ACIT, CIRCLE - 3, ASANSOL, ASANSOL vs. M/S. SANJAY TRANSPORT AGENCY, BURDWAN

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM] I.T.A No. 1627/Kol/2011 Assessment Year: 2008-09 Assistant Commissioner of Income-tax, Vs. M/s. Sanjay Transport Agency Circle-3, Asansol (PAN: AAVFS6659N) (Appellant) (Respondent) Date of hearing: 10.11.2015 Date of pronouncement: 20.11.2015 For the Appellant: Shri Debasish Roy, JCIT For the Respondent: Shri Sunil Kumar Sarana, FCA ORDER Per Shri Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A), Asansol Kolkata in Appeal No.96/CIT(A)/Asl/R-3/Asl/2010-11 dated 20.09.2011. Assessment was framed by JCIT, Range-3, Asansol u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide its order dated 04.10.2010. 2. The first issue in this appeal of revenue is against the order of CIT(A) deleting the addition made by AO on account of trade creditors. For this, revenue has raised following ground no.1: “1. That the Ld. CIT(A) has erred in deleting the addition on account of trade creditors of Rs.1,54,41,614/- ignoring the material facts and circumstantial evidence brought on the assessment records of the assessee. 3. Briefly stated facts are that the AO during the course of assessment proceedings made addition on account of sundry creditors from whom the assessee purchased goods. The assessee has purchased heavy earth moving machineries from the following parties: Sl. N a m e Address provided by the Opening Addition Subtraction Closing No. assessee Balance Balance 1. D. S. Enterprises 2, Canning St., Kol- 0 29.08.900 0 29.08.900 700001 2. Durga Trading 309, B. B. Ganguly St., 0 14,56,000 0 14,56,000 1st floor, Kol-700012 Corporation 3. Gem Traders P-41, Princep St., Kol- 0 32,68,754 0 32,68,754 700072 4. Kalimata Trading Salap, Kalitala, Howrah- 0 32,91,600 0 32,91,600 Complex 711409 5. Radhika Steel Kona, Benara Road, 0 22,54,360 0 22,54,360 Syndicate Howrah-711114 6. Sangeet Rahini 62, Bentinck St., 0 9,10,000 0 9,10,000 Corporation Kolkata-69 7. Seema Enterprise 62, Bentinck St., 0 13,52,000 0 13,52,000 Kolkata-700069.

The AO required the assessee to file the details of purchases and also established the identity of the creditors and genuineness of transaction as the goods were purchased on

2 ITA No.1627/K/2011 Sanjay Transport Agency AY 2008-09 credits and payments were made by account payee cheque. The assessee before the AO submitted complete details like purchase bill, payment by cheque and party’s confirmation and books of account. The AO issued notice u/s. 133(6) of the Act and these parties replied and confirmed the transactions with the assessee but according to AO these parties were unable to prove the creditworthiness and accordingly, he made the addition of these sundry creditors u/s. 68 of the Act. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition. Aggrieved, revenue is in second appeal before Tribunal. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that, admittedly, these are trade creditors and not unsecured loans. The assessee has filed complete details including purchase bills, payment made by cheques, and confirmation along with the names and addresses and their assessment details to the AO during the course of assessment proceedings. All the parties have confirmed these purchase transactions but the AO wanted their creditworthiness. These are simply trade creditors and all of them supplied machinery to the assessee. Supply of machinery is not in doubt. These are not unsecured loans. Once this is the position, the AO cannot invoke the provisions of section 68 of the Act. All the parties have confirmed having made sales to assessee in response to notice u/s. 133(6) of the Act. In the case of trade creditors, at the best, first of all, the AO has to doubt the purchases and sales and without going into these facts, the AO applied the provisions of section 68 of the Act in the absence of creditworthiness of these parties and made addition. We find no reason to sustain the same, as the very basis is not doubted by the AO, and assessee has discharged its onus by filing all the details before the AO. Accordingly, we confirm the order of CIT(A) and this issue of revenue’s appeal is dismissed. 5. The next issue in this appeal of revenue is against the order of CIT(A) deleting the addition of unsecured loans of Rs.7.5 lacs. For this, revenue has raised following ground no. 2: “2. That the Ld. CIT(A) has erred in deleting the addition under the head unsecured loan creditor of Rs.7,50,000/- ignoring the material facts and circumstantial evidence brought on the assessment records of the assessee.”

