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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAVISH SOOD
ORDER PER G.S.PANNU,A.M:
The captioned are four appeals relating to the same assessee pertaining to assessment years 2003-04 and 2004-05 and since they involve certain common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
The Revenue’s appeal and cross objection of the assessee for 2003-04 are being taken as the lead case and they are directed against order passed by CIT(A)-24, Mumbai dated 23/08/2012, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 30/12/2010. The Revenue has raised the following Grounds of appeal:-
“(1) (i)"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 27,21,609/- made by AO holding the sundry creditors as non-genuine. (ii) While doing so, the Ld. CIT(A) has failed to appreciate that despite various opportunities given to the assessee for production of the creditors as they were not available on the given address and hence notices u/s. 133(6) could not be served, the assessee failed to discharge the primary onus cast on it to prove the genuineness of the transaction. (iii) The Id. CIT(A) has erred in holding the transaction as genuine on the ground that these were made through banking channels."
(2) "The appellant prays that the order of the CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored." (3) "The appellant craves leave to amend or alter any ground or add any new ground, if necessary."
2.1 Grounds of Cross Objection raised by the assessee for assessment year 2003-04 read as under:- “The learned CIT(A) has erred in confirming the action of the Ld. Assessing Officer of issuing notice under section. 148 of the Income Tax Act, 1961. Without appreciating the facts of the case the said notice is bad in law and ultra vires the provisions of the Income Tax Act, 1961.”
3 M/s. Aren Chemicals,
Before we proceed to adjudicate the dispute in the appeal of the Revenue, the following background of the case is relevant. The assessee is a partnership firm which is, inter-alia, engaged in the business of trading in chemicals. For the assessment year 2003-04, it filed a return of income on 27/11/2003 declaring total income of Rs.1,75,157/-, which was processed under section 143(1) of the Act on 16/03/2004. Meanwhile, the assessment for assessment year 2005-06 was completed by the Assessing Officer under section 143(3) of the Act on 31/12/2007 whereby, the total income was determined at Rs.80,84,380/- as against the returned income of Rs.7,730/-. While completing this assessment, the Assessing Officer made additions on account of sundry creditors amounting to Rs.80,76,649/-, treating the same as unexplained. Subsequently, the CIT(A), Central -2, Mumbai vide order dated 28/08/2009 deleted the additions and in doing so observed that the sundry creditors in question were old and the relevant purchases were made in earlier assessment years of 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. On the said basis the CIT(A) proceeded to hold that the Assessing Officer was wrong in making the addition, which was in fact old and brought forward balances, which did not pertain to the assessment year 2005-06. Based on the said order of the CIT(A) for assessment year 2005-06, the Assessing Officer recorded reasons and reopened the assessment for assessment year 2003-04 and issued notice under section 148 of the Act on 26/10/2009. As a consequence of the issuance of notice under section 148 of the Act dated 26/10/2009, the impugned assessment has been finalized by the Assessing Officer under section 143(3) r.w.s. 147 of the Act dated 30/12/2010. In the impugned assessment order the Assessing Officer states
4 M/s. Aren Chemicals, that notices under section 133(6) of the Act were issued to six parties for the verification of the transactions done with the assessee and all the parties except M/s. S.K.Trading Co. and M/s. Swagat Trading Co., confirmed the transactions with the assessee firm. In the context of M/s. S.K.Trading and M/s. Swagat Trading Co., the Assessing Officer has referred to the report of the Inspector pointing out that the notices under section 133(6) of the Act could not be served as the proprietor of the two concerns, Shri Sunilkumar D. Choudhary was not traceable on the address given by the assessee. The Assessing Officer has also stated in the assessment order that local enquiries made by the Inspector reveal that the said Shri Sunilkumar D. Choudhary has sold the premises and shifted somewhere else. The Assessing Officer has also observed that the Inspector visited another address of M/s. Swagat Trading co. but could not locate the concern. On being confronted with the aforesaid, assessee submitted that the purchases were effected from the two concerns through brokers and that the two concerns had left the premises, as appearing in the confirmation letters. The assessee also filed an affidavit before the Assessing Officer pointing out that the cheques issued to M/s. S.K. Trading Co. and M/s. Swagat Trading Co. were reflected in the bank account as well as books of account maintained by the assessee, which proved the genuineness of the purchases effected from the said two concerns. The Assessing Officer however, did not accept the stand of the assessee and he proceeded to treat the creditors standing in the books of account of the assessee in respect of M/s. S.K.Trading Co.– Rs.3,64,061/- and M/s. Swagat Trading co. – Rs.23,67,548/- as not genuine on the ground that the assessee had neither furnished confirmations from the two concerns and nor could produce the two concerns for verification despite
5 M/s. Aren Chemicals, affording opportunity. Accordingly, an addition of Rs.27,31,609/- was made to the returned income. The said addition was carried in appeal before the CIT(A). Before the CIT(A), assessee challenged the assessment on law and also on facts. On the issue of the validity of the proceedings initiated under section. 147/148 of the Act, the plea of the assessee was that the same was bad in law and that the reopening was not based on any evidence. The CIT(A) disagreed with the assessee on the validity of the proceedings initiated under section 147/148 of the Act . However, on facts, the CIT(A) has deleted the addition of Rs.27,21,609/- made to the returned income. The Revenue is in appeal assailing the decision of the CIT(A) in deleting the addition, whereas assessee has preferred a cross objection challenging the validity of the notice issued under section. 148 of the Act dated 26/10/2009 reopening the assessment.
