ITO, WARD - 3(4), KOLKATA, KOLKATA vs. M/S. CHITRAVALI SALES (P) LTD., KOLKATA

ORDER Per Shri M. Balaganesh, AM:

This appeal by revenue and cross objection by assessee are arising out of order of CIT(A)-I, Kolkata vide appeal No. 446/CIT(A)-/3(4)/08-09 dated 16.01.2010. Assessment was framed by ITO, Ward-3(4), Kolkata u/s. 143(3)(ii) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2006-07 vide his order dated 30.12.2008.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 AO observed that assessee had commenced trading of sand from January 2006 onwards. He observed that the assessee had advanced a sum of Rs. 7,75,69,556/- to various mining authorities as below:-

Assistant Mining Officer, Arrah Rs. 4,44,53,209.50 Assistant Mining Officer, Chapra Rs. 11,37,175.50 District Mining Officer, Patna Rs. 3,19,79,171.00 ------------------------------ Rs. 7,75,69,556.00 ------------------------------ The sources of sums advanced to the said mining authorities were explained to be advances received from various customers of the assessee in the sum of Rs. 7,75,34,884/- . The ld AO sought to verify the genuineness of such advances received from customers. The assessee explained that it had received advances from various customers which would get adjusted against future supplies made to them by the assessee.

3.1. The assessee took advances of Rs. 7,75,34,884/- from 470 customers for supply of sand to them for which sales have been effected subsequently and Rs. 27,50,000/- (inclusive of opening carried forward figure of Rs. 7,50,000/- ) from M/s Amba Steel Works against sale of steel, total aggregate amounting to Rs. 8,02,84,884/- and the same were duly disclosed in the balance sheet of the assessee as on 31.3.2006. The entire sales were disclosed in the audited profit and loss account for the year ended 310.3.2007 and TCS claimed thereon in terms of provision u/ s 206C(4) of the Act. The details of total advances of Rs. 8,02,84,884/- were furnished by the assessee before the ld AO containing the name, address, mode of payment, DD particulars, bank name, amount etc which are enclosed in the paper book of the assessee. The ld AO proceeded to issue notices u/s 133(6) of the Act . Initially 125 out of 470 notices could not be served. The ld AO issued show cause letter dated 6.11.2008 seeking inter alia clarification about the non service of enquiry notices. The assessee vide its letter dated 17.11.2008 explained the deficiencies in address and submitted the current address including pin code etc. Ultimately all the 470 customers responded owning the payment of advances to the assessee and squaring off the entire advances against supply of sand made by the assessee except Mr Jaykant whose advance of Rs. 49,000/-. Most of the creditors submitted their identity proof like voter iD card, residence proof, ration card, PAN card (wherever available) etc. The ld CITA observed that the more than 100 customers had also submitted affidavit affixing their respective photo

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 confirming the advance payment and receipt of supply of sand in settlement of advance. The ld AO rejected the contentions of the assessee that advances were received from customers through bank drafts and sale made to those parties in subsequent years and advances getting knocked off and treated the entire receipt of advance as bogus and as belonging to the assessee and added the same u/s 68 of the Act on the following reasons:- “(a) The assessee has no past experience in sand business. (b) The company had not commenced any business of sand trading and did not receive any advances. (c) Generally no advance is given in the nature of trade as carried on by the assessee. (d) Mr. Jaykant denied the transaction. (e) Age of 4 creditors out of 471 at the time of payment of advance were ranging between 20 to 23 years. (f) 10-20 notice u/s. 133(6) were received by other persons on behalf of addressee in 3-4 villages. (g) Father’s name in four cases did not match with master roll. (h) Response from creditors were received without receiving back A/D card. (i) The assessee has managed the local post offices. (j) The assessee couldn’t prove the source of customers from where advances to the company were funded. (k) The assessee had removed the deficiency in address against unserved notice within 2- 3 days of show cause letter. (l) Three replies from Mr. Ram Pukur Singh, Mr. Subhash Yadav & Mr. Umesh Singh were received in Oct. 08 against non service of notice u/s. 133(6) to them. (m) Replies from customers residing in one village namely Bijay Kumar from P.O. Koilwar, Dist. Bhojpur, Rakesh Kumar Tiwari from P.O. Panchrukhiya Kala, Dist. Bhojpur, Rana Pratap from P.O. Daulatpur, Dist. Bhojpur, Rajnath Sharma from P.O. Panchrukhiya kala, Dist. Bhojpur, Asraf Hussain from P.O. Koilwar, Dist. Bhojpur and Rita Kumari from P.O. Panchrukhiya kala, Dist. Bhojpur. The replies were computer print out in English language in same paper, same contents and fashion.. (n) M/s. Shristi Developers Private Limited & Mr. Chhotelal Shaw had paid advance Rs.45 lacs and Rs.4.99 lacs against sales of sand Rs.15 lacs & 1.99 lacs during the year under reference respectively and the balance amount remained outstanding as at 31st March, 2006.”

