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Income Tax Appellate Tribunal, BENCH “A”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
Revenue against the order dated 19.02.2010 of CIT(A)-XX, Kolkata relating to A.Y.2006-07. The Assessee has filed Cross Objection against the very same order of CIT(A).
There is a delay of 15 days in filing the Cross Objection by the assessee. In the application for condonation of delay the delay has been explained as owing to sickness of the advocate. The learned counsel for the assessee confirmed the facts as stated in the petition for condonation of delay. His statement across the bar is accepted and the delay in filing the Cross Objection is condoned.
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 3. Ground No.1 raised by the Revenue in its appeal and ground No.1 raised by the assessee in the Cross Objection can be conveniently decided together. These grounds read as follows :- (Revenue’s Appeal): “As the circumstances of the facts reveals that there was a excess purchase of Rs.5,72,000/- made by the assessee not shown in the books of A/Cs., hence the A.O. has rightly made the addition.” GROUNDS OF CROSS-OBJECTIONS “1. For that the Ld. CIT(A) was not justified in sustaining the addition of Rs. 24,100/- in respect of total purchase of Rs. 27,86,604/- made from M/s. Sanjay Steel Trading Co. by brushing aside the evidence in the form of confirmatory letter filed before both the Ld. A.D. sent by Regd. Post with A.D., copy filed in the Paper Book, so also before the Ld. CIT(A) confirming the fact by M/s. Sanjay Steel Trading Co. that the said party agreed to receive payment by deducting the sum of Rs. 24,100/- from various bills as those bills contained minor defect, such as, shortage in weight of material despatched, and, excess rate imposed in the bills etc. Hence the action of both the Ld. A.G. and Ld. CIT(A) of sustaining the addition of Rs. 24,100/- in the case of M/s. Sanjay Steel Trading Co. is liable to be quashed.
2. For that without prejudice to the above, as the Ld. CIT(A) overlooked the fact that out of total purchase of goods worth Rs. 3,72,17,854.18 during the impugned Assessment Year the Respondent had purchased goods worth Rs. 47,60,768/- only from M/s. Lafarge India Ltd., as is evident from the list containing names of suppliers and the amount of purchases, filed in the Paper Book, question of excess purchase by sum of Rs. 5,72,000/- made by the Respondent did not arise at all. Hence the direction of the Ld. CIT(A) to assess the Gross Profit on such excess purchase stands vitiated in law.
For that the Respondent/cross-objector craves leave to add/alter/amend any other grounds on, or, before the hearing of the appeal.”
The Assessee is an individual. He is engaged in the business of civil construction. The assessee derives income from Contract Receipts from the business of Civil Construction as a Government Contractor under the name and style M/s. S.S.Construction. During the course of the scrutiny assessment for the A.Y. 2006-07, the A/R of the assessee filed the details of purchase made during the relevant A.Y. Notices u/s 133(6) were issued to verify the genuineness of the transaction, On going through the confirmation received u/s 133(6), the following discrepancies were found by the AO in respect of the following parties :
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 Name of the Total purchase Balance Total sale shown Balance party shown by the outstanding according to outstanding as assessee during reply u/s 133(6) per reply the F.Y.2005-06 Sanjay Steel 27,86,604 6,68,366 28,10,704 6,59,498 Trading Co. Lafarge India 47,60,768 22,092 53,32,768 5,49,908 Ltd. (Debit)
According to the AO from the above chart, it was evident that there was difference in purchase figure of Rs.5,72,000/- (Rds.53,32,768/- - Rs.47,60,768/-) as regard Lafarge India Ltd and Rs.24,100/- (Rs.28,10,704/- - Rs.27,86,604/-) in respect of Sanjay Steel Trading Co.
4.1. AO called upon the assessee to explain the discrepancy in the purchase figures as shown by the assessee in his books of account and corresponding sales figure as shown by the person who sold the goods to the assessee. As far as purchases from Lafarge India Ltd the assessee submitted that purchases shown by him in his books of account are based on bills received by him and that the transactions were made through mediators. According to the assessee there could be some more bills which were not taken into account by the assessee and which would be with the mediator and in respect of those bills transactions would be recorded on receipt basis.
