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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri A.T. Varkey
Per Shri P.M. Jagtap, Accountant Member : This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals), Jalpaiguri dated 03.09.2015.
At the outset, it is noted that there is a delay of twelve days on the part of the Revenue in filing this appeal before the Tribunal. In this regard, the Revenue has filed an application seeking condonation of the said delay on the following grounds:- “Malda Income Tax Office is situated at a far flung distance of about 270 km from the CIT Office at Jalpaiguri and there is no regular posting of Jt. CIT at Range-3, Malda also. The Jt. CIT, Range-2, Jalpaiguri is holding the additional charge of Malda Range and it is not possible for him to attend Malda office regularly for which we have to move to Jalpaiguri with records from time to time. Moreover, during this period there was Durga Puja and Kalipuja/Diwali etc. and many of the staff were on leaves
2 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 also. Thus, it got delayed in processing the case and could not be filed within the due time”.
Keeping in view the submission made by the Revenue as above, we are satisfied that there was a sufficient cause for the delay of twelve days on the part of the revenue in filing this appeal before the Tribunal. Even the ld. counsel for the assessee has also not raised any objection in this regard. The said delay is, therefore, condoned and this appeal of the Revenue is being disposed of on merit.
The issue raised in Ground No. 1 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.32,72,600/- made by the Assessing Officer on account of bogus liabilities.
The assessee in the present case is an individual, who is engaged in the business of export of agricultural commodities under the name and style of his proprietary concern M/s. Das & Chowdhury International. The return of income for the year under consideration was filed by him on 30.09.2011 declaring a loss of Rs.99,21,796/-. During the course of assessment proceedings, letters under section 133(6) were issued by the Assessing Officer to verify the sundry creditors shown by the assessee. One of such creditors, namely Subir Shellac Enterprise confirmed only the amount of sales of Rs.28,07,000/- made to the assessee in reply to the letter under section 133(6) filed with the Assessing Officer. When this position was confronted by the Assessing Officer to the assessee, the latter explained that out of the closing balance of Rs.32,72,600/- appearing in the name of Subir Shellac Enterprise, a sum of Rs.32,80,600/- was brought forward from the earlier year. Not satisfied with this explanation of the assessee, the Assessing Officer treated the credit balance of Rs.32,72,600/- shown by the assessee as payable to Subir Shellac Enterprise as a bogus liability and added the same to the total income of the assessee.
3 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 5. The addition of Rs.32,72,600/- made by the Assessing Officer on account of the alleged bogus liability in the name of Subir Shellac Enterprise was disputed by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submission made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2. I have duly considered the submission of the appellant. It appears from the records that in response to the notice issued by the AO u/s. 133(6) of the Act, the creditor for purchases of lac namely, Subir Shellac Enterprises had confirmed the purchases but did not say anything about the closing balance. Being confronted by the AO appellant produced his purchase ledger for the said party, showing opening balance of Rs.32,80,600/-, purchases during the year of Rs.28,07,000/-, payments made during the year of Rs.28,15,000/- and closing balance of Rs.32,72,600/-. The AO accepted the purchases on the basis of reply of Subir Shellac Enterprises, but not the outstanding liabilities. From the copy of reply sent by Subir Shellac Enterprises to the AO, it is seen that he did not mention appellant’s overall account as per his books but simply confirmed about the sales made to the appellant during the year. In other words, he did not mention about the opening and closing balance as well as Payments received from the appellant during the year. Once the AO accepted the opening balance, purchases and payments made during the year, he ought to have accepted the closing balance especially when the appellant produced evidences of payments of dues by cheques in the next year, which AO has not doubted. In any case, when the AO doubted the closing balance, he ought to have clarified it from Subir Shellac Enterprises by sending another notice/letter. The addition made in haste, on apprehension, summarily rejecting the clarification and documentary evidences filed by the appellant is against the principle of natural justice and not maintainable. On the contrary, appellant produced evidences of repayment of dues towards outstanding liabilities in the next year through banking channel. In view of such, addition of Rs.32,72,600/- is deleted”.