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 60 post offices situated on several districts / villages of Bihar consisting of 470 customers , wherein the ld AO had conducted enquiries us/ 133(6) of the Act by issuing registered letters without the knowledge of the assessee. It was submitted that the ld AO could not appreciate the fact that it is the common practice in small villages that one common man is duly authorized to collect letters from post masters who resides in particular locality / village etc or the addressee may not be present in the village on the day of delivery or so. It was argued that as per the Postal Laws, the post master is required to deliver the registered envelopes only to the addressee or the person duly authorized to receive such envelope on behalf of such addressee. It was also argued that the post masters would not be willing to deliver registered envelope to third party / stranger by putting their Government job at stake. Accordingly the allegation leveled against the assessee was pointed as baseless and absolutely irrelevant. Moreover, all the 22 addressees on whose account, these allegations were leveled against by the ld AO, had duly complied to the notices u/s 133(6) of the Act and admitted to having given advances and confirmed the receipt of supply of sand in the financial year 2006-07 from the assessee against the said advance.

4.1. It was argued that no where the ld AO discussed the submission of those parties who had duly filed replies to notices u/s 133(6) of the Act together with their photo identity proof. It was submitted that the ld AO had sent letters on incomplete addresses, missing pin number, name of street, police station, district, etc. The same was brought to the notice of the ld AO during the course of assessment. The assessee took the pain and was able to find most of the defects in pin number, full postal addresses from internet, contacting some known persons from the village etc. Moreover, the ld AO himself admitted at page 2 & 3 of his order that undelivered notices were shown to the ld AR who started work in compiling the full address for onward submission to ld AO with a view to co-operate in the enquiry. It was argued that the ld AO should have appreciated the promptness of the ld AR instead of being suspicious especially when time barring period was fast approaching.

4.2. With regard to another allegation leveled by the ld AO in his order that certain parties had replied in October when no notices were served on them. In this regard, it was submitted that the ld AO had already sent the notices to those parties in Aug / Sept 2008 which were replied by them in Oct 2008 and still those names were included by the ld AO in the list of parties not served.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 4.3. Since the assessee had commenced its sand trading business only from Jan 2006 onwards, it is very unlikely that huge advances were received by it from 470 parties to the tune of Rs. 8,02,84,884/- scattered in various villages within a short span of one month. In this regard, it was submitted that the suspicion of the ld AO has no basis specifically when assessee obtained the work order from Bihar Government through the process of tender and ld AO himself had allowed credit of TCS collected by Government of Bihar upon payment of royalty against work order, determined the business income and collect tax from the said sand business. During the relevant period, the assessee had made total sand sales amounting to Rs. 5,52,12,500/- and paid royalty amounting to Rs. 12,76,94,557/- to the Government of Bihar.

4.4. It was also submitted that custom and history of providing advances in lieu of sand is very old in the districts of Bihar, where primarily source of income is agriculture and business of sand. It was explained that every year Bihar Government generally allots the work order of raising sand from river to raise the revenue for the Government. Earlier these works were allotted and executed by the co-operative society taking advances from the local people residing in nearby river sand ghat / villages against the supply of sand at a subsequent date. Local people themselves approach the entity who get the work order from the Government of Bihar and pay advances to get the assurance of supply of sand, just because this is the only source of income in addition to the agriculture in that area. Hence there is no cause of inviting any suspicion whatsoever on the payment of advances by those customers to the assessee.

