Income Tax Appellate Tribunal - Delhi
Continental Carbon India Ltd., New ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN
ITA Nos. 5269, 5270 & 5271/Del/2010
Asstt. Yrs: 2003-04, 05-06 & 06-07
Continental Carbon India Ltd. Vs. Income-tax Officer,
F-40, NDSE, Part-I, Ward 3(3), New Delhi.
New Delhi.
PAN/GIR No. AABCC8129N
ITA Nos. 5242 & 5513/Del/2010
Asstt. Yrs: 2003-04, 05-06
Income-tax Officer, Vs Continental Carbon India Ltd.
Ward 3(3), New Delhi. F-40, NDSE, Part-I,
New Delhi.
(Appellant ) ( Respondent )
Assessee by : Shri Ved Jain FCA
& Shri V. Mohan CA
Revenue by : S/Shri Krishna & Rohit Garg Sr. DRs
ORDER
PER BENCH:
This is a set of five appeals, which contains cross-appeals by assessee and revenue for A.Y. 2003-04 and 2005-06 and a solitary assessee's appeal for A.Y. 2007-08. All these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
2. Respective grounds are as under:-
Assessee's appeals:
A.Y. 2003-04 "1. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the following additions of Rs. 16,36,599/- on the ground that the assessee's book balance does not tally with the balance as shown by the parties and therefore the excess balanced shown by the creditors should be added and no additional evidence under rule 46A can be accepted.
2. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the additions of Rs. 1,53,43,292/- made by the learned AO on the ground that since the notices sent to the 7 creditors either came back with a remark 'left' or where delivered no balance confirmation has been received from them. The learned CIT(A) has also erred in not accepting the confirmation filed before him from the parties which contain the same addresses as provided to the learned AO during the course of assessment.
3. Because, the learned CIT(A) has failed to appreciate the following fact mentioned by the learned AO in his order at para 2 at page 3:
"We had sent request to these parties to provide us with their statement of account to reconcile the balances. We are providing herewith the copy of the invoices and bank statement in support of the transactions entered into with these parties during the year under consideration."
4. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while disallowing the expenditure amounting to Rs. 4,72,452/-.
5. The appellant craves leave to add/ alter any of the grounds of appeal before or at the time of hearing.
3 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
A.Y. 2005-06 :
"1. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the addition of Rs. 1,23,000/- being amount of annual chamber membership fee paid to Taj Mahal Hotels on the ground that no documentary evidence has been filed before the learned AO.
2. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the addition made by the leaned AO on the ground that assessee had failed to furnish the balance confirmations from the creditors and thereby failed to prove the genuineness of the outstanding transactions.
3. The appellant craves leave to add/ alter any of the grounds of appeal before or at the time of hearing.
A.Y. 2007-08:
"1. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the additions made by the learned AO on the ground that no evidence has been filed to substantiate the outstanding balances.
2. The appellant craves leave to add/ alter any of the grounds of appeal before or at the time of hearing.
Revenue's appeals:
A.Y. 2003-04:
"1. The learned CIT(A) has erred on facts and in law in deleting addition on account of doubtful debts, obsolete/ non moving stores and leave encashment in making adjustment in the book profit for MAT u/s 115JB of the I.T. Act as:
2. Learned CIT(A) relied upon the decisions of the Hon'ble Supreme Court in the case of CIT vs. HCL Comnet Systems &
4 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
Services Ltd. (2008) 13 ITR (SC) 105 which is contrary to the amendment made in section 115JB of the Finance Act, 2009 effective from 1.4.2001.
3. After the above mentioned amendment the provision, if any, shown by the assessee on the debit side of the P&L account then the same amount should be added to the income of the assessee for calculating book profit.
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." A.Y. 2005-06:
"1. In the facts and circumstances of the case, The learned CIT(A) has erred in law and on facts in deleting addition of Rs. 50,549/- on account of disallowance of extra depreciation on computer peripherals/ accessories ignoring that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories.
2. In the facts and circumstances of the case, The learned CIT(A) has erred in law and on facts in directing to allow depreciation of Rs. 10,94,274/- on capital stores ignoring that once the individual asset is not put to use, which is pre-requisite for availing depreciation u/s 32 of the I.T. Act, the same becomes ineligible/ disqualified for block of asses on which depreciation is allowed as per Rule 5 and Appendix IA of the I.T. Rules but shall continue to remain part of the block of assets for all other purposes except for the purpose of claiming depreciation unless put to use. Reliance is also placed on the decisions in Liquidators of Pursa Ltd. vs. CIT (1954)n25 ITR 265(SC); CIT vs. Suhrid Geigy Ltd. (1982) 133 ITR 884(Guj.)/CIT vs. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319(MP)(App.).
5 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
3. Brief facts are that the assessee is a manufacturer of carbon black, which is used in manufacturing of tyres and rubber related products. 99.9% share holding of the assessee company was owned by a USA company known as Continental Carbon Company. Books of account are duly maintained and audited. The purchases and sales as made by the assessee are on credit basis only and paid to suppliers by account payee cheques. At the end of A.Y. 2003-04, assessee's balance-sheet reflected debtors to the tune of Rs. 51,55,69,889/- and creditors of Rs. 27,99,72,730/-. During the course of assessment proceedings AO asked the assessee to furnish list of sundry creditors outstanding for last three years along with names and addresses of the current creditors, which was replied by the assessee on 22-12-2005 along with the requisite lists. AO issued notices u/s 133(6) to 15 creditors, out of which some of the notices were responded while some remained unreplied. AO, on the basis thereof, sent the assessee a chart showing the non-replied notices and instances of difference in the figures shown between the accounts of assessee and other parties, the same is as under:
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S. Name of the s. creditors Cr. Balance Cr. Balances Difference No. shown by S. as shown by Creditors the assessee
1. Aar Kay Logistics (India) 1890848 1795729 95119
2. Power Max (India) P. Ltd. 1449312 974717 474595
3. Baba Agencies 238647 238647 Nil
4. Eastern Carriers 5793133 5313241 479892
5. Sharma Roadways 1537937 1537937 -
6. Rathi Filters & Inds (P) Ltd. 2060309 2087969 27660
7. PPL Feedback Packing Ltd. 2269525 1682532 586993
8. Allied Steel Traders Received 401177 -
back
9. Chemitach India -do- 518881 -
10. Parkash Machinery Co. No reply 279900 -
11. Disco Carbon & Ribbon Mfg. -do- 1694394 -
Co. (P) Ltd.
12. U.P. Bombay Road Service -do- 6253189 -
13. Pace Carrier No reply 3783236 -
14. Goel Roadways 560732 1221995 991223
15. Janta Roadlines No reply 1412515 -
3.1. AO, after considering the assessee's detailed explanation in this behalf held that assessee could not reconcile the difference in balances as reflected in its parties' a/c and therefore, made an addition of Rs. 16,36,599/- in respect of unreconciled accoutns, by observing as under:
"The assessee in this connection ahs furnished copy of bills reflecting transaction with the concerned parties. It is acceptable that there was some transaction with these parties. The issue is whether the credit balance shown by the assessee in respect of the above said parties are genuine or not. These bills, vouchers do not prove the genuineness of outstanding balances against these parties. Despite of repeated opportunity the assessee failed to provide necessary details in its support and even failed to reconcile the balances. It is well settled by the 7 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
apex court in the case of Roshan Di Hatti v. CIT (1997) 107 ITR 938 (SC) that onus of proving the source of a sum or money found to have been credited by an assessee is on him. If the assessee fails to discharge its onus or explain unsatisfactorily the nature of the outstanding balance or the assessee fails to rebut the same, the same must be treated as income of the assessee of the previous year.
