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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, HONBLE & DR. A. L. SAINI, HONBLE ACCOUNTNAT MEMBER
Consolidated Appeals (4)
आदेश / O R D E R
PER DR. A. L. SAINI, AM:
This is the bunch of four cross-appeals, out of which two cross appeals filed are filed by the Assessee and two appeals filed by the Revenue, pertaining to assessment years 2012-13 and 2013-14 respectively, all are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), [in short ‘the Ld.
,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal CIT(A)’], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’].
Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in 2012-13, have been taken into consideration for deciding the above appeals en masse.
The grounds of appeal
raised by the Revenue as per the lead case, in AY.2012-13, are as follows: “(i) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,96,00,389/- made on account of bogus creditors to the extent of 5% purchases made from such bogus creditors without appreciating the facts that the AO has made detailed enquiry during the course of the assessment proceedings and it was established that the assessee created bogus liability of Rs.1,96,00,389/- in the form of creditors in his balance sheet and therefore, to that extent purchases debited in assessee's Trading & P & L account were bogus. (ii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in restricting the addition to the extent of Rs 5,92,205/- instead of Rs.62,72,720/- made by the AO on account of unexplained credits which has been added at GP ratio @ 9.3% of total credits of Rs.6,74,48,607/- in undisclosed bank accounts. Also, despite of the fact that the assessee has failed to explain the credits in his undisclosed bank account during the assessment proceedings/remand proceedings before the AO, the Ld. CIT(A) has accepted the working furnished by the assessee without any documentary evidences and proper explanation. (iii) On the facts and circumstances of the case and in Law, the Ld.CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld CIT(A)
1. Surat may be set-aside and that of the Assessing Officer's order may be restored. (iv) On the facts and circumstances of the case and in law, the appellant craves its right to add, alter, amend, deleted, any of the ground or grounds of appeal.”
ITA Nos.145,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 4. First, we shall take ground No.2 raised by the Revenue for assessment year 2012-13. The assessee has also raised ground No.2 in its cross appeal in for assessment year 2012-13.
Succinct facts qua ground No.2 are that during the course of assessment proceedings, it was also noticed by the assessing officer that the assessee is maintaining following bank accounts and these bank accounts have credits, as mentioned against them, in the following table: S.N. Bank & A/c. No. Total credits Turnover of concern Sutex Co-op. Bank A/c 1 Rs.4,98,64,071 2,80,77,592 24801610729 (Current A/c.) in the flame of Vijay Laxmi Creations, 2. Sutex Bank A/c.No.24801610510- Rs.28,26,680 Three Raju Enterprises (Joint joint holders account holder) 3. Sutex Bank A/c 248016-200155 Rs.1,65,87,893 4. A/C.248016-20034 Ramesh Rs.164,65,077 Two Bansal- Joint A/c. of joint holders assessee. 5. A/c.248016-200305 of Rajesh Rs.299,61,682 Two holders Bansal- Joint A/c of assessee 6. A/c.248016-200328 Hemlata, Rs.24,18,600 Bansal- Joint Account of assessee (Assessee's wife jointly with assessee 7. A/c. 248016-200329 Rametidevi P Rs.45,73,557 Jointly Bansal- Joint A/c of assessee held by assessee and his mother 8. A/c.248016-200330 Poonamchand Rs.28,45,105 Jointly J Bansal – Joint A/c of held by assessee and Assessee his father.
From the above table, the assessing officer observed that the assessee has huge credits in the bank accounts. The accounts appearing at Sr. Nos. 1 and 3 in above table are exclusively held by the assessee in his individual name or in the name of his proprietary concern. In the bank account of his proprietary concern, namely Vijay Laxmi Creations, it can be seen that the assessee has deposits to the tune of Rs,4,98,64,071/- and the business turnover of the assessee is only Rs.2,80,77,592/-. Thus, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal assessing officer noted that there is difference of Rs.2,17,86,479/- (Rs,4,98,64,071- Rs.2,80,77,592) and it may be the unaccounted business turnover of the assessee. When the assessee has given a detailed show cause letter asking his explanation by 16.3.2015, the assessee has not given any reply for the same. Therefore, assessing officer presumed that it is established that these receipts are the unaccounted business turnover of the assessee.
Further the account appearing at S.No.3 is the Saving Bank account of the assessee. This account is also having “ credits” to the tune of Rs.1,65,87,893/-, out of which there are cash deposits to the tune of Rs.13,42,000/-. This cash deposits are also reflected in the AIR information available with assessing officer. On this point also the assessee was show caused to file his reply by 16.03.2015. However, the assessee has not given any reply for the same. Therefore, assessing officer presumed that it is established that these receipts, to the tune of Rs.1,65,87,893/-, are the unaccounted business turnover of the assessee.