4.5. At page 6 para 6 of the order of ld AO , it was observed that M/s Shristi Developers Private Limited and Mr Chhotelal Shaw had paid advance of Rs. 45 lacs and Rs 4.99 lacs against sale of sand of Rs. 15 lacs and Rs 1.99 lacs respectively during the year and the balance amount remained outstanding as on 31st March 2006. It was explained that the above customers had categorically accepted to have given advances to the assessee against enquiry conducted u/s 133(6) of the Act. M/s Shristi Developers Private Limited is a regular income tax assessee and had also submitted a copy of ledger account of assessee as appearing in their books of accounts along with their audited accounts which duly tallied with assessee’s records. In spite of this, the ld AO considered the balance amount of CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 advances as unexplained cash credit u/s 68 of the Act after deducting the sales made during the year without having any adverse material on hand.

4.6. The ld AO in para 9 of his order had stated that in some cases, the parties giving reply have stated their age to be around 24 years and have been stated to be doing business since last 10 to 12 years i.e when their ages are around 9 to 14 years. The ld AO observed that it is unbelievable that persons had been doing business of sand as well as agricultural production since the period when they were 8 to 14 years old. The ld AO in the aforesaid observation had raised question about the age of four customers, namely Rakesh Kumar Tiwary, Smt Rita Kumari, Rana Pratap and Jai Prakash Singh. The assessee replied in this regard as follows:- "Rakesh Kumar Tiwary -Voter identity card Paper Book No. 3, page no.194 to page no. 196 provided by the Rakesh Kumar Tiwary directly to the Ld. AO, reveals the age 19 years as on 01.01.2005 and the advances was given to the appellant in December 2005 meaning thereby age around 20 years". "Smt. Rita Kumari - Voter identity card of Smt Rita Kumari Paper Book No. 4, page no.54 to 56 reveals the age 20 years as on 01.01.2005 and the advances was given to the appellant in December 2005." "Rana Pratap - Age of Mr. Rana Pratap from voter identity card Paper Book No. 4, page no.19 to 21 reveals the age 19 years as on 01.01.2004 and the advances was given in December 2005 meaning thereby the age of Mr. Rana Pratap was around 21 at the time of payment of advance." "Jai Prakash Singh - Voter identity card Paper Book No. 2, page no.84 to 86 shows the age of aforesaid customer 21 years as on 01.01.2004 and the advances was given in December 2005. At the time of accepting advances from aforesaid four, all were majors and thus there is no infirmity in accepting advances. These advances were further squared up against sales."

4.7. The ld. AO in para 10 of his order had stated that ‘From the master roll of parties from whom advance was received as submitted by the assessee company and the confirmation received from parties, there is strangely different in father’s name of parties which is quite impossible.” The assessee replied in this regard as follows:- “The Ld. AO in his order had stated that father name in the case of four persons out of 471 customers are not matching with the replies received u/s 133(6) despite other details like customers name, amount, address, draft particulars etc are matching Ld. AO is intentionally silent in respect of other details of creditors, since they are matching. Father name of Mr. Upendra Prasad Yadav & Mr. Ashok Kumar (2) are matching, still Ld. AO made the issue and drawn adverse inference for the reason best known to him. In respect of other two creditors, there might be typing error committed by the computer operator. Further, in response to notice u/s 133(6), the above two impugned customers have categorically accepted to have given advance to the appellant and also provided copy of their voter identity proof for their identification, paper book 2, page 203-205 & paper book 4 page 6-9. These advances were subsequently settled against sales in assessment year 2007-08. The AO should have CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 appreciated the factual position objectively rather than passively. The AO was erred in drawing adverse inference specifically when all other details are tallied & identity is proved."

4.8. It was submitted that the ld AO had stated in part A of show cause letter dated 6.11.2008 that section 133(6) notices to parties like Subhash Pd. Yadav, Umesh Kumar, Manoj Kumar , Harendra Prasad and Ashok Kumar were returned unserved with remark ‘Not found’. But in page 9 of the assessment order, based on the replies received from these parties it was mentioned that advances were proportionate with their income and they were not income tax assessee. It was submitted that how these two situations could be possible.

