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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRII.C. SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is preferred by the revenue against the order dated 07.01.2014 passed by ld.CIT (A), Meerut for Assessment Year 2009-10. The revenue has raised the following grounds:-
1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in allowing the appeal of the assessee and holding the action of the A.O. in rejecting the books of accounts of the assessee, u/s 145(3) of the I.T. Act, 1961, as inappropriate ignoring the fact that the assessee did not maintain any purchase register and supporting bills / vouchers in respect of purchases and sales.
2. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the additions made on account of sundry creditors u/s 41(1) of the I.T. Act, 1961, and disallowance of purchases u/s 40A(3) of the I.T. Act, 1961, ignoring the fact that the genuineness of sundry creditors could not be Page 2 of 7 proved by the assessee and discrepancies were found in the books of the assessee against purchases.
3. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition made on account of share application money u/s 68 of the I.T. Act, 1961, ignoring the fact that the assessee did not file any confirmation in support of the genuineness of the share application money.
4. That the Appellant craves leave to add, modify and or delete any ground(s) of appeal.
In the facts and circumstances of the case, the order of the Commissioner of Income Tax(Appeals), Meerut may be set aside and that of the A.O. restored.”
The first ground of appeal
is against the action of ld.CIT (A), holding that books of account have wrongly been rejected u/s 145(3) of the Act.
3. The brief facts of the case that the AO rejected the books of account of the assessee and applying section 40A (3) has made an addition of Rs.1,39,00,180/-. Against this assessee preferred appeal before the ld. CIT(A), who has dealt with this ground of appeal as under:- 2.4 Ground No 1 contests the rejection of the books of accounts of the assessee. Ground No 2 contests the addition made on account of disallowance of purchases. During the appeal proceedings, and additional ground had been filed in the submissions dated 11.01.2013, which contests the addition made on account of sundry creditors under section 41 (1) of the Act, as discussed above. It has been stated that inadvertently, this addition had not been contested in the grounds of appeal filed with the appeal memo. Considering the ratio of decisions of the Supreme Court in the cases of Jute Corporation of India (187 ITR 688) and NTPC (229 ITR 220) as also the decision of the Bombay High Court in the case of Inventors Industrial Corporation Ltd (194 ITR 548), the ground of appeal be admitted. Considering the assessment order, it is apparent that the additionon account of sundry creditors had not been contested in the original grounds of appeal due to an advertence. It is noted that even the AO, in the report dated 19.02.2013 has not raised any objection with regard to the admittance of this ground of appeal. In view of the same, this ground is admitted. All the aforesaid three "grounds are dealt with in a consolidated manner. 2.5 In making the disallowances, the objections of the AO were that the assessee does not maintain any purchase register to show the quantity and quality of the purchases made from the suppliers of meat, does not have any supporting bills of the suppliers, that the payments have been made in violation of the provisions of section 40 A (3) of the Act and therefore, the Page 3 of 7 genuineness of the books of accounts of the assessee cannot be accepted. In response, it has been explained that the meat suppliers are illiterate persons of unorganised sector having no taxable income and neither maintain books of accounts nor issue any bills of sale. This practice is accepted as prevalent in the trade of the assessee and has not been objected to by the Department. Secondly, self made vouchers showing the name, address, quantity of purchase and the value of purchase made on particular date in particular transactions are maintained by the assessee and had been produced before the AO,in which no discrepancy had been pointed out by her. Section 44AA (2) does not prescribe the kind of bills/vouchers to be maintained by an assessee. The assessee cannot be held accountable if the supplier is not providing any bill of sale. With regard to the application of section 40A(3), it has been stated that the AO has considered the applicability of this provision without pointing out even one transaction which is in violation of the said provision, which mandates that payment in cash on each single day made to a single party in excess of Rs 20,000 is disallowable. This statement which has been made in the written submissions filed during the appellate proceedings and forwarded to the AO, has not been contradicted by the AO in the remand report. Therefore, the discussion regarding the applicability of section 40A and Rule 6DD is of no relevance for the case under consideration. With regard to the genuineness of the creditors, which indirectly also prove the genuineness