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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
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)-XXVI-Kolkata in appeal No.249/CIT(A)-XXXVI/Kol/HG/2010-11 dated 14.02.2013. Assessment was framed by ACIT Circle-1, Hooghly u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 07.12.2010 for assessment year 2008-09.
At the very outset, we observe a delay of as many as 14 days in the filing of its appeal by Revenue, which through stands suitably explained per are accompanied affidavit by the concerned official of the Revenue. Ld. AR for assessee submitted that considering delay he should not be having any objection to the Bench if considering the delay of condonation. This, in our considered opinion, on the facts and circumstances of the case, i.e., in this case deserves to be considered and same is condoned.
ITO Wd-1(2) HG v. Sh Kalin Dutta Page 2 Shri A.K.Tibrewal, Ld. Authorized Representative appeared on behalf of assessee and Shri Dinabandhu Naskar, Ld. Departmental Representative appeared on behalf of Revenue. 3. The Revenue has taken the following grounds of appeal:-
1. That, on the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing relief on account of carriage inward for Rs.2,06,080/-
2. That, on the facts and in the circumstances of the case, Ld. CIT(A) in deleting Rs.29,11,129/- on account of bogus purchases
3. That, on the facts and in the circumstances of the case, Ld. CIT(A) ought not to have relief much on banking transactions despite the unknown or bogus nature of identity of the suppliers, in the light of the jurisdictional High Court decisions in CIT-v-Precision Finance (P) td [208 ITR 254] or in CIT-v-United Commercial & Industrial Co (P) Ltd [187 ITR 596]
4. That, on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting Rs.2,00,547/- on account of undisclosed investment through purchases
5. That, on the facts and in the circumstances of the case, Ld. CIT(A) has apparently violated Rule 46A of IT Rules, 1962 in admitting fresh evidence on the issue of undisclosed investment in the light of the Ld. Tribunal’s decision in ITO- v-Electrical Mfg. Co. Ltd. [ITA No.638/Kol/2012 or 28 taxmann.com 98 (Kol)]
6. That, on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting Rs.3,66,182/- on account of bogus sundry creditors in violation of the Hon'ble Calcutta High Court’s decisions (supra), laying too much emphasis on VAT records.
7. That, on the facts and in the circumstances of the case, Ld. CIT(A) ought to have considered that the assessee got fair opportunity of hearing before passing of the assessment order and so, the latter cannot take plea of denial of natural justice in the light of the Hon'ble Calcutta High Court decision in Hindusthan Tobacco Company –v- CIT in [2012] [7 taxmann.com 155 (Cal)]”
4. The first issue raised by Revenue in this appeal is that ld. CIT(A) erred in restricting the addition made by the AO from Rs. 4,12,160.00 to Rs. 2,06,080.00 on account of carriage inward expenses.
5. The brief facts of the case are that the assessee in the present case is an individual and engaged in the business of re-selling of stone chips, sand & building materials and also earned income from trucks under the name and style M/s K.D. Enterprise. During the year under consideration assessee filed its return of income ITO Wd-1(2) HG v. Sh Kalin Dutta Page 3 showing an income of Rs.5,30,632/- under the business head. The assessee during the year has claimed carriage inward charges amounting to Rs.8,24,320/-. The assessee maintained handmade vouchers containing the detail of vehicle number in support of its expenses. It was observed by the Assessing Officer that there was no detail regarding the name and address of the party to whom payment has been made hence these transactions were non verifiable. In response to the notice the assessee reiterated that it is not possible to record all the details in the voucher. Therefore the AO assumed that these vouchers incomplete and so verification is not possible. Accordingly the AO on ad hoc basis disallowed 50% of carriage inward expenses by making addition to the total income of the assessee.
