M/S. SHIVANGI FASHIONS,KOLKATA vs. ACIT, CENTRAL CIRCLE - XXVIII, KOLKATA, KOLKATA

This appeal of the assessee arises out of the order of the Learned CIT(A), Central-I, Kolkata in Appeal No. 352/CIT(A)C-I/CC-XXVIII/08-09 dated 16-09-2010 against the order of assessment framed for the Asst Year 2006-07 u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’).

1 -C-AM M/s. Shivangi Fashions 3.1. The brief facts of this issue is that the assessee is a partnership firm and is a wholesale Trader/ dealer in embroidered sarees. The return of income for the Asst Year 2006+07 was filed by the assessee showing total income of Rs. 3,81,230/- along with audited statement of accounts and the tax audit report u/s 44AB of the Act. During the course of assessment proceedings, the Learned AO found that the purchases made by the assessee were to the tune of Rs. 9.22 crores. The Learned AO sought to verify the persons from whom purchases in excess of Rs. 50,000/- were made by the assessee. The assessee submitted the details of the same by producing the names, addresses, PAN and other details of those parties. The Learned AO observed that notices u/s 133(6) of the Act were not responded by the following parties from whom assessee had made purchases :-

Embroidery Sarees - Rs. 19,40,669 Hasan Jamadar - Rs. 23,775 Sabir Ali Purkait - Rs. 25,61,000 Abdul Rahim Lashkar - Rs. 11,76,280 The assessee submitted the details of purchases with complete names and mailing addresses of all the parties including the aforesaid four parties together with their ledger copies, purchase bills , stock registers, bank statements and details of payments by account payee cheques. The assessee also submitted the PAN of the four parties as below:-

Embroidery Sarees - AXFPS 6827D Hasan Jamadar - AGBPJ 0951C Sabir Ali Purkait - AHOPP 6478L Abdul Rahim Lashkar - ABZPL 3112E The assessee produced the details of corresponding sales made out of purchases from the aforesaid four parties and the same were verified by the Learned AO and found to be correct. The assessee produced the following chart before the Learned AO :-

2 -C-AM M/s. Shivangi Fashions

Year ended Year ended 31.03.2005 31.03.2006 (in Rs.) (in Rs.) Sales 8,00,65,386 10,43,70,280 Gross Profit 29,41,934 56,57,129 Net Profit 2,31,404 3,81,227 G.P. Ratio 3.67% 5.42% The Learned AO observed that the assessee could not produce the aforesaid four parties nor any confirmation of purchases submitted before him. The Learned AO observed as under in his assessment order :-

It is a prevalent practice among tax evaders to make out of book purchases. To give it the color of genuineness to such purchases karigars and job workers/ contractors are shown as persons from purchases are made.

It is not the case here that assessee has made sale without having any purchase. Indeed purchase has to be there but unless corroborative evidences are brought to the notice it cannot be believed that such persons could have made huge sales as appearing in the books of the assessee. Most likely, these persons could have done karigars or job works for the assessee and to circumvent the TDS provisions assessee is showing sale from such persons. In view of such facts and circumstances of the case in want of any corroborative evidences as mentioned above the purchases from persons mentioned above cannot be believed as genuine.

3.2. On first appeal, the Learned CIT(A) observed that the gross profit reported by the assessee is very low and he relied on the decision of the Hon’ble Allahabad High Court in the case of Kaveri Rice Mills vs CIT reported in (2006) 157 Taxman 376 (All) and upheld the disallowance made by the Learned AO.

3 -C-AM M/s. Shivangi Fashions 3.3. We have heard the rival submissions. The Learned AR reiterated the submissions made before the lower authorities. He argued that the Learned AO never asked the assessee to furnish confirmation of balance from the said four parties during assessment proceedings. Hence the same were produced before the Learned CIT(A) for the first time which were admitted as additional evidence and remand report sought thereon. It was also argued that the four parties were directed to be produced in the last month of the year 2008 and hence the assessee found it difficult to produce the same at a very short notice to bring them from villages in the month of December and hence the assessee had requested the Learned AO to verify the transactions of the said four parties from the income tax files by deputing the IT Inspector or by issuing summons u/s 131 of the Act as PAN details are very much available with the Learned AO.

