ITO, WARD 2(2), PASCHIM MEDINIPUR vs. M/S. KRISHNA TRADING, PASCHIM MEDINIPUR

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XXXV, Kolkata dated 14.06.2007. Assessment was framed by ITO Ward-2(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 27.03.2006 for assessment year 2003-04. Grounds raised by Revenue as under:- “1) For that the Ld. CIT(A) erred in facts and in law in deleting the addition made by AO u/s 68 of the IT act as Unexplained Cash Credit amounting to Rs.60 lakhs by admitting additional evidence in contravention of Rule 46 of the IT Rules.

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 2

2) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.2,889/- under the head Bank commission.

3) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.9,960/- being commission received on sale of cement.

4) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.82,582/- being reimbursement of Freight Bills not shown as income during the accounting year.

5) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.1,50,000/- being security deposit with M/s Shiva Cement Ltd not shown in the Balance Sheet under Undisclosed investment.

6) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.10,87,817/- being unrecorded purchase and sale of cement.

7) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.1,60,816/- being Carriage Inward expenses on account of Undisclosed purchases.

8) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.1,62,608/- being Proportionate GP on undisclosed sale.

9) That the Ld. CIT(A) erred in fact and in law in deleting the addition of Rs.14,60,312/- being debit entry not shown in the books of account.”

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 3 unsecured loan on dated 23/01/2006. The AO accordingly issued summons u/s 131 of the act to the parties of the unsecured loan for the personal appearance on dated 10/02/2006 with the documentary evidence of advancement of loan to M/s Krishna Trading with a view to verify the genuineness of the loan transaction, credit worthiness of the loan creditors etc. But none appeared before the A.O on the scheduled date. Therefore the AO was not satisfied with the reply given by the partner of M/s Krishna Trading, Shri Smritikona Dey in response to the show cause letter vide No. Mid/Wd2(2)/ show cause/05-06/454 and this invoked him to add back the sum of Rs. 60 lacs as the unexplained cash u/s 68 of the act.

2.1 The assessee went to the ld. CIT (A) for the justice. The Ld. AR submitted that the assessee and its sister concern has ten employees who collect the money from the market on behalf of them. This money was handed over to the accountant in a common pool for recording the transactions. Later the collection was identified and recorded to the respective concern in their books of accounts. The unsecured loan was basically an inter-firm transfer from Suman Trading Company assessed in ward-1, at Midnapur with GIR No. M-635/S. This was a mistake by the newly appointed accountant which was later identified at the time of auditing and reported in FORM 3 CD. The accountant inadvertently wrote the said transfer in the appellant cash book as unsecured loan receipt and payment. The Ld AR submitted copies of the statements of seven persons as well as cash book and the ledger of its sister concern M/s Suman Trading Co. The records were showing the impugned transactions as payments/ receipts to/ from the appellant’s firm. Accordingly the CIT (A) has disregarded the additions made by the A.O of Rs.60 Lakhs as unexplained cash u/s 68 because it has duly verified and explained by the assessee. The ld. CIT(A) relied on the statement of Suman Trading Co. furnished by the assessee in support of his claim where the transactions of Rs. 60 lakhs was duly recorded in the books of accounts.

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 4 Now, Revenue is in Appeal before us.

4.1 The assessee during the year was holding the agency for the cement business of SCL. As per the agency agreement the assessee was entitled for commission on sale @ 80.00 Rs. per MT. During the course of assessment the AO sought clarification from SCL by issuing notice under section 133(6) for the business transactions with the assessee. As a result the AO noticed the following discrepancies.

a) Siva Cement Ltd., had given a total credit of Rs.2889/- on various dates towards Bank commission. But the assessee-firm has not shown the same. Therefore, you are asked to explain why the amount of Rs.2889/- will not be added back to the total income of the assessee-firm as undisclosed income. b) The assessee-firm had shown commission received from Shiva Cement Ltd., amounting to Rs.94,996/-. But the Shiva Cement Ltd., had paid to the assessee-firm during the financial year 2002-03

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 5 amounting to Rs.1,04,956/- will not be added to the total income of the assessee-firm. c) Shiva Cement Ltd., had given reimbursement of freight bill amounting to Rs.82,582/- and on which TDS amounting to rs.1734/- has been deducted. But the assessee-firm had not shown the freight receipt amounting to Rs.82,582/-. Thus, you are asked to explain why the amount of Rs.82,582/- will not be added to the total income of the assessee-firm as undisclosed income. d) Shiva Cement Ltd. has clearly stated that they have received security deposit of Rs.1,50,000/- from the assessee-firm vide Cheque No.934491 dated 25/06/02 vide MR no.5753 which has been adjusted with the debtors a/c in respect of sales made to the assessee-firm as on 13/03/03. Shiva Cement Ltd also confirmed that no interest was paid on security deposit during the financial year 2002-03. But the assessee-firm had not shown security deposit amounting to Rs.1,50,000/- in the books of a/cs. Therefore, you are asked to explain why the amount of Rs.1,50,000/- will not be added to the total income of the se-firm as undisclosed investment u/s 69B.

