Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-VIII, Kolkata in appeal No.314/CIT(A)-VIII/Kol/08-09 dated 24.01.2012. Assessment was framed by ACIT, Circle-9 Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 22.11.2008 for assessment year 2006-07. The grounds raised by the Revenue per its appeal are as under:- “1) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that the provision of section 40(a)(ia) is not applicable as the said expenditure were expended towards purchase of computer related ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 2 software whereas the assessee has claimed as computer maintenance expenses. 2) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct by not disallowing the capital expenditure while holding that the said expenditure were expended towards purchase of computer related software because purchasing of computer or computer software is capital expenditure in nature. 3) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that the sundry creditors’ stands due to purchase made in credit whereas the assessee has made purchases from recognized stock exchanges where no credit is allowed and not only that, there is no name of any stock exchanges in the list provided by the assessee before the Ld. CIT(A). 4) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in admitting new evidence without recording the reasons for its admission in contravention of provision of Rule 46A(2) and not given reasonable opportunity to the assessing authority to examine the new evidence or to produce any evidence in rebuttal as required under Rule 46A(3).”
Shri Somnath Ghosh and Shri Sarnth Ghosh, Ld. Authorized Representatives appeared on behalf of assessee and Shri Rajt Kumar Kurrel, Ld. Departmental Representative appeared on behalf of Revenue.
First issued raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer u/s 40(a)(ia) of the Act on account of expenses incurred on the purchase of software related to computers whereas assessee has claimed the same as computers maintenance expenses.
Facts in brief are that assessee in the present case is a Public Limited Company incorporated under the Companies Act, 1956 and engaged in the business of share broking and is also registered with SEBI as a Member of the National Stock Exchange of India. During the course of assessment proceedings, AO observed that assessee has claimed computers and software maintenance expenses for ₹2,51,525/-. However the assessee failed ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 3 to produce documentary evidence in support of aforesaid expenses at the time of assessment proceedings. Therefore, AO has disallowed the same and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the details of these expenses were never called for by the Ld. AO. In today’s era when entire share market runs on computer, then existence of computer & software maintenance charges are natural. Since the accounts of the assessee are subject to audit under various Acts, hence possibility of lack of supporting evidence is remote. The necessary details of computer & software maintenance charges such as date of payment, name of the party to whom the charges were paid & mode of payment were submitted. It was also submitted that payments to these parties are not towards payment under any contractual obligations which is the pre- requisite for tax deduction at source U/s 194C, rather these are the payments for purchase of computer related software. Hence, provisions of Sec. 194C are not applicable to these payments. After considering the submissions of assessee Ld. CIT(A) deleted the addition made by AO by observing as under:- “…. …. I have considered the submissions made on behalf of the appellant, the contents of the remand report and the evidence produced before me. Considering all the facts, in my opinion, there is no case for any disallowance out of the expenses claimed. Had it been default under sec. 40(a)(ia) for failure on the part of the appellant company deduct tax at source under sec. 194C of the Act, the Assessing Officer ought to have given specific finding in the assessment order after brining on material on record. This is not the case therefore, the claim of the appellant should prevail. The addition of Rs.2,51,525/- made by way of disallowance of expenses out of computer software maintenance charges is deleted. This ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us Ld. AR submitted index of paper book which contents pages 1 to 336 and stated that assessee-company deal in share broking activities. Accordingly he had to abide by the rules and regulations framed by the ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 4 Securities and Exchange Board of India. Under their mandate, the assessee had to maintain the records of its clients in the computer network and accordingly had to obtain the designated software for such purpose. It had therefore no alternative but to compulsorily follow the requirements of its statutory regulator. Thus, the expense on account of maintenance of computer networks and software or updating such software did not create any asset of enduring benefit but merely served the purpose of carrying on the activities of the assessee in the manner desired by the statutory regulator which wielded absolute authority on its members to exercise their supervisory jurisdiction. In course of remand proceedings, the assessee had produced the copies of the bills and the detail of payments on that behalf which were mostly through banking channel. The assessee maintained books of account which were duly authenticated by supporting vouchers and the complete details in this regard were produced