P.SENTHIL KUMAR,CHENNAI vs. ITO, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the appeals of the assessee are directed against the

respective orders of the Commissioner of Income Tax (Appeals) -4,

Chennai, dated 10.02.2016, for the assessment year 2011-12.

While I.T.A. No.1222/Mds/2016 is directed against the order of the

CIT(Appeals) confirming the penalty levied by the Assessing Officer

2 I.T.A. Nos.1222 & 1223/Mds/16

under Section 271B of the Income-tax Act, 1961 (in short 'the Act'),

I.T.A. No.1223/Mds/2016 is directed against the order of the CIT(Appeals) against the quantum addition.

Let us first take I.T.A. No.1223/Mds/2016

proprietorship concern in the name and style of Sri Meenakshi Granites. During the year under consideration, the assessee claimed before the Assessing Officer that he exported 1996 cu.m. of granite blocks for a total consideration of `8,56,06,950/-. The

assessee further claimed that the cost of the granites exported is `7,15,63,966/-. The assessee further claimed that the granites

were purchased for export from M/s Supreme Granites and Exports,

M/s Tirupathi Enterprises, M/s Rajham Impex, M/s Shri Bakia Trading Agency, M/s Granite Exports (P.) Ltd., M/s Maruthi Exports, M/s Madhucon Granites Ltd., M/s Guru Bhagavan Exports, M/s

Murugan Enterprises, M/s Hariharaa Enterprises and M/s Shri Anusha Enterprises. The export of granites to the extent of 1996 cu.m. is not in dispute. What is disputed by the Assessing Officer is

3 I.T.A. Nos.1222 & 1223/Mds/16

purchase of granites from M/s Rajham Impex and M/s Shri Bakia

Trading Agency. According to the Ld. counsel, the Assessing Officer doubted the purchase from M/s Rajham Impex and M/s Shri Bakia Trading Agency on the ground that the credit was outstanding

for longer duration. Moreover, the vendor raised a single bill for sale of granites to the assessee.

assessee further submitted that the Assessing Officer made enquiries through his counterpart at Madurai and Trichy. The Assessing Officer found that M/s Rajham Impex and M/s Shri Bakia

Trading Agency are not in existence. According to the Ld. counsel, when this was put before the assessee during examination under Section 131 of the Income-tax Act, 1961 (in short 'the Act'), the

assessee explained that M/s Rajham Impex and M/s Shri Bakia Trading Agency are very much in existence. The assessee has also produced copies of sales tax registration and bill for

transportation of granites before the officer who examined him under Section 131 of the Act. The Assessing Officer, according to the Ld. counsel, ignored the material filed by the assessee and simply proceeded to disallow the claim of the assessee on the

4 I.T.A. Nos.1222 & 1223/Mds/16

ground that M/s Rajham Impex and M/s Shri Bakia Trading Agency

are not in existence.

accepted that the assessee has exported granites. Unless and until the assessee purchased granites, either from M/s Rajham Impex or M/s Shri Bakia Trading Agency or from somebody else, the

assessee could not have exported 1996 cu.m. of granite blocks. Therefore, according to the Ld. counsel, when the Assessing Officer himself accepted the export of granites, he has no reason to doubt

the purchases. The Assessing Officer simply disbelieving the case of the assessee on the ground that bills were outstanding for longer time and the supplier has raised a single bill. According to the Ld.

counsel, it is customary in this line of business, to sell the granites on credit for longer time. It is also customary to raise single bill when the assessee purchased large quantity of granites for export.

Referring to the paper-book filed by the assessee, the Ld.counsel submitted that this bill discloses the address of M/s Rajham Impex and M/s Shri Bakia Trading Agency with the sales tax registration, etc. The assessee has also filed copies of the shipping bill for

5 I.T.A. Nos.1222 & 1223/Mds/16

export before the Assessing Officer and the copies of the same are

available at pages 4 and 5 of the paper-book. M/s Shri Bakia

Trading Agency confirmed the outstanding amount as on

31.03.2012. A copy of this confirmation letter is available at page 6

of the paper-book.

the assessee submitted that these are all details of sales tax

registration by Shri Bakia Trading Agency. It contains the PAN and

other details. A copy of the bank statement available at pages 9

and 10 of the paper-book shows that the payments were made

through banking channels. Referring to page 17 of the paper-book,

the Ld.counsel submitted that the M/s Rajham Impex has confirmed

the outstanding amount as on 31.03.2011. The sales tax

registration details of Rajham Impex are available at page 20 of the

paper-book. According to the Ld. counsel, these details were filed

by the assessee before the income-tax authorities during

examination under Section 131 of the Act. The Assessing Officer

conveniently omitted this and placed his reliance on the report said

to be filed by his counterpart at Madurai and Trichy.

