LANCY VINCENT DSOUZA,MUMBAI vs. ITO WD 17(3)(3), MUMBAI

आदेश / O R D E R

PER RAVISH SOOD, JUDICIAL MEMBER:

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) “1. The Learned Principal Commissioner of Income Tax (OSD) (Appeal) erred in confirming the addition of Rs.2,09,83,520/- under section 68 as unexplained cash credit.

6. The Learned PR CIT (OSD) (A) failed to appreciate the evidentiary value of the documents on record in form of and in support of the identity, credit & genuineness of the transaction which were as under: a) “Replies to the notice issued by AO u/s 133(6)” confirming the payment of Rs.2,09,83,520/- to the appellant, b) “Confirmation letters” filed by the parties in support of payment by them in the bank account of the appellant, c) “Copies of Return of income of the payers for the year under consideration, d) “Various correspondences between the debtor of appellant (M/s A.U.Foregoing P. Ltd.) & the parties (“M/s Ganesh Enterprise and M/s. Astec Life Sciences Ltd”) 7. The Pr. CIT(OSD)(A) erred in confirming the addition only by doubting the genuineness of the entire transaction without any cogent evidence against the appellant and ignoring the weight of evidence provided by the appellant in support of the same.

8. The appellant craves leave to add, alter or amend any of the grounds of appeal

at any time before or at the time of hearing.

2. Briefly stated, the facts of the case are that the assessee who is engaged in the business of trading in steel forging items had filed his return of income for A.Y. 2009-10 on 29.09.2009, declaring an income

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) of Rs.2,22,630/-. The case of the assessee was taken up for scrutiny assessment under Sec. 143(2). During the course of the assessment proceedings it was observed by the A.O that the assessee had during the year made its entire sales to one party, i.e. M/s A.V. Forging Pvt. Ltd, and similarly exclusively sourced the purchase of the materials also from one single party, i.e. M/s Equichem Enterprises. However, a perusal of the ING Vysya Bank Account of the assessee revealed that it was in receipt of an amount aggregating to Rs.2,09,83,520/- from parties other than the aforesaid party, viz. M/s A.V. Forgings Pvt. Ltd to which the entire sales were made during the year under consideration. The records of the assessee revealed that it had received amount of Rs. 94,00,000/- and Rs. 1,15,83,520/- from two concerns, viz. M/s Shree Ganesh Enterprises and M/s Astec life Sciences Ltd, respectively. It was further observed by the A.O that not only the assessee had no business dealing with the aforementioned parties, but rather, even the aforesaid receipts were not shown by the assessee as loans or advances received from them. The assessee on being called upon to show cause by the A.O as to why the aforesaid amounts so received by it may not be treated as his unexplained income for the year under consideration, though placed on record a self declaration that the said respective amounts represented his sale receipts, but however, failed to furnish any other documentary evidence which could corroborate the said claim. The A.O in the backdrop of the aforesaid facts, being of the view that the assessee had failed to explain the nature and source of receipts of Rs.2,09,83,520/- received from the aforementioned parties, therefore, treated the same as unexplained and added the same as the unaccounted income of the assessee for the year under consideration.

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) 3. Aggrieved, the assessee carried the matter in appeal before the CIT(A). During the course of the appellate proceedings the assessee placed on record the confirmations statement of A.V. forging Pvt. Ltd. and Equichem Enterprises, along with the complete addresses of both of the parties. The assessee further to drive home his contention that the aforesaid amounts represented the sale proceeds, placed on record reconciliation of turnover of purchases and sales as per the VAT return. The assessee further during the course of the appellate proceedings furnished with the CIT(A) copies of its various correspondences with M/s A.V forging Pvt. Ltd., M/s Shri Ganesh Enterprises and M/s Astec Life Sciences Ltd. in support of the aforesaid third party payments, copy of delivery challans, quantitative reconciliation of turnover of goods purchased and sold, copies of the returns of income of M/s Shri Ganesh Enterprises and M/s Astec Life Sciences Ltd. for A.Y 2009-10 and the copy of VAT return along with the details evidencing the payment of VAT for the year under consideration.