before the AO in course of the remand proceedings. The AO in the remand report did not comment adversely on the evidence adduced on record. AO however choose to import an altogether new dimension to deal with the matter. The only grievance raised by the AO in the remand report is that “it was observed that assessee had paid in excess of Rs.20,000/- to M/s Silpi Software & M/s Financial Technologies (India) Ltd without deduction of TDS. As such, same should be disallowed.” It is an admitted fact that the details of payments made by the assessee to these entities were submitted before the Assessing Officer. In pursuance of its activities, the assessee had to purchase software and their updates for which content was bought from these two concerns. In curse of remand proceedings, it was apprised to the AO that since the payments made to these two concerns were towards ‘sale’ by the assessee, there was no need to deduct any tax at source from such payments made. The AO however, was not impressed with such contention. It was misconceived by the AO that the purchase of software and its updates by the assessee arose out of contractual obligation. It is therefore, an admitted fact that the AO has not correctly appreciated that the transactions is in the nature of ‘purchase’ which is consequently a ‘sale’ by ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 5 the other party. The AO did not prove the existence of a contact between these two concerns and the assessee and accordingly, his consideration in application of the provisions of 40(a)(ia) read with s. 194C of the Act is redundant in the circumstances. It is not in dispute that the assessee had purchased software and updates thereof from these two concerns. As the transactions of sales and purchase are outside the scope and ambit of s. 194C of the Act therefore the finding of AO by invoking the provisions of s. 40(a)(ia) of the Act in circumstances of the case is thoroughly tenuous. In other words, the prognosis arrived at by the futile imagination of AO can never be the criterion for taking the transactions concerned outside the purview of ‘purchase and sale’. The only relationship which can subsist in the circumstances between the assessee and said concerns is that of purchaser and seller. It has been clarified that the provisions of this section will not cover contracts for sale for goods [CIRCULAR NO.681/F.No.275/54/93-ITB (1994) 206 ITR (ST) 299]. There is no dispute that there was a contract which in the instant case amounted to contract for sale of goods and not works contract so to invite the mischief of s. 194C of the Act. In the instance case, there was no contract subsisting between the assessee and the two concerns for carrying out any work on its behalf and nothing has been brought on record to the contrary by the AO apart from is baseless imagination on the issue and accordingly, the alleged proposal to invoke the provisions of s. 40(a)(ia) of the Act in the instant case is ultra vires the scope and ambit of such enactment. It is thus axiomatic that the provisions of s. 40(a)(ia) read with s. 194C of the Act were not attracted in the circumstances and as such no liability to deduct tax at source arises and therefore, the action conceived in this respect is wholly unfounded in the circumstances. In such AO misconstrued the legal position in this respect considering extraneous factors not germane to the issue and the Ld. CIT(A) in appreciating the evidence in the correct perspective and came to the opposite finding within the statutory prescription in this respect.
On the other hand, Ld. DR vehemently relied on the order of AO.
ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 6 6. We have heard the rival contentions and perused the materials available on record. We find that AO has made the assessment u/s. 144 of the Act by disallowing the expense claimed by assessee under head “computer and software maintenance” on the ground that no documentary evidence in support of such expenses were furnished. However, Ld. CIT(A) has deleted the addition by holding that provision of TDS are not applicable to this transactions as the expense was incurred for the purchase of software. In appellate stage, Ld. CIT(A) has also called for remand report from AO which is placed at 24 page of paper book, which reproduced below:- “4. Assessee has produced ledger copy of “Computer & Software maintenance” wherein it was observed that assessee has paid in excess of Rs.20,000/- to M/s Shilpi Software M/s Financial Technologies (India) Ltd without deduction of TDS. As such, same should be disallowed.”
In remand report AO submitted that payment made to M/s Shilpi Software and M/s Financial Technologies (India) Ltd. were subject to TDS and same has not been complied with. However, the bills submitted of the above parties which are placed at pages 79 to 82 of assessee’s paper book, on its perusal, we find that these expenses have been incurred towards the purchase of software and as such no service was involved. Therefore, in our considered view, that such transactions were out of purview of TDS provision. The assessee has also submitted the ledger copy of computer and software maintenance which is at page 276 of the assessee’s paper book where the payment details through banking channel has also been placed. Therefore, the genuineness of the expense cannot be doubted. Accordingly, in our considered view, we uphold the order of Ld. CIT(A) and this ground of Revenue’s appeal is dismissed.
Next issue raised by Revenue in ground No. 2 is that Ld. CIT(A) erred in not disallowing the capital expenditure incurred by assessee for purchase of software expense.
ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 7 8. At the outset we find that the issue raised in this ground by Revenue is connected with the first ground of appeal and it was submitted that the expense incurred on the purchase of software amounts to capital expenditure but assessee instead of capitalizing the same has claimed as revenue expenditure, therefore, it needs to be disallowed. However, Ld. CIT(A) has treated the same as revenue in nature and deleted the same.
Aggrieved, Revenue is in appeal before us with the issue that such expense should be treated as capital in nature.
From the facts of the case, we find that expense incurred on account of maintenance of computer and software or update them do not create any asset of enduring benefit but merely assist the assessee to carry out its activities in the manner desired by statutory regulator. As such, we find that no fixed asset is coming into existence out of the expense incurred for the purchase of software. Hence, in our considered view, the issue of capitalizing the same expense does not arise and we uphold the order of Ld. CIT(A). In this connection we are putting our reliance in the judgment of Hon’ble High Court of MADRAS in the case of CIT Vs. SOUTHERN ROADWAYS LTD. (2006) 282 ITR 379. The relevant extract of the order is reproduced below.
"(iv) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that Rs. 24,12,000 paid to HCL for purchase of new computers allowable as a deduction as a revenue expenditure ?" 7.2. Insofar as fourth question is concerned, it is not in dispute that the assessee did not claim any expenditure for installation of new computers, but claimed the expenditure for the upgradation of the existing computers. Further, the expenditure was incurred for improving the efficiency of the existing system with a view to keep pace with improvement of technology and no machinery was brought into existence. As rightly pointed out by the Tribunal, there was no complete structural alteration and, on the other hand, there were only changes in certain areas for improving efficiency and achieving good results. The assessee has not achieved any enduring benefit. 7.3. The Supreme Court in Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC), after referring to B.P. Australia Ltd.
ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 8 vs. Commr. of Taxation of the Commonwealth of Australia (1966) AC 224 (PC), held that : "What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature’ was evolved to emphasis the element of a sufficient degree of durability appropriate to the context." It was also held that the phrase "enduring benefit" is not thinking of advantages that are permanent. There is a difference between the lasting and the everlasting. 7.4. In the light of the above ratio laid down by the Supreme Court, we are of the view that upgradation of computers by changing certain parts thereby enhancing the configuration of the computers for improving their efficiency, but, without making any structural alterations is not of an enduring nature. Further, the assessee had not acquired any computer software. The expenditure incurred by the assessee has, therefore, to be treated as revenue expenditure. Accordingly, the question is answered in the affirmative, against the Revenue and in favour of the assessee. In the result, both the appeals stand dismissed. Consequently, TCMP No. 1207 of 2005 is also dismissed.”
Respectfully following the aforesaid decision, we find no reason to interfere in the order of ld. CIT(A). Hence this ground of appeal of Revenue is dismissed.
11. Next ground raised by Revenue in this appeal that Ld. CIT(A) erred in deleting the addition made by AO on account of bogus sundry creditors. During the course of assessment proceeding assessee failed to produce any documentary evidence in support of its sundry creditors shown in the balance- sheet for an amount of ₹1,77,89,435/-. Accordingly, AO treated the same as unexplained cash credit u/s 68 of the Act and disallowed the sundry creditors of ₹1,77,98,475/- added to the total income of assessee.
12. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas it was submitted that AO has not given to us sufficient opportunity to submit the details & produce evidences. The Ld. AO action of evocation of provision of Sec. 68 to add the amount of sundry creditors in want of evidence as cash ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 9 credit is not a justified act. The Ld. AO forgot that the assessee has shown purchase / sale of share in the Audited accounts submitted before him. When there is sale / purchase, there will remain sundry debtors / sundry creditors. Further the assessee earns income from share braking. In share market if a client sales or purchase shares, the transaction of payment takes place after 2-3 days depending upon the delivery of shares received/ made. It is the guideline prescribed by the SEBI, the share Market Regulatory in India. Till then the debit / credit entries will reflect in the books of account of the Broker. Considering those balances as cash credit is totally wrong & unjustified. The details of sundry creditors which contain details such as name of the party, address, PAN & amount due to him. The copies of Ledger print out of some of those parties, confirmation from some of the parties, copies of their IT return & copies of KYC forms is an evidence to prove the sundry creditors genuineness as well as their existence. It is worth mentioning that scrutiny proceeding of the same assessee has also taken place for the AYs 2007-08 and 2009-10, the same Ld. AO who has passed this order has also completed the scrutiny proceedings for the Asst. Year 207-08 u/s. 143(3) and allowed the same set of sundry creditors. Further for the Asst. Year 2009-10, the present AO have verified some of the sundry creditors (almost same set of sundry creditors) by issuing Notice U/s. 133(6) of the IT Act & duly got replies thereof. We are submitting herewith copies of Asst Order passed U/s. 143(3) for the Asst. year 2007-08 & 2009-10 for your kind reference. As regard the Ld. AO comments under the remand report submitted by him that the assessee has produced list of sundry creditors, but genuineness of sundry creditors could not be found. It is submitted herewith confirmation Letter, copies of their IT returns & copies of KYC forms as proof of their genuineness & existence. These are the additional evidence which may please be admitted since the Ld. AO has not given us sufficient opportunity to produce the details & evidence. In view of the above submission made, it is humbly prayed that the grounds raised by the assessee may please be allowed.
ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 10 13. Considering the submissions made before the L’d CIT(A) who deleted the addition made by AO by observing as under:- “I have carefully gone through the submissions made on behalf of the appellant, and the material placed on record. I have also gone through the remand report of the Assessing Officer. Apparently, the assessment has been made in haste without affording adequate opportunity to the appellant company. Even the Assessing Officer has not discharged his burden of proof in spite of the fact that the appellant has furnished complete list of the sundry creditors. It is undeniable fact that there are bound to be sundry creditor and debtors even for the last day of the financial year. It is true that scope of section 68 is not restricted only to cash entries in accounts and that if credits in account found bogus, the same can be added. However this is not the case of the appellant. The sundry creditor are evidently trade creditors. Even the same Assessing Officer has found existence of same set of sundry creditors after verification under sec. 133(66) of the IT Act as genuine in assessments made under scrutiny for subsequent assessment years, i.e. for Assessment Years 2007-08 and 2009-10. The Assessing Officer has not brought any material on record to support his finding that the sundry creditors are not genuine or unexplained or bogus in spite of the fact that the Assessing Officer has been given an opportunity to examine the additional evidence put forth by the appellant in the remand stage. On the other hand the materials evidence regarding the sundry creditors placed on record supports the claim of the appellant. In the view of the matter, the addition made by the Assessing Officer on account of unexplained sundry creditors is not sustainable. (Reliance is also placed on the decision of the Hon'ble Delhi High Court income CIT vs. P.S.Jain & Co. Ltd. (210) 322 ITR 320 (Del)) in this regard.
There is another aspect of the matter in the case of CIT vs. Pancham Das Jain (2006) 205 CTR (All) 444, it was held that provisions of Sec.68 are not attracted to amounts representing purchases on credits. It was observed. The Tribunal has recorded a categoric findings of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading results disclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and therefore, the provisions of section 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as on the basis of the findings recorded b it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the said two amounts under section 68 did not arise inasmuch as the provisions of section 68 would not be attracted on the purchases made on credit.”
ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 11 In view of the above and considering the fats and in the circumstances of the cases and the emerging legal position, the addition of Rs.1,77,98,435/- on account of explained sundry creditors is held to be unjustified and unwarranted. The addition is, th4erefore, deleted.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us Ld. DR submitted that creditors were not verified at the time of assessment proceedings u/s 144 of the Act with regard to their identity, creditworthiness. He further observed that assessee has submitted the computer prints out in support of its claim for sundry creditors but the verification of the said creditors has not been done by AO during the assessment proceedings. Lastly, he prayed before the Bench that issue may be remitted back to the file of AO for fresh adjudication.
In rejoinder Ld. AR submitted that it is an admitted fact that in the instant case the AO had made an addition of Rs.1,77,98,435/- by invoking the provisions of section 68 of the Act by conceiving that the outstanding amount payable on account of Sundry Creditors were allegedly unexplained. He stated that there is no dispute that the assessee maintained books u/s. 44AA of the Act which was duly audited under the statutory requirement of section 44AB of the Act. The provisions of section 68 of the Act come into play only where the AO found that a cash credit is recorded in the books and the assessee offered no explanation as to the nature and source thereof or the explanation offered is not satisfactory in his opinion then such credit may be deemed to be the income of the taxpayer for the corresponding Assessment Year. He further stated that the conditions precedents are as under (1) There shall be a credit appearing in the books of account of the assessee; (2) An opportunity for submitting an explanation as to the nature and source of such credit entry appearing within the books of account is to be provided to the assessee; and ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 12 (3) The assessee offers no explanation or such explanation offered by him is not satisfactory in the opinion of the Assessing Authority, only then the amount may be deemed to be income of the assessee. There is no doubt or dispute that the addition of Rs. 1,77,98,435/- was made without giving any opportunity to the respondent.