The assessing officer observed that following bank accounts are maintained by the assessee jointly with wife, brother, father and mother in Sutex Co-Operative Bank Ltd. These accounts are also having credits and the said accounts are held jointly with family members and therefore assessing officer assumed that the share of assessee is separately mentioned assuming that the joint account holders are also having their own business. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal S. Bank and A/c. No. Total credits Share of assessee N 1 Sotex Bank A/c,No,248016I0510- Rs.28,26,680 9,42,226 (1/3rd Raju Enterprises (Joint Three joint share account holder) holders 2 A/c.248016-20034 Ramesh Bansal- Rs. 1,64,65,077 82,32,538 (half Joint A/c, of assessee Two joint holders share) A/c.24801 6-200305 of Rajesh 3 Rs.2,99,61,682 1,49,80,841 being Two holders half share Bansal- Joint A/c, of assessee 4 A/c.248016-200328 Premlata Rs,24, 18,600 Rs.12,09,300 (half Bansal- Joint Account of assessee (Assessee's wife share) jointly with assessee 5 A/c. 248016-200329 Rametldevi P Rs.45,73,557 Rs.22,86,778 (1/2 Bansai- Joint, A/c,of assessee Jointly held by share) assessee and his mother 6 A/c.248016-200330 Pooriamchand J Rs.28,45,105 Rs.14,22,552 (half Bansal Jointly held by share) – Joint A/c-of assessee assessee and his father
Based on the above chart, the assessing officer, therefore computed total share of the assessee in the above joint bank accounts, which comes to Rs.2,90,74,235/- (Rs.9,42,226 + Rs.82,32,538 + Rs.1,49,80,841 + Rs.12,09,300 + Rs.22,86,778 + Rs.14,22,552). The assessing officer treated the above share of the assessee, in joint bank accounts, as his unaccounted business turnover.
In view of the above, the total unaccounted income of the assessee was computed by the assessing officer to the tune of Rs.6,74,48,607/- (Rs.2,17,86,479 + Rs.165,87,893 + Rs.2,90,74,235). Considering the Gross Profit of 9.3%, shown by the assessee, in the Audit Report, the Gross Profit of 9.3% was also calculated by the assessing officer on the unaccounted turnover of the assessee and accordingly the gross profit (GP) of Rs.62,72,720/- being 9.3% of Rs.6,74,48,607/- was added to the total income of the assessee, (being GP of undisclosed business turnover of the assessee).
,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 11. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has allowed the appeal of the assessee partly. During the appellate proceedings, the assessee submitted additional evidences and documents before the ld CIT(A). These additional evidences and documents were remitted to the file of the Assessing Officer for his examination and to submit the remand report. The Assessing Officer submitted the remand report before the Ld. CIT(A). The assessee filed his rejoinder against the remand report before the Ld. CIT(A). Then after, Ld CIT(A) taking into account, the remand report of the Assessing Officer and the rejoinder of assessee in respect of the remand report, has adjudicated the issue, and deleted addition partly, observing as follows: “9. DECISION Perused the details on records; assessment order, remand report, submission of the AR etc. In this case, the Id. AO has made two additions (i) estimation income on account of credits appearing in bank accounts (ii) addition of outstanding trade creditors. The grounds of appeal are adjudicated as under: 9.1.1 Ground No. 2 - Pertaining to addition of Rs.62,72,720/- on account of estimation of income @ 9.3% of the total deposits and credits appearing in 8 bank accounts in Sutex Co-op Bank, Surat. 9.1.1 The AR in appeal proceedings submitted that only two of the 8 accounts (Sr. No, 1 and Sr. No. 3 in table given by Ld. AO in show cause notice reproduced in assessment order para 8 ) belong to him. The other 6 accounts belong to other family members in which the name of assessee appears only as the second holder. The matter was remanded back to Ld. AO for examination and report. The remand report and the rejoinder of AR is reproduced above. The details of accounts are given in Table as under:
8. A/c. No. 248016200330 Rs.28,45,105/- Poonamchand J. Bansali (AAVPB6081B) 6 ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 9.1.2 From the remand report, it is clear that the Ld. AO has accepted the pleas of the assessees w.r.t bank accounts, at Sr. No 6, 7, 8. The findings of remand report is that bank a/c in sr. No. 6,7 & 8 do not belong to assesses as assessee is only the second holders of the account. That leaves only 3 bank accounts (Sr. Nos. 2, 4 and 5) to be adjudicated. Since the Id. AO has accepted that bank a/cs mentioned at sr. No. 6, 7 & 8 do not belong to assessee, the addition made on account of the credits in these 3 bank a/cs is hereby directed to be deleted. The Ld. AO has not accepted explanation of assessee in Sr. No. 4 and 5 for the reason that personal set of books of accounts was not furnished during the scrutiny assessment proceeding of the respective individuals who are first holders of bank account i.e., 1.Ramesh Bansal and 2. Rajesh Bansal respectively. The Id. AO has accepted the explanation of assessee in cases where the cases first holder of account was not subjected to scrutiny assessment but not accepted in cases where the cases of first, holder were subjected to scrutiny. The AR claims that the personal balance sheet and bank account were produced before Ld. AO in scrutiny assessment proceedings of the above persons. The AR filed affidavits of Shri Ramesh Bansal and Shri Rajesh Bansal, one affidavit on sample basis is reproduced below. As evident in affidavits, Shri Ramesh Bansal & Shri Rajesh Bansal have stated on oath that they are first holders of the bank account, that the receipts there in belongs to them, that it is reflected in personal set of books of accounts and that they were produced before Id. AO in respective scrutiny proceedings. 9.1.3 On examination of the details, 1 find that that bank account mentioned in audited balance sheet of proprietary concerns of above two first holders of bank a/c have inter se transfers and transactions with the impugned bank accounts (Sr No. 4 and 5), and the same are reflected in the Bank book of the proprietary concerns of the above two individuals? Admittedly books of a/c of the proprietary concerns were produced before ld. AO in assessment proceedings. The relevant entries are highlighted in the copies furnished. It can be seen that in the entries pertaining in transfer to and from impugned bank accounts (Sr. no 4 and 5 above), the name of the above two persons is mentioned and not the name of the assessee. Hence, any AO would have noticed it and presumably examined the said bank accounts during the two impugned scrutiny assessment proceedings. In view of these facts and circumstances, I find that the conclusion arrived at by ld. AO in remand report regarding bank a/cs at sl. No. 4 & 5 is not justified. Since, the first holders have, owned them up and they were also subjected to scrutiny assessment. I don't see any justification in taxing the same in the hands of assessee. 9.1.4 Further, since the bank account of proprietary concerns, balance sheets and also the bank book which have inter-se transfers were produced before Ld AO during respective assessment proceedings, it can be presumed that the impugned bank a/c and personal set of books would also be produced as claimed by the AR as well as by the first holders in affidavit. In view of the above, the AR's explanation succeeds in the test of preponderance of probabilities. Further, It is seen that the Ld AO has made addition only for the 7 ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal reason that, name of assessee appears as one of the holders of the bank account. No enquiries are made from bank or from other holders to ascertain the identity of the person who has been actually making the transaction in these bank accounts. It can be seen that Ld. AO estimated income on only part of credits in the account which is proportionate to number of holders, but has failed to make corresponding proportionate additions in case of other holders. Hence action of ld AO suffers from in congruencies & contradictions. Considering all the above facts and circumstances there is no justification for making addition in hands of assessee on account of bank accounts at sl. No. 4 & 5 of above table. 9.1.5 In Case of bank a/c at Sr. No 2, the AR/appellant has not been able to furnish any explanation or supporting documents, hence the conclusion drawn by Ld AO regarding the bank account at Sr. No 2 is confirmed. Accordingly, the addition made by Ld AO is confirmed to the extent of Rs. 2,62,881/- only. 9.1.6 Admittedly the bank account in Sr. No 1 & 3 belongs to assessee himself. The Ld. AO has considered total credits and deposits appearing in these two accounts as gross turnover of the assessee and estimated income @ 9.3% on the same after reducing the turnover shown by the assessee in trading and P&L a/c (audit report). The AR explained that the aggregate of credits/ deposits in the impugned bank a/c include inter-se transfers between, the two accounts and also cash deposits made by the assessee as per audited cash book and bank book. He argued that, the same have to be reduced from aggregate turnover. The AR filed the following working of net credits and deposits:
ITA Nos.145,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 9.1.7 The Ld. AO in the remand report has stated that assessee did not submit book in support of above working. This may be the reason for not commenting on issue cash withdrawals being re-deposited, in bank a/c, but, it is seen the ld. AO has not commented even regarding transfers inter-se between the two accounts, for which cash book was; not required to examined. The AR has explained in his rejoinder that the Id. AO had asked for financial statements, ROI etc. vide letter dated 24.01.2019 and the AR filled all the details and personally appeared before Ld AO and explained the entries, however the incumbent officer changed and there was no communication in next 5 months, so the assessee could, not relate the notice sent by new AO after 5 months. The assessee failed to inform the AR, so this new notice was not complied, however all the details were already on the file of AO. The cash withdrawals are apparent from the bank account which the Ld. AO could have easily verified. The AR pointed out that the cash book was filed before CTT(A) as part of Paper Book which was apparently forwarded to the Ld AO along with letter dated 16.01.2019 of Ld CIT(A). So the cash book was very much part of the records before ld. AO. 9.1.8 I have examined the issue and I find that the impugned cash withdrawals and cash deposits in bank account are duly accounted in cash book and are verifiable. It can be seen that the total cash deposits are Rs.1,95,41,843/- out of which Rs.1,84,02,349/- are claimed to be deposits relatable to the cash withdrawals from bank. It can be seen these withdrawal are out of earlier credits in bank a/c which are already treated as part of turnover and profit on same @ 9.3% is taxed. Hence due credit for the cash withdrawals need to be granted while calculating undisclosed turnover because given including them again in calculation leads to double taxation. Further, on examination of the two bank accounts, it can be seen that there are intense transfers between, the two accounts as stated in the above working. Hence, the above working filed by the AR is correct as per books of accounts and the bank account statements. It is held by Hon'ble ITAT Ahmedabad in Manoj Indravadan Choksi dated 27.09.2013 confirmed by Hon'ble Gujarat High Court Court in TA 821/2014, and in Navinchandra Ramjiehavda, ITA 2335/Ahd/2012 dtd. 12.04.2013, Patel Prahladbhai Harjivanbhai ITA 2347/Ahd/2012 dtd 15.03.2013, that the earlier cash withdrawal from bank account be presumed to be available for re- deposit when no other alternative application of same has been, detected by ld. AO. In view of the facts, I agree with the contention of AR that above amounts needs to be reduced from total credits and deposits in bank a/c to arrive at unaccounted turnover. The unaccounted turnover, accordingly works out to be Rs.35,41,120/-. Applying the same estimation rate as applied by Ld. AO, the income on the above is estimated in Rs.3,29,324/-. Hence in this ground addition of Rs.2,62,881 + 3,29,324 = Rs.5,92,205 is confirmed, This ground is partly allowed.”
Aggrieved by the order of Ld. CIT(A), the assessee as well as revenue are in appeal before us. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 13. Learned DR for the Revenue argued that there is no dispute on the joint bank accounts mentioned at serial Nos. 6, 7 & 8 of the chart mentioned in the assessment order, these bank accounts belong to other family members of the assessee, and the assessee has its` own shares. With regard to the bank account mentioned at serial No. 4 & 5, the assessee failed to furnish the documentary evidence viz. ROI and books of accounts from which it could be ascertained that these bank accounts have been utilized exclusively by Shri Ramesh Bansal and Shri Rajesh Bansal. On the other hand, the assessees has furnished affidavits of Shri Ramesh Bansal and Shri Rajesh Bansal wherein they been stated on oath that they are first holders of the bank account, and the receipts mentioned in the bank accounts belong to them, that it is reflected in their personal set of books of accounts. However, the same should not be believed as it was the onus of the assessee to prove that these bank accounts have not been utilized by him. Therefore, ld DR contended that addition made by the assessing officer should be sustained.
Shri Mehul Shah, Learned Counsel for the assessee argued that assessee has explained the entries in the various bank accounts, during the assessment proceedings and as well as during the appellate proceedings. The ld CIT(A) after taking the remand report from the assessing officer and after considering the assessee`s submissions on the remand report, has finally decided that Rs 35,41,120/- is unaccounted turnover of assessee’s business, which the assessee has accepted and paid the tax thereon.
In respect of joint bank account Number 248016103310 in Sutex Bank, wherein the first holder is M/s Raju Enterprises. In this bank account there are three joint holders. Therefore, as per assessing officer, ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal vide para 8 of assessment order, the assessee`s share 1/3rd comes at Rs.9,42,226/- (1/3rd of Rs.28,26,680/-). Therefore, as per assessing officer, the assumed turnover should be at Rs.9,42,226/- and on which assessing officer has applied the gross profit @ 9.3%, which comes to Rs.87,627/- (9.3% of Rs.9,42,226/-). However, ld CIT(A) had sustained the addition in the hand of the assessee at Rs.3,29,324/- (9.3% of Rs.28,26,680/- entire addition which belongs to M/s Raju Enterprises). The ld Counsel pointed out that this is a Joint bank account Number 248016103310, in Sutex Bank, and as per assessing officer, the assessee`s share belongs to 1/3rd only, which comes to Rs.9,42,226/- ( 1/3rd of Rs.28,26,680/-). Therefore, the presumed turnover, in the hands of the assessee, as per assessing officer, should be Rs.9,42,226/- and estimation of profit @ 9.3% of the said amount comes at Rs.87,627/- ( 9.3% of Rs.9,42,226) and not at Rs 3,29,324/-( 9.3% of Rs.28,26,680/-). Therefore, this mistake of ld CIT(A) should be corrected and addition in the hands of the assessee should be sustained at Rs.87,627/-. Therefore, the maximum addition in the hands of the assessee should be Rs.36,28,747/- (Rs 35,41,120 + Rs.87,627).
However, without prejudice, the Ld. Counsel also submitted that every credit entry in a bank statement is not a turnover. The entries in various bank statements belong to assessee`s family members and these entries are loans taken and loans given, among family members and these entries in bank statements are inter-family transfers, therefore addition should not be made based on the credit entries in the bank statements, hence ld Counsel prays the Bench that addition sustaine by ld CIT(A) of Rs.36,28,747/- should be deleted.
We have heard both the parties and carefully gone through the 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have already reproduced the findings of ld CIT(A) in para No.14 of this order. We note that ld CIT(A) wrongly added the entire credit of joint bank account Number 248016103310 in Sutex Bank, wherein the first holder is M/s Raju Enterprises. In this bank account there are three joint holders. Therefore, as per assessing officer, vide para 8 of assessment order, the assessee`s share 1/3rd comes at Rs.9,42,226/- (1/3rd of Rs.28,26,680/-). Hence, we find merit in the submissions of ld Counsel and noted that as per assessing officer, the assumed turnover should be at Rs.9,42,226/- and on which assessing officer has applied the gross profit @9.3%, which comes to Rs.87,627/- (9.3% of Rs.9,42,226). However, ld CIT(A) had sustained the addition in the hand of the assessee at Rs 3,29,324/- (9.3% of Rs.28,26,680/-, this is entire addition which belongs to M/s Raju Enterprises). The ld Counsel has rightly pointed out that this is a Joint bank account Number 248016103310, in Sutex Bank, and as per assessing officer, the assessee`s share belongs to 1/3rd only, which comes to Rs.9,42,226/- (1/3rd of Rs.28,26,680/-). Therefore, the presumed turnover, in the hands of the assessee, as per assessing officer, should be Rs.9,42,226/- and estimation of profit @ 9.3% of the said amount comes at Rs.87,627/- (9.3% of Rs.9,42,226) and not at Rs 3,29,324/- (9.3% of Rs.28,26,680/-).
Therefore, we accept the unaccounted turnover, sustained by ld CIT(A) at Rs.35,41,120/-. However, in respect of M/s Raju Enterprises, vide Joint bank account Number 248016103310, in Sutex Bank, the un accounted turnover should be Rs.9,42,226/- and estimation of profit @ 9.3% of the said amount comes at Rs.87,627/- (9.3% of Rs.9,42,226). 12 ITA Nos.145,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal Therefore, the maximum addition in the hands of the assessee, on account of unaccounted turnover should be Rs.3,29,324/- (9.3% Rs 35,41,120) and Rs.87,627/- (9.3% of Rs.9,42,226). Therefore, based on this factual position, as narrated above, we direct the assessing officer to make addition, in the hands of the assessee, to the tune of Rs. 4,16,948/- (Rs.3,29,324 + Rs.87,627).
In the result, ground No.2 raised by the assessee in for A.Y. 2012-13, is partly allowed, whereas, ground No.2 raised by the Revenue in A.Y. 2012-13, is dismissed.
Now, we shall take ground No.1 raised by the Revenue in ITA No.154/SRT/2020, for A.Y. 2012-13 and ground No.1 raised by the Assessee in ITA No.145/SRT/2020, for A.Y. 2012-13. The main grievance of the Revenue in said ground No.1 is that Ld. CIT(A) has erred in deleting the addition of Rs. 1,96,00,389/- made by assessing officer on account of bogus creditors and CIT(A) sustained the addition on different item and different footing, on 5% of total purchases at Rs.12,25,821/- (i.e. 5% of total purchases of Rs.2,45,16,421). Whereas, the main grievance of the assessee, in his ground No.1 is that ld CIT(A) has made addition on total purchases without giving enhancement notice to the assessee, besides, these creditors were paid by the assessee in subsequent year therefore, ld CIT(A) should have deleted the entire addition. As the assessee is identical and similar, therefore, we shall adjudicate ground No.1 raised by the Revenue and ground No.1 raised by the assessee, for assessment year 2012-13 together.
Brief facts as discernible from the orders of lower authorities are that assessee filed his return of income for assessment year 2012-13, on 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 30.09.2012, declaring total income at Rs.1,75,430/- which was processed by the department u/s143(1) of the Income Tax Act. Later on, the assessee’s case was selected for scrutiny through CASS and notice u/s 143(2) of the I.T. Act was issued on 14.08.2013 and served upon the assessee. Subsequently notice u/s 142(1) dated 06.06.2014 was issued and served upon the assessee. Subsequently, the questionnaire dated 10.12.2014 and notice u/s142(1) was and served upon the assessee. During the year under consideration, the assessee has derived income from the business activity of dealing in art silk cloth under the name and style of M/s Vijay Laxmi Creations, Prop. Shri Umesh P. Bansal. During the course of assessment proceedings, on verification of the audit report, it was noted by Assessing Officer that the assessee has shown huge creditors for goods to the tune of Rs.1,96,00,389/-. Therefore, the Assessing Officer asked the assessee to furnish the confirmation of the creditors.
In response, the assessee has filed the details of creditors along with their addresses. On receipt of the details of creditors, the Assessing Officer immediately issued notices u/s 133(6) of the Act to 49 creditors, out of 242 creditors, at the address given by the assessee. Most of the notices sent through post were returned unserved. Further it was also noticed by Assessing Officer from the bank statements obtained in the case of proprietary concern, M/s Vijay Laxmi Creations, personal account, as well as joint account with others, that there are huge credits in all these accounts and the same are much more than the total business turnover of the assessee and thereby it looked very suspicious to the assessing officer, as to why such huge credits in the bank accounts is possible. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 23. Therefore, Assessing Officer issued a show cause notice to the assessee dated 10.03.2015, which is reproduced by the Assessing Officer in the assessment order, vide page no.8 of assessment order. However, assessee did not file the reply before the Assessing Officer. Therefore, Assessing Officer held that these are the bogus liability, in the form of creditors, of the assessee. The total creditors shown by the assessee to the tune of Rs.1,96,00,389/- was treated by the assessing officer, as bogus liability of the assessee. Accordingly, the amount of Rs.1,96,00,389/ was added back to the total income of the assessee.