3 ITA No.1627/K/2011 Sanjay Transport Agency AY 2008-09 Sl. N a m e Opening Balance Addition Interest TDS Closing No. Balance 1. Bina Chaudhury 0 400,000 395 0 400,395/- 2. Brijmohan Tibrewal 0 350,000 394 0 350,345/-

The AO required the assessee to provide the names, address along with evidence to prove the creditworthiness of the above unsecured loans and both the creditors have confirmed giving above loans to the assessee but assessee failed to produce the evidence in respect of creditworthiness of these parties and in the absence of the same, the AO added these unsecured loans of Rs.7.5 lacs to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by relying on the decisions of Hon’ble Gujarat High court in the case of DCIT v Rohini Builders (2002) 256 ITR 360 (Guj). 7. We find from the above facts that both the creditors have confirmed the transaction and also filed details of their assessment particulars and these credits are given out of their bank account but the AO did not carry out any exercise whatsoever to verify these unsecured loans as is clearly evidenced from the assessment order. Even CIT(A)’s finding is that AO has not conducted any further enquiry despite the fact that assessee has discharged its onus by filling the details. Once this is the position, we have no hesitation in confirming the order of CIT(A) and this issue of revenue’s appeal is dismissed.

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The AO required the assessee to explain the purchase made with evidence. According to AO, no evidence has been filed recording the veracity of the transactions and accordingly, he added the same. The CIT(A) deleted the addition by observing as under: “Perusal of the assessment order reveals that the A.O. has discounted evidence that these parties are assessed to sales tax and the payments to them, during the year have been made by account payee cheques. In his view, these are circumstantial evidence. But, in that event, it appears that the appellant has indeed provided such evidence. Evidence, whether primary or circumstantial, cannot be brushed aside summarily. No enquiry is on record, as per the assessment order, wherein the A.O. could have been said to have negated even this circumstantial evidence. As per the A.O, only primary evidence in the nature of return of income/ balance sheet/P&L account is acceptable as evidence of creditworthiness and none of these have been filed by the appellant in respect of these parties. The A.O. states that his view is based on the pronouncements of various Courts including the Hon'ble Supreme Court. If the A.O. states that his stand, that, even where confirmations of purchase transactions are available on record, a buyer has to, suo moto, produce IT Returns/Balance Sheets P&L accounts of the seller as proof of such sellers' creditworthiness, is based on judicial decisions then citations of such judicial decisions become necessary. However, no such citation has been given. In this case, in my opinion, if the A.O. felt that primary evidence of the creditworthiness was lacking, I do not see what prevented him from raising further queries. The addresses and the PA Nos. of these parties were available with him. Yet, for reasons best known to him, he is not seen to raise any further queries with these parties. He has mentioned in the order that purchase bills/mode of transportation of these purchases have not been produced. However, the appellant claims that necessary details including bills, VAT & PAN had been filed in the course of assessment proceedings. In fact, in the ultimate analysis the A.O. is not seen to doubt the identities of these parties. The disallowances are seen to have been made for lack of proof of creditworthiness of the sellers. The A.O. has mentioned that one of the parties, M/s Vishal Enterprises did not name its own suppliers so as to verify the veracity of its replies. However, in that case, I do not see why the A.O. did not raise further queries. As admittedly, the assessment details of these parties were available with him he could have made internal enquiries also. None of this appears to have been done. In my opinion, once evidence is produced before the A.O. he has to act upon it and prove through enquiries that facts are contrary to such evidence. Without doing so, he cannot brush them aside. In this case, even the A.O. admits that circumstantial evidence has been provided. Under the circumstances, in my opinion, the appellant has discharged its primary onus. If the A.O. doubted the creditworthiness of the parties, he should have made his own enquiries regarding them. Without doing so, in my view, he cannot doubt their creditworthiness and disallow the appellant's claim of purchases. The disallowances are directed to be deleted. This ground of appeal is allowed.” Aggrieved, now revenue is in second appeal before Tribunal. 10. We find from the above facts and circumstances of the case that the assessee has filed confirmation from the parties from whom purchases were made and also details of transaction as are available on record and even now before us i.e. purchase bills, payment by cheque and these party’s I. T details. Despite the fact that these details are available before the AO, the AO has not carried out any further enquiry on the basis of these evidence and straightway made addition on unverifiable purchases. From the order of