of the purchases, it has been statedconfirmation of creditors was filed during the assessment proceedings, some of the creditors had been produced before the AO at the assessment stage, statements of some such creditors had been recorded and they had confirmed the transactions with the assessee. As regards the allegation that in the statement of the creditors recorded by the AO, they appear to be vague about the details of transactions entered into by them with the assessee and particularly the payments made/outstanding, it was explained that such creditors/suppliers were uneducated and illiterate and were obviously uncomfortable during the recording of the statement in a legal proceeding. In fact, this aspect had been considered by the ITAT, in the context of the proceedings of an earlier year. It has been pointed out that in the assessment order for A.Y. 2007 - 08, the AO observed that the sundry creditors of Rs. 2.65 crores were bogus. The AO held that the existence of the persons was not established as there could not be located at their addresses provided by the assessee. The assessee failed to file any documentary evidence to establish their existence. The AO also noted that the letters and certificates filed by the assessee revealed that all of them had certified that they do not maintain books of accounts. They are neither income tax assessees. However, the quantum of the liability shown to such creditors as on 31.03.2007 demonstrates that any uneducated, illiterate business manoperating on a small-scale will not provide raw meat to the assessee on credit. As in the year under consideration, in that year also addition was made to the income of the assessee under section 41 of the Act. The addition was however not sustained by the CIT (A), Meerut and the Page 4 of 7 matter was carried by the Department to the ITAT. The ITAT, Delhi has rendered the decision in its order dated 22.07.2011 in wherein it it has been stated that the AO had made the addition without specifically bringing out as to how the credit balances of the suppliers against purchases made from them could be deemed as an cessation of liability in terms of section 41. The Tribunal also endorsed the finding of the CIT (A), Meerut that the persons involved were smalltime butchers who collected meat from various places and supplied the same in a very crude operation, that there were educated and illiterate and the AO had accepted the genuineness of the creditors in the preceding year. It has also been pointed out that noaddition on account of creditors or purchases had been made in the assessment order for the A.Y. 2008 - 09. However, the said assessment order was takenup under section 263 by the CIT, Meerut, who has passed an order, dated 15. 03. 2013. In this order, thegenuineness of the creditors outstanding as on 31.03.08 (the opening balance of the creditors for the year under consideration which has been added to the total income by the AO in the impugned assessment order) had been examined by the CIT, Meerut. Out of the creditors outstanding on that date, the CIT has directed the AO to examine the cases of four creditors only, the credit balance relating to whom is Rs 53,26,770. This implies that firstly, that any nongenuine creditor outstanding as on 31. 03. 2008 would be considered for addition to the total income determined for A.Y. 2008 - 09 and secondly, that barring the four creditors mentioned above, the genuineness of other creditors had been accepted by the CIT, Meerut. It has been clarified that both the share application money shown to have been received from Smt Raesha Begum which have been denied, relate to prior year and no adverse .inference on the basis of such denial can be drawn in^ the assessment framed for the year under consideration. Insofar as the denial of purchase of Rs 8,19,365 shown to have been made in the name of Shri Mehboob Ilahi is concerned, the person has a running dispute and litigation with the assessee. which was admitted by him in the statement recorded by the AO. Proof of such litigation/dispute has also been furnished in the written submissions. Therefore, no reliance can be placed on the statements given by this party. It has been reiterated that the person is indeed in the business of raw meat, which can be established by making requisite enquiries. Further, it has been pointed out that the gross profit rate for the year under consideration is 11.3%. whereas, in the order made by the CIT Meerut under section 263, the GP rate of 9.02% has been considered as appropriate for arriving at the income for the preceding year. 2.6 A remand report dated 19. 02. 2013 has been received, which basically reiterates the contents of the assessment order and nothing new has been brought on record. Subsequently, on examination of the books of accounts of the assessee, it was observed that certain payment had actually been made by the assessee in violation of section 40A(3) of the Act. Accordingly, the AO was directed to examine this aspect and submit a h remand report. The same has Page 5 of 7 been submitted in the letter dated 24. 12. 