ITO, WD-41(2), KOLKATA, KOLKATA vs. SHRI NARAYAN MAJUMDAR, KOLKATA

2 Shri Narayan Majumdar. A.Yr.2009-10 on the same as they remained unverifiable. The ld AO observed in his order that wherever in the ledger of sundry creditors were settled through bank transactions , the same was accepted as genuine , even though no bills and cash memos were produced. He also chose to ignore the creditors balances less than Rs 1 lakh at the end of the year. He listed out the following parties wherein he held that the identities and their creditworthiness were not established by the assessee :- Ajoy Agarwal = Rs.246532/- Asit Patra = Rs.252000/- Bibek Kumar Sahoo = Rs.345306/- Bikash Gupta = Rs. 33545/- Bikash Sarkar = Rs225896/- Chandan Das = Rs.304620/- Debashis Mukherjee = Rs.304690/- Dinesh Agarwal = Rs.232801/- Dinesh Gupta = Rs.198668/- Kausik Sarkar = R.278540/- Kushal Bhat = Rs.213495/- Mahesh Asara = Rs.145875/- Pawan Gupta = Rs.207393/- P.K.Agarwal = Rs315600/- Ramesh Gupta = Rs.305230/- Ritesh Gupta = Rs274596/- Sanjay Agarwal = Rs.194855/- Sanjay Mishra = Rs.245014/- Sankar Sinha = Rs.306682/- Shaymal Saha = Rs358208/- S.N.Chowdhury = Rs.325475/- Subhash Jaiswal = Rs.345967/- Sudip Paul = Rs.245068/- Sunil Kumar = Rs.305369/- Swapan Burman = Rs.193600/- Swapan Das = Rs.292298/- Tapas Das = Rs.304570/- The ld AO treated the aforesaid sundry creditors to the tune of Rs 70,01,893/- as unverified sundry creditors and added the same to the total income.

3 Shri Narayan Majumdar. A.Yr.2009-10 4. The assessee produced the details before the ld CITA which were subjected to remand proceedings to the ld AO. The remand report dated 29.12.2013 from the ld AO was forwarded to the ld CITA wherein it was reported that the liability towards sundry creditors existed only on papers and would amount to cessation of liability u/s 41(1) of the Act. The assessee submitted his rejoinder to the remand report by way of written submission vide his letter dated 10.2.2014 by stating that the ld AO had simply brushed aside his responsibility of verifying the fact that these sundry creditors were live in view of the fact that the assessee had furnished the ledger accounts of these creditors for three years clearly depicting how the payments were made to these creditors. It was also submitted that the ld AO grossly erred in making addition in the sum of Rs 70,01,893/- when the total purchases made during the year itself was only Rs 43,64,157/-, thereby making addition towards the opening balance of sundry creditors which is not permissible in law.

. From the materials available on record and considering the contentions of the AR of the appellant on the issue, I find that it is an admitted fact as conceded by the AR that some of the creditors are not being paid as indicated in the list for the two AYs 2009-10 & 2010-11 submitted. Now the moot question is with regard to the disallowance to be made against which sundry creditor as per the list. I find that the appellant had sales of Rs. 93,55,378/- on which gross profit was Rs. 22,31,207/- i.e. approximately 24%. The total purchase for the year was Rs.43,64,157/- which the appellant claimed as from the parties who were represented as sundry creditors. Out of the total creditors of Rs.70,04,889/- a sum of Rs.43,64, 157 was on account of addition for this year. The balance creditors were for earlier years. The AO added the entire sundry creditors as they were not found/ proved to be in existence. I find that under the IT Act each assessment year is a separate unit. Thus the items pertaining to a particular year could not be added in another year. Further The provisions of section 41. (1) of the Act could apply only if the appellant writes off the creditor. In this case the appellant did not write off the creditors, hence the said section had no application. I therefore hold that the addition of opening creditors of Rs.26,40,732 3

4 Shri Narayan Majumdar. A.Yr.2009-10 (Rs.70,04,889 – Rs.43,64,157) was not justified and is directed to be deleted. With respect to the balance amount of Rs.43,64, 157, I find that this amount represented the entire purchase of the year. If this amount is disallowed then the gross profit would increase to Rs.65,95,364/- on a turnover of Rs. 93,55,378/- which would be a gross margin of 70.50%. Such margin in the trade of interior decoration is unheard of. Considering the entire facts and circumstances, it can at best be held that the appellant made some manipulations in the purchases. The creditors represented purchases, which if held to be bogus then the sales could not have taken place logically. I therefore hold that there was no justification of adding the entire creditors of Rs. 43,64,157 /- pertaining to the current year. The AO should have added a part of the same for possible saving of VAT and possible inflation of expenses. Under the circumstance, I am of the opinion that disallowance @ 25% of the current year's purchase would meet the ends of justice in this regard. The AO is therefore directed to restrict the addition to 25% of' Rs. 43,64,157/- (which should work out to Rs.,91,039/-. “ 8. In view of the above, the appeal of the appellant is treated as partly allowed.

1.On the facts and under the given circumstances of the case, the ld. CIT(A) has erred in law in restricting the addition of Rs. 70,01,893/- to Rs. 43,64,157/-without any basis and contrary to the materials on record. 2.Ld. CIT(A) ought to have followed the decisions of the higher judiciaries that it is absured to continue with the sundry creditor's value only because the assesse has not written that off. 3.Ld. CIT(A) ought not to have ignored a judicial precedent without citing any decision in contradiction.

4. Ld. CIT (A) ought not to have mingled the source of purchase, which otherwise attracts section 69C with the incidence of purchase

5. That the appellant craves the leaves ,to add, alter, modify, include or delete any ground of appeal.”

7. None appeared on behalf of the revenue when the case was called for hearing and no adjournment petition was preferred by the revenue before us. Hence we proceed to dispose off the appeal after hearing the ld AR. We have heard the ld AR.. We find that the ld CITA had rightly observed that no addition could be made in respect of opening balance of sundry creditors as each assessment year is a separate unit by itself and income of one year cannot be taxed in another year. He has also rightly held that the 4

5 Shri Narayan Majumdar. A.Yr.2009-10 provisions of section 41(1) of the Act cannot be invoked in the instant case as the assessee had not written back the creditors as no longer payable on the ground of cessation of liability. However, it cannot be ignored in the facts and circumstances of the case, that the assessee had proved the genuineness of his purchases beyond doubt. Hence by giving due credence to the gross profit and net profit declared by the assessee vis a vis sales reflected thereon, the ld CITA disallowed 25% of total purchases as not proved and restricted the addition to Rs 10,91,039/- . Against this direction, the assessee had not preferred any appeal before us. In our considered opinion, the action of the ld CITA is justified and reasonable to prevent any abnormal profitability for the assessee in the line of business he is engaged in. Hence we do not find any infirmity in the order of the ld CITA. Accordingly, the grounds raised by the revenue are dismissed.

Order pronounced in the Court on 07.07.2017