Income Tax Appellate Tribunal - Kolkata
M/S Sangita Construction Co., Kolkata vs Ito, Wd-26(1), Kolkata, Kolkata on 30 November, 2018
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri S.S.Godara, Judicial Member and
Dr. A.L. Saini, Accountant Member
ITA No.354/Kol/2016
Assessment Year :2010-11
M/s Sangita V/s. Income Tax Officer,
Construction Co. Pujali W ard-26(1), Ayakar
Budge Budge, Bhawan Dakshin 2,
Kolkata-700138 Gariahat Road (South),
[P A No. AAVFS 7245 L] Kolkata-68
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri A.K. Tibrwal, FCA
यथ क ओर से/By Respondent Shri Sandeep Lakra, Addl. CIT-SR-DR
सन
ु वाई क तार ख/Date of Hearing 22-11-2018
घोषणा क तार ख/Date of Pronouncement 30-11-2018
आदे श /O R D E R
PER S.S.Godara, Judicial Member:-
This assessee's appeal for assessment year 2010-11 challenges correctness of Commissioner of Income Tax (Appeals)-7 Kolkata's order dated 14.12.2015, passed in case No.262cita-7R/Range-26/14-15, in proceedings u/s. 143(3)/144 of the Income Tax Act, 1961; in short 'the Act'.
Heard both the parties. Case file perused.
2. The assessee's first substantive ground seeks to challenge correctness of both the lower authorities' action disallowing / adding its transport charges of ₹28,12,459/- on account of non-deduction of TDS. The CIT(A)'s appeal discussion qua the instant issue reads as under:-
"2.0 Ground No.2 is related to the addition of Rs.28,12,459/-. During the course of assessment proceedings the assessing officer found that the appellant made purchases of Rs.16,60,901/- from Mr. Dinesh Gupta and Rs.11,51,558/- from M/s S. P Enterprise. The enquiries conducted by the A.O revealed that the M/s S.P Enterprise was found to be non-existent. Summons ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 2 were issued to M/S S.P Enterprises and one Sri Surendra Prasad Gupta who received the summons stated that he was merely a small transporter having a single truck and cannot afford to give such huge amount on credit basis. Sri Dinesh Gupta was his son and stated that his son is working in a Call Centre and M/s S.P. Enterprises belonging to one of his relatives who similarly operated a truck. Therefore the AO disbelieved the transaction and held it is bogus and added back the amount of Rs.28,12,459/- to the returned income.
2.1 During the course of appeal the A/R of the appellant submitted as under:
"Further it is seen from assessment order that the Ld. AD issued notice u/s131 of the IT Act in the name of one Mr. Dinesh Gupta and S.P. Enterprise and served the said notice to one Mr. Surendra Pr. Gupta in place of Mr. Dinesh Gupta, Mr. S.P. Supta relied the queries of the Ld. AO. The Ld. AO totally relied upon the false and fabricated statement made by said Surendra Pr. Gupta whose name was not at all mentioned in the list of sundry creditors. The above procedure is totally illegal and bad in law. Further the Ld. AD did not give any opportunity to your petitioner to cross examine the above person against his fabricated statement.
In fact Mr. Dinesh Gupta and Mls S.P. Enterprise were suppliers of raw materials to your petitioner during the year under appeal. They have issued respective bills to your petitioner. Your petitioner also paid the above bill amount in the next financial year as payment to sundry creditors. Some copies of purchase bills from the above two parties, bank statement etc. are enclosed herewith".
2.2 This issue was remanded to the AO and the AO submitted his remand report as under:
With regards to transaction pertaining to M/s S.P. Enterprise and Sri Dinesh Gupta, Sri Surendra Prasad Gupta, appeared before the undersigned and he was examined on oath. In respect of S.P. Enterprise, bills of Rs.11,51,558/- were found raised during the relevant F. Y.2009-10 which remained as outstanding during relevant F. Y. The party received payment of Rs. 10,00,000/- only by cheque out of the outstanding debt during the F. Y. 2011-12 and the same was found reflected in the bank statement of the assessee. Regarding Sri Dinesh Gupta, Sri Surendra Prasad Gupta, submitted that he was his son presently residing at Balia, V.P. and for that very reason he was not able to appear. It was contended by him that during the relevant F. Y. 2009-10, Sri Dinesh Gupta had provided transport to Sangita Construction Co. He also submitted copies of bills of Rs. 16,60,090/- for transport charges. However, no TDS was found to have been made by the assessee on the payment of transport charges to Sri Dinesh Gupta which was contractual in nature. Thus, the claim of this sum as allowable expenditure was even otherwise not allowable within the meanings of section 40(a)(i) of the IT Act, 1961.
