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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 25.10.2013. Assessment was framed by ITO Ward-54(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2011 for assessment year 2009-10.
Shri Subash Agarwal, Ld. Advocate appeared on behalf of assessee and Shri Rabin Chaudhury, Ld. Departmental Representative appeared on behalf of Revenue. 2. The facts in brief as culled out from the order of lower authorities and other documents are that assessee in the present case is a Partnership Firm and engaged in the business of civil construction. The assessee, for the year under consideration, has
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 2 filed its return of income on 27.09.2009 declaring total income of Rs.9,56,250/- from the source of business and profession. Thereafter the case was selected for scrutiny under CASS module on the basis of AIR information and accordingly notice u/s 143(2) r.w.s. 142(1) of the Act was issued upon the assessee. The assessment was framed u/s. 143(3) of the Act at an income of Rs.3,09,03,864/- by disallowing various expenses which are discussed below. 3. First issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the addition of Rs.38,27,840/- for transportation charges on account of non deduction of TDS u/s 40(a)(ia) of the Act. 4. The assessee has claimed an expenses of Rs. 39,42,492/- towards transportation charges in its profit and loss account for the year under consideration. The details of the parties to whom the transport charges were paid stand as under:- Sl No. Name of the transport operator Amount paid (Rs) 1 Md. Nazimuddin 4,70,850 2 Md. Monirul 6,60,270 3 Md Jahaangir 3,30,800 4 Maity & Co. 5,15,870 5 Sarfraz Choudhury 4,10,330 6 Salim Sk 2,65,570 7 Anarul Sk 2,95,850 8 Abdul Mannan 2,15,780 9 Abdul Rahman 3,25,820 10 Sodur Molla 2,70,800 11 Sivshankar Saha 65,900 Total 38,27,840
From the above, the AO during the course of assessment proceedings observed that in each case payment to the transport operators is exceeding Rs.50,000/- and no TDS u/s 194C of the Act has been deducted. On question by the AO about the non deduction of TDS, the assessee stated that the above list of transport operators is wrong and filed
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 3 a separate list of the transport operators where in none of the case, payment was exceeding more than Rs.50,000/-. However, AO disagreed with the submission of assessee and disallowed the transport charges for Rs.38,27,840/- which was added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO by observing as under:- “5. Having considered the assessment order and the submission of the AR of the appellant, I find that the AO made an addition of ₹38,27,840/- towards transport charges. The payments which were made to the aforesaid Transport Operators exceeded ₹50,000/- in each case and these payments were made without deduction of tax thereon. Thus it is a clear violation of provision of section 194C of the Act and attracting the expressed provision of disallowance as laid down u/s. 40(a)(ia). The appellant was brought to the notice of the violation of section 194C and hence, the amount of ₹38,27,840/- was disallowed u/s. 40(a)(ia) of the Act an added back to the income of the assessee. Hence again the AR of the appellant furnished revised statement of transportation charges to strengthen is argument. I have no option but to confirm the same and the addition made by the AO amounting to ₹38,27,840/- is conformed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following effective ground No. 1, which reproduced:- “1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition made by the AO on account of transport charges of Rs.38,27,840/- by wrongly invoking the provisions of section 40(a)(ia).”
Before us Ld. AR filed paper book which is running pages from 1 to 97 and submitted that the assessee has filed wrong list of transport operators at the time of assessment. The ld. AR drew our attention on pages 7 to 8 where the fresh list of the transport operators was placed. From the said list, it is clear that in none of the case, payment has been made exceeding of Rs.50,000/-. Ld. AR in support of its claim has placed the ledger copy of transportation charges and party-wise ledger which are placed on pages 9 to 42 of the paper book. He also submitted that all the books of account were produced and no defect was pointed out by the AO. On the other hand, Ld. DR relied on the order of Authorities Below.
