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Income Tax Appellate Tribunal, DELHI BENCH ‘G ’, NEW DELHI
Before: SHRI N. K. SAINI & SHRI KULDIP SINGH
ORDER PER KULDIP SINGH, JM:
The appellant, Income Tax Officer, Ward 7(2), New Delhi by filling the present appeal, sought to set aside the order dated 21.01.2010 passed by Ld. CIT(A) X, New Delhi for the Assessment Year 2006-07 on the grounds inter alia that: “1. Ld. Commissioner of Income Tax (Appeals) erred, -in law and on the facts and circumstances of the case, in deleting the addition of Rs.7,44,000/- made by the AO on account of unexplained cash deposits."
2. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.11,17,056/- made by the AO on account of difference in credit balance in OD account.
3. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.23,24,948/- made by the AO on account of unverified sundry creditors." 4. "Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.4,17,685/- made by the AO on account of unvouched imports from Concord Asia Co "
Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.4,01,948/- out of the addition of Rs. 4,23,098/- made by the AO on account of unvouched expenses."
6. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in entertaining the details which were not submitted during the assessment proceedings and not admitted as evidence u/r 46A of the I.T.Rules."
Briefly stated, the facts of the case are: during the processing of income tax return filed by the assessee for the Assessment Year 2006-07 u/s 143(1) of the Income Tax Act, 1961, for short “the Act”, declaring an income of Rs.1.46,578/-, the case of assessee was put under scrutiny and consequently, the notice was served upon the assessee who has appeared through Shri Anil Kumar Sethi, CA, whom questionnaire and notice u/s 142(1) was issued and handed over on 11.10.2007. Subsequently, detailed questionnaire dated 18.08.2008 and 22.10.2008 were issued. The assessee company was incorporated on 01.11.1998 and is into the business of manufacturing of electrical lighting and fittings and during the financial year 2005-06, relevant to Assessment Year 2006-07, the assessee company has engaged in the trading, import electrical and general goods from China.
The assessee company was called upon to explain the source of cash deposits of Rs.7,44,000/- in its account maintained with Central Bank of India because it has made a cash sale of only Rs.333/-. The assessee merely stated that the cash deposits were made out of cash withdrawal from the bank and Ld. A.R. has provided the chart where total cash withdrawal during the year is Rs.7,98,450/- and total cash deposits were Rs,7,44,000/- and the balance amount of cash expenses of Rs.54,450/- in view of the fact that majority of expenses were incurred by the assessee company in cash. However, the assessee has refused to produce the cash book in spite of repeated written and oral requests and subsequently, the unexplained cash deposits of Rs.7,44,000/-has been added to the net profits of the assessee company u/s 68 of the Act. 4. Vide questionnaire dated 18.08.2008 and 22.10.2008, the assessee company was required to reconcile the discrepancy in the balance sheet and ledger account because as per Central Bank of India, bank book an amount of Rs.11,85,201.37, was shown but as per balance sheet, there was balance of Rs.24,937/- as on 31.03.2005. Similarly, balance as on 31.03.2006 as per Central Bank of India bank book was Rs.11,17,055/- and the balance as per balance sheet was ‘nil’ as on 31.03.2006. Considering reply dated 11.11.2008 filed by the Ld. A.R. not satisfactory a sum of Rs.11,17,056/- was added back to the net profit. 5. Similarly, vide questionnaire dated 11.10.2007, 18.08.2008 and 22.10.2008, the assessee company was required to furnish confirmation along with address and income tax particulars in respect of sundry creditors (Rs.19,20,421/-), advance received from customers (Rs.4,57,571/- and other liabilities (Rs.1,29,751/-), but the assessee company has furnished confirmation only from M/s. Indo Sales India (Rs.1,862/-) and Ms. U. G. Polychem P. Ltd. (Rs.68,612/-). Thus, it was apparent that assessee company had fabricated sundry creditors to accommodate the income from undisclosed sources and consequently, a balance sum of Rs.24,25,269/- was added back to the net profit.
Vide questionnaire dated 18.08.2008 and 22.10.2008, the assessee company was asked to furnish original bills for verification in respect of electricity generator to explain the expenses debited to P & L account – Electricity and generator (Rs.62,086/-), testing charges Rs.1,50,557/-, telephone expenses Rs.75,828/- and miscellaneous consumables and packing material not covered under LP-7 Rs.1,345,627/-. On failure of assessee company to furnish original bills for verification, a sum of Rs.4,23,098/- has been added back to the net profit.