6 I.T.A. Nos.1222 & 1223/Mds/16

for the assessee submitted that the Assessing Officer himself found that the assessee has paid cash to those parties including M/s Rajham Impex and M/s Shri Bakia Trading Agency and disallowed

the claim of the assessee under Section 40A(3) of the Act. This contradictory stand of the Assessing Officer that the assessee has paid cash to M/s Rajham Impex and M/s Shri Bakia Trading Agency

shows that the Assessing Officer himself admits that the transaction was genuine and the assessee has purchased granites from these two entities. Referring to the copies of the statement recorded from assessee under Section 131 of the Act, a copy of this is available at

annexure to the assessment order, the Ld.counsel submitted that when the vendors M/s Rajham Impex and M/s Shri Bakia Trading Agency insisted for cash payment, the same was withdrawn from

bank and paid to them directly. Referring to Rule 6DD of Income- tax Rules, 1962, the Ld.counsel submitted that when the vendors insisted for payment of cash, admittedly the provisions of Section

14A is not applicable at all. In fact, the assessee has issued self cheque, which was used for withdrawing the money for cash payment. According to the Ld. counsel, these facts were not

considered by the Assessing Officer or the CIT(Appeals) during the

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course of assessment proceeding and appellate proceeding even

though the same were available with them. The Ld.counsel placed his reliance on the judgment of Gujarat High Court in CIT v. Nangalia Fabrics Pvt. Ltd. 2013 (8) TMI 80, copy of which is filed by

the assessee.

exported 1996 cu.m. of granite blocks. The Assessing Officer, as rightly submitted by the Ld.counsel for the assessee, admitted in the assessment order that the assessee has exported. The dispute is

with regard to purchase of granites from M/s Rajham Impex and M/s Shri Bakia Trading Agency. In fact, the Assessing Officer made enquiries through his counterparts at Madurai and Trichy. They

have reported that there is no such business entity in the given address. The copy of the report filed by the Assistant Director of Income Tax (Inv.), Madurai is annexed as Annexure-F to the

assessment order. Therefore, the Assessing Officer found that M/s Rajham Impex and M/s Shri Bakia Trading Agency are not in existence. Hence, according to the Ld. D.R., the assessee could not have purchased granites from these two business entities. The

8 I.T.A. Nos.1222 & 1223/Mds/16

Assessing Officer has also found that such a huge amount exceeding more than `1 Crore could not have been outstanding for

such a longer time, therefore, the transaction was not genuine.

Even though the assessee has filed confirmation letter from respective business entities, the Assessing Officer found that there cannot be any such practice in the business to allow outstanding

amount remain for such a longer period. Moreover, single bills were raised for such a huge amount. These facts, according to the Ld. D.R., created doubt to the Assessing Officer that the assessee

would not have purchased granites from these two business entities. Furthermore, the assessee claimed that the payments were paid initially by cash, therefore, the provisions of Section

40A(3) of the Act would come into operation. Hence, according to the Ld. D.R., the Assessing Officer disallowed the claim of the assessee not only doubting the transaction but also under Section 40A(3) of the Act.

whether the cost of purchase was borne by the assessee or not. The material available on record does not support purchase of

9 I.T.A. Nos.1222 & 1223/Mds/16

granites from M/s Rajham Impex and M/s Shri Bakia Trading

Agency. The bills raised by the assessee are bogus. Since the assessee has purchased granites for export through bogus entities, the Assessing Officer found that the provisions of Section 40A(3) of

the Act is also applicable for disallowing the payment for purchase of granites. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.

export of granites to the extent of 1996 cu.m. is not in dispute. The Assessing Officer is disputing the purchase of granites from two business entities, namely, M/s Rajham Impex and M/s Shri Bakia

Trading Agency. On the basis of the enquiries conducted at Madurai and Trichy, the Revenue authorities examined the assessee under Section 131 of the Act. The copies of the

statement recorded from the assessee under Section 131 of the Act forms part of assessment order as Annexure-J. In response to question No.14, the assessee explained that M/s Rajham Impex and M/s Shri Bakia Trading Agency were very much existing at the