On appeal, ld CIT(A) has partly allowed the appeal of the assessee. The ld CIT(A) has adjudicated the issue on different footing. The ld CIT(A), without giving notice of enhancement, has adjudicated the issue, observing as follows: 9.2. Ground No.1 - Pertaining to addition of Rs.1,96,00,389/- on account of outstanding trade, creditors. 9.2.1 The relevant facts are the balance sheet of the assessee shows outstanding 242 trade creditors totaling to Rs.1,96,00,309/-. The Ld. AO called for the details and the assessee furnished the names, address etc. of creditors. The Ld. AO issued notices u/s 133(6) to about 49 out of 242 creditors totaling to Rs.83,48,091/- , however in all the cases, the notices were returned unserved. Hence the AO concluded that, all the trade creditors are, unverifiable and made addition of outstanding amounts. The Ld. AO has not specified the particular section of the Act for making this addition. It is seen that the Ld. AO has not doubted sales or purchases or the trading results. In fact, the Ld. AO unapplied by approve it adopting same to has estimated income on unaccounted transaction/credits in bank accounts as discussed in Ground no. 2. Though Ld. AO has not specified the section/provision of the IT Act, it is quite evident that he has invoked Section 68 of the Act. The Ld. AO has termed the outstanding trade creditors as bogus liability in the form of creditors and given treatment of unexplained cash credits as per Section 68. On careful consideration of facts and circumstances, I find that the action of the Ld. AO lacks legal reasoning and accounting logic. On one hand, the Ld. AO allows the purchases of Rs.2,45,16,421/- made by the assessee from the same persons, on the other hand he does not accept the outstanding amounts due to them. The outstanding creditors are as a result of the purchases, hence, once the purchases and sales are accepted, the outstanding creditors cannot be said to be unverified. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 9.2.2 The facts in appellants case are similar to the facts in a case decided by Hon'ble jurisdictional High Court [(PCIT vs. Swastik Construction, ITA 828 of 2017(Guj)(HC)]. The Hon'ble High Court has held as under: “Insofar as proposed question (B) is concerned, the Commissioner (Appeals) had noted the submissions advanced by the assessee and had observed that the assessee was a Government contractor and hence the receipt was not doubtful. The assessee had sub-contracted major-part of its work and had deducted tax at source as applicable on the payments made to the sub-contractor. Further, this outstanding payment had been fully paid in the next year by account payee cheque. The Commissioner (Appeals) observed that the Assessing Officer, on the one hand had come to the conclusion that the entire payments to the sub- contractor for were non-genuine transactions, and on the other hand, he had disallowed only the amount which remained unpaid as on 31.3.2017. The Commissioner (Appeals) noted that the Assessing Officer had not made any effort to investigate further and had not brought any cogent evidence on record; which even indicates that the transactions were not genuine. According to the Commissioner (Appeals) simply because notices could not be sensed upon the sub- contractor, the transactions could not be held to be non- genuine. He accordingly, held that by no stretch of imagination could the outstanding credits be added under section 68 of the Act treating the same as unexplained cash credit and deleted the addition and allowed the ground of appeal
. The Tribunal in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has held that if the transaction with M/s Hemani Enterprises had been disbelieved, the total contract payment made to it ought to have been disbelieved. The Tribunal noted that the assessee had been awarded the contract by Canal Division of the Roads & Buildings Department and it had examined sub-contract through M/s Hemani Enterprises. If the course of action adopted by the Assessing Officer was to be upheld, then the profit in the contract would be very abnormal because it for a contract valued at Rs.2,17,02,016/- a sum of Rs.72,88,879/- was to be treated as profit, then the ratio of profit would be too high for a civil work. In the opinion of this court, the course of action adopted by the Assessing Officer defies logic, if the Assessing Officer had disbelieved that M/s Hemani Enterprises had executed the contract as a sub-contractor, he, at best, could have disbelieved the payment made to it and held that it was the assessee, who had executed the contract and worked out the profit accordingly. But when the entire amount received by the assessee was towards payment for sub- contract, there was no question of considering any part thereof as unexplained cash credit in the opinion of this court, the view adopted by the Commissioner (Appeals) as concurred by the Tribunal is just and proper. Consequently, this ground of appeal also does not merit, acceptance. Respectfully following above binding decision the impugned addition u/s 68 is held as bad in law. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 9.2.3 In addition the above the AR also made-extensive submission on legal aspect of the addition. He submitted that the Ld. AO has made addition of outstanding trade creditors by treating the same as unexplained cash credit u/s 68, which is not correct as per law. I have considered the arguments & I find merit in same. The outstanding trade creditors balances are the result of purchase transactions made by assessee. The assessee has not received any money from these creditors, the credit represents amount due to them, for purchases made which are debited in trading in P & L A/c. The Section 68 comes into play where any sum is credited in account which is not explained by assessee and does, not apply when goods or services is purchased on credit & an entry is made creating the liability in the account of supplier. When the purchases & sales are not doubted, the outstanding creditors cannot, be added u/s 68. In this case the book results are accepted by Ld. AO, the purchases, sales & GP are not questioned, only the outstanding creditors are added. The facts of instant appeal are identical to following cases decided by Hon’ble ITAT, Ahmedabad given below: In the case of Dy. CIT, Gandhinagar Circle v/s Rasikbhai Ramjibhal Raval [ITA No. 1420/Ahd /2014] it has been held by tribunal that: We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee did not file all the details of expenditure during the course of assessment, proceedings, it is equally true that all the necessary details were furnished before the CIT(A) who had called for a remand report, from the Assessing Officer. Once the details have beers furnished and transmitted to the Assessing Officer, and the same were examined by the CIT(A), we do not find any reason to interfere with the findings of the CIT(A). Ground no. 1 is accordingly dismissed. CITVs. Mathura Das Ashok Kumar [Ahd-trib] (2006) 101 TTJ 0810 …………………………………………………………………………………………… …………………………………………………………………………………………… …………………………………………………………………………………………… ……………… 9.2.6 In interest of principles of uniformity and consistency the same decision is followed in the instant appeal. The disallowance is restricted to 5% of total purchases from these trade creditors i.e. 5% of Rs.2,45,16,421= Rs.12,25,821/-. Hence this ground is partly allowed.”