4.2. This explanation was rejected by the AO for the following reasons : “The submission of the A/R is not at all acceptable because it appeared from the confirmation received from Lafarge India Ltd, that the last transaction in the F. Y. 2005- 06 were made with the assessee on 30.11 .2005. Had it been made in the closing month of the F. Y. 2005-06, then there might have the possibility that the bills in question could have been received in the next F. Y. More over the reply of the assessee is vague in the sense that he had not specified which bills he had not received during the F. Y. 2005-06. Mere reply of the A/R of the assessee that the bills in question would be accounted for as and when received, was not at all a proper explanation regarding reconciliation of discrepancy of purchase amount of Rs. 5,72,000/-. Hence, a sum of Rs. 5,72,000/- is added back to the total income of the assessee as purchases not accounted for in the accounts of the assessee.”
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 4.3. As far as discrepancy in the purchase figures between assessee’s books of account and Sanjay Steel Trading Co. the assessee submitted that the amount in question was deducted by the assessee from the the bills raised by that party to the extent of Rs.24,100/- and to that extent it was an excess claim made by Sanjay Steel trading Co. The AO issued notice u/s.133(6) of the Income Tax Act, 1961 (Act) to Sanjay Steel Trading Co. but the same could not be served. The AO therefore rejected the claim of the assessee as above for the reasons that no evidence to substantiate its claim was produced by the assessee.
On appeal by the assessee the CIT(A) deleted the addition made by AO for the following reasons :- “4.2. I have perused the assessment order and the remand report. I have also considered the submission of the appellant. It is an admitted fact that there is discrepancy between the books of account of the appellant and the information received u/ s 133(6) by the AO, which shows excess purchases of Rs.5,72,000/-. But then, the figure for total purchases, and, that of outstanding closing balance differ by the same amount of Rs.5,72,000/ -. I have also perused the assessment record. I find that Lafrage India Ltd has written a letter dated 01-12-2009 to the appellant, copy of which was forwarded to the AO, and, is available in the assessment record. The content of the letter is reproduced hereunder - "As you are aware that we had forwarded the statement of all transactions pertaining to your account for the financial year 2005-06 to the Office of the Deputy Commissioner, Income Tax, pursuant to requisition .received from the said authority. The said statement reflected a debit balance of Rs.5,49,908/-, i.e. payment of the price for materials of the said value was outstanding as on 31st March '06. Out of the said amount, you have made an aggregate payment of Rs.4,31,300/- in the financial year 2006-2007 vide cheque nos. 09198 (Rs.2,52,000/-) and 609199 (Rs.1,79,300/-). A sum of Rs.1,18,608/- was recovered from the concerned Commission Agent as payment towards supplies made to you, which sum has been reflected as credit in your account on 28th November 06. Accordingly, the outstanding sum of Rs.5,49,908/- stood duly recovered and the closing balance was reduced to zero. Apart from the credit realizations, there have no billing transactions in the financial year 2006-07."
The above facts clearly suggest that the appellant has made excess purchases of Rs.5,72,000/-, but, no payments were made during the year against such purchases. And therefore, there is no element of unaccounted investment in such purchases during the year under consideration. In view of the above, the addition of Rs.5,72,000/- on account of excess purchases, made by the AO in the relevant year, is justified. The addition is directed to be deleted. Ground no. 2 is allowed
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 5. Ground no. 3 relates to addition of Rs.24,100/- on account of undisclosed purchases from Sanjoy Steel Trading Co. The appellant has shown total purchases of Rs.27,86,604/- from Sanjoy Steel Trading Co during the year. But, in compliance to notice u/s 133(6), the said party confirmed total purchases of Rs.28,10,704/- by the appellant. It was explained before the AO that the discrepancy was due to the fact that the amount was deducted by the appellant from the bills due to extra claim by the said party. The AO noted that no correspondence, supporting the contention of the appellant, was produced before him. The AO held that the appellant has made purchases of Rs.24,100/- which were not recorded in the books of account. The AO then made an addition of Rs.24,100/- to the total income of the appellant. In the remand report, the AO has submitted that no confirmation from the said party was produced by the appellant, and therefore, the addition of Rs.24,100/- is justified. The Ld. AR contended that confirmation was filed before the AO during the course of remand proceedings. However, I find no such confirmation in the assessment record. I also find that the appellant has enclosed a confirmation along with his Ietter dated 07-02-2010 before me; but then, this confirmation was not filed before the AO, who has never had an opportunity to verify the same. In view of the above, I am unable to interfere with the order of the AO. Ground no. 3 is dismissed.”
