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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI JASON P BOAZ & SHRI AMIT SHUKLA
आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM: The aforesaid cross appeals have been filed by the assessee as well as by the revenue against impugned order, dated 26.03.2013 passed by CIT(A)-26, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2009-10.
हाइ पैक Hi Pack 2 ITA 3939/M/13 ITA 4393/M/13
We will first take-up revenue’s appeal, vide which following grounds have been raised:-
1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.57,50,000/- made by the Assessing Officer on account of unsecured loans as the assessee was unable to prove the creditworthiness of the loan creditors and by accepting additional evidence on loan creditors in violation of Rule 46A.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.66,28,827/- made by the Assessing Officer on account of advances received loans as the assessee was unable to prove the genuineness of these advances and by accepting additional evidence in respect of these advances in violation of Rule 47A.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.18,50,000/- made by the Assessing Officer in respect of capital introduced by the partners as the assessee was unable to prove the source of said capital and creditworthiness of partners and by accepting additional evidence in respect of these advances in violation of Rule 46A”.
The assessee is partnership firm engaged in the business of manufacturing of Tin Containers used in healthcare products and deodorants, etc.
As regards the issue raised in ground no.1, the AO has noted that, during the year under consideration, the assessee had shown receiving of fresh loans for sums aggregating to Rs. 57,50,500/- from the three parties, namely:-
Sr.No. Name of the Person Amount of loan taken during the year(Rs.) 1 Bhogilal Patel 10,50,000 2 Wall Street Developers 28,00,000 (which was wrongly mentioned as Smart Link) 3 LCP Trust 19,00,000 Total 57,50,000
The assessee was required to furnish loan confirmations, bank statements and income-tax returns of these parties. However, the entire requisite details for all the three parties could not be हाइ पैक Hi Pack 3 ITA 3939/M/13 ITA 4393/M/13 furnished, as mentioned by the AO, except for loan confirmation and in case of one party, bank statement. Accordingly, the AO confirmed the unsecured loan as income of the assessee.
In the first appellate proceedings, the assessee filed a petition for admission of “additional evidences” under Rule 46A, vide letter dated 15.06.2012. Since it was an additional evidence, the Ld. CIT(A) forwarded the same to the AO to submit his remand report on the submission made by the assessee and to examine these evidences. The AO requested for two months’ time to examine the evidences, however, subsequently, in his remand report the AO merely contended that, the reason for admission of additional evidence given by the assessee is not valid and on merits of the evidence, he did not gave any rebuttal. The Ld. CIT(A) observed that, in such a case when the AO was required to submit his remand report and examine the genuineness of loan lenders vis-à-vis their creditworthiness and evidence then the AO was required to look into and, instead, has objected the admission of additional evidences, therefore, he held that it is presumed that, no adverse comment whatsoever has to be given by the AO on the evidences submitted nor he has tread to make any enquiry which he ought to have made. Accordingly, he admitted the additional evidences for deciding the appeal on merits. Regarding loan taken from Wall Street Developers Pvt Ltd, for which the assessee had provided the copy of Balance-sheet, profit & loss account and Bank-statements clarified that the name ‘Smart-Link’ was only a mistake done by the Data Entry Operator in the office of the assessee whereas the correct name of the party was “Wall Street Developers Pvt. Ltd.”. Apart from that, regarding all the parties, the assessee had filed confirmation of loan; copy of audited balance sheet, Profit & Loss account; bank Statements; and all the relevant income-tax records. The Ld. CIT(A) based on the appreciation of evidences, deleted the said loan amount after observing and holding as under:-
हाइ पैक Hi Pack 4 ITA 3939/M/13 ITA 4393/M/13 “I have carefully considered the findings of the AO in the assessment order, as well as the submissions of the appellant. It is noted that at the time of assessment stage the appellant has submitted the confirmation of all the three parties along with their PAN, but the AO has not made any enquiry either from the AOs of such parties or directly from these parties. He has summarily treated these loans which were owned up by the concerned parties, as unexplained credits on the ground that the appellant could not file the bank statements and other details of source of these deposits. It is further noted that in the remand proceedings the AO had another opportunity to make enquiries in respect of such loans, but he has not made any adverse observation on the fresh evidence filed by the appellant in form of copies of I.T. Returns and balance sheet etc. of three parties. All these parties are regularly assessed to tax, from their accounts filed by the appellant they appears to be the persons of sound financial state, they have not only given confirmation of loan but has also provided their relevant bank statements and balance sheet etc., therefore, considering all these circumstances the loans in question appears genuine, hence in want of any specific adverse information these loans cannot be held as unexplained cash credits. The addition made by the AO is accordingly directed to be deleted”.
