Income Tax Appellate Tribunal - Ahmedabad
Karim K. Lakhani, Surat vs Department Of Income Tax on 28 November, 2013
1 ITA No 220/AHD/2010
. A.Y. 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD
(BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. No. 220 /AHD/2010
(Assessment Year: 2006-07)
Income Tax Officer Ward 3 V/S Shri karim K.Lakhani, 51,
(3), Surat Karimabad Society, Ghod-
dod Road, Surat.
(Appellant) (Respondent)
PAN: AAGPL7544Q
Appellant by : Shri K.C. Mathews Sr. D.R.
Respondent by : Shri M. R. Shah A.R.
आदे श)/ORDER
(आदे Date of hearing : 28-11-2013 Date of Pronouncement : 13 -12-2013 PER SHRI ANIL CHATURVEDI,A.M.
1. This appeal is filed by the Revenue against the order of CIT(A)-II, Surat dated 29.10.2009 for A.Y. 2006-07.
2. The relevant facts as culled out from the material on record are as under:-
3. Assessee is an individual engaged in the business of trading and resale of M.S. scrap under the name and style of "Laxmi Steel". Assessee filed his return of income for A.Y. 06-07 on 31.12.2006 declaring total income of Rs. 5,52,827/-. The case was selected for scrutiny and thereafter the 2 ITA No 220/AHD/2010 . A.Y. 2006-07 assessment was framed u/s 143(3) vide order dated 26.12.2008 and the total income was determined at Rs. 1,22,08,930/-. Aggrieved by the order of A.O. Assessee carried the matter before CIT(A). CIT(A) vide order dated 29.10.2009, partially allowed the appeal of the Assessee. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us and has raised the following grounds:-
1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O. of Rs. 14,484 out of various expenses.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O. of Rs. 14,400/- on account of commission expenses.
3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O. of Rs. 2,59,940/- to Rs. 1,03,977 out of Kharajat expenses.
4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O of Rs. 60,000/- on account of unexplained cash credit.
5. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O of Rs.10 lakh u/s. 68 of the Act.
6. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O of Rs 16,50,000/- u/s. 69A of the Act.
7. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O of Rs 83,19,857/- on account of unexplained outstanding credits.
8. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the A.O of Rs 4,02,177 on account of interest chargeable on the interest free advance made by the Assessee out of interest bearing funds.
4. Ground no. 1 2 and 3 were disposed off together by CIT(A) and therefore considered together by us.
5. During the course of assessment proceedings, A.O. noticed that Assessee has debited various expenses to the Profit and Loss account but which were not fully supported with relevant bills or vouchers. He was also of the view that under the head of the "vehicle expenses" and "telephone expenses" the element of personal use cannot be ruled out. He was of the view that 20% of the expenses to be excessive and spent for non business purposes. He after discussing the disallowance with the representative of
3 ITA No 220/AHD/2010 . A.Y. 2006-07 the Assessee, who agreed for the addition, made an addition of Rs. 74,732/-.
6. A.O. also noticed that Assessee had debited Rs. 72,000/- as commission expenses and the same were made in cash. The Assessee was asked to justify the same. In the absence of any justification and any objection for addition, A.O. considering the expenses paid for suppression of profits and disallowed 20% of commission expenses amounting to Rs. 14,400/-
7. A.O. also noticed that Assessee has claimed Rs. 10,39,760/- as Kharajat expenses. He also noticed that most of the expenses was incurred in cash and further Assessee had not produced any verifiable document except for the copy of the ledger account as per his books of accounts. Assessee was also asked to justify the expenses. In the absence of any satisfactory explanation, A.O. disallowed 20% of expenses amounting to Rs. 2,59,940/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) granted partial relief by holding as under:-
6 I have carefully considered the action taken by the AO as also the written submission of the AR. The miscellaneous expenses of Rs 72,422 worked out to approx Rs 6,000 per month. I am of the considered view that such expenses are always very petty in nature and comprise of small items incurred in the day-to-day running of any business. The persons to whom such payments are made do not usually have any bank account which means most of such expenses have to be incurred in cash. Nor do they provide any bill or voucher or even a cash receipt which means that the businessperson has to prepare his own vouchers after consolidation of such expenses on weekly or monthly basis. Therefore, no disallowance can be made or should be made out of such expenses simply on the ground of non-verifiability. In any case, there cannot be any personal element in such expenses. The AO on his part has not been able to show or prove any item of expenditure included under the said head which was either not genuine or not incurred wholly and exclusively for the purpose of business. Therefore, the disallowance made out of miscellaneous expenses, amounting to Rs.14,484 will stand deleted. 6.2 Coming to the commission expenses of Rs 72,000, I find that the AO made the disallowance in a very summary manner and simply on the ground that such payments were made in cash. He failed to verify the expenses and simply assumed that it had been claimed to reduce the profit. The fact as intimated by the AR was that, the commission was paid @ Rs 6,000 per month to the Assessee's father for supervising and monitoring the business, utilising his years of experience of the scrap business.
