Income Tax Appellate Tribunal - Delhi
Sandeep Kundalia, Delhi vs Ito, Ward-49(1), New Delhi on 26 March, 2018
In the Income-Tax Appellate Tribunal,
Delhi Bench 'G', New Delhi
Before : Shri Bhavnesh Saini, Judicial Member And
Shri L.P. Sahu, Accountant Member
ITA No. 6354/Del./2017
Assessment Year: 2014-15
Shri Sandeep Kundalia, vs. Income-tax Officer,
G-50, 2nd Floor, Kirti Nagar, Ward 49(1), New Delhi
Delhi.(PAN: ANYPK4182G)
(Appellant) (Respondent)
Assessee by Shri Ram Samujh, Advocate
Revenue by Shri Kaushlendra Tiwari, Sr. DR
Date of Hearing 19.03.2018
Date of Pronouncement 26.03.2018
ORDER
Per L.P. Sahu, A.M.:
This appeal, at the instance of assessee, is directed against the order dated 25.08.2017 of learned CIT(A)-17, New Delhi for the assessment year 2014-15 on the following grounds:
1. The order passed by the learned CIT(A) under the facts and circumstances of the case is bad in law in general.
2. Under the facts and in the circumstances of the case the Learned CIT (A) has erred in law by upholding the applicability of provision of Section 68 of IT Act 1961 to a partly unpaid liability of Trading goods incurred during the previous year 2013-14.ITA No. 6354/Del./2017 2
3. The Learned CIT Appeal has erred in law under the circumstances and facts of the case by confirming the addition of Rs, 2,35,90,226.00, in the income of the assessee assessed by learned A.O.
4. Learned CIT Appeal has erred in Law and on facts by travelling beyond the subject matter of assessment order in dispute for forming/to arrive at the decision in the impugned Appeal order.
5. The Learned CIT(A) has erred in law and on facts in not adjudicating the Interest charged U/S 234A & U/S 234 B.
2. The dominant issue involved in above grounds, as also emerges out from the facts of the case, relates to addition of Rs.2,35,90,226/- made by the Assessing Officer by invoking the provisions of section 68 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') and confirmed by the Ld. CIT(A), treating the above amount, shown payable by the assessee to M/s. Ganesh Trading Co., Kolkata towards credit purchase of Supari, as unexplained cash credits.
3. Apropos this issue raised in grounds of appeal, the relevant facts are that the assessee is engaged in the trading business of Kirana Items, including Supari, dry fruits, spices etc. The assessee filed its return of income on 24.11.2014 declaring taxable income at Rs.9,86,250/-. In the assessment proceedings, the credit balances appearing in the balance sheet of assessee in the name of three sundry creditors, viz., (i) M/s. Jet Road Carriers; (ii) M/s. Raman Trading Co.; and (iii) M/s. Ganesh Trading Company, Kolkata, ITA No. 6354/Del./2017 3 aggregating to Rs.2,38,34,356/- were examined by the Assessing Officer to verify their genuineness. Out of these three sundry creditors, the credit balances appearing in the names M/s. Jet Road Carriers and M/s. Raman Trading Co. were found by the AO as genuine. However, the outstanding credit balances appearing in the name of M/s. Ganesh Trading Co. amounting to Rs.2,35,90,226/- were not accepted as genuine.
3.1 In order to verify the identity and creditworthiness of sundry creditor M/s. Ganesh Trading Co. and the genuineness of the transactions, the AO issued notice u/s. 133(6) of the Act on 04.07.2016 at the given address, requiring them to furnish confirmed copy of assessee's account in their books for the year under consideration, details of PAN/ward where they are assessed along with their latest ITRs and their bank statement from 01.04.2013 to 31.03.2013. The notice, so issued returned back un-served by the postal authorities with the remark "address moved". Another notice dated 08.09.2016 u/s. 133(6) was sent on the new address of the creditor given by assessee, which also remained un-served. However, as per AO, confirmation of this creditor was received but without requisite ITRs and bank statement. The AO, therefore, issued a show cause notice on 31.10.2016, apprising the assessee from the above facts and directing him to produce principal ITA No. 6354/Del./2017 4 officer/partner of M/s. Ganesh Trading Company, Kolkata. Having received no reply, the AO issued final show cause notice to the assessee on 02.12.2016, requiring him to explain why the closing balances standing in the name of M/s. Ganesh Trading Co. amounting to Rs. 2,35,90,226/- should not be disallowed.