e) Shiva Cement Ltd has clearly stated that the assessee-firm did not record the purchases amounting to Rs.10,87,817=71 in respect of which the company has sent the details of the bills along with the copy of bills, challans which are enclosed as per annexure-A by the Shiva Cement Ltd., therefore, you are asked to explain why the amount of Rs.10,87,817=71 will not be added to the total income of the assessee-firm u/s 69B and at the same time proportionate carriage inward u/s. 69C. further you are requested to explain why a sum calculated thereon at GP rate disclosed by you should not be taken and included in your taxable income as deemed profit.

Apart from the above the Shiva Cement Ltd has sent statement of confirmation made by Authorized Representative of the assessee- firm as on 4/9/03 along with assessee-firms authorization letter for finalization of accounts.”

SCL made the account of the assessee debited on various dates for the different transactions for a total amount of Rs. 14,60,312.00 as per the details recorded on page 12 of the AO order but no such transaction was reflected in the assessee books of accounts. The AO accordingly made the addition of the above amounts as discovered from the discrepancies with the accounts of the SCL. Hence the AO has added to the total income of the assessee.

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 6 5. Aggrieved assessee preferred an appeal to the ld. CIT(A) who observed during the appellant proceedings that all the additions made by the AO on account of the mismatch of records between M/s Shiva Cement Ltd and the assessee. The AO has relied totally on the information provided by Shiva Ltd. The accounts and the statement provided by SCL are not firm and consistent. The AO has made all the above mentioned additions only on the basis of relying on unilateral records. Thus these impugned additions were deleted by the CIT(A) by observing as under : “4.6 I have given due consideration to the whole issue and various claims and counterclaims made during the assessment proceedings and during the present proceedings. As discussed above the whole dispute relating to transactions entered into with Shiva Cements Ltd arose when the Assessing Officer obtained information from that Shiva Cement Ltd had made sales to the extent of Rs.10,87,818/- which had not been recorded by the appellant firm and it had debit balance of Rs.1,38,628/- in the accounts the appellant also not disclosed. On further enquiry Shiva Cements Ltd furnished to the Assessing Officer the statement of accounts as on 04.9.2003 said to have accepted by the representatives of the appellant-firm. This statement of accounts shows the debit balance in the account of the appellant of Rs.1,38,628/- as on 5.4.2003 after giving credit for cheque of Rs.27,000/- on that date. The earlier intimation of Shiva Cements Ltd that there was a debit balance of the matching amount on 3.1.3.2003 (supra) to close business and settle the accounts with the appellant. As per the said letter the appellant’s account showed balance payable at Rs.245,049/- as on 13.3.2003 which Shiva Cements Ltd demanded for immediate remittance. The statement of accounts said to be confirmed by appellant’s representative shows this debit balance at Rs.2,45,049/- as on 17.3.03.

4.7 In course of the remand proceedings the Assessing Officer has sent copies of three letters submitted by the AR of the appellant firm which are letters 29.11.03, 103.06 and 19.8.06 of Shiva Cements Ltd addressed to the appellant firm. The letter dated 29.11.03 refers to the minutes of meeting held on 04.9.2003 during the visit of the representatives of the appellant firm during which the aforesaid statement of account as on 04.9.2003 was said to have been confirmed by them. The statement of account shows that there was a debit balance of Rs.59,405/- as on 04.9.03 whereas the letter dated 29.11.03 refers to a credit balance of Rs.2,40,999/- as on the said date. The letter refers to the minute of the meeting dated 4.9.2003 and states that there was mistake in the account as the debit notes for Rs.25,000/- and Rs.60,000/- were reversed twice in the said account and the correct

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 7 credit balance should, therefore, be read only as Rs.1,55,999/-. The letter further states as per the request of the appellant firm that Shiva Cement Ltd was remitting the balance through a cheque for Rs.55,999/- and the remaining amount Rs.1 lakh by selling cement of the equivalent value to the appellant. It, however, appears that instead of the proposed sale of cement, Shiva Cement remitted Rs.30,000 each by cheques as intimated in its other two letters dated 28.02.2006 and 10.3.2006 which also refer to the aforesaid minutes of the meeting dated 4.9.2003.