Before us, the Ld. DR strongly relied upon the order of the AO and submitted that, when the AO has given full opportunity to the assessee, then why the assessee did not chose to file any proper evidences to substantiate the genuineness of loan. No valid reason has been given by the assessee for not filing the evidences before the AO, accordingly, such an evidence should not have been considered or entertained by the CIT(A).
हाइ पैक Hi Pack 5 ITA 3939/M/13 ITA 4393/M/13 7. Before us, the Ld. Counsel for the assessee submitted that, at the stage of the assessment, loan confirmation of the parties including PAN and other details were already furnished before the AO which contained all the details in respect of the new loans taken in this year. Besides this, bank statements were also filed. Before the CIT(A), the assessee has merely filed audited Balance- sheet wherein parties have reflected the loan given to the assessee and copy of acknowledgement of return of income which is already part of the income–tax-returns. The evidences furnished before the CIT(A) were purely corroborative in nature and, therefore, there could not have been any grievance to the AO to admit the same. Moreover, collecting of all the evidences from the creditors, at times takes lot of efforts and if AO had any doubt, he could have carried out enquiry form them. Therefore, on such a technical ground AO could not have rejected the additional evidence which was filed at the stage of the CIT(A) and sufficient opportunity was given to the AO.
After considering the rival submissions and on perusal of the impugned order and material on record, we find that, at the first instance before the AO, the assessee has explained the nature and source of credit by giving the details of the persons from whom the loans were received and for proving the source, the assessee has filed the copy of the loan confirmation giving details of PAN and the range / wards where these Creditors were assessed to tax. Besides this, bank statement for the loan amount received during the year was also filed. Before the CIT(A), the assessee had furnished the copies of Audited Balance-sheet reflecting the loan amount, profit & loss account and acknowledgment of income-tax returns. Thus, for proving the nature and source of credit, the following evidences were there in the record before the CIT(A) as well as before the AO (in the remand proceedings): (a) Loan confirmation of the parties including PAN and other details;
हाइ पैक Hi Pack 6 ITA 3939/M/13 ITA 4393/M/13 (b) Bank statements of the parties showing loan amount given to the assessee through account payee cheques; (c) Acknowledgment of income-tax returns of the creditors for AY 2009-10; (d) Audited Balance sheet and profit & loss account of the creditors.
On consideration of these evidences, the Ld. CIT(A) has deleted the said addition by holding that, the said loan was genuine and assessee has prima facie discharged its onus. If the assessee has satisfactorily explained the nature and source of Credit by adducing prima facie all the necessary evidence then onus of the assessee gets discharged and onus shift upon the AO to show / prove that such an explanation is not correct. In absence of any enquiry conducted by the AO even when specific mandate was given by the CIT(A) in the remand proceedings, the Department now cannot plead that the onus cast upon the assessee has not been discharged. None of the evidences filed has been rebutted and accordingly, we do not find any substance in the impugned ground raised by the revenue and accordingly, ground no.1 is dismissed.
In ground no.2, revenue has challenged the deletion of addition of Rs.66,28,827/- made on account advances received from customers which has been treated as unexplained cash credit by the AO.
The AO observed that, assessee had shown advances from customers for sums aggregating to Rs.66,28,827/- from the following persons:
Sr. Name of the Person Amount of advance No. Received (Rs.) 1 Aerospres (India) Pvt Ltd 1,50,000 2 Innovative Industries 9,99,522 3 Superior Works 14,30,000 4 Excellent Manufacturing Co. 21,17,648 5 Beauty Queen Cosmetics Pvt Ltd 19,31,657 Total 66,28,827
हाइ पैक Hi Pack 7 ITA 3939/M/13 ITA 4393/M/13 In response to the show cause notice, the assessee filed confirmation letters from these parties, however, AO noted that except for confirmation, no further documents were furnished to substantiate the nature and source of credits. Accordingly, he again issued show cause notice for giving the details of the advances received, along with the name and addresses of the parties, purpose of advance and when such advance was settled and whether the transaction itself was genuine or not. As per the noting by the AO, the assessee did not comply with such requirement, accordingly he added the same as unexplained credit and at the same time he also invoked section 41(1) for treating it as income by way of cessation of liability.