3.2 In response to show cause notice, the assessee, vide letter dated 19.12.2016, filed reply explaining the genuineness of the creditor supported by various documentary evidences. However, on analysis of evidences laid and explanation offered by assessee, the Assessing Officer held that the assessee failed offer satisfactory explanation to discharge the onus that lay upon him u/s. 68 to prove the identity, creditworthiness and genuineness of the sundry creditor. Accordingly, he added the total amount of sundry creditor amounting to Rs.2,35,90,226/- noted above, to the total income of the assessee u/s. 68 of the Act, relying on the decision of Hon'ble Calcutta High Court in Unit Construction Co. Ltd. Vs JCIT, 260 ITR 189.
4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and furnished the written submissions dated 24.04.2017 and 10.07.2017 explaining the legal position and genuineness of Trade creditor of Rs.2,35,90,226/- in the name of M/s. Ganesh Trading Company and also ITA No. 6354/Del./2017 5 furnished various documents in support, which we will discuss in the later part of this order. The learned CIT(A) directed the Assessing Officer to issue a commission to verify the credits, in response to which the AO issued a commission to ITO, Ward-1 Imphal to enquire into the transactions made by the appellant with M/s. Ganesh Trading Company, Kolkata. In compliance, the ITO, ward-1, Imphal who happens to be the Assessing Officer of M/s. Ganesh Trading Company, conducted enquiry and recorded the statement of Shri Ashok Kumar Singh Proprietor of M/s. Ganesh Trading Company and submitted his report vide letter dated 16.06.2017 which was forwarded by the Assessing Officer to the ld. CIT(A) vide letter dated 22.06.2017, copies of which along with copy of statement and other evidences are placed at page 48 of the paper book. The ld. CIT(A) called for the remand report from the AO, which was submitted vide letter dated 24.07.2017 (PB-49 to 56). On being confronted, the assessee filed rejoinder dated 09.08.2017 (PB-57-63). Having considered the submissions of the assessee, evidences submitted, remand report of AO and its rejoinder, the learned CIT(A) endorsed the views taken by the Assessing Officer and upheld the addition of Rs.2,35,90,226/- u/s. 68 of the Act, thereby dismissing the appeal of the assessee vide impugned order dated 25.08.2017. It is this order, which is assailed by assessee in this appeal before us.
ITA No. 6354/Del./2017 6
5. Assailing the orders of the authorities below and illustrating relevant factual matrix attending to the issue, the ld. Counsel for the assessee submitted that the assessee purchased Supari during the year worth Rs.3,00,90,226/- from M/s. Ganesh Trading Co., Kolkata on credit, against of which, part payment Rs.65,00,000/- was made to the said creditor through banking channel and balance amount of Rs.2,35,90,226/- was shown as credit balances appearing in the name of said creditor in the books of assessee, which too was paid in succeeding years through banking channel. The total purchase of Supari was taken into the stock and later on sold in the open market. In order to prove and substantiate the sundry creditor as genuine, the assessee has filed following evidences before the authorities below :
(i). Purchase invoices (21 in numbers) issued by M/s. Ganesh Trading Company.
(ii). Payment proof against purchases in the shape of HDFC Bank Statement of assessee bank at Chandni Chowk, New Delhi.
(iii). Copy of Good Receipts issued by transporter M/s. SRC India Movers to substantiate the transportation of goods from M/s.