2013. In thisletter, it has been reported that the violation of the aforesaid provision has been made in respect of the payments made for the purchase of diesel. The total payments made in violation of section40A (3) of the Act has been quantified at Rs.7,83,932. The said remand report was made available to the assessee who has submitted a rejoinder in which the quantum of payments made in violation of the aforesaid provision has been determined at Rs 6,48,936. 2.7 The facts of the case have been considered. It is noted that notwithstanding the volley of allegations and innuendos levelled in the assessment order, material has not been brought on record to show that the purchases were not genuine or any discrepancyhas been found m the books of accounts. None of the parties, except Shri Mehboob Ilahi, have denied transactions with the assessee. Their statements may lack precision and detail but considering that they were uneducated and illiterate persons who were participating in some legal proceeding, such deficiencies cannot be considered as completely unlikely. These aspects, have been considered by the ITAT while deciding the matter for the A.Y. 2007 – O8. Mere expressions of righteousness are a poor substitute for the failure to make diligent investigations and arrive at conclusions, which would show that the books of accounts of the assessee are not reliable or that the true income of the assessee cannot be arrived therefrom. Moreover, it is not understood that since the AO has disallowed the entire purchases, how has the assessee managed to make sales and if the sales do not represent proceeds of sale of raw meat, what is the nature of such sales. It is also noted that the gross profit rate declared by the assessee for the year under consideration is more than what has been considered appropriate, after the rejection of books of accounts, Jb^ the CIT^ Meerut in the order passed under section 263 for the preceding year- It is noted that at the time when the CIT, Meerut passed the order U/s 263 for the preceding year, the return for the year under consideration was very much available in which the assessee had declared GP rate of 11.3%. In spite of he same, theCIT found that in the facts of he case, G.P. rate of 9.02% appropriate for the preceding year. Even assuming that the books for the year are also unreliable, how it is possible to apply a G.P. rate in excess of what has been declared by the assessee for this year. Similarly, with regard to cash payment, the AO has completely omitted to bring to light even one payment which is inviolation of the provisions of section 40A (3) of the Act. As evident from the enquires conducted at the remand stage and specifically the amount of violation of Section 40A(3) being quantified in the report of the AO dated 24.12.2013 at Rs. 7,83,932 the observations of the AO in the assessment order are untenable. Similarly, the addition made in respect of the opening balance of creditors is clearly untenable as such credits arose in the preceding years and if any addition was warranted on the same, the same should have been taken m the prior year. In fact, the action of the AO is contradictory to the contents of the order for A.Y. 2008 - 09 under section 263 passed by the CIT, Meerut, in which, the Page 6 of 7 question of the genuineness of the opening balance of the current year was considered and barring four creditors, the balance creditors were accepted as genuine. Even in respect of the four creditors, the AO was directed to conduct enquiry the A.Y. 2008 - 09, which implies that if any addition tothe total income was warranted, it has to be made in that year. 2.8 In viewof the totality of the above discussion, Ground No 1 & 2 are allowed. However, the AO is directed to make an addition of the payment for purchase shown tohave been made from Shri Mehboob Ilahi amounting to Rs 8,19,365 (as the transactionhas been denied by the said individual and the assessee has not provided any evidence to contradict such statement) and the payments in cash made for the purchase of diesel in violation of section 40A (3) of the Act (quantified by the AO at Rs. 7,83,932), for which the AO may once again verify the relevant figure as the figure given in the remand report has been disputed by the assessee.”
4. Before us, the ld. DR could not point out any infirmity in the order of the ld.CIT (A) and further the ld. relied on the order of the ld.CIT (A). Therefore, in view of the above facts ground No.1 and 2 of the revenue is dismissed.
5. Ground No.3 is against the addition of Rs.4,40,000/- being share applicant money received from Shri Rahisa Begum. The ld.CIT (A) has held that these amounts was not received in the current year but have been received in prior years and hence upheld the addition. No infirmity was point out in the order of the ld.CIT (A). As the amount is not credited in the books of accounts of the assessee in current year, no addition can be made u/s 68 of the act for this year. Therefore, ground No 3 of the appeal of the revenue is dismissed. 6. In view of the above appeal of the revenue is dismissed. 7. Order pronounced in the open court on 15 .03.2016. -Sd/- -Sd/- (I.C. SUDHIR) (PRASHANT MAHARISHI) Judicial Member Accountant Member Dated:15 .03.2016 *Ajay Kumar Keot Copy of order forwarded to: