ACIT, CIRCLE-4, JAIPUR, JAIPUR vs. D B DISTRIBUTORS, JAIPUR

Per Dr. M. L. Meena, AM:

The captioned appeal has been filed by the Revenue against the

order of the ld.CIT(A) National Faceless Appeal Centre (NFAC), Delhi dated 26.10.2023 in respect of Assessment Year: 2018-19 arising out of

2 ITA No. 808/JPR/2023 ACIT v. DB Distributors

the assessment order passed u/s 143(3) r.w.s. 143(3A) and 143(3B) of the

Income Tax Act, 1961 dated 05.04.2021.

“1. Whether on the facts and in the circumstances of the case and in law the Id. CIT(A) is justified ignoring the fact that the assessee has failed to justify and verify documentary evidence to adduce his claim regarding gross sales even after availing numerous opportunities and deleting the addition made by the AO on account of difference in sales accounted of Rs. 46,88,57,357/-. 2. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) is justified in ignoring the fact that the assessee failed to prove the genuineness of unsecured loans in respect of 12 parties amounting to Rs.74 ,11,000/ from the creditors even after the lapse of considerable time and deleting the addition made u/s 68 of the Act amounting to Rs. 74,11,000/-.

Gillette India Ltd. in the state of Rajasthan, having 28 branches all over

State. The AO noted that the gross sales recorded in the sales of

Rajasthan and those credited to the profit & loss account were not

matching and found difference between the figures of Rs.46,88,57,357/-.

The Assessing Officer being not satisfied with the explanation of the

appellant assessee regarding the aforesaid difference made addition of the

said amount to the return income beside addition of Rs.74,11,000/- u/s 68

of the Act by treating the loan received from 12 parties as unexplained.

3 ITA No. 808/JPR/2023 ACIT v. DB Distributors

has granted relief to the assessee by observing as under:

“4.2 I have carefully examined the contentions of the Assessing Officer, made in the assessment order and the appellant's submissions. The appellant contends that the difference in the sales is on account of the following: a. Sales return of all branches b. GST and VAT amounts included in the sales. C. Branch transfers to Head office. 4.3 The reconciliation statement submitted by the appellant as reproduced above has been furnished to the Assessing Officer as well, vide the response filed by the assessee to the show cause notice with draft assessment order issued by the Assessing Officer. Though the appellant has explained the difference, the Assessing Officer has stated in the page 04 of his order, that no documentary evidence to substantiate the difference in sales have been furnished. In this connection, the relevant portion of the assessment order is reproduced as under:

"In support of this claim, the assessee vide its reply dated 18.03.2021 merely submitted an arithmetical calculation along with annexures which contained statements only. However, the assessee failed to furnish any verifiabledocumentary evidence/proof to substantiate its claim that there is no difference in the sales as per the audited financial statements and the sales register."

4.4 The appellant has stated that the difference in sales were due to the reast is viz. sales return, GST VAT component in the sales and branch transfers. The appellant has furnished copies of all the ledgers before the Assessing Office as well as the undersigned. I have examined the detailed reconciliation statement filed by the appellant. In respect of the sales return, the appellant has furnished the details of the branch wise sales return as below: -----------------------------------.

4 ITA No. 808/JPR/2023 ACIT v. DB Distributors

4.5 Further, the appellant has also shown the ledger of all sales return in respect of each of these branches. The sales return is separately accounted in a separate ledger. The sales register which is examined by the Assessing Officer contains my the details of gross sales made. When it comes to computing the net sales, appellant contends that the sales returns are to be reduced therefrom. Accordingly there would be a difference to this extent between the figures of gross sale S shown in the sales register and that shown in the P & L A/c. 4.6 In respect of GST and VAT component in sales, the appellant has stated that the company was following an exclusion method of accounting GST forming part of purchases and sales. In such method of accounting, the tax component in purchases and sales are separately accounted and do not enter the P & L account. However, the gross sales and gross purchases which includes the GST components are adjusted by reducing the GST component therefrom before transferring them to P & L account. In this connection, the appellant submitted branch wise details of GST and VAT collected as part of sales. Such amounts are reduced from the gross sales before taking to the P & L account. The branch wise details of GST furnished by the appellant is reproduced below:

4.7. In addition to the above, the appellant also furnished copies of the ledger account of the GST and VAT for each of the branches.