25. Learned Departmental Representative (Ld. DR) for the Revenue relied on the statement of facts prepared by the assessing officer, which is reproduced below: “Observation of the Range head: The decision of the CIT(A) is not acceptable on the facts and circumstances of the instant case. The CIT(A) has restricted the addition @5% of total creditors to the tune of Rs. 12,25,821/- only on wrong footings and ignoring ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal the facts ascertained by the AO. The AO had enquired the issue of verification of creditors in proper manner during the assessment proceedings wherein it was gathered that the creditors were not available on the addresses provided by the assessee. When a person or entity is not available, how can it is accepted that the so-called outstanding amount will be paid to the creditors. Even the assessee had not complied with the show cause notice which proves that the assessee was very much aware that either the creditors were false or credit amount claimed by the assessee was imaginary amount and claimed at the sweet will the assessee. The CIT(A) argued that the AO has not questioned the purchase, sales or GP then creditors cannot be denied. It is not appropriate as the AO was focused on the verification of creditors instead of purchase, sales or GP. The CIT(A) has not verified the facts of correctness of creditors claimed by the assessee and estimated the addition at the rate of 5% without giving any logical reason which is totally unacceptable. Thus, the decision of the CIT(A) is not acceptable. The AO has also not accepted the decision stating that in absence of any information or explanation from the assessee, no alternative was left with the then AO other than to consider the unverified creditors as bogus creditors. The AO has also recommended to file an appeal before Hon’ble ITAT.”
26. The ld DR also pointed out that A.O. has issued notice u/s 133(6) of the Act to 49 creditors out of 242 creditors, however, most of the creditors did not reply to the assessing officer. The ld DR pointed out that ld.CIT(A) ignored point no 5 and 6 of assessment order, in which A.O. clearly mentioned that assessee has provided details of creditors only in February end after issuing various notices. The assessee was non- cooperative during assessment proceedings, therefore addition made by the assessing officer should be sustained.
The Learned Counsel for the assessee, argued that assessee has paid all these creditors, in the next year, therefore genuineness of the transactions should not be doubted, and in pursuance of the judgment of Hon`ble Jurisdictional Gujarat High Court in the case of Ayachi Chandrashekhar Narsangji, [2014] 42 taxmann.com 251 (Gujarat), the addition should be deleted.
The Ld. Counsel also pleaded that Ld. CIT(A) has made addition on different footing on different aspect without giving notices to the 18 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal assessee for enhancement, therefore entire addition, sustained by the ld CIT(A), is bad in law and therefore should be deleted.