The genuineness of the payments was not disputed. Nor was it established that such expenses had not been incurred wholly and exclusively for the purpose of business, Therefore, there was no reason to make any disallowance. The addition of Rs 14,400 will stand deleted.
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. A.Y. 2006-07
As regards kharajat expenses of Rs 10,39,760, it has been contended that such expenses were incurred on the drivers of the trucks which carried the scrap from the premises of big corporates located at Hazira and that no individual payment exceeded Rs 2,000. It cannot be denied that the drivers being illiterate cannot put their signature, nor do they accept payment in any manner other than in cash as they do not own or operate any bank account. This meant that the Assessee would necessarily have had to make such payments in cash, the record of which was kept in the form of vouchers prepared by the Assessee himself. This was a part and parcel of the Assessee's business of dealing in scrap. But the fact remains that in such a scenario, there is always a scope of manipulating the expenses since, on the face of it such expenses are not verifiable. The record of the movements of trucks could not be fully cross-verified even though the Assessee produced some gate passes of the companies from whose premises scrap was lifted. This meant that it was only the record maintained by the Assessee which would have to be relied upon and since, such records are not fully verifiable there was merit in the disallowance made by the AO especially when the total of such expenses was quite substantial. It is interesting to note that the Assessing Officer proposed to disallow 20% of the Kharajat expenses but has ended up disallowing 25% of the said expenses (Rs 2,59,940 + 25% of Rs 10,39,760). However, I am of the view that the disallowance was on the higher side and it would meet the ends of justice and fair play if the disallowance is reduced to 10%. This would mean that the disallowance would be restricted to Rs 1,03,977/- while the Assessee would get a relief of Rs 1,55,963/-.
8. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us.
9. Before us, the ld. D.R. pointed to the assessment order wherein A.O. has noted that the addition of Rs. 74,732/- on account of vehicle and telephone expenses, disallowance of Rs. 14,400/- on account of commission expenses was agreed by the Assessee before A.O. and the Assessee had not raised any objection. With respect to the disallowance of Kharajat expenses, he submitted that most of the expenses have been incurred in cash and the Assessee had not produced any verifiable document in support of the expenditure. He also pointed out to page 30 to 38 of the paper book of the Assessee and from the aforesaid ledger account, he pointed that more than 90% of the expenses incurred by the Assessee are in cash. He further submitted that before A.O. Assessee had submitted self generated vouchers and not any other third party evidence. He therefore submitted that in view of the aforesaid facts the A.O. was 5 ITA No 220/AHD/2010 . A.Y. 2006-07 justified in making the additions and therefore the addition made by the A.O. be upheld. The ld. A.R. on the other hand relied on the order of CIT(A).
