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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This is an appeal of the Revenue directed against the order passed by the Learned Commissioner of Income Tax (Appeals) – 4, Kolkata (in short the ld CITA) in Appeal No. 1184/CIT(A)-4/Cirlce-11/Kol/14-15 dated 17.03.2016 against the order of assessment framed by the Learned DCIT, Circle-11, Kolkata (in short the ld AO) u/s 143(3) of the Act dated 28.12.2010 for the Asst Year 2009-10.
The first issue to be decided in this appeal is as to whether the ld CITA was justified in granting relief to the assessee in respect of disallowance u/s 14A of the Act in the facts and circumstances of the case.
2 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 2.1. The brief facts of this issue are that the assessee is a private limited company engaged in the business of manufacturing and exporting of garments and made-ups and had filed its return of income for the Asst Year 2009-10 on 29.9.2009 declaring total income of Rs 1,21,84,419/- after claiming set off of unabsorbed loss of earlier years of Rs 9,19,651/-. The ld AO observed in his order that in support of assessee’s claim of expenditure and on various queries raised in course of hearing, the authorized representative of the assessee submitted details and photo-copies of documents as per requisition and they have been test-examined and placed on record. The ld AO observed that the assessee during the year had earned tax exempt income by way of dividend of Rs 5,17,362/- and that the assessee had not disallowed any sum u/s 14A of the Act as expenditure incurred for the purpose of earning such exempt income. The ld AO accordingly computed the disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules as under:-
Under Rule 8D(2)(ii) - Rs 7,09,878/- Under Rule 8D(2)(iii) - Rs 2,29,690/- Total Rs 9,39,568/- 2.2. The ld CITA observed that the average value of investments was Rs 459.38 lacs whereas the net owned funds in the form of share capital and reserves were Rs 1841.89 lacs. The assessee had availed unsecured loan of Rs 1 lakh only. The secured loans obtained by the assessee comprise of vehicle loan of Rs 14,37,504/- obtained from ICICI Bank, Overdraft facility of Rs 3,31,39,768/- from BNP Paribas. The ld CITA verified the loan sanction letter issued by BNP Paribas which showed that the loan was granted for specified facilities such as export shipment credit, packing credit and bill discounting. Accordingly he concluded that the specified secured loans obtained by the assessee could not have been diverted for making investments and accordingly held that only own funds were utilized for making investments. By placing reliance on the 2
3 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 decision of the Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd reported in 313 IR 340 (Bom), he deleted the disallowance made under Rule 8D(2)(ii) of the Rules in the sum of Rs 7,09,878/-. With regard to disallowance under Rule 8D(2)(iii), he directed the ld AO to re-compute the disallowance by considering only dividend bearing investments in line with the decision of the co-ordinate bench of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141. Aggrieved, the revenue is in appeal before us on the following ground:- 1. that on the facts and circumstances of the case, Ld. CIT(A) has erred in allowing relief to the assessee by containing addition made u/s 14A of the Act read with Rule 8D of the I.T. Rules.
2.3. We have heard the rival submissions. At the outset, from the perusal of the balance sheet, we find that the assessee is flooded with own funds which are much higher than the borrowings and the investments made by the assessee. The ld CITA had given a categorical finding that the loans borrowed by the assessee were utilized only for business purposes of the assessee and no part of such borrowings were utilized for making investments. This factual finding remain uncontroverted by the revenue before us with reference to the books of accounts. Accordingly we find no reason to interfere with the reasoning given for deletion of interest under second limb of Rule 8D(2) of the Rules by the ld CITA. With regard to disallowance of indirect expenses under third limb of Rule 8D(2) of the Rules, the ld CITA had only placed reliance on the co- ordinate bench decision of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141 , wherein it was held that only investments yielding exempt income should be considered for computing disallowance u/s 14A of the Act read with Rule 8D of the Rules. Hence we do not find any infirmity in the said direction of the ld CITA. Accordingly, the Ground No. 1 raised by the revenue is dismissed.
The next ground to be decided in this appeal is as to whether the ld CITA was justified in granting relief of Rs 1,46,29,344/- under the head of Unexplained 3
4 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 Expenditure on the basis of fresh evidences without waiting for the remand report, in the facts and circumstances of the case. The interconnected issue involved thereon is as to whether the ld CITA was justified in deleting the addition made in the sum of Rs 94,45,995/- as unexplained expenditure in the facts and circumstances of the case.
