ACIT,CIRCLE-10, KOLKATA, KOLKATA vs. M/S TRAXPO ENTERPRISES PVT. LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL, “B” BENCH, KOLKATA Before : Shri N.V. Vasudevan, Judicial Member, and Shri M. Balaganesh, Accountant Member A.Y : 2008-09 ACIT, Circle-10, Kolkata Vs. M/s. Traxpo Enterprises Pvt. Ltd PAN: AAACT 9277H (Appellant) (Respondent) For the Appellant/department: Shri Niraj Kumar,CIT, ld.Sr.DR For the Respondent/assessee: Shri Deepak Jain, B.Com, ld.AR Date of Hearing: 07-04-2016 Date of Pronouncement: 13- 4 -2016 ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A), XII, Kolkata in Appeal No. 194/CIT(A)-XII/R-10/10-11 dated 06-01-2012 against the order of assessment framed by the Learned AO for the Asst Year 2008-09 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2. The revenue had raised the following grounds before us :-

1. Whether on the facts and in the circumstances of the case, ld. CIT(A) is correct in deleting the addition U/s. 68 on account of bogus liabilities amounting to Rs.10,62,38,834/- despite the failure on the part of the assessee to furnish necessary details and documentary evidences to justify its claim.

2. Whether on the facts and in the circumstances of the case, ld. CIT(A) is correct in deleting the addition U/s. 68 on account of bogus liabilities amounting to Rs.2,93,67,494/- despite the failure on the part of the assessee to furnish necessary details and documentary evidences to justify its claim.

3. Whether on the facts and in the circumstances of the case, ld. CIT(A) is correct in deleting the addition U/s. 68 on account of bogus liabilities amounting to Rs. 10,56,92, 541/- despite the failure on the part of the assessee to furnish necessary details and documentary evidences to justify its claim.

(i) Address of creditors (ii) Details of Creditor balance on account of purchase suspense of Rs. 73.80 crores.

(iii) Complete details of creditor parties with name and specific addresses and in case of old credit balance , please furnish original date of transactions.

The Learned AO listed out the names of the sundry creditors for whom the assessee could not submit the complete addresses as below:-

Name of Sundry Creditors Closing Balance (Rs.) AMRIT CHEM 2,74,136 BHARAT PETROLEUM CORPORATION LTD 8,87,341 BROKERAGE AND COMMISSION 2,50,033 DAGA ENGINEERING INDUSTRIES LTD 11,190 DEV OVERSEAS 2,39,200 ESCORT ENTERPRISES 7,05,000 INTEGRATED SERVICES 2,34,135 J.BAXI & CO 12,983 JAY AMI PLYMERS PVT. LTD 3,48,750 MAHAVIR CHEMICALS 82,426 MANGAL DAS & COMPANY 4,750 MARC INFOTECH 8,00,521 PCN PURE CHEM PVT. LTD 5,13,504 PIONEER DYE-CHEM CORPORATION 3,78,674 RAVO ORGANICS LTD 4,46,100 SUMUDERA SHIPPING LINE INDIA PVT.LTD 3,078 SHIV PRAKASH TRANSPORT SERVICE 7,460 SOMU & CO. 24,010 STANDARD CON. PVT. LTD 2,398 STORAGE CHARGES PAYABLE 5,06,76,360

STORAGE CHARGES PAYABLE (AEGIS) 7,22,776 STORAGE CHARGES PAYABLE (FSWAI) 3,34,84,055 SUMES ORGANICS PVT. LTD 1,52,852 SUSPENSE A/C 1,50,21,380 THE ANDDHRA PTEROCHEM LTD 3,41,852 WASON MOTORS 64,734 WEST BENGAL CORPORATION 1,19,150 YOG PETRO PVT. LTD 1,00,000 OUTSTANDING LIABILITIES 3,29,986 10,62,38,834 The Learned AO for want of proper details to be furnished by the assessee concluded the following :-

- that the assessee had failed to substantiate the genuineness and veracity of the alleged transactions with credible documentary evidences and complete postal addresses.

- that since the assessee has not even provided the PAN, the existence of these parties is doubted.

- that further , for getting credits from any person or concern, physical existence of such person or concern as well as genuineness of transactions, as a result of which outstanding balances stood in their books, have to be proved. It was not ascertainable as to how the credit balances appeared in the names of the aforesaid parties in the assessee’s books. This fact alone puts a big question mark on the genuineness of the alleged transactions.

- that the assessee has failed to produce the copy of bank statement or any other credible documentary evidence whatsoever in this regard.