4. The CIT(A) after deliberating on the aforesaid information that was placed on his record by the assessee, called for a remand report from the A.O, with a direction to examine the paper book containing the fresh evidence which was filed by the assessee in context of the issue under consideration. The A.O pursuant to the directions of the CIT(A) issued notice under Sec. 133(6) to M/s Shree Ganesh Enterprises, M/s Astec Life Sciences Ltd, M/s Equichem Enterprises and M/s A.V. Forging Pvt. Ltd. That in response to the aforesaid notices M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Pvt. Ltd. submitted that they were neither the customers of the assessee nor its creditors/vendors. It was further stated by the aforementioned parties that they had never given any business

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) advance or loan to the assessee. However, the aforesaid parties clarifying the nature of the transaction, submitted that it was as per the directions of M/s A.V. Forging Pvt. Ltd. from whom they were purchasing various products during the year under consideration, that the aforesaid payment on its behalf was made to the assessee. The aforementioned parties, viz. M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Pvt. Ltd. further placed on record the copies of letters which were issued by M/s A.V. Forging Pvt. Ltd. asking them to make the payment on its behalf to the assessee concern. The A.O after perusing the aforesaid information which was placed on his record during the course of the remand proceedings, observed on a perusal of the bank account No.533011015910 of the M/s Epsilon, i.e the assessee, that the aforementioned parties i.e Shree Ganesh Enterprises and M/s Astec Life Sciences Pvt. Ltd had during the year under consideration made the payments to the assessee concern, as under:

Sr. No. Name of the parties Amount credited to the M/s Transaction date Epsilon products (assessee)) (A/c No. 533011015910) 1. Shree Ganesh Rs. 90,00,000/- 13.12.2008 Enterprises (A/c No. Rs. 3,00,000/- 14.01.2009 533011009803) Rs. 1,00,000/- 14.01.2009 2. M/s Astec Life Sciences Rs.1,15,83,520/- 30.03.2009 Pvt. Ltd. (A/c No. 533011015416)

It was further submitted by the aforementioned parties that they had made the payments on the directions of their supplier, viz. A.V. Forging Pvt. Ltd, therefore, there was no entry of the above transactions in their books of accounts in the account of the assessee, as they had no direct dealing with the latter. The aforesaid factual

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) position was also confirmed by M/s A.V. Forging in its reply furnished with the A.O during the course of the remand proceedings, wherein it was clarified that M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. who were his debtors, had made the payment on his behalf to the assessee. The A.O after deliberating on the aforesaid facts as were placed on record, however observed that though the assessee concededly had no business transactions with M/s Shree Ganesh Enterprises, but however, a perusal on the bank account of the assessee revealed that it had returned back the same amount so received from the aforesaid parties to one of the party, viz. M/s Shree Ganesh Enterprises. The A.O in the backdrop of the aforesaid facts observed that though it was the claim of the assessee that the amount of Rs. 2,09,83,520/- which was received from M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. on behalf of M/s A.V. Forging was on account of the sale consideration, but however, the fact that a substantial amount of Rs. 90,00,000/- and Rs.1,15,83,520/- had found its way back to M/s Shree Ganesh Enterprises, thus, did not inspire any confidence as regards the veracity of the aforesaid claim of the assessee. The assessee in his rejoinder to the remand report submitted that though it remained as a matter of fact that the assessee had no direct dealing with the aforesaid two concerns, viz. M/s Shree Ganesh Enterprises and M/s Astec life Sciences Pvt. Ltd., the aforesaid amounts of Rs.94,00,000/- and Rs.1,15,83,520/-, as canvassed by him right from inception, was received on behalf of and as per the directions of its buyer, viz. M/s A.V. Forgings Ltd towards sale consideration. The assessee further explaining the payment of Rs.90,00,000/- and Rs.1,15,83,520/-which was made from its bank account to M/s Shree Ganesh Enterprises, submitted that the said payments were made as per the directions of the supplier of the assessee, viz. M/s Equichem Enterprises, which P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) had called upon the assessee to make the payment to the aforesaid party on its behalf. The assessee in order to drive home his aforesaid contention, placed on record the confirmation of M/s Equichem Enterprises, which evidenced that the making of payment by the assessee to M/s Shree Genesh Enterprises was as per its direction and behest.