After considering all the aforementioned facts Rs. 16,36,599/- [Rs. 95,119 + 174595 + + 479892 + 596993 being parties at S. no. 1,2,4 & 7 respectively] is treated purchase out of books as Rs. 16,36,599/- is shown excess credit balance by the parties at s. no. 1,2,4 and 7 as compared to the amount shown by the assessee during the course of assessment proceedings. [ Addition: Rs. 16,36,599/-].
3.2. In respect of parties from whom notices u/s 133(6) were not replied or remained unanswered; AO held that burden to produce the parties was on the assessee which was not discharged and, therefore, an addition of Rs.
1,53,43,292/- was made by following observations:
"Parties at S. No. 8 & 9 were not traceable as the notices sent were received back undelivered by the postal department with the remarks "left". The assessee, regardless of opportunity, failed to furnish confirmation from these parties. The assessee even has not provided new address of these parties. Similarly the assessee ahs not furnished confirmation from the parties at S. No. 10,11,12, 13 and 15 and these parties also not responded the notices u/s 133(6) of the I.T. act. The burden to prove genuineness of these credit balances lies on the assessee. The assessee was required to furnish such type of supporting evidences that favours the assessee. There are various case laws wherein the Apex Court held that assessee has to prove his claim by producing relevant supporting evidences. Some are mentioned below:
Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) 8 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
Addl. CIT v. Ghai Lime Stone Co. (1983) 144 ITR 140 (MP) Dhansiram Agarwalla v. CIT (1995) 81 Taxman 1 (Gau.) CIT v. R.S. Rathore (1995) 212 ITR 390 (Raj.) Keeping in view of the facts mentioned above Rs. 1,53,43,292/- is treated unexplained liability and added to the assessee's income. (Addition: Rs. 1,53,43,292/-.)."
3.3. Aggrieved, assessee preferred first appeal, where assessee requested for admission of additional evidenced, making an application in this behalf. The same was refused to be admitted, inter alia, by observing as under:
"6. Vide letter dated September 2008, the assessee also requested for admission of fresh evidence. Accordingly vide letter no. 117 dated 19-11-2008, the matter was remanded to the ld. AO. In the response filed vide letter no. 132 dated 07- 07-2009, a response was sent by the ld. AO. It was contended that M/s Aar Kay Logistics (India) the information was supplied vide the letter dated 25-01-2006 the response from Power Max (India) (P) Ltd. the response was received on 25- 01-2006. Similarly, Eastern Carriers had supplied the information on 28-02-2006 and M/s Rathi Filters & Industries Pvt. Ltd. had filed the letter vide dated 04-03-2006. In M/s PPL Fedback Packaging Ltd. and M/s Goel roadways who furnished information vide letter dated 25-02-2006 and 17-03- 2006 respectively. In response to the letter by ld. AO the assessee has responded on 10-08-2009, wherein they have filed a statement of reconciliation of difference viz. a viz. RK. Logistics (India) and Power Max (India) Pvt. Ltd. As far as M/s Eastern Carriers are concerned, it was submitted that the books of accounts were misplaced. However, they were enclosing the statements showing payment made to the party during the concerned period and the same mentioned by the party. Reconciliation statement was filed with regard to M/s Rathi Filters and M/s PPL Feedback Packaging Ltd. As far as M/s Goel roadways is concerned, a statement was filed filing a statement explaining a difference of 9,91,91,223/-.
9 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
7. On receipt of the reconciliation statement, another letter no. 209 dated 07-09-2009 was sent to the AO with reminders by my Ld. Predecessor. The assessee has responded vide letter no. 269 dated 28-07-2010, wherein he has objected to admission of additional evidence under Rule 46A(1). The ld. AO, inter alia, has submitted that in the reconciliation statements, the assessee company has submitted that the goods were less/excess books by parties in respect of which the difference ahs been noted by the AO. However, the assessee ahs not submitted any reason why the goods were less/ excess books by parties in spite of specific orders by the assessee company. Similarly in some cases bills were booked by the assessee but were not passed by the parties. The assessee has failed to adduce any evidence in support of its claim. The assessee has, in a general manner, filed reconciled statements without bringing on record specific documents to establish its claim.
......
13. In view of the discussion above, the additional evidence as is being advanced during the appellate stage cannot be accepted for the disposal of this appeal. The same is rejected.
3.4. After refusing to admit the additional evidence, the CIT(A) proceeded to decide the grounds raised by the assessee. Addition of Rs. 16,36,599/- for difference in balances was upheld by the CIT(A) by following observations:
"14. Now I shall come to the merits. Here, one may state that the Assessing Officer had raised the issue in his investigation u/s 133(6). On the basis of the response of the entities i.e. R.K. Logistics, Power Max (India) P. Ltd., Eastern Carriers, Rathi Filters & Inds. P. Ltd., PPL Feedback Packaging Ltd. And Goel Roadways, the ld. AO asked the assessee to submit a response. The assessee could not submit the response during the course of the assessment proceedings. In the appellate proceedings, the accounts of various parties have been endeavored to be submitted as additional evidence. It ahs been stated that the goods were less/ excess booked by parties or that the bills were 10 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
booked by the assessee but were not permitted by the parties. While this may be a persuasive reason for the difference in the accounts, but still they are not backed by any cogent evidence, even if we are to admit the additional evidence. Thus, the explanation given by the assessee is too generalized to be accepted. As such, the assessee deserves to fail in ground of appeal no. 2."
3.5. The addition on account of non-reply of notices u/s 133(6), CIT(A) upheld the same by following observations:
"18. Ground of appeal no. 4 pertains to disallowance of Rs. 1,53,43,292/-. From the impugned order, it is observed that M/s Allied Steel Traders and M/s Chemi Tech India Ltd. were untraceable. The remarks of the postal departments on the undelivered envelope was 'left'. The assessee did not furnish any confirmation from the parties. They even failed to provide the new address of the parties. Similarly, in the case of Prakash Machinery Co., Disco Carbon & Ribbon Manufacturing Co., UP Bombay Road Service, Pace Carrier and Janta Roadlines no response has been received with regard to the queries raised by the ld. AO. As such, the ld. AO after relying on certain case laws has proceeded to make an addition of Rs. 1,53,43,292/-.
19. The assessee has taken the stand that non-filing of the transaction confirmation by itself cannot be reason enough for disallowance. The onus was on the AO to prove that the transactions entered with the parties were not genuine. Reliance was placed on the decision of the Mumbai Tribunal in Sanchita Marine Products Pvt. Ltd. Vs. DCIT (2007) 15 SOT 280.
20. I have considered the order of the ld. AO and the submissions made by the ld. AR of the assessee. It is settled law that in transactions of such nature, the assessee primarily has to prove the identity and the creditworthiness of the creditor. He also has to prove the genuineness of the transaction. One this primary onus is discharged by him, then only the onus shifts on the Revenue. In the case in hand, the primary onus which rested 11 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
with the assessee ahs not been discharged inspite of getting more than 3 opportunities. Once it is established that the primary onus has not been discharged, there is no option but to sustain the addition of Rs. 1,53,43,292/-. The assessee fails in ground of appeal no. 4."
