DILIP KUMAR SARAWGI,MUMBAI vs. ITO WD 14(1)(2), MUMBAI

The Ld. A.R. of the assessee, at the outset, has stated that he does not press ground No.3 of the appeal. Ground No.3 of the appeal is therefore dismissed as not pressed.

We find that ground No.4 is general in nature and does not require any adjudication.

Now we are left with ground Nos.1 & 2 of the appeal which require adjudication. Ground No.1: 6. The assessee, vide ground No.1, has agitated the confirmation of disallowance of Rs.23,91,398/- under section 40(a)(ia) of the Income Tax Act

The brief facts relating to the issue are that the assessee is an exporter and obtains services from clearing and forwarding agents for export of the goods. The assessee availed the services of various agents, made payments in respect of agency commission and also deducted TDS on such payments. During the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) called for the required details. After going through the details of the agency commission payments made, the AO observed that the assessee has deducted less TDS in case of below named four parties. 1) M/s. J.N. Freight Forwarders Pvt. Ltd. 2) M/s. Velji Dossabhai & Sons Pvt. Ltd. 3) M/s. M. Liladhar 4) M/s. Lincs Cargo Pvt. Ltd.

The AO calculated the total amount at Rs.43,14,531/- in respect of which TDS was not deducted by the assessee. The AO observed that the assessee had deducted TDS only on agency charges/terminal handling charges/DOC charges etc. instead of on entire charges as stipulated in the provisions of section 194C of the Income Tax Act. He accordingly disallowed the total sum of Rs.43,14,531/- for non deduction of TDS in relation to above 4 parties.

In appeal before the Ld. CIT(A), the assessee submitted that the payments in respect of which TDS was not deducted were in the nature of reimbursement of expenses incurred on behalf of assessee by the concerned clearing and forwarding agents. Therefore, the TDS was not required to be deducted and even in some cases the TDS was deducted by the agents from transports on behalf of the assessee. The Ld. CIT(A) however rejected the above contentions of the assessee. He, however, observed that the assessee had submitted a certificate under section 197(1) of the Act dated 07.04.06

The Ld. A.R. of the assessee has stated at bar that he does not press disallowance made by the lower authorities in respect of two parties namely M/s. M. Liladhar amounting to Rs.2,57,827/- and M/s. Lincs Cargo Pvt. Ltd. amounting to Rs.2,39,340/-. He, however, has strongly contested the disallowance made by the AO in respect of payments made to M/s. J.N. Freight Forwarders Pvt. Ltd. amounting to Rs.17,18,198/-. He has invited our attention to page 95 of the paper book which is a confirmation by M/s. J.N. Freight Forwarders Pvt. Ltd. stating that they had deducted TDS on behalf of assessee in respect of transportation charges, fumigation charges and stuffing charges. Further that the expenses like port dues, Tele wages were exempted and that paper lining, payment charges were not recurring expenses. The above confirmation was also submitted before the AO during the remand proceedings. However, the AO rejected the above confirmation for want of proper evidence. The Ld. A.R. of the assessee, before us, has submitted that since the TDS was deducted by the concerned party/agent and some of the expenses were in the nature of reimbursement of actual expenditure; therefore, the disallowance was not warranted. He has submitted that he may be given an opportunity to demonstrate before the AO in this respect. Considering the above submissions of the Ld. A.R., we are of the view that interest of justice will be well served, if, the assessee is allowed an opportunity to demonstrate before the AO regarding the above submissions. We accordingly restore this ITA No.3304/M/2014 & 5 M/s. Om Shree International issue to the file of the AO for consideration of the contentions of the assessee only in relation to payment made to M/s. J.N. Freight Forwarders Pvt. Ltd. However, the disallowances made in respect of the other two parties M/s. M. Liladhar and M/s. Lincs Cargo Pvt. Ltd. are hereby confirmed.

The Ld. CIT(A), after going through the evidences on the file, observed that from the quantitative details of purchase and sales shown by the assessee in its books of account, which even were not disputed by the AO, it could not ITA No.3304/M/2014 & 6 M/s. Om Shree International be said that the assessee had not purchased the products to the extent of quantity shown. However, the assessee could not produce the respective farmers and nor any confirmations for the same. The payments were not made by the assessee directly to the farmers but to certain agents and all these circumstances showed that the assessee had made purchases from grey market by paying cash. He observed that the assessee had wrongly shown those in the accounts as credit purchases. He, thereafter, observed that source of the cash purchases was not explained. He observed from the accounts produced by the assessee that the maximum credit balance as on 10.10.06 out of the various transaction of purchases made during the relevant year was at Rs.25,68,750/- observing that the assessee might have made the purchases by paying cash from the grey market and that the source of cash was not explained. He, therefore, confirmed the addition restricting the same to the maximum/peak amount of cash purchases amounting to Rs.25,68,750/- made on 10.10.06. Being aggrieved from the above order of the Ld. CIT(A), the assessee has come in appeal before us.