The brief facts of this issue are that the assessee vide submissions dated 24.10.2011 filed details of various expenses claimed giving full particulars of names and addresses of the parties to whom the sums were paid, nature of work and TDS made thereon. To verify the genuineness of such expenses, notices were sent by the ld AO u/s 133(6) of the Act to some of the parties. In some caess, the parties have sent their reply to notice u/s 133(6) of the Act and in case of one M/s Sofia Fashion, letter sent was returned unserved by the postal authority. The assessee was asked to furnish new address of the party, if any, which was duly filed. On the new address provided by the assessee, letter was again issued but it also returned unserved. The ld AO observed that since the letters remained unserved, the genuineness of the transactions remained unverified. The ld AO also observed the following discrepancies in respect of certain parties :-
4.1. From the aforesaid table, the ld AO concluded that in respect of serial numbers 1,4 & 5 above, the assessee had suppressed its income by inflating its expenditure by Rs 1,46,29,344/- ( 14055777 + 513349 + 60218) . The ld AO observed that the assessee had not furnished any reconciliation in respect of the above and accordingly treated the 4
5 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 difference of Rs 1,40,55,777/- from M.A. Enterprises as bogus expenditure. The ld AO further observed that in respect of parties mentioned in serial numbers 4 &5 above, the expenses claimed by the assessee on account of stitching work and hire charges could not be verified and accordingly disallowed the same. In effect, the aggregate disallowance made by the ld AO in this regard was Rs 1,46,29,344/- as unexplained expenditure u/s 69C of the Act.
4.2. In respect of serial numbers 2 & 3, the ld AO observed that , the assessee had shown expenses of RS 41,22,220/- and Rs 6,95,55,218/- on account of Dyeing & Printing / Fabric/ Material Supply etc to M/s Pushp Creation and M/s Ar Dee Textiles respectively. However, the confirmations received from these two parties reveal that they have received Rs 56,32,869/- and Rs 7,74,90,564/- respectively, for which no reconciliation was furnished by the assessee, according to ld AO. Accordingly , the ld AO treated the difference of Rs 15,10,649/- and Rs 79,35,346/- totaling to Rs 94,45,995/- as expenditure met by the assessee from its undisclosed sources and added the same in the assessment.
The assessee explained that it procures fabrics / materials from third parties and suppliers. The assessee gets the fabrics / materials dyed and printed and / or stitching jobs done from various workers / third parties. The expenses are recognized only when the fabrics / garments along with invoices are received. The material supplied and the jobs performed are verified and accordingly the invoiced amount is remitted and the dues are settled. It was stated that the assessee maintains running and continuous account with these third parties and therefore in case any excess amount if paid, gets utilized / adjusted against future billings. In case of any defects, quality issues, delay in delivery schedules, the assessee raises debit notes on the third parties against the invoices raised by them. In case, debit notes are raised, the individual accounts of the suppliers are debited in the assessee’s books. In some instances, however, the debit 5
6 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 notes and / or the invoices are disputed on account of differences on quality of deliverables or the rates negotiated or the delay in supplies. In such a scenario, it so happens that the third party does not record the debit notes so raised or vice versa which leads to timing difference between the expenses as claimed by the assessee and the confirmation sent by the third parties. It may also so happen that the debit note raised by the assessee is recorded but not at the value as mentioned in the debit note, but on the disputed rate being claimed by the aforesaid parties. As a consequence, there is almost certain possibility that at any given date, the running accounts of the assessee with the suppliers / third parties may not match or reconcile up to every single rupee. It was specifically pointed out that the assessee had indeed furnished the reconciliation statement vide letter dated 26.12.2011 along with written submissions explaining the differences with the Inspector attached to the office of the ld AO. The ld AO however completely brushed aside the submissions and the reconciliation statement filed by the assessee and added amounts of Rs 1,46,29,344/- and Rs 94,45,995/- as unexplained expenditure u/s 69C of the Act made from undisclosed sources respectively.