3.6. Expenses on account of consultancy services pertaining to earlier year Rs. 4,72,452/-, the CIT(A) upheld the disallowance by following observations:
"23. On a perusal of the impugned order as well as the submissions made by the assessee, it is crystal clear that the impugned expenses did not belong to the previous year in question. The assessee's statement is that it received the bill and paid the bill during the year itself. The main issue here, is that the assessee who follows the mercantile system of accounting, when did the bill crystallize in the account of the assessee. Apart from making a general statement, no evidence has been provided which would suggest that the bills were received and paid during the year and therefore the expenses have crystallized during the year itself. In the absence of any such detail, the assessee deserves to fail in ground of appeal no. 5."
Aggrieved, assessee is in appeal before us.
4. In respect of Revenue's ground u/s 115JB, the assessee's claim for reduction on following items from book profits was rejected by the AO. The same was claimed on the basis of audited statement and certificate. AO, however, held that it was to be non-deductible from the profits which was accordingly rejected. Aggrieved, assessee preferred first appeal before the CIT(A). While dealing with the ground on account of 115JB, CIT(A) 12 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
observed that assessee had claimed benefit of sec. 115JB in the return of income, in respect of following:
i. Doubtful debts Rs. 2,18,17,060/-
ii. Obsolete/Non moving stores Rs. 5,00,000/-
iii. Leave encashment Rs. 4,34,150/-
4.1. Before CIT(A) assessee relied on following judgments:
- CIT v. HCL Comnet Systems & Services Ltd. (2007) 292 ITR 299 (Del.);
- CIT v. Eicher Ltd. (2006) 287 ITR 170 (Del.)
- CIT v. Echjay Forgings Pvt. Ltd. 92001) 251 ITR 15 (Mum.)
- JCIT v. Usha Martin Industries Ltd. 104 ITD 249 (Kol.)
- Bharat Earth Movers Vs. CIT 245 ITR 428 4.2. As far as provision for obsolete/ non moving stores, it was contended that the same cannot be considered as unascertained liability as they diminish the value of the asset.
4.3. CIT(A) after hearing the assessee, allowed the claim of the assessee in respect of doubtful debts, relying on Hon'ble Supreme Court judgment in the case of CIT Vs. HCL Comnet Systems and Services Ltd. (2008) 13 DTR (SC) 105.
4.4. In respect of obsolete/non-moving stores, it was held that they amount to diminution in the value of the asset which was mentioned in the audited balance-sheet and by placing reliance on Hon'ble Supreme Court 13 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
judgment in the case of Bhart Earth Movers Vs. CIT 245 ITR 428 and Metal Box Co. of India Vs. Their Workman (1969) 73 ITR 53. 4.5. Diminution of the asset, it was recognized in the books of account. Similarly, the provision of leave encashment was allowed to the assessee following Hon'ble Supreme Court judgment in the case of Bharat Earth Movers (supra).
Aggrieved, on this count, revenue is in appeal before us. A.Y. 2005-06
5. Brief facts are that in this year the AO again made the addition in respect of sundry creditors i.e. non-reply and difference in accounts by following observations:
"During the year, the assessee has shown total sundry creditors of Rs. 51,02,05,428/- as on 31-03-2005 as against Rs. 32,03,44,048/- as on 31-03-2004. The assessee company was required vide questionnaire dated 18-07-2007 to give details of sundry creditors along with complete addresses for the last three years along with confirmations of balance about Rs. 5 lacs. The AR has filed a list of sundry credit balances as on 31- 03-2003, 31-03-2004, 31-03-2005 and 31-03-2006 which contains list of persons whose total as on 31-03-2005 has been shown at Rs. 26,38,55,743/-.
"The assessee company was required vide order sheet entry dated 7-11-2007 to show cause as to why creditors should not be added back to the income as the same still remain unconfirmed. Further vide order sheet entry dated 14-11-2007 the AR was required to furnish explanation as regards credit balances still unconfirmed with 14 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
supporting evidences and confirmation. The AR appeared on various dates thereafter however no confirmations were furnished except for the following vide letter dated 19-12-2007:
- Provisional reconciliation of RIL for he period 01-02-2004 to 31-03-2006 finally arriving at a provisional balance as on 31-03-2006 which no way explains the balance as on 31-03-2005.
- Reconciliation of Allied Engineers however the ledger account of Allied Engineers not filed. A photocopy of a ledger account showing certain transactions neither hearing the name of the person whose books contain such ledger account nor it has been signed by any person. No cognizance of such photocopy can be taken,
- The Reconciliation which Dieo Carbon and Manufacturing company Limited is unsigned. Further the reconciliation filed by the are company includes entries relating to period not pertaining to the relevant assessment year like F.Y. 2003-04, 2006-07. The figures have been juggled to arrive at a specific figure just to mach the balances. In the absence of signature no cognizance is being taken of the photocopies filed by the AR.
- A photocopy of ledger account of Prime Wovens Limited has been furnished which is unsigned. A mere photocopy of a ledger account without bearing signature of the concerned person is no confirmation.
- Confirmation signed by Accounts Manager on behalf of Store Sacks India Private Limited confirming balance of Rs. 5,41,662/- is accepted.
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- There is email from chemitech to Debjeet Bhatacharya confirming balance of Rs.
602275.71 as on 31.03.2005. However, there is no reference of the assessee company in the communication relied upon by the AR. No cognizance of such document can be taken.
- A joint reconciliation between assessee company and India Oil Corporation for the period 1.08.2006 to 31.03.2007 is irrelevant and has no bearing on the subject matter.
To sum up it is evident that out of all the documents filed by the AR only one confirmation in respect of credit balance of Rs. 5.41.662/- in respect of M/s Store Sacks India Private Limited is acceptable and no other credit balance has been confirmed.
The assessee has filed the list of the "sundry creditors" for as many as 236 creditor parties where credit balance was above Rs. 1000/-. The assessee filed the creditor balances for the last three years. During the proceedings for A.Y. 2003-04 in the case of the assessee company, the AO had issued notices u/s 133(6) to various parties and in most of the parties the information was not received. On that basis, an amount of Rs. 1.58 crores was added to the income of the assessee company.
As discussed above in para VI.1 except for confirmation of Rs. 5,41,662/-, the balance amount still remain unconfirmed though sufficient opportunities had been afforded to the assessee company. The assessee has not furnished confirmation w.r.t. any other party. Since the assessee has not filed the confirmations as required, the amount shown against the balance sundry creditor remains unverified. The addition made w.r.t. The sundry creditor considered in the earlier A.Y. i.e. 2003-2004 and 2004-2005 amounting to Rs. 1.58 crores and Rs. 3.76 crores respectively further suggests that the assessee company has not been able to furnish documentary evidence in support of credits appearing in its books of accounts. However, it is seen that balances of companies like Reliance Ind. Limited 16 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
has been reduced from Rs. 17.91 crores as on 31-03-2004 to Rs. 10.74 crores as on 31-03-2005. The assessee company has furnished bills raised by them and it has also furnished ledger account that shows regular transactions. However, it ahs not been able to get the balances confirmed. Accordingly, keeping in view all the facts and circumstances of the case the balances unconfirmed are being added to the income of the assessee company.