To sum up , transaction of only ten sundry creditors could be verified aggregating a total sum of Rs. 34,25,752/- only out of the outstanding ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 3 sundry creditors liabilities amounting to Rs.1,04,31,805/- out of which the allowability of Rs. 16,60,090/- was restricted within the meanings of section 40(a)(i) of the IT Act, 1961.
2.3 The copy of remand. report was given to the appellant and the AIR of the appellant submitted as under:
The Ld. AO has stated that the sundry creditors Mr. Dinesh Gupta did not appear against notice u/s 133(6). On behalf of Mr. Dinesh Gupta his father appeared before the Ld. AO and submitted the copies of bills amounting to Rs.16,60,090/-. He further stated that Mr. Dinesh Gupta could not appear before the Ld. AO because he was at Baiio, UP at that time. But he produced all the copies of originals bills amounting to Rs.16,60,090/- and Ld. AO stated that section 40(a)(ia) of the I. T. Act should be invoked on the above amount due to non deduction of tax.
But your petitioner's submission is that as per direction of your honour the Ld. AO is required to verify the sundry creditors only. Mr. Dinesh Gupta is one of the sundry creditors. The Ld. AO did go through the verification matter and was satisfied. But he further classified the expenditure as transportation charges and wanted to invoke section 40(a)(ia) for non deduction of tax which was not directed by your honour.
2.4 I have gone through the submission made by the appellant, assessment order and the remand report. During the remand report M/s S.P. Enterprises represented by Surendra Prasad Gupta. Shri Gupta appeared and accepted the transaction of Rs.11,51,558/-. However, on verification of bills submitted before the CIT(A), the transaction was related to the transport contract which attracts TDS u/s 194C and the appellant has not deducted TDS. In the case of Sri Dinesh Gupta, Mr. Surendra Pr. Gupta, father of Sri Dinesh Gupta, appeared and confirmed the transaction. The transaction was transport contract and the appellant has not made TDS on the payments made to Sri Dinesh Gupta. Therefore, in both the cases section 40(a)(ia) is attracted for the appellant's failure to deduct tax at source. Accordingly the addition of Rs.28,12,459/- u/s.40(a)(ia) made by the AO is confirmed. This ground of appeal is dismissed."
3. We have given our thoughtful consideration to rival contention. It is evident from the above extracted finding that CIT(A) has upheld the impugned disallowance of transportation charges on account of non-deduction of TDS.
Hon'ble jurisdictional high court's decision in CIT vs. M/s Stumm India in ITA No.127 of 2009 dated 16.08.2010 holds that unless the department brings on record any evidence there existed on oral or written contract between the payer & payees passing on the necessary contractual liability to the latter sec. 40(a)(ia) disallowance is not sustainable. There can hardly be any dispute that ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 4 no such facts are forthcoming from the lower authorities' findings under challenge. We draw support from hon'ble jurisdictional high court's decision hereinabove therefore to delete the impugned disallowance of ₹28,12,459/- in these facts and circumstances therefore. The assessee succeeds in its former substantive ground.