Before the CIT(A), the assessee submitted that, confirmation of the balance from each party, were duly submitted before the AO and these amount remained advances from the customers as on 31st March, 2009. Out of the five parties, two parties, M/s Excellent Manufacturing Co. and Beauty Queen Cosmetics Pvt Ltd the assessee had regular as business activity with the assessee during the assessment-year 2009-10. Not only that, copies of their acknowledgement of income-tax-returns and accounts were also filed. In case of other three parties, it was submitted that, amount was appearing in the opening balance as on 31st March, 2008 and hence, these amounts does not pertained to this assessment year. In support of such contention, acknowledgement of ledger account and confirmation from these parties were also filed. It was also brought to the notice of the CIT(A) that, all these parties are regularly assessed to tax and have been fling their income-tax- returns, the details of which was already given before the AO, therefore, without any enquiry by the AO, the credit balance appearing in the books of the assessee of these parties cannot be treated as unexplained cash credit.
हाइ पैक Hi Pack 8 ITA 3939/M/13 ITA 4393/M/13 12. The Ld. CIT(A) after considering the entire material on record, deleted the addition after observing and holding as under:-
I have carefully considered the findings of the AO in the assessment order, as well as the submissions of the appellant. It is at the time of assessment stage the appellant has submitted the confirmation of all the five parties along with their PAN, but the AO has not made any enquiry either from the AO of such parties or directly from these parties. He has summarily treated these credits were owned by the concerned parties, as unexplained credits on the ground that the appellant could not fled the other details such as purpose of these advances and when they were settled etc. It is further noted that in the remand proceedings the AO had another opportunity to make enquiries in respect of such advances, but he has not made any adverse observation on the fresh evidence filed by the appellant in the form of copies of I.T. Returns and balance sheet etc. of these parties. All these parties are regularly assessed to tax. From their accounts filed by the appellant they appears to be the persons of sound financial state, they have not only given confirmation of advances for business purposes but has also provided their balance sheet etc. It is also noted that two parties have regular business during the current year with the appellant and the other three parties had business transactions in earlier years. Therefore considering all these circumstances the business advances in question appears genuine, hence in want of any specific adverse information these advances cannot be held as unexplained cash credits. Similarly, neither these business advances have been written off by the concerned parties, as they have confirmed such advances nor these advances are too old to be considered as time barred advances, hence these credits cannot also be treated as ceased liability u/s 41(1) of the I.T. Act. The addition made by the AO is accordingly directed to be deleted
After considering the rival submissions made by both the parties and on perusal of the material as discussed by the AO as well as CIT(A), we find that, firstly, these are advances received from the customers during the normal course of business with whom the assessee had regular business dealings. In the case of the three parties, the amount was appearing as an opening balance as on 01.04.2008 in the accounts of the assessee and hence the same cannot be treated as unexplained credit in the relevant financial year to be added under section 68. Apart from that, the हाइ पैक Hi Pack 9 ITA 3939/M/13 ITA 4393/M/13 assessee had filed confirmation letter and confirmation of account from these parties along with the PAN, copy of Audited Balance- sheet and Profit & Loss account and acknowledgement of return. Once these documents were submitted and remanded to the AO for his comment and examination, then it cannot be held that the nature of advance received from the customers can be treated as unexplained credits, especially when assessee had a regular business activity and dealing with these parties. In absence of any enquiry made by the AO and any adverse material brought on record, we do not find any reason to doubt the genuineness of the credit and accordingly, the finding given by CIT(A) for deleting the addition is upheld. The AO, when was required to look and examine these evidence, had simply chosen to ignore and raise technical objections. Moreover, the evidences furnished merely corroborates the explanation and evidences filed before the AO. Thus, order of the CIT(A) is confirmed and ground no. 2 is dismissed.
In ground no.3, the revenue has challenged the deletion of addition of Rs.18,50,000/- in respect of capital introduced by the partners. The partners of the assessee-firm, namely M/s Asian Aerosol P Ltd and M/s Shree Laxmi Trust introduced capital of Rs.5,00,000/- and Rs. 13,50,000/- respectively. In response to the show cause notice by the AO for which the assessee was required to furnish copies of Balance-sheet and income tax records of the partners, the assessee could not furnish these details as noted by the AO. In the first appellate proceeding, the assessee submitted that, both the entities (partners) are regularly assessed to tax for last several years and in support of the said introduction of the capital, they had filed their copy of bank statements and audited financial statements. Apart from that, the source of their income was also furnished. The Ld. CIT(A) remanded the entire issue to the AO, however, in the remand proceedings, the AO did not chose to examine the same nor did he made any adverse observation with हाइ पैक Hi Pack 10 ITA 3939/M/13 ITA 4393/M/13 regard to the additional evidences filed, like, Income-tax returns, proof of source of income, audited Balance-sheet etc. The Ld. CIT(A) after appreciating the entire evidences held that, it is apparently evident from the records filed by the assessee that the partners have huge sufficient income and both are in sound financial state. Not only they have confirmed the introduction of the capital but has also provided all the necessary documents of source of income, relevant income-tax records and Balance-sheet in which the amount introduced has been reflected as capital contributions. Based on these evidences, he deleted the said addition.
