JEETHENDRA PATEL,PONDICHERRY vs. ITO, PONDICHERRY

आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:

ITA No.818/Mds/2017 is an appeal filed by the assessee and ITA

No.1694/Mds/2017 is an appeal filed by the Revenue in the case of Shri

Jeethendra Patel against the Order of the Commissioner of Income Tax

(Appeals), Puducherry, in ITA No.186/CIT(A)-PDY/2016-17 dated

20.03.2017 for the AY 2014-15.

No.1695/Mds/2017 is an appeal filed by the Revenue in the case of Shri

Jeethendra Patel Aruna against the Order of the Commissioner of Income

Tax (Appeals), Puducherry, in ITA No.187/CIT(A)-PDY/2016-17 dated

20.03.2017 for the AY 2014-15.

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017

:- 3 -:

Mr.B. Ramakrishnan, CA, represented on behalf of the assessee.

the appeals are disposed of by this common order.

grounds:

For these grounds and such other grounds that may be adduced before or during the hearing of this appeal with the leave of this Hon’ble Tribunal, it is humbly prayed that justice may be rendered by deleting the above disallowance.

grounds:

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 4 -:

No.2, it was submitted that the issue was against the action of the

Ld.CIT(A) in confirming the addition of the sundry creditors. It was a

submission that both the assessee’s who are husband and wife are in the

business of trading in timber. In the course of the assessment, the AO

had disallowed the total outstanding of sundry creditors on the ground

that there was no genuineness or reliable identity. It was a submission

that the AO had verified the details of the sundry creditors with the

Commercial Taxes Department and it was informed by the Commercial

Taxes Department that the registration of some of the Creditors had been

cancelled. It was a submission that the AO wanted the personal

production of the sundry creditors whereas the assessee had produced the

copies of VAT returns and copies of the bills. It was a submission that the

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 5 -:

stock book of the assessee has been accepted, the sales had also been

accepted. It was a submission that the sundry creditors were, in fact,

trade creditors and none of the suppliers were willing to appear before the

AO to substantiate the purchases of the assessee. It was a submission

that the sundry creditors being trade creditors, the assessee nothing to

hold over the said creditors to force their appearance before the AO. It

was a submission that sundry creditors having been disbelieved would in

effect mean that the purchase itself have been disbelieved. It was a

submission that there is no allegation that the assessee had made any

undisclosed purchases and in the absence of the purchases, the assessee

could not have made the sales as disclosed. It was a submission that the

addition may be deleted. It was a further submission that on appeal, the

Ld.CIT(A) had confirmed the findings of the AO. It was a submission that

the addition as made by the AO and as confirmed by the Ld.CIT(A) was

liable to be deleted. He placed reliance upon the decision of the Co-

ordinate Bench of this Tribunal, Jaipur Benches, in the case of Duty Taxes

in ITA No.508/JP/2016 dated 10.04.2017 to submit that merely non-

appearance of the supplier in the absence of corroborative evidence

cannot be a basis to justify the stand of the Revenue that the transaction

of purchase is bogus.

before the AO even after repeated opportunities having been granted. It

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was also a submission that the registration of the said trade creditors had

been cancelled by the Commercial Taxes Department. It was a

submission that the order of the Ld.CIT(A) on this issue was liable to be

upheld.

Assessment Order shows that the sundry creditors are, in fact, the trade

creditors of the assessee. The AO has taken a view that there is no

genuineness of the creditors claimed with reliable identity. Further, the

AO has drawn a conclusion that the spurious creditors were created by the

assesse to withdraw the cash from the business and transfer this money in

the form of loans and advances and these spurious activities were carried

out to obtain the loan from the banks and divert for investment in other

activities. However, other than making the allegations, there is no specific

proof. The AO has not shown as to how by this spurious creditors, the

debtors were increased artificially or how the assessee has withdrawn the

cash from the business and has transferred the money in the form of

loans and advances nor as the AO pointed out any specific investment in

other activities which has been made by the assessee or by doing the

alleged spurious activities for obtaining the loans from the banks. On

mere allegations or on surmise or on suspicions, assessments are not

permissible. The fact that the AO has verified with the Commercial Taxes

Department and has been informed that the registration of some of the

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 7 -:

creditors have been cancelled clearly shows that such creditors did exist

and did do business. For what reasons, the Commercial Taxes Department

have cancelled the registrations of such creditors is, in any case, not

before us. The AO says that the assessee has not produced any

supporting document evidence to prove the existence of such parties from

whom huge purchases were made and against whom such credits were

claimed. What is the supporting document that the AO requires is not

coming out of his order. This being so, we are primarily inclined to allow

the case of the assessee. However, in the interest of the natural justice,

this issue is restored to the file of the AO for re-adjudication. The

assessee shall produce the copies of VAT returns and copies of the bills of

the purchases from such sundry creditors and he shall tally the same with

the Stock Register. The assessee shall provide the name and address and

the PAN of such sundry creditors to the AO. If the assessee is able to

produce the said details before the AO, the AO shall not insist on the

personal production of the trade creditors. The AO shall be at liberty to

verify the purchases by verifying the corresponding returns, if any, filed

by the respective sundry creditors. We are inclined to accept the claim of

the assessee that no trade creditors would be willing to appear before the

AO in so far as the assessee has no control over such trade creditors in so

far as the transaction is complete and there is no amount due to such

trade creditors as of date. In these circumstances, the issue in this

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 8 -:

ground is restored to the file of the AO for re-adjudication with a direction

as given above.

