I.T.O WD - 9(1),KOLKATA, KOLKATA vs. M/S SHREE LAMINATORS LIMITED, KOLKATA

ORDER

Per Shri M. Balaganesh, AM:

2.1. The brief facts of this issue are that the Ld. AO found that an amount of Rs.77,258/- was shown under Sundry Creditors relating to the party M/s. Peekay Associates. Information as to genuineness of the said credit amount was called for from the party, M/s. Peekay Associates by issuing notice u/s. 133(6) of the Act. Since no satisfactory reply was received from the party the AO required explanation in this regard from the assessee. The assessee submitted that this was the balance amount being carried forward from FY 2008-09. The AO without making further reference in this respect to the assessee treated the amount as unexplained and thus added in computing the total income of the assessee. The assessee claimed that there was transaction in the nature of purchase from the said party M/s Peekay Associates which remained unpaid as on 31.3.2009 and hence reflected as sundry creditors in the balance sheet as on 31.3.2009. The assessee stated that the same was fully settled in the subsequent year .

2 M/s. Shree Laminators Ltd.. AY 2009-10 The Learned CITA however proceeded to add the same in the assessment. It was argued that the Learned AO had accepted the purchases made from the said party as genuine and it was the party’s fault for not maintaining the accounts properly. The Learned CITA held that the assessee had not derived any benefit in the form of remission of this liability and hence the provisions of section 41(1) of the Act could not be applied on this credit balance and accordingly deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- “1. Ld. CIT(A) is not justified in deleting the addition of Rs.77,258/- on account of trading liability to M/s. Peekay Associates ceased during the previous year.”

2.2. The Learned DR argued that when the party in response to notice u/s 133(6) of the Act had stated that there is no balance outstanding as on 31.3.2009 towards the account of the assessee. He argued that the Learned CITA had simply believed the statement of the assessee that the said creditor has been subsequently settled in the next financial year towards the liability. In response to this, the Learned AR stated that he has got no objection for the bench to set aside this issue to the file of the Learned AO for verification of the aspect of subsequent settlement made to the concerned sundry creditor.

2.3. We have heard the rival submissions and perused the materials available on record. We find that the provisions of section 41(1) of the Act could be invoked towards cessation of liability only in the event of revenue proving the fact of assessee deriving some benefit out of this transaction. In the instant case , the assessee claims that the liability has been settled in the subsequent financial year which fact has not been verified by the Learned AO. Hence in the facts and circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO , with a direction to verify the subsequent settlement made by the assessee to the concerned sundry creditor and if proved, no addition need to be made by the Learned AO. Accordingly, the ground no. 1 raised by the revenue is allowed for statistical purposes.

3 M/s. Shree Laminators Ltd.. AY 2009-10 3. The next issue to be decided in this appeal is as to whether the Learned CIT(A) is justified in deleting the brokerage payment of Rs. 43,20,020/- to M/s Timespac India Ltd in the facts and circumstances of the case.

3.1. The brief facts of this issue are that while making the assessment the Ld. AO found that an amount of Rs.50,20,020/· was debited to the assessee's Profit & Loss A/c. as brokerage/commission paid to M/s. Timespac India Ltd. The payment of such brokerage was verified by issuing summons u/s. 131 to M/s. Timespac India Ltd. Then notices u/s. 133(6) of the Act were issued to all the sellers from whom the assessee purchased through broker. All the sellers except one informed that the sale was made directly to the assessee without any broker. The Ld. AO called for explanation in this regard. The assessee submitted that the sales were made through brokers and brokerage was paid for rendering their services. The bills were raised by the brokers after charging the service taxes and the same were duly accounted for in the books of account maintained by the assessee which was duly audited by an authorized auditor. All the payments were made through account payee cheques and the necessary tax was deducted at source. The parties being not aware of the existence of such brokers informed that the sales were made directly to the assessee. The Ld. AO was not satisfied with this explanation and treated the payment of brokerage of Rs. 43,20,020/- except one paid to M/s. Modern Laminators Ltd. as bogus and fabricated with an intention to conceal the actual income.