4.8 It is thus seen that initially Shiva Cements Ltd demanded on 13.3.03 a sum of Rs.2,45,049/- payable by the appellant firm. This debit balance was adjusted to Rs.1,65,628/- as on 31.3.2003. It was further adjusted on 05.4.2003 to Rs.1,38,628/-. The statement of account dated 4.9.03 referred earlier show various other credits leading to further adjustment of debit balance to Rs.59,405/- contrary to all this the letter dated 29.11.03 of Shiva Cements Ltd addressed to the appellant and produced in course of remand mentions that there was actually a credit balance in the account and the appellant was due to receive Rs.1,55,999/- from Shiva Cements Ltd as per agreement dated 4.9.03. It is thus very much in doubt whether the statement of account dated 4.9.03 purportedly confirmed by the representatives of the appellant firm reflects the true state of affairs.

4.9 The appellant had claimed before the Assessing Officer that the initial debit balance of Rs.1,38,628/- arose as it had not been given credit for payments made of the matching amount by way of cheques/cash on behalf the 6 dealers listed earlier. This was denied by Shiva Cements Ltd in its letter dated 27.8.05 (supra) stating that it did not have any transactions with the aforesaid dealers. While denying so it also enclosed a copy of its letter dated 13.3.03 addressed to the appellant (supra) wherein it has acknowledged receipt of cheques worth Rs.67,000/- from two of such dealers, namely Maa Enterprise and Manoj Goswami stating that they were not credited to the appellant’s account pending clearance. The contradiction only shows that various versions of Shiva Cement Ltd lack credibility. The infirmities and inconsistencies in accounts maintained by Shsiva Cement Ltd as pointed out earlier also question the credibility of the disputed debits and credits made in the account which led to the impugned additions. These entries cannot, therefore, be relied upon and utmost they can be treated as only unilateral actions on the part of the Shiva Cements Ltd without their confirmation by the appellant firm. The contradiction in versions of Shiva Cement Ltd and the infirmities and inconsistence is accounts maintained by them only support the case of the appellant.

4.10 It is settled that the burden of showing that a receipt or item is income of the assessee is son the Assessing Officer. Reliance is placed

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 8 on Parimisetti Seetharamannmani vs. CIT 57 ITR 532 (SC). The Assessing Officer has failed to establish that the impugned additions made listed earlier are income of the assessee. It is seen that the addition made of Rs.14,63,312/- on account of various debits (details given on page 12 of the assessment order). Shiva Cement Ltd furnished copies of debit notes and transfer vouchers which are not found acknowledged by the appellant. As regards the addition of rs.10,87,818/- on account of unrecorded sales Shiva Cement Ltd has furnished the copies 12 sale bills pertaining to the period from 11.12.02 to 27.12.02 along with copies of the delivery challans. It is seen that none of the sale bills or the delivery challans has been acknowledged by the appellant firm. The addition made of Rs.1,50,000/- as unexplained investment has been made in spite of the fact that payment in this regard was made from the bank account which is disclosed and Shiva Cement Ltd confirmed that the amount was adjusted against a sale bill in the month of march. Under the circumstances no question arises for the amount appearing as an asset in the balance sheet. The addition made on account of bank commission are also based on the credit entries made in the account of the appellant which have not been established to be genuine. The addition made of Rs.82,582 on account of unrecorded freight expenses is found to be based on a bill raised by the appellant on Shiva Cement Ltd which is shown to be amount reimbursed to M/s Sukumar Dey & Bros towards handling, loading, etc., as evident from another bill of the matching amount raised by the last named concern on the appellant. All these bills have been furnished by Shiva Cement Ltd to the Assessing Officer. The addition was made rejecting the contention of the appellant that it was only reimbursement of expenses incurred on behalf of Shiva Cements Ltd which was no charged to the profit and loss account. The Assessing Officer has no shown that the impugned amount was debited to the profit and loss account.

4.11 The discussion made above clearly show that the impugned additions in relation to various transactions alleged to have been entered into with Shiva Cements Ltd are not based on reliable materials or evidence. They are solely based on unilateral action on the part of Shiva Cement Ltd of making disputed debts and credits made to the ledger accounts of the appellant. The transactions entered into by a person should be an act which is bilateral or multilateral in character and not a mere unilateral action which is all that occurs when a co- person throws his self-acquisition in hotchpot of the joint family. Reliance is placed on Subramaniam Iyer vs. Commissioner of Gift Tax, 67 ITR 612 (Kerala). The acts brought out above clearly show that the Assessing Officer has not been able to discharge his onus of establish these transactions with cogent and reliable materials. Under the circumstances additions made of variu9s amounts listed in para-1

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 9 above in relation to transactions with Shiva Cements Ltd do not stand. They are, therefore, deleted.”

Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the se and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision.”

ITA No.2019/Kol/2007 A.Y.2003-04 ITO Wd-2(2) Mid v. M/s Krishna Trading Page 10 From the above decision, we understand that the discrepancies noted from the third party statement are not necessarily undisclosed income of the assessee. Therefore we conclude that the additions cannot be merely made on the evidence collected from third parties. In our considered view we are inclined not to interfere in the order of ld. CIT(A). Revenue appeal is dismissed.