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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
PER SAKTIJIT DEY, J.M.
The aforesaid appeal at the instance of the Department and cross objection by the assessee are directed against the order dated 30th January 2014, passed by the learned Commissioner (Appeals)-32, Mumbai, for the assessment year 2007–08.
At the outset, it needs to be mentioned that the cross objection filed by the assessee was not listed for hearing, however, at the request of the learned Counsel for the assessee vide letter dated 25th April 2016, and on the consent of learned Departmental Representative, the cross objection was take up for hearing along with the appeal of the Department.
ITA no.2266/Mum./2014 – Department’s Appeal
The effective grounds raised by the Department are as under:–
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.27,95,710/- made out of sundry creditors and Rs.40,78,718/- out of purchases without considering that in absence of bank statement of the three parties Sanjay Chemicals, Prachi Enterprise and B.A. Enterprise, genuineness of the purchases and creditors cannot be vouched for. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.27,95,710/- made out of sundry creditors and Rs.40,78,718/- out of purchases ignoring that the Assessing Officer, vide his remand report, has only exempted M/s. Ketul Enterprises Pvt. Ltd.
3 Shri Rajul P. Parekh 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not sustaining the addition of Rs.3,79,321/- out of sundry creditors in respect of M/s Prachi Enterprises."
Brief facts are, the assessee an individual, is engaged in the business of purchase and sale of chemicals. For the assessment year under dispute, the assessee filed his return of income on 31st October 2007, declaring income of ` 2,03,930. As alleged by the Assessing Officer, in spite of notice being issued under sections 142(1) and 143(2), as well as repeated reminders, no one appeared for the assessee. The Assessing Officer, therefore, proceeded to complete the assessment under section 144 to the best of the judgment. On a perusal of the balance sheet filed along with the return of income, the Assessing Officer noticed, the assessee has shown sundry creditors of ` 33,52,373. Observing that genuineness of the creditors is not verifiable in the absence of any details, the Assessing Officer disallowed the entire sundry creditors of ` 33,52,373. He also noticed that the assessee had shown purchases to the tune of ` 1,86,35,922. Alleging that no information regarding the nature of business and genuineness of purchases is available, he disallowed 25% out of the total purchases which worked out to ` 46,58,981. Further, the Assessing Officer also disallowed 25% out of certain expenditure claimed which worked out to ` 1,53,272. Accordingly, he passed the assessment order. Being aggrieved of the assessment order so passed,
4 Shri Rajul P. Parekh assessee preferred appeal before the first appellate authority. In the course of hearing of appeal, the assessee submitted his final account, computation of income, trading and Profit & Loss account, capital account, balance sheet statement of sundry creditors and debtors. As these evidences were in the nature of additional evidence, learned Commissioner (Appeals) on the basis of such evidences called for a remand report from the Assessing Officer. In the course of remand proceeding, the Assessing Officer to verify the genuineness of purchases and sundry creditors issued notice to the concerned parties. As observed by the Assessing Officer in the remand report in response to the notice issued under section 133(6), only one party Ketul Enterprises Pvt. Ltd. appeared. The Assessing Officer after verifying the balance sheet and other documents, accepted the credit balance and also withdrew 25% disallowance made against the purchases from the said party. However, as far as the other parties are concerned, the Assessing Officer observed that they did not respond to the notices issued under section 133(6). Though, the assessee in his submissions dated 19th July 2011, filed confirmations from three other parties namely B.A. International, Sanjay Chemicals and B.U.V. Enterprises, the Assessing Officer, however, observed that income tax returns and bank statement of the concerned parties were not filed to verify the authenticity of the assessee’s claim. He observed, mere filing of confirmation is not enough. The Assessing Officer observed notices
5 Shri Rajul P. Parekh issued to the rest of the parties namely A.S. Agency, V.S. Agency, Kivi Polymers and Colloid Industries at the given address returned back with the remark “not known”. He further stated, though, subsequently, summons were issued to the parties and an inspector was specifically sent to serve the summons on them, however, the inspector reported that as far as V.S. Agency and A.S. Agency are concerned no such offices were functioning in the given address. In respect of two other parties, i.e., Kivi Polymers and Colldid Industries also the addresses were found to be non–existent or wrong. He, therefore, observed, since the genuineness of the transactions in respect of these parties could not be established by the assessee, the disallowance made was proper.