The Ld. Counsel also submitted that Assessing Officer has accepted the net profit at the rate of 9.3%, as reasonable, therefore the Ld. CIT(A) should not have made separate additions at the rate of 5%, on bogus purchases because the bogus purchases have already suffered the taxes by way of additions sustained by the Assessing Officer at the rate of 9.3%, therefore, the 5% addition made by the Ld. CIT(A) without giving notice of enhancement is bad in law and hence entire addition should be deleted in toto.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Before us, Ld. Counsel for the assessee submitted the following documents and evidences: (1) Remand Report dated 03.09.2019 (vide Pb.26 to 29) (2) Reply filed by assessee in response to remand report (vide Pb.21 to 25) (3) Acknowledgement of Return of income of the assessee for AY.2012-13 (vide Pb.30 to 31) (4) Audit report along with Audited Financial Statements for AY.2012-13 (vide Pb.32 to 52) (5) Acknowledgment of return of income of the AY.2011-12 (vide Pb.53 to 55) (6) Gross profit ratio chart for AY.2012-13 and AY.2011-12 (vide Pb.73) ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal (7) Audit report alongwith audited financial statements and personal set of books (vide Pb.135 to 156) (8) Assessment order in the case of Rameshkumar P. Bansal for AY.2012-13 (vide Pb.166 to 171) (9) Relevant bank statement (vide Pb.225 to 228)
Based on the above documents and evidences, ld Counsel contended, that assessee has paid all these creditors, in the next year, therefore genuineness of the transactions should not be doubted. We find merit in the submission of ld Counsel and noted that Hon`ble Jurisdictional Gujarat High Court in the case of Ayachi Chandrashekhar Narsangji, [2014] 42 taxmann.com 251 (Gujarat), held that where loan amount was repaid by assessee in immediately next financial year, and Department had accepted same, addition made by Assessing Officer was to be deleted. The findings of the Court are reproduced below: “6. Having heard Shri Pranav Desai, learned Counsel appearing on behalf of the revenue and on perusal of the order passed by the CIT(A) confirmed by the ITAT, it appears that CIT(A) was satisfied with respect to the genuineness of the transaction and creditworthiness of Shri Ishwar Adwani and, therefore, deleted the addition of Rs.1,45,00,000/- made by the Assessing Officer. It is required to be noted that as such an amount of Rs.1,00,00,000/- vide cheque no. 102110 and an amount of Rs.60 lakh vide cheque no. 102111 was given to the assessee and out of the total loan of Rs.1.60 crore, Rs.15 lakh vide cheque no. 196107 was repaid and, therefore, an amount of Rs.1,45,00,000/- remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amount has been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the ITAT has held that the matter is not required to be remanded as no other view would be possible, we see no reason to interfere with the impugned order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.”
The ld Counsel also stated that Ld. CIT(A) has made addition on different footing on different aspect without giving notices to the assessee 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal for enhancement. We note that as per clause (a) of sub-section (1) of section 251 of the Act, the ld CIT(A) has power to confirm, reduce, enhance or annul the assessment. However, sub-section (2) of section 251 of the Act, states that ld CIT(A) shall not enhance an assessment, unless the assessee has had an opportunity of showing cause against such enhancement. In the assessee`s case under consideration, the ld CIT(A) has enhanced the assessment, without given an opportunity to the assessee, therefore, it is a violation of provisions of sub-section (2) of section 251 of the Act, and hence addition sustained by ld CIT(A) should be deleted.
We note that Learned Departmental Representative (Ld. DR) for the Revenue, has also agreed that ld CIT(A) has made addition on wrong footing. To substantiate this fact, the statement of facts relied on by ld DR is reproduced below: “Observation of the Range head: The decision of the CIT(A) is not acceptable on the facts and circumstances of the instant case. The CIT(A) has restricted the addition @5% of total creditors to the tune of Rs. 12,25,821/- only on wrong footings and ignoring the facts ascertained by the AO.”
Thus, it is abundantly clear that ld CIT(A) has enhanced the assessment, without given an opportunity to the assessee. The Hon`ble Madras High Court in the case of CIT Vs. Lotte Corporation Ltd (2007) 290 ITR 248, held that it is mandatory to give an opportunity of hearing to the assessee, if the ld CIT(A) enhances the assessment. The same view was also upheld by the Hon`ble Punjab and Haryana High Court in the case of Goel Die Cost Ltd. (2007) 201 Taxman 330. Therefore, based on these facts and circumstances, we delete the addition sustained by ld CIT(A).
ITA Nos.145,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal 35. In the result, ground No.1 raised by the Revenue in A.Y. 2012-13 is dismissed, whereas ground No.1 raised by the Assessee in for A.Y. 2012-13, is allowed.
Since we have adjudicated the issue by taking lead case in 2012-13. Ground No.1 raised by the assessee in for A.Y. 2013-14 and ground No.1 raised by the Revenue in ITA No.155/SRT/2020, for A.Y. 2013-14, are similar and identical. Accordingly, our observations made in ITA No.154/SRT/2020 for assessment year 2012-13, shall apply mutatis mutandis to the aforesaid appeals of Revenue and Assessee in assessment year 2013-14 also.
In the combined result, the Assessee`s appeals are partly allowed and Revenue`s appeals dismissed. The ground-wise results are as follows:
(i) Ground No.1 raised by the Revenue in A.Y. 2012-13 is dismissed, whereas ground No.1 raised by the Assessee in for A.Y. 2012-13, is allowed.”
(ii) Ground No.2 raised by the assessee in for A.Y. 2012-13, is partly allowed, whereas, ground No.2 raised by the Revenue in A.Y. 2012-13, is dismissed.
(iii) Ground No.1 raised by the Revenue in for A.Y. 2013-14 is dismissed, whereas ground No.1 raised by the Assessee in ITA No.146/SRT/2020 for A.Y. 2013-14 is allowed. ,146, 154 & 155/SRT/2020 Shri Umeshkumar P. Bansal Registry is directed to place one copy of this order in all appeals folder / case file(s).
Order is pronounced on 14/07/2023 in the open court.