5.1. The assessee submitted that the observation of the ld AO that assessee had not furnished any reconciliation is factually incorrect in as much as the assessee had filed a letter dated 26.12.2011 furnishing complete reconciliation between the figures as per its books and figures as reported by the respective parties. The same were also subject matter of verification by the ld Inspector of Income Tax (ITI) attached to the office of the ld AO. The assessee explained before the ld CITA, that various infirmities had crept in in the understanding of the ledger accounts by the ld AO which are as under:- i) M.A. Enterprises The assessee submits that the alleged difference of Rs. 1,40,55,777/- stated by the AO suffered from apparent infirmities. The AO had erroneously computed the total of debit side figures of the ledger account furnished by the M/s M.A. Enterprises at Rs. 98,86,100/- whereas the correct total was Rs. 2,44,86,225/-. The latter amount of Rs. 6
7 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 2,44,86,225/- inter alia includes debit of Rs. 5,44,348/- in the assessee’s account in the party’s books being amount of TDS. On reducing the said amount of TDS, the balance figure of Rs. 2,39,41,877/- which is the exact amount that has been debited and claimed by the assessee in its own books. The detailed working is as below: ii) & iii) M/s Sofia Fashion & M/s Batra Associates In the impugned order the ld. AO had added back the expenses claimed on account of payments made to M/s Sofia Fashion & M/s Batra Associates on the alleged ground that the same could not be verified. The assessee submits the complete name & address of the payee were furnished. All the payments were made through account payee cheques. Appropriate taxes were deducted on the said payments and credited to the P.A.N of the payee. It would therefore be appreciated that all the necessary information which the assessee is required to possess was furnished before the Assessing Officer. Merely because, the party did not respond to the notice issued u/s 133 does not ipso facto lead to the conclusion that the expenses are not verifiable. The assessee submits that it does not exercise any control or influence over the payees and could not direct them to respond to the notice issued by the Department. The assessee also placed reliance on the following decisions in support of its contentions:- a) Hon’ble Supreme Court in the case of CIT vs Orissa Corporation P Ltd reported in 159 ITR 78 (SC) b) Hon’ble Gauhati High Court in the case of Nemi Chand Kothari vs CIT reported in 136 Taxman 213 (Gau)
8 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 c) Hon’ble Jurisdictional High Court in the case of CIT vs Currency Investment Co. ltd reported in 241 ITR 494 (Cal) d) Hon’ble Jurisdictional High Court in the case of CIT vs Korlay Trading Co. Ltd reported in 232 ITR 280 (Cal)
5.2. The assessee pleaded that having submitted the name, complete address & PAN details of the payees, no adverse inference should be drawn on the assessee merely because the parties failed to respond to notice issued u/s 133(6) of the Act as the assessee had duly discharged its initial burden by filing all the requisite details. It was also argued that subsequently the assessee was able to prevail over the payees and obtained the requisite details. The ledger account of the assessee in the books of M/s Sofia Fashions was filed, wherein , it could be noticed that the details of invoices, payments and debit notes raised by the assessee reconciles and no difference exists. In addition to the same, the assessee also enclosed the TDS certificate issued to the aforesaid payee. Accordingly, it was pleaded that expenses of Rs 5,13,349/- claimed by the assessee were genuine and should be allowed as deduction from the profits of the business.
5.3. As regards M/s Batra Associates, the assessee submitted that there was only one single purchase made from the party and the copy of invoice was enclosed thereon. The assessee had also deducted tax at source on the payment made to M/s Batra Associates. The copy of TDS certificate issued to M/s Batra Associates was filed by the assessee. Accordingly, it was pleaded that expense of Rs 5,13,349/- claimed by the assessee was genuine and should be allowed as deduction from the profits of the business.