Vide questionnaire dated 22.10.2008, the assessee company was required to furnish invoice no.CAC-2005-06/246 dated 15.01.2006 for US$9396.73 (Rs.4,17,685/-) in respect of this import purchases. However, on failure of assessee company to furnish the aforesaid documents, a sum of Rs.4,17,685/- has been added back to the net profit. Consequently, addition of Rs.54,59,419/- has been made. 8. First ground raised
by the Department is “as to whether Ld. CIT(A) erred in law and on the facts and circumstances of the case, in deleting the addition of Rs.7,44,000/- made by the A.O. on account of unexplained cash deposits.” The A.O., in para 4 of assessment order has categorically called upon the assessee to explain the source of cash deposits of Rs.7,44,000/- in his Central Bank of India account and on his failure to prove the genuineness of the above said monetary transaction added the unexplained cash deposits of Rs.7,44,000/- to the net profits of the assessee company.
9. The assessee explained cash withdrawn amounting to Rs,7,44,000/- on different dates by stating that such cash withdrawals were regularly made from the bank to make immediate needs of expenditure from time to time, whereas all transactions of a company such as sales and purchases are made through bank and only sales in cash made by the assessee is of Rs.333/-.
The assessee has further explained that these deposits are made in cash and the expenditure is met by both the Directors out of imprest account available in their hands and has submitted a copy of imprest account as Annexure -1 vide which a total amount of Rs.8,50,734/- has been spent by both the directors Shri Jaideep Sharma and Shri D. N. Kaushik during the year.
However, from para 2 of the assessee’s letter dated 21.10.2008 lying at page 5 of the paper book filed by the assessee, it is clear that the imprest provided to the directors are in the nature of expenses incurred by the directors and the excess amount received have been transferred to their loan account. The assessee has also explained that an increase of Rs.1,02,648/- is on account of respective unsecured loan, the details of which are as under: Name of the director Balance as on Balance as on Increase in loan tfd. 31.03.2005 31.03.2006 Sh. Jaidev Sharma 1,47,000 2,20,000 73,000 Sh. Dayanand 1,45,000 1,74,553 29,546 Sharma 1,02,546
So, on the basis of documents placed on file and audited books of account of assessee, total cash expenses are as under: Total Imprest account 8,50,734 Credited into loan account 1,02,546 Cash expenses 61,063 10,14,343 12. Ld. CIT(A) deleted the addition of Rs.7,44,000/- while treating various cash deposits into bank account as unexplained cash deposits by making following observations: “The third ground relates to addition of Rs.7,44,000/- on account of cash deposits into bank treated by the AO as unexplained.
In this regard, the appellant has stated that these cash deposits with their bank i.e. Central Bank of India, Badarpur was made periodically, on various dates out of cash withdrawals made by them amounting to Rs.7,98,450/- on different dates leaving cash in hand of Rs.94,783/-. It has been stated that such cash withdrawals were regularly made from the bank to meet immediate needs of expenditure from time to time on account of non availability of cash with the appellant. It has also been stated that all transactions of the company such as sales and purchases are made through bank and the only sale in cash made by the appellant 'company is of Rs.333/- It has further been explained that these deposits are made in cash and the expenditure is met by both directors out of Imprest Accounts available in their hands. The appellant has objected to the observation of the AO that these deposits are from "unexplained sources". It has been contended that the appellant has no other business, which could generate unaccounted cash. Further, the AO's observation that cash expenses of Rs.94,450/- being too low as observed by the AO has been objected to by the appellant. It has been stated that the factory where such expenditure has been made in cash is located at Faridabad i.e. about 6 km from their office in Badrpur. Therefore, it has been explained that the directors are provided with imprest through cheques to incur such expenses in cash as and when the need arises. The appellant has submitted a copy of the Imprest Account also as Annexure I Along with their submissions. As per this Imprest Account it is seen that a total amount of Rs.8,50,734/- has been spent both by the directors Shri Jai Dev Sharma and Sh. D.N. Kaushik during the year which. is stated 'to be duly accounted for in the account books. A perusal of the assessment order shows the cash balance after comparing the cash deposits and cash withdrawals. The AO has observed that cash expenses of Rs.94,450/- is too low in view of the fact that majority of the expenses were incurred by the assessee company in cash. However, as pointed out by the appellant in their submissions, this contention of the AO appears to be incorrect. It is stated that this observation of the AO is .based on assumption. It is seen that there is no evidence on record to show that the appellant company had incurred any expenditure outside its books of accounts. From para 2 of assessee's letter dt. 21-10-08 submitted before the A.O., copy of which is on record it is seen that imprest provided to the directors are in the nature of expenses incurred by the directors and the excess over the amounts received have been transferred to their loan account. The appellant has submitted that there has been in increase of Rs.l,02,648/- in their respective unsecured loans and has given the following details in support of their contentions:
