UPKAR DISTRIBUTORS PVT. LTD.,CUTTACK vs. ITO, WARD - 8(3), KOLKATA

This appeal of the assessee arises out of the order of the Learned CIT(A), VIII, Kolkata in Appeal No. 518/CIT(A)-VIII/Kol/07-08 dated 28-10-2009 for the assessment year 2005-06 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2.1. The brief facts of this issue is that the assessee is a private limited company engaged in the business of trading in shares, timbers and Jute. The return of income for the Asst Year 2005-06 was filed by the assessee declaring taxable income of Rs. 44,910/-. The Learned AO during the course of assessment proceedings called for details of sundry creditors. In response to the same, the assessee submitted the names and address of the sundry creditors as below:-

1 M/s. Upkar Distributors Pvt. Ltd., Kol.

[ Figures in Rupees/-] (A) Apson Sales Promotion P Ltd 40/4, Strand Road, Kolkata – 700001 48,85,468/- (B) Panchratna Tradelink (P) Ltd 40/4, Strand Road, Kolkata – 700001 24,84,365/- (C ) Ortem Finance (P) Ltd 6C, Middleton Street, Kolkata – 700071 16,27,578/- (D) Narayani Jute Traders 6C, Middleton Street, Kolkata – 700071 32,18,658/- 2.2. The Learned AO issued notice u/s 133(6) of the Act to the above sundry creditors. Replies from all the four were signed by Shri.P.K.Jhunjhunwala , Director of assessee company and sent to the Learned AO. The Learned AO found that the balance outstanding stated in the confirmation received from Panchratna Tradelink (P) Ltd matched with the assessee balance as stated in the return and accordingly accepted the same. With reference to the other three parties totaling to Rs. 96,88,781/- , the Learned AO brought the same to tax as bogus and unconfirmed liability and added the same u/s 68 of the Act. On first appeal, the Learned CITA found that identity of the sundry creditors are not doubted by the Learned AO. But the genuineness of the transactions have been questioned due to assessee’s inability to explain with reference to the books of accounts and other documents with regard to the pointed discrepancies. Accordingly the addition was upheld by the Learned CIT(A). Aggrieved, the assessee is in appeal before us on the following revised ground:- 1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs.96,88,781/- made by the A.O. on account of alleged unconfirmed Sundry Creditors.

2.3. We have heard the rival submissions and perused the materials available on record including the paper book filed before us by the assessee which were also filed before the lower authorities. We find that the hard disk of the assessee had crashed during the course of assessment proceedings which fact is also recorded in the assessment order. The accounts were maintained in the computer and in view of crashing of hard

2 M/s. Upkar Distributors Pvt. Ltd., Kol. disk, the assessee could not furnish the books of accounts in full and details with supporting evidences regarding the various queries raised by the Learned AO. The Learned AR argued that these are genuine purchases made by the assessee and fairly conceded that the entire books of accounts could not be produced before the lower authorities due to crashing of hard disk. He further stated before us that the books of accounts were finally retrieved and the same are presently available and all the discrepancies pointed out by the Learned AO could be easily addressed by the assessee and prayed for one more opportunity to be set aside to the file of the Learned AO to explain the real facts before the Learned AO. We also find that the confirmation of balances from the aforesaid sundry creditors were also filed together with the balance sheet and income tax returns of the sundry creditors which requires to be examined by the Learned AO. The Learned DR did not raise any objection for examination of these documents by the Learned AO afresh. In these circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO and decide this issue afresh, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to file additional documents and evidences in support of its claim in order to expedite the completion of assessment proceedings at the earliest. Accordingly, the ground no. 1 (revised) raised by the assessee is allowed for statistical purposes.

3.1. The assessee had shown secured loan as on 31.3.2005 of Rs. 1,68,70,181/- from Wajilam Exports Singapore Pvt Ltd in its balance sheet. During the course of assessment proceedings, the assessee explained that it had not availed any secured loan