We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. D.R. has contended that copy of account of Subir Shellac Enterprise for the year under consideration was never filed by the assessee either before the Assessing Officer or before the ld. CIT(Appeals) to show the existence of opening and credit balance and the relief was given by the ld. CIT(Appeals) on this
4 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 issue to the assessee by relying on the account of the said party filed by the assessee for the immediately succeeding year showing some payments made against the closing balance. He contended the existence of the liability thus was not established by the assessee on evidence and keeping in view that the same was not even confirmed by the concerned creditor in reply to the letter issued by the Assessing Officer under section 133(6), the ld. CIT(Appeals) was not justified in deleting the addition made by the Assessing Officer on this issue by treating the said creditor as a bogus liability. The ld. counsel for the assessee, on the other hand, has submitted that the copy of the account of the concerned creditor for the year under consideration, duly confirmed by the said party was filed by the assessee even during the course of assessment proceedings before the Assessing Officer. She has invited our attention to the copy of the same placed at page no. 30 of the paper book which clearly shows that there was an opening credit balance of Rs.32,80,600/- in the account of the said party and after making purchases of Rs.28,07,000/- and payments of Rs.28,15,000/- during the year under consideration, the closing credit balance was Rs.32,72,600/-. The said closing balance was duly carried forward by the assessee to the next year as is evident from the copy of the relevant ledger extract placed at page no. 31 of the paper book and payments against the same were made by the assessee on different dates aggregating to Rs.27,05,500/- through cheques. The existence of the liability appearing in the name of M/s. Subir Shellac Enterprise thus was duly established by the assessee by filing the relevant documentary evidence and the addition made by the Assessing Officer by treating the same as bogus liability merely on the basis of reply received from the said party in response to the letter issued under section 133(6), wherein the amount of purchases alone was confirmed in the said party, in our opinion, was rightly deleted by the ld. CIT(Appeals). We, therefore, uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 1 of the Revenue’s appeal.
5 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 7. The issue raised in Ground No. 2 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.20,00,000/- made by the Assessing Officer by way of disallowance of alleged cash purchases.
From the confirmation received from another creditor M/s. Shankar Prasad Gupta & Co. in reply to the letter issued under section 133(6), the Assessing Officer noticed that against the total purchases of Rs.1,04,00,000/- made by the assessee from the said party, a sum of Rs.84,00,000/- was paid by cheque while the remaining amount of Rs.20,00,000/- was paid in cash. According to the Assessing Officer, when the assessee was asked to prove the cash purchases of Rs.20,00,000/-, he filed only the ledger account of the concerned party, which was not sufficient to establish the genuineness of the cash purchases. He accordingly disallowed the cash purchases of Rs.20,00,000/- claimed to be made by the assesee from M/s. Shankar Prasad Gupta & Co.
The addition of Rs.20,00,000/- made by the Assessing Officer on account of cash purchases by treating the same as unproved was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition for the following reasons given in paragraph no. 5.2 and 5.2.1 of his impugned order:- “5.2. The submission of the Ld. AR has been considered in the light of documents submitted and the case laws cited. In this case, appellant purchased onions from Shankar Prasad Gupta & Co. As per the ledger of the appellant, he was having opening liability of Rs.73,72,277/- to the party. During the year he purchased onions of Rs.54,35,476/- and made payments of Rs.1,04,00,000/- [84.00 lacs by cheque and Rs.20.00 lacs by cash], leaving outstanding liability of Rs.24,07,753/-. The AO issued notice u/s. 133(6) of the Act, seeking confirmation of account of the appellant. The party did not respond. Thus, the AO disallowed cash purchases of Rs.20.00 lacs. He also added back the closing balance of Rs.24,07,753/- as bogus liability. 5.2.1. So far as addition of Rs.20.00 lacs is concerned, I do not find much merit in AO's action. There were as such no separate cash purchases, but cash payments were made to same Shankar