4. The CIT(A) after deliberating on the contentions advanced by the assessee before him and perusing the remand report of the A.O, observed that the amount of Rs.94,00,000/- and Rs. 1,15,83,520/- received by the assessee was not a simple case of payment received towards sale consideration. The CIT(A) held a conviction that the fact that the aforesaid amount of Rs.94,00,000/- and Rs.1,15,83,520/- had found its way back to one of party viz. M/s Shree Ganesh Enterprises, raised serious doubts as regards the veracity of the explanation advanced by the assessee in respect of the nature of the aforesaid transactions. The CIT(A) observed that if at all the assessee would have wished to make accounting entries in a transparent manner, the funds would have been routed through the accounts of sale/purchase parties instead of following the lengthy process of exchanging the letters for effecting payments on each others behalf in a circumventing manner. The CIT(A) not being impressed with the manner in which the aforesaid transactions were claimed to have been carried out by the assessee, therefore, concluded that the assessee instead of coming up with the true facts, rather in order to support its aforesaid contention had managed letters from third parties, which could not be relied upon. The CIT(A) holding a conviction that if M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. would had paid the amounts aggregating to Rs. 2,09,83,520/- on behalf of M/s A.V. Forging, than the assessee would not had been under any P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) obligation to return back the very same amount to M/s Shree Ganesh Enterprises, as no business transaction was there with the said party. The CIT(A) on the basis of his aforesaid observations concurred with the findings of the A.O, and being of the view that the explanation tendered by the assessee as regards the source of Rs.2,09,83,520/- was beyond comprehension, therefore, upheld the order of the A.O and dismissed the appeal.

“(i) Receipts against sales of Rs.7,14,63,477/- to M/s A.V. Forging Pvt. Ltd:-

P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4)

Sr. No. Particulars Amount 1. Ganesh Enterprises 94,00,000/- 2. Astec Enterprises 1,15,83,520/- 3. Paid on my behalf by M/s A.V. Forging Pvt. 5,03,99,957/- Ltd. to M/s Equichem Enterprises.

We further find that the assessee on being confronted with the amount aggregating to Rs.2,07,83,520/- which was transferred to the bank account M/s Shree Ganesh Enterprises on two occasions, viz. Rs.90,00,000/- and Rs.1,15,83,520/- on 01.01.2009 and 30,03.2009, respectively, had submitted that the aforesaid amounts were paid to the said party, as per the directions of its supplier concern, viz. M/s Equichem Enterprises as a part of the purchase consideration due to the said latter supplier concern, as under:

Payments against purchases of Rs.7,12,83,477/- from M/s Equichem Enterprises: “(ii)

Sr. Particulars Amount No. 1. Paid on may behalf by M/s. 5,03,99,957/- A.V. Forging Pvt. Ltd. 2. Cheques paid by me 2,07,83,520/- 3. Cash Payments 1,00,000/- Total 7,12,83,477/-

