M/S Janardan Parui, Kolkata vs ITO | ITAT Kolkata 2018

Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA

Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-7, Kolkata dated 25.02.2016. Assessment was framed by ITO Ward-53(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.03.2014 for assessment year 2011-12. The grounds raised

by the assessee per its appeal are as under:- “1. That the order of the Hon'ble Commissioner (Appeals) is contrary to law wherein the facts of the appellant case was genuine.

2. That on the facts and circumstances of the case Ld. CIT(Appeal) has erred in confirming the addition made by the AO wherein the AO had verified and A.Y. 2011-12 M/s Janardan Parui Vs. ITO Wd-26(1), Kol. Page 2 accepted the transactions amounts totaling Rs.1961,985/- as third parties transactions in the remand report. The appellant craves leave to add to or amend the aforesaid grounds before disposal of the appeal.” Shri Miraj D Shah, Ld. Authorized Representative appeared on behalf of assessee and Shri S. Dasgupta, Ld Departmental Representative appeared on behalf of Revenue.

Sole issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the addition made by the Assessing Officer for ₹19,61,985/- on account of unexplained purchases.

Briefly stated facts are that assessee is a partnership firm and engaged in wholesale business of fertilizer under the name & style M/s Janardan Parui. The assessee during the year has shown purchase from M/s United Phosphorus Ltd (UPL for short) for a sum of ₹22,34,225/- only whereas the UPL in response to the notice issued u/s 133(6) of the Act replied to have made that sales totalling to ₹42,96,210/- only. Thus, the discrepancy of ₹20,61,985/- observed which was reconciled by assessee stating as under:- i) A contrary entry has been made I the books of assessee for ₹1 lakh which needs to be deleted while working out the difference between purchase made by assessee and sale shown by UPL; ii) Third party has made purchase form UPL for ₹19,61,985/- bu9t same was rooted through the code of assessee.

However, the assessee failed to furnish the supporting evidence suggesting that the purchases were made by third party to the tune of ₹19,61,985/- in its code. Therefore, AO treaded the same as undisclosed purchase and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who called for remand report from Assessing Officer. The assessee during remand proceeding filed A.Y. 2011-12 M/s Janardan Parui Vs. ITO Wd-26(1), Kol. Page 3 certificate from UPL wherein it was certified that UPL has sold goods to different parties against the code of assessee. Those parties directly made the payment to assessee by way of demand draft and transactions were shown in the boos of UPL in the name of assessee. But such transactions were not recorded in the books of account of assessee. As such, assessee acted as mediator in respect of sale made by UPL for ₹19,61,985/-. The assessee before Ld. CIT(A) also submitted that 2% of incentive on such purchases can be added to the total income of assessee. However, Ld. CIT(A) disregarded the contention of assessee confirmed the order of AO by observing as under:- “3.2 I have considered the submission made by the appellant and do not find force in the argument. The appellant did not furnish the confirmation from the third parties who made the purchases directly from UPL. UPL also did not change their ledger account at the time of remand stage. A certificate addressed to ‘To whom so ever it may concern’ had been issued by the UPL with a general and vague explanation stating that some third parties have directly purchased in the code of the appellant without giving the name and addresses of the purchasers, date and amount. Such general and vague explanation without addressing the concerned authority and without any relevant details of the transactions is not acceptable as evidence. UPL is maintaining the books of account and it cannot sell the goods in the code of the appellant on credit to any other party without a specific mandate from the appellant. Therefore, the appellant’s contentions that the third parties have made the purchase directly from UPL without the knowledge of the appellant is not tenable. In spite of giving opportunity at the time of remand also the appellant failed to prove that the purchases were not belonged to the appellant. The appellant has stated in his submissions that he has received 2% of incentive in kind from such transactions which was valued at Rs.39,240/- and requested to make the addition of Rs.39,240/- only instead of the total unaccounted purchases. The appellant has not disputed the fact that the appellant was aware of the transactions regarding undisclosed purchases made from his account by the third parties. The source of the purchase has to be explained by the appellant or by the third parties. Neither the appellant nor the third parties have submitted the details regarding the purchases made and the source of the purchases. In view of the fact that the appellant has not recorded the entire unaccounted purchases in his books of account, the entire unaccounted purchases are required to be brought to tax. Therefore, I agree with the AO that the entire amount of Rs.19,61,985/- was required to be brought to tax as undisclosed purchases. Accordingly the addition made by the AO is confirmed. This ground of appeal

is dismissed.” A.Y. 2011-12 M/s Janardan Parui Vs. ITO Wd-26(1), Kol. Page 4 The assessee is aggrieved with such order of Ld. CIT(A) and has now come in appeal before us.

5. Before us Ld. AR for the assessee argued that AO in his remand report has admitted the fact that the sales were made by UPL to the outside parties and not to assessee. Therefore, such addition on account of undisclosed purchase can be made in the hands of assessee.

On the other hand, Ld. DR submitted that assessee has not shown any income in the form of incentive as claimed by @ 2% of undisclosed purchases. Therefore, the statements of the assessee cannot be relied upon. He vehemently relied on the order Authorities Below.

We have heard the rival contentions and perused the materials available on record. The facts of the case on hand are not in dispute therefore we are inclined not to repeat the same for the sake of brevity. In the present case the addition was confirmed by the learned CIT-A on the ground that the assessee failed to furnish the details of the purchasers such as name, address, date of p8urchasee and the amount. UPL has also not given the necessary details about such purchasers which purchased the goods o behalf of the assessee. Now the issue arises for our adjudication as to whether the entire undisclosed purchase made by the assessee represent its income. On perusal of the facts of the case we note certain undisputed facts as detailed under:

1. 1. The AO in his remand report has clearly observed that the assessee in relation to undisclosed purchases of Rs.19,61,985.—has acted merely as mediator.

2. The assessee during assessment proceedings has submitted before the AO that all the 3rd parties have made the payment through demand craft amounting to Rs.19,61,985.00 which has been adjusted in the Ledger accounts of the assessee. No defect in the submission of the assessee was pointed out either by the AO or learned CIT-A A.Y. 2011-12 M/s Janardan Parui Vs. ITO Wd-26(1), Kol. Page 5 3. The address of UPL was very much in the knowledge of AO but no enquiry for the payment made by the outside parties were conducted by the AO.

4. The assessee has not disclosed the aforesaid transaction in its books of account. In view of above undisputed acts we draw the inference that the assessee has not made purchases from UPL. The sales were made by UPL directly to the outside parties and the outside parties directly made the payment to UP. But in such transaction the code of the assessee was used. Our inference is based on the remand report and the confirmation from UPL. The payment made by the parties to UPL has not been disputed by the AO therefore it cannot be treated as the purchases were made by the assessee. Thus, once the purchases has not been made by the assessee that there is no question of making the addition to the total income of the assessee. However it is undisputed fact the impugned purchases were made in the code of the assessee, therefore the element of commission income in the hands of the assessee cannot be ruled out. Thus the AO has liberty to tax the commission income on such transaction of purchase as per the provisions of law. In view of above the have no hesitation in reversing the order of authorities below. Accordingly the additions made by the AO and subsequently confirmed by the learned CIT-A are not sustainable in the eyes of law. Hence the ground of appeal of the assessee is allowed.

7. In the result, assessee’s appeal stands allowed. Order pronounced in open court on 14/06/2018 Sd/- Sd/- (�या%यक सद'य) (लेखा सद'य) (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S )दनांकः- 14/06/2018 कोलकाता / Kolkata

M/S JANARDAN PARUI,KOLKATA vs. ITO, WD-26(1), KOLKATA, KOLKATA