10. We have heard the rival submissions and perused the material on record.
From the assessment order it is seen that with respect to disallowance of Rs. 74,732/- on account of telephone and vehicle expenses, A.O. has noted that the representative of the Assessee had agreed for the addition. Similarly, for the disallowance of Rs. 14,400/- out of the total commission expenses, the A.R. of the Assessee had not raised any objection before A.O. In view of the aforesaid facts and more so when the Assessee had agreed for the additions before A.O., we are of the view that the A.O. was justified in making the addition. Further before us, the ld. A.R. could not controvert the findings of A.O, nor has he brought any contrary material on record in its support. With respect to Kharajat Expenses, from the material on record, we find that substantial expenses incurred by the Assessee were in cash and A.O has also noted in his order that no third party evidence was submitted in support of the expenses. CIT(A) while deleting the addition has noted that since the payments are in cash, there was always a scope for manipulating the expenses. He therefore considered the disallowance made by A.O @ 25% to be on a higher side and therefore restricted the disallowance to 10%. We are of the view that considering the fact that 90% of expenses incurred by Assessee to be in cash, non production of third party evidence before A.O. and nature of expenses, ends of justice shall be met if disallowance is restricted to 15% as against 25% made by A.O In the result these grounds of Revenue are partly allowed.
6 ITA No 220/AHD/2010
. A.Y. 2006-07
4th ground is with respect to on account of unexplained cash credit of Rs. 60,000/-.
11. During the course of assessment proceedings, A.O. noticed that in the balance sheet, Assessee had shown unsecured loan of Rs. 2,50,000/- in the name of Lakhani Enterprises but on verifying the copy of the ledger account as appearing in the books of Lakhani Enterprise, he noticed that the balance was shown at Rs. 3,10,000/- thus resulting into difference of Rs. 60,000/-The Assessee was asked as to why the difference of 60,000/- not be added to the total income. In the absence of any objection by the Assessee, Rs. 60,000/- was added as unexplained cash credit under section 68 of the Act. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under:-
9. I has been explained by the AR that M/s Lakhani Enterprises had given a demand draft drawn on Bank of Baroda of a sum of Rs. 60,000/- on 10.03.2006 and had accounted for the same in the books in the A.Y. 2006-07. The Assessee had however shown the entry in the A.Y. 2007-08 on the ground that the same was received in the subsequent year. The complete address and a confirmation letter of M/s Lakhani Enterprises showing its PAN was furnished before the A.O who had failed to appreciate the transactions and the reconciliations provided. According to the AR, the Assessee had not accepted the addition and it was a falsity that no objection was raised in course of the assessment proceeding against the proposed addition.
10, I have carefully considered the position, I have also gone through the copy of the ledger account of the Assessee in the books of M/s Lakhani Enterprises which clearly supports the explanation furnished by the A.R. M/s Lakhani Enterprises had made the entry in their book on 10.03.2006 which took the closing balance to Rs. 3,10,000/-. Since, the draft was received by the Assessee in the subsequent year, it had resulted in M/s Lakhani Enterprises showing the loan in excess of what had been accounted for by the Assessee. The transactions were very clear. Consequently, the addition of Rs. 60,000 will stand deleted.
12. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us.
13. Before us, the ld. D.R. pointed to the explanation of the Assessee before CIT(A) wherein it was stated that a sum of Rs. 60,000/- was given as a 7 ITA No 220/AHD/2010 . A.Y. 2006-07 bank draft on 10.03.2006 but the same was accounted by the Assessee in A.Y. 07-08 and was therefore reflected in A.Y. 07-08. He further submitted that Assessee has not placed on record any material in support of his contention to demonstrate that a demand draft of 10th March, 2006 was deposited in August 2006 after holding it for almost 5 months and for which no evidence has been placed on record nor any reason for holding the draft for such a long duration. He thus submitted that the A.O. was fully justified in making the addition. The ld. A.R. on the other hand reiterated the submissions made before CIT(A) and supported the order of CIT(A).