At the time of hearing, the Ld. Departmental Representative primarily reiterated the stand of the Assessing Officer which we have already noted in the earlier paras and is not being repeated for the sake of brevity.
On the other hand, Ld. Representative for the assessee has relied upon the order of the CIT(A) in support of the case of the assessee. It is further canvassed that the order of the CIT(A) dated 28/08/2009 for assessment year 2005-06 has become final as no appeal against it has been preferred by the Department. It has further been pointed out that in the course of appellate proceedings in assessment year 2005-06, the CIT(A) had called for a remand report from the Assessing Officer and in the course of such remand proceedings assessee had duly furnished the confirmation of Shri Sunil Kumar Choudhary. In this context, our attention has also been invited to pages 40 to 47 of the Paper Book, wherein the confirmation from 6 M/s. Aren Chemicals, the two concerns have been placed alongwith the submissions of the assessee addressed to the CIT(A) and to the Assessing Officer during the remand proceedings. The Ld. Representative for the assessee emphasized that the aforesaid evidence had formed the basis for the CIT(A) in assessment year 2005-06 to accept the genuineness of the sundry creditors and such a decision has attained finality as no appeal against it had been filed by the Department. It was, therefore, contended that even in the instant assessment year the findings of the CIT(A), which are consistent with the findings of the assessment year 2005-06 and cannot be assailed.
We have carefully considered the rival submissions. As the relevant discussion in the assessment order reveals the only reason prevailing with the Assessing Officer to treat the purchases stated to have been effected by the assessee from two concerns, namely M/s. S.K.Trading co. and M/s. Swagat Trading co. as non-genuine was the non-furnishing of confirmations and the non-production of the said parties for verification despite affording opportunity to the assessee. It is quite clear that the payments for the purchases have been effected through banking channels but as per the Assessing Officer the same is not enough to prove the genuineness of the transactions. It is noticeable from the discussion in the orders of the authorities below that assessee had explained that the proprietor of the two concerns in question had left the premises, the address of which was appearing in the confirmation letter and, therefore, the notices issued by the Assessing Officer under section 133(6) of the Act could not be served; it is also seen that assessee had explained during the impugned assessment proceedings that chemicals were purchased from both the concerns, which 7 M/s. Aren Chemicals, were resold to various retail customers. In support, assessee had furnished the summary of purchases and sales effected in quantitative terms in order to substantiate the genuineness of the purchases effected from the two concerns. The relevant discussion in the orders of the authorities below clearly suggest that the Assessing Officer has not found any infirmity in the aforesaid assertions of the assessee but merely relied upon his enquiries, wherein the two concerns were not found at the stated addresses in order to treat the concerns as bogus. In this background, the CIT(A) noticed that the report of the Inspector was a proof itself to suggest that the two concerns did exist at the given addresses at the relevant point of time, but were not operating from the same address when enquiries were conducted by the Assessing Officer. The CIT(A) took note of the fact that the transactions in question relate to the financial year 2002-03, whereas the enquiries regarding the existence of sundry creditors was conducted by the Assessing Officer in 2010 i.e. after a period of 6 to 7 years. Under these circumstances, in our view, it would be improper to insist upon the assessee to produce the creditors for verification as they are not in the control of the assessee. The assessee had pointed out at the time of the verification exercise that the whereabouts of the creditors were not known to him, and that there were no dealings with the creditors during the period of the verification exercise. Be that as it may, it is quite clear that the evidence and the material sought to be furnished by the assessee has been brushed aside, and it has not found to be false; therefore, under these circumstances, the Assessing Officer was not justified in treating the concerns as bogus, merely noticing their absence from the stated addresses, ostensibly at the time of an exercise, which carried on a much later date than the transaction dates.
