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Income Tax Appellate Tribunal, DELHI BENCH `B’ NEW DELHI
Before: SHRI T.S. KAPOOR & SHRI CHANDRAMOHAN GARG
This appeal by the revenue has been directed against the order of CIT(A), Meerut dated 12.10.11 in Appeal No. 228/10-11 for AY 2008-09. The grounds raised by the revenue read as under:-
“1. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) has erred in deleting the Addition of Rs.61,96,307/-in spite of the fact that the assessee failed to file balance confirmations even after availing sufficient opportunities and assessee was never prevented from producing the same before the AO. The onus was certainly upon the assessee to prove the credits appearing in its books. Reliance is placed on the following judgments :- l I. CIT vs Korlay Trading Co. Ltd. (Cal.) 232 ITR 820.
Asstt.Year: 2008-09 II. "Krishan Kumar Jhamb vs ITO and Anr (Punjab & Haryana) 17 DTR 249" III. M/s Sejai International Ltd vs CIT Meerut (All.) Appeal No.306 of 2010 2. Whether Ld. CIT (Appeal) was justified in accepting the fresh confirmations as submitted by the assessee to prove the genuineness of trade creditors. Further, it was an additional evidence accepted by Ld. CIT (A) without providing opportunity to AO ignoring the provisions of Rules 46 A(3) of the Income Tax Rules 1962.
3. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income tax (Appeals) has erred in deleting the Addition of Rs.6,00,000/- in spite of the facts that complete books of accounts and supportive documents were not produced before the AO. Even in the audit report the Auditor has mentioned that in absence of proper bills and vouchers, genuineness of the expenses credit and PIL a/c can not be verified.”
Briefly stated the facts giving rise to this appeal are that the case was selected for scrutiny and statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued and served upon the assessee. The AO noted that the assessee was asked to produce the books of accounts but it failed to produce the same.
The AO rejected the trading results of the assessee by invoking the provisions of section 145(3) of the Act as the AO was not satisfied with the completeness of the books of accounts. The AO completed the assessment at taxable total income of Rs. 1,28,10,160 on account of bogus credit liability relevant to trading purchases. However, subsequently the AO himself rectified and deleted the addition of Rs.66,13,853 in respect of M/s Rajasthan Drug and Pharmaceuticals Ltd., Jaipur and thus the addition came down to Rs.61,96,307.
Asstt.Year: 2008-09 The CIT(A) Meerut directed the assessee to delete both the said additions and hence the revenue is before this Tribunal in this second appeal with the grounds as reproduced hereinabove.
Ground No. 2 of the revenue
Ld. DR submitted that the Ld. CIT (Appeal) was not justified in accepting the fresh confirmations as submitted by the assessee to prove the genuineness of trade creditors. Ld. DR further contended that the CIT(A) accepted, admitted and considered additional evidence without providing due opportunity to comment upon admissibility and merit of the same and ignoring and violating the provisions of Rules 46 A(3) of the Income Tax Rules 1962.
Replying to the above, ld. Counsel of the assessee has drawn our attention towards copy of the remand report filed by the AO before the CIT(A) available at pages 46 and 47 of the assessee’s paper book and submitted that the CIT(A) admitted and considered additional evidence as per provisions of Rule 46A of the Rules as the additional evidence was sent to the AO to comment upon the admissibility and merits of the proposed additional evidence and the AO submitted remand report dated 22.9.2011 objecting to the admissibility of additional evidence as well as on the merits of additional evidence on both the issues. Ld. counsel also pointed out that the AO placed his detailed comments objecting to the admissibility of additional evidence and also on merits, therefore, there is no validity of Rule 46A of the Rules. 3 Asstt.Year: 2008-09 5. On careful consideration of above submissions and from vigilant reading of the remand report dated 22.9.2011, we clearly observe that in para (iii), the AO has submitted his views objecting to the admissibility of additional evidence and in para (i) and (ii) of the remand report, the AO has elaborately commented and submitted his stand on both the points alleging the merits and consideration of the proposed additional evidence, hence, we are unable to see any situation wherein the CIT(A), Meerut has flouted the relevant provisions of Rule 46A of the Rules. We are unable to agree with the contention of ld. DR that the CIT(A) admitted and considered additional evidence in contravention to provisions of Rule 46A of the Rules. Accordingly, ground no. 2 of the revenue being devoid of merits is dismissed.
