ASST CIT 20(1), MUMBAI vs. J & B INDUSTRIES, MUMBAI

This appeal by the assessee is directed against the order dated 04.11.2013 of Commissioner of Income Tax (Appeals) {(hereinafter referred to as CIT(A)}IT (A) for A.Y. 2009-10. The grounds raised in the appeal read as under:-

The Ld. CIT(A) erred in deleting the addition made by the AO on account of sundry creditors balance of Rs.17,17,247/- stating that the Assessment year: - 2009-10 AO’s conclusion was simply based on partial appreciation of the facts of the case without appreciating the full facts given by the AO. 3. The Ld. CIT(A) erred in deleting the addition u/s.68 as unexplained cash credits for unsecured loans of Rs.22,70,086/- without appreciating the facts that loans were not fully proved to be genuine. 4. The Ld. CIT(A) erred in deleting the addition made on account of interest paid on unsercured loan of Rs.2,84,304/-. For reasonableness stating that the AO did not take cognizance of the complete details available in the shape of ledger account of interest paid and the details submitted as audit report. 2. Ground no. 1 relates to deletion of addition of Rs. 6,02,995/- being 20% of labour charges of Rs. 30,12,975/-. 2.1. Brief facts of the case are that the assessee filed its return of income on 30.09.2009 declaring total income of Rs. 43,79,734/-. The assessee firm is engaged in the manufacturing of P.P Caps. During the course of scrutiny proceedings, the AO noticed that the assessee had charged to the profit and loss account Rs. 30,12,975/- under the head “labour & processing charges” and required the assessee to furnish the labour register, name of complete address of the persons to whom the payments were made along with bills and vouchers. The assessee submitted only ledger copies and the AO disallowed 20% of the total labour and processing charges amounting to Rs. 6,02,595/-. Ld. CIT(A) deleted the addition by observing that the assessee submitted ledger with copies of the bills of the parties to whom the labour charges were paid. The Ld. CIT(A) also observed that the AO did not make any enquiry regarding genuineness of the payments. The CIT(A) recorded the findings that the payments were made to 4 parties after deduction of TDS and the quarterly returns were also filed and thus the assessee produced all the relevant record from which the verification could have been made by the AO. 2.2 The Ld. DR submitted that the CIT(A) had erred in deleting the disallowance of Rs. 6,02,595/- being 20% of the total labour and processing charges as only ledger copies in respect of the said expenditure were produced by the assessee and it was not possible for the Revenue to carry out further Assessment year: - 2009-10 verification. The Ld. AR on the other hand submitted that the payments on account of labour charges were made to the 3 parties namely, Raj Print N Pack of Rs. 28,18,624/-, D’Souza Metal Cutting P. Ltd. Rs.1,10,062/-, and Jain Packaging P. Ltd. Rs. 84,287/-. The payments were made after deduction of TDS and the necessary return of TDS were also filed. All these payments were made by cheques and, therefore, the AO had grossly erred in making disallowance on adhoc basis without giving any findings for doing so and prayed that the order of CIT(A) deleting the said additions/disallowance deserved to be affirmed. The AO is directed accordingly. 2.3. We have considered the rival submissions and perused the relevant material on record. We find that the payments of labour charges were made to three parties as submitted by the Ld. AR of the assessee after deduction of TDS which were also verified by the Ld. CIT(A), and he gave specific findings to this effect in the appeal order. The payments of these labour and processing charges were made by account payee cheques. We also note that the assessee furnished the copies of ledger accounts with bills which contained the complete details as to the recipient of the labour and proceessing charges , their addresses etc and the observations of the AO that verification of these could not be possible is wrong and contrary to the facts on records. In our opinion adhoc disallowance cannot be sustained as it was not supported by the AO with specific reason/defects in the Books of Account where the payments were made by accounts payee cheques after deduction of TDS and also the return of TDS were filed and, therefore, we uphold the order of CIT(A) on this point by dismissing the appeal of the revenue on this point. The AO is directed accordingly.