3.3.1. The Learned AR argued that the case law relied upon by the Learned CIT(A) on the decision of Hon’ble Allahabad High Court in the case of Kaveri Rice Mills vs CIT reported in (2006) 157 Taxman 376 (All) is squarely distinguishable from the facts of the instant case. In the facts before the Hon’ble Allahabad High Court, the purchase bills were not filed by the assessee and hence the High Court held that disallowance of some purchases to make it comparable with the gross profits of earlier years is justified. Whereas in the instant case, the purchase bills together with all the relevant documents in the form of stock registers, quantitative details, bank statements, payments by account payee cheques to suppliers were produced. Hence we agree with the arguments of the Learned AR that the decision relied upon by the Learned CIT(A) is not applicable to the facts of the instant case.

3.3.2. The Learned DR vehemently supported the orders of the lower authorities. We find that the assessee had submitted the following details before the Learned AO in support of purchases made from the aforesaid four parties :-

4 -C-AM M/s. Shivangi Fashions

(i) Names and addresses of parties with PAN. (ii) Copy of purchase bills, details of payments by account payee cheques, ledger copy of the parties as appearing in the books of assessee. (i) Quantitative details in stock register of the purchases from four parties. (ii) Details of corresponding sales out of purchases from four parties.

It was argued that all payments to the aforesaid parties were made by account payee cheques, that no defects were found in the books of accounts of the assessee , that there is increase in gross profit this year as compared to last year and the Learned AO had accepted the sales of the assessee but on the other hand disallowed the corresponding purchases from four parties. It was argued that without making purchases, how the sales could be made. We find that the Learned AO had not found any discrepancy in the stock registers maintained by the assessee. It is not the case of the revenue that the sales were made by the assessee out of stocks available with the assessee thereby proving that no purchases were made by the assessee from four parties. Obviously the purchases made from four parties had entered the stock registers and from which the sales were made by the assessee and stocks reduced accordingly. Hence we find that the assesee had duly produced the corroborative evidences to support the purchases made from the four parties. We also find that the payments for purchases from these four parties were made by account payee cheques in support of which the assessee had produced the ledger accounts of these four parties together with the corresponding bank statements.

3.3.3. We also find that the assessee had produced two parties before the Learned AO during remand proceedings who had duly confirmed the fact of having sold embroidered sarees to assessee. These two parties viz. Mr.Rasik Shaikh (Proprietor of Embroidery Sarees ) and Mr.Abdul Rahim Laskar had filed their written submissions dated 8.2.2010 before the Learned AO furnishing all the details such as bank accounts, PAN, trade licence, confirmation etc. The Learned AO had tried to point out the fact

5 -C-AM M/s. Shivangi Fashions that the trade licence furnished by Mr.Rasik Shaikh is from 1.10.2008 and accordingly concluded that he had not done any business in the name of “Embroidery Sarees” before 1.10.2008 thereby enabling him to sell goods to assessee herein. This argument has been controverted by the Learned AR by stating that the said supplier had produced the latest trade licence registration certificate as the same needs to be renewed every year. He argued that this does not mean that the supplier did not carry out transactions with assessee in the financial year 2005-06 relevant to Asst Year 2006-07. We find lot of force in the argument of the Learned AR that the said supplier had furnished his PAN along with other relevant details to justify the sales made by him to assessee. It cannot be brushed aside that assessee had payments to supplier by account payee cheques. If the Learned AO had any doubt regarding the same, then he could have very well verified the same with the bank to ensure whether the cheques were cleared in the name of the payee (i.e Mr.Rasik Shaikh – Proprietor of Embroidery Sarees). The Learned AR also produced a copy of the co-ordinate bench decision of this tribunal in the case of Sushil Kumar Gupta c/o Shankar Saree Stores vs ACIT in dated 18.12.2014 for Asst Year 2006-07, wherein under same facts and circumstances, the tribunal had deleted the additions made by the Learned AO. We also find lot of force in the defence arguments of the Learned AR that the suppliers are emanating from remote villages who are not conversant with the manner of maintenance of books of accounts ; that they are basically artisans who get the value addition only in the embroidery work carried out by them and that is where the real profit margin lies for them. The two parties had appeared in person and had confirmed that they are engaged in the business of embroidered sarees and had in fact sold goods to assessee herein.