4.8 In respect of the branch transfers, the appellant explained that the goods transferred by the Head office to the branches are accounted as sales in the sales register. Whereas they are not actually sold to customers, such branch transfers are included in the gross sales in the sales register and therefore, they are to be reduced from the gross sales before taking to the P & L account. The appellant furnished branch wise details of the stock transfers to the head office as below.

5 ITA No. 808/JPR/2023 ACIT v. DB Distributors In addition to this, the appellant has also furnished copies of ledger accounts of the goods transfer out in respect of each of these branches. 4.9. After examining all the details furnished by the appellant and the method of accounts followed, I find that the addition made by the Assessing Officer is devoid of merits. The gross sales shown in the Sales register must be adjusted with the items explained by the appellant as above to match it with the sales figure shown in the P&L A/c. The appellant has duly filed a reconciliation statement showing the reasons for such differences and explained them with documentary evidence. Though these details have been furnished by the appellant during the assessment proceedings, the Assessing Officer has not examined them and concluded the assessment making the additions in a haste. In the above circumstances, the addition made on this issue is directed to be deleted. The ground no's 01 and 02 are accordingly allowed.

justified in deleting the addition regarding difference in sales amounting to

Rs.46,88,57,357/-by ignoring the facts that the assessee failed to justify its

claim regarding gross sales with documentary evidences even after

availing numeral opportunities.

the proper books of account and when he was asked to re-concile the sale

to that of the cash deposits and the profit and loss account, the assessee

furnished the ledger and register which reflected the huge variation in gross

sales which was not admitted earlier before the Assessment Order para

5.2. Although, the DR had admitted that the appellant has submitted the

6 ITA No. 808/JPR/2023 ACIT v. DB Distributors arithmetical calculation along with his annexures vide its reply dated

18.03.2021 which contains statement only but it requires support of

verifiable documentary evidences to substantiate its claim that there was

no difference in the sales as per the audited financial statement and the

sales register. Accordingly, he pleaded that the addition made by the AO may be sustained.

submission made before the ld. CIT(A). He further submitted that the AO

has compared the sales as mentioned in the sales register to the sales as

reported in the audit financial statement. He argued that in the sales registers, the gross sales made by each branch are recorded where in the

financial statement net sales after excluding VAT/GST, sales return,

discount, stock itself to Head Office from branches etc. recorded vide the

assessee reply dated 18.03.2021 (APB pg. 13 to 15) in order to reconcile

the gross sales as per the audit financial statement and sales register.

Considering all these facts there is no difference between the sales as per the audit financial statement and the sales register as rightly observed by

the ld. CIT(A). The ld. Counsel has also submitted that the reconciliation

statement of the sales as per the sales register viz~a~viz audited accounts

alongwith the supporting details in tabular form before the ld. CIT(A) and

7 ITA No. 808/JPR/2023 ACIT v. DB Distributors before us. He pleaded that the ld. CIT(A) has given a well-reasoned finding

after verification while deleting addition. It is noted that the appellant

assessee company was following an exclusive method of accounting for

GST forming part of the purchases and sales. As such a method of

accounting, the tax components in purchases or sales are separately accounted and do not enter the profit and loss account. Accordingly, the ld.