4.9. It was submitted that the ld AO had written the following names twice just to establish large number of non-service of notice u/s 133(6) of the Act in order to justify his addition :- Ram Singh Yadav Anil Kumar Yadav Yogendra Singh Ramlal Singh Smt Gita Devi R.N.Singh 4.10. It was submitted that the ld AO alleged that notice u/s 133(6) of the Act to the following parties were served but no reply was received from them. Still these names were further included in Para A claiming notice to the following parties were returned unserved :- Ashok Kumar Uday Kr Singh Rita Kumari Uma Devi Sri Umesh Kumar 4.11. It was further submitted that the ld AO vide its show cause letter dated 6.11.2008 had stated that out of 471 notices u/s 133(6) of the Act, 149 notices were returned back unserved. In reply to this show cause, the assessee had filed its submission dated 26.12.2008 wherein it was stated that the letters issued by the ld AO had numerous defects like wrong address, wrong district, wrong name etc. That is why these letters might have probably returned unserved. The assessee brought this fact to the attention of the ld AO with an intention to co-operate with the ld AO in the assessment proceedings. It was submitted that the assessee had also provided vide its submission dated 17.11.2008, name of CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 district, police station and pin code etc promptly for the proper verification of these parties as the ld AO may deem fit.

Accordingly, it was submitted that all the 471 parties had totally complied with the notices u/s 133(6) of the Act and have admitted to have given advance to the assessee and that their entire advances were squared up against supply of sand in the Asst Year 2007-08 except Mr. Jaykant who had advanced a sum of Rs. 49,000.

4.12. It was submitted that the ld AO had observed that notices were sent to the balance parties who had advanced sums below Rs 1,00,000/- which were duly received by the respective parties and duly replied by them. Even this list was considered as unexplained cash credit u/s 68 of the Act by the ld AO.

4.13. With regard to the advance received from Mr. Jaykant in the sum of Rs. 49,000/- who had turned hostile and vindictive, the assessee submitted before the ld AO to issue the copy of denial letter given by the said party . This was asked vide letter dated 17.11.2008 to the ld AO. This was never given to the assessee and the assessee placed reliance on the decision of the Jaipur Tribunal in the case of Sohan Lal Jain vs ITO reported in 59 CTR (Tri)(JP) 17 wherein it was held that merely because a creditor turns hostile, the contention of the assessee setting up a cash credit should not be disbelieved otherwise the creditors could bring the assessee to ransom.

4.14. It was submitted that the ld AO at page 8 of his order had referred few names with the amount of advance admitted to have given to assessee are not income tax assessees and therefore concluded that they have no creditworthiness. It was argued that those parties had given factual position and admitted to have entered financial transaction with the assessee. It was stated that the fact as to whether those parties were income tax assessees or not were not the subject matter of their replies at all. Accordingly it was stated that the statement made by the ld AO in his order is untrue. Infact Mr Farid Hussain Khan, PAN AGFPK1148Q and Mr Subhash Pd. Yadav PAN AAUPY6856E gave their PAN card in the compliance u/s 133(6) of the Act but those were ignored.

4.15. It was submitted that Mr Shambhu Roy had admitted to have given Rs. 49,875/- vide bank draft and had enclosed his election ID card for his identification. Similarly Mr Kuldip

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 Yadav had also admitted to have given Rs. 49,900/- vide bank draft and enclosed his election ID card. Likewise all other replies were also received by the ld AO confirming to have given advances and adjustment of entire advance against supply of sand at subsequent date. It was submitted that Mr Bhola Prasad Yadav of Koilwar, Bhojpur had replied to ld AO with duly sworn affidavit together with his recent photograph confirming that he had given Rs 5,00,000/- on 31.12.2005 vide DD No. 111208 and purchased 625 trucks of sand in Financial Year 2006-07 of total value of Rs. 5,00,000/- .

4.16. Without prejudice to the aforesaid arguments, it was submitted that the ld AO in his order had raised questions about specific 54 persons out of 470 persons and had not provided any specific explanation / objections about the remaining 416 customers from whom advances were received by the assessee. At least the advances received from these 416 persons should have been treated as genuine which was also not done by the ld AO.