14. We have heard the rival submissions and perused the material on record.
We find that before CIT(A), Assessee had submitted that Lakhani Enterprises had given a draft for 60,000/- on 10.03.2006 but the Assessee had accounted the same in A.Y. 07-08 as it was received in subsequent year. From the copy of the ledger account of Assessee as appearing in the books of Lakhani Enterprise placed on page 41 of the paper book, it is seen that Assessee's account has been debited on 10.03.2006 on account of "D.D. Chaltan Sugar Factory." From the copy of ledger account "Lakhani Enterprise" as per the books of Assessee and placed at page 40 of the paper book, it is seen that the entry for Rs. 60,000/- has been passed on 31.08.2006. The reason for delay in accounting as explained to CIT(A) and placed on page 3 of the paper book was that the D/D. was cleared in bank account in subsequent year. We find that Assessee has not placed any material on record in support of his contention that the draft dated 10.03.2006 was cleared in subsequent assessment year and how if at all clearance was delayed at the bank's end, it would effect the 8 ITA No 220/AHD/2010 . A.Y. 2006-07 account of the parties inter se. In view of the aforesaid facts, we are of the view that the A.O. was fully justified in making the addition in the absence of proper explanation. Thus this ground of Revenue is allowed.
Ground no. 5 is with respect to addition of Rs. 10 lacs u/s 68 Ground no. 6 with respect to addition of Rs. 16.50 lacs u/s 69A are considered together since they are interconnected.
15. A.O. noticed that Assessee had shown in his Balance Sheet, receipt of Rs 10 lacs as unsecured loan from "Markandeshwar Scrap Traders". Assessee furnished the copy of the ledger account showing the transactions but according to the A.O, the copy was without address, IT particulars of the lender. To ascertain the genuineness of the loan, AO issued notice u/s 133(6) of the Act but there was no response from the lender to the notice. Thereafter the Assessee was requested to prove the genuineness, credit worthiness and capacity of the lender to which the Assessee submitted that AO should issue notice u/s 131 of the Act for verification of the transaction. AO did not accept the contention of the Assessee as he was of the view that onus rests on the Assessee to prove the identity of the lender and also the genuineness of the transaction. He was further of the view that mere furnishing of address and PAN number does not prove the genuineness of the transaction. He thus concluded that assessee has failed to satisfy the conditions required u/s 68 and therefore treated the amount of loan of Rs 10 lacs as unexplained cash credit u/s
68.
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. A.Y. 2006-07
16. From the copy of the ledger account of Assessee (by the name and style of "Laxmi Steel") as appearing in the books of "Markandeshwar Scrap Traders, AO noticed that Markandeshwar Scrap traders had debited an amount of Rs 16.50 lacs on 10.6.2005 and credited the same amount on 22.8.2005 thereby nullifying the effect of the transaction. Assessee was asked to explain the transaction to which the Assessee submitted that it had done no such transaction of Rs 16.50 lacs with Markandeshwar Scrap traders and had no knowledge of the aforesaid entries. AO thereafter issued notice to Markandeshwar Scrap Traders u/s 133(6) of the Act whereby he was asked to furnish the information required by the AO. Markandeshwar Scrap traders did not furnish the copy of the IT particulars, copy of bank account and Balance sheet but however vide letter stated that it had sent a Demand Draft (DD) to GNFC for purchase of goods in the name of "Laxmi Steel" but the amount was returned by GNFC to it and therefore the amount was credited to the account of Assessee and further Shri Karim Lakhani had nothing to do with the said amount. The explanation furnished by Markandeshwar Scrap traders was not found convincing by the AO. He was of the view that the money belonging to Assessee which was lying with Markandeshwar Scrap traders and which was not recorded in the books of the Assessee was undisclosed income of the Assessee which was utilized by Markandeshwar Scrap traders. He was further of the view that since the accountability of the transaction was denied by the Assessee, the content of statement furnished by both the parties were not acceptable and therefore the genuineness of the transaction was not established. He therefore concluded that the transaction was done in the name of the Assessee and the money returned by GNFC on non materializing of the 10 ITA No 220/AHD/2010 . A.Y. 2006-07 transaction was also of the Assessee and therefore the credits and debits appearing in the ledger of Assessee in the books of Markandeshwar Scrap traders was unrecorded amount of Assessee and he therefore considered Rs 16.50 lacs as unexplained money u/s 69 of the Act and added to the income of the Assessee. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under:-
14. I have carefully considered both the positions. I have also examined the letter addressed by M/s Markandeshwar Scrap Traders to the A.O. which was received in the Assessing Officer's office on 22.12.2008. The letter is on the letter-head of M/s Markandeshwar Scrap Traders where the office address at Ankleshwar, as also the address of the godown is clearly shown, as also their phone and fax numbers. It also mentions the GST and CST Nos allotted to the said party. It has been stated in the letter that they had sent a DD to GSFC on behalf of M/s Laxmi Steel the Assessee's proprietary concern. The said amount had been returned to them and credited back to the account of the Assessee.