Ganesh Trading Company to the assessee.
(iv). Statement of payment to the transporter through banking channel.
(v). Copy of TIN No. 19671056607 of M/s. Mahesh Trading Co. ITA No. 6354/Del./2017 7
(vi). Stock register of goods showing the movement from M/s. Ganesh Trading Co. and corresponding sale of same items periodically made during the year along with ledger account of purchasers in the books of assessee.
(vii). All the Sales Tax returns of assessee for the year under consideration.
(viii). Entry Tax payment proof for the goods imported by the creditor in the State of West Bengal.
(ix). Forms -C issued by Govt. of NCT, Delhi DVAT Deptt. in favour of M/s. Ganesh Trading Co. in support of total purchases of Rs.3,00,90,226/-.
(x). Copy of PAN Card of Shri Ashok Kumar Singh, prop. of M/s.
Ganesh Trading Company.
5.1 It was submitted on behalf of the assessee that in the statements recorded by ITO, Ward-1, Imphal during enquiry conducted in response to commission issued, the proprietor of M/s. Ganesh Trading Company candidly confirmed the transactions and receipt of sale consideration through banking channel and also furnished supporting evidences which were examined with his bank statement.
5.2 The next contention of the assessee has been that the proprietor of impugned sundry creditor further admitted before the commissioned authority that he had imported the goods from Bangladesh and provided the proforma invoice from the exporter, M/s. Jahan Processing and export Ltd., ITA No. 6354/Del./2017 8 sale contract, sale bills, challan for local taxes paid against purchases of Supari and bank statement to the ITO Imphal which are placed on record as annexure-5 of the paper book. In presence of appearance of proprietor of the creditor before the enquiring authority and various evidences furnished before him would certainly go to dilute the non-service of notice u/s. 133(6) and to discard the suspicion raised on the identity, existence and creditworthiness of the sundry creditor.
5.3 The ld. Counsel further argued that the income derived by the assessee from such purchase and sale of Supari was declared in the IT return and was taxed as such under the IT Act. It was submitted that once the corresponding sale of supari is found genuine, how the credit balances against purchases thereof can be doubted is not made by any of the authorities below. Moreover, no addition was made of the part payment against the same purchases made by the assessee. The appellant has shown progressive profit rates during the year under consideration as compared to the preceding years, which stands accepted by the AO, meaning thereby the trading result shown by the assessee has not been doubted by the Assessing Officer.
ITA No. 6354/Del./2017 95.4 It was next contended that the accounts of the assessee are audited u/s. 44AB and copies of audited balance sheet, profit & Loss account, trading account etc. filed before the AO, have not been rejected u/s. 145(3) of Act nor any adverse comment has been made as to the correctness and completeness of the accounts. Therefore, the action of the authorities below is unjustified for making the impugned addition. For this proposition, reliance is placed on the decisions of Hon'ble Punjab & Haryana High Court in PCIT vs. Talbros Engineering Ltd. (2016) 386 ITR 154 and of Karnataka High Court in CIT vs. Anil Kumar & Co. (2016) 386 ITR 702.
5.5 The ld. Counsel for the assessee further submitted that the case laws relied by the ld. CIT(A) are not applicable to the present case, being distinguishable on facts. The assessee has also given the distinguishing features of each and every decision relied by CIT(A), in his written synopsis placed on record before us. It was contended that once all the three ingredients, i.e., identity, creditworthiness and genuineness of sundry creditor stood proved, there remains no justification to make the addition u/s. 68. For this proposition, reliance is placed on the decision of Madras High Court in Hastimal vs. CIT, 49 ITR 273 wherein the Hon'ble court held that "an assessee should not be placed upon the rack and called upon to explain not merely the ITA No. 6354/Del./2017 10 origin and source of a capital contribution, but the origin of origin and source of source as well. He also relies on the decision of Hon'ble Assam High Court in Tolaram Daga vs. CIT, 59 ITR 632 wherein it was held that " to require the firm or partner thereof to adduce proof of the sources from which the deposit was made would be placing a burden on the firm which is not required or justified by law". Several other such decisions are relied on by the assessee.