Name of the director Balance as on Balance as on Increase in 31-03-2005 31-03-2006 Loan Tfd Sh. Jaidev Sharma 1,47,000 2,20,000 73,000 Sh. Dayanand Sharma 1,45,000 1,74,553 29,546 1,02,546/- It is seen that these amounts are duly accounted for if) the audited books of accounts maintained by the appellant in the norm.al course of business. It has been clarified that the increase in their loan accounts represents and pertains to the excess amount spent by them over and above the imprest provided for the by the company. It has also been stated that apart from the above, the appellant company has spent a total of Rs.61,063/- in cash as detailed below: Cash expenses 54,450 Cash sales 333 Difference in cash in hand 6,280 61.063 On the basis of the above, the appellant has tabulated its total cash expenses as below: Total Imprest Account 8,50,734 Credited into loan account 1,02,546 Cash expenses 61,063 10,14,343 Thus, the appellant has argued that the total expenditure made by the company in cash comes to Rs.10,.14,343/- as against Rs.94,450/- assumed by the AO. As for the non production of the cash book, the appellant has reacted that this allegation is false and rather it was produced and it was the AO who refused to examine the same. It has further been stated that the production of cash book before the AO is supported by their letter dt. 11-11-08 para which has been enclosed by them along with the submissions. It has also been contended that the appellant has not made any unaccounted transaction outside the books of accounts as alleged by the AO. Under the circumstances, it is apparent that the addition made by the AO was on account of non appreciation of the explanations and evidences submitted by the assessee during the course of assessment proceedings. Therefore, in my considered opinion, this addition appears to be based on assumptions and not on any concrete facts or evidences. Hence, the' same deserves to be deleted. Held accordingly.”
A bare perusal of the findings returned by Ld. CIT(A) goes to prove that the deletion has been made merely at the instance of appellant without calling upon any cash book maintained by the assessee to prove the total expenditure made by the company in cash rather relied upon a letter dated 11.11.2008 filed by the appellant that cash book was produced before the A.O. For arguments sake, even if it is assumed that the assessee has produced cash book before the A.O., there was no hitch with Ld. CIT(A) to entertain the same again in additional evidence by calling upon the remand report from the A.O. after due verification. Since A.O. has specifically recorded the findings that cash book was not produced nor such cash book has been perused or entertained by Ld. CIT(A) in additional evidence, it is improbable on the part of Ld. CIT(A) as to how he believed the assessee’s letter. So, the findings of Ld. deleting the addition of Rs.7,44,000/- made by the A.O. on account of unexplained cash deposits are perverse and illegal, hence, set aside and the case is required to be restored to the file of Ld. CIT(A) for deciding the same afresh. So, ground No.1 is determined in favour of the appellant for statistical purposes. The 2nd ground raised
by the assessee is, “as to whether CIT(A) 14. erred in deleting the addition of Rs.11,17,056/- made by the A.O. on account of difference in credit balance in OD account.” The A.O. has observed difference in the figures of balance sheet and bank account ledger. The A.O. has further pointed out that the assessee has considered the overdraft from Central Bank of India as a liability but has not considered the credit balance in the OD account as asset and thus, made an addition of Rs.11,17,056/-.
15. Ld. CIT(A) while returning the findings on ground No.2 aforesaid, deleting the addition of Rs.11,17,056/- returned the following findings: “During the course of appellate proceedings it has been pointed out that the discrepancy was duly explained vide letter dt. 11-11-08 wherein 'in para 3 of the said letter it was clarified that the cash credit account with the bank and the balance in books has been duly reflected under the head "secured loan". It has been stated that this fact is also evidenced from the bank reconciliation account placed by the appellant is annexure IV in their submissions" filed during appellate proceedings which was also filed before the AO vide their letter dl:.l1-11-08. The appellant has furnished a chart showing the respective balances as on 31-03-2006 which are as below: As per balance with As on 31-03-2006 Central Bank of India 10,01,797/- (bank statement) Accounts Books 11,16,341/- (Sch.'C' of Balance Sheet) Less: Cheques issued but not 1,05,544/- Accounted for by bank 10,01,797/- As per this chart the amount of Rs.1,05,544/- represents cheques issued but not accounted for by the bank. However, it is seen that the AO inadvertently adopted the figure of nil as balance with bank as on 31-03-2006 as against the correct figure of Rs.11,16,341/- which stands reflected in the balance sheet and is stated to be open to verification.