4.17. It was further submitted that the custom and history of providing advances in lieu of sand is very old in the districts of Bihar, where primary source of income is agriculture and business of sand. Earlier they used to work under co-operative society consisting of local public as its customers and used to collect advances from local public and used to supply sand in lieu of their advances. With a view to substantiate this contention, the assessee submitted the audited accounts of one co-operative society “M/s Pareo Sramik Sahyog Samiti Ltd, Pareo, Bihar” for the year ended 31.03.2005 in which sales were reported at Rs. 1033.71 lacs and advance from customers were reported at Rs. 413.79 lacs against allotment of work order for one district whereas the assessee was allotted work order for three districts. Even few names under the head ‘advance from customers’ were common.

4.18. Finally, it was submitted that the sale of sand to these customers were subject matter of verification by the ld AO in the Asst Year 2007-08 against the petition made u/s 154 of the Act dated 2.3.2009 for seeking credit of TCS u/s 206C(4) of the Act on the basis of corresponding income upon sale of sand to those impugned customers from whom advances were received by the assessee in the year under appeal. Detailed customer wise list of sales in the Asst Year 2007-08 were submitted to the ld AO in the rectification proceedings u/s 154 of the Act. The certified copy of the sales tax return relating to the financial year 2006-

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 07 obtained from Commercial Tax Officer was also furnished to corroborate the claim of sales in the subsequent year to those impugned customers.

4.19. It was argued that the ld AO had applied the ratio of judgment rendered in the case of Sumati Dayal vs CIT reported in 214 ITR 801 (SC) . The ld AO suspected that assessee has ever carried on business of sand in the absence of past experience and therefore possibility of receipt of advances is remote, consequently applied the above judgment. It was submitted that the reliance on the said judgment has no basis in view of the fact that the work order for raising sand were allotted by the Government of Bihar and the ld AO himself had allowed credit of TCS collected by Government of Bihar. Moreover, the assessee had paid royalty of Rs. 5,01,25,001/- in the Asst Year 2006-07 and Rs. 14,76,67,588/- in the Asst Year 2007-08 to the Government of Bihar against the work order as evident from the audited profit and loss account of respective years. With regard to another case relied upon by the ld AO on the decision of CIT vs Durga Prasad More reported in 82 ITR 540 (SC), it was submitted that the said decision is actually in favour of the assessee in the facts of the instant case as it was held that ‘Apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real’. In the instant case, it is not in dispute that the supply of sand had been made by the assessee in the Asst Year 2007-08 to those customers from whom advances were received and the same were also subjected to due verification by the ld AO in the rectification proceedings u/s 154 of the Act. In these circumstances, ‘What is apparent is real’ is proved beyond doubt.

(ii) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in deleting the addition of Rs.7,74,85,884 made u/s.68 of the I.T. Act, 1961 in spite of the fact that the assessee has failed to establish the genuineness of relevant transactions with 469 parties and their capacity to make advances as required by law.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 (iii) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in deleting the addition of Rs.7,74,85,884 made u/s.68 of the I.T. Act, 1961 without properly appreciating the fact that the AO has brought adequate evidence on record to prove that 469 parties had no capacity to make advances to the assessee.

(iv) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in deleting the addition of Rs.7,74,85,884 made u/s.68 of the I. T. Act, 1961 without properly appreciating the fact that the AO has brought adequate evidence on record to prove that the transactions with 469 parties were not genuine as the repayment by alleged sale of sand to such parties by assessee has not been conclusively established.

(v) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in accepting the assessee's explanation that allowing credit of TCS in order u/s.154 of the I.T. Act proves the genuineness of sales made to 469 parties who have made advances.

(vi) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in accepting the assessee's explanation that sales of sand to 469 parties in subsequent year are genuine without appreciating the fact that in respect of genuine sale of sand to other parties the payments are received only after sale of sand as per information given by assessee.

(vii) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in deleting the addition of Rs.7,74,85,884 made u/s.68 of the 1. T. Act, 1961 without appreciating that all these conditions viz. identities, genuineness of transaction & capacities of parties in respect of cash credits should be satisfied cumulatively, which is not there in this case.