In view of the above, the confirmation of the parties which the assessee has not produced are shown as under:
Total Sundry Creditor shown in the Rs. 26,38,55,743/- balance sheet Less: Confirmations filed by the Rs. 5,41,662/- assessee as shown above Less: Creditors already added back Rs. 1,60,32,175/- in A.Y. 2003-04 Less: Creditors already added back Rs. 3,74,60,538/- in A.Y. 2004-05 Rs. 20,98,21,368/-
The amount of Rs. 20,98,21,368/- worked out as above remains unconfirmed against various creditors shown by the assessee during the year.
5.1. Aggrieved, assessee along with other grounds challenged these additions before CIT(A). In this year also additional evidence was filed by the assessee in respect of reconciliation of accounts and balance confirmation in respect of unreplied creditors. Additional evidence was duly forwarded for comments/remand report, which was submitted by the AO. In the remand report the AO objected to admission of additional evidence, 17 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
besides submitted its comments on the nature of evidence. The copy of remand report was provided to assessee. In rejoinder assessee contended that the specific compliance in this behalf was asked by AO at the fag end of the assessment proceedings, which were to be obtained from third parties. Due to delayed response from the purchasers, assessee could not obtain it prior to the framing of the assessment and further contended as under:
It was further added that bills and relevant records were produced before Assessing Officer for establishing genuineness of the transactions during the year. During assessment proceedings, the assessee had provided the Assessing Officer with the copies of letters to' all the creditors having outstanding balances of Rs. 5,00,000/- or more at the year end i.e. 31.3.2005 for their balance confirmation. The Assessing Officer at Para VI.3 page No.5 of his order has accepted the fact that regular transactions entered into by the assessee company during the year under consideration with the creditors were all duly supported by the bills, ledger accounts, etc. and thus genuine. The Assessing Officer had disallowed only the balances outstanding at the end of the year and not the transactions as such with any of the creditors meaning thereby that he had not doubted the genuinenity of expense/purchase incurred/ made during the year. He has disallowed the credit balance merely on the ground of non receipt of confirmation. In this regard reference was made to the decision of the Hon'ble Mumbai Tribunal in the case of Sanchita Marine Products Pvt. Ltd. vs. Dy. CIT 15 SOT 280 wherein it was held that non filing of a transaction confirmation by itself cannot be a reason enough for disallowance. Further it is well settled that once the assessee has proved the identity of its creditors, the capacity of his creditors and the genuineness of the transaction, the onus shifts on the department to disallow or add any amount. Reliance was placed on the cases cited in 95 TTJ 71. 101 TTJ 810 163 ITR 249, 205 ITR 444.
18 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
5.2. CIT(A), after considering the material available on record, admitted the additional evidence allowed part relief in this behalf, by following observation:
"4.3. I have carefully considered the submissions made by ld. AR and have gone through the assessment order/ remand report. In view of the circumstances explained by ld. AR and principles of natural justice and to arrive at a factual finding, the evidences filed by the appellant are admitted. The Assessing Officer has made the addition on account of non filing of confirmations for credit balances as on 31-3-2005. The appellant was given credit balance of Rs. 5,41,662/- for which confirmation of Store Sacks India Pvt. Ltd. was filed. During the appeal proceedings, the appellant has filed some additional documents. The Assessing Officer has objected to these reconciliations/ confirmations by saying that bills/vouchers/copy of account etc. are not filed. However, I do not find force in Assessing Officer's objection because in assessment order itself the Assessing Officer ha admitted that bills and ledger accounts were filed before him. The other objection raised by the Assessing Officer is that confirmation letters filed by the assessee for some of the parties are unsigned and the assessee ahs just reconciled the copies of accounts without any supporting evidence. The appellant ahs not replied to this specific objection and has only given general arguments.
From a perusal of the documentary evidences filed by the appellant, the following position emerges:
i) For BVG India Ltd. the appellant ahs filed one copy of reconciliation statement along with the copy of balance confirmation. However, this in fact, is a letter sent by the 19 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
appellant company to BVG India Ltd. and the reconciliation is signed by the authorized signatory of the assessee company. Hence, these documents are in no way the confirmation given by BVG India Ltd.
ii) For Chemitech India, Allied Engineering Works, IMC Limited, Eastern Tar Pvt. Ltd., Reliance Industries Ltd. and Premier Steels, the printouts of 'e-maikls' are given which are unsigned and unauthenticated. Wherever reconciliations are filed they are not supported by evidence. Hence, this does not meet the specific query/ requirement of the Assessing Officer.
iii) For Kumar & Company, the appellant has filed one letter with stamp of Kumar & Company which says that eh balance of Rs. 6,48,563/- reported by the appellant does not tally with the balance of Rs. 6,86,479/- appearing in their books. The appellant has filed a reconciliation statement for reconciling the difference. However, no supporting document is filed in support of this reconciliation statement. Similar is the position with regard to Janta Roadlines, Dico Carbon & Mfg. Co. Ltd., Ramson Associates. Thus these documents fail to prove the credit balances in the books of the assessee as on 31-3-2005.
iv) For D.S. Transport Corporation, Transport Corporation of India Ltd. & Pace Carrier Pvt. Ltd., merely photocopies of the confirmation for credit balances are filed with illegible stamps or unsupported reconciliation.
v) For Continental Carbon India Ltd., a photo copy of the unsigned confirmation is filed and hence, does not meet the specific requirement of a confirmation.
From the above, it is evident that out of 19 parties, the confirmations can be stated to be filed only with regard to Delhi 20 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
Gwalior Freight Carrier, Nagpur Indore Roadways, BIUC Logistics Ltd. & U.P. Bombay Road Services. The Assessing Officer is directed to verify and if the balances stated in (vi) above tally with the balances as appearing in the balance sheet the credit be given accordingly.
For other parties, the appellant has not been able to discharge the onus of proving the outstanding credit balances. Even the reconciliation statements filed by the appellant are not supported by evidences. The ld. AR ahs referred to certain judgments. However, in a recent decision in the case of Uplaksh Metal Industries vs. CIT 177 Taxman 298,it has been held by Hon'ble Punjab & Haryana High Court that in case assessee claims liability of payment to trade creditors shown in the balance sheet, it is definitely required to prima facie prove identity of trade creditors as well as genuineness of transaction. Once entry of liability is not accepted, treating amount of liability as income of assessee is consequential. The Hon'ble High Court has referred to the observations of Hon'ble Tribunal that here is no distinction laid between the trader creditor and the non-trade creditor and in case the assessee claims liability of payment of the trade creditors shown in the balance sheet, the assessee is definitely required to prima facie prove the identity of the trade creditors as well as the genuineness of the transaction.
In the present case, the Assessing Officer has raised specific queries with regard to the outstanding credit balances. Despite sufficient opportunity being provided, the appellant ahs failed to prove the genuineness of the outstanding balances. In view of the facts of the present appeal, I find that for the outstanding balances which remain unverified/ unconfirmed, the Assessing Officer is justified in treating the amount of 21 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
liability as income of the assessee and the same is, therefore, upheld."
5.3. Aggrieved on this ground, both the assessee as well as the revenue are in appeal before us.
A.Y. 2007-08:
6. Brief facts relating to assessee's appeal for A.Y. 2007-08 are that in this year the assessment order was passed on 24-12-2009, vide order-sheet entry dated 24-11-2009 the AO asked the assessee to explain the difference and credit balances in respect of which it was claimed by the AO that notices had been returned unserved. It has been observed by AO that along with its reply dated 4-12-2009 the assessee enclosed copies of confirmations which were filed earlier and in respect of remaining creditors it was pleaded that they were running accounts on account of purchases and not cash credits. According to AO, 16 parties did not reply. It was held that the onus for providing the source of a sum of money found to have been received by the assessee, had not been explained. Therefore, following his line of action in earlier years the AO made the addition of Rs. 1,83,38,680/-. 6.1. Aggrieved, assessee preferred first appeal, where assessee reiterated the contentions raised in earlier years and pleaded that:
(i) AO has himself admitted that the assessee had filed copies of confirmations, which are already filed;
22 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
(ii) It was pleaded that in respect of remaining creditors for which difference existed in respective accounts, the same cannot be added in ad hoc manner merely because the other parties did not furnish the information about differences.