5.4. As regards the addition of Rs 94,45,995/- made in respect of two parties i/e M/s Pushp Creation and M/s Ar Dee Textile, the assessee furnished complete details consisting of name, address, PAN, nature of work, amount and TDS details in respect of 8
9 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 the said parties. It was contended that if the ld AO ‘s case is to be believed, then the assessee had claimed lower expenditure that it should have actually claimed resulting in inflated and / or excess income being offered to tax. The addition of Rs 94,45,995/- to the computation of total assessed income has therefore resulted in double taxation. The assesse submits that the ld AO himself had categorically mentioned the nature and purpose of expenditure of Rs 94,45,995/- paid to third parties. Thus it is not in dispute that the alleged expenditure of Rs 94,45,995/- was incurred in the course and for the purposes of business. Even if it is presumed without accepting that the said amount was paid out of undisclosed sources of income, then the net of such undisclosed income and expenditure of Rs 94,45,995/- would be NIL. Later the assessee made its submissions on merits as under:-
“i) Pushp Creation The total of the debits in the appellant's account in the Party's books for FY 2008-09 is Rs. 56,32,869/-. The said amount comprises of the invoices raised by the Party on the appellant during the year under consideration. As mentioned earlier in case of defects/quality issues/rate differences, the appellant raises debit notes on the Party. The appellant debits and claims the net amount (Amount as per Invoices - Amount raised in Debit Notes) as expenditure in the Profit & Loss Account. Similarly the 'Party' credits the amount raised in the debit note in its books to the appellant's account. On perusal of the ledger account of the appellant in Pushp Creation's books the total of debit notes credited is Rs.18,56,428/-. The individual amounts of the debit notes has been marked in the ledger account of appellant in the books of M/s Pushp Creation and the total of the same has been enclosed by way of a separate enclosure. In view of the foregoing the "Net Billing" by M/s Pushp Creation was Rs.37,76,441/- (56,32,869 - 18,56,428). The amount credited in the name of M/s Pushp Creation in the appellant's books is Rs.41,22,220/-. In the course of assessment the said amount was reported to the AO. On reconciliation it was noted one debit note No. 0800620 raised on M/s Pushp Creation of Rs. 3,53,100/- was credited to Shipping & Forwarding Account. Once the same is considered the "Net Billing" by Pushp Creation as per the appellant's books would be 37,69,120/-
In view of the foregoing it is submitted that the addition of RS.15,10,649/- as alleged unreconciled difference was factually incorrect and therefore deserves to be deleted in full.
(ii) Ar Dee Textile For FY 2008-09; the total of the debits in the appellant's account as per the Party's books is Rs. 7,74,90,564/-. The said amount comprises of the invoices raised by the Party on the appellant during the year under consideration. The appellant reiterates that in case of defects/quality issues/rate differences, it raises debit notes on the Party. The appellant debits and claim only the net amount (Amount as per Invoices - Amount raised in Debit Notes) as expenditure in the Profit & Loss Account. Similarly the 'Party', on receipt of debit notes, credits such amount to the appellant's account in its books. On perusal of the ledger account of the appellant in Ar Dee Textile's books the total of debit notes credited is Rs.74,68,368/-. The individual amounts of the debit notes has been marked in the ledger account of appellant in the books of M/s Ar Dee Textile and the total of the same has been enclosed by way of a separate enclosure. In view of the foregoing the "Net Billing" as per the books of M/s Ar Dee Textile was Rs.7,00,22, 196/- (7,74,90,564 - 74,68,368).
In addition to the above, the appellant submits that difference of RsA,41 ,918/- is attributable to the debit notes raised and debited by the appellant in its books but not considered and credited by M/s Ar Dee Textiles. The detailed break-up of the same containing the debit note number, date, amount, reason along with the copies of debit notes is enclosed. As mentioned in the foregoing paragraphs the appellant raises debit notes in case of defects/quality issues/rate differences. The same however not always accepted by the 'Party and in some cases it is disputed by them. It is submitted that the aggregate amount of debit notes of Rs.441 ,918/- stands disputed and is pending final 10
11 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 settlement. The appellant had debited the said amount in its books thereby reducing the claim of expenditure. On the other hand M/s Ar Dee Textile did not credit the same in its books in order to keep its claim alive till the debit notes so raised are finally settled.
It is further submitted that Ar Dee Textile in its books had debited invoices raised by them during the year but which was received by the appellant only in the subsequent financial year. This resulted in a timing difference. As mentioned earlier the appellant recognizes and debits expenses only on receipt of invoices. Since the bills aggregating to Rs.15,442/- were received only in the subsequent financial year the appellant debited and claimed it in the succeeding year. The details of the bills along with bill numbers, date and amount is enclosed.
