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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:
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 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 dated 20.03.2017 for the AY 2014-15.
ITA No.818/Mds/2017 & ITA No.1694/Mds/2017 ITA No.1695/Mds/2017
:- 3 -:
Mrs.Ruby George, CIT, represented on behalf of the Revenue and Mr.B. Ramakrishnan, CA, represented on behalf of the assessee.
As both the appeals are inter-connected and having identical issues, the appeals are disposed of by this common order.
In the assessee’s appeal, the assessee has raised the following grounds:
1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.
2. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the additions of sundry creditors to the tune of Rs.10,21,30,765/- u/s.68 as unexplained credit. 3. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.25,711/- pertaining to Business promotion expenses. 4. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.1,08,644/- pertaining to Travelling allowance. 5. For that the Learned Commissioner erred in confirming the interest under the section 234A with respect to the above disallowance. 6. For that the Learned Commissioner erred in confirming the interest under the section 234B with respect to the above disallowance.
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.
In the Revenue’s appeal, the Revenue has raised the following grounds:
The order of the Commissioner of Income tax (Appeals) is contrary to law and facts of the case.
The learned CIT(A) erred in deleting the addition of Rs.1,97,88,152/- while at the same time accepting the existence of purchases (though not proven with identities) and genuineness of the sales.
ITA No.818/Mds/2017 & ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 4 -:
3. The decision of the CIT(A) is contrary and not acceptable since while sales are genuine but purchase are unproved as observed by the CIT(A), then the entire purchases should be treated as undisclosed investment.
4. The order of the learned CIT(A) is erroneous on account of GP calculation taken by the Ld. CIT (A) at Para 9.4.3, the figures of purchase and sales should not have excluded since CIT (A) has accepted that sales are genuine and goods to sell were actually available, though identities of the parties are not proved. Hence, there is no question of having disproved that AO’s adoption of the GP figure of Rs.1,19,50,710/- for purpose of calculating the new GP, in the circumstances accepted by the CIT (A) as per point (a) above. The AO’s calculation is correct based on the very premise of the Ld. CIT (A) on the availability of goods and the sale of such goods. 5. If disallowance to be considered with regard to only the balances in the creditors account as undisclosed capital as held by the CIT(A), the AO, thus, is free to adopt a higher rate of GP in respect of sales made out of the stocks apparently paid for and hence not appearing as credits. There is no accounting discrepancy in this method as surmised by the Ld. CIT (A) at para 9.4.3 on pages 26-27 of his order. 6. For these and other grounds that may be adduced at the time of hearing, the Order of the Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer restored
It was submitted by the Ld.AR that in the assessee’s appeal Ground 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.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 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.
In reply, Ld.DR submitted that the party has not been produced before the AO even after repeated opportunities having been granted. It
ITA No.818/Mds/2017 & ITA No.1694/Mds/2017 ITA No.1695/Mds/2017 :- 6 -: 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.
We have considered the rival submissions. A perusal of the 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.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.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.
In the result, Ground No.2 in the assessee’s appeal in & 819/Mds/ 2017 stands partly allowed for statistical purposes.
In regard to Ground No.3, it was a submission that the issue was 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.
In reply, Ld.DR submitted that the assessee had not produced any 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.1694/Mds/2017 ITA No.1695/Mds/2017 :- 9 -:
We have considered the rival submissions. A perusal of the 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.
In the result, Ground No.3 of the assessee’s appeal in & 819/2016 stands allowed.
In regard to Ground No.4 of the assessee’s appeal in 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.1694/Mds/2017 ITA No.1695/Mds/2017 :- 10 -:
In the result, the appeals filed by the assessee in & 819/Mds/2017 stands partly allowed for statistical purposes. & 1695/Mds/2017 for the AY 2014-15:
In respect of the Revenue appeal, it was submitted by the Ld.DR 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-
14. The AO took the view that it was only with an intention of reducing 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.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.
In reply, the Ld.AR submitted that the Ld.CIT(A) had deleted the 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.
We have considered the rival submissions. We have also perused 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.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 & 1695/Mds/2017 stands dismissed.
ITA No.818/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