3.2. Before the Learned CIT(A), the assessee stated as follows:- “i) The assessee intended to purchase goods which fact was brought to the knowledge of the broker, M/s. Timespact India Ltd. ii) The broker, M/s. Timespac India Ltd., introduced the appellant with the parties ( sellers) like (i) M/s. Sri Narasimha Plastic Industries, (ii) M/s. Deccan Polypacks Ltd., (iii) M/s. Sipani Fibres Ltd., (iv) M/s. Salguti Industries Ltd. (v) M/s. Servo Packaging Ltd. etc. iii) The parties ( sellers) agreed to sell to the appellant as per its requirements and supplied the goods directly to the appellant which fact is apparent from the details of the purchases duly accounted for. iv) There was no dispute as to purchases made with the parties and these were proved genuine. For facilitating such purchases services in the nature of introduction with the parties were obtained from the above mentioned broker M/s. Timespac India Ltd. who

4 M/s. Shree Laminators Ltd.. AY 2009-10 was paid brokerage to the tune of Rs. 43,20,020/- for rendering the services in the nature of introduction which fact was disputed. v) Information was asked from the parties vide notice u/s. 133(6) of the Act. The parties in their reply confirmed the purchases and the making of introduction with the appellant by the broker but not the payment of commission as such payment was not made by them but the appellant directly to the broker, M/s. Timespac India Ltd. the letters are already in records. When the parties were not at all liable for payment of commission how they would confirm that the commission in respect of sales made by them was paid. The appellant was liable and as such paid the necessary commission to M/s. Timespac India Ltd. and it was in the course of its business activities. The details of such payment along with documentary evidences were submitted before the Ao during the course of assessment proceedings.”

3.3. The Learned CITA observed that the assessee had paid brokerage of Rs. 43,20,020/- to M/s Timespac India Ltd who had confirmed the receipt of commission from the assessee. He held that the commission was paid by the assessee to M/s Timespac India Ltd who had introduced the assessee with the suppliers of goods. The genuineness of purchases made by the assessee from those parties were not disputed by the Learned AO and he further observed that it is not the case of the Learned AO that the commission paid to the party has flown back to the assessee. Accordingly he deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground :- “ii) Ld. CIT(A) has failed to appreciate the reason for considering the claim of brokerage payment amounting to Rs.43,20,020/- as not genuine and has erroneously considered the report of the seller of making direct sale without involvement of any broker as the only reason for making such disallowance by the Assessing Officer and as such has erred in deleting the disallowance of claim of payment of brokerage to the tune of rs.43,20,020/- to M/s. Timespac India Ltd.”

3.4. The Learned DR vehemently relied on the order of the Learned AO. In response to this, the Learned AR submitted the list of documents comprising of confirmation letters of various suppliers which were admittedly claimed to be filed before the Learned AO. In the said confirmation letters, all the suppliers had categorically stated that the assessee was introduced to them through a broker and they had not paid any brokerage/commission to the said broker for the supplies made to assessee. In defence, the Learned DR argued that these letters were dated in the fag end of December 2011 and obviously it would not have reached the Learned AO before the completion of assessment proceedings.

3.5. We have heard the rival submissions and perused the materials available on record. We find that the assessee had made purchase of raw materials from six suppliers. The assessee claims that these suppliers were introduced to him by M/s Timespac India Ltd to whom the assessee had paid commission at an agreed rate which fact has also been confirmed by M/s Timespac India Ltd. It is not in dispute that the Learned AO had accepted the commission payment made to M/s Timespac India Ltd in respect of purchase made from one party and allowed the same as deduction. In respect of remaining 5 parties from whom purchases were made by the assessee, though the purchases were accepted as genuine, the Learned AO had only disputed the payment of commission to M/s Timespac India Ltd in respect of such purchases. We find from the confirmation letters of 5 suppliers that they had categorically stated that the assessee was introduced to them through a broker. The broker in the instant case needs to be understood only as M/s Timespac India Ltd. The revenue was not able to produce any contrary evidence in this regard. However, we agree with the contention of the Learned DR that these confirmations were dated in the fag end of December 2011 from different locations in India, it would not have reached the Learned AO before the completion of assessment proceedings. Hence, in these facts and circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO, with a direction to the Learned AO to verify the confirmations filed by the 5 suppliers and decide the issue in accordance with law. Needless to mention that, the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to file fresh evidences in support of its contentions before the Learned AO. Accordingly, the ground no. 2 raised by the revenue is allowed for statistical purposes.