In view of the above the appellant submits that the addition of Rs.79,35,346/- under Section 69C as alleged unreconciled difference was factually incorrect, arbitrary and without appreciating the facts of the case. It is thus submitted that the addition was bad in law and deserves to be deleted in full.
In light of the above stated facts and the documents placed on record, it would be noted that there are no unreconciled differences between the claim of expenses made by the assessee and the details furnished by the suppliers barring M/s Pushp Creation & M/s Ar Dee Textile. Even in respect of the latter two parties it is submitted that the un- reconciled amounts are very minimal in comparison to the voluminous transactions between the appellant and these parties. The appellant apprehends that the minimal differences may be on account of rebates/discounts and/or differences on the debit notes raised by the appellant. The appellant submits that these minimal differences are very common when a person has a running account with its suppliers/customers and the 11 12 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 same may therefore be ignored. In totality of facts and circumstances the appellant submits that the addition of Rs. 1,46,29,344/- and Rs.94,45,995/- as alleged unexplained expenditure u/s 69C and expenditure made from undisclosed sources was grossly unjustified, arbitrary and bad in law. The AO should therefore be directed to delete the impugned disallowance in full."
The ld CITA observed that the aforesaid submissions were furnished by the authorized representative of the assessee before his predecessor on 9.1.2013. Thereafter, the ld CITA forwarded the entire written submissions of the assessee together with the supporting documents and the paper book containing Annexures A to P to the ld AO for furnishing his remand report vide letter dated 10.1.2013. However, no remand report was furnished by the ld AO in response to this letter and therefore reminders dated 4.7.2013 and 5.12.2013 were sent to the ld AO asking him to furnish his report and comments on the explanations and documents submitted in the course of appellate proceedings. In particular in letter dated 5.12.2013, the ld CITA’s predecessor had specifically informed the ld AO that if no comments or reports are received by his office within 13.12.2013, it will be presumed that the ld AO had no adverse comment to offer and accordingly the appeal would be decided on consideration of the materials and explanations placed in the appellate proceedings. The ld AO did not furnish his remand report despite this letter of the ld CITA. Later one more opportunity for furnishing the report was thereafter given by the predecessor of ld CITA by sending a reminder dated 20.6.2014. There was no response from the side of the ld AO even for this reminder. Accordingly, the ld CITA having waited for more than 3 years (ie from 10.1.2013 onwards), proceeded to examine the materials and supporting evidences placed by the assessee in the paper book by himself and decided the appeal of the assessee without waiting for the remand report of the ld AO.
The ld CITA granted relief to the assessee in the sum of Rs 1,40,55,777/- in respect of M.A.Enterprises by observing as under:- “5.4 From the above figures it is apparent that the principal disallowance related to appellant's transactions with M/s M.A. Enterprises where addition of 1,40,55,777/- is 12
13 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 made. In the impugned order the AD has alleged that the appellant had claimed expenditure of Rs.2,39,41,877/- in the name of M/s M.A. Enterprises. While furnishing the confirmation of accounts in response to notice u/s 133(6), M/s M.A. Enterprises confirmed receipt of only Rs. 98,86, 100/-. The AD claimed that the appellant was asked to explain or reconcile the difference but no explanation or reconciliation were furnished by the appellant till date and therefore the differential amount was added as bogus expenditure. In the course of the appellate proceedings the AR furnished and explanatory statement which the accountant of the appellant had furnished before the AD on 26.12.2011 and which was examined by the Inspector attached to C the office of the AD. Copy of this statement was forwarded to the AD for his comments but no explanation or counter-comment thereon has been furnished by the AO till date. From the explanatory statement as also the appellant's ledger account in the books of M/s M.A. Enterprises read along with the reconciliation statement furnished by the appellant, it appeared that as per the appellant's books there was opening credit balance of Rs. 60,644/- and the said balance tallied with the ledger a/c furnished by M/s M.A. Enterprises. Excluding the opening balance, the total of the debit side as per the appellant's ledger in the books of M/s M.A. Enterprises was Rs.2,44,86,225/- and with regard to such amount debited the appellant had deducted tax u/s 194C amounting to Rs. 5,44,348/-. As such the appellant had liability to pay net sum of Rs. 2,39,41 ,877/- to M/s M.A. Enterprises on account of stitching charges. As admitted by the AO, the amount claimed by the appellant as per its books was Rs. 2,39,41,877/-. In the impugned