In the remand proceedings the AO did not issue any summons u/s. 131 of the Act and/or notice u/s. 133(6) of the Act to such addresses as provided by the assessee to verify the existence of such creditors. He further stated that it is also not in dispute that the respondent had regular business transactions with these clients during the previous year relevant to the assessment year under dispute. The assessee had made purchases transactions and/or settlement worth Rs. 2,74,36,705/- in aggregate during such period in respect of these clients. Further assessee made sale transactions and/or settlement of Rs. 2,53,69,738/- in aggregate during the relevant previous year. He stated that assessee had an opening balance of Rs.1,57,31,469/- as on 01-04-2005 and accordingly an amount of Rs.1,77,98,436/- in aggregate in respect of the 75 clients was disclosed as Sundry Creditor as on 31-03-2006. A "cash credit" as conceived within the scope of section 68 of the Act does not arise from a trading transaction but involves merely deposits and withdrawals. He stated that in the instant case, the item under "Sundry Creditors" represents the payments due to clients on account of sale of shares. In other words the amount is basically credit balance on account of Sundry Debtors. He further stated that AO did not allow opportunity to the respondent to explain the nature of the items subsumed in the item "Sundry Creditors" and reached the conclusion in extreme haste. In pursuance of its activities as a share broker, the assessee had to deal on behalf of its clients. Ld. AR stated that in the share market when a client purchase or sales shares then the transactions of payments takes place after a hiatus of two to three days which depends upon delivery of shares. Thus at the end of March 2006 such amount remained outstanding. This is not a unique future of the business of the assessee for the instant assessment year. It is a common enough item appearing in the previous as well as subsequent assessment years. It is an admitted fact that ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 13 in the remand proceedings the assessee produced the ledger account of the sundry creditors along with their confirmations as well as bank statements and also produced copies of returns of income in respect of some of them. He however nevertheless conceived that genuineness of the sundry creditors could not be established. This is a misnomer in the circumstances of the case. Further. the amount of Rs. 1,77,98,436/- disclosed on account of "Sundry Creditors" by the assessee were actually outstanding amount to be paid to its clients and were paid subsequently during the previous year relevant to the assessment year 2007-2008. He stated that AO framed the assessment order u/s. 143(3) of the Act for the AY 2007-08 wherein he had accepted the item 'Sundry Creditors' as the said sum of Rs.1,77,98,436/- was a mere outstanding amount against sales and hence the provisions of Sec. 68 of the Act do not come into play in as much as the sales recorded in the accounts were not disputed. The amounts outstanding were shown in the balance sheet as sundry creditors as on 31.03.2006 though they were mainly credit balance of the debtors. Ld. AR vehemently relied on the order of Ld. CIT(A).
We have heard the rival submissions of the parties and perused the materials available on record. From the aforesaid discussion, we find that assessment framed by AO u/s 144 of the Act by treating the sundry creditors of ₹1,77,98,455/- as bogus. However, Ld. CIT(A) deleted the same by holding that AO has not found out any defect in the purchase/ sales claimed by assessee in the books of account. We also find from the remand report of AO that assessee has produced ledger copy of sundry creditors but AO could not verify the genuineness of such sundry creditors. Now the question before us arises so as to whether the sundry creditors claimed by assessee the amount to unexplained cash credit when the relevant purchase/sales have already been accepted by AO. From the facts of the case, we find that once the purchase/ sales claimed by assessee had accepted by AO then corresponding sundry creditors/ debtors claimed by assessee cannot be doubted. In the instant case, AO has not accepted the purchase/sales as ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 14 claimed by assessee without bringing any relevant fact but the corresponding credit has been disallowed. Therefore, in view of the facts of the present case, the addition made by AO on account of bogus sundry creditor is not sustainable in law. In this connection, we also relied on the orders of various case laws ITO v. Smt. Umadevi Shankarappa Thimmaiah (2014) 49 taxmann.com. 496 wherein the Hon'ble co-ordinate Bench of Bangalore Bench has held as under:- “3.4 We have heard the rival submissions and perused the relevant materials on record. It is, admitted fact that all the credits are trade credits and none of the said credit of Rs.28,95,770 are cash credit. During last year the trade creditors covering 26 items were to the tune of Rs.13,89,152. In the current year the trade creditors swelled to Rs.28,95,779 (51 items). In fact the sundry trade creditors now under consideration include carry forward trade creditors to the tune of Rs.12,24,290. The assessee had produced ledger details of the trade- creditors as well as confirmatory letters from five major trade creditors vide her letter dt. 25th Oct., 2010. The confirmation letters filed for current trade creditors amount to Rs.12,16,474. The aggregate of last year’s carried forward trade credit and the confirmations filed for current year’s credit amount to Rs.24,40,964 out of Rs.28,95,770. The AO has failed to look into the information already on record and without making any proper enquiries on his own ha added back to income the entire trade creditors outstanding without any justification. In such circumstances of the case, we are of the view that the CIT(A) is justified in deleting the additions made by the AO. Therefore, we uphold the order of the CIT(A) as correct and in accordance with the law. It is ordered accordingly. Hence, appeal f the Revenue is dismissed.”
