MH COMMOTRADE PVT. LTD.,KOLKATA vs. ITO, WARD 4(2), KOLKATA, KOLKATA

The assessee is a company. It filed its e- return of income for the impugned A.Y under consideration on 29-09-2012 declaring total NIL income. The AO completed the assessment u/s. 143(3) of the Act determining the total income at Rs.97,45,818/-. He made three additions. These are i) unexplained cash credit of Rs.45,52,319/-

Aggrieved, the assessee carried the matter in appeal before the ld.CIT(A). The first appellate authority upheld the said three additions made by the AO.

Further aggrieved, the assessee is in appeal before us.

After hearing the rival contentions and perusing the papers on record and the orders of the authorities below, we find that ground no. 1 relates to addition of Rs. 55,37,418/- as undisclosed expenditure, ground no. 2 relates to addition of Rs. 45,52,319/- on account of unexplained cash credit and ground no. 3 relates to addition of Rs. 1 lakh made on account of unexplained cash credit.

Ground no. 1 relates to addition of Rs.55,37,418/- made on account of undisclosed expenditure.

During the course of assessment the AO found that the assessee company has booked as ‘Special CVD Receivable’ as on 31- 03-2012. When questioned, the assessee company furnished a document in the form of Bill of Entry for home consumption. The AO found that the assessee made a purchase of smoked rubber sheet from Bangaladesh for the value of Rs.55,37,418/-. This was not recorded as purchases during the year. As the assessee failed to furnish any explanation, the AO made the addition. The ld. CIT-A rejected explanation of the assessee that goods were purchased by way of import and were lying in stock as on 31.03.12. The assessee’s claim that it had made actual payment of custom duty in respect of goods and the same was disclosed as an item of asset as ‘special CVD receivable’ was rejected by the ld. CIT-A.

The ld. Counsel for the assessee submits that said purchases were made on credit from M/s. MH International, Bangladesh and it was based on the purchase contract dt. 11-01-2012, which was a rate contract for a bigger quantity. He submitted that the assessee had not recorded the above purchase in the books of account for the reason that the payment was yet to be made to the foreign seller and the goods were physically were lying in the custody of the local agent of the seller. As the assessee had not received the possession of the goods, nor did it make any payment to the seller, it did not record the same as purchases. It was further submitted that the payment was made on 10-04-2012 and thereafter, the stock was received. It was only on the rejecting that the purchase was reflected in the books of account. He argued that the addition made is bad in law.

We find force in this argument of the assessee. If the payment for the purchases was made on 10-04-2012 through Union Bank and if the goods were not received during the year, the assessee is justified in not including this consignment in the purchase/stock for the AY 2012-13. No addition whatsoever can be made under the head ’undisclosed expenditure’. An addition on undisclosed expenditure u/s. 69C can be made, if the assessee offers no explanation about the source of such expenditure. As the assessee has not paid the amount in question during the impugned FY, the question of explaining the source does not arise. Hence, the question of sustenance of addition U/Sec. 69C of the Act does not arise. Hence, we delete the addition and allow this ground of the assessee. Ground no. 1 is allowed.

Ground no. 2 relates to addition of Rs.45,52,319/- made on account of unexplained cash credit.

During the course of assessment proceedings the AO noticed that there was several cash deposits in the bank accounts of the assessee with two bank accounts ( No.495601010033383 and 1152020200000596 ). The total amount of such deposits was Rs.45,52,319/-. On a query from the AO, the assessee explained that the entire money belongs to MM International. It was explained that money was received by the assessee company on behalf of said MM International and the same was subsequently transferred to MM International by RTGS. As the assessee could not produce any documentary evidence in support of this contention, the AO made the addition. The CIT-A upheld the same.

Before us the assessee submits on the amount of Rs. 45,52,319/- refers to the statements from said bank accounts and explained each transaction by way of remarks in a tabular form. The ld. Counsel of the assessee pointed out that the assessee deposited cash of an amount of Rs.34,02,319/- in the Bank of Baroda and Rs.9,50,000/- in the Union Bank of India totaling to Rs.43,52,319/-. He also explained that these cash deposits were from three sources:-

Before us the assessee also filed documents in support of these claim. On an amount collected on behalf of M/s. MM International of Sovapur, PO Rabindranagar, Sonamura, West Tripura, it was submitted that the management of that organization is closely known to the management of the assessee company and as M/s. MM International found it difficult to recover the dues from customer in Kolkata, a request was made to the assessee to collect the said amounts. The assessee deputed its staff to collect the payment from these various persons and made deposits in its bank accounts and thereafter, remitted the same to M/s. MM International. The assessee filed the following documents in support of the above a) Letter dt. 12-04-2011 from M/s. MM International requesting the assessee company to collect its dues, b) Names & Addresses of the parties from whom cash collection has been made, c) Bills issued by M/s. M.M International with details and d) Details of remittances made by the assessee to M/s. M.M International.

The ld.DR disputes the submissions of the assessee and argues that the above details were not filed before the AO. He relied on the order of the AO as well as the ld. CIT(A) and submitted that the same should be upheld.

We find that the assessee filed the details listed above before the authorities. These documents were not considered at all. Hence, these require verification. In the interest of justice, we set aside this issue to the file of the AO with the direction to exam/verify the said evidences produced by the assessee and thereafter denovo adjudicate the matter in accordance with law. Ground no. 2 of the assessee is allowed for statistical purpose.

Ground no. 3 relates to addition of Rs.1,00,000/- as undisclosed cash credit u/s. 68 of the Act.

The AO found that the assessee has taken unsecured loan of Rs. 11,00,000/- from Sri Kalpataru Chowdhury. On an enquiry, it was revealed that the loan amount was only Rs. 10,00,000/-. The discrepancy of Rs.1,00,000/- was added by the AO. The assessee stated that this advance of Rs. 1 lakh was taken from Mrs. Jyoti Chowdhury on 23-11-2011. She expired on 09-03-2013 and consequently, this amount of Rs. 1 lakh was transferred to account of Sri Kalpataru Chowdhury. It was further submitted that Sri Kalpataru Chowdhury expired on 03-02-2016. Hence, proper explanation could not be provided by him. Affidavit and other evidences were filed from the legal heir [Sri Pritam Chowdhury] of Sri Kalpataru Chowdhury and Jyoti Chowdhury explaining the above transaction. In our view, the addition cannot be sustained for the reason that the credit did not arise during the year. Therefore, we delete this addition. Ground no.3 raised by the assessee is allowed.

Ground no. 4 is consequential in nature, which requires no adjudication. The same is dismissed.

Ground no. 5 is general in nature, which requires no adjudication. The same is also dismissed.

In the result, the appeal of the assessee is allowed in part,