order the AO has however claimed that the amount confirmed as received by M/s M.A. Enterprises was however only Rs. 98,86,100/-. From the copy of appellant's ledger account in the books of M/s M.A. Enterprises, it appeared that the said ledger account appeared on ages 16 & 17 of the books. The said ledger account started with opening debit balance of Rs. 60,444/- and thereafter contained numerous entries starting from 27.04.2008 and ending with 31.03.2009. From Page 17 which is the second page of the ledger account, it appeared that the said account disclosed Rs. 99,46, 744/- as the sum total of debit side and Rs. 73,66, 181/- as the sum total of credit side. It appeared that the AO presumed that Rs. 99,46,744/- was the sum total of all debits to the appellant's account from 27.04.2008 to 31.03.2009 and therefore deducting the opening balance of Rs. 60,644/-, the AO arrived at the net debit figure of Rs. 98,86,100/-. I however find that the said aggregate debit of Rs. 99,46,744/- was the not the sum total of all debits given to the appellant's account in the books of M.A. Enterprises for FY 2008-09. The said amount represented the debits appearing only on the second page of the ledger account and did not include therein the debits to the assesee's accounts made on account of invoices raised on the appellant starting from 27.04.2008 to 21.11.2008. I have also examined the account of M/s M.A. Enterprises appearing in the appellant's books and find that the invoiced amounts debited by M/s M.A. Enterprises to the appellant's account were given corresponding credit in the appellant's books to the account of M/s M.A. Enterprises. The gross amount billed by M/s M.A. Enterprises towards stitching charges in FY 2008-09 was Rs. 2,44,86,225/-. From the said amount of stitching charges the appellant had deducted tax u/s 194C amounting to Rs. 5,44,348/- and accordingly the net sum due to M/s M.A. Enterprises was Rs. 2,39,41 ,877/-. On verification of the appellant's ledger account in the books of 14 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 M/s M.A. Enterprises vis-a-vis the accounts of M.A. Enterprises in the appellant's books, it was noted that there was no discrepancy of Rs. 1,40,55,777/- as alleged by the AO. Rather the said difference was based on the AO's incorrect understanding of the ledger account furnished by M.A. Enterprises. Since the AO deducted the opening debit balance from the gross debit amount appearing on the second page of the Ledger Account, he came to incorrect conclusion that the amount confirmed by the party was only Rs. 98,86, 100/- whereas if one totals all the sums on the first & second page of the appellant's ledger account appearing in the books of M.A. Enterprises then it appeared that the gross amount of debit side amounted to Rs. 2,45,46,869/- inclusive of opening debit balance as also the amount of TDS. The addition of Rs. 1,40,55,777/- was therefore factually unsustainable and the same is directed to be deleted.”
7.1. The ld CITA granted relief to the assessee in the sums of Rs 5,13,349/- and Rs 60,218/- in respect of M/s Sofia Fashion and M/s Batra Associates by observing as under:- “5.5. As regards the remaining two sums of Rs. 5,13,349/- in the name of Sofia Fashion and Rs. 60,218/- in the name of Batra Associates, the disallowances were made on the ground that the expenses could not be verified as no replied were received in response to notices u/s 133(6) of the Act. In the course of appellate proceedings, the appellant had furnished copies of the ledger accounts of both the parties in the appellant's books, it also furnished copies of the invoices received from the parties. The appellant also produced evidence to establish that payments were made by account payee cheques and taxes as required u/s 194C were deducted before payments were made. The respective PAN details of the parties were also furnished. All these documents established identity of the parties as also the genuineness of the transactions. The appellant had produced all such documentary evidences which a businessman in the ordinary course of business is expected to maintain with him in support of the business transactions. Despite the fact that these documents were forwarded to AO, no adverse comment was provided nor any infirmity factual or otherwise were reported by the AO. In view of these facts therefore I have no hesitation in holding that the appellant had discharged the onus of proving his transactions with its suppliers. Mere fact that the AO could not serve the notice u/s 133(6) or where the party chose not to reply to the notice u/s 133(6) cannot be the sole ground for AO to conclude that the expenditure incurred in the names of these parties was unverifiable or bogus. The appellant's case in this regard is supported by the judgment of the Calcutta High Court in the case of CIT Vs Korlay Trading Co Ltd (232 ITR 280) as also CIT Vs. Inbuilt Merchant Pvt Ltd (G.A. No. 3825 of 2013). For the reasons set out in the foregoing, the additions of Rs. 5,13,349/- and Rs. 60,218/- on account of purchases from Sofia Fashion and Batra Associates respectively are deleted. In the result, the addition of Rs. 1,46,29,344/- made u/s 69C is deleted in full. Ground No. 3 is therefore allowed.”