10 I.T.A. Nos.1222 & 1223/Mds/16

time of purchase of granites. To prove the existence, the assessee

has filed copies of registration of sales tax and bills issued by them

including the confirmation letters. For the purpose of convenience,

we are reproducing the question asked to the assessee as question

No.14 under Section 131 of the Act and the answer given by the

assessee, as under:-

Q.14 In respect of your claim of having purchased granite from M/s Rajham Impex and M/s Shri Bakia Trading Agency, as per the result of enquiry undertaken by the Income Tax Investigation units at Thiruchirapalli and Madurai, it appears that the purchases are not genuine. I am now showing you the reports and the evidence based on which this fact was drawn. Further at the first stage you could not produce the Bills or any other proof of transportation. The bills issued by them does not possess any of the qualities that a bill through which such high magnitude transaction passes through has to possess. It is also intriguing to note that in this line of trade, if the bills are genuine, no person can afford to extend the credit for settlement of large sum and that too for such longer period. Finally to cap it all, the alleged payments to these two supplies as recorded in the books is not made through banking channels. Though the Ledger folio exhibits them to be Cheque payments, the bankers have certified that these cheques were self drawn by the issuer. To summarise, not a single piece of evidence, nor a single feature in the transaction exhibits truth and supports your claim of genuineness. At least any later day payment should have reached the bank account of these two suppliers of granite. Interestingly all genuine transactions are carried out in a normal manner. Payments to them are systematic, through banking channels, the identities are known or at least clear, abnormal balances are not

11 I.T.A. Nos.1222 & 1223/Mds/16

outstanding to them at the close of the year, the bills are descriptive, smaller quantities and item wise, and possess all the essential qualities they ought to possess. Under the circumstances I have every reason to believe that the expenditure towards the Purchase cost of the goods supposed to have been purchased from these two alleged suppliers is non-existent and to such extent the taxable income should get increased. Clarify with supporting facts and documents.

Answer I have gone through this question carefully and evidences for non-existence of M/s Rajham Impex in Madurai and M/s Shri Bakia Trading Agency in Thiruchirapalli has been shown to me now. I would like to state that M/s Rajham Impex and M/s Shri Bakia Trading Agency were in existence at the time of our transaction. To prove this I am submitting the sales tax registration papers of the above said two concerns with the same addresses as mentioned in the bills issued by you. With regard to transport bills, my auditor was not aware that we had incurred transportation charges for exporting the granites received from M/s Rajham Impex and M/s Shri Bakia Trading Agency. Hence, in response to the specific query raised vide sl.no.3 in 142(1) notice dated 13.01.2014 regarding the transport charges, my auditor in his reply dated 28.01.2014 mistakenly has stated that the transport charges are not applicable since it is included in purchase cost. Now I would like to submit the copies of two bills as proof for the transportation charges paid to M/s Sekhar Transport, Ongole amounting to `6,45,417/-. Further I am also submitting a bill copy received from M/s Triar Logistics, Bangalore for the shipping charges incurred to the tune of `8,30,516/- towards uploading the consignment. With regard to the credit facility, it is the common business practice in this trade. Since we buy the old stocks under specific conditions the credit facility is extended. Hence, there is huge outstanding. This was the only purchase made by us on old stock (stock material).

Payments to the above mentioned suppliers were made

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by cash since they insisted only cash. So, I have drawn the cash by issuing self cheques and for these payments confirmation letter from these parties is submitted now for your perusal. And I pray you that the evidences now shown may be considered while computing the taxable income.

registration details before this Tribunal. The copy of sales tax

registration is available at page 11 of the paper-book. The TIN

number available in the sales tax registration tallies with TIN

number referred in the bill issued by the M/s Shri Bakia Trading

Agency in favour of the assessee’s proprietorship concern. The

CST number also tallies with sales tax registration. When these

details were filed by the assessee before the income-tax authorities,

it is not known why the Assessing Officer has come to a conclusion

that Shri Bakia Trading Agency is not existing, only on the basis of

the report filed by his counterpart at Trichy. The sales tax

registration details contain the name of the proprietor of Shri Bakia

Trading Agency and his residential address. When such is the

case, this Tribunal is of the considered opinion that the Assessing

Officer is not justified in coming to the conclusion that Shri Bakia

Trading Agency is not in existence.

13 I.T.A. Nos.1222 & 1223/Mds/16

assessee and Shri Bakia Trading Agency. Funds were transferred from the assessee’s bank account to the bank account of Shri Bakia Trading Agency. Unless Shri Bakia Trading Agency is in existence,

such a banking transaction would not have happened. Moreover, the sales tax registration authorities would not have registered such a business entity. Therefore, the report of the

counterpart of the Assessing Officer at Trichy on personal inspection has not disclosed the correct fact on the ground level. During the course of inspection by the Inspector, the entity may not be there. That does not mean that there was no such entity. The

enquiries were apparently conducted in the month of April, 2014. The assessee did business during the financial year 2010-11. Therefore, after a gap of four years, the proprietor of Shri Bakia

Trading Agency might have closed his business. This Tribunal is of the considered opinion that in view of overwhelming evidence available on record, the Assessing Officer is not justified in coming

to a conclusion that Shri Bakia Trading Agency is not in existence merely on the basis of so-called inspection report said to be filed by the Inspector of Income Tax. This Tribunal is of the considered

opinion that the material available on record clearly establishes the

14 I.T.A. Nos.1222 & 1223/Mds/16

existence of Shri Bakia Trading Agency and the bills produced by

the assessee discloses the TIN number and CST number. It does not lack any details which are required to be disclosed. Therefore, merely because one single bill was raised and the amount was

outstanding for longer time that cannot be a reason to doubt the transaction. There may be various reasons for the businessman to keep the outstanding amount for a longer period. It is the matter

between two businessmen to settle the outstanding amount in a manner known to law or according to their personal understanding. Such an event cannot be a reason to doubt the transaction at all.

