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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
Date of Hearing : 15.03.2016. Date of Pronouncement : 6.4.2016. ORDER This is an appeal by the Assessee against the order dated 24.11.2015 of CIT(A)-7, Kolkata, relating to AY 2009-10.
Grounds of appeal
Nos. 1 and 2 of the assessee read as follows :- “
1. For that in the facts and circumstances of the case, the addition of Rs. 554,124 comprising of alleged purchases by assessee from Das Tubes of Rs. 166,750 and from Krishi Kalyan Agency of Rs. 387,374, either u/s. 69C or S. 40A(3) or for any other reason, is wrong, erroneous, excessive, arbitrary, unreasonable against the facts of the case and deserves to be reduced or cancelled.
2. For that the comment of Id CIT(A) that "The appellant's submission that the suppliers have made direct supply to their customers and the assessee did not have any control over the transaction seems to be false" is without any material, perverse, erroneous, against the facts of the case and should be expunged/deleted from the impugned order.”
The Assessee is an individual. He carries on the business of trading in pipe fittings. In the course of assessment proceedings, the AO issued notice u/s 133(6) of the Income Tax Act, 1961 (Act) to various parties from which the assessee had made purchases. In respect of purchases made by the assessee from M/s. Das Tubes and M/s. Krishi Kalyan Agency there was a difference in the account between the assessee and the aforesaid parties by a sum of Rs.1,66,750/- and Rs.3,87,374/- Rani Samanta – A.Y.2009-10 1 respectively. The aforesaid parties in their account had shown sales to the assessee higher by the amounts mentioned earlier. This was confronted to the assessee. The assessee submitted before the AO as follows :- A. Das Tubes : As per the books of the Assessee purchases from the aforesaid party was shown by the Assessee at Rs.48,70,417/-. The other party had shown in their accounts sales to the Assessee of Rs 57,37,634. The Assessee explained the difference as follows: The amount shown by the other party included VAT charges and cheque return amount. But the Assessee had shown purchase value of materials excluding VAT. Therefore the position will be as under: Purchases as per our books - Rs.48,70,417 Add: VAT @ 4% Rs. 1,94,817 Add: Cheque return Rs. 5,05,650 Total Rs.55,70,884 Debit as per Party Ledger Rs.57,37,634 Difference Rs. 1,66,750 The Assessee explained the difference of Rs.1,66,750 as arising due to reason that orders were placed by the Assessee in the name of some of the customers of the Assessee for direct supply and instructed to raise the bill in the party's name. Accordingly such purchases were not booked by the Assessee in his books of accounts. But M/s Das tubes raised the bill (Bill no 17/08-09 dt 23.4.2008) in our name, though the Assessee made payment after collecting the amount for the said direct supply from the customers. It was further pointed out that M/s Das tube also accounted for payment received in Assessee’s account. The Assessee also pointed out that it had not claimed nor allowed any commission in respect of the above supplied.
B. Krishi Kalyan Agency The Assessee pointed out that the total purchases shown against this party by the Assessee in its books of accounts was Rs.3,40,925/-. The total amount of supplies to the Assessee as per the aforesaid parties books was Rs.7,41,936/-. The Assessee Rani Samanta – A.Y.2009-10 2 reconciled the difference as owing to inclusion of VAT by the other party and cheque return amount.
Purchases as per our books - Rs. 3,40,925 Add: Vat@4% Rs. 13,637 Total Rs. 3,54,562 Debit as per Party ledger Rs. 741,936 Difference Rs. 3,87,374
With regard to the remaining difference of RS.3,87,374/- the Assessee submitted that the difference is due to reason that the Assessee placed order with M/s Krishi Kalyan for direct supply and instructed to raise the bill in the party's name. Accordingly the Assessee had not taken the amount in their purchases but M/s Krishi Kalyan raised all the bills in the name of the Assessee even for such direct supplies.
The assessee gave details of the supplies made by the aforesaid parties directly and the name and address of the customers.