6. Aggrieved, assessee preferred an appeal before Ld.CIT (A). Before Ld. CIT(A) assessee submitted the copies of the vouchers and explained that carriage inward charges were paid directly to the drivers and helpers in cash. All the vouchers contain the name of the drivers as well as truck numbers so disallowance of 50% of the total expense is hardship on it. Ld.CIT(A) keeping the volume of transaction of the business of the assessee restricted the disallowance to 25% of the total carriage inward expenses claimed by observing as under :- “4.1 I have considered the submissions of the A/R and perused the assessment order and evidence on record. There is no dispute to the act of paying carriage inward charges in cash below Rs.50,000/- to the drivers who carried the materials in trucks for unloading to the appellant’s work site. A few vouchers depicting therein names of the recipient of carriage inward charges and truck nos. were filed. However, the appellant has fairly admitted that some disallowance in this respect is warrant. Considering the volume of expenses and non-verifiable nature of vouchers, ad hoc disallowance on estimate basis @ 25% of the said expenditure would be justified and reasonable. I, therefore uphold the disallowance to the extent of Rs.2,06,080/- out of the disallowance of Rs.4,12,160/- made by the AO. The appellant thus gets relief of Rs.2,06,080/- [Rs.4,12,160 – Rs.2,06,080]. Ground No.2 is partly allowed.”
Being aggrieved by this order of ld.CIT(A), Revenue is in appeal before us.
Before us Ld. DR has submitted that there were no signatures of cashier, accountant as well as proprietor on the vouchers but simply putting thumb impression without mentioning the name of the person to whom the payment has been made. There were also mismatch in the amount written in words and numeric. The Ld. DR relied upon the order of AO.
ITO Wd-1(2) HG v. Sh Kalin Dutta Page 4 On the other hand the Ld. AR has filed a paper book which is running pages from 1 to 186 and submitted that normally truck drivers do not provide proper bills and some of them do not know even how to sign on vouchers and he relied upon the order of Ld. CIT(A).
We have heard the rival contentions of both the parties and perused the material available before us. From the aforesaid discussion we find that the AO has disallowed carriage inward expense amounting to 50% of the total expense claimed by the assessee due to non availability of supporting evidence. However the Ld.CIT(A) has reduced the expense disallowance from 50% to 25% considering the volume of the expenses and non-verifiable nature of vouchers. Now the question before us is to ascertain whether the action of the ld.CIT(A) for deleting the addition made by the AO is correct and commensurate with the volume of the business of the assessee. From the facts of the case we find that the AO has disallowed the expenses on estimated basis as the supporting details were not available as narrated above. However, we understand that the private truck drivers on several times do not provide the proper bills therefore it is difficult to provide the necessary details of the parties to whom the payment was made. However we find that the AO before disallowing the expenses has failed to consider the claim of the assessee of such expenses in the earlier years to arrive at the view whether the expenses claimed are more or less. The AO has not pointed out any flaw in the books of accounts. The AO should have verified these expenses with regard to the purchase claimed by the assessee. We also find that the vouchers in support of the expenses are also placed on pages 14 to 16 of the paper book. In our view, Revenue cannot resort to ad hoc and arbitrary disallowance of expenses for the purpose of arriving at the alleged undisclosed income especially when there is no incriminating evidence found against the assessee to establish that the assessee had in any manner, inflated the expenses and not accounted for the correct income. Therefore, an assessment cannot be made to disallow or add back expenses on ad hoc basis and that too, to make arbitrary additions to the alleged income as the onus is on the Revenue to prove the actual expenditure and then establish that the source of money spent for such expenditure had not been satisfactorily explained by the assessee. Therefore considering the totality of the case, we are of the considered view not to interfere in the order of ld. CIT(A). Hence this ground of Revenue’s appeal is dismissed.
ITO Wd-1(2) HG v. Sh Kalin Dutta Page 5 9. The common inter-connected issue raised in both the ground no.2 & 3 are that the ld. CIT(A) erred in deleting the addition made by AO for Rs. 29,11,129.00 on account of bogus purchase.
The assessee has claimed purchases for the materials from different parties during the relevant assessment year. The AO cross verified those purchases by issuing the notices to different parties under section 133(6) of the Act. However, notices to some of the parties were returned back with the remarks hereunder: Sl Name Amount involved Gist of the remarks No. of postman 1 M/s Ma Tara Enterprise Rs.9,87,036/- (purchase) Insufficient address 3 M/s Kali Enterprise Rs.2,53,949/- (purchase) Not known 4 Sri Chandi Samanta Rs.67,048/- (purchase) Not known 5 Sri Ganesh Mete Rs.1,90,539/- (purchase) Not known 6 M/s Mahamaya Enterprise Rs,67,830/- (purchase) Not known 7 M/s Sunny Traders Rs.13,44,727/- (purchase) Not known AO on the basis of above observation has disallowed the purchase amount claimed by the assessee amounting to Rs. 29,11,129/- as bogus purchases.