- that notices u/s 133(6) and summons u/s 131 of the Act could not be issued as the assessee did not discharge his primary onus to furnish the proper and complete postal addresses. In fact, by not submitting the proper addresses and details like Suspense account , the assessee has prevented the department from making any independent verification of these parties.

- that it appears that the assessee has unilaterally shown all these parties as his creditors in spite of having carried on no transactions with them.

Based on these observations, the Learned AO brought the closing balances of these creditors amounting to Rs. 10,62,38,834/- as unexplained cash credit u/s 68 of the Act treating the same as bogus liabilities.

3.1. The brief facts of Ground No.2 are that during the course of assessment proceedings, the Learned AO observed that for the following sundry creditors, the notices u/s 133(6) of the Act had returned ‘unserved’ :-

Sl.No. Name of the Party Closing balance Difference in closing As per assessee’s Balance ( in Rs.) Books ( in Rs.) 1. Urmi Chemicals 11,83,988 11,83,988 2. Honest Chemical Pvt. Ltd 6,00,000 6,00,000 3. Amit Traders 15,57,490 15,57,490 4. Jay Laminates (P) ltd 27,28,755 27,28,755 5. Lotus Global Limited 53,00,000 53,00,000 6. Navin Chemical Enterprises 18,00,000 18,00,000 7. Nestor Pharmaceuticals Ltd 19,09,991 19,09,991

3.2. The brief facts of Ground No. 3 are that wherever the assessee had furnished the complete postal address of the creditors, the Learned AO made independent enquiries by sending notices u/s 133(6) of the Act and found that the closing balances did not match in the following cases :-

Sl.No Name of the Party Closing Balance Closing Balance Difference as per reply as per assessee’s in closing ( in Rs.) books ( in Rs.) balance

( in Rs.) 1. Adani Enterprise Nil 57,33,829 57,33,829 2. Bhageria Dyechem 6,82,022 23,73,740 16,91,718 3. Shubham Chemicals & Nil 8,348 8,348 Solvents 4. Century Plyboard (India) 64,033 47,49,484 46,85,451 Ltd 5. Dishman Pharmaceuticals 21,75,000 3,76,059 17,98,941 & Chemicals Ltd 6. Rishi Karan Logistics 6,86,214 10,35,606 3,49,392 Pvt. Ltd 7. PEC Ltd 25,66,32,508 44,10,63,362 8,04,75,506 8. Ketus Enterprises 2,45,580 1,78,105 67,475 9. B.R. Agrotech Nil 16,00,000 16,00,000 10. ACME Solvents Pvt. Ltd Nil 25,00,000 25,00,000 11. Ashok Alco Chem Ltd Nil 2,96,761 2,96,761 12. Elpee Overseas Pvt. Ltd Nil 2,53,321 2,53,321 13. Surbhee polymers Pvt. Ltd Nil 52,68,000 52,68,000 14. Vinision Chemical Nil 9,63,799 9,63,799 10,56,92,541 Based on the above, the Learned AO observed that the assessee had booked bogus sundry creditros in the name of these parties and the assessee could not reconcile the differences in balances. Here the Learned AO observed that the assessee had only proved the existence of the creditors but failed to prove the genuineness and veracity of the alleged transactions with credible documentary evidences. The Learned AO treated the aforesaid parties as bogus liabilities. In cases where there is more balance as per the assessee’s reply but the same is not reflected in the books of the assessee , it was treated as undisclosed purchases as the assessee failed to account for the same in its books of accounts. Accordingly, he brought the aforesaid creditors to tax as unexplained cash credit u/s 68 of the Act treating them as bogus liabilities.

3.3. The brief facts of Ground No. 4 are that during the course of assessment proceedings, from the details of current liabilities and provisions filed by the assessee, the Learned AO observed that the assessee has shown Purchase Suspense of Rs. 73,80,73,509/-. The assessee stated that the purchase suspense represents goods that were sold to certain parties who could not take delivery of the same and accordingly the assessee was forced to re-purchase the same from the following parties to the tune of Rs. 25,73,43,604/- :-

Difference in Purchase (Suspense) Sl.No. Name of the Party Particulars Amount in Rs.