It has been clearly stated that the Assessee had noting to do with the said amount. The ledger account of M/s Laxmi Steel in the books of M/s Markandeshwar Scrap Traders which has been signed and confirmed by them, shows a debit of Rs 16,50,000 on 10-06-2005 and a further debit for Rs 5,00,000 on 25-07-2005. There is a credit to Assessee of Rs 16,50,000 on 22-08-2005, a further debit of Rs 7,00,000 on the same day, and two credit entries of Rs 1,00,000 each received by the Assessee by cheques on 07-03-2006. The closing balance at the end of the year is shown at Rs 10,00,000, These documents clearly show that the closing balance of Rs 10,00,000 shown under the head of unsecured loan in the name of M/s Markandeshwar Scrap Traders was actually the culmination of several transactions between the Assessee and the said party. The PAN and the : address of M/s Markandeshwar Scrap Traders were available to the AO, even : though he erroneously mentioned that the address was not provided. This meant that the AO could have easily conducted the relevant inquiries with the said party especially when he was not satisfied with the confirmation furnished. By furnishing such documentary evidences, the Assessee had clearly discharged the initial burden which lay on him and the onus had shifted on to the AO to disprove the Assessee's claim by making the requisite inquiries which however he failed to do. The identity of M/s Markandeshwar Scrap Traders was thus established as also the genuineness of the transactions. Regarding their creditworthiness, unless the AO had attempted to make some inquiry or the other from the said party, he was not in a position to take the view that the said party lacked the requisite creditworthiness. Given such facts of the case, I have no other option but to direct the AO to delete the addition of the sum Rs 10 lakhs
18. I have carefully considered both the positions. As already observed while deciding the third ground of appeal, the letter of M/s Markandeshwar Scrap Traders dated 22-12-2008 showed the complete office and godown addresses of the said firm, and therefore, there was ample scope for the A.O. to make the necessary inquiries, especially when he was not willing to accept and believe the exhalation furnished by the Assessee. The A.O. perhaps detected the entries when he called for a confirmation of the closing balance of the unsecured loand of Rs. 10 lakhs standing in the name of said firm, which was duly furnished. The fact remains that the entry of Rs. 16,50,000 was not found in the books of the Assessee. For whatever reasons the amount may have been paid by M/s Markandeshwar Scrap Traders to GSFC, the fact the letter dated 22-12-2008, the proprietor of M/s Markandeshwar Scrap Traders clearly stated that the Assessee had nothing to do with such transactions. Most importantly, it was not established that the Assessee was the owner of the said sum of Rs. 16,50,000 nor was it the case that the Assessee had failed to furnish any explanation in this regard. The A.O., even after reproducing the provisions of section 69A in the body of the assessment order (page-8) wrongly 11 ITA No 220/AHD/2010 . A.Y. 2006-07 applied the said section while making the addition. He is therefore directed to delete the addition of Rs. 16,50,000/-.
17. Aggrieved by the order of CIT(A), Revenue is now in appeal before us.
18. Before us, Ld D.R. with respect to addition of Rs 10 lacs submitted that the primary onus of identifying the lender, proving the genuineness of the transaction and the creditworthiness of the person was on the Assessee. Only on satisfying the primary onus by Assessee, onus is shifted on the Revenue. In the present case, the Assessee had not discharged the primary onus and therefore the onus of issuing summons u/s 131 of the Act could not be shifted on the Revenue. He therefore submitted that in the given facts of the case, the AO was fully justified in making the addition u/s 68 and therefore the order of the AO be upheld.
