ITO 21(2)(3), MUMBAI vs. VISHAL K GANATRA, MUMBAI

PER SANDEEP GOSAIN,JUDICIAL MEMBER:

2. On the facts and in the circumstance of the case and in law, the Id. CIT(A) has failed to appreciate that the addition on account of sundry creditors were made since the assessee failed to establish the creditors as genuine. The Id. CIT(A) ought to have confirmed the entire addition as bogus purchases if section 41(1) is not applicable.

3. On the facts and in the circumstance of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that the addition ujs.69 was made since the property was not disclosed in the balance sheet of the assessee and the assessee has failed to explain the source of investment even during the course of remand proceedings.

4. The appellant prays that the order of the Id. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

Therefore, it seems that the assessee is not interested to contest the present appeal. The learned DR representing the Revenue is present before the Bench and submitted that he wish to contest the same.

Therefore, we proceed to dispose of the appeal after hearing the learned DR and perusal of the materials available on record.

2. H.M. Traders

3. D.H. Text 1198261

Aggrieved by the aforesaid order of the AO, the assessee preferred appeal before the learned CIT (A) and the learned CIT (A) after considering the case has allowed the appeal of the assessee.

Aggrieved by the order of the learned CIT (A) the Revenue is now in appeal before us on the aforementioned grounds.

Ground No.1

4. Ld. DR appearing on behalf of revenue relied upon the orders passed by AO and submitted that the CIT(A) has erred in deleting the addition of Rs.34,74,077/- on account of bogus purchases, by not appreciating the fact that the disallowance was made by the AO as the assessee failed to produce necessary details during the course of assessment proceedings. It was further argued by ld. DR that even before CIT(A), the AO has categorically stated in the remand report that in the absence of ‘stock register’, the AO could not verify the purchases and corresponding sales. The ld. DR further argued that the onus was upon the assessee to produce all the parties for examination but the assessee has failed to produce the parties before the AO. Lastly, ld. DR requested for setting aside the order of CIT(A).

We have heard ld. DR and also perused the material placed on record as well as the orders passed by lower authorities. The ld. CIT(A) has dealt with this ground in para number 3.2 of its order and the same is reproduced below for reference.

“During the appellate proceedings the Ld. AR submitted the ledger account of all the creditors for last 3 years and also submitted confirmation from the aforesaid parties along with PAN and new address. The said evidence were sent to the AO for remand report vide this office letter dated 26-03-2010. In the remand report dated 28-05-2012, the AO after going through the submissions and evidences furnished by the appellant has noted that the assessee has submitted invoices of the above parties along with their ledger and confirmations with their PAN. During the remand proceedings the AO asked the assessee to produce these parties along with their books of account for verification and the assessee vide letter dated 10-05-2010 expressed his inability to produce these parties as the purchases were made through broker and he had no interface with the purchase parties. The AO also stated that in absence of stock register, he could not verify the purchases and corresponding sales. Finally the AO concluded in the remand report that assessee might have purchased these goods from some other source and entered in the books of accounts in the name of the above parties. The copy of the said remand report was given to the appellant for his rejoinder.”

After analyzing the afore mentioned order we are of the considered view that ld. CIT(A) has passed a well reasoned and judicious order while taking into consideration all the judicial pronouncement and the facts of the case the ld. CIT(A) has taken into consideration the remand report filed by AO wherein he himself believes that the purchases might have been made from other parties but entries in books were made for these parties. Once the assessee has made payments to these parties through cheques and the said value of purchases are recorded in books duly supported by purchase bills, no financial advantage could be derived by assessee by changing the names of the parties in its books. The ld. CIT(A) has rightly taken into consideration that the conclusion drawn by AO in the remand report itself is very hypothetical and does not show that how the asessee gained by doing so. The ld. CIT(A) while rightly relying upon the case titled Bedi and Co. Pvt. Ltd. 144 ITR 352 (Kar), Daulatram Rawatmull 87 ITR 349 (SC) has appreciated that as per the rule of evidence the burden of showing that the apparent was not real is on the person who claims it to be so. The ld. CIT(A) has rightly taken into consideration that it was for the AO to have investigated that matter further in order to prove that what is apparent was not real. The AO should have compared the past results to check whether there was any fall in GP etc and find the reasons thereof, if any. Since the AO has not doubted the purchase bills submitted before him and moreover since the entries are recorded in the books of accounts, then it cannot be a case of addition u/s 69C as unexplained expenditure. Therefore considering the totality of the facts we dismiss the said ground raised by revenue and uphold the orders passed by ld. CIT(A). Even before us no material has been placed by ld. DR to the effect that the CIT(A) should have followed the ITAT Ahmedabad Bench and confirmation of addition of 25% on the same issue. We have already considered the judgments of Bombay High Court in case of J.S. Parkar (94 ITR 616) wherein the facts of that case are similar to the facts of the present case. Therefore, respectfully following the judgements of Hon’ble High Court we dismiss the ground of appeal and uphold the order of CIT(A).