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 4 7. We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that AO has made the disallowance on the ground that assessee failed to deduct TDS from the transportation charges in terms of provision of Sec.194C of the Act vis-à-vis 40(a)(ia) of the Act. The order of AO was confirmed by Ld. CIT(A). From the arguments placed by Ld. AR before us, we find that assessee has furnished fresh list of transport operators and as per the list in none of the case, the payment was exceeding Rs.50,000/-. The fresh list filed by assessee was rejected by AO without adducing any reason. We also find that the lower authorities has not brought any defect in the books of account of assessee and all the transport charges were booked in assessee’s books of account. We also find that the AO has not mentioned any reason for rejecting the fresh list of transport operators filed by assessee. We also find that no notice u/s. 133(6) of the Act has been issued by the lower authorities for the cross-verification of transport expenses. Therefore, in the interest of justice and fair play, we are inclined to restore the issue to the file of AO with a direction to examine the fresh list vis-a-vis the old list of the transport operators as per law after providing reasonable opportunity of being heard to assessee. In view of the above, ground of assessee’s appeal is allowed for statistical purpose.
Next issue raised by assessee is as regards that Ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.29 lakh on account of capital contribution from the partners. The assessee has shown capital introduction of Rs.29 lakh from its four partners as detailed under:- Name of the partner Capital introduced Md. Mahmood Rs.15,00,000 Md Maswood Rs. 3,00,000 Md Masum Rs. 6,00,000 Saloque Mahmood Rs. 5,00,000 Total Rs.29,00,000
On question by the AO about the source of fund with supporting documents, assessee submitted that the capital was introduced by the four partners of the firm. However the assessee failed to furnish the source of the funds. The AO accordingly disallowed the
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 5 capital introduction of Rs.29 lacs as unexplained money and added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO by observing as under:- “6.1 Having considered the assessment order and the submission of the AR of the appellant I find that the appellant could not furnish any document in support of capital introduction and also accepted that he was not able to produce the documents within the short time allowed. Therefore, the AO made addition of ₹29,00,000/-being capital introduced by the partners of the firm to their Capital A/c and treated as unexplained money introduced in the shape of capital account. The appellant has submitted a capital account of the partners. After going through the observation made by the AO as well as written submission filed by the assessee it reveals that the appellant fails to give any acceptable explanation. No documents for sale of property of partners were furnished to prove the source of capital introduced by the partners. The appellant has furnished only a portion of capital account but failed to furnish personal balance sheets of partners to prove whether capital of the firm were reflected in the assets side of the balance sheet under the head Investment in Firm. The appellant was not able to give specific reply, the reply was evasive in nature. In nutshell, source of the capital introduced by the partners were not satisfactorily explained. Therefore, after considering the return submission of the assessee on this count and finding made by the AO. I am of the firm view that capital introduced by the partners of the firm to their capital account amounting to ₹29,00,000/- is to be treated as unexplained money in the hands of the firm. Therefore, addition made by.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following effective ground No.2:- “2 For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition made by the AO on account of capital contribution of the four partners totaling to Rs.29,00,000/-“
Before us Ld. AR submitted that the capital was contributed from the partners of the firm and the same was duly recorded in its books of account but lower authorities have not brought any defect in the books of account of assessee. Authorities Below if wish to check the source of fund in the hands of firm then the authorities needs to check the source of fund in the individual hand of the partners. Accordingly, the question of disallowance of capital contribution by the partners does
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 6 not arise in the hands of partnership firm. In this connection, Ld. AR has relied in the judgment of Hon’ble High Court of Allahabad in the case of India Rice Mills Vs. CIT 218 ITR 508 AND Surendra Mahan Seth Vs. CIT 221 ITR 239. On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that AO has made the addition for the amount of capital contribution made by the partners of the firm on the ground that source of funds have not been explained by the firm. The order of AO was confirmed by Ld. CIT(A). However, we disagree with the action taken by the Authorities Below with regard to the partner’s capital contribution. In this connection, we find that the partners are separate and distinguished from the partnership, therefore, the firm should not be held responsible for bringing evidence about the source of capital contributed by the partners of the firm. In this connection, we rely in the judgment of India Rice Mills Vs. CIT 218 ITR 508 (supra). The relevant extract of the order is reproduced below. “The Tribunal should have taken note of the fact that all the deposits aggregating to Rs. 1,43,000 represented the capital contribution of the partners in the firm and they were made before the firm started its business. It was for the partners to explain the source of the deposits and if they failed to discharge the onus, then such deposits could be added in the hands of the partners only. The Tribunal erroneously came to the conclusion that the deposits represented the undisclosed income of the assessee-firm. The approach of the CIT(A) in this case seems to be correct who clearly held that unexplained deposits in no case, could be the income of the assessee-firm because the firm started its business only after the credits had been made in its books. The Tribunal was not correct in law in invoking s. 68/69 and treating the sum as income from undisclosed source of the petitioner-firm when the petitioner-firm had not yet even commenced its business.—CIT vs. Kapur Bros. (1979) 10 CTR (All) 280 : (1979) 118 ITR 741 (All) : TC42R.1396 distinguished. Since the deposits were made in the assessee-firm by the partners before the firm started its production, the deposits could not be taken to be the income of the firm from undisclosed sources.” We also rely in the case of Surendra Mahan Seth Vs. CIT 221 ITR 239 (Supra) The relevant extract of the order is reproduced below.