6 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 Prasad Gupta & Co against purchases, to whom cheque payments of Rs.84.00 were also made. The AO accepted the opening liability of Rs.73,72,277/-, purchases of Rs.54,35,476/- and cheque payments of Rs.84.00 lacs during the year, but did not accept cash payments made to the same party. The appellant submitted details of such cash payments not exceeding Rs.20,000/- each in a single day before the AO. He did not point out any discrepancy in appellant’s books, but disallowed cash payments arbitrarily, without assigning any valid reason. This addition of Rs.20.00 lacs is not maintainable hence, deleted”.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As found by the ld. CIT(Appeals) from the ledger account of M/s. Shankar Prasad Gupta & Co. maintained in the books of account of the assessee, there were no such cash purchases of Rs.20,00,000/- made separately by the assessee from the said party. There was an opening balance of Rs.73,72,277/-, which was increased during the year under consideration on account of purchases of Rs.54,35,476/- made by the assessee from the said party and against this total amount, a sum of Rs.84,00,000/- was paid by the assessee by cheque and a sum of Rs.20,00,000/- was paid in cash. As further found by the ld. CIT(Appeals) from the relevant details furnished by the assessee before the Assessing Officer, such cash payments made by the assessee did not exceed Rs.20,000/- each in a single day. Keeping in view all these facts of the cases as well as the fact that no discrepancy whatsoever was pointed out by the Assessing Officer in the books of account of the assessee, the ld. CIT(Appeals) deleted the addition of Rs.20,00,000/- made by the Assessing Officer by way of disallowance of cash purchases holding the same to be not maintainable. At the time of hearing before us, the ld. D.R. has not been able to rebut or controvert the findings of fact recorded by the ld. CIT(Appeals) while giving relief to the assessee on this issue. We, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No. 2 of the Revenue’s appeal.
7 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 11. The issue raised in Ground No. 3 relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.90,60,200/- made by the Assessing Officer on account of bogus purchases.
During the course of assessment proceedings, purchases claimed by the assessee were verified by the Assessing Officer. On such verification, he found certain discrepancies and anomalies in the following three purchase bills:- Bill No. Date Amount (Rs.) Name of the Party 1. Shiva SE/001/2010-11 01.01.2011 31,93,400/- Exports 2. Shalim ST/001/2010-11 15.09.2010 30,65,800/- Traders 3. Lotus Bio LBG/001/2010- 01.12.2010 28,01,000/- Green 11 Total amount 90,60,200/-
The discrepancies and anomalies pointed out by the Assessing Officer in the above three bills were as under:- “(1) Serial numbers are identical. (2) Formats are synonymous. (3) Number in bills indicate that selling party had made only single transition in whole and with only one purchaser that is assessee. (4) No seal stamp is used. (5) Signatures were taken by single person because alphabets were similar”.
On the basis of the above anomalies and discrepancies, the genuineness of the aforesaid three purchase bills was found to be doubtful by the Assessing Officer. He, therefore, required the assessee to furnish the following details and documents in order to prove the genuineness of the said bills:- (a) Purchase order; (b) Order Confirmation;
8 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 (c) Road Challans; (d) Goods Delivery Proof; (e) Transport bills; (f) Original Tax Invoice; (g) Full address of the party with phone & e-mail ID; (h) TIN/VAT/CST details of party; (i) PAN of the party along with last filed ITR; (j) Proof of the Establishment (i.e. Municipal License, address proof).
The assessee, however, failed to furnish the above details and documents required by the Assessing Officer and filed only the copies of purchase orders. Keeping in view this failure of the assessee, the Assessing Officer treated the purchases of Rs.90,60,200/- as bogus and disallowed the same.
The disallowance of Rs.90,60,200/- made by the Assessing Officer on account of the alleged bogus purchases was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition made by the Assessing Officer for the following reasons given in paragraph no. 6.3 & 6.3.1 of his impugned order:- “6.3. I have carefully considered the findings of the A.O. in the assessment order as well as appellant's submission. The AO doubted appellant's purchases from three parties namely, (i) Shiva Exports of Rs.31 ,93,4001-, (ii) Shalim Traders of Rs.30,65,8001- and (iii) Lotus Bio Green of Rs.28,01,000/- as though the parties were located in different places of West Bengal but the bills looked alike. The AO also pointed out certain glaring defects in the bills as discussed in paragraph 6.1. above. So, the AO asked the appellant to produce certain documents to prove the genuineness of purchases from those three parties. As it appears from the record that the appellant, vide reply dated 25/03/2014, stated that lac buttons were purchased from those parties and same items were exported to Bangladesh through Petrapole check-post in the same year and next year. It is seen from the records that the appellant had produced following documents for AO's consideration: (a) Purchase Invoice duly confirmed by parties. (b) Payments against purchases through Banking channel.