Ground No. 1
Apropos ground no.1, ld. DR submitted that the AO rightly noted that the assessee has declared sundry creditors of huge amount under the head of current liability which was approximately 62% of the total turnover. Ld. DR further contended that when the AO asked the assessee to file confirmation of these sundry creditors with the details of outstanding balance above Rs.1 lakh, then from the list submitted by the assessee, it was observed that the balance was payable to 389 persons and the assessee failed to produce confirmation of 32 persons against whom outstanding amount was Rs. 1,28,10,160/- having balance of more than Rs.1 lakh. Ld. DR further submitted that the assessee Asstt.Year: 2008-09 failed to discharge its onus of proving the genuineness of the credit liability shown in its account. Therefore, the AO rightly made addition in this regard treating the same to be bogus.
Ld. DR vehemently contended that the CIT(A) granted relief to the assessee without any basis and, therefore, the impugned order may be set aside by restoring that of the AO.
Replying to the above, ld. Counsel of the assessee has drawn our attention towards para 6 to 6.5 of the impugned order and submitted that the AO herself rectified and deleted the addition of Rs.66,13,853. Subsequently, on the basis of confirmation filed by the assessee pertaining to M/s Rajasthan Drug and Pharmaceuticals Ltd., Jaipur, ld. Counsel of the assessee further submitted that the assessee filed detailed submissions before the lower authorities and all relevant confirmations were also filed which were properly considered by the CIT(A) and hence relief granted to the assessee on the basis of proper confirmation of 32 alleged creditors. Ld. Counsel vehemently pointed out that during the remand proceedings, the AO did not care and consider the confirmations filed by the assessee and when the assessee has discharged its onus to prove genuineness of sundry creditors by way of filing confirmation and other relevant details, then onus was shifted to the AO to bring out any defect or deficiency in the expenditure and confirmation filed by the assessee. Ld. Counsel lastly pointed out that the AO herself rectified addition of Rs.66,13,853 Asstt.Year: 2008-09 in respect of M/s Rajasthan Drug and Pharmaceuticals Ltd., Jaipur after accepting the confirmation filed by the assessee. From the assessment order, we note that the AO made addition by observing that the assessee failed to discharge its onus of proving the genuineness of the credit liability shown in its accounts and the AO treated the same to be bogus and addition was made on this basis. During first appellate proceedings, the assessee filed required confirmations and the CIT(A) also called comments of the AO and the AO submitted remand report contending that the contention of the assessee is not correct and deserves to be rejected. The AO also filed rejoinder and submitted that the AO completed the assessment proceedings in a hasty manner and, therefore, the assessee filed application under Rule 46A during first appellate proceedings. From the operative part of the impugned order, we note that the CIT(A) granted relief to the assessee with following observations and conclusion:-
“6.2. AR's submissions: AR made submissions as under: "Ground No. 2 Addition of Rs. 1,28,10,160/-: That the learned A.O. required confirmation from all sundry creditors, having the balance of Rs. 1,00,0001-, or more. Out of the total sundry creditors, the assessee has filed confirmation of more then 100 creditors, and vide letter dated 16112/2010, it was submitted "That confirmation from the creditors obtained till today are enclosed herewith. The balance copy of account has been sent for confirmation, which may be filed, as soon as they are received. The creditors represent the unpaid balance again the credit purchase, the payment of which is being made in Asstt.Year: 2008-09 regular course of business and your honour is requested to accept the creditor." The learned A.O., however, did not entertain remaining confirmation, which were obtained upto 23/1212010, on the plea that no further time can be allowed, as the case is going to be barred by limitation. However, on rectification application filed, the learned A.O. was kind enough to reduce the amount of Rs. 66,13,853/-, in respect of Rajasthan Drug and Pharmaceutical Ltd., whose confirmation was already on record. As the assessee was prevented by sufficient cause not to file the confirmation, an application u/r 46A, is tiled with request to admit 32, confirmations, which could not be filed, as not received till 16/12/2010. Your honour is requested to admit the same, as the case of the assessee is covered under sub clause (a), (b),(c) & (d). As the sundry creditor represents outstanding payment against the credit purchases, there is no justification, to hold that sundry creditors have bogus, in absence of any material placed on record. As regards the onus, to prove the same is proved from the books of accounts maintained and audited by the auditor, the nature of deposit was against the credit purchase and the source was the material purchased .from the manufactures and credit worthiness is from the fact that the manufacturing the goods and supply the same on credit to the appellant. There is no instance that the purchases are not genuine or payment was not outstanding against the assessee. Thus the addition of Rs. 1,28,10,160/-, minus 66,13,853/-, i.e. 61,96,307/-, being without any basis deserves to be deleted.” 