3 M/s. Upkar Distributors Pvt. Ltd., Kol. from this party and instead imported timber logs from this party and it has been erroneously shown in the balance sheet as loans instead of sundry creditors. The assessee also produced details of purchases along with shipping bills, banker certificates in support of the purchases made by the assessee. The assessee also has made ‘high sea sales’ to M/s Shivang Trexim Pvt Ltd, Howrah – 711106 for Rs. 1,72,13,585/-. After making this sale, the balance stock is shown as closing stock as on 31.3.2005 to the tune of Rs. 1,68,70,181/- by the assessee. The Learned AO brought the said sundry creditor of Rs. 1,68,70,181/- to tax in the assessment. On first appeal, the Learned CIT(A) upheld the addition. Aggrieved, the assessee is in appeal before us on the following revised ground:- 2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition ofRs.1,68,70,181/- made by the A.O. in respect of the amount which remained outstanding as on 31.03.2005 on account of purchases made from Wajilam Exports Singapore Pvt. Ltd. 3.2. We have heard the rival submissions and perused the materials available on record including the paper book filed before us by the assessee which were also filed before the lower authorities. We find that the assessee had actually imported timber logs from M/s Wajilam Exports Singapore Pvt Ltd in Sept 2004 by obtaining letter of credit from City Union Bank Ltd in favour of the supplier payable. The assessee has placed the bank certificate confirming the issuance of letter of credit on behalf of the assessee to the foreign supplier. Hence the purchases made by the assessee cannot be doubted. During the course of hearing, the Learned AR prayed for one more opportunity to be provided to assessee for explaining the facts of the case in a better fashion for which the Learned DR also fairly conceded. Hence in these circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO and decide this issue afresh, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to file additional documents and evidences in support of its 4 M/s. Upkar Distributors Pvt. Ltd., Kol. claim in order to expedite the completion of assessment proceedings at the earliest. Accordingly, the ground no. 2 (revised) raised by the assessee is allowed for statistical purposes.

4.1. The assessee claimed to have made an addition of Rs. 33,14,010/- towards building during the assessment year under appeal but no evidence for the same was produced by the assessee before the Learned AO to support its claim of depreciation. Hence the Learned AO disallowed the depreciation claimed thereon amounting to Rs. 4,09,574/-which was also upheld by the Learned CIT(A). Aggrieved, the assessee is in appeal before us on the following ground:- 3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs 4,09,574/- made by the A.O. on account of depreciation on building without considering the fact that the said building has been utilised for business purpose.

4.2. We have heard the rival submissions and perused the materials available on record. We find that the disallowance of depreciation has been made by the revenue only for want of necessary documents and evidences for additions to building. During the course of hearing, the Learned AR prayed for one more opportunity to be provided to assessee for explaining the evidences before the Learned AO for which the Learned DR also fairly conceded. Hence in these circumstances, we deem it fit and appropriate, in the interest of justice and fairplay, to set aside this issue to the file of the Learned AO and decide this issue afresh, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The 5 M/s. Upkar Distributors Pvt. Ltd., Kol. assessee is also at liberty to file additional documents and evidences in support of its claim in order to expedite the completion of assessment proceedings at the earliest. Accordingly, the ground no. 3 (revised) raised by the assessee is allowed for statistical purposes.

5.1. The Learned AO observed that the assessee had earned exempt income in the form of dividend of Rs. 2,00,000/- but no disallowance u/s 14A of the Act was made by the assessee in the return. The Learned AO accordingly disallowed Rs. 2,000/- towards section 14A of the Act which was also confirmed by the Learned CIT(A). Aggrieved, the assessee is in appeal before us on the following revised ground:-

4. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of the A.O. in making disallowance of Rs.2,0001-by wrongly invoking the provisions of sec. 14A.

5.2. We have heard the rival submissions and perused the materials available on record. We find that during the assessment year under appeal, though provisions of Rule 8D of the IT Rules could not be made applicable, but disallowance u/s 14A of the Act has to be made as it is introduced in the statute with retrospective effect from 1.4.1962 onwards. The disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. The Hon’ble Jurisdictional High Court in the case of CIT vs M/s R.R.Sen & Brothers P Ltd in GA No. 3019 of 2012 in ITAT NO. 243 of 2012 dated 4.1.2013 had held as under:- “ The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under income tax. The tribunal has 6 M/s. Upkar Distributors Pvt. Ltd., Kol. computed expenditure at 1% of such dividend income, which, according to them, is the thumb rule applied consistently. We find no reason to interfere.

The appeal is dismissed.”

We find that 1% of exempt income works out to Rs. 2,000/- and that is the figure disallowed by the Learned AO also in the assessment. Hence we don’t find any reason to interfere with the orders of the lower authorities in this regard. Accordingly, the ground no. 4 (revised) is dismissed.

THIS ORDER IS PRONOUNCED IN OPEN COURT ON 20 -01-2016