4. Next comes the assessee's latter grievance seeking to reverse the CIT(A)'s findings in enterity partly upholding Assessing Officer's action disallowing its purchase / expenses of ₹76,19,346/- in assessment order to the extent of ₹70,05,242/- as follows:-
"Ground No.1 is related to the addition of Rs.76,19,346/- on account of bogus purchases. The assessing officer dealt with the issue in the assessment order as under:
During the year the assessee firm has shown gross receipts of Rs.3,60,65,846/- which it had received mainly from Bridge & Roof Co. (1) Ltd. Hardly 10% of these receipts were utilized for making cheque payments and the rest of the sum was withdrawn from the bank in cash and claimed to have been spent in cash. The assessee firm has not done any TDS on its labour charges payments claim of Rs.1,82,83,693/- and neither did it produce any bills from the said labour parties. The assessee firm had claimed sundry creditors of Rs.1,93,77,185/- in the current year as compared to Rs.1,53,58,596/- in the last year. On being asked to produce the details of the said sundry creditors the assessee firm could produce a list of sundry creditors only to the extent of Rs.1,17,57,839/-. Sundry creditors with no names & addresses are treated as bogus purchase/expenses i.e (Rs.1,93,77,185 Rs.1,17,57,839) = Rs. 6,19,346/-
1.1 During the appeal the appellant's AIR made written submission and submitted some supporting papers containing copy of bills & vouchers, list of sundry creditor and bank statement. In his submissions the A.R of the appellant stated as under:
"Your petitioner is a civil contractor and in the F. Y. 2009-10, the firm has received a sum of Rs.3,60,65,846/- from M/s Bridge & Roof Co. (I) Ltd. Your petitioner produced bills, vouchers and other relevant documents as called for by the Ld. AO time to time. The books of accounts had been duly audited. In the audit report, Form 3CD, SI.No.9(b), the Chartered Accountant had clearly mentioned that your petitioner had maintained books of accounts i.e. Cash Book, General Ledger etc. The firm has been discontinued and the cash book was somehow miss located. As per requisition of the Ld. AO your petitioner furnished a list of sundry creditors along with name and address. But unfortunately, your petitioner submitted the said list of sundry creditors for the current financial year without considering the opening balance of the parties as on 01.04.2009 which was Rs.1,53,58,696/-. Moreover the list of sundry creditors, submitted before the Ld AO was all above ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 5 Rs. 20, 000/-. The complete list of sundry creditors along with name and address is attached herewith for your kind perusal. On perusal of the enclosed list of sundry creditors, your honour will find that there are no discrepancies in the balance of sundry' creditors. Further it is to inform your honour that the total balance of creditors consists of both materials and labour charges.
Being aggrieved with the assessment order, your petitioner preferred this appeal before your honour. First of all the Ld. Assessing Officer passed the assessment order u/s 144 of the I. T. Act 1961 without rejecting the books of accounts u/s 145 of the I. T. Act, 1961. Therefore it is clear that he had accepted the figure of purchases, labour charges and other expenses as per books of accounts. He added back a sum of Rs.76,19,346/- on account of Bogus Purchases/Expenses under the head sundry creditors on surmise basis. That your petitioner make purchases from the respective parties as per list and make payments by Bank cheques/RTGS. The payment was made partly during the year and partly in the next year. For the end of justice, the entire amount of Rs.76,19,346/- should be deleted".
1.2 Since the appellant filed fresh evidence, the same has been admitted under Rule 46A(3) and sent to the AO for submission of remand report. The AO submitted remand report on 28/01/2015 vide his letter No.ITO/Wd- 26(l)/Kol/Remand Report/2015-16/395 as under:
In the course of remand proceeding, the appellant has appeared before the undersigned and requested to issue notices u/s 133(6) to sundry creditors because without fresh notice they might refuse to appear. Accordingly, notice u/s 133(6) was issued to twelve (12) sundry creditors only, out of twenty seven (27) sundry creditors because the appellant was unable to furnish complete postal address of those sundry creditors. In response of notice u/s 133(6) only eight (8) sundry creditors has made their compliance. Details of compliance are given below:
Sl. Name of the party Nature of Amount of payment Closing No job during the FY. Balance (Rs) 2009-10 (Rs) 1 Sandhukhan lectric Sale 3865/- 19,000/-
2 Uma Trading Sale 41714/- 71,000/-
3 Premier Road Service Ltd Sale 75000/- 20,000/- 4 New Modern Enterprise Sale 1287/- 21,000/-
5 Laddu Lal Bera Labour 600500/- 77690/-
Supplier 6 Bikas Chandra Saha Labour 600152/- 60000/-
Supplier 7 Jhuma Enterprise Labour 605839/- 191969/-
supplier 8 Shivam Constructions Mach. 87259/- 153445/-
Hire charages Total outstanding of Rs.6,14,104/-
ITA No.354/Kol/2016 A.Y. 2010-11M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 6 The above payment were made mostly by cash and partly in cheques. The cheque payment were verified with the bank statement of the assessee and found in order. Labour charges payments were found made in cash which was reflected in the daily labour register. The above mentioned sundry creditors liabilities tallied with details pertaining to the in the sundry creditors list furnished by the appellant in course of appeal proceeding.
In respect of others 19(nineteen) sundry creditors, verification could not be made as the appellant had failed to furnish their full postal address and also failed to produce them for verification. It clearly shows that the assessee has nothing to substantiate the transaction resulting in outstanding liabilities in these cases. Thus, the assessee firm may not be allowed to obfuscate the appellate proceedings any more.