6.3. AO's comments in Remand Report: "Addition on account of disallowance of sundry creditors: The addition of Rs.1,28,10,160/- was made on account of disallowance of sundry creditors in respect of whom confirmations were not filed by the assessee. Out of this addition, addition of Rs.66,13,853/- was reduced on account of allowance of sundry creditor in the case of M/s. Rajasthan Drug and Pharmaceuticals Ltd., Jaipur. As regards, balance sundry creditors, the assessee was frequently asked to file the same during the assessment proceedings. But the assessee failed to file the same till date of assessment. The contention of the assessee that it produced balance confirmations on 23.12.2010 but were not entertained by the AO is not correct as it is clear from the 7 Asstt.Year: 2008-09 order sheet dated 23.12.2010 that the counsel of the assessee appeared on that date and the case was discussed. Had he produced the balance confirmations of sundry creditors, there would be no reason with the AO for not entertaining them. Hence, the contention of the assessee is not correct and deserves to be rejected." - 6.4. AR's rejoinder: "Disallowance on sundry creditors: Out of the outstanding sundry creditors of 398, persons, the learned A.O. required to produce confirmation from 131 persons. The assessee filed confirmation of 100 persons and requested to produce the balance confirmation, as soon as they are received, in as much as, obtaining the confirmation from sundry creditors was beyond the control of assessee, however, the creditor were verifiable with the support of credit purchases and copy of account produced. On hearing dated 18/12/2010, assessee furnished the confirmation and for the balance confirmation requested to give more time as two brothers of existing accountant met with fettle accident and accountant was not able to attend the office for which necessary documents were not produced. On 23 December, under signed counsel appeared and ask to allow further time but the learned A.O. on the plea that the case is going to be barred by limitation completed the assessment with the understanding that the confirmation shall the considered if received on the very next date. It was not possible to furnish balance confirmation on next date, however the confirmation tried to be filed on the next working day on 27th December were not admitted. Now the assessee has produced all the confirmation, which deserve to be considered in view of, fairness equity and justice and provision contained in rule 46A." 6.5. Decision and reasons therefor: I have considered facts carefully. I find that the assessee obtained confirmation of 32 creditors by 23.12.2010 but the AO did not entertain the same and passed the assessment order on 27.12.2010. In any case, even during remand proceedings, the AO has not cared to consider and examine the confirmations filed. The sundry creditors are all trade creditors. Out of the total addition of Rs.1,28,10,160/- the AO herself rectified the addition of Rs.66,13,853/- subsequently in assessee's favour on the basis of the confirmation filed. On a consideration of totality of these 8 Asstt.Year: 2008-09 facts, the addition of Rs.61,96,307/- towards balance sundry creditors is not found sustainable. The addition is accordingly deleted.”
In view of above, we are of the considered opinion that the AO made addition by observing that the assessee failed to discharge its onus and during first appellate proceedings, the assessee filed explanation and confirmation and after calling remand report from the AO, the CIT(A) granted relief to the assessee by observing that the AO has not cared to consider confirmation and other relevant details filed by the assessee even during the remand proceedings.
The CIT(A) further observed that sundry creditors are all trade creditors and major part of addition was deleted by the AO herself subsequently and finally the CIT(A) granted relief to the assessee and directed the AO to delete entire addition. We are unable to see any infirmity, perversity or any other valid reason to interfere with the impugned order and we uphold the same.
Accordingly, ground no. 1 of the revenue being devoid of merits is also dismissed.
Ground No.3
Apropos ground no. 3, ld. DR submitted tha ld. Commissioner of Income tax (Appeals) has erred in deleting the addition of Rs.6,00,000/- in spite of the facts that complete books of accounts and supportive documents were not produced before the AO. Ld. DR vehemently contended that even in the audit report the auditor has mentioned that in absence of proper bills and vouchers, Asstt.Year: 2008-09 genuineness of the expenses credited to profit and loss account could not be verified. Ld. DR submitted that the impugned order may be set aside by restoring that of the AO. Replying to the above, ld. Counsel of the assessee submitted that the books of accounts of the assessee were duly audited and disclosed the higher turnover, GP and NP rate as compared to the preceding years. Ld. Counsel further pointed out that out of total expenditure claimed by the assessee, the assessee has paid FBT on amount of Rs.2,20,674/- which were covered by the provisions of FBT and there was no logic or justification to make further ad hoc addition of Rs. 6 lakh. Ld. counsel contended that when books of accounts were audited and no defect has been pointed out by the AO, no addition can be made in this regard.
