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Income Tax Appellate Tribunal, “B “ BENCH : KOLKATA
Before: Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ]
This is an appeal by the Assessee against the order dated 17.03.2015 of CIT(A)-7, Kolkata relating to A.Y.2010-11.
Grounds of appeal
raised by the Assessee read as follows :-
1. That the notice under section 143(2) was issued before the selection of the case for Scrutiny was approved and it did not comply with the Scrutiny guidelines issued by the CBDT, New Delhi.
2. That the notice does not comply with instruction issued by CBDT for selection of cases for Scrutiny.
3. That CIT(A) has erred in sustaining disallowance of bogus purchase of Rs.31,00,457/- under section 37 without appreciating that the same is not penal in nature.
4. That CIT(A) has erred in sustaining disallowance of labour charges of Rs. 3,60,500/-.
5. That CIT(A) has erred in sustaining disallowance of hire charges of Rs. 5,60,000/-.
6. That CIT(A) has erred in not allowing deduction of Rs. 76,841/- under chapter VI-A. -Badal Krishna Saha A.Y.2010-11 2
3. The Assessee is an individual. The assessee derives income from carrying on business as a civil contractor. The assessee carries on business as sole proprietor in the name and style of “Constructive Construction”. For A.Y.2010-11 the assessee filed return of income on 09.09.2009 declaring total income of Rs.4,00,332/-. The case of the assessee was selected for compulsory scrutiny in accordance with the guidelines for income tax scrutiny for A.Y.2010-11 issued by CBDT in F.No.225/93/2007/ITA.II. In the course of assessment proceedings the AO made the following additions to the total income for the following reasons :- “As regards Trading A/c : As regards Purchase made from M/s. Baba Loknath Iron Stores: 1) The assessee had disclosed his purchase Rs.10,64,793/- and sundry creditors balance was Rs.7,47,838/-. A letter calling for information U/S 133(6) was issued to M/s. Baba Loknath Iron Stores 2, Loyalka Lane, Kol - 700092. In response, M/s. Baba Loknath Iron Stores replied that during the F. Y. 2009-10 relevant to A.Y.2010-11 the sales were made to the assessee an amounting to Rs.90,919/-. Hence, there is a discrepancy of Rs.9,74,000/-. In this regard, the assessee was asked to explain by issuing a show cause letter dated 22.03.2013. But the assessee could not offer any explanation in regard to that within the time-limit given. As such the discrepancy in purchase of Rs.9,74,000/- is treated as "Bogus Purchase" of the assessee & is added to the total income of the assessee. As regards purchase made from M/s. Choice End 2) The assessee had disclosed his purchase Rs.10,43,036/- and sundry creditors balance was Rs.7,87,000/-. A letter calling for information U/S 133(6) was issued to M/s. Choice End, B/160, Baghajatin, Kol - 700092. In response, "1/s. Choice End replied that during the F. Y. 2009-10 relevant to A.Y.2010-11 the sales were made to the assessee and amounting to Rs.30,000/-. Hence, there is a discrepancy of Rs.10,13,036/-: In this regard, the assessee was asked to explain by- issuing a show cause letter dated 22.03.2013. But the assessee could not offer any explanation in regard to that within the time-limit given. ,As such the discrepancy in purchase of Rs.l0,13,036/- is treated as "Bogus Purchase" of the assessee & is added to the total income of the assessee. 3) As regards Purchase made from M/s. Dutta Enterprise The assessee had disclosed his purchase Rs.11,13,421/- and sundry creditors balance was Rs.9,63,060/-. A letter calling for Information U/s 133(6) dated 12.02.2013 was issued on speed post to M/s. Dutta Krishna Saha A.Y.2010-11 3
Enterprise, 2/1, Joydev Avenue Durgapur. But the said letter calling for information U/S 133(6) dated 12.02.2013 was returned unserved by marking .'not claimed ', In this regard, the assessee was asked to explain by issuing a show' cause letter dated 22.03.2013 as to why the said purchase claimed by the assessee will not be treated as bogus purchase. But the assessee could not offer any explanation in regard to that within the time-limit given. As such the amount of total purchase claimed by the assessee of Rs.11,13,421/- is treated as "Bogus Purchase" of the assessee & is added to the total income.
4) As regards Labour charges.
The assessee had debited an Expenditure of Rs.18,1S,872/- on account of Hire charges in the P & L A/c. The assessee was asked to furnish the details of Hire charges paid. But While examining the books of accounts it was found that amounts totaling .Rs.3,60,500/- were not verifiable for want of vouchers and evidences in spite of opportunities being given to the A/R of the assessee. As such, the said amount of Rs.3,60,500/-is disallowed and added to the total income of the assessee. 5) As regards Hire charges.
The assessee had debited an Expenditure of Rs.25,50,000/- on account of Hire charges in the P & L A/e. The assessee was asked to furnish the details of Hire charges paid. But while examining the books of accounts it was found that amounts totaling Rs.5,60,000/- were not verifiable for want of vouchers and evidences in spite of opportunities being afforded to the A/R of the assessee. As such, the said amount of Rs.5,60,000/- is disallowed and added to the total income of the assessee.