AR explained that the gross sales and gross purchases which include the

GST component are adjusted by reducing the GST component there from

before transferring them to profit and loss account. Thus, the GSTs and

VAT amount collected as part of sales are reduced from the gross sales by

the appellant. He pleaded that the impugned order may be upheld.

and the impugned order. It is seen that the appellant has furnished the

detailed reconciliation financial statement regarding the sales as per the

sales register and the sales as per the audit accounts with the supporting

details in tabular form before the authorities below. It is also noted that the appellant assessee has explained the difference before the ld. CIT(A) with

the documentary evidence to substantiate the disputed difference in sales.

We find that the ld. CIT(A) after examining all the details furnished by the

appellant and the method of accounting has observed that the addition may

8 ITA No. 808/JPR/2023 ACIT v. DB Distributors be made by the AO was devoid of merits as the gross sales shows in these

sales register would have to be adjusted against the sales of the branches

as explained by the appellant while matching the sales figures shown in the

profit and loss account . It is further seen that the appellant has filed a

reconciliation statement mentioning the reason for the difference in sales

as pointed out by the Assessing Officer and explained the same with

documentary evidence.

appellant during the assessment proceedings, however, the AO has failed

to examine the same and completed the assessment with the addition in

arbitrary manner without application of mind which is rightly deleted by the

Ld. CIT(A) on due verification of the reconciliation financial statement

regarding the sales as per the sales register and the sales as per the audit

accounts with the supporting detailed evidence furnished before him. In

view of that matter, we find no infirmity or perversity in the decision of the

ld. CIT(A) to the facts on the record. Accordingly, the decision of Ld. CIT(A)

in deleting the addition made by on the issue of difference in sales is

upheld. Thus, ground no. 1 of the Revenue is rejected.

9 ITA No. 808/JPR/2023 ACIT v. DB Distributors

addition of Rs.74,11,000/- made u/s 68 of the Act by the Assessing Officer.

from 17 parties where no confirmation letter or document to prove the

genuineness of unsecured loan have been received from the creditors as

well as from the appellant. He was being not satisfied with the reply of the

assessee, made an addition of Rs.74,11,000/- to the return of income of

the assessee u/s 68 of the Act. The ld. CIT(A) has deleted the addition by

observing as vide para 5.4 to 5.6 as under:

“5.4 The appellant has also stated that the above details have already been filed before the Assessing Officer. As per the Provision of section 68 of the Act, the Assessing Officer has got the powers to deem any sum found credited in the books of accounts for which no explanation about the nature and source thereof is offered or the explanation offered was found not satisfactory. The explanation to be offered by the assessee in respect of the source and nature of the amount credited would be on the three below aspects: 1. Identity of the creditor. 2. Creditworthiness of the creditors. 3. Genuineness of the transactions. 5.5 The burden of proof in respect of proving the above three aspects rests on the assessee. However, this is not a permanent burden, but the onus shifts on to the revenue, when the prima facie details with regard to above three aspects are shown by the assessee. In the case of Orissa Corpn P Ltd Vs CIT [1986] 25 Taxman 80F (SC), 159 ITR 78, it was held that the onus is on the Revenue to show that the creditors lacked credit worthiness when the assessee proves the identity of such creditors and provides their PAN numbers. The relevant portion of the said decision is reproduced hereunder.

