JCIT (OSD), CIR-6(1), KOLKATA, KOLKATA vs. M/S CHEMGEMS INDIA (P) LTD., KOLKATA

Ground no.1 of revenue’s appeal is against the action of Ld. CIT(A) in granting relief to assessee company of Rs.2,61,10,423/- with respect to the transactions with M/s. Rathi Chempels P. Ltd. on the premise of fictitious liability.

Briefly stated facts as noted by the AO are that in the accounts of the assessee, transaction with M/s. Rathi Chempels had shown a closing balance of Rs.2,61,10,423/-. But reply of notices u/s. 133(6) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) from M/s. Rathi Chempels had shown no closing balance lying in their account. The assessee has made only book entry. Hence, according to AO, the assessee created fictitious liability and, therefore, the AO added back the same as cash credit with the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete it. Aggrieved, the revenue is before us.

We have heard both the parties and perused the material available in the paper book. First of all we note that M/s. Milan Tannery is a sister concern of the assessee company as noted by the AO at para 4 of his order (though not numbered). It was brought to our notice that there were several transaction between both concerns and the assessee had sold several goods to M/s. Milan Tannery and in turn the assessee company had purchased several goods from M/s. Milan Tannery and there was no amount due between each other, which is evident from a perusal of page 16 which gives the details of current liabilities which includes sundry creditors for goods and sundry creditors for expenses. The Ld. DR after perusal of the paper book and especially after taking note of page 16 of paper book could not point out the name of M/s. Milan Tannery any where figuring in the details of liabilities. So, it is no wonder when the AO asked M/s. Milan Tannery it replied that there was no closing balance lying in their credit. So, we note that the AO after taking note that there was a transaction of Rs.40,40,317/- between the assessee company and M/s. Milan Tannery had issued notice u/s. 133(6) of the Act, which was replied by it that there was no closing balance lying in their account has erroneously concluded that assessee had created fictitious liability and treated it as cash credit. In the facts and circumstances discussed above, we note that AO erred in making addition which was based on suspicion, conjecture and surmises, which has been rightly deleted by the Ld. CIT(A), which needs no interference from our part and so, we confirm the action of Ld. CIT(A). Therefore, this ground of appeal of revenue is dismissed.

Brief facts as noted by the AO are that the assessee had shown in its account Salary & Other Expenses totalling Rs.1,38,97,146/-. The AO asked the assessee to furnish books of accounts including names and address to which payments were made shown in his accounts. The AO noted that during the course or Survey u/s.133A, it was detected that that the Administrative Office runned by M/s.Chemgem India (P) Ltd., simultaneously used by the Sister Concern of M/s. Chemgems India (P) Ltd., namely, Milan Tannery & Rathi

Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete it. Aggrieved, the revenue is before us.

We have heard both the parties and perused the material available in the paper book. First of all we do not understand from where the AO has got the figure of Rs.1,38,97,146/-. We note this figure of sum is not found in the audit report and financial statement filed before us along with the paper book. A perusal of the paper book page 12 which is the schedule ‘P’-Selling & Administrative expenses which is shown as Rs.1,61,39,514/- and payment of employees is given in page 13 of paper book which is schedule ‘Q’ which shows Rs.60,04,843/-. The Ld. DR was unable to help us find the figures of Rs.1,38,97,146/- which the AO says that assessee has shown in its account “Salary & Other Expenses” so, AO’s action of adopting this sum as “Salary & Other Expenses” of assessee company is factually incorrect and per se wrong. Secondly, it was brought to our notice that the sister concerns are Private Limited Companies and their accounts are duly audited and their administrative expenses are duly allocated and reflected as their respective expenses in the separate books maintained by these different legal entities. We note that the AO failed to bring any material on record to show that expenses incurred on behalf of sister concerns were booked in assessee companies books and thereafter had booked the same expenses twice or thrice in assessee’s hands as well as that of sister companies and thus claimed double/triple deduction of the same expenditure. It was the case of the assessee company that common expenses if any was truly allocated in the hands of sister concerns and the Chemgems India (P) Ltd., AY: 2011-12 assessee’s hand. It was brought to our notice that all documents sought by the AO was in fact produced by the assessee during the assessment proceedings. The assessee’s accounts are statutorily audited and the expenses are claimed on the basis of bills and vouchers. So, in such a scenario, the ad hoc disallowance of 10% of total expenses claimed cannot be countenanced because AO has made the ad hoc disallowance on the basis of suspicion, surmises and conjectures, which cannot stand the scrutiny of law and has to be deleted which the Ld. CIT(A) has done. So, we uphold the action of Ld. CIT(A) and dismiss this ground of appeal of revenue.

In the result, appeal of the revenue is dismissed.