has filed the copies of the same at page 20 of the paper-book. This contains the TIN number, CST number and permanent address of the proprietor of Rajham Impex. The bill raised by M/s Rajham

Impex also tallies with the TIN number CST number given by the sales tax registration Department. In those circumstances, as observed earlier, merely because one single bill was raised and the amount kept outstanding for longer period, it cannot be a reason to

15 I.T.A. Nos.1222 & 1223/Mds/16

doubt the genuineness of transaction. This Tribunal is of the

considered opinion that the material available on record, namely, details of sales tax registration and confirmation letter filed by the respective parties, establishes the existence of M/s Rajham Impex

and the bills raised by M/s Rajham Impex and the confirmation letter clearly show that the assessee has purchased granites from M/s Rajham Impex. Therefore, the Assessing Officer is not justified in

coming to conclusion that M/s Rajham Impex is not in existence.

Ld.counsel for the assessee, the Assessing Officer in fact contradicting himself by making a disallowance under Section 40A(3) of the Act. It is not known, when the Assessing Officer

claims that M/s Rajham Impex and M/s Shri Bakia Trading Agency are not in existence, how the assessee could make payment in cash. The very fact that the Assessing Officer accepted that the

payment was made in cash shows that the two entities are very much in existence. From the copy of the letter addressed to the Assessing Officer, which is available at pages 26 and 27 of the paper-book, it appears that M/s Rajham Impex and Shri Bakia

16 I.T.A. Nos.1222 & 1223/Mds/16

Trading Agency acted as agents for procuring granites from various

quarry owners. During the examination under Section 131 of the Act, the assessee clarified that he issued self cheques as insisted by the vendors, which was used in withdrawal of cash. The

statement recorded from the assessee, which was reproduced in the earlier part of this order, shows that the vendors insisted for cash payment.

make payment in cash for goods or services on behalf of such person, the provisions of Section 40A(3) of the Act is not applicable. In this case, the assessee claims that M/s Rajham Impex and M/s

Shri Bakia Trading Agency acted as agents for procuring granites on behalf of the assessee from quarry owners. Since the vendors insisted for cash payment, the assessee has to necessarily make

cash payment to M/s Rajham Impex and M/s Shri Bakia Trading Agency so as to enable them to make payment in cash to the quarry owners. These facts were not in dispute. Therefore, in view of Rule 6DD(k) of Income-tax Rules, 1962, there cannot be any

17 I.T.A. Nos.1222 & 1223/Mds/16

disallowance under Section 40A(3) of the Act. In view of the above

discussion, this Tribunal is unable to uphold the orders of the lower authorities, accordingly the same are set aside. The addition made by the Assessing Officer is deleted.

assessee filed the audit report along with the return of income on 13.07.2012. From the order of the Assessing Officer it appears that the assessee explained before the Assessing Officer that his father

was not well and he ultimately died in October, 2010. Thereafter his mother was bedridden and passed away in September, 2011. Due to demise of his father and mother, there was family dispute among

the family members, therefore, he could not concentrate in the business. Hence, the accounts could not be finalized. This explanation of the assessee is not controverted by the Department.

When the assessee’s father was not well and he died in October, 2010, subsequently his mother also died in September, 2011, this Tribunal is of the considered opinion that there was reasonable cause on the part of the assessee in not getting the audit report

18 I.T.A. Nos.1222 & 1223/Mds/16

within the due date. Ultimately, the assessee got the audit report on

13.07.2012 and the return of income was filed on 13.07.2012 along

with audit report. The assessment was completed under Section

143(3) of the Act only on 30.03.2014. Therefore, it is an admitted

fact that the assessee filed the audit report before completion of the

assessment.

Officer to determine the correct taxable income. Since the

assessee has filed return of income along with the audit report, the

purpose of statutory requirement is complied with. The delay in

filing the audit report did not hamper the assessment proceeding in

any way. Therefore, this Tribunal is of the considered opinion that

there is no justification in levying penalty under Section 271B of the

Act. Therefore, this Tribunal is unable to uphold the orders of the

lower authorities, accordingly, the same are set aside and the

penalty levied under Section 271B of the Act is deleted.

19 I.T.A. Nos.1222 & 1223/Mds/16

Order pronounced on 23rd November, 2016 at Chennai.

sd/- sd/- (�ड.एस. सु�दर �संह) (एन.आर.एस. गणेशन) (D.S. Sunder Singh) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 23rd November, 2016. Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.