It has further been clarified that the difference of Rs.714/- between the balance sheet- / books (Rs.11,17056 - Rs.11,16,341) pertains to excess charges debited by the bankers and not accounted for by the appellant due to non availability of figures. The appellant has contended that they are availing credit facilities from bank by way of cash credit limit against stocks including their current assets, being immovable property owned by both the directors.
Therefore, the appellant has pointed out that they have correctly shown the liability of Rs.ll,17,056/-. The appellant has contended that the AO has not given any reason for holding that the explanation submitted by the assessee was' "not found satisfactory". It has been contended that no cogent reason has been assigned for holding that the appellant has concealed their assets or income because of the treatment of credit balance in OD A/c. The appellant has contended that treating of balance with the bank which is a part of audited accounts, as undisclosed income is bad in law.
After considering the submissions made by the appellant and after going through the assessment order it is seen that the contentions of the appellant are duly supported by evidences which has not been discussed by the AO in the assessment order at all. The AO has only mentioned his final verdict that the explanation of the assessee is "not found satisfactory" without giving any reason. Under these circumstances, the addition made by the AO appears to be not based on any evidence or facts. Hence, the same deserves to be deleted. Held accordingly.”
A perusal of the findings returned by Ld. CIT(A) go to that Ld. CIT(A) has deleted the addition of Rs.11.17,056/- on the basis of explanation furnished by the assessee which is to the effect that “cash credit account with the bank and the balance in the books has been duly reflected under the head ‘secured loan’, which fact is proved from the bank reconciliation account statement placed by the appellant as Annexure IV” in the submissions filed during the appellate proceedings, which were also filed before the A.O. vide their letter dated 11.11.2008. From the explanation furnished by the assessee, it is also proved that the amount of Rs.1,05,544/- represents cheques issued but not accounted for by the bank. But the A.O. inadvertently adopted the figure as ‘nil’ as balance with the bank as on 31.03.2006 as against the correct figure of Rs.11,16,341/- which stands duly reflected in the balance sheet and is stated to be open to verification. The A.O. has made addition by merely holding the explanation of the assessee as ‘not found satisfactory’ without giving any reason. So, when the assessee has duly explained the amount of Rs.11,17,056/- as secured loan and got reconciled as per bank reconciliation account placed by the appellant as Annexure IV the Ld. CIT(A) has rightly deleted the addition of Rs.11,17,056/-. Hence, ground No.2 is determined against the appellant.
Ground No.3 raised by the assessee is, “as to whether CIT(A) erred in deleting the addition of Rs.23,24,948/- made by the A.O. on account of unverified sundry creditors.” The A.O. vide order dated 03.12.2008 in para 6 has made the addition of Rs.24,25,269/- to the net profit of the assessee on the ground that the assessee has failed to furnish confirmation along with addresses and income tax particulars of sundry creditors, customers from whom he has received the advance and to explain the other liabilities. 18. Ld. CIT(A) in para 5.4 at page 9 of the impugned order observed that as stated by the assessee, the A.O. did not afford adequate opportunity rather hastened to hold its income as such trade credits in spite of the fact that there was sufficient time available to complete the assessment. During the appellant proceedings, Ld. CIT(A) has called the remand report from the A.O. regarding sundry creditors and customers from whom assessee has received advance and to explain the other liabilities, the details of which has also been given in para 4 of the letter dated 11.11.2008. 19. Ld. CIT(A) has proceeded to delete the addition of Rs.23,24,948/- merely on the ground that, “in the remand report, A.O. has not stated that ‘these confirmations suffer from any defect or inconsistency or show that any false claim was made by the appellant.’ Ld. CIT(A) has also stated in the impugned order that during the course of assessment as well as during the appellate proceedings, the assessee has submitted complete list and the addresses of sundry creditors advances received and other liabilities with regard to Concord Asia and OGT International but strangely enough when the A.O. has categorically mentioned in the remand report that pages 32, 33 and 41 onwards regarding details of sundry creditors (Annexure – V), details as to advances from customers (Annexure -VI) all pages except page 63 and details as to other liabilities (Annexure-VI) pages 71-75 were not available in the assessment record, it was humanely not possible for the A.O. to reach at the logical conclusion to verify the antecedents, genuineness and creditworthiness of sundry creditors, advances from the customers and to verify other liabilities. Even no such document have been taken on record by the Ld. CIT(A) in additional evidence as per law rather proceeded on the basis of conjectures and surmises that the A.O. has not given any adverse report during remand proceedings regarding the claim of the assessee. Hence, we are of the opinion that findings of Ld. CIT(A) in deleting the addition of Rs.24,25,269/- made by the A.O. are perverse and hence, set aside. Ground No.3 is allowed for statistical purposes and file is ordered to be restored to Ld. CIT(A) to examine afresh.