Without prejudice to the above submission, the Assessee also submitted that it was earning Gross profit Margin of 2.5% to 2.6% on sales. That the Assessee gets compensated by Commission/discount received at the year-end by the Principal based on the performance for the year. The Assessee pointed out that during the previous year it had received commission of Rs.3,28,219 ( Shown as deduction from Purchase). The Assessee pleaded that in the worst scenario only gross profit that the Assessee earned on the difference in the purchase account could be brought to tax and not the entire unreconciled purchases. The Assessee gave the following details in this regard:- Purchases for direct supply as shown above Das Tubes 1,66,750 Krishi Kalyan 3.87.374 Rani Samanta – A.Y.2009-10 3
5,54,124 Profit on above@ 2.5% of Rs.5,54,124 = Rs.13,853
The AO without making any reference to any of the above submissions held that the assessee has accepted suppression on account of purchases and that the request of the assessee for adding only gross profit on such purchases cannot be accepted. The AO thereafter added a sum of Rs.5,54,124/- to the total income of the assessee on account of suppression of purchases which was treated as investment from undisclosed sources.
On appeal by the assessee the CIT(A) concurred with the view of the AO for the following reasons : “ 1.3. I have gone through the submissions made by the appellant's A.R. and assessment order but do not find force in the argument. During the course of assessment the appellant could not reconcile the difference of Rs.5,54,124/- and accepted the suppression of purchases and requested the AO to tax the profit on suppression of purchases. Subsequently the addition was challenged. In her letter dated 21.01.2014 she stated that the direct sale was made by the supplier M/s Krishi Kalyan Agency to her customers and the appellant also enclosed confirmation from M/s Krishi Kalyan Agency. M/s Krishi Kalyan Agency's letter submitted by the A.R. dated 16.08.2013 reads as under:
"As per your enquiry we like to inform you that we supplied the materials to your end for Rs.7,42,300/- (inclusive VAT) for the year 2008-09. Out of those materials RS.3,54,926/- (inclusive VAT) delivered to their shop and also executed the order value Rs.3,87,374/- (inclusive VAT) were directly supplied to the Customers of Samanta Enterprises as request by your end. It is also noted that the total amount of bill Rs.7,42,300/- paid by your end to us".
1.4 From the letter issued by the supplier M/s Krishi Kalyan Agency it is clear that the suppler has made the supplies to the customers of the appellant on her request and the payment was received from the appellant, therefore, the purchases and sales should be accounted by the appellant. From the accounts copy of M/s Das Tubes also it is noticed that the sales of Rs.l,74,575/- was accounted in the appellant's account and the sale bills also were raised in the name of the appellant by M/s Das Tubes. 1.5 The appellant in her letter addressed to the Income Tax Officer, Wd-4, Haldia dated 28.11.20011 stated that both in the cases of M/s Das Tubes as well as M/s Krishi Kalyan Rani Samanta – A.Y.2009-10 4
Agency the appellant was placing the orders on behalf of their customers with a request to direct supply and to raise the bills in the parties names and the appellant was not accounting the purchases and sales in her books of accounts. However, both Ms Das Tubes and M/s Krishi Kalyan Agency were accounting their sales in the hands of Mls Samanta Enterprises. The appellant furnished the copies of the appellant's account in the books of M/s Krishi Kalyan Agency and M/s Das tubes as per which both the suppliers have accounted the sales in the appellant's hands. .The appellant has neither accounted the purchases nor accounted the sales in her books of accounts and the appellant also did not n c mission in her books of accounts. The appellant's submission that the suppliers have made direct supply to their customers and the assessee did not have any control over the transaction seems to be false. Therefore, the appellant was fully aware of the transactions and doing business outside the books of accounts in a planned manner. Another question raised by the appellant was that the reply received u/s 133(6) from M/s Krishi Kalyan Agency was not served on to the assessee for appropriate representation. The information received by the AO was confronted with the assessee during the course of assessment proceedings and the appellant had accepted the undisclosed purchases which was discussed in the assessment order. Therefore there is no merit in this argument