(iii) The addition was made purely on the ground that the assessee did not file confirmations in respect of differences. Although, filing of confirmation is admitted.
(iv) Out of 16 parties, assessee had produced confirmations and copies of form 16A, which was applicable to 10 parties amounting to a sum of Rs. 1,64,05,665/-. Assessee had produced complete books of account which have neither been disturbed nor rejected. All the purchases made by the assessee have been allowed as eligible expenditure in all the years. Only the outstanding credit balances have been added. Assessee provided all the bills, vouchers, invoices, bank statements. The addition was unjustified.
(v) CIT(A) though observed that in A.Y. 2005-06 major additions have been deleted, however, instead of deciding, restored the matter back to the file of AO for fresh verification by following observations:
"2.3. I have carefully considered the submissions of Ld. AR and have gone through the assessment order. Identical issue came up before me in appellant's own case for assessment year 2005-06 wherein the Assessing Officer had made the addition on a/c of non-confirmation of outstanding credit balances. The addition in that year has been upheld to the extent the appellant could not substantiate the outstanding balances.
In the present appeal, the Assessing Officer has made the addition, despite confirmations being filed. The
23 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
Assessing Officer had sent notices u/s 133(6) to 22 concerns out of which 16 concerns did not respond and hence, the Assessing Officer added the outstanding balances u/s 68 of the Act. However, the Assessing Officer has not pointed out any discrepancy in the confirmations filed by the appellant. In such circumstances, the disallowance of outstanding balances merely on the ground that the parties did not respond to notice u/s 133(6) is not justified.
The Assessing Officer has not given the details with regard to confirmations filed by the appellant. As per the submissions of the appellant, confirmation of 10 parties were filed during the assessment proceedings. With regard to remaining parties, no further evidence is filed to substantiate the outstanding balances. Thus the appellant has not been able to discharge the onus of proving the outstanding credit balances in certain cases and addition to that extent is upheld. In the case of Uplaksh Metal Industries vs. CIT 177 Taxman 298, it ahs been held by Hon'ble Pubjab & Haryana High Court that in case assessee claims liability of payment to trade creditors shown in the balance sheet, it is definitely required to prima facie prove identity of trade creditors as well as genuineness of transaction. One entry of liability is not accepted, treating amount of liability as income of assessee is consequential.
In view of the above discussion and also in view of the decision on similar issue for appeal in assessment year 2005-06, the Assessing Officer is directed to verify from his records and delete the addition to the extent the appellant has filed confirmations for the outstanding balances as on 31-03-2007. This ground of appeal is, therefore, treated as partly allowed."
Aggrieved on this ground, assessee is in appeal.
24 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
7. Learned counsel for the assessee adverting to 2005-06contends that all the additions made by lower authorities are without appreciation of proper facts and contentions. Assessee fully cooperated in the assessment proceedings, which is clear from the correspondence with AO in this behalf. Notice for hearing along with list of requirements was sent by AO on 30-9- 2005 (available on pages 30 & 31 of the paper book). It was replied by the assessee on 22-12-2005 giving all the details which were asked for and particularly details of sundry creditors along with their addresses etc. The same is on paper book pages 32 & 33. Thereafter, AO sent a notice dated 6- 2-2006 in which reference was made to the notice u/s 133(6) sent to M/s Allied Steel Traders and M/s Chemitach India, which were received back by AO with postal remark "no such firm". Thereafter, vide notice dated 16-2- 2006 AO further asked to reconcile the difference between the accounts of M/s Power Max (India) P. Ltd. and M/s Aar Kay Logistics (India). Assessee duly replied the same on 21-2-2006 to show the genuineness, assessee vide this letter submitted copies of the bills of Allied Steel Traders and Chemitach India with whom assessee was still dealing, indicating that the concerns were in existence and there was no question of parties being bogus; copy of the account was submitted. In respect of Power Max (India) P. Ltd. and Aar Kay Logistics (India), proper reconciliation statement was 25 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
submitted. Again vide letter dated 24-3-2006, assessee made a request to AO as under:
"Copy of ledger accounts of all the parties to whom notices have been sent u/s 133(6) as Annexure 4; further we would like to mention that we had sent request to these parties to provide us with their statement of accounts to reconcile the balances. We are hereby enclosing the copy of some of the invoices and payment advice in support of transactions entered into with these parties during the year under consideration."
7.1. The information in possession of the assessee was duly submitted before AO; further information for reconciliation of accounts was not available with the assessee as late as on 24-3-2006. It is pertinent to note that assessment order has been passed on 27-3-2006 as the same was time barring. The fact remains that the assessee was yet to receive the information from third parties and the assessment was framed to avoid time barring. In these circumstances, the additional evidence furnished by the assessee before CIT(A) ought to have been admitted as the assessee was prevented by sufficient cause which was duly communicated to AO on 24-3-2006 i.e. 3 days before framing the assessment. There is neither rejection nor mention of assessee's request about time by the AO.
7.2. Vide written submissions dated 10-9-2008, the assessee made an application for admission of additional evidence, pleading that sufficient opportunity to produce the third parties' evidence on which assessee has no 26 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
control, was not given. The additional evidence is listed on letter which is placed on pages 420 & 421 of the paper book. Thereafter, assessee vide letter dated 7-7-2009 & 10-8-2009 furnished details about account for reconciliation of following six parties:
(i) Aar Kay Logistics Rs. 1795729/-
(ii) Power Max (India) Pvt. Ltd. Rs. 974717/-
(iii) Eastern Carriers Rs. 5313241/-
(iv) Rathi filters & Inds. P. Ltd. Rs. 2087969/-
(v) PPL Feedback Packaging Ltd. Rs. 1682532/-
(vi) Goel Roadways Rs. 1221955/-
7.3. Under these circumstances, the principle of natural justice demanded that the additional evidence ought to have been admitted by CIT(A). More so when the earlier incumbent in office CIT(A) had taken the trouble of forwarding the evidence to the AO for remand which was duly received and assessee was asked to file rejoinder thereon, which also has been duly submitted before CIT(A). Having undertaken all this exercise, it is unjustified on the part of CIT(A) to have refused the admission of additional evidence and confirm the additions on the basis of AO's order. 7.4. Learned counsel thus contends that there was no justification in refusing the additional evidence. All the parties have running a/c with the assessee and apart from the year in question, it had dealings with these firms in subsequent years which was tried to be explained to the lower authorities.
27 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
It is pleaded that CIT(A) had no justification in refusing to admit the additional evidence u/s 46A(3), the remand report of AO in respect of reconciliation is on the record; the assessee filed rejoinder thereon; entire material is on record on this aspect; therefore, the additional evidence may be admitted and the relevant material being on record, the same may be verified.