819/Mds/ 2017 stands partly allowed for statistical purposes.

against the action of the Ld.CIT(A) in confirming the disallowance

pertaining to business promotion expenses. It was a submission that the

business promotion expenses was in effect discounting charges paid to the

sellers. It was a submission that sellers used to discount letters of credits

and the discount was reimbursed by the assessee. It was a submission

that the AO had disallowed the said expenses by holding that normally the

sellers themselves would incur discounting charges. It was a submission

that the Ld.CIT(A) had also not accepted the assessee’s contention and

had confirmed the disallowance. It was a prayer that the addition may be

deleted.

evidence to show that the assessee has reimbursed discounting charges.

He vehemently supported the order of the AO and the Ld.CIT(A).

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 9 -:

Assessment Order shows that the AO has accepted the discounting

charges collected by the banks which were claimed by the sellers and

reimbursed by the assessee. Thus, it no more lies on the side of the

Revenue to say that the assessee has not produced evidences to prove

the reimbursement. A person doing business knows how to run his

business best. Just because, it is normal practice that the seller who is in

immediate need of cash discounts letter of credit and the discounting

charges has to be borne by the seller does not mean that the assessee

should not for having better trade relations reimbursed discounting

charges. The reimbursement of the discounting charges having not been

disputed by the AO on account of the genuinity, we are of the view that

the same is allowable expenditure. Consequently, the AO is directed to

grant the assessee the business promotion expenses representing the

discounting charges reimbursed as claimed.

819/2016 stands allowed.

No.818/2017, the Ld.AR did not wish to press the said ground.

Consequently, the same is dismissed as not pressed.

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 10 -:

819/Mds/2017 stands partly allowed for statistical purposes.

ITA Nos.1694 & 1695/Mds/2017 for the AY 2014-15:

that the only issue was against the action of the Ld.CIT(A) in deleting the

addition made by the AO on account of the circular trading. It was

submitted by the Ld.DR that in the course of the assessment, it was

noticed that the assessee had made substantial purchases from various

parties at Pondicherry. The AO had examined the various sellers and had

drawn a conclusion that the sellers were fictitious and not genuine.

Consequently, the AO held that the transaction with regard to the

purchases made in Pondicherry was not genuine. The AO had estimated

the GP of the assessee by holding that the GP admitted by the assessee

for the AY 2014-15 was far lower than the GP admitted for the AY 2013-

the GP ratio of the assessee’s business, the assessee had made up the

story of Pondicherry purchases and sales. Consequently, the AO

estimated the GP of the assessee and the difference was added as

unearthed profit revealed on account of transactions routed through

Pondicherry purchases on circular trading. It was a submission that

Ld.CIT(A) had deleted the addition by holding that the AO had not

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 11 -:

rejected the books of accounts and consequently, the GP could not be

estimated. It was a submission that the order of the Ld.CIT(A) was liable

to be reversed.

addition on account of the circular purchases on two grounds. In Para

No.9.4.2 & 9.4.3 of his order, the Ld.CIT(A) had pointed out that the

defects in the calculation of the GP which has been made by the AO. It

was against these findings of the Ld.CIT(A), the Revenue is on appeal. It

was a submission that the second reason for deleting the addition was in

Para No.9.4.4 being on the ground that the AO has not rejected the books

of accounts when estimating the GP. It was a submission that the

Revenue has not challenged the findings of the Ld.CIT(A) being in respect

of the non-rejection of the books of accounts. It was a submission that

this finding having not been challenged, the appeal filed by the Revenue

was liable to be dismissed.

the Assessment Order. It is noticed that the AO has made substantial

enquiries behind the back of the assessee and though the show cause

notice has been issued to the assessee, the assessee has filed his reply,

the AO has discarded the replies and the explanations of the assessee

without any substantial proof and on a mere allegation of circular

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 12 -:

transaction made additions. It is noticed that after claiming a circular

transaction instead of making any specific addition, the AO proceeded to

estimate the GP of the assessee in respect of the purchases and sales

made by the assessee in Pondicherry. Admittedly, the books of accounts

of the assessee having not been rejected, in the absence of rejection of

the assessee’s books of accounts, admittedly, no estimation of the GP can

be made. A perusal of the order of the Ld.CIT(A) shows that Ld.CIT(A)

has deleted the additions made by the AO on two grounds, the Revenue

has challenged the Ld.CIT(A) order only on the issue of the deletion made

by the Ld.CIT(A) pointing out the defects in the calculation of the profits in

respect of the Pondicherry transactions. The Revenue has not challenged

the findings of the Ld.CIT(A) in deleting the addition representing the

addition in the GP on account of the non-rejection of the books of

accounts. In these circumstances, as the Ld.CIT(A) has deleted the

addition made by the AO in respect of the alleged circular transaction by

estimating the GP on account of the non-rejection of the books of

accounts, we find no error in the findings of the Ld.CIT(A) and

consequently, we uphold the same. Consequently, the appeals filed by

the Revenue in ITA Nos.1694 & 1695/Mds/2017 stands dismissed.

ITA No.818/Mds/2017 & ITA No.819/Mds/2017 ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 13 -: 20. In the result, the appeals filed by the Revenue in ITA Nos.1694 & 1695/Mds/2017 stands dismissed

Order pronounced in the Open Court on September 26, 2017, at

Chennai. Sd/- Sd/- (अ�ाहम पी. जॉज�) (जॉज" माथन) (ABRAHAM P GEORGE) (GEORGE MATHAN) �या%यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, 1दनांक/Dated: September 26, 2017. TLN

आदेश क, )%त2ल3प अ4े3षत/Copy to: 1. अपीलाथ(/Appellant 4. आयकर आयु5त/CIT 5. 3वभागीय )%त%न�ध/DR 2. )*यथ(/Respondent 3. आयकर आयु5त (अपील)/CIT(A) 6. गाड" फाईल/GF