3. Kutch Chemical Industries Repurchase of 2645MT 60,06,000 Caustic Soda Flakes sold to Kutch Chemical Industries Ltd, and the invoice not Received 4. Kutch Chemical Industries Repurchase of 1286MT Caustic 2,44,34,000 Soda Flakes sold to Kutch Chemical Industries Ltd, and the invoice not received 5. Bloom Decor Ltd Repurchase of 155MT 1,16,25,000 Phenol sold to Bloom Decor Ltd, and the invoice not Received 6. Dujodwala Products Ltd Repurchase of 350MTPhenol 2,62,50,000 sold to Dujodwala Products Ltd, and the invoice not received 7. Golden Laminates Ltd Repurchase of 350MT 1,38,75,000 Phenol sold to Golden Laminates Ltd, and the invoice not received 8. Bharat Insecticides Ltd Repurchase of 100 MT 75,00,000 Phenol sold to Bharat Insecticides Ltd, and the invoice not received 9. Hemani Organics & Repurchase of 65MT Phenol 48,75,000 Chemicals Ltd sold to Hemani Organics & Chemicals Ltd, and the invoice not received.

Acetate sold to Premier Solvents Pvt. Ltd and the invoice not received. 18. Sanjay Chemicals (India) Repurchase of 21MT Acetone 8,82,000 Ltd sold to Sanjay Chemicals (India) Pvt. Ltd, and the invoice not received. 25,73,43,604 The Learned AO further observed from the notices issued u/s 133(6) of the Act to the aforesaid parties, the closing balances did not match. The Learned AO further observed that the few parties were selected on test check basis and notices u/s 133(6) of the Act were issued for third party verification. In some of the cases, he also observed that the notices were served, replies were awaited till the date of passing of the assessment order. The Learned AO observed that the assessee could not reconcile the differences in closing balances of creditors. Hence the Learned AO brought the aforesaid creditors to tax treating them as bogus liabilities.

4. On first appeal, the assessee referred to the details of sundry creditors and argued that the Learned AO ought not to have made any addition in respect of opening balance of sundry creditors u/s 68 of the Act as admittedly, only the credits during the year alone , if at all, could be subjected to tax as deemed income u/s 68 of the Act. It was also argued with specific reference to the decision of the co-ordinate bench of Ahmedabad Tribunal in the case of DCIT vs Alidhara Taxpro Engineers Pvt Ltd reported in (2011) 43 SOT 1 (Ahm.) wherein it was held that neither provisions of section 68 nor provisions of section 41(1) of the Act could be applied even when the credits were old being carried forward from earlier years and the liability still continued to exist in the Balance Sheet. The assessee also tried to explain that some of the liabilities were required to be adjusted against certain debit balances appearing as sundry debtors in the balance sheet and many of such adjustments had already been made in subsequent years. The Learned CIT(A) also observed that assessee had given detailed explanation with specific references to various annexures filed before him in respect of all such credit entries appearing in the books of account and most of which were being carried forward from earlier year and also observed that some of the credits were made due to wrongly entry in the books of accounts in as much as the amount which should have been credited to some other accounts had been wrongly credited to such accounts and most of such entries had already been rectified by April 2010 and much before the case had been taken up by the Learned AO and hence it cannot be said that the assessee did not offer any explanation. The assessee also tried to argue that various case laws relied upon by the Learned AO were rendered in the context of section 68 of the Act. In the instant case, whether at all the provisions of section 68 of the Act could be invoked keeping in view the fact that most of the credits are being carried forward from earlier year and the mistakes committed were duly rectified subsequently. Accordingly he assailed the reliance placed on various decisions by the Learned AO. It was also mentioned that all the credits are either in respect of purchases made or in respect of expenses incurred and all of which are supported by bills and challans and payments in all the cases have been made by Account Payee Cheques only and hence applicability of provisions of section 68 of the Act would not arise. It was also argued before the Learned CIT(A) that certain debit balances of sundry creditors were also added by the Learned AO as bogus liabilities which were pointed out before the Learned CIT(A) by the assessee. It was also argued that with regard to the addition of Rs. 10,62,38,834/- at page 8 of the assessment order, the Learned AO had considered the figure of storage charges payable (FSWAI) at Rs. 3,34,84,055/- as against the correct amount of Rs. 34,84,055/- thereby making excess addition of Rs. 3 crores. With regard to the addition made in the sum of Rs. 25,73,43,604/- towards purchase suspense, it was pleaded that because of global recession , certain materials sold by the assessee company during the year ended 31.3.2008 were not lifted by the purchasers and hence assessee company instead of reducing the sales by the amount of such bills, on account of business expediency showed such transactions as re-purchase of such materials and entered the same in purchase suspense account. The complete details of the same party wise were furnished before the Learned CIT(A). It was also explained that since the purchasers had not lifted the goods sold and had not accounted for such purchases in their books of accounts by debiting the purchases account and crediting the account of the assesse company, nothing could be found as recorded in their books of accounts. The reason for crediting purchase suspense account in the books of assessee company was explained that as and when the materials sold were lifted by the buyers , the purchase suspense account would get adjusted and in order to keep track of the lifting of materials by the concerned parties. Hence it was argued that under no circumstances, the same could be treated as deemed income in the hands of the assessee u/s 68 of the Act. The Learned CIT(A) appreciated the contentions of the assessee and deleted the additions made on account of sundry creditors as bogus liabilities and on account of purchase suspense. Aggrieved , the revenue is in appeal before us.

