D.C.I.T CIR - 6,KOLKATA., KOLKATA vs. M/S SANGAM SHREE COLLECTIONS (P) LTD., KOLKATA

This appeal of the revenue arises out of the order of the Learned CITA in Appeal No.178/CIT(A)-VI/Circle-6/2011-12 dated 22/11/2012 for the Asst Year 2009-10 passed 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’).

3.1. The brief facts of this issue is that the assessee is engaged in the business of trading and processing of sarees. During the course of assessment proceedings,

1 M/s. Sangam Shree Collections P.Ltd notices u/s 133(6) of the Act were issued by the Learned AO for verification of the following sundry creditors which could not be served on them due to following comments based on postal remarks:-

M/s Sunrise Enterprises - Address cannot be located - 22,00,000 M/s Rama Enterprises - Party left - 26,08,335 M/s Priya Selection - Not known - 15,28,185 M/s Creative Fashion - Not known - 31,41,380 M/s Vandana Enterprise - - Not known - 32,05,930 M/s Sohini Fashion - Not known - 29,03,990 M/s Merlin Saree Centre - Not known - 20,57,490 M/s Suruchi Saree Emporium - Not known - 14,79,375 ------------------- 1,91,24,685 ------------------ The assessee had submitted confirmations from the aforesaid parties during the course of assessment proceedings. According to Learned AO, the assessee was not able to produce the following documents and details :- a) Return of income /acknowledgement receipt b) Audited accounts were not submitted by any of the suppliers / creditors to substantiate the creditworthiness/ capacity to undertake such transactions c) The assessee could not substantiate on what basis the above parties were chosen to supply materials to the assessee d) The assessee could not produce proper evidence of transport of materials e) The assessee could not produce insurance documents etc of the aforesaid parties along with ledger.

The Learned AO thought that hence in the absence of above documentary proof, the genuineness of the transaction is not proved and brought to tax the entire outstanding sundry creditors of Rs. 1,91,24,685/- treating the same as bogus creditors. On first appeal, the Learned CITA deleted the addition made towards bogus creditors by relying on the contentions of the assessee and the various evidences filed by the assessee proving the fact that these creditors were duly settled in the subsequent

2 M/s. Sangam Shree Collections P.Ltd assessment years. Aggrieved, the revenue is in appeal before us on the following grounds:- “

1. Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the addition made of Rs.1,91,24,685/- as bogus creditors.

2. Whether on the facts and circumstances of the case, ld.CIT(A) erred in law in deleting the addition made on account of bogus creditors by violating Rules 46A of IT Rules.

3. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.

3.2. The Learned DR vehemently supported the order of the Learned AO. He further argued that there was violation of Rule 46A by the Learned CITA by accepting to additional evidences filed by the assessee before the Learned CITA without giving sufficient opportunity to the Learned AO for his verification. In response to this, the Learned AR argued that there was no violation of Rule 46A as admittedly, all the evidences filed before the Learned CITA by the assessee were sought to be subjected to verification by the Learned AO in the remand proceedings. But the Learned AO sought not to give any remand report despite sufficient opportunities and time given to him for the rebuttal of the evidences filed before him. Accordingly the Learned CITA proceeded to dispose off the appeal based on the evidences filed before him. Hence the same cannot be construed as a violation of Rule 46A. In support of his contentions, he relied on the decision of ITO vs M/s Bhavya Lakhani Traders & Suppliers P Ltd in / Del / 2010 dated 16.10.2012.

3.3. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee numbering from pages 1 to 83. We find that the entire sundry creditors that were the subject matter of addition by the Learned AO have been duly discharged by account payee cheques to the concerned parties in the subsequent assessment years for which necessary evidences in the form of ledger account of creditors and the bank staements of the assessee are filed in the 3 M/s. Sangam Shree Collections P.Ltd paper book. We find that the factual and categorical findings recorded by the Learned CITA in his order with regard to each of the sundry creditors have not been refuted by the revenue before us. We also find that the issue of the concerned sundry creditors could not be found or they had changed their location have been duly addressed by the Learned CITA in para 7 page 8 of his order. Moreover, it is pertinent to note the Learned AO has proceeded the entire transaction treating it as loan creditors whereas the subject mentioned parties are trade creditors. If there is any grievance on the same, the Learned AO could only disallow the purchases made from such bogus creditors. The assessee had filed confirmations from all the concerned sundry creditors before the lower authorities. There is no scope for adding the trade creditors as income without correspondingly disturbing the purchases / trade expenses, quantity of purchases and genuineness of the payments made by account payee cheques to those concerned sundry creditors. We hold that when the trading results and net profit declared by the assessee has not been disputed by the Learned AO, there cannot be any addition towards bogus creditors more so in the facts and circumstances of this case. We also find that this issue is covered by the order of this tribunal in dated 18.9.2015 in the case of ACIT vs Ashirbad Real Estate & Transport Pvt Ltd wherein it was held that :-

“5.3. We have heard the rival submissions and perused the materials available on record. We find that the Learned DR did not refute the findings given by the Learned CITA with regard to the fact that the assessee had fully discharged its onus by giving the name and address of the Sundry Trade Creditor M/s Bijay Hardware Stores before the Learned AO. We find that the provisions of section 68 of the Act could not be invoked for the trade creditors. We hold that the assessee had duly discharged its onus by placing all the details of the sundry creditor before the Learned AO and just because no reply has been furnished by the said creditor to the Learned AO u/s 133(6) of the Act , that cannot automatically lead to a situation that the said creditor is not having any creditworthiness. We also find that the Learned AO had not disputed the genuinity of the purchases, sales and trading results of the assessee. We find that the case law relied on by the Learned CITA on the decision of 4 M/s. Sangam Shree Collections P.Ltd

Hon’ble Allahabad High Court in the case of CIT vs Pancham Dass Jain reported in 205 CTR 444 is well placed. In that case, their Lordships had held as under:-

“The tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by respondent asessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and , therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, in as much as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the aforesaid two amounts u/s 68 of the Act did not arise in as much as the provisions of section 68 of the Act would not be attracted on the purchases made on credit.

In view of the aforesaid facts and circumstances and respectfully following the judicial precedents as stated supra, we are not inclined to interfere with the findings of the Learned CITA on this ground. Accordingly, the Ground No. 2 raised by the revenue is dismissed “.

Accordingly, we find no infirmity in the order of the Learned CITA in this regard. Hence the ground no.1 raised by the revenue is dismissed.

3.4. With regard to the second ground of the revenue for violation of Rule 46A issue, we find that the case relied upon by the Learned AR on the decision of ITO vs M/s Bhavya Lakhani Traders & Suppliers P Ltd in / Del / 2010 dated 16.10.2012 is very well placed, wherein it was held that :-

“We have heard the rival contentions and perused the records. We find that there is no cogency in the ground raised by the revenue that Ld. Commissioner of Income Tax (A) has not duly afforded adequate opportunity to the Assessing Officer to consider the submissions and evidences filed before him at the appellate stage. The Ld. Commissioner of Income Tax (A) has duly sent the documents furnished by the assessee at the appellate stage to the Assessing Officer for a remand report. Under 5 M/s. Sangam Shree Collections P.Ltd the circumstances, there cannot be any issue that Assessing Officer was not provided adequate opportunity in this regard “.

The facts and circumstances of the case law relied upon by the Learned AR is exactly similar to the facts of the instant case. Hence we hold that there is no violation of Rule 46A by the Learned CITA in this regard. Accordingly, the ground no.2 raised by the revenue is dismissed.

THIS ORDER IS PRONOUNCED IN OPEN COURT ON 15 / 10/2015