(viii) On the facts & circumstances of the case the order of Ld CIT (A) is perverse, hence same may be set aside and order of AO be restored.”

The assessee had raised the following cross objections before us :- “1. That under the facts & circumstances of the case, Ld. CIT(a) erred in confirming the addition of Rs.49,000/- being advance given by Mr. Jaykant against sale of sand at subsequent date despite the assessee submitted confirmation letter & other documentary evidence to prove its bonafide. 2. That the CIT(A) was not justified in sustaining addition Rs.49,000/- on the basis of hostile & vindictive witness.”

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 among others. We find that the assessee had taken advances from various customers for its sand business as under:- “Particulars Amount (Rs.) Advances taken in AY 2006-07 79,623,784.00 Less: Sales made in AY 2006-07 2,088,900.00 Total Advances as on 31.03.2006 77,534,884.00 Less: Sales made in AY 2007-08 77,534,884.00 Total Advances as on 31.03.2007 Nil”

We find that the out of total advances remaining unpaid as on 31.3.2006, the assessee had made sales amounting to Rs. 7,75,34,884/- in the Asst Year 2007-08 which fact is quite evident from the audited financial statements of the assessee enclosed in the paper book. We find that the 470 customers had responded to the ld AO enclosing their voter ID card or ration card, residence proof and other proof of identity. Some of them had filed affidavit affixing their recent photo confirming the entire transactions with the assessee. We find from the paper book that all the customers except Mr. Jaykant (advance received Rs 49,000/-) had admitted that the advance deposit was made with the assessee out of their own money for purchase of sand. Some of them even admitted that advance to the assessee was paid by the group head of 8 to 10 persons out of money received from members of the respective group.

7.1. We find that the ld AO had duly accepted the fact of assessee supplying sand to these customers in Asst Year 2007-08 out of adjustment of advances received in the year under appeal during the course of granting credit of TCS in the rectification proceedings u/s 154 of the Act. It is not in dispute that the assessee had preferred rectification petition u/s 154 of the ct on 2.3.2009 for Asst Year 2007-08 seeking for credit of TCS deducted by Bihar Government u/s 206C(4) of the Act, enclosing the customer wise details corroborating the sales figure disclosed in the audited profit and loss account for the year ending 31.3.2007. The TCS credit was granted by the ld AO after extensive verification of the veracity of the claims made thereon together with the entire supporting documents for each party. We find that the sale of sand made by the assessee is chargeable to sales tax under Bihar Value Added Tax from whom certified copies of total sales were obtained from respective Bihar Sales Tax Department containing customer wise details of the assessee. We find that the claim of sales to the depositors (i.e customers from whom advances were received) also tallied with that of the enquiries conducted u/s 133(6) of the Act. We find that the assessee

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 had duly proved its case by showing that deposits so found credited in its books was the money belonging to the customers to whom sales had been made in the subsequent Asst Year 2007-08 and their account stood settled by the supply of sand to them. These facts were admitted and confirmed by all the customers except Mr Jaykant in an enquiry conducted u/s 133(6) of the Act by the ld AO. It is not in dispute the sales so confirmed and admitted by those depositors were duly reflected as such in the audited profit and loss account of the assessee for the year ended 31.03.2007.

7.2. We find that the ld AO had made a wild allegation that the assessee had managed the local post office. When an enquiry was conducted at the back of the assessee u/s 133(6) of the Act and notices were sent to more than 50 post offices in three districts of Bihar which admittedly worked under Central Government and not under assessee, it would be unfair to conclude that the assessee was controlling all those post offices for the purpose of receiving the notices and giving replies thereon. We hold that the finding of the ld AO that the assessee had managed the local post office is wild presumption and allegation of the ld AO. We hold that this finding of the ld AO is highly unwarranted in the facts and circumstances of the case highly doubting the system of working of the Department of Government of India.

7.3. We find that : (a) The assessee got its work order from the Bihar Government through the process of tender.

(b) The income from business of sand was assessed by the ld AO under the head ‘income from business’.

(c) The ld AO allowed credit of TCS in both the years i.e Asst Years 2006-07 & 2007-08 deducted by Bihar Government.