19. With respect to addition of Rs 16.50 lacs made by the AO, Ld D.R. submitted that the transaction of Rs 16.50 lacs did not appear in the books of the assessee and Assessee had stated to be having no knowledge of any such transaction. He further submitted that Markandeshwar Scrap Traders and the Assessee had failed to prove that either it was a wrong entry or no actual transaction of such amount has ever taken place amongst them. From the bank statement of Markandeshwar Scrap Traders placed at page 68 of the paper book he pointed out that immediately preceeding the issue of draft, cash was deposited in the bank account. From the bank statement he further pointed out that the description of receipt of demand draft on 22.8.2005 which states as "Tr. DD" and thus it was receipt of DD and not the cancellation of DD as submitted by the Assessee. He further pointed to the letter of 12 ITA No 220/AHD/2010 . A.Y. 2006-07 Markandeshwar Scrap traders placed at page 71 of the paper book which mentions about sending of DD of Rs 16.50 lacs for purchase of goods from GSFC in the name of Laxmi Steel and the returning of the amount by GSFC is not supported by any evidence. He therefore submitted that in the given facts the AO was fully justified in making the addition and therefore the order of CIT(A) be set aside and that of AO be upheld.
20. The Ld. A.R. on the other hand reiterated the submissions made before CIT(A) and supported his order. He further pointed to the bank statement of Markandeshwar Scrap traders placed at page 68 and 69 of the paper book and pointed to the entries of Rs 16.50 lacs to demonstrate that taking of draft of Rs 16,50 lacs on 10.6,2005 and its cancellation on 22.8.2005. He also placed reliance on the decision in the case of ACIT Vs Lata Mangeshkar (1974) 97 ITR 696 (Bom). With respect to the addition of Rs 10 lacs, he pointed to the confirmation of Markandeshwar Scrap Traders placed at page 44 of the PB from which he pointed out that it contained the confirmation, address and PAN number and therefore the initial burden was discharged by the Assessee. He further submitted that Assessee had requested the AO to issue notice u/s 131 of the Act and call for the required information but the AO had failed to do so. In such circumstances, since the Assessee had discharged the initial burden no addition was required to be made in the hands of the Assessee. He further placed reliance on the decision of Gujarat High Court in the case of DCIT vs Rohini Builders (2002) 256 ITR 360 (Guj). He thus supported the order of CIT(A).
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. A.Y. 2006-07
21. We have heard the rival submissions and perused the material on record.
It is an undisputed fact that the ledger account of the Assessee (Laxmi Steel) as appearing in the books of Markandeshwar Scrap traders showed entry of Rs 16.50 lacs. The Assessee before the AO had denied of any transaction been entered by it with Markandeshwar Scrap Traders. Markandeshwar Scrap Trader on the other hand by a letter delivered at the office of AO on 22.12.2008 and placed at PB 71 has stated of sending a DD to GSFC of Rs 16.50 lacs for purchase of goods in the name of "Laxmi Steel" and returning of the amount by GSFC. The aforesaid statement of Markandeshwar Scrap traders is not supported by any tangible evidence or any confirmation from GSFC to that account. Thus it can be seen that there are contradictory statements by the Assessee and Markandeshwar Scrap Traders. Further there is nothing on record to demonstrate as to how on non materializing of the transaction, the DD from GSFC which was alleged to have been entered on behalf of the Assessee was received by Markandeshwar Scrap Traders and credited in its bank account. From the entry of 22.8.2005 as reflected in the bank pass book of Markandeshwar Scrap Traders, the narration is stated to be "By Transfer DD" and not the cancellation of DD. Further the copy of account of Laxmi Steel as appearing in the books of Markandeshwar Scrap trader and placed at pace 44 of the paper book it is seen that the same is confirmed by "Riddhi Associates" but the relationship of "Riddhi Associates" with the Assessee is not on record. We further find that though CIT(A) has noted the submission of Assessee and Markandeshwar Scrap Traders but has not examined the same nor has given his finding on the same but has simply accepted it. In view of the aforesaid facts we are of the view that the issue needs to be examined 14 ITA No 220/AHD/2010 . A.Y. 2006-07 once again at the end of CIT(A). We therefore remit the issue to the file of CIT(A) for fresh examination in the light of our observations. CIT(A) shall after obtaining a remand report from AO decide the issue by way of speaking order. Needless to state that he shall grant a reasonable opportunity of hearing to both the parties. In the result these grounds of the Revenue are allowed for statistical purposes.