After hearing both the parties, we find that there is no infirmity in the order of the CIT(A) in appreciating the evidences filed before him, which was also sent to the AO for verification. The AO instead of verifying the evidences and income-tax records of the partners has chosen to give technical objections. The primary onus of the assessee has been duly discharged once the assessee has filed the confirmation from the partners along with their audited Balance-sheet and income-tax returns. Once, these evidences proving the source of their income and genuineness of the transaction have not been rebutted then without any adverse material on record, the amount received in the form of capital introduction by the partners cannot be doubted. Accordingly, finding given by the CIT(A) on this score is also affirmed.
In the result, appeal filed by the revenue is dismissed.
Now, we will take-up assessee’s appeal being vide which following ground has been raised:-
1. On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.71,38,571/- made to the income of the appellant by the Assessing Officer in respect of “additional cost of material consumed”.
हाइ पैक Hi Pack 11 ITA 3939/M/13 ITA 4393/M/13 18. The brief facts are that, the assessee is a partnership firm engaged in the business of manufacturing of Tin Containers used in healthcare products and deodorants, etc. The activity carried out by the assessee falls under the purview of Central Excise and entire raw material consumed and product manufactured are subjected to Central Excise Law. The AO on the perusal of the profit and loss account observed that, the cost of material consumed in ratio to the total sale was 40% in the AY 2009-10, whereas the cost of material consumed for the immediately preceding year was shown at 30% of the sales. He further observed that, the assessee was entitled to claim of deduction under section 80IB and from this year the claim for deduction has been reduced to 25% of the profit therefore such a rise on material consumed is 40% will affect the profit as it will not be much. The AO noted that in response to the show cause notice, the assessee did not justify the high consumption of cost of material and accordingly, he has made the addition of Rs.71,38,571/- in the following manner:-
“Considering the inflation in the prices additional increase in cost upto 3% is justifiable but not more than that. Here the assessee has increased its cost by additional 10% which is not acceptable. So an addition of Rs.71,38,571/- (being 7% of total sales) is being added to the profits of the business”.
Before the CIT(A), the working of the cost of material consumed on the basis of audited accounts were clarified as under:- F.Y. 2008-09 47.98% (48%) F.Y. 2007-08 41.49%(41.5%) and not 30% as taken by the AO.
Apart from that, the assessee submitted the details of consumption statements of raw material together with the supporting bills, which the assessee submitted that could not be submitted before the AO because the AO did not specify for what it was required and हाइ पैक Hi Pack 12 ITA 3939/M/13 ITA 4393/M/13 assessee also misunderstood the requirement by the AO. Regarding increase in consumption of cost of 6.5%, it was submitted that it was mainly because of increase in the cost of foreign exchange difference of about 12% on purchase of imported raw material. Further, the main raw material tinplate is an imported material and assessee’s factory is under strict monitoring under Central Excise Laws, therefore, all the raw material purchased and consumed are fully accountable for all the transactions. However, the Ld. CIT(A) held that, the reasons for increase in cost of raw materials has not been properly explained. Further, if there is an increase in the cost of raw material then it leads to increase of rates in finished product which is evidence from the fact that assessee’s sales have increased in this year as compared to the last year. Not only that, there is decrease of gross profit from 48.78% to 35.71% as compared to the last year. Thus, on these grounds he confirmed the addition made by the AO. The relevant finding of the CIT(A) is reproduced hereunder:- “I have carefully considered the findings of the AO in the assessment order, as well as the submissions of the appellant. The AO has made this addition on account of increased cost of raw material and on the ground that at assessment stage the assessee did not file any reply for reasons of increase in cost of material consumed with reference to the sales. In the appeal proceedings, the appellant had filed objections to the finding of the AO and also submitted the reasons for increase in the cost of raw material which was on account of almost 12% increase in the cost of foreign exchange utilized for purchase of imported raw material. It is however noted that the increase in the cost of raw material of any industry is also accompanied with the increase in rates of finished products, which is evident from the fact that sales are also increased as compared to last year. Had this been the only reason for increase in cost of raw material, the appellant could have submitted it to AO at the हाइ पैक Hi Pack 13 ITA 3939/M/13 ITA 4393/M/13 time of assessment. The explanation of the appellant appears to be an afterthought which is not supported by convincing documentary evidence. There is abrupt decrease of G.P. from 47.78% last year to 35.7% during the year for which the assessee does not have any cogent explanation. Under these circumstances, the addition made by the AO appears reasonable hence the same is confirmed”.