Aggrieved, assessee preferred an appeal before Ld.CIT (A) where Ld. AR submitted that the assessee has furnished the details of the parties from whom goods were purchased and reiterated that despite of several requests, the AO has not provided them the xerox copies of the envelopes through which notice were issued to these parties for the verification. The payments to third parties for the purchases were made through account payee cheques and it was very much apparent from the bank statement of the assessee. The assessee has also produced the ledgers of the respective parties appearing in his books of account along with their confirmation. Accordingly the ld. CIT(A) considering the facts and circumstances has deleted the addition made by the AO on account of bogus purchases by observing as under:- “5.5 I have considered the written submissions, remand report and counter replies of the appellant and also gone through evidence on record. In the assessment order as well as in the remand report, the AO was alleging that the addresses of the parties supplied by the appellant were not correct address. It was further stated by the AO that full details of the parties could not be obtained ITO Wd-1(2) HG v. Sh Kalin Dutta Page 6 from the concerned banks despite requisitions made and, therefore, summons u/s. 131 of the Act could not be issued to the parties for verification of the transactions. Except miserably failed to bring on record any evidence to charge the appellant for making bogus or false purchase. As stated above, several reminders were issued to the AO during long span of time to collect the details from the Banks and after verification of the purchases, to report accordingly. According to the statements obtained by the AO from different banks through which transactions took place., it is found that the appellant has made purchases from the aforesaid six parties through banking channel, the details of which are given in the remand report of the AO dated 07-01-2013. The appellant also filed bills from all these parties in support of purchases made from them. Confirmation of transactions by way of ledger copy of accounts has also been placed on record. The appellant also conducted VAT audit under West Bengal Value Added Tax Act. No defect or irregularity in the audited accounts was pointed out by the AO. In the above circumstances, the initial onus that lies on the appellant, in my considered opinion, was duly discharged. To reiterate, the very fact that all the transactions were entered into between the parties through account payee cheques and the same were confirmed by the banks, makes the question of identity of the creditors fall into oblivion and it becomes absolutely irrelevant. Considering the totality of the facts and circumstances of the case and evidences placed on record in support of purchase transactions and payment details, there remains hardly any scope to doubt the purchase made by the appellant from the aforesaid six parties. That being so, the addition of Rs.29,11,129/- made by the AO on the alleged ground of bogus/false purchases is directed to be deleted.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us
Before us Ld. DR submitted that Ld. CIT(A) has deleted the addition made by AO by having reliance on the purchase bills of the party and bank payment made to the party but Ld. CIT(A) erred to observe that the bills submitted by assessee were tempered. The figures written in words and value were not matching. There was difference in the quantity of the purchase bill and in some of the purchases bills there was overwriting in the bills of the purchase. The contention of the assessee that the payment was made in cheque was not correct. As in many cases, payments were in cash which was below Rs.20,000/-. The ld. DR in support of his claim relied in the judgments of Hon’ble Calcutta High Courts in the case of CIT Vs. Precision Finance private Limited 208 ITR 254 AND CIT Vs. United Commercial & Industrial co. (P) ltd. 187 ITR 596.Ld. DR vehemently relied on the order of AO.
On the other hand, Ld. AR drew our attention on the ledger copies of the parties along with the bills of the purchases which are placed from page No. 18 to 80 of the paper book. Ld. AR further submitted that none of the purchases were bogus and most of the ITO Wd-1(2) HG v. Sh Kalin Dutta Page 7 payments were made through banking channel. The AO has also got verified from the bank by issuing a notice u/s.133(6) of the Act. to verify the existence of the parties. Ld AR vehemently supported the order of Ld. CIT(A).