(d) The assessee had paid royalty of Rs. 5,01,25,001/- in Asst Year 2006-07 and Rs. 14,76,67,588/- in Asst Year 2007-08 to the Bihar Government against the work order as evident from the audited financial statements of respective years and the same was allowed by the ld AO while determining the business income of the assessee.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 (e) Enquiries were conducted by the ld AO u/s 133(6) of the Act by sending notices to all the 470 customers of the assessee from whom the assessee had received advances against supply of sand.

(f) All the 470 customers had duly responded to notice u/s 133(6) of the Act before the ld AO and confirming the fact of having paid the monies to the assessee and the same having got squared up against the supply of sand made by the assessee in the Asst Year 2007-08.

(g) The sales made by the assessee in the Asst Year 2007-08 has been accepted by the ld AO in the rectification proceedings u/s 154 of the Act while granting the credit of TCS deducted by Bihar Government.

(h) No adversity was found in the identity of the customers and their proof by the ld AO when replies were filed by the ld AO.

(i) The ld AO had not commented in his order with any adverse remarks in respect of 416 customers who had replied in response to notices issued u/s 133(6) of the Act behind the back of the assessee. All these parties had duly confirmed the fact of having business relationship with the assessee by paying advance to the assessee and those advances getting squared up by supply of sand by the assessee in the subsequent Asst Year 2007-08.

(j) It has been proved beyond doubt that the general practice in the sand industry is that the willing customers would pay advance to the supplier of sand. In the instant case, some of the customers were even common who had previously purchased the sand from the co- operative society ( M/s Pareo Sramik Sahyog Samiti Ltd, Pareo, Bihar) by making advance payments, and had also transacted with the assessee by purchasing sand by following the age old practice of making advance payments. Since the work order is obtained by the assessee through the process of tender from the Bihar Government, the prospective customers would throng on the assessee to get their supplies ensured by making advance payments. This aspect cannot be doubted with in the facts and circumstances of the case when more so, it has been proved on record that the major source of income in Bihar is agriculture and business of sand. These facts are not disputed by the revenue before us.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 (k) All the allegations of the ld AO and discrepancies alleged to have existed have been duly met by the ld AR before us point by point and with sufficient evidences by making specific references to the detailed paper book filed and forming part of records.

(l) The entire advances received in the year under appeal have been duly adjusted against the sale of sand made by the assessee in the Asst Year 2007-08 which has also been extensively verified by the ld AO in the rectification proceedings u/s 154 of the Act while granting credit of TCS.

(m) Even in respect of advance received from Mr Jaykant in the sum of Rs. 49,000/- who had not confirmed before the ld AO of having transaction with the assessee, the assessee had duly supplied sand to him in the subsequent year and sales have been booked in Asst Year 2007-08. This is also accepted by the ld AO in the Asst Year 2007-08.

(n) We find that ld AO at page 6 para 6 had referred the names of two customers namely M/s Shristi Developers (P) Ltd and Mr Chhotelal Shaw (who had paid an advance of Rs 45 lacs and Rs 4.99 lacs against which sales were effected for Rs. 15 lacs and Rs 1.99 lacs respectively) and the balance amount that remained outstanding as on 31.3.2006 was treated as unexplained cash credit. This goes to prove that the ld AO had accepted the portion of advance as is attributable against sales made in the year under reference and treated the balance portion of the same advance amount an unexplained cash credit.

(o) The entire sale of sand made by the assessee in the Asst Years 2006-07 and 2007-08 were duly subjected to Bihar VAT by the Bihar Government and certified copy of sales tax returns were also filed before us. The ld CITA had observed that the ld AO had also obtained certified copies of the sales tax compliances of the assessee directly from the Bihar Government in respect of sales of sand made by the assessee.

7.4. With regard to the advance received from Mr Jaykant in the sum of Rs. 49,000/- , we find that though the party had denied the fact of having transaction with the assessee and the ld CITA had stated that the assessee did not chose to cross examine Mr Jaykant when provided with an opportunity , the fact of monies received from him in the form of trade advance and subsequent sales made to him by supply of sand wherein the advance got squared up were not denied by the revenue before us.

