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Income Tax Appellate Tribunal, ‘B’ BENCH, BENGALURU
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
This is an appeal filed by the assessee directed against the order of the CIT(A), Mysuru dated 18/02/2015 for the assessment year 2010-11.
The assessee raised the following grounds of appeal:
Brief facts of the case are as under: The assessee is a partnership firm engaged in the business of trading in timber. Return of income for the assessment year 2010-11 was filed through electronic mode on 30/08/2010 disclosing total income of Rs.5,53,540/-. Against said return of income, assessment was completed by the ITO, Ward 1(3), Mysuru under the provisions of section 143(3) of the Income-tax Act,1961 [‘the
Page 3 of 9 Act’ for short] vide order dated 28th March 2013 at total income of Rs.19,53,540/-. The disparity between returned income and assessed income is on account of disallowance of a sum of Rs.19 lakhs falling under the head ‘timber advance’ received, in the balance sheet of the assessee as on 31/3/2010. The Assessing Officer (AO) was of the opinion that advance of Rs.11 lakhs received from one Shri R.P.Prashanth, Rs.3 lakhs from Shri K.B. Ramakrishna and Rs.5 lakhs from Shri B.Krishnappa was received by way of cash as advance for purchase of timber from the appellant is not genuine. The AO caused inquiry from the respective parties. In the case of Shri R.P.Prashanth it was shown that the appellant received cash on the following dates:
Date Mode Amount Rs. 18/05/2009 Cash 3,00,000 24/07/2009 Cash 3,00,000 30/07/2009 Cash 3,00,000 08/08/2009 Cash 2,00,000 Total 11,00,000 As Shri Prashantha had not responded to letter and summons issued by the AO, commissions were issued to the ITO, Ward-1, Chitradurga to verify the transaction of Shri Prashanth. The ITO, Chitradurga had enclosed statement of affairs of Shri Prashantha as on 31/03/2010 and 31/03/2011 and statement of account of M/s.Bharath Timber Co. From said statement of affairs, no advance was shown to have paid to the appellant as on Page 4 of 9 31/03/2010. However, as on 31/03/2011 Shri Prashanth has shown purchase of timber from the appellant to the extent of Rs.11,12,300/-. It was further stated that timber was purchased from the appellant on 07/04/2010 and purchase consideration was paid by way of cash on the same day. In these circumstances, AO inferred that the credit of Rs.11 lakhs shown under the head ‘advance in the name of R.P.Prashanth is not genuine and brought to tax under the provisions of section 68 of the Act. As regards credit appearing in the name of K.B.Ramakrishna to the extent of Rs.3 lakhs, said Ramakrishna appeared in response to summons issued by the AO and has denied having given advance of Rs.3 lakhs. As regards B.Krishnappa, since assessee had failed to file confirmation letter, the credit amount standing in his name of Rs.5 lakhs was brought to tax.
4. Being aggrieved, assessee fled an appeal before the CIT(A) who vide, impugned order, dismissed the appeal.
Being aggrieved, the assessee is before us in the present appeal.
5.1 The learned AR of the assessee vehemently contended that amounts were received from the respective parties as trade advance. Therefore, no addition can be made u/s 68. He further contended that mere fact that parties who advanced money towards supply of timber in future not responded to Page 5 of 9 summons issued by the AO, cannot alone make purchase unbelievable. He further submitted that the AO has made additions without confronting the assessee material gathered by him. Thus, he submitted that the assessment order cannot be sustained in the eyes of law.
5.2 On the other hand, learned DR placed reliance on the orders of the lower authorities.
5.3 We heard rival submissions and perused material on record. The issue that comes up for consideration in the present appeal is whether addition made by the AO under section 68 in respect of sundry creditors representing the amount advanced by them as trade advance can be made in view of the fact that respective parties had chosen not to respond to summons issued by the AO, where the assessee responded and the parties have denied advancing money. Without delving into merits of issue, we can dispose of the appeal at the very threshold. From a perusal of the assessment order, it is clear that the AO had not confronted the assessee with the material gathered by him by exercise power of commission u/s 131. The AO, no doubt, gathered information by issuing summons to the AO of the party in case of Shri Prashanth. Shri Prashanth, though admitted having purchased timber from the assessee, had denied having lent any advance in the financial year 2010-11. But the principles of natural justice demands that the assessee should be Page 6 of 9 given an opportunity of rebutting this evidence which the AO has failed to do so. In case of other party i.e. K.B.Ramakrishna, he appeared in response to summons issued by the AO but denied having advanced many of Rs. 3 lakhs. But this information was also not put to the assessee for rebuttal. Thus, these two additions have been made by the AO in gross violation of the principles of natural justice. Recently the Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No.4228 of 2006 held that not granting of opportunity to cross examine witness whose statement were relied upon in making assessment is a serious flaw which makes the order nullity inasmuch as it amounts violation of principles of natural justice. Because of which assessee was adversely affected. The relevant para of the judgment is extracted below:
“…According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant
Page 7 of 9 themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.“
In light of the above ratio laid down by the Hon’ble Apex Court in the case cited supra, we hold that addition made in respect of Prashanth and K.B.Ramakrishna should be deleted.
6. As regards addition of Rs.5 lakhs standing in the name of B.Krishappa, AO made addition simply because he has not responded to the inquiry instituted against him. The AO had chosen not to seek further seek further from the assessee to enforce attendance of creditors is enforced. In identical facts, in the case of CIT vs. Chandela Trading Co. P. Ltd. the Hon’ble Calcutta High Court held that:
“3. From the judgment in Daulat Ram Rawatmull (supra) we find the Hon'ble Supreme Court had held that a person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct and from the simple fact that the explanation regarding the source of money furnished by him, in whose name the money is lying in deposit, has been found to be false, it would be a remote and far-fetched conclusion to hold that the money belongs to some other person. In the context of the present case, if no further explanation could be obtained by the revenue upon the creditors failure to present themselves in enquiry, from such simple fact of omission on part of the creditors, it would be remote and far-fetched conclusion that the creditors lack identity.
Even from the case of Hindusthan Tea Trading Co. Ltd. (supra) relied on by the revenue we find our Court had held the process of enquiry is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it could do no further.
Page 8 of 9 5. We are also persuaded by the reasoning given in decision of the High Court at Allahabad in Jauharimal Goel (supra) as appearing from paragraphs 12 to 16 thereof.
In the instant case the assessing officer had simply held as follows: "There appeared unsecured load of Rs. 1,11,34,237 (including interest) in the account of the assessee during the year. The assessee was asked to produce the loan creditors for examination but the assessee expressed in ability to produce them. Hence the entire amount of Rs. 1,11,34,237 is treated as income of the assessee from undisclosed Source. There appeared another credit of Rs. 49,08,85 under the head Sundry Creditors. The assessee was asked to produce the Sundry Creditors for examination. But the assessee failed to do so. Hence, the amount of Rs. 49,08,825 is treated as income of the assessee from undisclosed source."
7. We do not find the revenue could contradict the explanation furnished by the assessee. The omission on part of the creditors to subject themselves to enquiry being initiated thereof by the revenue or non-furnishing of accounts by them would, as aforesaid, not lead to the conclusion that the creditors lacked identity without any other contradiction of facts and particulars of the transactions between them furnished by the assessee being uncontroverted.
Respectfully following the ratio of the decision of the Hon’ble High Court in the above cited case, hold that addition made in respect of Krishnamurthy cannot be sustained. Accordingly we delete the addition made.
In the result, the appeal filed by the assessee is allowed.