7.5. Coming to the AO's remand report dated 7-7-2009, placed on page 458 of the paper book, learned counsel vehemently argued that in A.Y. 2003-04 the CIT(A) undertook the entire exercise for examination of additional evidence which clearly indicates that he was inclined to admit the additional evidence. The same was justified in view of the fact that the information which could not be supplied by the assessee was specifically communicated at the fag end of the assessment proceedings. Further, the information required was to be obtained from third parties, spread all over India. The assessee could only utilize his good relations to send the information. It had no power to compel them or insist immediate compliance. The parties which could not submit the necessary details in short time were added in ad hoc manner by the AO on this basis only. The successor of the CIT(A) though mentioned in his order about the remand report furnished by AO and the rejoinder report of the assessee and 28 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
recording that the time given to the assessee was short, still refused to admit the additional evidence. It is ironical that in the same circumstances for A.Y. 2005-06, the CIT(A) admitted similar type of additional evidence. It is pleaded that there was no justification on the part of CIT(A) to refuse the admission of additional evidence in A.Y. 2003-04. The same may be admitted and since all the creditors are by and large the same for A.Y. 2005- 06 and 2007-08, the matter may be decided on merits. A.Y. 2005-06:
7.6. It is contended that in A.Y. 2005-06 the AO adopted a peculiar feature by adding all the sundry creditors minus the creditors added in A.Y. 2003-04. This action shows gross ad hoc approach of the AO who failed to notice that all these credits are not by way of loan or advance but they were day to day outstanding balances of the suppliers of the assessee from which assessee made day to day purchases of raw material. The parties were in existence in earlier years and subsequent years. One the assessee has proved the existence of parties and the fact that the amount was in credit because all the purchases which are entered in the stock register and debited to P&L A/c. AO accepted the stock register and allowed the expenditure on account of purchases. Unfortunately, he disallowed the outstanding balances only u/s 29 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
68 which is not applicable. The working of unfortunate addition made by the AO in A.Y. 2005-06 is as under:
"Additions made on the ground that since the confirmations from creditors have not been produced except one creditor, creditors balances are being added as income Additions made by AO Total sundry creditors shown in the Balance sheet: 263855,743 Less: Confirmation provided in respect of M/s Store Sacks India Pvt. Ltd. 541,662 Less: Creditors added in AY 2003-04 16,032,175 However total addition made in AY 2003-04 Were Rs. 176,68,774/- and not 160,32,175/- Less: Creditors added back in AY 2004-05 37,460,538 209,821,368 7.7. Learned counsel then contends that before CIT(A) the additional evidence in respect of these parties filed. In this year in the similar facts additional evidence has been accepted. CIT(A), however, partly deleted the additions as under:
S.No. Party Name Evidences Evidences
accepted by rejected by
CIT(A)VI CIT(A) VI
Amount Amount Amount
1. BVG India Ltd. 571,911 - 571,911
2. Chemitech India 609,727 - 609,727
3. Kumar & Co. 648,563 648,563
4. Allied Engineering 834,800 834,800
Works
5. D.S. Transport Corp 953,710 - 953,710
6. Delhi Gwalior 1,168,563 1,168,563 -
30 ITA 5269, 5270, 5271, 5242 & 5513/D/10
Continental Carbon India Ltd.
Freight Carrier
7. Nagpur Indore 1,553,420 1,553,420 -
Roadways
8. Transport Corpn. Of 1,813,104 - 1,813,104
India
9. Pace Carriers Pvt. 1,843,934 - 1,843,934
Ltd.
10. BIC Logistics Ltd. 2,088,650 2,088,650 -
11. IMC Ltd. 2,091,361 - 2,091,361
12. Janta Road Lines 2,868,105 - 2,868,105
13. Eastern Tar Pvt. Ltd. 3,491,102 - 3,491,102
14. Continental Carbon 4,961,629 - 4,961,629
Co.
15. U.P. Bombay Road 4,703,918 4,703,918 -
Services
16. Reliance Industries 107,430,240 - 107,430,240
Ltd.
17. Premier Steels 569,275 - 569,275
18. Disco Carbon & 2,770,562 2,770,562
Ribon Manufg. Co.
19. Ramson Associates 9,915,894 9,915,894
Pvt. Ltd.
150,888,468 9,514,551 141,373,917
7.8. Coming to A.Y. 2007-08, learned counsel contends that in this year there is no issue of additional evidence as all the relevant material was before the AO. Assessee filed a proper paper book, containing all the information and requisite confirmations before CIT(A). In this case, though the entire material was on record, the CIT(A) could not find any factual discrepancy therein. However, following the order for A.Y. 2005-06, part of the additions have been confirmed. Learned CIT(A) has failed to take into consideration that the assessee has discharged its burden by filing necessary 31 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
evidence before AO and the insistence of confirmations from third party by way of summons was at the behest of AO and it was his duty to have enforced the summons. This could have been done by way of appointing commissions or asking the counter parts having the jurisdiction over suppliers to get their accounts verified and submit a report. The assessee is being saddled over an impossible burden as it does not have any official control over the suppliers. This exercise could have been undertaken by AO either in original or in remand proceedings or by the CIT(A) in his appellate powers enshrined by the Act. In this case, the revenue authorities instead of using their powers, have fastened the assessee with responsibility to discharge an impossible burden.
7.9. Learned counsel contends that in A.Y. 2007-08 the positions of additions deleted/ retained by the CIT(A) is as under:
S.No. Name of parties to whom Additions made Additions Additions upheld notice u/s 133(6) was issued by AO deleted by by CIT(A) VI on but no reply has been CIT(a) VI the ground that received subject to appellant has not verification by been able to AO discharge the onus of proving the outstanding credit balances.
Amount Amount Amount
1. Feed Back Business 319,890 - 319,890
Consulting Services
2. Deepak Road lines 330,769 330,769 -
3. Kengain Distribution 269,132 - 269,132
32 ITA 5269, 5270, 5271, 5242 & 5513/D/10
Continental Carbon India Ltd.
India
4. Rajasthan Steel 615,986 615,986 -
Enterprises
5. Steel Authority of 379,513 - 379,513
India Ltd.
6. Dukhiram Maurya 373,986 373,986
Engineering & REF
Works
7. Murugappa Morgans 303,957 303,957
Thermal Cera Ltd.
8. Indian Oil Corpn Ltd. 286,535 - 303,957
9. Yuktee Patel TPT 2,547,739 2,547,739
Pvt. Ltd.
10. Orient Mai Speed 1,375,033 1,375,033 -
TPT Service
11. TCI Hi-Ways Pvt. 4,245,712 4,245,712
Ltd.
12. Transport 937,138 937,138
Corporation of India
Pvt. Ltd.
13. Janta Roadlines 3,041,943 3,041,943
14. Thermoweld 664,335 664,335
Engineering Pvt. Ltd.
Continental Carbon
Co.
15. D.S. Transport Corpn. 1,077,517 1,077,517 -
16. Delhi Gwalior Freight 1,569,495 1,569,495
Carrier
7.10. Ld. counsel in fine contends as under:
(i) All these parties are the supplier of raw-material to assessee, the credit balances being on account of purchase of goods they cannot be added u/s 68. The CIT(A)'s reliance on Hon'ble Punjab & Haryana High Court judgment in the case of Uplaksh Metal Industries Vs. CIT (2009) 177 Taxman 298 is not 33 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
applicable to assessee's case. In that case, identity, genuineness of supplier was in doubt. In this case identity of the supplier and genuineness of purchasers is established and is accepted by the AO, by upholding the books of account and following record:
(a) stock register;
(b) consumption based on such purchases have been accepted;
(c) utilization has not been disturbed;
(d) sales have been accepted
(e) The assessee's purchases with the suppliers have been accepted in one or other subsequent year.