15 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 7.2. The ld CITA granted relief to the assessee in the sums of Rs 15,10,649/- and Rs 79,35,346/- in respect of M/s Pushp Creation and M/s Ar Dee Textiles respectively by observing as under:- “6.2. I have considered the submission of the AR of the appellant and also the materials available on record. From the impugned order it appeared that the appellant had disclosed expenses of Rs. 41,22,220/- and Rs. 6,95,55,218/- in the name of M/s Pushp Creation and M/s Ar Dee Textile respectively. Both the parties had furnished their confirmations to the AO in response to notices u/s 133(6) in which they confirmed to have received payments of Rs. 56,32,869/- and Rs. 7,74,90,564/- respectively. In other words the AO found that both the parties though confirmed the transactions, according to amounts confirmed the expenditure incurred by the appellant was higher than amounts the claimed by the appellant in the books. The AO has noted that the AR was asked to reconcile this difference but explanation and reconciliation were not furnished. The AO therefore treated the differential sum of Rs. 94,45,995/- as the expenditure which the appellant actually incurred from its undisclosed sources. I however find that the appellant's representative had furnished statement of reconciliation with supporting documents in the AO's office on 26.12.2011. This was apparently not considered by the AO and therefore copy of the reconciliatory statement along with supporting documents was forwarded to the AO for his comments. However as set out above, no comments have been furnished by the AO. Be the same as it may, on carefully scrutiny of Pushp Creations & Ar Dee Textiles in the appellant's books, it was found that the appellant had extensive transactions with both the parties on account of supply of material as also service Charges. In the course of the business transactions, certain differences arose on account of quantity & quality differences / rejections / sales returns etc. for which the appellant had raised debit notes on the parties from time to time. From the explanation furnished it appeared that the gross debit given to the appellant's accounts in the books of Pushp Creation was Rs. 60,95,549/- whereas the opening debit balance was Rs. 4,62,680/- and as such the value of transactions for the year as per the books of Pushp Creations was Rs. 56,32,869/- In the books of Pushp Creations, it had accounted for Debit Notes raised by the appellant only to the tune of Rs. 18,56,428/- and if these debit notes were taken into account by the AO then even as per confirmation of Pushp Creations, the net billing was Rs. 37,76,441/-. The appellant provided following reconciliation for explaining the net billing of Rs. 37,76,441/-
6.3. From the above chart I find that as per the confirmation of Pushp Creation, the expenditure of the appellant, net of debit notes was Rs. 37,76,441/- and not Rs. 56,32,869/- as claimed by the AO. As opposed to the said amount of Rs. 36,76,441/- the net expenditure claimed by the appellant as per its books was Rs.37,69,120/-. As such the expenditure claimed by the appellant as per its books was lower by Rs. 7,321/-and such difference though unreconciled cannot be considered to be unusual given the volume of business and the possibility for timing differences that occur in such I transactions. The addition of Rs. 15, 10,649/- on account of appellant's transactions with Pushp Creations is therefore found to be unjustified.