On careful consideration of above submissions, we note that the CIT(A) has granted relief to the assessee with following observations and conclusion:-
“5.2. AR's submissions: AR made submissions as under: "Ground No.1. Addition of Rs. 6,00,000/- in trading result: That the learned assessing authority on the plea, that since assessee has failed to produce the books of accounts, the cause of death of accountant was not convincing and made in ad hoc addition of Rs. 6,00,000/-, in order to cover the possible leakage. The appellant produced the cash book, along with copy of ledger and documents, however, in absence of part ledger the learned A.O. did not examine the books of accounts. It may be pointed out that copies of account of all major expenses were filed and assessee produced the bills and vouchers. None of the expense was found to be not related to business or excessive. The learned 10 Asstt.Year: 2008-09 A.O. has not pointed out the specific disallowance of any expenditure incurred or not comsurating to expenses incurred in the preceding years. The turnover disclosed by the assessee was higher, the gross profit disclosed was almost giving the same gross profit rate and there was increase of not profit from Rs. 13,92,225/-, to Rs. 23,95,2981-. All these facts were available on the record, however, the addition has been made for sake of addition. Thus addition made by the learned AO is not based on any material placed on record but only on presumption surmises and conjectures, which deserves to be deleted." 5.3. AO's comments in Remand Report: "Addition of Rs.6,00,000/- The assessee has submitted before your honour that it had produced cash book along with copy of ledger and documents and also the bills and vouchers. But as mentioned in the assessment order, the assessee did not produce complete books of accounts during the assessment proceedings. On the basis of incomplete books and supporting bills and vouchers, correct income and expenses cannot be ascertained. Further the reasons given by the assessee were not acceptable in the light of the fact that during the course of assessment proceedings for the A.Y. 2007 -08 also the assessee failed to produce books of accounts. Hence, in the circumstances, the AO was right to reject the trading results declared by the assessee and make addition of Rs.6,00,000/- in the absence of complete books of accounts. " 5.4. AR's rejoinder: "Addition of Rs. 6,00,000/-. The observation of the learned A.O. that complete books of accounts were not produced, is not denied, however fact remains that books of accounts were produced out of which one volume of ledger which was with the deceased accountant could not be produced for the reasons submitted vide reply dated 16/12/20 10. The appellant assessee is old assessee, disclosing the progressive turnover and profit. Reasons for non production of part of the ledger were not accepted by the learned A.O. with the remark. "The statement of assessee considered carefully but found not conversing since during A. Y 2007-08, also, the assessee has failed to produce books of accounts. So the cause shown by the assessee being death of accountant is not conversing." From the 11 Asstt.Year: 2008-09 books of accounts produced, no infirmity or abnormality in the expenditure shown was noted. The books of accounts were duly audited and disclosed the higher turnover, GP and NP, as compared to the preceding years. Out of the total expenditure claimed the assessee has paid FBT on amount of Rs. 2,20,674/~, which were covered by the provision of FBT and there was no logic or justification further to made ad hoc addition of Rs. 6 lacs, by the learned A.O., when book result are progressive. 5.5. Decision and reasons therefor: I have considered the facts of the case emanating from the AO's order and the AR's submissions. The AO has harped on the fact that complete books of accounts were not produced. The AR has pleaded that cash book was produced and copies of accounts of all major expenses along with bill and vouchers were produced and that only part ledger could not be produced for reasons beyond control. I find that the books of accounts were audited. The AO did not find any defects in the part of books of accounts produced. The trading result shown has been progressive. On a totality of these facts, I do not see justifiable reasons for: an ad hoc addition. The addition of Rs.6 lakhs is, therefore, deleted.”
In view of above, we are in agreement with the conclusion of the CIT(A) that the AO merely harped on the fact that complete books of account were not produced. At the same time, we cannot ignore that the assessee filed audit report along with cash book and copies of all relevant accounts of all major expenses along with bills and vouchers. The CIT(A) rightly noted that the AO did not find any defect in any part of the books of accounts produced before him and the result shown by the assessee has been progressive, therefore, the impugned ad hoc addition could not be held as sustainable and in accordance with law and, therefore, the CIT(A) rightly deleted the addition. Accordingly, ground no. 3 of the revenue is dismissed.
Asstt.Year: 2008-09 14. We are unable to see any infirmity, perversity or any other valid reason to interfere in the order of the CIT(A).
In the result, the appeal of the revenue is dismissed.