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 7.5. We find that the assessee had duly discharged its initial onus of explaining the nature and source of credit, identity of the creditors, genuineness of the transactions and creditworthiness of the parties. We find what has been received by the assessee is only trade deposit from customers which has been adjusted against supplies of sand and sales booked by the assessee have been duly accepted by the revenue in the Asst Year 2007-08. In these circumstances, holding that the receipt of money in the form of advance from customers is a mere colourable device by the ld AO is devoid of any merit. In any case, the provisions of section 68 of the Act could not be invoked in respect of trade deposits received from customers. Reliance in this regard is placed on the following decisions in support of this proposition :-

(a) Decision of Third Member of Agra Tribunal in the case of ITO vs Laxman das Makhija reported in (2009) 116 ITD 47 (TM )

(b) Decision of Hon’ble Allahabad High Court in the case of CIT vs Bhital Das Modi reported in (2005) 276 ITR 517 (All)

(c ) Decision of Hon’ble Delhi High Court in the case of CIT vs Tulip Finance Ltd reported in (2009) 178 Taxman 182 (Del)

(d ) Decision of Hon’ble Delhi High Court in the case of CIT vs Chemi Kleen India (P) Ltd reported in (1990) 181 ITR 198 (Del)

(e ) Decision of Hon’ble Bombay High Court in the case of CIT vs S.D. Investment & Trading Co. reported in (2008) 306 ITR 31 (Bom)

Respectfully following the aforesaid decisions, we hold that the ld AO erred in treating the trade advances received from customers, which were adjusted against sale of sand, as unexplained cash credit u/s 68 of the Act.

7.6. We also find that the issue is also squarely covered by the decision of the Hon’ble Jurisdictional High Court in the case of Crystal Networks (P) Ltd vs CIT in of 2002 dated 29.07.2010 wherein the questions raised before the Hon’ble High Court were as under:-

The Court :- This appeal was admitted by this Court on the following substantial questions of law :-

CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 "I. Whether on the facts and in the circumstances of the case the Tribunal is justified in law in confirming the addition of Rs. 8,50,000/- as unexplained cash credit made by the Assessing Officer solely relying on an entry made in the order sheet which has no direct nexus with the present issue and while completely ignoring all the relevant materials and evidence available ?

II. Whether the addition of Rs. 8,50,000/- to the income of the assessee as unexplained cash credit by the Tribunal is sustainable in law and/or is not unreasonable and perverse ?"

The decision rendered thereon is as under:-

Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that ITO did not consider the material evidence showing credit worthiness and also other documents viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidi. These evidences were duly considered by the CIT (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the ITO. He further contended that when the Tribunal has relied on the entire judgment of the CIT (Appeals), therefore it was not proper to take up some portion of the judgment of the CIT (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the CIT (Appeals).

In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram Vs. Commissioner of Income-Tax, Bombay City reported in 66 ITR 462 In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must in deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT (Appeal) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the CIT (Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the CIT (Appeal) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows :-

"The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law." The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if CO No.116 of 2010 Chitravali Sales (P) Ltd. AY 2006-07 the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the CIT (Appeals). We also found no single word has been spared to up set the fact finding of the CIT (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. Hence the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the CIT (Appeal). The appeal is allowed. There will be no order as to costs.”

In the instant case, from the aforesaid findings , it could be safely concluded that the amounts received by the assessee were only trade advances and the same were duly squared up by supply of sand by the assessee to those customers and sales were booked in the Asst Year 2007-08 which was also accepted by the ld AO in the rectification proceedings u/s 154 of the Act while granting credit of TCS u/s 206C(4) of the Act.

7.7. Respectfully following the aforesaid judicial precedents including that of the Hon’ble Jurisdictional High Court, and in view of the specific findings hereinabove in the given set of facts and circumstances of the case , we hold that the monies received by the assessee are only trade advances and the same has been proved by the assessee as a genuine credit and in any case cannot be the subject matter of addition u/s 68 of the Act. Accordingly, the grounds raised by the revenue in this regard are dismissed and the ground of the assessee in its cross objection is allowed.

Order pronounced in the open court on 10.08.2016