of the appellant. The appellant is engaged in the business and the accounts are subject to audit u/s 44AB of IT, Act and at the time of audit the outstanding balances of the sundry creditors required to be reconciled and any defect should be notified in the audit report. But no such defects were appeared to have been recorded in the audit report. Further during the appeal proceedings the issue was remanded to the AO for remand report and it is the duty of the appellant to collect all the related evidences for direct supply of goods such as delivery note, copy of the bill, transport receipt, etc. and submit before the assessing officer to prove her case. But no such effort has been made. Therefore, I hold that the entire sales made by the appellant claimed to be direct sales were the transactions of the appellant herself and required to be accounted in her hands but the appellant did not accounted' in her books of accounts. The appellant has made unaccounted purchases and did parallel unaccounted business. Since the appellant had not account the purchases in her books of account the entire amount of Rs.5,54,124/- required to be brought to tax. The payments for purchases were also made in cash which was hit by Sec. 40A(3) of IT, Act. Therefore, I confirm the addition made by the AO amounting to RS.5,54,124/- as accounted purchases u/s 69C as well as u/s 40A(3) IT, Act. This ground of appeal is dismissed.
9. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. I have heard the submissions of the learned counsel for the assessee, who reiterated the submissions as were made before CIT(A). The learned DR relied on the order of CIT(A).
10. I have considered the rival submissions. It is seen from the material available on record that M/s. Krishi Kalyan Agency in their letter dated 16.08.2013 have clearly admitted that they make supplies directly to the customers of the assessee (Samanta Enterprises, propritory concern of the assessee). When the assessee’s explanation was Rani Samanta – A.Y.2009-10 5 that he had not booked the purchases in his books of accounts where supplies were made directly to the customers of Krishi Kalyan Agency the difference in purchases in the books of account and Krishi Kalyan Agency is duly reconciled. In the given circumstances there was no reason to reject the claim of the assessee. The CIT(A) has proceeded on the assumption that these purchases were made by the assessee without recording in the books of accounts and sold by them without recording the sales in the books of accounts. There is no basis for coming to this conclusion. The invocation of the provision of section 40A(3) of the Act is not proper because the assessee never made any payment for purchases in cash. For the reasons given above the addition made on account of difference in value of purchases between the books of the assessee and M/s. Krishi Kalyan Agency is directed to be deleted.
11. As far as the discrepancy in the purchase value between the books of the assessee and M/s. Das Tubes is concerned it is seen from the record that one Bhowmik Enterprises have confirmed that they received supplies from M/.s. Das Tubes directly on the request of M/s. Samanta Enterprises (assessee). This confirmation was given by Shri Shri rahul Bhowmik on 02.09.2013. The purchases in question had been made on 23.04.2008. An Inspector was deputed to make enquiries from Shri Rahul Bhowmik. The Inspector examined Shri rahul Bhowmik and he found that Shri rahul Bhowmik’s father late Shri Amulya Ratan Bhomik was the owner of Bhowmik Enterprises at the relevant rime i.e. April, 2008 and thereafter the business was closed after his death. Shri Rahul Bhowmik could not produce evidence with regard to the payments for the purchases made from M/s. Das Tubes. It is clear from the evidence on record that there was an explanation offered by the assessee with regard to the discrepancy in the value of purchase as recorded in the books of the assessee and the books of M/s. Das Tubes. There is nothing on record to show that these purchases were in fact made by the assessee and goods so purchased were sold by the assessee out of the books of accounts. The reasons given for deleting the addition made on account of discrepancy of purchase in the account of M/s. Krishi Kalyan Agency will also apply to this Rani Samanta – A.Y.2009-10 6 addition as well. For the reasons given above the addition made is directed to be deleted. Ground No.s 1 and 2 are allowed.
12. The other grounds were not pressed and the same are dismissed as not pressed.
In the result the appeal of the assessee is partly allowed.
Order pronounced in the Court on 6.4.2016.