We have heard the rival contentions and have also gone through the records. It is an admitted fact on the file that the assessee had made purchases of agriculture commodities which were exported. The purchases were allegedly made from various farmers. The AO issued notice under section 133(6) to various parties and most of them verified the purchases made by the assessee from them except 5 parties. As observed by the Ld. CIT(A), since there was corresponding export/sale and the commodities were proved to be in the stock of the assessee or exported by the assessee, hence it was established that the said commodities were actually purchased by the assessee. The additions have been made by the AO on the ground that the said 5 parties did not turn up to confirm the purchases. However, there is a fact on the file that the notices sent to these 5 parties were duly served upon them. The Ld. A.R. of the assessee has invited our attention to para 4.2 of the impugned order of the Ld. CIT(A) wherein it has been explained that the assessee himself had ITA No.3304/M/2014 & 7 M/s. Om Shree International tried to obtain confirmation from the said parties. The assessee had sent reminder by speed post to these parties and requested them to send the confirmations. The assessee filed evidences e.g. xerox copies of registered acknowledgement, ledger confirmations letters, copy of accounts, export sales invoices, extracted of bank statement, copy of purchase invoices and sales tax assessment order of Karnataka State Government wherein the purchases have been assessed. The facts on the file established that the purchases were made by the assessee and the same were duly reflected in his accounts. The AO made the additions holding that the entire purchases were bogus, which fact has been duly rebutted by the assessee before the Ld. CIT(A). However, the Ld. CIT(A) has held that the assessee might have made the purchases in cash. However, the Ld. CIT(A) has held that the assessee might have made the purchases in cash. He also rejected the contention of the assessee that the payments were made by the assessee through banking channels to the agents and they further passed on the same to the farmers. Considering the overall facts and circumstances of the case and also the fact that the quantitative purchase and sales were shown by the assessee in the books of account, the commodities were actually exported and the sales were accepted by the lower authorities and payments were made through banking channel to the agents who further made the payments to the farmers and most of the farmers have confirmed the sales made to the assessee; in our view, the purchases in respect of 5 parties who have not responded to the notices sent by the AO cannot be held to be bogus. Moreover, the cash theory propounded by the Ld. CIT(A) has no legs to stand as there is no corresponding or corroborating evidence in this respect. The additions in respect of 5 parties have been made only on assumption basis. Even when the purchases are not doubted which actually had been shown to be made by the assessee and corresponding sales have also been admitted, then under such circumstances, assumption that these purchases were made by the assessee from grey market only because that out of various parties, only 5 parties did not respond, in our view, would not be justified for ITA No.3304/M/2014 & 8 M/s. Om Shree International making additions in this respect. The Ld. A.R. has brought our attention to the decision of the Hon’ble Gujarat High Court in the case of “CIT vs. M.K. Brothers” (1987) 163 ITR 249 wherein it has been held that where there was nothing to indicate that the amount given by the assessee for the purchases made had come back to the assessee in any other form and where there was no evidence that the said concerns gave bogus vouchers to the assessee and even the statements made by the alleged suppliers in no way implicate the transaction with the assessee then under such circumstances it cannot be said that entries for the purchase of goods made in the books of account of the assessee were bogus and no addition in this respect can be made. The Ld. A.R. of the assessee has further relied upon the decision of the Hon’ble Bombay High Court in the case of “CIT vs. Nikunj Enterprises (P.) Ltd.” (2013) 35 taxman.com 384 (Bombay) wherein the Hon’ble Bombay High Court has upheld the findings of the tribunal that where the assessee filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to suppliers and stock reconciliation statements, sale of purchased goods was not doubted, the transactions were supported with evidences and confirmations, in such an event merely because the suppliers have not appeared before the AO or the Ld. CIT(A), one can not conclude that the purchases were not genuine.

In the light of above stated legal position, we do not find justification for the addition made by the lower authorities in this respect. Hence, the additions made by the lower authorities on account of bogus purchases under section 69C of the Act are therefore ordered to be deleted.

In view of our above observation, the appeal of the assessee is treated as allowed for statistical purposes.

Now coming to the Revenue’s appeal i.e. ITA No.4575/M/2012.

The Revenue in its appeal has taken the following grounds of appeal:

The brief facts are that the original return of income was filed by the assessee on 29.10.07 based on audit accounts, the audit report was shown to be signed on 28.10.07. The AO, however, found that there was another audit report finalized and signed on the same date wherein the revised closing stock figure appeared which had the result of reducing the value of closing stock. The AO further noted that though the revised audit report was signed on 28.10.07 but the revised return of income was uploaded by the assessee only in the end of January i.e. after a gap of nearly four months. The assessee

In appeal, the Ld. CIT(A) observed from the quantitative details of sales and purchases of the two items, as stated above, that the entire quantity of the said two items was sold/exported during the relevant year under consideration and no closing stock of these items was left with the assessee at the end of the relevant accounting year. That the assessee had duly explained the mistake resulting in showing the excess stock and the said mistake was duly rectified by filing a revised return within the limitation period prescribed. On account of these facts and evidences, the Ld. CIT(A) held that the AO was not justified in rejecting the revised return filed by the assessee. He held that the mistake of wrongly showing the closing stock at the enhanced value of Rs.80,98,900/- was fully verified and the same being inadvertent mistake apparent from record and the revised return being filed in time, the rejection of the said revised return by the AO was wrong. He directed the AO to accept the revised return and to delete the addition on account of excess stock of two items as stated above.

After hearing the Ld. Representatives of both parties, we do not find any infirmity in the above order of the Ld. CIT(A) relating to the issue under consideration and the same is accordingly upheld.

This issue has already been dealt with and decided by us while adjudicating ground no.2 of the assessee’s appeal. In view of our observations made above while deciding the appeal of the assessee, ground Nos.3 & 4 of the Revenue’s appeal are hereby dismissed.

Ground Nos.5 & 6 of the Revenue’s appeal are general in nature and do not require any adjudication.

In view of our findings given above, the appeal of the Revenue is thereby dismissed.

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Whereas the appeal of the Revenue is dismissed.