Ground No.2 This ground has been dealt by ld. CIT(A) in para no. 4.2 the same is reproduced below:

4.2 “I have considered the arguments of the Ld. AR and perused the assessment order as, well as remand report on the above issue. During the remand proceedings ledger account of all the creditors were submitted for 3 years and he also found that payment has been made to these creditors m subsequent years. The necessary ledger a/c were also with the AO duly supported by bills and the payments were by cheques. Still the AO has stated that since in the purchases in respect of the 3 parties (for which he made separate addition u/s 69C) have been held to be non verifiable, hence the existence of these creditors does not arise. The conclusion drawn by AO is very illogical, presumptuous, and without any evidence or substance. The AO made no enquiries u/s 133(6) even during the remand proceedings in respect of the remaining creditors of 25,11,806 and assumed them to be non- existent just because some in respect of other 3 creditors the notices u/s 133(6) could not be served during the original asstt proceedings. The AO has also not at all pointed 'out any defect in the payments made through creditors through banking channel nor has made any attempt to verify the genuineness of these sundry creditors. The AO has brought nothing on record to show that the purchases from these creditors are bogus or do not exist at the given addresses and nor pointed out any defect in the corresponding sales of these sundry creditors over a period of 3 years to which they pertained. The purchases made from these creditors claimed as expenditure in the earlier years have not been disputed by the AO, then how can these creditors can be treated as ceased exist just because some in respect of other 3 creditors the notices u/s 133(6) could not be served. In the facts and circumstances of the case there is no reason to treat these sundry creditors as ceased to exist within the meaning of section 41 ( 1) of the I. T .Act. It is a fact that the assessee has shown the amount in the balance sheet as payable and thereby the assessee has acknowledged the liability as still payable and there is no intention of assessee not to honour its liability. The amount is also not unilaterally written off in the books of account. No material is brought on record by the AO to show that even the creditors has waived or granted a remission against the liability. Further no expenditure had been allowed in earlier years in respect of such liability. Hence the condition precedent for invoking section 41(1) are not satisfied and in absence of any tangible proof of supplier would not be justified in ignoring liability appearing in balance sheet and making out a' case for cessation of liability merely because these are outstanding for a since earlier years. This view is supported in the decisions reported in case of Jehangir Gullabhai 21 SOT 603 (Mum), DSA Engineers 30 SOT 31(Mum), Nirmala Overseas 37 DTR 321 (Del)(trib), 99 TTJ 718(Del), New commercial Mills 175 Taxman 179(Ahd), Allied leather 32 SOT 549(Lko). Limitation of time is not a determining factor in matters relating to remission or cessation of liabilities merely because the outstanding sundry creditor balances appearing in books of account of assessee for a period longer than three years as held in DSA Engineers 30 SOT 31(Mum), 40 SOT 253(Ahd). Even in the case where the liabilities had been outstanding for past several years and assessee had failed to furnish postal addresses of concerned. parties and failed to prove existence of those liabilities, the !TAT in New commercial Mills 175 Taxman 179(Ahd), Allied leather 32 SOT 549(Lko) held that in absence of any cogent reasons and material evidence in support of finding that liabilities had ceased in year under consideration, addition made was liable to be set aside. Merely because no confirmation has been filed by the assessee during the year cannot be a basis that the liability is no longer payable by the assessee as held in 37 DTR 321(del)(trib), 282 ITR 379(Mad). Hence on appreciation of the (acts and circumstances in the case of present appellant also I find that the conditions of 41(1) are not satisfied. Hence the addition of Rs.5,57,327/- and Rs.25,11,806/- made by the AO in respect of sundry creditors is directed to be deleted.”

We have heard the rival submissions and carefully perused the material on record along with the orders passed by the Revenue authorities. We are of the considered view that ld. CIT(A) while dealing with the said ground has taken into consideration that the conclusion drawn by AO is very illogical, presumptuous and without any evidence or substance. The ld. CIT(A) has taken into consideration that the AO made no enquires u/s 133(6) even during the remand proceedings in respect of the remaining creditors of Rs.25,11,806/- and assumed them to be non-existent just because in respect of some of the creditors the notices u/s 133(6) could not be served during the original assessment proceedings. Ld. CIT(A) has rightly appreciated that the condition precedent for invoking section 41(1) are not satisfied and in absence of any tangible proof of supplier having given up its claim, the AO was not justified in ignoring liability appearing in balance sheet and making out a case for cessation of liability merely because these are outstanding since earlier years. The ld. CIT(A) has considered the facts that the assessee has shown the amount in the balance sheet as payable and thereby the assessee has acknowledged the liability as still payable and there is no intention of assesse not to honour its liability. The amount is also not unilaterally written off in the books of account. Ld. CIT(A) has rightly appreciated that no material was brought on record by the AO to show that even the creditors have waived or granted a remission against the liability. Hence, this ground raised by revenue is dismissed.