8 M/s. Aren Chemicals, 6.1 In para 3.3.4 of his order the CIT(A) has made the following observations:- “3.3.4 I also find that the Assessing Officer made addition of Rs.23,67,548/- on account of sundry creditors in the name of Swagat Trading Co. and addition of Rs.3,64,061/- on account sundry creditors in the name of S.K.Trading Co. Perusal of the document on record however show that the above amounts against these concerns were the credit balances as on 31/03/2005 and not as on 31/03/2003. The balance sheet of the assessee as on 31/03/2003 shows credit balance of Rs.94,00,678.50 against S.K.Trading Co. and credit balance of Rs.81,76,293/- against Swagat Trading Co. Hence, the addition of Rs.23,67,548/- and Rs.3,64,061/- on account of sundry creditors cannot be sustained since the Assessing Officer cannot hold part of the sundry creditors as genuine and other part as bogus.”
6.2 The aforesaid observations, which have not been controverted by Revenue before us, also clearly suggest an inconsistency in the approach of the Assessing Officer, which has been rightly negated by the CIT(A). Apart therefrom, we also notice that the CIT(A) has referred to the judgment of the Hon'ble Calcutta High Court in the case of Diagnostics vs. CIT (2011) 56 DTR 317 (Cal) in coming to delete the addition. The relevant discussion is reproduced hereafter as under:-
“3.3.5 Once sale is credited in the P&L Account, purchases cannot be doubted for the mere fact that the creditors for purchases did not respond to the summons under section 131for that the creditors could not be located at the last known address after efflux of time. If the creditors changed their address or discontinued the business, the assessee could not be expected to provide the current address, as it may not be having any dealing with said party now. The factum of genuineness of any expenditure is not confined to the production of the parties in person only. If the payments is supported by bills and made through banking channels and the sale of goods so purchased is not in dispute, the onus of appellant is discharged and it is for the AO to prove that the expenditure was not genuine or that the sundry creditor was bogus. In the case of Diagnostics vs. CIT (2011) 56 DTR 317(Cal), where the assessee purchased materials for its business by way of account payee cheque from third party and, subsequently, the parties did not appear before the assessing authorities as they had discontinued their business, the Hon'ble High Court held that assessee’s claim of genuine business
9 M/s. Aren Chemicals, expenditure could not be disallowed on account of their non existence after three of transactions. The Hon’ble High Court, in the facts of the said case, held as follows:- ''However, the transactions having taken place through account payee cheques, the contention of the Advocate appearing for the Revenue that the transaction was a non-existent one cannot be accepted. If an assessee took care to purchase materials for his business by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the AO pursuant to the notice or even has stopped business, the claim of the assessee on that account cannot be discarded as non-existent. The Revenue has not put forward any other ground, such as, it was not a genuine transaction for other reasons but has simply rejected the claim on the ground as if there was no such transaction. The transaction having taken place through payment by account payee cheques, such plea is not tenable and in such circumstances, the Tribunal erred in law in reversing the finding arrived at by the CIT(A) accepting the said transaction as a genuine transaction.”
6.3 Considering the entirety of facts and circumstances and the order of the CIT(A), which is eloquent and based on appropriate legal proposition, we find that there was inadequacy of material with the Assessing Officer to treat the impugned sundry creditors as unexplained. Therefore, we hereby affirm the order of the CIT(A) and accordingly Revenue fails in its appeal.
Since we have already dismissed the appeal of the Revenue, the issue raised by the assessee in its cross objection against validity of the notice issued under section 148 of the Act is rendered academic and is not being adjudicated for the present. Resultantly, for assessment year 2003-04, whereas the appeal of the Revenue dismissed, the cross objection of the assessee is also dismissed as infructuous.
Insofar as Revenue’s appeal in C.O No.61/Mum/2014 for assessment year
10 M/s. Aren Chemicals, 2004-05 are concerned, it was a common ground between the parties that the facts and circumstances in the said appeals are pari materia to those considered by us in & C.O No.60/Mum/2014, for assessment year 2003-04; therefore, our decision therein shall apply mutatis mutandis to this appeal and cross objection for assessment year 2004-05 also.