The learned Commissioner (Appeals), perusing the submissions of the assessee in the context of facts and material brought on record as well as remand report submitted by the Assessing Officer was of the view that as far as three of the parties Sanjay Enterprises, Prachi Enterprises, B.U.V. Enterprises are concerned, the assessee not only furnished confirmations but has also submitted their income tax return acknowledgment copies. He also noted that the notices issued under section 133(6), were also served on these parties which not only proves their identity but also their existence. The learned Commissioner (Appeals) observed when the parties are in existence
6 Shri Rajul P. Parekh and they are found to be income tax assessee and they have also confirmed the transactions with the assessee, if the Assessing Officer still had any doubt, he could have issued summons to those parties as he did in the case of some other parties. He observed, merely because the parties did not respond to notices under section 133(6), the transactions entered into with them by the assessee, cannot be held to be non–genuine without bringing any contrary evidence on record. Therefore, holding that the concerned parties are genuine, he held that credit amount appearing in their name cannot be disallowed and accordingly, deleted the addition. For the same reason, he also held that the disallowance made out of purchases effected from these parties is also not sustainable.
As far as the addition in the name of Prachi Enterprises and part disallowance of purchase from the said party, the learned Commissioner (Appeals) deleted the addition observing that in the remand report the Assessing Officer has not made any adverse finding against the said party.
Learned Departmental Representative relying upon the observations of the Assessing Officer in the remand report submitted, out of ten sundry creditors, only one party appeared before the Assessing Officer in response to notice under section 133(6), whereas the rest of them did not appear. He submitted, only because three of
7 Shri Rajul P. Parekh the parties confirmed the transactions credits appearing in their name cannot be held to be genuine in the absence of cogent evidence. He submitted, the disallowance of sundry creditors and 25% of the purchases made by the Assessing Officer should be restored.
Learned Authorised Representative on the other hand submitted, three creditors not only confirmed the transactions but their income tax returns were also submitted before the Departmental Authorities. Therefore, the identity and existence of the creditors were established. In case, the Assessing Officer had any doubt with regard to the creditors he could have conducted enquiry through the concerned Assessing Officer since the assessment particulars of the concerned creditors were available before the Assessing Officer. He submitted, merely because there was no response to the notices issued under section 133(6), the Assessing Officer cannot treat the sundry creditors as non–genuine or disallow part of the purchases merely on presumption and surmises without bringing any material on record. He submitted, the Assessing Officer has not found any defect or deficiency in the books of account. Therefore, ad–hoc disallowance out of purchases is uncalled for.
We have considered the submissions of the parties and perused the material available on record. As is evident, the assessee has shown sundry creditors of ` 33,52,373, in the name of 10 parties. Before the
8 Shri Rajul P. Parekh first appellate authority, the assessee had produced confirmation from three parties along with their income tax return copies. Thus, it is evident that these parties are not only identifiable and existing but they are income tax assessees. That being the case, only because they did not respond to the notices under section 133(6), solely for that reason, the credit appearing in their name or part of purchases effected from them cannot be held to be non–genuine. If the Assessing Officer entertained any doubt with regard to the genuineness of these creditors, he could have made enquiry as the identity and income tax particulars of the concerned parties are available with him. As it appears from the material on record in the course of remand proceeding, the Assessing Officer had not made any enquiry in respect of these three parties to establish on record that credit appearing in their name or part of purchases effected by them are not genuine. As observed by the first appellate authority, he did not even issue summons to them or thought it proper to find out the genuineness of transactions by conducting an enquiry through jurisdictional Assessing Officer. Therefore, the addition made merely on the basis of conjecture and surmises cannot be sustained. We, therefore, agree with the learned Commissioner (Appeals) that the credits appearing in the name of three creditors, namely, B.A. International, Sanjay Chemicals and B.U.V. Enterprises, being genuine addition made is not
9 Shri Rajul P. Parekh sustainable. For the same reason, part disallowance of purchases made from them cannot also be sustained.