Ground no. 7 is with respect to addition of Rs. 83,19,857/- on account of unexplained outstanding credits.
22. On perusing the Balance Sheet of the Assessee, A.O noticed that amount of Rs. 83,19,857/- was shown as creditors. The Assessee was asked to furnish the copy of contra confirmations. A.O. also noticed that the name of creditors as mentioned in the Balance Sheet were not found in the list furnished in respect of purchasers from whom the purchase exceeding Rs. 1 lac was made. Assessee furnished the copy of confirmations from its books of accounts by merely affixing rubber stamp of the creditor indicating the names and address and the signature but the copy of the balance sheet, I.T. acknowledgement etc was not furnished. A.O. was therefore of the view that Assessee has failed to prove the genuineness of transactions. According to him the entries in the books of accounts account cannot be accepted as proof for establishing the genuineness of transaction or the identity of the creditors. He was further of the view that the Assessee's plea of issuing notice under section 131 for verification of the advance was not acceptable as the onus squarely rests on the Assessee to prove the identity of the creditors and genuineness of the transaction. The A.O. was thus of the view that since the Assessee 15 ITA No 220/AHD/2010 . A.Y. 2006-07 has failed to prove the genuineness of transaction, the amount of Rs. 82,94,857/- received as trade advance was to be taxed under section 68 of the Act, and he accordingly made the addition. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee deleted the addition by holding as under:-
22. I agree with the contention of the AR that once it had been accepted that the sums shown under the head of sundry creditors represented trade advances, or amounts received against purchases made, they could not be brought under the purview of section 68 of the IT Act. From the copies of account of all the parties listed above in the books of the Assessee, I find that these were essentially in the nature of current account transactions. There were substantial brought-forward balances from the preceding year, which were accepted in assessment proceedings for the AY 2005-06. On his part, the AO failed to conduct the requisite inquiries with the said parties. He was not justified in rejecting the Assessee's request for issuing summons u/s 131 of the Act to the said parties. The names and complete addresses were available with the AO along with their PAN, except in one case. By submitting all such details and copies of ledger accounts, the Assessee had discharged his initial burden and the onus had shifted on to the AO to disprove such documentary evidence. This the AO failed to do. Simply because the Assessee failed to submit the copies of balance-sheets of the creditors as also the acknowledgements indicating the filing of IT Returns, the AO was not justified in taking the view that the closing balances of sundry creditors represented the Assessee's own unaccounted money introduced in the form of trade advances or whatever. In any case, where the regularity of the transactions between the Assessee and the said creditors was clearly established to be in the nature of business transactions as indicated by the ledger accounts, the provision of section 68 could not be applied. In order to reject the sundry creditors, only the provisions of section 41(1) could be applied but it was not the case of the AO, that such liabilities has ceased to exist, which meant that the provisions of section 41(1) was not applicable. Given such facts and circumstances of the case, I am of the firm view that there was no justification on the part of the AO to treat the sum of Rs 81,94,857 as unexplained cash credits. Incidentally, in para-10, page-8, the AO mentioned the total of such creditors to be Rs 83,19,857, but in para-10.4 and finally in the computation, this sum was changed to Rs 81,94,857. Whatever may have been the correct figure, the same will stand deleted.
