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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Hon’ble Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-XVI, Kolkata [in short the ld CIT(A)] in Appeal No.96/CIT(A)-XVI/Ward-29(4)/Kol/11-12 dated 05.03.2013 against the order passed by the ITO, Ward-29(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.12.2011 for the Assessment Year 2009-10.
Ground no. 1 and 4 raised by the assessee are general in nature and do not require any specific adjudication.
Bharat Marbles and Granites A.Yr.2009-10 3. The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the addition made u/s 41(1) of the Act in the sum of Rs. 10,64,203/-, in the facts and circumstances of the case. The interconnected issue involved in this appeal is as to whether the Ld. CIT(A) was justified in confirming the addition of Rs. 41,97,060/- as bogus purchases, in the facts and circumstances of the case.
The brief facts of this appeal are that the assessee is a partnership firm engaged in the business of trading of Marbles and Granites. The return of income for the assessment year 2009-10 was filed by the assessee firm on 22.09.2009 declaring total income of Rs. 3,41,670/-. The general modus operandi of the business model of the assessee is that the representative of the assessee used to go to various quarries in Rajasthan for identifying various types of marbles and granites and place respective orders thereon to the respective suppliers of those materials. These materials will be supplied by the concerned suppliers to the assessee which would be duly supported with waybills, transportation bill etc. together with invoices. These documents would apparently contain the details of the name of the supplier who supply the goods, truck in which these goods are being transported from Rajasthan to assessee firm in Kolkata, the truck number, VAT registration number, details of the suppliers, address of the suppliers, quantity transported, size and model of marbles and granites, unit rate and value thereon. The Ld. AO during the course of assessment proceedings sought to verify the total trade creditors in respect of purchase of marbles and granites and accordingly identified 16 parties. The Ld AO sought to issue section 133(6) notices on the 16 parties which returned unserved. The assessee also submitted the entire details and documents referred to above together with copy of ledger 2
Bharat Marbles and Granites A.Yr.2009-10 accounts of those suppliers as appearing in the books of the assessee, purchase bills and bank statement evidencing the payments made to these suppliers vide written submission dated 12.12.2011 before the Ld.AO. The Ld. AO directed the assessee to produce all these parties vide order sheet noting dated 12.12.2011 and directed them to produce on 22.12.2011. The assessee expressed its inability to produce these trade creditors personally on 22.12.2011 as they were stationed in Rajasthan. This reply not proving satisfactory, the Ld AO tabulated the transaction of these creditors as under:
Bharat Marbles and Granites A.Yr.2009-10 Out of these 16 creditors tabulated above, in respect of three parties i.e. i) Venkatesh Marbles Rs. 478438/- ii) Rainbow Marbles Traders Rs. 387567/- iii) Redi Minerals Rs. 198198/- Total Rs. 1064203/- the Ld. AO observed that these balances in respect of aforesaid three parties were outstanding since 31.03.2005 and it is very unlikely that these creditors had not bothered to collect the payments from the assessee and accordingly, he invoked the provisions of section 41(1) of the Act by treating these liabilities as “ceasing to exist”. Accordingly, the Ld AO made addition u/s 41(1) of the Act to the tune of Rs. 10,64,203/-.
In respect of remaining thirteen parties, the Ld. AO disallowed the entire purchases made during the year under appeal these parties amounting to Rs. 41,97,960/- as tabulated above, treating them as bogus purchases and made addition in the assessment as these parties could not be produced personally by the assessee before the Ld. AO.
Before the Ld. CIT(A), the assessee submitted the entire details that were filed before the ld. AO in the form of a paper book. The Ld. CIT(A) called for a remand report from the Ld. AO on a singular point of clarifying as to whether any additional evidences /new evidences were filed by the assessee before the Ld. CIT(A). The Ld. AO on going through the details filed by the assessee in the paper book replied that no fresh evidences were filed by the assessee before the Ld. CIT(A). Accordingly, Ld. CIT(A) proceeded to confirm both the additions made by the Ld. AO in the assessment. The Ld. CIT(A) had also mentioned in the 4
Bharat Marbles and Granites A.Yr.2009-10 order that the assessee had not bothered to furnish the new addresses of these creditors. The Ld. CIT(A) also stated in his order that all the evidences submitted by the assessee are all self-generated evidences and not third party evidences. Accordingly, he justified his action of upholding the additions made by the Ld. AO. Aggrieved, the assessee is in appeal before us on the following grounds:
2. That on the facts and circumstances of the case, the learned CIT(Appeals) has erred in confirming the addition of Rs. 10,64,203/- made by the AO u/s 41(1) of the Income Tax Act, 1961.
3. That on the facts and circumstances of the case, the learned CIT(Appeals) has erred in confirming the addition of Rs. 41,97,060/- made by the AO as bogus purchases.
We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee containing the various evidences with regard to purchases made by the assessee from the aforesaid parties. At the outset, we find that both Ld AO as well as Ld. CIT(A) did not ask the assessee to furnish the new addresses of these sundry creditors. The Ld. AO wanted the assessee to produce the parties in person on 22.12.2011. The assessee replied that since these parties are stationed out in Rajasthan, it would be impossible to produce them in person in Kolkata within a short span of time. However, the assessee had submitted the entire documentation with regard to these purchases together with proper supporting evidences. We find that the Ld. CIT(A) erroneously stated that new addresses were not furnished by the assessee in this regard. We find that the Ld. CIT(A) had not at all asked the assessee to furnish the new addresses of these sundry creditors. From the various documents enclosed in the paper book such as way bill which contains the entire evidence of transportation of goods from the suppliers in Rajasthan to the assessee firm in Kolkata containing the transporter details, vehicle no and other purchase related 5
Bharat Marbles and Granites A.Yr.2009-10 documents etc and the subsequent payments made by the assessee to these sundry creditors vide account payee cheques which are supported by the Bank statements thereon, it could be safely concluded that these are purely third party evidences and not self-generated evidences as erroneously stated by the Ld. CIT(A) in his order. We find that the assessee had given complete movement of transactions by the assessee with these sundry creditors right from 31.03.2005 onwards which is tabulated in the assessment order itself. We find that the purchases made by the assessee had either been sold during the year or lying in closing stock at the end of the year, as the case may be. These sales and closing stocks were duly accepted by the Ld. AO. Without making purchases there cannot be any sales or there cannot be any stock lying in the premises of the assessee. It is not the case of the revenue that the assessee had brought these stocks out of his unaccounted income. This is only a case of merely disbelieving the purchases made by the assessee treating them as bogus. In view of the aforesaid facts and evidences available on record which are enclosed in the paper book, we are convinced that there cannot be any addition that could be made towards bogus purchases in the sum of Rs. 41,97,060/- and accordingly the same is hereby directed to be deleted.
With regard to the addition made u/s 41(1) of the Act, the assessee as on 31.03.2009 relevant to assessment year 2009-10 had continued to show these balances payable to these three creditors as outstanding and had actually acknowledged the debt by treating it as payable to these sundry creditors. Hence, it cannot be stated as cessation of liability in terms of section 41(1) of the Act. Moreover, the Ld. AO had not brought any evidence on record to prove that those liabilities ceased to exist so as to invoke the provision of Section 41(1) of the Act.
Bharat Marbles and Granites A.Yr.2009-10 In view of these findings the addition made u/s 41(1) of the Act is accordingly directed to be deleted. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 10.01.2018