SRI PRAVESH KEJRIWAL ,KOLKATA vs. ITO, WARD - 35(1), KOLKATA , KOLKATA

2. The assessee in the present case is an individual, who is engaged in the business of manufacturing and trading of tea machinery items. The return of income for the year under consideration was filed by him on 27.11.2014 declaring total income of Rs.5,87,540/-. During the course of assessment proceedings, the machinery expenses claimed by the assessee were examined by the Assessing Officer. During the course of such examination, the relevant details of the parties were furnished by the assessee along with the copies of bills/vouchers for machinery expenses. In order to verify the assessee’s claim, letters under section 133(6) were issued by the Assessing Officer to the selected five parties, but the same were returned back un-served from the Postal Authority with the remark “not known”. When this position was confronted by the Assessing Officer to the assessee, it was submitted by the assessee that he was having regular transactions with the concerned parties for a long period of time. The copies of the ledger account of the said parties were also furnished by the assessee pointing out that the payments to the said parties were made by account payee cheques after deducting tax at source. Copies of trade license/professional tax receipts of the parties were also filed by the assessee. When the Assessing Officer required the personal appearance of five parties for his examination, the assessee produced four out of five parties for verification before the Assessing Officer. Although all these four parties confirmed the transactions with the assessee involving machinery work before the Assessing Officer, two of them, according to the Assessing Officer, could not establish their identity. Keeping in view the same as well as the failure of the assessee to produce the fifth party namely Kalimata Engineering Works, the Assessing Officer treated the bills for machinery expenses raised by the concerned three parties as bogus and made the addition of Rs.6,36,690/- by treating machinery expenses to that extent as unexplained under section 69C of the Act.

The addition of Rs.6,36,690/- made by the Assessing Officer by treating the relevant bills issued by the concerned three parties as unexplained expenditure under section 69C was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was pointed out on behalf of the assessee that all the relevant bills issued by the concerned parties were produced before the Assessing Officer for verification. It was also submitted that copies of their ledger accounts maintained regularly in the books of the assessee were also produced before the Assessing Officer to show that the payments to the said parties were made by account payee cheques after deducting tax at source. In order to clarify the doubts expressed by the Assessing Officer regarding the identity of the concerned parties, copies of their PAN Cards were filed by the assessee before the ld. CIT(Appeals). After considering this documentary evidence placed on record by the assessee, the ld. CIT(Appeals) proceeded to decide the issue vide paragraph no. 7.1 & 7.2 at page 9 of his impugned order as under:- “1. I have carefully examined the action of the Ld AO in treating the expenditure on account of purchases as bogus in view of non-identity / non-compliance of the parties Involved, who had were alleged to have transactions with the assessee. After going through the findings of the Ld. AO and the appellant's submissions with Judgments Cited, J am of the considered view that addition of whole amount of purchases made from a party just because that party did not appear before the Ld. AO or because It had not been able to provide the Identity even when It appeared. It is also to be kept in mind that instant case is not precisely a case attracting addition u/s 69C of Income Tax Act, 1961. At the same time, the facts of non-appearance of concerned parties before Ld AO/non-submission of identity documents cannot be ignored altogether and if no addition is made, non-compliance of Department notices may become an acceptable position, and therefore in my considered view there have to be certain deterrent in the matter.

We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted on behalf of the assessee before the ld. CIT(Appeals) as well as before us, the relevant details of the concerned five parties along with the copies of bills issued by them were duly furnished by the assessee before the Assessing Officer during the course of assessment proceedings in support of his claim for machinery expenses. The copies of their ledger accounts maintained in the books of account of the assessee were also placed on record before the Assessing Officer by the assessee pointing out that all the payments to the said parties were made by account payee cheques after deducting tax at source. The Assessing Officer, however, insisted for their personal presence to cross verify the claim of the assessee and complying with this requirement of the Assessing Officer, the assessee produced four of the five parties for examination before the Assessing Officer. Although the said four parties confirmed the transactions with the assessee for machinery expenses before the Assessing Officer, the Assessing Officer treated the bills raised by two parties for machinery expenses on the assessee on the ground that they could not establish their identity. He also treated the bills issued by the fifth party as bogus as the assessee could not produce the said party for verification before him. In our opinion, when the bills issued by the said two parties were duly furnished by the assessee, payments against the said bills were made by the assessee by account payee cheques after deduction of tax at source and the said parties not only appeared before the Assessing Officer for examination but also confirmed the relevant transactions with the assessee, there was no reason for the Assessing Officer to doubt their identity and disallow the corresponding machinery expenses only on the basis of such unfounded doubt. Similarly he was not justified in treating the bills issued by the fifth party as bogus merely because of the failure of the assessee to produce the said party before him for verification, especially when the overwhelming evidence was produced by the assessee in the form of relevant bills, payments by cheque, tax deduction at source, etc. to support and substantiate his claim for the corresponding machinery expenses. As a matter of fact, the assessee even filed the copies of PAN Cards of these parties to establish their identity before the ld. CIT(Appeals) and although the ld. CIT(Appeals) accepted the factum of machinery expenses incurred by the assessee on the basis of the supporting evidence, he treated the bills issued by the concerned three parties as bogus on the basis of unfounded doubts expressed by the Assessing Officer and sustained the addition to the extent of profit on estimated basis. Having regard to all the facts of the case as well as the evidence placed on record by the assessee, we are of the view that the ld. CIT(Appeals) ought to have deleted the addition made by the Assessing Officer on account of the alleged bogus machinery expenses when the claim of the assessee for such expenses was duly supported by the relevant and cogent evidence. In that view of the matter, we delete the addition made by the Assessing Officer and sustained by the ld. CIT(Appeals) on this issue and allow this appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on December 19, 2018.