SUKAN AGENCIES PVT. LTD.,MUMBAI vs. ITO 2(3)(2), MUMBAI

1. This appeal has been filed by the assessee against order dated 18/12/2015 passed by Ld. CIT (Appeals)- 6, Mumbai for the assessment year 2012-2013, whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee engaged in the business of trading in diamond wheels filed its return of income declaring the total income as nil. The case was selected for scrutiny and in response to the notice u/s 142(1) of the Act, the assessee filed relevant details as called for by the AO.

During the course of assessment proceedings, it was noticed that the assessee had shown current liability of Rs. 75 crore in its balance sheet. Accordingly, the assessee was asked to furnish details of transaction entered with the concerned parties. The assessee company contended that it had received an order from M/s. D.B. Power Ltd. for supply of cement and steel. Accordingly, the company contacted M/s. Writer & Publishers Pvt. Ltd., and asked to provide the said items, which agreed to supply the same. The assessee company received Rs. 75 crore from M/s. D.B. Power Ltd. The supplier, M/s. Writer & Publishers Pvt. Ltd agreed to supply cement and also offered 1% discount to the assessee company on the sale value. Later on the M/s. D.B. Power Ltd. cancelled its order. M/s. Writer and Publishers Pvt. Ltd. returned said amount to the assessee company and the company further returned the same to M/s. D.B. Power Ltd. The AO did not accept the contention of the assessee and arrived at the conclusion that the assessee might have received a compensation of 75 lakh i.e., 1% of the total amount returned. In appeal, the Ld. CIT (A) confirmed the action of the AO.

Aggrieved by the order of Ld. CIT (Appeals), the assesse preferred this appeal before the Tribunal on the following effective grounds:-

“On the facts and in the circumstances of the case, the Ld. CIT

Before us, the Ld. Counsel for the assessee submitted that the assessee does not want to press ground no. 2 to 6 being connected to the ground no. 1. Accordingly, we dismissed ground no. 2 to 6 as not pressed. As regards the main ground i.e., ground no. 1, the Ld. Counsel submitted that the Ld. CIT (A) has wrongly upheld the findings of the AO. The addition made by the AO is bad in law as the same has been made on the basis of assumption and presumption. Since, the deal could not be finalized, there was no occasion to the assessee for availing 1% discount on the amount received from the party concerned. The Ld. Counsel further submitted that since the impugned order is not based on evidence on record, the same is liable to be set aside.

On the other hand, the Ld. Departmental Representative (DR) relied on the concurrent findings of the authorities below.

We have heard the rival submissions and also gone through the material placed before us. The only issue which requires adjudication in this appeal is whether on the facts and in the circumstances of the case the Ld. CIT (A) has erred in confirming the addition of Rs. 75,00,000/- being 1% of the advance of Rs. 75 crore received from M/s D.B. Power Ltd. for supply of Cement and Steel?

We notice that the AO has made addition of Rs. 75,00,000/- to the income of the assessee treating the same as accrued or received or deemed to have been received for the services rendered to the parties in arranging financial transaction using a colorable device of purchase and sale of steel and cement. As per the details furnished and the documents submitted before the AO during assessment proceedings, the amount of Rs. 75 crores received by the assessee company from M/s D.B. Power Ltd. was transferred to the account of M/s Writer & Publishers Ltd. from whom cement was to be purchased and the said amount was further returned to M/s D.B. Power Ltd. by the assessee on cancellation of the deal. So, it is not the case of the AO that the amount in question was withheld or utilized by the assessee or the same was not returned to M/s D.B. Power Ltd. So far as discount of 1% negotiated between the assessee and M/s Writer & Publishers Ltd. is concerned, from the contents of letter from M/s. Writer and Publishers Pvt. Ltd. it can be conferred that the assessee was entitled for the said discount on the total value of the sale. The relevant portion of the letter reads as under:-

Since, the deal could not be finalized, the assessee company was not entitled to claim the said discount or amount equivalent to 1% of the total 5 Assessment Year: 2012-2013 amount received from M/s D.B. Power Ltd. AO has made the said addition holding as under: “….Hence the undersigned is of the considered view that for the services rendered, the assessee might have received/ may receive a compensation which is not less that 1% of the total amount under consideration.”

In the absence of any evidence to establish that the assessee was entitled to receive the said amount or the assessee has in fact received the said amount, the AO had no jurisdiction to make addition on the basis of assumption and presumptions. AO has based his findings on the ground that the assessee has failed to assign any reason for not deducting 1% discount offered by the company in respect of supply of cement and steel.

Hence, in our considered opinion, the findings of the AO are not based on any evidence. Moreover, the AO has not explained the reason as to why he has rejected the contention of the assessee which is duly corroborated by the documentary evidence. In order to rebut the documentary evidence which corroborates the contention of the assessee, the AO must have brought on record some cogent and convincing evidence. Since, we do not find any cogent reasons for not accepting the contention of the assessee, the addition in question is bad in law and the Ld CIT(A) has wrongly affirmed the assessment order. It is an admitted fact that the deal was ultimately cancelled and the entire amount was remitted to M/s D.B. Power Ltd., therefore, there is no reason to confirm the addition made on the basis of assumption. Hence, we find merit in the contention of the assessee. We, therefore, set aside the impugned order passed by the Ld. CIT(A) and allow the sole ground of the appeal of the assessee. The AO is directed to delete the addition.