Insofar as credit appearing in the name of Prachi Enterprises and purchases effected from the said party, it appears, the Assessing Officer in the course of remand proceeding, neither has made any enquiry nor has recorded any adverse finding, we, therefore, do not find any reason to interfere in the order of the learned Commissioner (Appeals) in deleting the addition. Consequently, grounds raised by the Department are dismissed.
In the result, Department’s appeal is dismissed.
Cross Objection no.145/Mum./2015
Registry has pointed out a delay of 557 days in filing the cross objection by the assessee.
Before us, assessee has filed an affidavit explaining the cause of delay, the contents of which are as under:–
“1. I say that the above H.U.F. is assessed to Income-tax Officer - 21(1)(4), Mumbai under PAN AAFHR6277M. 2. I say that the Department has preferred an appeal against the decision of the CIT (Appeals) - 32 who has by his Order dated 30th January, 2014 granted partial relief. 3. I say that as a Respondent in the said appeal I have received Form No. 36 of the Departmental appeal on 4' February, 2014.
10 Shri Rajul P. Parekh However, there was an inadvertent delay by the Chartered Accountant in providing the said Form No. 36 to the Counsel, K. K. Lalkaka and as a result thereof, there is a delay of 565 days in filing the Cross-Objection.. 4. I as a Respondent say that your Honour may condone the inadvertent delay of 65 days in filing the Cross-Objection as the grounds taken up in cross objection is a legal ground which goes to the root of the matter.”
As could be seen from the averments made by the assessee in the affidavit, the memorandum of appeal of the Department in Form no.36, was served on him on 4th February 2014. However, the cross objection was filed by the assessee on 14th September 2015. The assessee has not filed any application seeking condonation of delay. Be that as it may, as can be seen from the averments in the affidavit, the reason for delay in filing the cross objection as per assessee’s explanation is, there was a delay on the part of the concerned Chartered Accountant in providing Form no.36 to the assessee’s Counsel Shri K.K. Lalkaka. As it appears from the averments made, the reasons for the delay in filing the cross objection is not only general but very vague without explaining when the Form no.36 was handed over to the Chartered Accountant by the assessee and when the Chartered Accountant handed over the same to the Counsel Shri K.K. Lalkaka. Even the name of Chartered Accountant has not also been disclosed in the affidavit. As per section 253(5) of the Act, the Tribunal is empowered to condone delay in filing of a cross objection beyond the period of limitation, provided it is satisfied that there was
11 Shri Rajul P. Parekh sufficient cause for not presenting it within that period. In the present case, the reason for delay shown by the assessee is not satisfactory as the assessee has failed to tie up the loose ends. The explanation offered by the assessee for the delay is general in nature and appears to have been made for the purpose of over–coming the delay in filing the cross objection. One more aspect which needs to be mentioned it in Para–3 of the affidavit, the assessee has stated that there is a delay of 565 days in filing the cross objection but in Para–4 of the Affidavit, 565 days has been extrapolated by mentioning 65 days. Thus, as could be seen, the assessee has not approached the Tribunal with clean hands. On the contrary, the assessee has tried to get over the hurdle of limitation in filing the cross objection with some misleading averments. Therefore, assessee having failed to satisfactorily explain the cause of delay, we are declined to condone the delay in filing of cross objection. Accordingly, the cross objection filed by the assessee is dismissed as barred by limitation without entering into the merits of the grounds raised therein.
In the result, Department’s appeal and assessee’s cross objection are dismissed. Order pronounced in the open Court on 29.06.2016
Sd/- Sd/- SAKTIJIT DEY RAJESH KUMAR ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 29.06.2016
12 Shri Rajul P. Parekh
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Mumbai