8. We find that the assessee had claimed that the amounts aggregating to Rs.2,09,83,520/- (i.e. Rs.94,00,000/- (+) Rs. 1,15,83,520/-) was received from the aforesaid concern, viz. M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. by way of part of the sale consideration, as per the directions of its buyer concern, viz. M/s. A.V. Forging Pvt. Ltd., while for the payment of Rs.2,07,83,520/- (Rs.94,00,000/- (+) Rs.1,15,83,520/-) made to M/s Shree Ganesh Enterprises was as per the directions and on behalf of its supplier concern, viz. M/s Equichem Enterprises. We are P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) persuaded to be in agreement with the observations of the CIT(A) that the very nature of the jumbled transactions at the first blush does not inspire much of confidence as regards the veracity of the claim of the assessee. However, we cannot also be oblivious of the fact that now when the assessee had substantiated his explanation in respect of the amount aggregating to Rs.2,09,83,520/- received from the aforesaid two concerns, viz. M/s Shree Ganesh Enterprises (Rs.94,00,000/-) and M/s Astec Life Sciences Ltd. (Rs.1,15,83,520), by placing on record substantial documentary evidence, viz. (i) confirmation statement of A.V.Forging Pvt. Ltd; (ii) confirmation statement of Equichem Enterprises; (iii) the reconciliation turnover of purchases and sales as per the VAT return along with the copy of the return of income; (iv) copies of the correspondence with M/s A.V. Forging, M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. in support of the third parties payment; (v) copies of the delivery challans; (vi) the quantitative reconciliation of the goods purchased and sold; (vii) copy of the return of the income of M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. for AY 2009-10; (viii) copy of the VAT return; (ix) copies of the letters issue by M/s A.V. forging Pvt. Ltd. to M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Pvt. Ltd., asking them to make payment on its behalf to the assessee concern, viz. M/s Epsilon Products; and (x) confirmation of M/s A.V. forging that as per its request M/s Shree Ganesh Enterprises and M/s Astec Life Sciences Ltd. who were his debtors had made the payments on his behalf to the assessee, substantially prima facie evidences the genuineness of the transaction, which thus cannot be summarily brushed aside and discarded. We further find that while for the assessee had received an amount aggregating to Rs.2,09,83,520/- from the aforementioned parties, viz. M/s Shree Ganesh Enterprises and M/s Astec Life Science Ltd, while for an amount of P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) Rs.2,05,83,520/- out of the aforesaid amounts so received was transferred to M/s Shree Ganesh Enterprises, therefore, the observations of the lower authorities that the same amount which was received from the aforementioned parties had found its way back to one of the said parties, viz. M/s Shree Ganesh Enterprises cannot be accepted in the backdrop of the variance of the amounts received and paid by the assessee. Be that as it may, we are of the considered view that in the backdrop of the aforesaid facts it can safely be concluded that the genuineness and veracity of the claim of the assessee as regards the nature and source of the amount aggregating to Rs.2,09,83,520/- received from the aforementioned parties had summarily been discarded by the lower authorities, on the basis of premature observations. We though are of the considered view that as observed by us hereinabove, the aforesaid jumbled set of transactions of receiving and payment of substantial amounts from/to the third parties, specifically keeping in view the manner in which their proper recording in the books of account of the assessee had been given a go by, thus does not inspire much of confidence, but then we cannot also loose sight of the fact that the documentary evidence placed on record by the assessee substantially supports his claim. We thus in all fairness and in the interest of justice, therefore, restore the matter back to the file of the A.O for fresh adjudication of the issue under consideration. The A.O shall during the course of the set aside proceedings make necessary verifications from the aforementioned parties, viz. (i). M/s A.V. Forging Pvt. Ltd.; (ii). M/s Equichem Enterprises; (iii). M/s Shree Ganesh Enterprises ; and (iv). M/s Astec Life Sciences Pvt. Ltd., and shall re-adjudicate the issue. We may however clarify that our aforesaid observations shall in no way come in the way of the A.O for making further investigations in respect of the amounts received by the assessee and tracing of the final fate of P a g e | Lancy Vincent D’souza Vs. Income Tax Officer 19(1)(4) the amount which was transferred to M/s Shree Ganesh Enterprises, in order to facilitate arriving at fair inferences as regards the genuineness and veracity of the aforesaid claim of the assessee in respect of the nature and source of the amount aggregating to Rs.2,09,83,520/- as stood credited in its bank account No. 533011015910. Needless to say, the A.O shall during the course of the set aside proceedings afford reasonable opportunity of being heard to the assessee, who shall remain at a liberty to place on record fresh documentary evidence in support of his aforesaid explanation.

Order pronounced in the open court on 21.03.2018