3.3.4. We find that the basis for the entire addition made by the Learned AO is only a wild allegation that the assessee had tried to circumvent the provisions of TDS and assessee instead of paying job charges to those artisans had chosen to show the same as purchases. This allegation in our opinion is completely baseless as it does not 6 -C-AM M/s. Shivangi Fashions make any difference for the assessee to deduct tax at source as PAN of the payees are also available with the assessee. In any case, it is only a wild guess made by the Learned AO without any evidences on record. We also find that the Learned AO by making this statement had admittedly agreed the transactions to be a genuine business transactions as his only allegation was that the assessee tried to circumvent TDS provisions. But it is pertinent to note that no disallowance was made by the Learned AO for violation of TDS provisions u/s 40(a)(ia) of the Act.

3.3.5. We find that the Learned AO had not mentioned any section under which he is seeking to make disallowance of purchases. We find that the assessee had fully discharged its onus to prove the genuinity of claim of purchases and assessee cannot be expected to produce further evidences in this regard as admittedly the addition is not made on account of unexplained cash credit u/s 68 of the Act. Hence no deeming fiction is permissible in this case. In the instant case, the assessee was able to ensure the presence of two parties during remand proceedings who had duly confirmed the fact of having sold goods to assessee. The alleged discrepancies pointed out by the Learned AO in the remand proceedings as to non-maintenance of purchase bills in chronological order by the said party , signature in Bengali, etc. are to be addressed only in the hands of the said parties and assessee cannot be expected to prove the veracity and the manner of maintenance of accounts and documents by the other party as admittedly the same are not in the control and domain of the assessee. We hold that when the party had appeared in person before the Learned AO and confirmed the transactions with the assessee, there is no need to disbelieve the same. We hold that no addition could be made in the hands of the assessee by disbelieving the purchases merely because two parties could not appear before the Learned AO in the remand proceedings. In fact the assessee had also sought to explain the fact that those two parties who had not appeared before the Learned AO had migrated to Middle East for better prospects of livelihood. Nothing prevented the revenue from verifying this fact to ensure the veracity of the claim of the assessee in this regard in the manner known

7 -C-AM M/s. Shivangi Fashions in accordance with law. We find that these two parties had filed confirmation and furnished all the details called for by the Learned AO vide their letter dated 8.2.2010 with relevant evidences which are part of the records. We find that the assessee had met each and every point of allegation in the assessment order as well as in the remand order with proper explanations which in our opinion is logical. We hold that the assessee had produced all the relevant documents to prove the claim of purchases made from the four parties and accordingly we direct the Learned AO to delete the addition made in the sum of Rs. 57,01,724/-. Hence the ground no. 2 raised by the assessee is allowed.

4.1. The brief facts of this issue is that the Learned AO observed that the assessee has paid labour charges to various parties during the year under appeal to the tune of Rs. 3,74,527/-. The entire details of parties to whom the same were paid together with their names, addresses, ledger copies, copies of bills were filed during the course of assessment proceedings. It was also submitted that the payments were made by account payee cheques to the said parties. The Learned AO observed that the assessee had made payments more than Rs 20,000/- and hence violated the provisions of section 194C of the Act by not deducting tax at source and made the disallowance u/s 40(a)(ia) of the Act which was upheld by the Learned CIT(A) in first appeal.

4.2. The Learned AR argued that the provisions of section 194C of the Act have not been properly understood by the lower authorities as the said section contains a provision that if the overall payments made to the party exceeds Rs. 50,000/- in a year and if single payment exceeds Rs. 20,000/- , then the payer has to deduct tax at source in terms of section 194C of the Act. He argued that none of the parties have been paid

8 -C-AM M/s. Shivangi Fashions more than Rs. 50,000/- in a year and in support of which, he submitted the ledger copies of all the parties and fairly agreed that the same may be directed to be examined by the Learned AO to meet the ends of justice. The Learned DR also fairly agreed for the same.

4.3. We have heard the rival submissions and perused the materials available on record. We find that 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 , to verify the fact as to whether single party has been paid more than Rs. 50,000/- in a year warranting deduction of tax at source in terms of section 194C of the Act and decide the issue accordingly as per law. Accordingly, the ground no. 3 raised by the assessee is allowed for statistical purposes.