Aggrieved by the order of CIT(A) revenue is in appeal before us and the Assessee is in Cross Objection before the Tribunal.
We have considered the rival submissions. The learned DR relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and the submissions made before CIT(A).
We have considered the rival submissions. As far as the addition of Rs.5,72,000/- being difference in the figures of purchase between the assessee’s books and that of Lafrage India Ltd we find that the addition in question as made by AO as expenditure not recorded in the books of accounts u/.s 69C of the Act. The evidence before CIT(A) shows that no expenditure whatsoever has been incurred during the previous year. Addition could be made u/s 69C of the Act only in the financial year in which the assessee has incurred any expenditure and he offers no expenditure the source of such expenditure. Since the expenditure in question has not been incurred during the previous year addition was rightly deleted by CIT(A).
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 9.1. As far as addition of Rs.24,100/- being the difference in books of account of the assessee and that of Sanjoy Steel Trading Co. no confirmation whatsoever was filed by the assessee to justify his claim that to the extent of Rs.24,100/- claim made by Sanjoy Steel Trading Co. was excessive. The assesee in the Cross Objection has however contended that Sanjoy Steel Trading Co. has filed confirmation before the AO, a copy of which was filed before AO and the same is placed at page 29 of the assessee’s paper book. A perusal of the same shows that Sanjoy Steel Trading Co. has agreed for deduction to the extent of Rs.24,100/- from 11 bills raised by it. The details in this regard are available in the letter of confirmation of Sanjoy Steel Trading Co. addressed to the assessee. The same was filed before AO as per certificate by the assessee in the paper book filed before us. In the circumstances we are of the view that addition of Rs.24,100/- was without any basis and deserves to be deleted. The said addition is hereby deleted.
Ground No.2 is only a supportive one and does not call for any interference. Accordingly ground no.2 raised by the revenue is dismissed and ground raised by the assessee in its Cross Objection is allowed.
Ground No.2 raised by the revenue in its appeal read as follows:- “Again as the purchase transaction of Rs.44,07,820/- from M/s. R.B.S.Patil remained unverified at the time of scrutiny assessment as well as during the course of sending the remand report, so the addition was rightly made by the A.O. Therefore in the instant case second appeal is suggested.”
The Assessee claimed to have made purchases to the tune of Rs.44,07,820 from M/s.R.B.S.Patil. Letter u/s. 133(6) was issued to R. B. S. Patil by the AO to verify whether the purchase transaction of Rs. 44,07,820/- made during the relevant A. Y. The letter issued u/s 133(6) was returned by the Postal Authority with the remark "Not Known". The AO requested the assessee requested to show cause by his office letters dated 0312.2000- and 15.12.2008 to offer reasons why the notice u/s. 133(6) was returned unserved, otherwise the total amount of Rs. 44,07,820/- would be treated as unexplained purchase. The A/R in his explanation dated 12.12.2008 and 23.12.2008 C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 submitted that the payments were made through cheques and enclosed bills raised by the party. The A/R further explained that the party R. B. S. Patil was residing in the same address. Thereafter the AO deputed the Departmental Inspector to serve the letter u/s. 133(6) to verify the genuineness of the transaction. It was reported by the Inspector that the notice u/s. 133(6) was served on 24.12.2008 in the given address of R. B. S. Patil. The concerned party was requested to send information within three (3) days form the receipt of the letter. No reply was received till date of order. The AO therefore concluded that the purchase of Rs. 44,07,820/- remained unverified. Under the circumstances, the entire amount of Rs. 44,07,820/- was added back by the AO to the total income of the assessee as bogus purchase made by the assessee.