10 ITA No. 808/JPR/2023 ACIT v. DB Distributors

"The assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assesses. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 5.6 In the case on hand, the appellant has provided copies of confirmation letter given by the unsecured lenders, copy of their ITR along with PANs and copies of their bank statements for the relevant period. These are enough material to conclude that the appellant had discharged his onus to prove the identity, creditworthiness and genuineness of the transaction. All these documents have been furnished by the appellant before the Assessing Officer. When such documents have been furnished, the onus of proof shifts on to the Assessing Officer to disprove the documents furnished. The Assessing Officer cannot brush aside the documents furnished to draw an adverse inference u/s 68 of the Act. The Assessing Officer has not pointed any defects in the details and documents submitted by the appellant. Whereas the Assessing Officer states in the order that confirmation letters from the creditors have not been received or produced, the appellant submits that all such confirmation letter along with copies of ITR's and bank statements have been furnished to the Assessing Officer. The appellant has also furnished a copy of submission made before the Assessing Officer dated 18-03-2021 wherein and in annexures thereto, the details including confirmation letters, Income Tax Returns and bank statements have been furnished by the assessee. The Assessing Officer has disregarded these details filed before him and made an addition u/s 68 of the Act. The appellant has furnished copies of all these details viz, confirmation letter from loan creditors, there ITRs and bank statement before the undersigned as well. Under these circumstances, the appellant has discharged its onus of proving the nature and sources of the credits. If any addition has to be made u/s 68 of the Act, the onus was on the Assessing Officer to disprove the documents filed by the appellant before him. Instead, he has only disregarded them by brushing them aside. In the

11 ITA No. 808/JPR/2023 ACIT v. DB Distributors given facts and circumstances, there is no merit in the addition made u/s 68 of the Act. The appellant succeeds on ground no's 03 and 04.

justified in deleting the addition of Rs.74,11,000/- by ignoring the fact that

the assessee failed to prove the genuineness of unsecured loans in respect

of 12 creditors even after lapse of considerable time. The ld. DR has

pleaded that the addition may be sustained or may be remanded back to

the AO.

of Rs.74,11,000/- being received from the 12 parties are fully verifiable from

the necessary documentary evidence furnished before the AO during the

course of assessment proceedings vide its letter dated 30.01.2021,

20.02.2021 and 18.03.2021. He argued that the observation of the AO that

the assessee has not furnished the evidence in support of the loan is

factually incorrect as rightly observed by the ld. CIT(A). The counsel further

argued that the appellant has provided a copy of confirmation letter of the

creditors, copy of ITR’s along with the PAN number, copies of their bank

statement for the relevant period and thus, it was enough material to

conclude that the appellant has discharged its onus to prove identity,

creditworthiness, and genuineness of transaction. The ld. CIT(A) has been

12 ITA No. 808/JPR/2023 ACIT v. DB Distributors justified in accepting the explanation of the assessee that by furnishing the

aforesaid documents, the onus of the proof gets shift on to the AO to

disprove the documents furnished and the AO cannot brush aside the

documents furnished to draw adverse interference u/s 68 of the Act. He

pleaded that the decision of the ld. CIT(A) in deleting the addition made u/s 68 may be sustained.

record, we find that the appellant assessee has furnished copies of

confirmation letter given by the unsecured creditors, copy of their ITR along

with PANs and their bank statements for the relevant period. In our view, these are enough material to conclude that the appellant had discharged

his onus to prove the identity, creditworthiness, and genuineness of the

transaction. Since, all these documents have been furnished by the

appellant before the AO and hence, the onus of proof shifts on to the AO to

disprove the documents furnished which remained unrebutted by the Ld.

DR. The AO, being a quasi-judicial authority cannot brush aside the documents furnished to draw an adverse inference u/s 68 of the Act without

pointing out any defects in the details and documents submitted by the

appellant. In fact, the appellant has also furnished a copy of the submission

made before the Assessing Officer dated 18-03-2021 and annexures

13 ITA No. 808/JPR/2023 ACIT v. DB Distributors thereto, including confirmation letters, Income Tax Returns and bank

statements have been furnished by the assessee.

in the impugned order to the facts on record. There is no merit in the addition made u/s 68 of the Act and the contention of the department.

Accordingly, the CIT(A) order deleting the addition on the issue of creditors u/s 68 is upheld. Thus, the 2nd ground of the revenue is rejected.

Order pronounced in the open court on 05.03.2024

(Sandeep Gosain) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr.PS* Copy of the order forwarded to: (1)The Appellant: (2) The Respondent: (3) The ld. CIT (4) The ld. CIT(A) (5) The DR, I.T.A.T., Jaipur (6) Guard File By Order,

Asstt. Registrar