Ground No.4 of the appeal is, “as to whether Ld. CIT(A) has erred in deleting the addition of RS.4,17,685/- made by the A.O. on account of unvouched imports from Concord Asia Co.” The A.O. at page 4 para 13 of the order categorically observed that since the assessee has failed to furnish the copies of invoice no. CAC-2005-06/246 dated 15.01.2006 for US$9396 (Rs.4,17,685/-), the same has been added to the net profits of the assessee.
Ld. CIT(A) in para 5.10 at page 16 of the impugned order held that during the assessment proceedings, the appellant could not furnish original bills for verification as per the assessment order. Therefore, it appears that photocopies of the same were filed. The A.O. was required to examine the issue during remand proceedings are directed by Ld. CIT(A) and stated to have not pointed out anything adverse but when invoice in question for Rs.US$9396 (Rs.417685) has not seen the light of the day nor the same has been annexed with the paper book, nor the same has been entertained in additional evidence, Ld. CIT(A) has erred in proceeding with the matter in deleting the addition merely on the ground that during remand proceedings ‘nothing adverse has been pointed out by the A.O.’. So, in view of the fact that in the absence of invoice in question, which has not been taken on record even in additional evidence during appellate proceedings, Ld. CIT(A) has erred in deleting the addition, hence the ground No.4 is determined in favour of the appellant for statistical purpose and restored to the A.O. for verification of the invoice in question.
Ground No.5 of appeal is, “as to whether Ld. CIT(A) has erred in deleting the addition of Rs.4,01,948/- out of the addition of Rs,4,23,098/- made by the A.O. on account of unvouched expenses.” The A.O. in para 12 at page 4 of the assessment order stated that since the assessee company has failed to furnish the bills and vouchers for electricity and generator testing charges, telephone expenses and miscellaneous consumables and packaging material, an amount of Rs.4,23,098/- has been added back to the net profit of the assessee.
However, Ld. CIT(A) in para 5.9 at page 16 of the impugned order deleted the addition of Rs.4,23,098/- by making following observations: “During the assessment proceedings, the appellant could not furnish original bills for verification as per the assessment order. Therefore, it appears that photocopies of the same were filed. The A.O. has examined the mater during the remand report proceedings and has not pointed anything adverse. However, keeping in view the element of personal nature embedded therein 5% of these expenses which comes to Rs.21,150/- are disallowed and the balance is allowed.”
A bare perusal of the observations made by Ld. CIT(A) go to prove that deletion has been made solely on the basis of assumptions and presumptions without calling for the documents as pointed out by the A.O. nor any such documents have been entertained into additional evidence nor the same have been got verified from the A.O. No doubt, during remand proceedings report was called from the A.O. but Ld. CIT(A) without discussing the opinion made in the remand report by the A.O., merely proceeded on the fact that ‘nothing adverse has been pointed out by the A.O.’. When the A.O. has not provided with any material to comment upon, how he could have given the favourable or adverse opinion to Ld. CIT(A). So, in the absence of any additional evidence in this regard and in the absence of any document on record, findings of Ld. CIT(A) in deleting the addition of Rs.4,23,098/- are perverse and hence the same are hereby set aside. At the same time, the disallowance @ 100% of expenses made by the A.O. is not justified particularly when the expenses were incurred for business purposes. Therefore, to meet the ends of justice, disallowance @ 10% of the expenses i.e. Rs.42,310/- will be fair and reasonable to cover the leakage, if any, on account of personal element. Accordingly, Ground No.5 is partly allowed. 26. In view of what has been discussed above, the impugned order passed by Ld. CIT(A) being illegal and perverse, is hereby set-aside qua grounds Nos. 1, 2, 3 & 4 and the file is restored to Ld. CIT(A) for passing afresh order by giving opportunity of being heard to both the parties. The present appeal qua ground No.5 is hereby partly allowed.
Resultantly, the present appeal is partly allowed for statistical purposes. Order pronounced in the open court on 14th Oct., 2015.
Sd./- Sd./- ( N. K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 14th Oct., 2015 Sp Copy forwarded to:-
1. 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi. 5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy. By Order (ITAT, New Delhi).
S.No. Details Date Initials Designation 1 Draft dictated on 3/9 Sr. PS/PS 2 Draft placed before author 3,4,21,12,12,13,14 Sr. PS/PS Draft proposed & placed before 3 JM/AM the Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to the Sr. 14/10/2015 5 Sr. PS/PS PS/PS 6 Kept for pronouncement 14/10 Sr. PS/PS 7 File sent to Bench Clerk 14/10 Sr. PS/PS Date on which the file goes to 8 Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order