9 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 (c) Purchase orders indicating delivery at Petrapole, LCS (West Bengal). {d) Commercial Invoice, bill of export and Exchange Control Declaration Form in respect of sale in A. Y .2012-13. (e} Sales of the items so purchased in the year under consideration and 12.00 MT in subsequent year. (f) Realization of sale proceeds in the year under consideration and in subsequent year through Banking channel. 6.3.1. Going by the evidences on record, exports of lac buttons cannot be held as ingenuine. The same goods were exported to Bangladesh. The Appellant paid those three parties through banking channel. He also received the sale proceeds through banking channel. The goods were exported through Petrapole check-post as can be seen from bill of export and Exchange Control Declaration. Thus, once the sales were genuine there ought to have purchased. The AO simply missed this basic principle. After receiving the reply of the appellant, the only issue in the hands of the AO was to examine the rate of purchases, especially when the appellant sold the goods in almost identical rates. Those purchases might have been made. The AO did not point out any discrepancy in the evidences produced by the appellant but disallowed the entire purchases from unregistered sellers. Though the appellant asserted that trading losses were incurred mainly from onion trades and due to adverse foreign exchange fluctuations, but the same should have been examined in right earnest. Instead, AO disallowed the entire purchases of lac buttons arbitrarily, which is bad in law and not maintainable. The addition of Rs.90,60,200/- is therefore, deleted”. 16. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that it was duly established by the assessee on evidence before the ld. CIT(Appeals) that the goods purchased under three bills were duly exported outside India. As rightly held by the ld. CIT(Appeals), the Assessing Officer, therefore, was not justified in treating the entire purchases as bogus on the basic principle that there could not be a sale without purchase. However, keeping in view the specific discrepancies and anomalies pointed out by the Assessing Officer in the relevant three purchase bills, which the assessee failed to explain satisfactorily either before the authorities below or even before us, we are of the view that the claim of the assessee of purchases amounting to Rs.90,60,200/- was not fully verifiable from the said bills. Even the ld. CIT(Appeals) in his impugned order has impliedly accepted this position while observing that
10 ITA No. 1416/KOL/2015 Assessment Year: 2011-2012 the only issue in the hands of the Assessing Officer after receiving the reply of the assessee was to examine the rate of purchases. Having regard to all these facts of the case, we are of the view that some disallowance on estimated basis is required to be made on account of the said purchases for the unverifiable element involved therein. Having regard to all the relevant facts of the case including the fact that the goods purchased by the assessee are in the nature of forest produce and the assessee has finally declared substantial loss, we are of the view that it would be fair and reasonable to make such disallowance to the extent of 10% of the purchases. We accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and sustain the disallowance of Rs.90,60,200/- made by the Assessing Officer to the extent of Rs.9,06,020/-. Ground No. 3 of the Revenue’s appeal is thus partly allowed. 17. In the result, the appeal of the Revenue is partly allowed. Order pronounced in the open Court on 22nd day of December, 2017. Sd/- Sd/- (A.T. Varkey) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 22nd day of December, 2017 Copies to : (1) Assistant Commissioner of Income Tax, Circle-3, Malda, Netaji Market (1s t Floor), Rathbari, Malda-732 101 2) Shri Prosen Chowdhury, Prop. of Das & Chowdhury International, Vill. Malihat, P.O. Jote Basanta, Kotowali, Dist. Malda-732 128 (3) CIT(Appeals), Jalpaiguri, (4) CIT- , Kolkata, (5) The Departmental Representative (6) Guard File TRUE COPY By Order Senior Private Secretary, Head of Office/DDO, Income Tax Appellate Tribunal Kolkata Benches, Kolkata Laha/Sr. P.S.