain to Sree Balaji Glass &Plywoods. To prove his point, the AR submitted a sample bill and confirmation. As per the ledger extract submitted by the assessee, the assessee has paid an amount of Page 11 of 17 Rs.1,99,855/- to Sree Balaji Plywoods. The assessee has submitted relevant documents in this regard, the learned CIT (A) may kindly decide the case on merits and facts of the case.”

7. From the above paras of the remand report, we find that out of the total amount shown by the assessee as payable to sundry creditors of Rs. 2,53,62,291/-, the AO has stated in the remand report that the assessee has furnished the copy of confirmation, PAN details and return of income relevant to Assessment Year 2009-10 in all the cases and the same has been verified. He further stated in Para no. 2.2 of the remand report that copy of return of income in the case of Sri Surendra and Sri Ashok Kumar had not been furnished. He also reported that in view of the above, the amount of sundry creditors to the tune of Rs. 94,18,820/- may be treated as genuine. The ld. CIT(A) has deleted the addition to the extent of Rs. 94,18,820/- and confirmed the balance addition of Rs. 1,59,43,471/-. As per the details available on page no. 7 of the assessment order, the amount outstanding in the name of Mr. Surendra is Rs. 5,93,820/- and Mr. Ashok Kumar is Rs. 32 Lakhs. On page nos. 8 and 9 of the assessment order is the detail of the parties in respect of which the addition of Rs. 1,59,43,471/- was confirmed by CIT(A) and in the list of these 13 parties, the names of Mr. Surendra and Mr. Ashok Kumar is not appearing and therefore, it is seen that no addition is confirmed by CIT(A) in respect of Mr. Surendra and Mr. Ashok Kumar. It means that as per Para no. 2.2 of the remand report, the ld. AR of assessee has furnished the copy of confirmation, PAN details relevant to Assessment Year 2009-10 in all the cases except for those two cases for which copy of return of income was not furnished but the addition was not sustained by CIT(A) for those two persons also i.e. Mr. Surendra and Mr. Ashok Kumar. In the paper book before us also, the copy of confirmations, computation of income and Income tax return for the first creditor Shri Krishna Rs. 7 Lakhs is available on pages 25 to 27 of paper book. Similarly for the second party Shri C. Thirupal Reddy Rs. 12 lakhs, the same documents are available on pages 28 to 30 of paper book. For the third party Shri Chotulal Rs. 5 lakhs, the same documents are available on pages 31 to 33 of paper book and for the fourth party Shri Venkata Krishna Reddy Rs. 25,95,338/-, the same documents are available on pages 34 to 37 of paper book. For the next party Shri Ramanaiah Rs. 10.45 Lakhs, the same documents are available on pages 38 to 40 of paper book and for the next party Shri Ragahav Reddy Rs. 18.50 Lakhs, the same documents are available on pages 41 to 43 of paper book. For the next party Shri P. Harikrishna Rs. 12 Lakhs, the same documents are available on pages 44 to 46 of paper book. In respect of the next party Shri Ramana Reddy Rs. 16 Lakhs, the same documents are available on pages 47 to 49 of paper book. For the next party Shri R. Narasappa Rs. 10 lakhs, the same documents are available on pages 50 to 51 of paper book. For the next party Shri Moorthy / Maruthi Rs. 5 Lakhs, the same documents are available on pages 52 to 53 of paper book. For the next party Shri Chenchulu Rs. 6 Lakhs, the same documents are available on pages 54 to 56 of paper book. For the next party Shri Venkat Reddy Rs. 24.55 Lakhs confirmation is available on page no. 57 along with PAN. For the next party Shri P. Mahesh Rs. 6,98,133/-, the same documents are available on pages 58 to 60 of the paper book. Hence it is seen that on the basis of same documents, the AO in the remand report has accepted that the amount of sundry creditors to the tune of Rs. 94,18,820/- may be treated as genuine and learned CIT (A) has deleted those additions but he has sustained the addition for the remaining parties, although for those parties also, same documents are brought on record and the only difference factor is that the notice issued to them have returned unserved as noted by the AO in Para no. 2.3 of remand report . Regarding some differences noticed by the AO in the remand report such as the name of Shri Moorthy and Shri Maruthi and the amount of confirmation being Rs. 10 Lakhs as against Rs. 5 Lakhs, it was submitted by assessee before the AO in the remand proceedings that this was a typographical mistake and difference in amount was also submitted that the actual amount outstanding was Rs. 10 Lacs and hence, the same should be accepted. Similarly for the difference in name of Shri Mahesh and Shri Maheshwara Reddy, it was explained that they are nothing but aliases in day to day life. Regarding the small difference in respect of other parties also, explanation was furnished by the assessee before the AO in remand proceedings as noted by the AO in Para nos. 2.4 to 2.10 of the remand report and thereafter, the AO has reported that the assessee has submitted relevant documents in this regard and CIT(A) may kindly decide the case on merits and facts of the case.

Learned CIT (A) has not considered and discussed these documents and facts and straightaway confirmed the balance addition. For the sake of ready reference we reproduce Para nos. 3.5 and 3.6 of the order of CIT(A).

“3.5 I have carefully considered the appellant's submissions and perused the assessment order/remand report of the AO. It is clear from the remand report that the appellant has explained most of the amounts involved in respect of the payments made to sub-contractors. At par 1.2, the AO has stated that the appellant has not been able to explain the payment of Rs.5,00,000/- to Sri Manjunath. Hence, the addition to the extent of Rs.5,00,000/- is sustained. The appellant gets a relief of Rs.69,99,133/-.

3.6 Even in respect of sundry creditors amounting to Rs.2,53,62,291/-, according to the AO, the appellant produced confirmation and other details such as PAN, returns of income and they are said to be assessed in the jurisdiction of Range-7, Bangalore. The AO has stated that, in the cases of Sri Surendra and Shri Ashok Kumar, no details have been furnished. In the case of Shri Moorthy (alias Shri Maruthi), the amount shown in the statements was only Rs.5 lakhs whereas the confirmation given is for Rs.10 lakhs. Hence, the appellant is entitled to relief only to the extent of Rs.5 lakhs out of Rs.10 lakhs claimed as per confirmation. Even before me, during the appeal proceedings, the appellant has not been able to produce any documentary evidence in support of the claims made in respect of sundry creditors over and above Rs.94,18,820/- which, according to the AO, could be treated as genuine. I am convinced with the stand taken by the AO in the remand report. Hence, while addition to the extent of Rs.1,59,43,471/- is confirmed, addition to the extent of Rs. 94,18,820/- is deleted.”

Order pronounced in the open court on the date mentioned on the caption page.