6. Repudiating the contentions of assessee, the ld. DR, on the other hand, strongly supported the orders of the authorities below and further submitted that the AO specifically asked the assessee to produce the creditors from whom purchases were made and also confronted with the non-service of notices u/s. 133(6), but he failed to comply with the directions of the AO. Therefore, the ingredient of section 68 could not be established on the part of assessee. The party in whose name the credit balances were shown by the assessee were not found genuine and the AO rightly made the addition for the balances shown in the name of such sundry creditor. It was further submitted that the adverse comments given by the authorities below against the genuineness of trade creditor, M/s. Ganesh Trading Company were not properly rebutted on behalf of the assessee. Reiterating the contents of impugned order, the ld. DR contended that the ld. CIT(A) was fully justified in ITA No. 6354/Del./2017 11 confirming the addition made by the AO after relying on various decisions in the impugned order.
7. We have considered the rival submissions and carefully perused the entire material available on record including the case laws relied by both the parties and we find no justification to support the decision reached by the ld. CIT(A) in the instant case. On perusal of the impugned order and the arguments advanced on behalf of the assessee, we find that there is ex abundantia of evidences, as listed in the former part of this order, which leave no shades of doubt on the identity, creditworthiness and genuineness of the sundry creditor, M/s. Ganesh Trading Co. To analyse the evidences, we observe that -
7.1. The purchase invoices placed by the assessee are the tax invoices, which can be issued by a VAT registered dealer in respective State. The bank statements of assessee and the sundry creditor show the remittance of part payment against the credit purchases shown by the assessee. The goods receipts of Transporter and statement of payment to him by assessee through banking channel shows the transportation of goods from the interstate seller to the assessee, which cannot be doubted without any contrary material on ITA No. 6354/Del./2017 12 record or contrary enquiry result by the Revenue authorities. Copy of TIN and PAN card furnished by the assessee coupled with the fact that proprietor of sundry creditor appeared and admitted the impugned sale to assessee before the commissioned authority, i.e., ITO Imphal, unequivocally go to establish the identity of sundry creditor and further go to dilute the suspicion based on non-service of notices u/s. 133(6). The stock register submitted by assessee containing the entries of total purchases made from the said creditor and also corresponding sale of same items periodically made during the year along with ledger account of purchasers in the books of assessee, have not been adversely commented upon by the Revenue Authorities. The item purchased by assessee is also exigible to Sales Tax and the assessee has filed up-to-date Sales Tax returns, on which the Revenue authorities have made no adverse comments. The Entry Tax payment proof for the goods imported by the creditor in the State of West Bengal and the invoices of Exporter of Bangladesh submitted by the sundry creditor before ITO, Imphal goes to establish the business dealings and volume of business of sundry creditor showing his creditworthiness, which cannot be doubted only on the presumptive observation of the AO given in the remand report that such export invoices of M/s. Jahan Processing and Export Ltd. had no nexus with the impugned transaction of their sale with the assessee. Form-C is a ITA No. 6354/Del./2017 13 declaration Form under the Central Sales Tax Act which is issued by VAT department to the dealers registered under the Central Sales Tax Act. It is further issued by registered dealer or purchaser to the seller in case the purchases are made in the course of interstate Trade or commerce for resale or for use in manufacturing, so as to charge him Sales Tax at prescribed concessional rate of tax and the State Government collects tax from the purchaser when such goods are sold. The assessee has also filed its Sales Tax Returns, on which no comments have been made by the Revenue Authorities. In presence of all these facts supported by cogent evidences, in our considered opinion, it was not incumbent upon the authorities below to doubt the impugned purchases and to disallow the outstanding balances out of such purchases, standing in the name of above sundry creditor in the books of assessee.