Consequently it cannot be held that assessee has failed to discharge prima facie onus for proving the purchases as genuine. AO unfortunately adopted contradictory standard on one hand, all the purchases are accepted and allowed as expenditure in P&L A/c, but the amount payable to suppliers on the basis of very same credit purchases is being disallowed because AO could not served the notice. The whole approach adopted is grossly mistaken which has put the assessee in repeated litigation.
(ii) The assessee's payments against the purchases are through bank statements, which were explained before AO with evidence about clearance of cheques by bank staments, Under these circumstances, no question can be raised on the financial implications of the transactions as they stand proved on these facts.
(iii) The assessee filed all the relevant documents showing the genuineness of the quantity of purchases and that of the supplier and the fact that the transactions were entered into 34 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
relevant books and record during the normal course of business of the assessee, has not been disptued. The assessee filed bank accounts, confirmation, copy of ledger accounts for all the years, copies of purchase bills, PAN nos. of suppliers, their Vat registration etc. which proves the genuineness of the transactions beyond doubt. Further, the perusal of bank account of the assessee and the ledger accounts show that the payments to the suppliers have been duly made by cheque in due course of the business.
(iv) The AO has nowhere been able to point out a single defect in the books of account. The only reason for making the additions is given as non-service of notices by AO on supplier. The sales, purchases and trade results shown by the assessee have been accepted by the AO without question. It cannot be implied that the suppliers of these goods from these suppliers were not received and hence the balances appearing in these accounts as on 31st March of each year are explained money of the assessee. 7.11. Reliance is placed on Hon'ble Supreme Court's judgment in the case of CIT Vs. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) for the proposition that if the AO has issued summons u/s 133(6) it is his duty to bring the process to a logical conclusion and non-response by such person cannot be held against the assessee. The judgment is squarely applicable to the case of the assessee. Consequent to non-compliance of summons u/s 35 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
133(6), assessee again produced current bills of purchases from some of the same suppliers to indicate that they were in existence at the address. 7.12. Reliance is placed on following case laws:
(a) CIT Vs. Pancham Dass Jain (2006) 205 CTR (All.) 444
(b) YFC Projects (P) Ltd. Vs. DCIT (Del) 134 TTJ 167
(c) ACIT vs. Han Singar Gutkha (P) Ltd. (2008) 9 DTR 604(Trib.)
(d) JCIT vs. Mathura Dass Ashok Kumar (2006) 101 TTJ (All) 810.
(e) CIT Vs. Smt. P.K. Noorjehan (1999) 237 ITR 570.
7.13. Apropos difference in balances of assessee and supplier, the same cannot be added u/s 68 as the existence of assessee, supplier and purchases are admitted. The difference in accounts may be due to various reasons including discount, goods returns; quality, differences, rebates and so many other business exigencies. Such differences cannot lead to addition u/s 68/69C. At the most, if the differences remain unresolved for number of years, the AO may proceed to 41(1), but not u/s 68 or 69C. Suppliers existence and transactions having been accepted, the difference thus cannot be added as income. The assessee furnished reconciliation, if the same were wrong, it was the burden of AO to demonstrate that it was not proper. If AO fails to discharge his onus, it will be inappropriate to punish assessee for the same.
36 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
7.14. Because summons could not be served u/s 133(6) or the reconciliation were not confirmed by third parties, the assessee cannot be saddled with additions as long as it has discharged its burden cast by the I.T. Act. It is pleaded that additions in this behalf in A.Y. 2003-04 & 2005-06 may be deleted.
8. Learned DR is heard, who relies on the orders of AO and contends that the I.T. Act cast a burden on the assessee to prove identify, genuineness and creditworthiness of the creditors. CIT(A) has properly relied on the Punjab & Haryana High Court judgment in the case of Uplaksh Metal Industries (supra). Since the assessee's suppliers failed to respond to summons u/s 133(6),it implied that they were not genuine, the additions as made by AO are justified.
9. Learned counsel for the assessee in rejoinder contends that the liability in the first place u/s 68 is not applicable to trade creditors whose purchases are accepted. Same suppliers have been accepted in other years, difference in accounting balances which have been reconciled by the assessee and third party response to summons u/s 133(6) is not the burden of the assessee. Since the summons remained uncomplied with, there is no negative confirmation, the statutory process which is within the power of AO remained unfulfilled, there is no shifting of onus on the assessee. In 37 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
these circumstances, no addition can be made u/s 68. Besides, the assessee's books of account are accepted; all the credit purchases are vouched; payments are realized through bank statements, which are produced; the stock register, purchase details, consumption of raw material, yield, sales and trade debtors having been accepted, these credit balances cannot be added u/s 68.
10. We have heard rival submissions on this issue. As far as non- admission of additional evidence in A.Y. 2003-04 is concerned, the first incumbent CIT(A) in A.Y. 2003-04 had sent the additional evidence for the comments of AO who submitted a proper remand report which was duly rejoined by the assessee. It clearly emerges from record that during the assessment proceeding the specific queries were raised at the fag end and the assessee was not given sufficient time for specific compliance. The documents/ records in possession of the assessee were duly supplied to the AO and no adverse comments have been made in this behalf. We find merit in the argument of the learned counsel for the assessee that for 133(6) compliance it had no control over third parties. In our view, once the AO issued summons u/s 133(6), as held by Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (supra), it is his duty to ensure that the proess of issue of summons is brought to a logical conclusion by enforcing 38 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
summons. The enforcement can be achieved in many ways including taking action on uncomplied summoned persons, by appointing commission on the income-tax authorities having jurisdiction over them and getting the verification from their returns or accounts. In these cases neither AO nor CIT(A) adopted this course as laid down by law.
10.1. Further, on same facts and circumstances, CIT(A) partly admitted the additional evidence in subsequent year i.e. A.Y. 2005-06. In our view if the specific queries are raised at the end of assessment proceedings and the summons are not served or replied, in that case assessee deserves an opportunity to be heard in appeal. If a proper application for admission of additional evidence is filed along with reasons, the same shall be admitted. In view thereof, we see no justification in refusal of admission of additional evidence in A.Y. 2003-04, more so when in A.Y. 2005-06 CIT(A) again partly admits the additional evidence. Consequently, the evidence filed by the assessee is admitted.
10.2. Now, adverting to the merits of the case, the assessee made various purchases from these parties not only in this year but in some case in earlier or subsequent years also. The assessee has furnished a detailed comparative chart of each purchase in A.Y. 2003-04, 2004-05, 2005-06, 2006-07 & 2007-08 on record. The assessee's purchase transactions with these parties is 39 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
repeated one or other in these years and the actual credit purchases therefrom have been accepted either by the AO or CIT(A) on one ground or the other. It is not the case of AO that the purchases were bogus or the purchases are not effected. This is evident from the fact that all the purchases of the assessee, stock register, yield, sales, sundry debtors remain accepted in all these years. Consequently, it cannot be held that such suppliers were not genuine only because summons u/s 133(6) were not served.