Addition made by AO however deleted by CIT(A) Before CIT(A) the assessee contended that the purchases are supported by proper bills, and, the original purchase bills were produced before the AO. The books of account were also produced before the AO. The Assessee has made total purchases of Rs.44,07,820/ - during the year, and, total payments of Rs.40,70,634/- were made against such purchases, which include payments of Rs.37,93,985/ - by account payee cheques. The cheques were drawn on the United Bank of India, Hatibagan Branch, Kolkata, and, the bank statement was also produced before the AO. It was contended that the supplier M/s R B S Patil has encashed all the cheques through its current account no. 47564 maintained with the United Bank of India, Hatibagan Branch, 140, Bidhan Sarani, Kolkata. The supplier has also acknowledged the receipt of payments on the purchase bills.
The submissions of the Assessee, along with its enclosures, were sent to the AO, who submitted his remand report on 27-11-2009. The AO in his report had submitted that the Assessee could not produce the party before him, and therefore, the addition of Rs.44,07,820/- is justified. In response to the remand report, the Ld. AR reiterated his submissions. It was contended that notice u/s 133(6) was served on the supplier, which proves the identity of the party. The purchases are supported by proper bills; moreover, substantial payments were made by account payee cheques, which are also acknowledged on the purchase bills. Simply because the Assessee could not produce the party before the AO, it cannot be held that the purchases are bogus. The Assessee C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 submitted before the AO that summons u/s 131 may be issued to the party for enforcing compliance, but, no summons was issued by the AO. The material purchased was utilized in civil construction, which has been accepted in the assessment. Once the material purchased is not disputed, the cost of purchases cannot be disallowed merely on the ground that the supplier could not be produced before the AO. Under the circumstances, the Assessee has discharged his onus in establishing the genuineness of the purchases. On the other hand, the AO has brought no material on record to show that the purchases are not genuine.
The Assessee placed reliance on the decision of the Hon’ble ITAT ‘B ‘ Bench Kolkata in the case of Sagar Bose vs ITO 56 ITD 561. In this case, the AO conducted certain enquiries about purchases of goods from different concerns. The AO found that seven parties were not traceable at the given address; in four cases, summons u/s 131 were returned un-served by the postal authority with the remark' not known'. The assessee's suggestion to issue summons u/s 131 for enforcing compliance was not accepted by the AO. It was explained before the AO that purchases were supported by purchase bills, payments were made by account payee cheques and purchase material was consumed. The AO did not accept the explanations and treated the purchases as bogus. The Hon'ble ITAT deleted the addition after observing as under - "The findings of the Assessing Officer that payment by account payee cheque did not prove the genuineness of the transaction, was neither correct nor tenable. No enquiry from the bank authorities to find out the final destination of money and establish the identity of the persons behind that scenario was made by the Assessing Officer. As payments were made by account payee cheques, they were certainly deposited in some bank accounts which were opened, maintained and operated by suppliers or by some other per-sons and the amount was credited in those accounts. Who were the persons who operated the accounts, who introduced them to the bank, who deposited these account payee cheques and who was withdrawing and enjoying the money and whether these payments had reverted back to the originator, could very easily be known to the Department, A thorough enquiry and deep investigations would have revealed the truth, but unfortunately the Department had failed to do so and, therefore, the Assessing Officer was not authorized to treat the purchases as bogus without proper enquiry and investigation and without reaching the logical conclusion."