8. It is pertinent to note that the Assessing Officer on the one hand has made no comments/addition on part payment of Rs.65,00,000/- against the purchases made from M/s. Ganesh Trading Company, but on the other hand he has not accepted the same party, i.e., Ganesh Trading Co. as genuine sundry creditor appearing in the books of assessee. We do not find any appropriate answer to the vital question posed by the assessee as to how the impugned ITA No. 6354/Del./2017 14 interstate seller, M/s. Ganesh Trading Co. can be treated as ingenuine trade creditor particularly when he has been treated as genuine for part purchases worth Rs.65 lacs. A perusal of the impugned order shows that the ld. CIT(A) has tried to answer this question stating that in absence of documents to show the actual investment in actual purchases done by the assessee, any figure arrived at would be on the basis of surmises and conjectures. Thus to the extent of purchases of Rs.65 lacs made during the year for which payment was also made by the assessee during the course of the year, no adverse inference has been drawn in spite of the fact that the purchases has not been proved to be genuine as the sales have not been questioned. Such a whimsical finding of the ld. CIT(A) is nothing but his far- fetched imagination and fantasy, which are not appreciable for want of supporting evidences. In fact, the Assessing Officer is not supposed to make bilateral statements on the purchases made, i.e., one taking no adverse view on the part payment made through cheques against the purchases made from the same creditor and second, by disbelieving the outstanding balances shown by assessee out of purchases from the same creditor. In our opinion, it will not be open to the Assessing Officer to blow hot and cold in the same breath. Matter, if viewed from this angle, no addition is called for against the assessee as done in the instant case. ITA No. 6354/Del./2017 15
9. It is also worthwhile to mention here that admittedly, the accounts of the assessee are audited u/s. 44AB, which were filed before the AO and the Assessing Officer does not reject the account books by resorting to the provisions of sec. 145(3) of Act nor any adverse comment has been made as to the correctness and completeness of the accounts. Therefore, in view of the decisions, relied by assessee, in the case of PCIT vs. Talbros Engg. Ltd. (supra) and CIT vs. Anil Kumar & Co. (supra), the action of the authorities below is unjustified for making the impugned addition. It is also an undisputed fact that the assessee has declared the corresponding sales out such supari purchased and quantitative details were submitted before the authorities below. The sales were credited to the trading account of the assessee. Therefore, as rightly contended by the ld. Counsel for the assessee, such sale not being possible without any corresponding purchases so made, could not otherwise be treated as bogus without bringing any contrary material on record. It is also observed that the resultant profit derived by the assessee from such purchase and sale of Supari was duly disclosed by the assessee in the trading account, which has not been doubted by the Assessing Officer. Having regard to all these facts of the case, we are of the considered view that the addition made by the Assessing Officer and confirmed by the ld. CIT(A) by ITA No. 6354/Del./2017 16 treating the trade creditor as unexplained cash credit u/s. 68 of the Act is not sustainable at all.
10. Our view expressed in the preceding para of this order further stands fortified by the following decisions :
10.1. Hon'ble Allahabad High Court in the case of CIT vs. Pancham Das Jain, 205 CTR, 440 has 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 the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of Sec. 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the said two amounts under Sec. 68 did not arise inasmuch as the provisions of Sec. 68 would not be attracted on the purchases made on credit."
10.2 Hon'ble Bombay High Court in the case of CIT vs. Nikunj Exim Enterprises (P) Ltd., (2013) 216 Taxman 171, in para 7 of the report, has observed as under :
ITA No. 6354/Del./2017 17
"7. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30-04-2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were infact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is a well reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated 30-04-2010 of the Tribunal."