1.3 Copy of the remand report was given to the A. R of the appellant. The A. R of the appellant in his rejoinder stated asunder:
On perusal of the remand report it is seen that the Ld. Assessing Officer issued notices u/s 133(6) to 12 (Twelve) Sundry Creditors out of 35 (Thirty Five) and alleged that your petitioner was unable to furnish complete postal address of those Sundry Creditors. The above allegation is not at all correct as your petitioner furnished the full name, address and amount of respective sundry creditors at the time of original assessment and thereafter also.
Remaining Sundry Creditors were not produced before the Ld. A.O. at the time of remand hearing because they left elsewhere. The addition should not be made on the ground that the parties are not traceable. But the payment was made either by cheque or cash in the succeeding years. Here the Ld. A.O could not bring on record any evidence. Even he did not found any evidence that the payment which were made came back to your petitioner. Further it is to inform your honour that in this case sales and purchase shown by your petitioner has duly been accepted by the Ld. A.O. and the books of accounts were not rejected u/s 145. Here my submission is that the payment has been made to these parties in the subsequent year due to non receipt of payment from parties. Once the sales has been accepted by the Ld. A.O. therefore the entire purchase cannot be considered as not genuine because there cannot be any sale without purchase.
In support of the above contention your petitioner is relying up the decision of the I. T.A. T Kolkata Bench in the case I. T.O vs. Shri Ramashis Shaw vide case NO.:6721K0U2012 dated 07/05/2015 held that the assessee cannot make the sales until and unless the purchase has been made by the assessee. The A. O has not rejected the books of accounts but made the additions towards the bogus purchase. The payment has been made to these parties in the subsequent year which has not been disputed by the revenue. It is not a case where the accounts has been rejected or the profit has been estimated. We accordingly confirm the order of the C.I. T (A) deleting the addition.
ITA No.354/Kol/2016 A.Y. 2010-11M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 7 Your petitioner is also relying upon the judgment of the Kamataka High Court C.I. T vs. Sridev Enterprise, 1921TR Pg 165 held that in case of trading tile rejection of purchases would impact the sales and this fact has been ignored by the A.O. Allahabad High Court in the case of C.I. T vs. Pancham Das Jain 205 CTR 444, held that once goods were accepted to have been purchased and profits there from considered by the assessing officer then the creditors could not be considered as bogus. Jharkhand High Court in the case of Amitabh Construction Pvt. Ltd. vs. A.C.I. T 335 ITR pg 523, held that once books of accounts were not found reliable, only course available was to proceed u/s 145(3) of the I. T Act and no addition could be made for sundry creditors.
1.4 I have gone through the submissions made by the A/R of the appellant, the assessment order and the remand report. The A.O made the addition of Rs.76,19,346/- under the head Sundry creditors since the appellant has not even furnished the addresses at the time of assessment. The A.O held that the expenses incurred in the names of sundry creditors as bogus purchases. The appellant also did not produce the books of accounts in spite of number of opportunities given to him. Finally the appellant has accepted that he was not in a position to produce the books of accounts.
During the appeal the appellant was given an opportunity to prove the genuineness of purchases by remanding the case to the A.O. During the remand proceedings the appellant has furnished the 12 (twelve) addresses and the A.O issued notices u/s 133(6) and 8 (eight) creditors involving the total credit of Rs.6,14,104/- have confirmed the credit. The appellant argued that the appellant could not produce the parties because they left the place. Further he submitted that the addition should not be made on the ground that the parties were not traceable. Further he argued that the A.O has accepted the purchases and sales books of accounts not rejected u/s 145 and the payments have been made to these parties in the subsequent year due to non receipt of payment from the debtors. Further he argued that once the sales has been accepted by the Ld. A.O the purchase cannot be considered as bogus because there cannot be any sale without purchase. The appellant also relied on the decision of Hon'ble ITAT Kolkata cited (supra) The appellant claimed to have made purchases from the parties mentioned in the assessment order during the Previous Year relevant to the A.Y. This fact has not been disputed by the appellant. Once he claimed to have made the purchases, it is the duty of the appellant to prove the genuineness of purchases. Inspite of giving repeated opportunities, the appellant did not prove the expenditure as genuine. Merely on the basis of the bill the purchase cannot be proved as genuine. It is only a primary evidence to claim the expenditure. As per the