Before us, the Ld. Counsel submitted that, the total quantity of raw material purchased in financial year 2007-08 was approximately Rs.3.78 crores which in this year has risen to Rs.6.55 crores. The import of tin-plate, which was at Rs.1.04 Crores has increased to Rs.3.88 crores in this year. Not only that, there is a huge increase in rate per kilogram unit which is evident from the fact that in financial year 2007-08, the imported tin-plate costs around Rs.49.41 crores as compared Rs. 67.54 crores in this year. Thus, there is huge difference in rate also. He also furnished comparison of purchase rate between FYs 2007-08 & 2008-09 relevant to AYs 2008-09 and 2009-10, respectively in the following manner:-
Item Purchases Differ- Category ence FY 2007-08 F Y 2008-09 in rate Qty Value Per Qty Value Per kg/ Kg/ Unit Unit Bottoms 2288240 4073259 3.78 Tops 4151921 6841249 1.65 6643150 10817960 1.63 Other 105447 8116283 133324 Purchase Tinplate Imported 210018 10378018 49.41 620256 38787895 62.54 13.12 Local 272509 12472630 45.77 95588 5729363 59.94 14.17 Total B 37808180 65502424 Thereafter, he gave the analysis by applying average cost for both the years and submitted that under such circumstances, no addition should be made.
हाइ पैक Hi Pack 14 ITA 3939/M/13 ITA 4393/M/13 21. On the other hand, Ld. DR strongly relied upon the order of the AO as well CIT(A).
We have heard rival submissions and also perused the relevant finding in the impugned orders. We find that, Ld. AO has made the addition on account of additional cost of consumption of raw material of Rs.71,38,571/- in the trading account by holding that, the assessee could not justify the rise in the cost of raw materials consumed. Such an action of the AO has been confirmed by the Ld. CIT(A) without considering the fact that, no defect whatsoever have been found either in the purchase bills of the cost of raw materials, or any defect in the regular books of account, excise register, etc. nor there is any other material coming on record to show that assessee has resorted to inflate the cost of consumption of raw material. The assessee’s main contention before us is that, cost of increase in the consumption was mainly on account of foreign exchange fluctuation and other relevant factor like, increase in the per kg. unit. From the perusal of the aforesaid chart, as furnished by the Ld. Counsel, it is seen that, there is a huge difference in per kg. unit, which difference has not been rebutted either by the AO or by the Ld.CIT(A) by any evidence. Not only there has been increase in the rate per unit but also there is an increase in the quantity of consumption which has led to the overall increase in the quantity of consumption. Further GP rate and gross profit has been accepted. Once no discrepancy is found in the opening stock, purchases and direct expenses on the debit side and sales have been accepted on credit side along with the gross profit, then no addition in the trading account can be made merely on the basis surmises and presumption.Analysis based on evidences and entities in the books of account has to be done, and only if books of account or corroborating evidences are not proper, the trading result can be disturbed. The purchase bills of raw material has not been doubted nor there is any discrepancy
हाइ पैक Hi Pack 15 ITA 3939/M/13 ITA 4393/M/13 in excise register of raw material, hence, no addition can be made either on account of cost or on account of consumption.
Before us, the Ld. Counsel pointed out that, if the assessee rate of cost of material purchased as on 31st March, 2008 is applied, then perhaps, there would be negligible difference in the so called increase cost of consumption. Hence, on this premise also no addition is called for. This aspect has been demonstrated before us by way of a separate chart. However, without going into this aspect, we on the threshold hold that addition itself is unsustainable especially when no defect has been pointed out either in purchase bills or purchase rates of raw materials consumed or factor of foreign exchange rates and without there being any adverse material coming on record. Hence such an addition as sustained by the CIT(A) is set aside and ground of appeal of the assessee is allowed.
In the result, appeal of the assessee stands allowed. To sum-up: Revenue’s appeal stands dismissed and that of the assessee stands allowed. Order pronounced in the open court on 7th March, 2016.