23. Aggrieved by the order of CIT(A) Revenue is now in appeal before us
16 ITA No 220/AHD/2010 . A.Y. 2006-07
24. Before us, the ld. D.R. pointed to the various findings of A.O. He further submitted that Assessee had not filed the copy of balance sheet, copy of proof of filing of I.T. returns, copy of bank statement, copy confirmation letters from the creditors to prove the genuineness of the transaction. He therefore submitted that in the absence of discharge of primary onus by the Assessee, the A.O. was fully justified in making the additions. The ld. A.R. on the other hand submitted a chart showing the break up of creditors. From the chart, he pointed out that the total closing balance of 83,19,657/-, also included the creditors where there were opening balances in the account and the aggregate of such was Rs. 67,64,374/-. He further pointed out to the copy of the letter, address to CIT(A) wherein it was submitted that the Assessee has filed the copy of the confirmations with complete address and PAN numbers of the creditors. He pointed to page 8 of the paper book in support of the same. He also placed on record, the copy of the ledger accounts of various creditors placed on page 72 to 83 of the paper book. He therefore submitted that the Assessee has discharged the onus by submitting the complete address, name, confirmations and PAN numbers of most of the creditors. He further submitted that the sales and purchase made by the Assessee has not been disputed by the A.O. He further placed reliance on the decision in the case of Vasudev Elelctric Corporation in ITA No. 2306/Ahd/2010 and has also placed on record copy of the same. He thus supported the order of CIT(A).
25. We have heard the rival submissions and perused the material on record.
We find that CIT(A) while deleting the addition has noted that the transactions entered by the Assessee were in the nature of current account 17 ITA No 220/AHD/2010 . A.Y. 2006-07 transactions, there was substantial brought forward balances from preceding year and which was accepted in the assessment proceedings for A.Y. 2005-06. He has further noted that the names and complete addresses were available with the A.O. along with PAN numbers except in one case. He has further noted that the Assessee had submitting all the details and copies of the ledger account and the Assessee has discharged its initial burden and the onus was on the A.O. to disprove the documentary evidence which the A.O. has failed to do. He has further noted that the transactions between the Assessee and the creditors establish the nature of transactions as business transaction. Before us, the D.R. could not controvert the findings of CIT(A) by bringing any contrary material on record. In the present case the purchases made by the Assessee has also not been disputed by Revenue. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed.
Ground No. 8 is with respect to disallowance of Rs. 4,02,177/- on account of interest .
26. During the course of assessment proceedings, A.O. noticed that Assessee has paid interest on unsecured loans and on the other hand has given interest free advances. The submission of the Assessee of the loans being old was not found acceptable to the A.O. He accordingly rejected the Assessees contentions and disallowed the interest expense of Rs. 4,02,177/-. Aggrieved by the order of A.O. Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under:-
18 ITA No 220/AHD/2010 . A.Y. 2006-07
26. I have carefully considered both the positions. I find that the A.O. made the disallowance in a very summary manner. He did not take the trouble to establish a nexus between the interest-bearing loans with the giving out of the interest-free advances, which would support his conclusion. He simply rejected the Assessee's explanation that the interest was paid on old loans and the advances given were purely for commercial and business purposes, from out of the Assessee's own funds. To make the disallowance, it was necessary for the A.O, and the onus was on him, to show that there was a clear nexus between the interest bearing loans and the interest free advances. This he failed to do. The A.O. is therefore directed to delete the addition of Rs. 4,02,177/-.
27. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us.
28. Before us, the ld. D.R. supported the order of A.O. and relied on the decision in the case of S.A. Builders 288 ITR 01. The ld. A.R. on the other hand reiterated the submissions made before CIT(A) and supported the order of CIT(A). He further placed reliance in the case of CIT vs. Raghuvir Synthetics Ltd. He also placed on record, the copy of the aforesaid decision of Hon. Gujarat High Court in Tax Appeal No. 829/AHD/2007.
29. We have heard the rival submissions and perused the material on record.
We find that CIT(A) while deleting the addition has noted that the disallowance was made by the A.O. in a summary manner and he has not established the nexus between interest bearing loans with the advancing interest free advances. He has further noted that the Assessee explanation was rejected without any material on record. Before us, the D.R. could not controvert the findings of CIT(A), nor has he brought on record any contrary material in its support. In view of the aforesaid facts, 19 ITA No 220/AHD/2010 . A.Y. 2006-07 we find no reason to interfere with the order of CIT(A) on this ground. Thus this ground of revenue is dismissed.
30. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in Open Court on 13 -12 - 2013.
Sd/- Sd/-
(D. K. TYAGI) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad