TAPAS PAUL,NORTH 24 PARGANAS vs. A.C.I.T.-, KOLKATA, KOLKATA

This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 09.10.2013. Assessment was framed by JCIT (OSD), Circle-51, Kolkata u/s 263/144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2011 for assessment year 2006-07. The grounds raised by the assessee per its appeal are as under:- “1) That the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.78,45,882, made by the Assessing Officer in the order passed under section 263/144 of the Act, which sum represented balances of Sundry Creditors as on 31st March, 2006 and which was not the subject matter of A.Y. 2006-07 Tapas Paul vs. ACIT Cir-51 Kol. Page 2 directions issued by the Commissioner of Income Tax while passing order under section 263 of the Income Tax Act, 1961. 2) That the ultimate decisions of Ld. Commissioner of Income Tax (Appeals) in dismissing the additional ground of appeal relating to aforesaid addition of Rs.78,45,882 is contrary to his own decision of admitting the same in first and second para of (a) at page 9 of the impugned order.

First issue raised by assessee is that Ld. CIT(A) erred in confirming the addition of ₹78,45,882/- made by Assessing Officer u/s 263/144 of the Act on account of directions issued by the ld. CIT under section 263 of the Act although no such direction was emanating therefrom.

The facts in brief as have been culled out on record from the order of lower authorities and other documents are that the assessee is an individual and engaged in the business of Civil Constructions. The original assessment was framed on dated 18- 9-2008 at a total income of ₹10,05,520/-. Thereafter the proceedings were initiated under section 263 of the Act for seeking the clarification of the balance sheet item shown as ‘booking advance of flats and sundry creditors’ for an amount of Rs.1,76,46,882/-. In response to the notice u/s 263 of the Act the assessee submitted that the aforesaid figure of Rs.1,76,46,882/- consists of two transactions head i.e. advance for the booking of the flats of Rs. 98.01 lacs and Sundry creditors of Rs.78,45,882/-. The assessee further pleaded that the above figures with necessary A.Y. 2006-07 Tapas Paul vs. ACIT Cir-51 Kol. Page 3 details were submitted at the time of assessment. However at the relevant time of proceedings u/s 263 of the Act no body appeared from the side of the assessee and accordingly the ld. CIT under section 263 of the Act held the order of the AO erroneous and prejudicial to the interest of Revenue. The ld. CIT under section 263 of the Act directed to pass a fresh assessment order with the following directions : “(a)---- (b) The issue regarding the taxability of advance against flat should be examined with a view to ascertain as to whether the same would be taxable in the year under review. The AO in his order passed u/s 144/263 of the Act has disallowed entire sundry creditors for Rs.78,45,882/- on the ground that the postal addresses of sundry creditors with other necessary details were not furnished, so no enquiry whatsoever was possible. Hence the AO disallowed the sum of Rs.78,45,882/- and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to ld. CIT(A) and submitted that the AO has exceeded his jurisdiction in adding back the sum of Rs.78,45,882/- representing the balance of the sundry creditors as the same was not directed by the ld. CIT u/s 263 of the Act. The direction was limited to the examination of the advance for the flats. However, the ld. CIT(A) disregarded the plea of the assessee by observing as under :- “(a) Additional ground of appeal:

The facts have already been explained in the aforesaid paragraphs therefore these are not reproduced again. At the outset, we find that the assessee has shown both the figures of advance for the flats and sundry creditors under the head ‘booking advance of flats and sundry creditors’. Therefore in our considered, it is not appropriate to draw the conclusion that only the ld. CIT(A) directed to verify the advances for the flats only and not sundry creditors. It is also important to note that the assessee has not been co-operative at the time of impugned proceedings u/s 263 and 144 of the Act. Considering the fact and circumstances of the case, we uphold the order of Ld. CIT(A) and this ground of assessee is dismissed. A.Y. 2006-07 Tapas Paul vs. ACIT Cir-51 Kol. Page 5 6. The second inter-connected issue raised by the assessee in ground no. 2 & 3 in this appeal is that ld. CIT(A) erred in confirming the order of the AO by sustaining the disallowance of sundry creditors balance for Rs. 78,45,882/-.

The AO disallowed the sundry creditors for Rs.78,45,882/- on the ground that the postal addresses of sundry creditors with other necessary details were not furnished, so no enquiry whatsoever was possible. Hence the AO disallowed the sum of Rs. 78,45,882/- and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to ld. CIT(A) whereas it was submitted that all the sundry creditors were paid in the subsequent year through account payee cheque. This fact of payment with bank statement was produced before the AO at the time of remand report. The assessee also submitted that two sundry creditors died and in support of his claim he filed death certificates of two parties. However, the AO submitted in his remand report that the notices u/s 131 of the Act was issued but nobody turned up in response to the notice. However, the ld. CIT(A) disregarded the plea of the assessee by observing as under:- “In this connection it is seen that even as per the list of sundry creditor filed during the appellate proceedings, the assessee has been able to file postal address of only two creditors out of the 27 parties. In the case of the remaining parties the assessee merely gave their name followed by the words “Kharagpur/Midnapur”. The AO has not made any verification from the parties whose address were supplied and it is not possible to verify creditors from the bare name and city detail filed by the assessee.

Before us Ld. AR submitted paper book which is running from pages 1 to 92 and he reiterated the same submission as made before the lower authorities. On the other hand, Ld. DR vehemently relied on the order of Authorities Below.

We have heard the rival parties and perused the materials available on record. The addition was made by the lower authorities in the absence of necessary documents for the verification of the sundry creditors. It is beyond doubt that it is the primary duty of the assessee to produce the necessary details for the justification of the sundry creditors. The necessary details include the address, PAN, confirmation, their income tax returns etc. However, we find that the assessee failed to produce the same in spite of several opportunities. In our considered view merely paying the amount through banking channel and submitting the bank statements in support of it, the assessee does not get discharged from his responsibility. However, at the same time we cannot ignore the fact that the assessee has shown its income from the business of civil construction which has been accepted and the assessee cannot generate the income without incurring the expenses on the material. Therefore, once the income has been accepted then its corresponding expenses should also be accepted by the lower authorities. As the material supplier are not responding in terms of the notice issued u/s 131 of the Act, the assessee should not be punished for the same. In view of above and in the interest of the justice & fair play, we are inclined to give one more opportunity to the assessee to justify the amount of creditors. Hence we restore back to the file of AO for deciding the addition afresh in the light of observations made in that order after affording the assessee an opportunity of being heard. The Ld. A.Y. 2006-07 Tapas Paul vs. ACIT Cir-51 Kol. Page 7 DR on the other hand, expressed his agreement in support of the order of lower authorities.. This ground of the assessee is allowed for statistical purpose.

The last issue raised by the assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.4.60 lakh being 20% profit on the advance against flats.

The assessee has shown flat advance of Rs.23.01 lakh but failed to produce the supportive evidence. Therefore, AO has treated the estimated profit @ 20% of Rs.23.01 lakhs.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas as assessee submitted that the addition on account of advance received against the sale of flat is not warranted on the basis of estimation @ 20%. It is much higher than the 8% specified on contractual work u/s. 44AD of the Act. On the other hand, Ld. DR vehemently supported the order of authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that assessee in earlier year has declared profit @ 2.35% which was accepted by the Department. In our considered view, the estimated profit calculated@ 20% is on much higher side. After considering the facts in totality we restrict the estimated profit @ 5%. Hence, this ground of assessee’s appeal is partly allowed. AO is directed accordingly. 15. In the result, assessee’s appeal stands partly allowed for statistical purpose. Order pronounced in open court on 07/09/2016