10.3. What is being added by the AO is the credit balances of suppliers as on the end of each year, which, in our view, cannot be done u/s 68, as long as the purchase is admitted by the department. In this case assessee's appeal was dismissed by upholding the following finding of the ITAT:
"However, in our opinion the observation of the Assessing Officer that the assessee was prima facie required to prove the genuineness of the transaction and identity of the creditors is not misplaced because there is no distinction laid between the trade creditor and the non-trade creditor and we are further of the opinion that in case the assessee claims liability of payment to the trade creditors shown in the balance-sheet, the assessee is definitely required to prima facie prove the identity of the trade creditors as well as the genuineness of the transaction. In this case, admittedly the assessee has neither been able to disclose the complete addresses of the trade creditors nor is able to give the complete addresses of the consignors nor the name has been mentioned on the challan forms, so the verification of the same by the Assessing Officer became totally impracticable on account of lack of this complete information supplied by the assessee. It means that the assessee failed in establishing the 40 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
genuineness of the so called trade creditors appearing in its books of account . We are further of the opinion that since in the instant case of the assessee, the point under consideration before us is regarding the genuineness of the liability amounting to Rs. 1,75,26,586/- shown by the assessee in its balance-sheet as trade creditors, so it wa not relevant for us to consider as to whether the purchases made by the assessee were genuine or not or to whether the assessee has inflated those purchases or not. It is also not material to consider whether the GRs from sales-tax department were verified or not, so, the CIT(A) on considering these points was not justified in deleting the impugned addition without discussing as to whether the liability of trade creditors shown by the assessee in the absence of furnishing complete addresses of trade creditors/ consignors and the payment vouchers was genuine or not."
10.4. The case is not applicable to assessee's case inasmuch as the identity of the supplier and assessees trading results have been accepted by the department in one year or the other. In view thereof, we hold that the additions made in the case of the assessee u/s 68 of the Act ought to be deleted in all these years. In our view the I.T. Act does not cast absolute burden on the assessee, sec. 68 cast a preliminary burden, which, in our view, has been duly discharged by the assessee by filing the confirmations, bank statements, invoices and transport details of supplies and goods. The identity of the purchaser is accepted by the department in one year or the other subsequent year. The genuineness of the purchases emerge from the fact that all the goods purchased by the assessee on credit. Purchases have not been disputed by the department in P&L a/c by allowing same as 41 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
expenditure to the assessee. Therefore, assessee has discharged its onus to file evidence for genuineness of suppliers. The issue of creditworthiness will not be applicable in this case as the credit balances are due to purchases made by the assessee from these suppliers. Therefore, the discharge of burden of creditworthiness is implicit from these facts. Looking from any angle, the assessee cannot be held to be liable for any non-discharge of onus. In these circumstances, the additions cannot be made only because the departmental authorities failed to exercise their power and duties for serving and enforcing the summons. In the entirety of facts and circumstances of the case and the evidence produced by the assessee, the additions made u/s 68 on account difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. All these additions in the years before us are deleted. Corresponding assessee's grounds in A.Y. 2003-04 and 2005-06 are allowed and that of revenue dismissed.
11. Other ground raised by assessee in A.Y. 2003-04 is in respect of disallowance of expenditure of Rs. 4,72,452/-.
12. Learned counsel for the assessee contends that assessment order has been passed on 27-3-2006. The last specific notice u/s 142(1) was issued on 16-2-2006 which does not contain any query about the prior period expenses. Consequently, query, if any, was raised by AO after 16-2-2006.
42 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
Reference is invited to the assessee's letter dated 24-3-2006 in which copies of debit notes in respect of technical fee and reimbursement made to Continental Carbon Co. USA, was filed. Leaned counsel contends that the AO raised a query at the fag end of the assessment year. Assessee orally explained that it was the amount payable on account of consultancy services to Continental Carbon Co. USA. That being international company, they have a procedure for issuing the debit note. Assessee duly explained that when these bills were received by the assessee, the liability crystallized. It has not been disputed that the services were rendered and there is no adverse finding about the bills or the liability having been communicated to the assessee earlier. It is further evident from the record that part of the bill was April 2002 and the balance was in March 2003. The assessee received the bills in March 2003 and by general entry entered the liability. Since the consultancy report was completed in March 2003, therefore, it is properly recorded. It is evident that the consultancy bills were raised by way of two bills i.e. April 2002 and March 2003. There is no dispute about the rendering of service and the last bill drawn by Continental Carbon Co. USA being March 2003. The liability has crystallized in this year and cannot be called as relating to earlier year and is allowable expenditure. In view thereof, we delete the addition.
43 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
13. Only other ground raised by the assessee for A.Y. 2005-06 is in respect of disallowance of Rs. 1,23,000/- on account of expenses for annual chamber membership fee paid to Taj Mahal Hotels. 13.1. Learned counsel for the assessee contends that the amount is allowable revenue expenditure as the assessee availed the membership offered by Taj Mahal Hotels which was economical, providing the facility to use the chamber at any time during the year for meetings of clients and officers. It is a business decision for avoiding room rent expenses, the same is allowable.
13.2. Learned DR is heard.
13.3. We see no justification for this addition as the same was incurred by the assessee for business purposes and is supported by proper vouchers. This addition is deleted.
14. Coming to the Revenue's appeal for A.Y. 2003-04, in respect of working u/s 115JB both the parties agreed that in view of retrospective amendment made by Finance Act, 2009 in Sec. 115JB, applicable w.e.f. 1-4- 2001, the deduction in respect of leave encashment is to be allowed in favour of the assessee and balance two disallowances in respect of bad debts and obsolete/ non-moving stores will be in favour of the department. The 44 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
AO will recomputed the deduction. This ground of revenue is partly allowed.
15. Now we come to the revenue's appeal for A.Y. 2005-06. Department has challenged the allowance of 60% depreciation on computer peripherals. The issue is not settled by the Hon'ble Delhi High Court, upholding that 60% depreciation is to be allowed on computer peripherals. This ground of revenue is dismissed.
16. Coming to the second revenue's ground i.e. allowing depreciation of Rs. 10,97,974/- on capital stores on the ground that these stores were not put to use of the business of the assessee. We see no infirmity in the order of CIT(A) who has allowed the depreciation on the basis of accounting standard AS-10 and Hon'ble Delhi High Court's judgment in the case of CIT Vs. Insilco Ltd. 320 ITR 322, holding as under:
"In view of the ratio of the judgments referred to hereinabove we are of the considered opinion that the expression used for the purposes of business appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consumed or used during the relevant period, as these are spares specific to a fixed asset and will in all probability be useless once the asset is discarded. In that sense, the concept of passive user which is applied by the aforementioned cases to standby machinery will be applicable to emergency/ insurance spares."
This ground of revenue is dismissed accordingly.
45 ITA 5269, 5270, 5271, 5242 & 5513/D/10 Continental Carbon India Ltd.
17. Assessee's appeal for A.Y. 2007-08: Facts and circumstances of the assessee's appeal in respect of additions U/s 68 which are mentioned above, are similar to A.Y. 2003-04 & 2005-06. The facts and circumstances being the same, the additions u/s 68 for this year also are deleted.
18. In the result, revenue's appeal for A.Y. 2003-04 is partly allowed and that for A.Y. 2005-06 is dismissed. Assessee's appeals for all the three assessment years i.e. 2003-04, 2005-06 & 2007-08 are allowed. Order pronounced in open court on 31-10-2011.
Sd/- Sd/-
(K.D. RANJAN ) ( R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31-10-2011.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
46 ITA 5269, 5270, 5271, 5242 & 5513/D/10
Continental Carbon India Ltd.