Subject to the above observations, the total income in respct of the above mentioned assessee is computed as under: -
Income from Business:
Net Profit as per P&L A/c. Rs.4,30,906/-
Add: i)As regards Purchase made from M/s. Baba Loknath Iron Stores as Bogus Purchase Rs.9,74,000/- ( As discussed above) ii)Purchase made from M/s. Choice End as Bogus Purchase Rs.10,13,036/- ( As discussed above) iii)Purchase made from M/s. Dutta Enterprise as Bogus Purchase Rs.11,13,421/- ( As discussed above) iv) As regards Labour charges. Rs.3,60,500/- -Badal Krishna Saha A.Y.2010-11 4
( As discussed above) v) As regards Hire charges. Rs.5,60,000/- Rs.40,20.957/- ( As discussed above) Rs.44,51,863/- The assessee had claimed deduction under chapter VIA amounting to Rs.76,841/- but he could not produce any evidences thereof. .Hence, it is disallowed.”
On appeal by the assessee the CIT(A) confirmed the order of AO. Hence this appeal by the assessee before the Tribunal.
The ld. Counsel for the assesee made submissions on ground no.1. According to him the AO has violated the guidelines issued by the CBDT for selection of case of compulsory scrutiny and none of the selection criteria for compulsory scrutiny of the assessee’s return for the relevant assessment year as laid down in the guidelines of the CBDT are satisfied. This plea was raised by the assessee before CIT(A). The CIT(A) called for the remand report from the AO. In the remand report dated 12.08.2014 submitted by the AO before CIT(A), the AO took a stand that the case of the Assessee was selected for compulsory scrutiny for the following reason mentioned in the CBDT Instruction referred to earlier: “b) Cases involving addition in an earlier assessment year in excess of Rs.10 lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before on appellate authority.”
According to the CIT(A), the above reason for selection of the assessee’s case for compulsory scrutiny assessment was satisfied and therefore the action of the AO in selecting the Assessee’s case for compulsory scrutiny was proper.
Aggrieved by the aforesaid order of the CIT(A), the Assessee has raised Gr.No.1 before the Tribunal. We have heard the rival Krishna Saha A.Y.2010-11 5 submissions in the light of the facts as it exists in the case of the Assessee and the satisfaction of the aforesaid criteria for selection of the Assessee’s case for compulsory scrutiny. The following conditions for selection of Assessee’s case for compulsory scrutiny by the AO: (a) there should have been an additional in excess of Rs.10 lacs in an earlier year And (b) such addition should be on a substantial and recurring issue of law or fact. And ( c) the addition so made should either be confirmed in appeal or pending before an appellate authority. We shall now examine the facts of the case of the Assessee and whether the aforesaid conditions are fulfilled for selection of Assessee’s case for compulsory scrutiny.
The assessee’s return of income for A.Y.2010-11 was filed on 09.09.2010. The case was selected for compulsory scrutiny and notice u/s 143(2) of the Act was issued on 21.09.2011. On this date the assessment proceedings for A.Y.2009-10 were pending before the AO. In the course of such assessment proceedings the AO examined the bogus purchase by the assessee from Moumita Builders of rs.12,27,754/- and from M/s. Subhangi Builders of Rs.,6,42,277/- in AY 2009-10. The assessment order for A.Y.2009-10 was passed on 27.12.2011. Therefore as on 21.09.2011, when the case of the assessee was taken up for compulsory scrutiny for A.Y.2010-11, the AO was seized of the issue with regard to bogus purchases in the case of the assessee for A.Y.2009- 10. Thus there were sufficient grounds for the AO to believe that similar bogus purchases would exist in A.Y.2010-11 as well. To this extent it can be said that there was a recurring and substantial issue of fact in AY 2009-10 & 2010-11. However the requirement of the guidelines of the Krishna Saha A.Y.2010-11 6 CBDT is that there ought to be also an addition in the earlier assessment year of at least Rs.10 lakhs or more on the said recurring and substantial issue. That addition in A.Y.2009-10 was made only by the order dated 27.12.2011. As on 21.09.2011, when the assessee’s case for A.Y.2010- 11 was taken up for compulsory scrutiny, there was no addition in the earlier assessment year on a substantial and recurring question of law or fact.
As far as A.Y.2008-09 is concerned the additions that were made in that A.Y. were only estimation of profits of the assessee from the business of civil construction and undisclosed interest income u/ s 68 of the Act and undisclosed investment u/s 69 of the Act. Thus the criteria that there should be recurring and substantial issue of law or fact is not satisfied vis-à-vis issues in A.Y.2008-09. Therefore the criteria laid down in the CBDT Circular are not satisfied.
The ld. Counsel for the assessee has placed before us an order of the Amritsar Bench in the case of Gurpreet Kaut vs ITO order dated 24.03.2016 wherein it was held that the CBDT instructions for selection of case for scrutiny have to be followed in letter and spirit by the AO. The ld. Counsel for the assessee also placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Amal Kr. Ghosh vs ACIT 361 ITR 458(Cal) wherein the Hon’ble Calcutta High Court upheld the order of the Tribunal whereby the Tribunal held that selection of case for compulsory scrutiny assessment was contrary to the CBDT’s instruction and such an action was not valid and the assessment was held to be not valid in law. Keeping in mind of the facts and circumstances of the case and the legal position as explained in the decisions referred to above, we are of the view that the selection of the case for compulsory scrutiny was contrary to the CBDT instruction. Consequently the order of assessment is held to be bad in law and accordingly annulled. In view Krishna Saha A.Y.2010-11 7 of the above conclusion the other issue raised by the assesee in its appeal do not require under consideration.
In the result the appeal by the assessee is allowed. Order pronounced in the Court on 14.12.2016. Sd/- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 14.12.2016. [RG PS] Copy of the order forwarded to:
1. 1. Badal Krishna Saha, 2/222, Regent Estate Sree Colony, Kolkata-700016. 2. I.T.O., Ward-53(4), Kolkata. 3. C.I.T.(A)-7, Kolkata. 4. CIT-, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.