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 7 “At the instance of the assessee, the Tribunal referred the following question to this Court for its opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the deposits constituted income of the firm from undisclosed sources ?" 2. From a perusal of the statement of the case, it clearly appears that the deposits had been made by the partners on the very first day when the partnership firm came into existence. The question for consideration is whether such deposits can be taken to be the income of the assessee-firm. A similar question came up for consideration before this Court in IT. Ref. No. 152 of 1990- India Rice Mills vs. CIT (1996) 218 ITR 508 (All), and then this Court held that the onus was on the partners to explain the source of the deposits made on the very first day when they entered into partnership and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm. 3. Following the said decision, we answer the above question in the negative, i.e., in favour of the assessee and against the Revenue.” Respectfully, following the precedent as above we reverse the order of Authorities Below and delete the addition of Rs. 29 lacs made by lower authorities on account of non submission of source of funds details to the lower authorities. AO is directed accordingly. This ground of assessee’s appeal is allowed.
Third issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.14,97,960/- on account of difference in purchase.
During the course of assessment proceedings, AO observed the difference in the amount of purchase shown by assessee and sales shown by sellers to the assessee as detailed under:- Sl. Name Purchase shown Sale detail Difference No. by you shown by seller’s 1 Goyal Enterprises Rs.23,35,895/- Rs.14,49,485/- Rs.8,86,410/- 2 Capital cement Rs.16,60,870/- Rs.10,76,320/- Rs.5,84,550/- agency
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 8 On question by AO about the aforesaid difference, the assessee submitted that the purchase shown in the books of account is correct. However, AO disregarded the claim of assessee and made the addition of Rs.14,70,960/- to the total of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO by observing as under:- “7.1 The assessment order and the submission of the AR of the appellant have been considered. Here also the appellant could not provide any convincing explanation and hence the addition made by the AO amounting to ₹14,70,960/- is hereby confirmed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following effective ground No.3:- “3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition made by the AO on account of alleged difference in purchases made from M/s Goyal Enterprises and m/s Capital Cement Agency totaling to Rs.14,70,960/-.”
Before us Ld. AR submitted that the purchases were made from the aforesaid parties on the last day of the relevant financial year which is not matching with the ledger of the sellers. Therefore, Ld AR was of the view that sellers might not have included sales in its books of account which was made to the assessee on the last working day of financial year. He in support of his claim has produced the copies of ledger and bills of the parties which are placed on record. On the other hand, Ld. DR fairly requested the Bench to restore the matter to the file of AO for fresh adjudication.