We have heard the contentions of both the parties and perused the materials on record. From the aforesaid findings, we find that AO has disallowed the purchases on the ground that notices issued to the parties u/s.133(6) of the Act were returned back as unserved. However, Ld. CIT(A) have granted to assessee by having reliance on the books of account and detailed financial statement, confirmation obtained from the bank of the assessee in response to the notice issued u/s133(6) of the Act. Now the question before us is as to whether the purchases shown by the assessee are bogus in the aforesaid circumstances. From the facts of the case, we find that the AO has disallowed the purchases merely on the ground of non service of notice u/s. 133(6) of the Act. In our view, the AO has failed to appreciate other circumstances of the case such as there was no flaw in the books of accounts, there was no adverse comments in the audit report duly certified by the Chartered Accountant, the confirmation received from the bank regarding the payment made to the aforesaid parties in response to the notice u/s. 133(6) of the Act. In the instant case, all the details relevant to the transaction for the purchase of the materials are very much placed on record. Therefore, in our considered view, merely notice issued u/s. 133(6) of the Act cannot be the sole ground for making the disallowance. In holding so, we find the support from the following judgments of Hon’ble High Courts:- a) ACIT v. Bahri Bros. (P) Ltd. (1985) 154 ITR 244 (Pat) wherein the Hon’ble court has held: identify of creditors is not relevant for cheque transactions - the very fact that all the transactions were entered into between the parties through account payee cheques makes the question of identity of creditors fall into oblivion and it becomes absolutely irrelevant. b) Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Guj) where the Hon’ble Court has held: transaction by cheques may not be sacrosanct – it cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors, vis-à-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts ITO Wd-1(2) HG v. Sh Kalin Dutta Page 8 in question, actually belonged to, or was owned by the assessee himself. It is also important to note that the assessee requested the AO to provide the copy of the order sheet along with the notices issued u/s133(6) of the Act to the aforesaid parties with the Postal remark “that the notice were returned as unserved”. The purpose for having such information from the Income Tax Office was to ensure that the addresses of the parties were correctly mentioned but the AO failed to provide to the assessee. Ld DR also failed to bring anything on record contrary to the argument advanced by Ld. AR. The facts of the case relied by the Revenue in the case of CIT Vs. United Commercial & Industrial co. (P) ltd. 187 ITR 596.Ld. are different as in that case it was held that “It was necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts the onus shifts on to the Department. In the absence of the books of account and other evidence of the parties concerned, it was not possible to verify the real nature of the alleged transactions even though they were made by cheques. The genuineness of the loans cannot be accepted merely because cheques were exchanged between the parties. The assessee had failed to prove the creditworthiness of the alleged lenders and that those lenders actually had any funds of their own out of which loans could have been advanced to the assessee. The only inference is that the assessee has managed to get the confirmatory letters from the payee just as it had managed to get the bogus hundis. The transactions as well as the hundis and confirmatory letters are collusive, fictitious and false. Therefore, assessee has not discharged the initial onus in proving the loans as genuine.”
In the aforesaid case as relied by Revenue, the books of accounts and other documents were not produced. In the instant case the books of accounts were produced before the lower authorities and no flaw was brought to our notice. Accordingly, in view of the above and after having reliance on the aforesaid judgments of Hon’ble High Courts we find no reason to interfere in the order of Ld. CIT(A). Hence, this ground of Revenue’s appeal is dismissed.
Coming to next issue raised in ground No.4 and 5 which are inter-connected, so we adjudicate them together, is that ld. CIT(A) erred in deleting of Rs.2,00,547/- on account of undisclosed investment. The AO during assessment proceedings found some mismatch in the figures of purchased shown by the assessee from the parties and in the figures of sale shown by ITO Wd-1(2) HG v. Sh Kalin Dutta Page 9 the parties in response to the notice issued u/s 133(6) of the Act. The details of such parties are as under:- Sl. Name of the concern Amount of Your purchase/ Difference (Rs) No. sale/Sr.Dr. Sr.Cr. reported (Rs) claim (Rs) 1 Sri Pramod Kr. Nayak 96,138/- (Sr.Dr) 1,20,580/- (Sr. cr) 24,442/- 2 M/s Star Enterprise Nil Rs.48,308/- 48,308/- (purchase) 3 M/s New Star Enterprise Nil Rs.24,162/- 24,162/- (purchase) 4 M/s New 1,57,425/- (sale) 53,790/- (purchase) Excess Mahamaya Enterprise purchase of Rs.1,03,635/- Accordingly, the AO has disallowed the aforesaid difference of purchases for Rs.2,00,547/- as undisclosed investment u/s.69 of the Act and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before CIT (A) who deleted the addition made by AO.