Ground No.3 This ground has been dealt by CIT(A) in para no.5.3 of its order and the same is reproduced below for reference:

“5.3 I have considered the arguments of the ld. AR and perused the remand report. During the remand proceedings it was stated that source of purchase of the said flat at Rs.20,50,000/- was as under: 1) From (late) Payal Gantra(sister) Rs. 4,00,000 2) From Inter Ex a partnership firm of Rs.13,00,OOO Vishal Gantra Rs. 3,50,000

During the remand proceedings the copy of bank statement showing such credit of the Rs 4,00,000 on 5-3-2007 from Payal Ganatra Rs 13,00,000 from Inter Ex was furnished before the AO along with their PAN cards. Balance sheet and P&L «[c of Inter Ex was also filed before the AO. The AO in the remand report mentioned that source of the loan funds cannot be verified as Ms.

Payal Ganatra died. Regarding source of funds received from Inter Ex the AO has mentioned that capital withdrawn from the firm is of Rs.11,56,771/.- and not Rs 13,00,000/-. This conclusion of the AO is not correct because the figure of Rs.11,56,771/- is not capital withdrawn but it is the capital carried out to next year as appearing in the capital account. It is noted from the perusal of the capital account of the appellant in the books of Inter Ex that his total drawing are Rs.13,70,547/- So far as the conclusion of the AO loan from Payal Ganatra ca e verified the same is also not correct. Though Ms. Ganatra has died but the loans have been received through her bank account and credited in the appellant's account on 05-03-2007 and since the PAN card has also been provided, the assessee has discharged the onus of proving the source of funds from Ms. Ganatra and it was for the AO to have brought the material to prove that the transactions shown were not genuine. The mere fact that the loan creditor has died and not in a of Rs. 4,00,000/- cannot be verified as the income tax details are not furnished is irrelevant as the addition made by the AO is in respect of investment of Rs. 20,50,000/- out of which the source of fund to the extent of 17 lakhs are from Payal Ganatra, Inter Ex and balance has been claimed to be invested from own funds and not from the loan taken from Kamlesh Ganatra and Chhaya Ganatra who' are the parents of the appellant and no addition in respect of loan taken from Chhaya Ganatra has been made in the assessment order . Nevertheless the assessee has also produced copy of the PAN card and ledger accounts and bank statement of Chhaya Gantra and balance sheet, fund statement as well as PAN of Kamlesh Gananantra from where the cheques have been issued to the appellant. Hence on merits also there is nothing which lead to suspect' the genuineness of money given by Chhaya and Kamlesh Ganantra to the appellant. The claim of the AO that income tax details are not given is factually incorrect.Under these circumstances investment of Rs. 20,50,000(- made by the appellant in purchase of property after obtaining loan from Payal Ganantra and Inter Ex cannot said to be unexplained as the same was appearing in the personal balance sheet of assessee; Hence the addition of Rs 20,50,000 u/s 69 is directed to be deleted.”

We have heard ld. DR and we have also taken into consideration the orders passed by CIT(A) as well as the material placed on record. We are of the considered view, that the CIT(A) has taken into consideration the remand report filed by AO and has considered that the conclusion of the AO was not correct as figure of Rs.11,56,771/- is not capital withdrawn but it is the capital carried out to next year as appearing in the capital account. Ld. CIT(A) has rightly appreciated that from the perusal of the capital account of the assessee in the books of Inter Ex that his total drawings are Rs.13,70,547/-. Ld. CIT(A) has also taken into consideration that on merits there is nothing which lead to suspect the genuineness of money given by Chhaya and Kamlesh Ganantra to the assessee. The ld. CIT(A) has rightly concluded that the claim of the AO that income tax details are not given which were found to be factually incorrect. The ld. CIT(A) has rightly concluded that he investment of Rs.20,50,000/- made by the assessee in purchase of property after obtaining loan from Pyal Ganantra and Inter Ex cannot said to be unexplained as the same was appearing in the personal balance sheet of assessee. Therefore this ground raised by revenue is dismissed. Ground No. 4&5 are general in nature and needs no separate adjudication in view of the decision on above ground.