Ground no. 2 relates to deletion of addition made by the AO on account of sundry creditors of Rs. 17,17,247/-. Brief facts of the case are that the assessee’s balance-sheet contained Rs. 17,17,247/- as sundry creditor outstanding as on 31.03.2009. The AO asked the assessee to furnish the details of names, addresses, confirmations and analysis of the sundry creditors. The AO added the entire amount of sundry creditors to the income of the assessee on the ground that assessee did not furnish the names and addresses and supporting bills of these Assessment year: - 2009-10 creditors to the income of the assesse and, therefore, the necessary enquiry u/s 133(6) or summon u/s 131 could not be issued. The CIT(A) deleted the addition of Rs. 17,17,247/- by observing that the basis of AO to add sundry creditor was incorrect and AO failed to consider the submissions of the assessee filed during the assessment proceedings vide letter dated 16.11.2011 which was also acknowledged by the AO and referred in the Assessment Order wherein the assesee had duly submitted the age analysis of Sundry Creditors vide paragraph number 4 of the said letter and the Party-wise details of purchases made during the year with names and addresses, Rs.50, 000 or more were also.. The ld. CIT(A) observed the contentions of AO that the necessary details were not with him and no notice u/s.133(6)and 131 of the Act were unfound. The ld. CIT(A) further gave findings in the appeal order that all the creditors were paid subsequently accounts of those creditors for the AY 2003-04 and their confirmations. 3.1 The ld. DR relied upon the order of AO and submitted that the additions were rightly made by the AO on account of Sundry Creditors. Assessee did not furnish the necessary details with the AO following which necessary verification could not be carried out. The ld. AR, on the other hand, that the assesee submitted all the necessary information required by AO vide letter dated 16.11.2011 which was referred to by the AO in the assessment order. Thus, AO made the disallowance/additions of Sundry creditors without examining the details and particulars before him as filed by the assessee vide letter dated 16.11.2011. The ld. AR further submitted that paragraph 4 & 5 contained the necessary details as required by the AO and therefore, in absence of any adverse factual findings of the AO, addition of Rs.17,17,244/- was rightly deleted by the CIT(A) and the order of CIT(A) be upheld on this point. 3.4. We have considered the rival submissions and perused the material on record. We find that the AO added the entire amount of Sundry Creditors of Rs.17,17,244/-on the ground that the assessee did not furnish the names and addresses of the Sundry Creditors and, therefore, the necessary verification could not be carried out. However, the ld. CIT(A) observed the necessary details, had been filed by the assessee vide letter dated 16.11.2011 in paragraph 4 & 5 whereby Assessment year: - 2009-10 the party- wise sundry creditors and also the details of all the purchases above Rs.50,000/- were furnished with the names and addresses. The ld. CIT(A) further observed that most of these creditors were paid in the subsequent years on the basis of confirmations and copies of accounts for the subsequent years and thus, deleted the addition. From the facts of the case and on the basis of records and arguments of the ld. Counsel, we find that the AO made an addition without examining the details and information available before him and made the addition without application of mind to the facts and information before him. We do not find any infirmity in the order of CIT(A) on this point and uphold the same by dismissing the appeal of the revenue. The AO is directed accordingly.

The ground number 3 &4 relates to deleting the addition u/s.68 of the Act as unexplained cash credits for unsecured loans of Rs.22,70,086/- and interest paid on unsecured loan of Rs.2,84,304/-. The brief facts are that the assessee borrowed Rs.22,70,086/- from the friends and relatives in the earlier years on which interest of Rs. 2,84,304/- was provided for during the year. The ld. AO treated the entire amount of unsecured loan of Rs. 22,70,086/- as unexplained cash credit u/s 68 of the Act and also disallowed the interest paid on these loans amounting to Rs. 2,84,304/- on the ground that the assessee did not furnish the details of these creditors and also the interest was paid to the friends and relatives which were covered u/s 40A(2)(b). The ld.CIT(A) deleted the disallowance by observing in paragraph no. 7.3 – page no. 13 of the CIT(A) order that all the sundry creditors and loans related to earlier year, and only interest on these loans were provided for relating to the current year after deduction of applicable TDS. The ld. CIT(A) further observed that all these information were available before the AO in the Tax Audit Report forming part of 3 CD which was part of return of income of the assessee. The ld. CIT(A) reversed the order of AO on the ground that the addition of Rs.22,70,086/- u/s 68 of the Act could not be made as all these amounts were borrowed in the earlier years and not during the year under consideration and therefore the provisions of section 68 of the Act were not applicable .