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
At the outset, it was observed that in the identical issue raised by Revenue in grounds No. 2 & 3, the additions made by AO has already been deleted by us in Para No. 10 to 12 of this order. In our considered view same analogy shall also be applied to these grounds of appeal. Hence, Revenue’s grounds of appeal are dismissed.
17. Next issue in this appeal of Revenue is as regards that Ld. CIT(A) erred in deleting the addition of Rs.3,66,182/- on account of bogus sundry creditors. During the course of assessment proceedings, AO found that sundry creditor amounting to Rs. 3,66,182/- related with M/s Ma Tara Supplies is bogus and false for want of verification. The AO issued notice u/s. 133(6) of the Act but the same was returned as unserved. Therefore the AO treated the same as bogus sundry creditor and added to the total income of assessee.
ITO Wd-1(2) HG v. Sh Kalin Dutta Page 10 18. Aggrieved, assessee preferred an appeal before Ld. CIT(A), who deleted the addition by observing as under:- “7.2 Identical issue vide grounds No. 3 & 4 has been dealt with in this order above vide paras 4 to 4.5 wherein also the AO on the alleged ground of insufficient address of the parties doubted the purchases and made addition. In the remand report, the AO has only pointed out that after collecting information from banks, some irregularity was found in the address of the said party. In the paper book at pages 23 to 34, the appellant has filed ledger account of the said party, copies of bills of purchases etc. Copy of bank statement showing transactions with M/s Maa Tara Suppliers was also furnished at pages 143 to 172 of the paper book. In that bank statement, the name of the party has also been mentioned while clearing the cheques. In such circumstances, the transactions with the said party cannot be doubted, unless and until some contrary evidence is brought on record, which the AO failed to do so. Further, the appellant has filed a confirmation letter from the said party showing closing balance of Rs.3,66,182/- as on 31-03-2008. The appellant also conducted VAT audit under West Bengal Value Added Tax Act. In view of above and for the reasons discussed in para-4-5 above, I am of the considered view that the appellant has discharged his initial onus of proving the genuineness of transactions and that being so, there is no justifiable reason to endorse the addition. The addition of Rs.3,66,182/- made alleging bogus sundry creditor amount is, therefore, deleted.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us Ld. DR vehemently supported the order of AO and on the other hand, Ld.AR drew our attention on pages from 23 to 36 containing the copy of the ledger, Purchased bills, confirmation of the party along with the PAN of the assessee. Ld.AR supported the order of Ld. CIT(A).
From the aforesaid discussion, we find that AO has issued a Notice u/s.133(6) of the Act to the party, Maa Tara Suppliers which was returned to AO as “unserved”, therefore, in the absence of the verification, the AO has made the addition of the credit balance appearing in the ledger of the party as cash credit. The addition made by AO was deleted by Ld. CIT(A) as discussed aforesaid. Now the question before arises so as to whether the credit amount appearing in the ledger of the party amounts to unexplained cash credit. From the ledger of the party, we find that the assessee has purchased goods worth of Rs.20,20,280/- during the year and has made the payment through the bank account for amount of Rs.16,54,098/-. The AO has disallowed the credit balance to the party without disturbing the corresponding purchase shown in its ITO Wd-1(2) HG v. Sh Kalin Dutta Page 11 profit and loss account which showed that AO has accepted the purchases declared by assessee. Therefore, in our considered view, the action of AO for accepting the purchase without accepting the corresponding sundry creditors does not hold good. The AO in the instant case has failed to verify the payment made to the parties through banking channel from the party. In support of payment, the assessee has submitted the bank statement which is placed on pages 143 to 172 of the paper book. Ld. DR has also failed to bring anything contrary to the finding of Ld. CIT(A), the PAN of the assessee was very much available to the AO and the AO failed to reconcile the amount of creditor’s by way of issuing notice u/s. 133(6) of the Act to the AO having jurisdiction over the party. The AO in the instant case has treated the balance of the party as cash credit merely on the ground that the notice issued u/s. 133(6) of the Act was returned as unserved. The AO has not rejected the purchase bill as submitted by assessee at the time of framing of assessment under consideration. The order of AO is silent about the copy of the ledger and confirmation of account by the party submitted by the assessee. Therefore, in our considered view, the amount of credit balance as appearing in the ledger of the party cannot be regarded as unexplained cash credit. Hence, this ground of Revenue’s appeal is dismissed.