5 ITA No.1627/K/2011 Sanjay Transport Agency AY 2008-09 CIT(A), we find that complete details were available before him and on the basis of the same he has allowed the claim of the assessee. Even the sales arising out of the same purchases have not been doubted by the AO. Here in the present case only exception is M/s. Vishal Enterprises wherein it has not verified the veracity of the transaction. Hence, qua this only, we set aside the matter to the file of the AO so that assessee can prove the veracity of the transaction and for the balance purchases, we confirm the order of CIT(A) and this issue of revenue’s appeal is partly allowed. 11. The next issue in this appeal of revenue is against the order of CIT(A) deleting the addition made by AO on behalf of disproportionate payment of expenses made to persons specified u/s. 40A(2)(b) of the Act. For this, revenue has raised following ground no.4: “4. That the Ld. CIT(A) has erred in deleting the addition on account of u/s. 40A(2)(b) of Rs.29,50,000/- ignoring the material facts and circumstantial evidence brought on the assessment records of the assessee.” 12. Briefly stated facts are that the AO noticed from audit report that the expenditure of Rs.2,29,72,459/- were paid to related persons specified u/s. 40A(2)(b) of the Act and according to him to block the possible leakage in the revenue, he disallowed on ad-hoc basis at Rs.29.50 lacs as under: “To plug the possible leakage in the revenue on the account of the above, the undersigned thinks it fit to disallow as under:

Point Description of expenditures Disallowance (Rs.) 4A a) Relating to Coal Raising at Sikni Rs.10,00,000/- 4A b) Relating to sand Transportation Rs. 4,00,000/- 4A c) Relating to Road Construction at Barhawa Rs.13,00,000/- 4A c) In P/L Account Rs. 2,50,000/-“

Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition. Aggrieved, now revenue is in appeal before Tribunal. 13. We find from the facts of the case that the AO has just made ad-hoc disallowance without going into the expenses or the reasonableness of the payment as mentioned in the provision of section 40A(2)(b) of the Act. We find from the facts of the case that the assessee has produced complete supporting bills and vouchers to prove the genuineness of the claim of expenditure which is not doubted but he has made ad hoc disallowance for the reason that these payments are made to the persons specified u/s. 40A(2)(b) of the Act for invocation of provision of section 40A(2)(b) of the Act. First of all, there should be a finding recorded by the AO that the expenses are unreasonable and how? But from the order of the AO, it is not coming out that what is the basis for disallowance. Just simply

6 ITA No.1627/K/2011 Sanjay Transport Agency AY 2008-09 ad hoc disallowance cannot be made. Accordingly, we confirm the order of CIT(A) deleting the addition. This issue of revenue’s appeal is dismissed.

“6.We have carefully considered the facts and the rival contentions. Section 194A provides for deduction of tax from the interest paid by the assessee, at the appropriate rate. Section 197A(lA) provides that notwithstanding anything contained in section 194A no deduction of tax shall be made under the section if the payee of the interest furnished to the person responsible for paying the interest, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which the interest is to be included will be nil. Sub-section (2) provides that the person responsible for paying interest shall deliver or cause to be delivered to the CCIT or CIT one copy of the declaration submitted by the payee of the interest to the assessee on or before the seventh day of the month next following the month in which the declaration was furnished to him. If the person responsible for paying the interest (i.e. the assessee) does not comply with sub-section 2 of section 197A, he is liable to pay penalty of Rs.100/- for every day during which the failure continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of Income Tax as stated in clause (b) of sub-section 3 of Section 272A and sub-section 4 requires that an opportunity shall be given to the assessee before any penalty order is passed.

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8 ITA No.1627/K/2011 Sanjay Transport Agency AY 2008-09 declarations to the income-tax department within the time limit, it cannot be said that the assessee did not have declarations with him at the time when he paid the interest to the payees. That would be a separate matter and separate proof and evidence is required to show that even when the assessee paid the interest, he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment. No such evidence or proof has been brought by the department. 8. For the aforesaid reasons, we accept the assessee's claim that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax there from under section 197A. If he was not liable to deduct tax, section 40(a)(ia) is not attracted.” 16. From the above decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Vipin Mehta (supra) and the fact in this case is that the assessee has received Form 15- I from the respective payees to whom truck hire charges were paid, the AO has no authority to make any disallowance for non deduction of TDS u/s 40(a)(ia) of the Act. Accordingly this issue of revenue’s appeal is dismissed. 17. In the result, the appeal of revenue is partly allowed. 18. Order is pronounced in the open court on 20.11.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member

Dated :20th November, 2015

Jd. Sr. P.S

Copy of the order forwarded to: APPELLANT – ACIT, Cir-3, Asansol 1. Respondent – M/s. Sanjay Transport Agency, 42, N. S. B. Road, 2 Raniganj, Burdwan, Pin-713847 The CIT(A), Asansol 3. 4. CIT Asansol 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.