Reliance in the decision of co-ordinate Bench of Lucknow “A” Bench Third Member in the case of ITO v. Zazsons Exports Ltd. (2015) 55 taxmann.com 522 (Luk) wherein the head note: “Section 68 of the Income-tax Act, 1961 – Cash credits (Sundry creditors) – Assessment year 2005-06 – Assessee company was carrying on business of export of finished leather and manufacture of shoe uppers and shoes – While framing assessment, Assessing Officer required assessee to furnish complete lit of persons from whom raw hides of goats were purchased and from whom advance in shape of credit had been taken by assessee and to whom huge amounts were payable – Not being satisfied with reply given by assessee, Assessing Officer made addition under section 68 on ground that assessee failed to give postal add5ress, whereabouts, creditworthiness of vendor and ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 15 also could not prove genuineness of transaction – Whether mere non- verifiablity of sundry creditors ipso facto would not lead to conclusion that sundry creditors were bogus - Held, yes – Whether since Assessing Officer had drawn an adverse conclusion only on account of non- verfiability of sundry creditors but there being no dispute as regards purchases and trading results having been accepted, addition made under section 68 was not sustainable – Held, yes [Paras 15.2 & 15.3] [in favour of assessee] Further reliance in the judgment of Hon'ble Allahabad High Court in the case of CIT v. Pancham Dass Jain wherein the head note reproduced below:- “Section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 1976-77 – Assessee was a dealer in iron goods and agricultural implements – ITO while framing assessment of assessee for relevant assessment year found certain deposits appearing in books of account of se in name of two persons and, therefore, asked assessee to explain nature and source of various deposits – As se was not able to give satisfactory explanation with regard to nature and source of aforesaid deposits, ITO made addition under section 68 – Tribunal, however, recorded a categorical finding of fact based on appreciation of materials and evidence on record that said amounts represented purchases made by assessee on credit; therefore, it held that provisions of section68 would not be attracted in such cases and, accordingly, it deleted additions- Whether, on facts, Tribunal was justified in deleting additions – Held, yes It is also pertinent to note that the almost same set of sundry creditors were accepted in the assessment years 2007-08 and 2009-10 without making any disallowance. The ld. DR failed to bring anything contrary to the argument of the ld. AR.
Respectfully following the above precedents we are of the view that the Ld. CIT(A) is justified in deleting the additions made by the AO. Therefore, we uphold the order of Ld. CIT(A) as correct and in accordance with the law. It is ordered accordingly. Hence, appeal of the Revenue is dismissed.
Last ground raised by Revenue in this appeal is that Ld. CIT(A) erred in admitting the new evidence without recording the reason for its admission ITO Wd-9(3) Kol v. M/s Chanakya Stock Broking Services Ltd. Page 16 which is in contravention of provision of Rule 46A(2) of the IT Rules 1962 and without giving reasonable opportunity to the Assessing Officer.
At the outset, we find that Ld. CIT(A) has admitted all the new evidence produced by assessee after taking remand report from the AO. As such, in our considered view, the new fact has been admitted as per Rule 46A of the IT Rules and therefore, this ground of Revenue’s appeal does not require any adjudication.