6.4 As regards, appellant's transactions with Ar Dee Textile, I find that the gross total transactions as per the party's books amounted to Rs. 7,74,90,564/-. During the relevant year the appellant had raised debit notes on the party on account of defects/ rejections/ rate differences / sales returns etc. and as per the account confirmation of Ar Dee Textile, it had accounted for these debit notes amounting to Rs. 74,68,368/-. As such even as per the account confirmation of Ar Dee Textile, the net billing on the appellant by Ar Dee Textile was only Rs. 7,00,22,196/- and not Rs. 7,74,90,564/- as allegedly considered by the AO. Even with regard to the difference between Rs. 6,95,55,218/- being amount as per the appellant's books and Rs. 7,00,22,196/- as per Ar Dee Textile, the appellant furnished the following reconciliation:
6.5. From the above statement, I note that the net biling as per books of Ar Dee Textile amounted to Rs. 6,95,64,836/- whereas the expenses as per appellant’s books amounted to Rs. 6,95,55,218/-. There was thus unreconciled difference of Rs. 9,618/-. However, the fact remain that the appellant had claimed less expenses to the tune of Rs. 9,618/- and having regard to the volume of transactions between the parties, such difference was too small and could arise on account of timing differences. For the reasons set out in the foregoing therefore I find that the appellant had fully reconciled its transactions with Ar Dee Textile and the unreconciled difference was not Rs. 79,35,346/- as alleged by the AO in the impugned order. In fact if the AO had taken into consideration the account confirmation furnished by Ar Dee Textile in response to notice u/s 133(6) of the Act then he would have noted that the said party itself had given credit to the appellant’s account towards the various claims for which the debit notes were raised. For the reasons set out in the foregoing the addition of Rs. 94,45,995/- is therefore deleted. Ground no. 4 is accordingly allowed.”
Aggrieved, the revenue is in appeal before us on the following grounds:- 2. That on the facts and circumstances of the case, Ld. CIT(A) has erred in allowing relief of Rs. 1,46,29,344/- to the assessee under the head of Unexplained Expenditure on the basis of fresh evidences without waiting for the report of the AO.
18 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 3. That on the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs. 94,45,995/- made by the AO on account of Undisclosed Expenses on the basis of fresh evidences without waiting for the remand report of the AO.
We have heard the rival submissions and perused the materials available on record including the paper book of the assessee comprising of pages 1 to 182. As far as the grounds raised by the revenue with regard to ld CITA passing the order not waiting for the remand report of the ld AO, we find that the ld CITA had waited for almost three years from 10.1.2013 onwards for the remand report from the ld AO. We find that the ld AO did not comply with several reminders issued by the ld CITA for furnishing of the remand report. In fact in one such reminder, the ld CITA had even stated that in case if no remand report is received within the prescribed time, then it would be presumed that the ld AO has nothing adverse against the assessee on those evidences and reconciliations submitted. Despite this reminder, the ld AO chose to remain silent by not furnishing the remand report. The remand report was first sought for vide letter dated 10.1.2013. Ultimately the ld CITA had disposed off the appeal only on 17.3.2016 after a gap of three years. The various opportunities afforded by the ld CITA to the ld AO in this regard are explained in detail in para 6 of this order supra. The ld AR also stated that the CBDT had come out with an action plan to dispose off high dossier cases of demands outstanding for more than Rs 1 crore within the prescribed time. In the continued inaction of the ld AO, the ld CITA had no other choice but to examine the various evidences and documents available on record by himself and then pass a speaking order that too after waiting for a long period of 3 years for the remand report. Even otherwise, the powers of the ld CITA are co-terminus to that of the ld AO and he could do it himself what ld AO could do. In the instant case, the ld CITA had not merely accepted the version of the assessee. Instead, the ld CITA had thoroughly examined himself the entire reconciliation statements filed by the assessee before the ld AO , which were completely ignored by the ld AO. We find that the ld CITA had even
19 M/s Kalamkari Designs Pvt. Ltd. A.Yr. 2009-10 examined the statements with the supporting evidences that are available in the paper book of the assessee. In these facts and circumstances, we are not inclined to accept the grounds of the revenue that the ld CITA had erred in disposing off the appeal without waiting for the remand report.
9.1. Before us, the ld AR drew our attention to the various pages of the paper book that were relied upon by the ld CITA while passing the order on merits. On merits, the submissions made by the assessee before the ld CITA , the findings of the ld CITA and the submissions made by the ld AR before us, remain uncontroverted by the revenue before us. Hence we do not find any justifiable reason to interfere with the order of the ld CITA in this regard. Accordingly, the Grounds 2 & 3 raised by the revenue are dismissed.
The Ground No. 4 raised by the revenue is general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 11.05.2018