On a consideration of the above submissions, the CIT(A) deleted the addition made by the AO, observing as follows:
“I have perused the assessment order and the remand report. I have also considered the submission, and, the legal pronouncement relied upon by the appellant. The appellant
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 has shown total purchases of Rs.44,07,820/ - during the year from MI s R B S Pati. The purchases are supported by proper bills, and, the purchase bills were produced before the AO. The books of account were also produced. Substantial payments against purchases were made by account payee cheques, which are also acknowledged on the purchase bills by the supplier. The bank statement was produced before the AO. It was also submitted that the supplier had encashed the cheques through its current account no. 47564 maintained with the United Bank of India, Hatibagan Branch, 140, Bidhan Sarani, Kolkata. Under the circumstances, the purchases cannot be held as bogus simply because the supplier was not produced before the AO. The appellant has submitted before the AO that summons u/s 131 may be issued to the supplier fol. enforcing attendance, but, the summons was not issued by the AO. Since the notice u/s 133(6) was served during the course of assessment proceedings, the identity of the supplier was established. The material purchased was utilized in the business of civil construction, which was accepted by the AO. Once the material purchased is not disputed, the cost of purchases cannot be disallowed on the ground that supplier was not produced. On the other hand, the AO has brought no material on record to show that the purchases are not genuine. The appellant has filed necessary details and evidences and the AO has had all the opportunity to verify them. But, the AO has failed to controvert the evidences filed before him, and, also to bring any positive material on record to show that the purchases are not genuine. The decision of the AO is not based on proper findings. The AO has treated the purchases as bogus merely on the ground that the supplier was not produced before him, and, has failed to properly analyze the material on record. The explanations, and also the evidences, submitted by the appellant seems to have been summarily rejected more on ground of presumption and suspicion than on factual ground. An assessment has to be completed by the AO on the basis of the material on record. Presumption and suspicion should not lead him to a state of affairs where salient evidences are overlooked. In the present case, the transactions of the appellant are supported by proper evidence. On the other hand, the AO has brought no material on record which might cast any doubt on the genuineness of the purchases. The legal pronouncement relied upon by the appellant also supports his contention. In view of the above, I find no basis or justification for the AO to treat the purchases as bogus. The addition of Rs.44,07,820/- is deleted. Ground no. 4 is allowed.”
Aggrieved by the order of CIT(A) revenue has raised ground no.2 before the Tribunal.
We have heard the learned DR, who placed reliance on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and submissions made before CIT(A). 19. We have considered the rival submissions. It is no doubt true that the circumstance that the person from the Assessee claimed to have made purchases did not respond to the notice issued by the AO u/s.133(6) of the Act, throws doubts as to whether the Assessee really effected purchases as claimed by it. This circumstance
C.O.No.76/Kol/2010 Shri Sailen Ganguly A.Yr.2006-07 alone would not be sufficient to treat the purchases as recorded in the books of accounts is bogus. The other circumstances which go in favour of the Assessee should also be considered. Those circumstances are (i) notice u/s 133(6) was served on the supplier, which proves the identity of the party. (ii) The purchases are supported by proper bills; (iii) Substantial payments were made by account payee cheques, which are also acknowledged on the purchase bills. (iv) The Assessee submitted before the AO that summons u/s 131 may be issued to the party for enforcing compliance, but, no summons was issued by the AO. (v) Another very important circumstance, is that the material purchased was utilized in civil construction, which has been accepted in the assessment. Once the material purchased is not disputed, the cost of purchases cannot be disallowed merely on the ground that the supplier could not be produced before the AO.
The above existence of the above circumstances in our view, discharges the onus on the part of the Assessee to prima facie establish genuineness of the purchases. Thereupon the onus shifts to the AO to show that the purchases were in fact not genuine. The AO has brought no material on record to show that the purchases are not genuine. In the circumstance, we are of the view that the CIT(A) was fully justified in deleting the addition made by the AO. The order of the CIT(A) is therefore confirmed and Gr.No.2 raised by the Revenue is dismissed.
In the result, the appeal by the revenue is dismissed. While the C.O. by the Assessee is allowed. Order pronounced in the court on 02.03.2016.