10.3 On the identical issue, in the decision of Hon'ble ITAT Lucknow Bench (Third Member) in the case of ITO Vs Zazsons Exports Ltd., 153 ITD 1 (TM), the third member concurring with the view of Accountant Member, confirmed the order of the ld. CIT(A) for deleting the similar addition. The Hon'ble Third Member has summarized reasons for deletion of addition as follows :
"(a). AO doubted the creditors against the purchases and made the addition of the entire amount outstanding against the purchases, however, he did not point out any mistake in the ITA No. 6354/Del./2017 18 books of account maintained by the assessee in regular course of business and also not doubted method of accounting employed regularly.
(b). The AO did not point out any suppressed sale and inflated purchase. Gross profit rate which was at 12.09% in comparison to the gross profit rate of 9.92% in the preceding year had not been doubted.
(c). The AO did not rebut the contention of assessee that liability against the purchase had been paid in the succeeding year.
(d). The ld. CIT(A) categorically stated that during the assessment proceedings for the A.Y. 2006-07, the assessee filed the confirmation from 8,478 vendors of 11 mandies, so there was no occasion to doubt the supplier/creditor against the purchases when the trading results had not been disturbed.
(e). When the AO did not doubt the purchases and the gross profit rate, there was no occasion to doubt the corresponding characters of the purchases."
11. In the instant case also the assessee had made purchases of Rs.3,00,90,226/- from M/s. Ganesh Trading Co., Kolkata on credit, against of which, part payment of Rs.65,00,000/- was made to the said creditor through banking channel and balance amount of Rs.2,35,90,226/- was shown as credit balances appearing in the name of said creditor in the books of assessee, which too was paid in succeeding years through banking channel and the Revenue Authorities have not raised any doubt on discharge of this liability in subsequent years. The assessee has also filed a comparative chart, showing the turnover, gross profit and net profit for three consecutive years including ITA No. 6354/Del./2017 19 the year in dispute, which is placed at page 230 of the Paper book, on perusal of which, it is found that the gross profit and net profit shown by the assessee is progressive and the AO has not doubted the same. It is also worth mentioning that the addition of Rs.2,35,90,226/- if added to the declared profit of Rs.8,69,652/- as shown in the comparative chart filed, the gross profit would work out to Rs.2,44,59,878/- giving GP rate of 105.22%, which is not appealing to reason at all. In view of all these facts and laying our hands on the aforesaid decisions, we are of the considered opinion that the addition made by the AO and sustained by the ld. CIT(A) was not justified.
12. The decisions relied by the ld. CIT(A) in the impugned order are based on different set of facts and are properly distinguished by the ld. Counsel for the assessee. We also find that the facts attending to the present case are not existing in the case laws relied by the Revenue Authorities. In fact the findings reached by the ld. CIT(A) centre round the fact recorded by him that the assessee had no appropriate space to store the goods and the invoices, GRs etc. submitted by assessee were not stamped by any Octroi Authority etc. These reasons, in view of abundant evidences laid by assessee, in our opinion, are not suffice to make the impugned addition or to treat the sundry creditor as non-genuine. Moreover, in its rejoinder to the remand report, the assessee has submitted that he is holding a godown bearing Khasara No. 149 at ITA No. 6354/Del./2017 20 Siraspur. It was also submitted that this issue was never brought to the notice of the assessee even after obtaining the report to give proper opportunity for proper verification of the godown and other facts. The inspector appears to have inspected the address given in the return of income. The ld. CIT(A) has not rebutted this stand of assessee, but only mentioned that the assessee has filed a rejoinder, which is placed on record. Therefore, she is not justified to take an adverse view on this score too.
13. In view of what has been discussed above, our conclusion follows that the addition made by the AO of Rs. 2,35,90,226/- and confirmed by the ld. CIT(A) treating the same as unexplained cash credits u/s. 68 is not sustainable. Accordingly, the grounds raised by the assessee deserve to be allowed.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 26th March, 2018 Sd/- Sd/-
(Bhavnesh Saini) (L.P. Sahu)
Judicial member Accountant Member
Dated: 26th March, 2018
*aks*
Copy of order forwarded to:
(1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Delhi Benches, New Delhi