information filed before me, the appellant has billed an amount of Rs.2,76,60,095j- during the year and an amount of Rs.1,93,77,185/- was outstanding at the end of the year. It appears to me that no TDS has been made on the entire payment. The addresses furnished by the appellant were totally incomplete and not capable of verification. The ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 8 appellant's argument that there cannot be any sales without purchases and when the sales were accepted the purchases also must be accepted, is not tenable. The appellant required to explain the genuineness of purchase as well as the source of the payment. Though the purchase bills were produced and the books of accounts were maintained the appellant did not establish the identity of the supplier by furnishing the clear address. As per the information the appellant was having the transactions with these creditors in earlier years also and it shows that the purchases were made from them regularly. If this fact is correct there should not be any problem to furnish the address and to produce the creditors before the assessing officer. Though the appellant stated that the payment was made in the subsequent year the genuineness of the outstanding is doubtful. The appellant has to prove the outstanding creditors were genuine, otherwise the automatic presumption is that the payments were made outside the books of accounts and claiming the bogus outstanding. The appellant was given two years time for completion of assessment and the appellant failed to produce the evidence and during the assessment, the case was remanded to the assessing officer and the appellant failed to produce the creditors. At the time of appeal also the appellant failed to produce any evidence regarding the identity of the supplier, their professional tax assessment, their income tax assessment details and commercial tax assessments and the books of accounts to prove the genuineness of purchases. The case laws relied upon by the appellant cannot come to his help because in the appellant's case the A.O did not made addition of purchases and the A.O made the addition representing the unproved outstanding of the sundry creditors. In the balance sheet the appellant required to prove the genuineness of the outstanding liabilities by producing the necessary evidences. The appellant failed to produce any evidence to support the genuineness of outstanding sundry creditors not even in a position to furnish the complete postal address. Under the circumstances the A.O. has no option except to conclude that the creditors were bogus. Therefore, I have no hesitation to hold that the sundry creditors to the extent of Rs.70,05,242/- (76,19,346 - 6,14,104) were bogus. During the remand proceedings the A.O made verification and accepted the outstanding creditors to the extent of Rs.6,14,104/- out of the total outstanding sundry creditors of Rs.76,19,346/-. Accordingly I confirm the addition of Rs.70,05,242j- and the balance amount of Rs.6,14,104/- is deleted. This ground of appeal is partly allowed."
5. We have heard rival contentions. Case file including assessment and lower appellate findings stand perused. The issue between the parties herein is qua genuineness of assessee's expenses / purchases having remained unsubstantiated right from assessment to remand and the lower appellate proceedings. We make it clear first of all that there is no dispute about assessee being a civil contractor deriving its case contractual receipts of ₹3,60,65,846/- mainly from M/s Bridge & Roof Co.(I) Ltd. It claimed the ITA No.354/Kol/2016 A.Y. 2010-11 M/s Sangita Construction Co. Vs. ITO Wd-26(1) Kol. Page 9 impugned expenditure as expenditure deduction against the same. Suffice to say, its case could not be proved by placing on record of all oral and supportive documentary evidence. The question that arise for our apt adjudication is as to whether the entire expenses on only profit element deserves to be disallowed in these facts and circumstances. Hon'ble jurisdictional high court's latest decision in (2018) 96 taxmann.com 286 (Cal) PCIT vs. Subarna Rice Mill holds that it's only the profit element which needs to be disallowed / credit in such facts. We therefore direct the Assessing Officer to disallow only the profit percentage of the assessee's impugned expenditure claim than the gross sum in issue. Necessary computation to follow as per law.
6. This assessee's appeal is allowed in above terms.
Order pronounced in the open court 30/11/2018
Sd/- Sd/-
(लेखा सद%य) ( या'यक सद%य)
(Dr. A.L. Saini) (S.S.Godara)
(Accountant Member) (Judicial Member)
Kolkata,
*Dkp, Sr.P.S
(दनांकः- 30/11/2018 कोलकाता ।
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-M/s Sangita Construction Co. Pujali Budge Budge, Kolkata-138
2. यथ /Respondent-ITO, Ward-26(1), Aayakar Bhawan Dakshins 2, Garihat Road (South) Kolkat-68
3. संब3ं धत आयकर आय4 ु त / Concerned CIT Kolkata
4. आयकर आय4 ु त- अपील / CIT (A) Kolkata
5. 7वभागीय 'त'न3ध, आयकर अपील य अ3धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड< फाइल / Guard file.
By order/आदे श से, /True Copy/ उप/सहायक पंजीकार आयकर अपील य अ3धकरण, कोलकाता ।