(i) Assessee has been importing material from overseas but the Letter of Credits were established by third parties like PEC Ltd and other companies. The credits in purchase suspense account during the year ended 31.3.2008 is for the imports of material, the letter of credit for which were established by third parties, and the invoices has not been raised on assessee by third parties who established the letter of credits.

(ii) It has been practice of PEC Ltd which has established most of the letter of credits for the imports of assessee on sale of the material imported in one particular consignment.

(iii) The goods imported by the third parties were being sold during the year ended 31.3.2008 and sale invoice has been rasied by assessee.

(iv) In absence of purchase invoice, assessee made the entries for purchases on the basis of agreement between the companies which has established the letter of credits for the import of assessee and credited the purchase suspense account during the year ended 31.3.2008 and on the day of settling the accounts for a particular consignment, purchase suspense account is debited and respective party which has established the letter of credits for the import of assessee is credited.

(v) The details of letter of credits established by third parties for the imports of assessee together with copy of agreement between assessee and the third party , sales invoices and bond transfer agreements were furnished before the lower authorities.

(vi) Further , the delivery of some of the sales made by assessee were not taken by the buyers because of the falling prices due to global recession and sales were cancelled and the materials were re-purchased by assessee from such parties.

We find that the assessee had filed complete details and workings of the aforesaid transactions with regard to ground no. 4 raised by the revenue before us including the note on re-purchase of materiasl from the parties to whom materials were sold. These are enclosed in pages 183 to 213 of the paper book.

6.1. The Learned DR argued that most of the details were filed and explained in detail by the assessee before the Learned CIT(A) and the Learned AO had not given any remarks about the same in his remand report. He pleaded that in the interest of justice, the case may be remanded back to the file of the Learned AO with a specific direction to relook into the details filed by the assessee. He further argued that if the Learned AO had not utilized the opportunity of verification (as stated by the Learned AR) in the remand proceedings, then the Learned CIT(A) ought to have verified the same in detail and then granted relief to the assessee, if warranted. Just because the Learned AO had not remarked in the remand report, the Learned CIT(A) cannot brush aside his duties contemplated in section 250(4) of the Act. We find lot of force in the arguments of the Learned DR on this aspect. For the sake of convenience, the provisions of section 250(4) of the Act are reproduced below:-

Section 250 – Procedure in appeal

(4) The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). 6.2. Though we find that the Learned CIT(A) had referred to various annexures in his appellate order which would amount to his verification, but on perusal of the details filed before us, we find that there are certain details such as Suspense Accounts, which assessee himself had admitted in the narration that details of credits are not available and hence credited to suspense accounts. Hence the Learned AO is justified in invoking the provisions of section 68 of the Act in respect of such transactions. However, from the totality of the facts and circumstances of the case, and in view of the voluminous details filed in the paper book by the assessee, we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions :-

(i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ;

(ii) No addition need to be made on the debit balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ;

(iii) The Learned AO to make extensive verification of current liabilities and provisions , in accordance with law, in respect of accounts where there were transactions during the year ;

(iv) The Learned AO is directed to allow set off of debit balances with credit balances in respect of the same parties while deciding the issue;

(v) The assessee is directed to co-operate with the Learned AO and furnish necessary evidences and documents in support of its contentions in the form of reconciliation statements, confirmation of balances etc.

(vi) The assessee is also directed to adduce evidences before the Learned AO in respect of rectifications stated to have been carried out in subsequent years for the wrong credit entries made in the earlier years and also produce evidences for payments / settlements made to various creditors in subsequent years. Accordingly, the grounds raised by the revenue are allowed for statistical purposes.

ORDER PRONOUNCED IN THE OPEN COURT ON 13 -4- 2016 Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date 13 -4 -2016 Copy of the order forwarded to:- 1.. The Appellant/department: The ACIT, Circle-10, Kolkata, P-7 Chowringhee Square, 3rd Fl., Kolkata-700 069. 2 The Respondent/assessee: M/s. Traxpo Enterprises Pvt. Ltd 42/1 Strand Road, Kolkata-07. 3 /The CIT, 4.The CIT(A)