We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that AO has made the addition on account of difference between the purchase shown by assessee and sale shown by the sellers. The addition was also confirmed by Ld. CIT(A). From the submission of assessee, we find that all the copies of ledger and sale bills of the respective parties were furnished at the time of assessment which are placed 42 to 76 of the paper book. We also find that the closing stock of the assessee at the end of
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 9 financial year is sufficient enough to the cover the difference of purchases shown by the assessee. In our considered view, there is no effect on the profit of the assessee if the purchases have been shown in the closing stock which will neutralize the effect. Therefore, in the interest of justice and fair play we are inclined to restore this issue to the file of AO for fresh adjudication as per law with the direction to check whether the purchases have been shown in the closing stock of the assessee. Needless to mention that assessee should co-operate with AO. This ground of assessee’s appeal is allowed for statistical purpose.
Last issue raised by assessee is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs.12,69,129/- on account of bogus sundry creditors.
The assessee has shown the sundry creditors at the end of financial year under consideration in its balance as detailed under:- Sl. No. Name of the assessee Address Rs. 1 Sri B Saha Barua, Beldanga, Murshidabad 3,77,175 2 M/s M.M. Enterprise Same as above 3,83,593 3 M/s K.Gupta & Co. 23, N.S.Road, Kolkata-700001 5,38,361
The AO issued notices to the aforesaid sundry creditors u/s 133(6) of the Act for the purpose of confirmation but the said notices were returned unserved. On question by the AO the assessee submitted the details of transactions with the aforesaid creditors but no bills, vouchers & bank statements were furnished in support of such transactions. Accordingly, AO in the absence of requisite information/ details of the aforesaid sundry creditors held as bogus and added to the total income of assessee.
Aggrieved, assessee preferred and appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- “8.1 Both the assessment order and the appellant’s submission have been considered. I am in agreement with the observation made by the assessing officer in this regard therefore addition mad by the AO of ₹12,69,129/- is hereby confirmed.”
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 10 Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following effective ground No.4:- “4. For that on the facts an in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition made by the AO on account of alleged bogus sundry creditors amounting to Rs.12,69,129/-
Before us Ld. AR submitted that the confirmation was made by M/s B. Saha and M/s MM Enterprise by hand delivery. Therefore the allegation of AO that the notices came back as “un-served” is a baseless. Similarly with regard to the party, K.D. Gupta & CO, he submitted that the envelope sent by AO was containing the name of party as K. Gupta & Co. Therefore, there was an apparent mistake in the name of the party and therefore the party might not have not accepted the notice under the impression that it belongs to some other party. Ld. AR for the assessee further submitted that this fact was duly communicated to Ld. CIT(A) and same letter is placed on pages 102 to 107 of the paper book. Ld. AR of the assessee also submitted that the payments made to the aforesaid parties were made in the subsequent year also as evident from the confirmations of the aforesaid party which are placed on pages 82 and 90 of the paper book. Ld. AR of the assessee has also submitted the purchase bills from the aforesaid parties which are placed on pages 77 to 97 of the paper book.
On the other hand, Ld. DR submitted that all the details were not furnished to the AO at the time of assessment and therefore he requested the Bench to restore the issue to the file of AO for fresh adjudication.
We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that AO disallowed the balances of sundry creditors on the ground that notice issued u/s. 133(6) of the Act came back “un-served” and assessee also failed to furnish necessary details such as purchase bills, bank statement in support of the aforesaid sundry creditors. Therefore, AO held that the balance sheet of sundry creditors as bogus and subsequently it was confirmed by Ld. CIT(A). From the facts of the case, we find that Ld. CIT(A) has not passed a speaking order and has also not called for remand report from AO on the documents
ITA No.2746/Kol/2013 A.Y. 2009-10 Kwalaity Constrn. Vs. ITO Wd-33(2) Kol. Page 11 which were submitted before him. Therefore, in the interest of justice and fair play we are inclined to restore the issue back to the file of AO for fresh adjudication after providing reasonable opportunity of being heard to assessee. This ground of assessee’s appeal is allowed for statistical purpose in terms of above.
In the result, assessee’s appeal stands allowed partly for statistical purpose. Order pronounced in open court on 28/09/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp Sr.PS �दनांकः- 28/09/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Kwality Construction, 48, AJC Bose Road, Kolkata-16 2. ��यथ�/Respondent- ITO, Ward-33(2), 10 Middleton Row, Kolkata-71 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file.
By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता