Income Tax Appellate Tribunal - Allahabad
Joint Commissioner Of Income Tax vs Mathura Das Ashok Kumar on 31 May, 2005
Equivalent citations: (2006)101TTJ(ALL)810
ORDER
Keshaw Prasad, A.M.
1. The appeal has been directed by the Revenue against the order of the learned CIT(A), dt. 28th Dec., 1998, pertaining to the asst. yr. 1997-98.
2. Though three grounds have been taken, effectively the Revenue is aggrieved by the relief of Rs. 1,05,800 granted by the first appellate authority.
3. The facts in brief are that the assessee, through its head office in the name of "Mathura Das Ashok Kumar" and two branches in the names of "Ashok Creation" and "Ankit Sarees", has been carrying on the business of dealing in Banarsi sarees. Purchases are made from various established parties of organised sector as also directly from the Karigars scattered in different mohallas of Varanasi as also in its peripheral areas. For the business activities so carried on by the assessee, it had been maintaining books of account in regular course which are subjected to tax audit also under s. 44AB, year after year. The trading results were invariably accepted on the fact. A statement in this respect as extracted from the records is as under:
Asst. yr. Purchases Net sales Gross GP Net NP Remarks
profit rate profit rate
1994-95 117130693 117553810 7408154 6.3% 5445962 4.63% Accepted vide order u/s.
143(3), dt. 27-10-1995
1995-96 136019853 142215704 7818571 5.5% 5344396 3:76% Accepted vide order u/s.
143(3), dt. 22-3-1996
1996-97 150930320 159660780 8137754 5,09% 5615028 3.5% Extra ad hoc addition of
Rs. 75,000 deleted by
learned CIT(A)
1997-98 129190757 135823829 6918991 5.9% 5989798 4.4% Accepted vide order u/s.
143(3), dt. 31-3-1998
1998-99 115384259 130576274 7020286 5.37% 6246359 4.78% Accepted vide order
Under Section
143(1), dt. 31-3-1999
4. In the year under appeal also, the trading results were accepted. However, a part of the outstanding liabilities on "Karigars account" was treated as bogus liability and an addition of Rs. 1,05,800 has been made. Total liability on this account was Rs. 83,96,602. The AO on random basis listed 15 cases and treated the same as representing bogus liability and made addition from the same to the income of the appellant. The only ground for the said addition is that complete addresses are not given in the "Purjas" owing to which identities of the Karigars could not be established by the assessee. From this, it was inferred that Karigars are not identifiable.
5. In the first appeal filed by the assessee, the said addition was deleted primarily on the ground that after having accepted the purchases to be genuine, a part of unpaid liabilities on account of such purchases could not have been disallowed so as to make an addition in the assessment. It was further held by the learned CIT(A) that under similar circumstances, no adverse view has been taken with regard to another component of the unpaid liabilities aggregating of Rs. 83,96,000.
6. Challenging the order of the learned CIT(A), the learned Senior Departmental Representative placed reliance on the assessment order. On the other hand, on behalf of the assessee, Shri S.K. Garg, learned Counsel, stated that the assessee had maintained books of account in "regular course" and the same were accepted as correct. Wherever the purchases are made from Karigars the same are fully supported by Purjas issued by the assessee itself, in duplicate, the original is given to the Karigars bringing sarees and the duplicate is retained by the assessee. All such Purjas are entered in Jama Jakhar Bahi and in the ledger there appears a consolidated account named as "sundry Karigar account". (Udhar Khareed Khata). Purchases from Karigars are credited in this account and payments to them, as had been made, either in cash or through cheque are debited in this very account. The credit balance at the end of the year is carried to the balance sheet under the head sundry Karigar account. During the course of assessment proceedings, guenes were made by the AO, to which the assessee responded by filing all the details and narrating all the attended facts. Attention was specifically drawn to the said letter dt. 5th March, 1998, copy of which appears on pp. 1 to 5 of the paper book and also to the summary of "Karigar account" which appears at p. 6 of the paper book.
7. Proceeding further, the learned Counsel submitted that in the case of M/s Kusum Saree Kendra and others carrying on the similar business the accounts were rejected by the AO and a higher GP rate was applied, on the ground of non-verifiability of purchases from Karigars. The controversy was resolved by the learned Third Member vide his order dt. 17th Jan., 2003, copy appearing at pp. 21-41 of the paper book. Looking to the peculiarity of the trade it was held that account could not be rejected merely on the ground that the Karigars were not produced for verification of purchases, as sales which have been made out of such purchases only, had been accepted.
8. It was further submitted that in a representation made by the Association of Banarsi saree dealers, the CBDT also issued instructions that presence of Karigars should not be insisted upon and such instructions were duly circulated by the Chief CIT, Allahabad, to the CIT, Varanasi. Copy of Board's instructions and the circular issued by the Chief CIT appearing at pp. 42-45 of the paper book.
9. At this stage, the Bench invited the comments of the learned Senior Departmental Representative about the applicability of the CBDT's instructions and overall effect of the same on the assessment of other dealers of Banarsi sarees. He was fair enough to state that in view of the instructions of CBDT as circulated by the Chief CIT, Allahabad (having jurisdiction of Varanasi also), the personal appearance of Karigars is not being insisted upon for verification of purchases and lack of verification of purchases directly from the customers is not being considered as a ground for rejection of account. However, this is subject to satisfaction of twin creditors, viz., the purchases should be verifiable from other evidences/material, like Turjas' issued in regular course, and there should be matching sales (out of such purchases).
10. The learned Counsel also submitted that income-tax proceedings are not fettered by technical rules of evidence. Even such material which has not been admissible in a Court of law can be taken into account for the purpose of making assessment. In support of this contention, he referred to the decision of Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC). Further, it was pleaded that all the material for the purpose of assessment should be considered in generic sense and in support of this contention he referred to the passage appearing in the Commentary of Income-tax by Chaturvedi & Pithisaria's Income-tax Law, Fifth Edn., Vol. 3 (1999), p. 4813. On this basis, it was pleaded that after accepting the genuineness of purchases as also sales made out of the same, the issue of identity of the Karigars had become wholly irrelevant. In the present case, the relevant material is that no discrepancies or defects were found in the books of account as had been maintained in 'regular course'. Such books of account themselves constituted an evidence about the correctness of entries appearing therein, unless something to the contrary is placed on record. All such particulars, as were relevant about the Karigars to whom Purjas were issued by the assessee, as a token of purchases made from them, are entered in Jama Jakhar Bahi. All the purchases are verifiable from the same. Therefore, antecedents are not required to be ascertained by the assessee, as the assessee is concerned only with the goods supplied by them. Overall liabilities on account of Karigars which remained outstanding at the end of the year were duly paid in the subsequent year(s). In the cases of disputed parties also payments have actually been made in the subsequent year(s), as per the particulars contained in Annex. 'A' to the impugned assessment order. The AO himself has extracted such particulars from the Jama Jakad Bahi. Payments made to these Karigars in the subsequent year(s) have not been adversely viewed in the assessment. In fact, it was an ongoing process as payments against the earlier years 'outstanding' have been made in this year. Further, the liabilities in question are referable to the purchases which have been accepted to be correct. All these informations taken together constitute 'material' and if due consideration is given to such "material", there was no justification to treat a part of the liabilities on account of purchases from the Karigars as bogus, so as to make addition. There is no infirmity in the order of the learned CIT(A), who has deleted the addition.
11. In rejoinder, the learned Senior Departmental Representative again placed reliance on the assessment order and submitted that the learned CIT(A) was not justified in deleting the addition. With reference to the records, he further submitted that the assessee was required to produce the Karigars for necessary verification of liabilities that have been shown to be 'outstanding', but it failed to do so. Therefore, the liabilities remained unproved and the learned CIT(A) was not justified in deleting the addition that had been made on this score.
12. We have carefully considered the rival submissions. From a perusal of records it is seen that unpaid liabilities (due to the Karigars) are the normal features of this trade. During the course of assessment proceedings, the assessee placed on record the prevalent practice in this trade. We find that the assessee, vide letter dt. 5th March, 1998, addressed to the AO has made a detailed submission in this regard.
13. After carrying out necessary verification, the AO has accepted the purchases which are made from two sources, viz., from parties of the organised sector and from Karigars spread over in different areas. Names of the disputed 15 parties are also entered in the 'Jama Jakad Bahi' which contains particulars of all of the purchases as made from Karigars. "Regularity" with which such Jama Jakad Bahi has been maintained has not been disputed in any manner. Copies of all the "Purjas" are available and after due verification, not only the purchases made by the assessee, which included the purchases from Karigars also were accepted, but also the overall trading result. There were huge liabilities on account of payments due to the Karigars and outstanding at the end of the year. Increase in such liabilities vis-a-vis immediately preceding year was not adversely viewed. Liabilities in the accounts of all other Karigars were accepted, and rightly so, as the same were directly referable to the purchases made from each one of them. No verification from the Karigars or any information about the identity of such Karigars was considered necessary. This too was quite logical as the liabilities were supported by the Purjas (issued by the assessee at the time of making purchases). The disputed liabilities are at par with other liabilities (as have been referred to above) and there was, therefore, no justification to treat same, differently.
14. In the case of Asstt. CIT v. Kusum Saree Kendra and Ors. (copy of order dt. 17th Jan., 2003, appearing on pp. 21-41 of the assessee's paper book), learned Third Member has very categorically held that even non-production of Karigars cannot be taken as a ground for rejection of the books of account. Relevant portions of the said order are reproduced hereunder:
18.... It is also not disputed that on the same day after sale was effected, the assessee was issuing a Purja to the weavers which indicated that assessee had purchased that saree from him and that Purja was giving out the number of sarees, price thereof and the date on which amount of purchase of saree by assessee would be payable. This Purja was being recognised in the market. The weavers used to come to assessee to collect the amount of Purja as per trend and it is also noted by learned JM and not disputed by the Department that discipline in date-wise payment and the amount of Purja was being maintained so that any weaver may not be having any complaint for being discriminated. It is also on record that the amount of those Purjas was being paid after gap of 5-6 months and sometime even after six months as noted by AO. The amount of Purja, therefore, remained outstanding for more than 5-6 months and this is the same amount rioted by AO in the case of the assessee which remained payable to Karigars. Each of the assessees took the plea during assessment proceedings for asst. yr. 1994-95 that amount of outstanding liability of Karigars was cleared within 3-4 months. The same AO had completed assessment for asst. yr. 1995-96 and this fact has not been disputed by him that earlier outstanding liability as existing on 31st March, 1994, stands cleared in the first three months of accounting year relevant to asst. yr. 1995-96. This practice was not only in the case of these four assessees but was being followed by all traders dealing in sarees and this fact gets corroboration from the decision of Tribunal, Allahabad Bench "B", in the case of Vallabh Das Vithal Das (supra), wherein there was a search and outstanding liability was of Rs. 11,59,429. The AO made the addition of whole of the amount but the Tribunal deleted the addition by observing that this was prevailing practice in the trade and relevant observation of the Bench is reproduced below :
...He has pointed out that it is nothing new for this year but it is a common practice adopted by the assessee over the year and is also a common practice adopted in this type of business at Varanasi. The proof of the purchases is fully verifiable from the Purjas, details of which are completely maintained in the regular course of business. The purchases contain the detail with the names and addresses of the Karigars, from whom the alleged sarees were purchased. Now, if the alleged purchase is not entered in the account books because no payments have been made to them, in our opinion, nothing wrong was committed by the assessee and specially when this is a routine practice adopted by him over the years. The assessee has fully explained the purchases from other persons and even the AO was satisfied regarding the purchases made from others. It is only the purchases from these Karigars to whom the payments were not allegedly made till the date of search which have been questioned by the AO and added as such towards the income of the assessee. Taking the facts and circumstances as they stand, we are completely convinced that the alleged addition was unwarranted and the assessee was perfectly justified in not making the entries in the account books till the payments were made to the Karigars and it was the usual practice and it was never objected to by the AO in the earlier years, while accepting the account books till the asst. yr. 1986-87. We, therefore, hold that the said addition was not justified. The overall GP shown by the assessee had been 5 per cent, while this year it was 4.79 per cent, i.e., a little fall over the earlier years but that was quite natural as there was a steep increase in sales from about Rs. 36 lakhs to Rs. 51 lakhs in this year from that of the last year. We, accordingly, decide the issue and delete the said addition.
19. The above observation of the Bench clearly goes to show that practice of issuing Purjas, containing details with the names and addresses of the Karigars from whom alleged sarees were purchased, was prevailing in the trade for so many years and it amply proves that whatever assessee had asserted was not a new thing but was established trade practice in Varanasi.
xxxx
21. The next observation of the AO was that Karigars were men of little means and they should not have waited for 5-6 months for payment of sarees. Tins fact has rightly been explained by the counsel that due to established trade practice of getting payment after 5-6 months the weavers/Karigars were getting supply of raw material on credit and payments were being made to sellers of raw material accordingly. The other observation of the AO that amounts were being paid to Karigars in chronological order and no advance was given to any Karigars was also not going to affect the case of the assessee because each of the assessees had taken a plea that strict discipline was being observed by all the assessees and owners of different establishments dealing in this trade as no undue favour was being given to any of the Karigars.
22. Lastly, much has been argued on the point that Karigars could not be produced by the assessee so that factum of purchase of the sarees and the fact of getting commission by the assessee as well as getting discount from the Karigars and commission from customers could be verified. In this connection, it is to be noted that mere non-production of Karigars would not be making out a case for addition as done by AO. First, the sales of sarees of Karigars effected by assessee to different customers was not challenged by the AO. Once sales are not doubted, then it did not lie to the Department to question the purchases. It is not the case of the Department that assessees was selling his own sarees or getting the sarees manufactured at his own. If this was the fact, Department should have collected the evidence that each of the assessees was itself engaged in the business of manufacturing. Once these are hot the facts and sales are fully vouched and admitted, then necessary inference would be that there were purchases of sarees then only sales were effected. For this, learned Counsel was justified in placing reliance on the order of Tribunal, Allahabad Bench "A", in the case of Lala Bandhu Lal & Co. (supra), wherein assessee was found engaged in the manufacture and sale of raw material and was being procured by him from Pucca bills and from Kabaris. The AO asked the assessee to produce Kabaris and assessee failed resulting into addition of the amount which was alleged purchased from Kabaris. The Tribunal deleted the addition, inter alia, by observing as under :
The raw material said to be purchased by them from unorganised sector disputed by the Department was also found recorded in the stock register. In such a situation if some of the suppliers were not found at the addresses provided by the assessee which, inter alia, could be the same as would have provided to them by those suppliers, the assessee cannot be found faulted with. Persons from unorganised sectors always do not give correct addresses and for reasons best known to them including the intention to suppress their identity so as to avoid the tax net. This fact could be judicially noticed by us. In fact, the corner stone of the case is that exactly as to whether all the Kabaris existed at the addresses provided by the assessee or not. It depended upon the fact as to whether the finished goods produced by the assessee were in commensurate with the raw material claimed to have been pumped in by them in their manufacturing process. This tally, even at the cost of repetition, was found to be wholly in order by the learned C1T(A) and not a whisper has been made before us to assail this categorical finding. It, therefore, cannot be gain-said that the quantity of raw material which the assessee claims to have consumed in its manufacturing process must have been purchased by them.
23. The above ratio is fully applicable to the facts of the present case and mere non-production of the Karigars would be no ground to treat the outstanding liability as bogus when Department has accepted the sales which were on the basis of purchases of sarees from Karigars as it could not be assumed for a moment that sales were made without any purchases or in the absence of any material on record by the Department that source of purchase was not from the Karigars particularly when the assessee had acquired the outstanding liabilities of the Karigars within 3-4 months in subsequent assessment years and the same stands accepted by the Department.
24. Apart from it, it is also to be noted that same method of accounting was being followed by the assessee from year after year and Department had also been accepting. No doubt, principle of res judicata is not applicable to income-tax proceedings but fact remains that if Department has to deviate from the earlier stand, it is obligatory on the part of AO to bring some material on record. The amount of outstanding liabilities was being shown by the assessee in earlier years and Department never doubted the same and accepted, and facts being the same, there was no justification for deviation merely on the basis that assessee had not produced the Karigars. So far as books of account are concerned, those were complete and correct. The AO simply doubted on the correctness and genuineness of the outstanding liability but that stands fully explained and cleared off in the subsequent year as in earlier years and apart from this, no other lacuna was pointed out by the AO. If these were the facts, then provisions of Section 145(2) could not be invoked.
15. It is also very significant to note that on a representation been made by the Association of Banarsi saree dealers, the CBDT has also issued instructions to the effect that after the sales are found to be verifiable, the purchases (out of which sales have been made) cannot be disputed. Such instructions were duly circulated by the Chief CIT, Allahabad, to the concerned CIT, Varanasi, and in the said circular, he has expressed a view that for verification of purchases, there should be no insistence for production of Karigars. At this stage, it is necessary to peruse the said instructions and, therefore, the same are reproduced hereunder :
Office of the Chief CIT Allahabad Camp at Varanasi F. No. PG/1/95 Dt. 28th Jan., 2002 To, The CIT, Varanasi Sir, Sub : Assessments in the cases of Dealers of Banarsi Sarees-Regarding This refers to your endorsement F. No. Misc./CIT/VNS/2001-02, dt. 28th Jan., 2002, on the above subject.
2. I enclose a copy of Board's Instruction F. No. 272/46/2001. IT(J), dt. 29th May, 2001, which must have come to your notice earlier also. Since the matter of assessment in the cases of dealers of Banarasi sarees is being considered at various levels in the Department we must take comprehensive and wholistic view in the matter.
3. I invite your attention to the contents of D.O.F. No. PG/1/95/4149, dt. 25th Jan., 2001, of Shri K.D. Gupta, Chief CIT, Lucknow, on the same issue which inter alia contained the following instruction :
Whether the purchases claimed to have been made are genuine or not is a pure question of fact. Besides, since the sales are fully verifiable, the whole amount of purchases cannot be said to be bogus because unless there are purchases, sales cannot be made. Each year's assessment is a separate proceeding and the AOs need not be influenced by the line of enquiry in the earlier year or years in completing the pending assessments.
4. Considering the view taken by the Board regarding withdrawal of appeals filed by the Department before the Tribunal, I am of the view that in the cases of decentralisation where notices under Section 143(2) have already been issued may be completed without insisting on the verification of purchases through production of Karigars. Cases deserving deeper investigation due to another factor should however be examined by applying formal test of verification and there is no reason for any let up only because it involves trade in Banarasi sarees.
Yours faithfully, Sd/ (Dr. P.P. Lakkar) Chief CIT, Allahabad.
Camp at Allahabad
16. By referring to the said instructions, we do not mean that the same have got binding effect on the authorities below. At the same time, its persuasive value cannot be denied as the same reflects the policy of tax administration. This is more so in the case of a particular class of assessee, namely, the saree dealers, to which the assessee belonged where after appreciating the peculiarities of the trade, it was decided that no further verification was necessary, if the sales out of such purchases (made from Karigars) are found to be verifiable. The instructions of the CBDT as had been circulated by the learned Chief CIT, Allahabad, as referred to above, have even led the Department to make its appeal before the Tribunal "non-pressed", in ITA No. 421/A11/-1996 in the case of Asstt. CIT v. Kedia Kala Kendra and ITA No. 586/All/1996 in the case of Asstt. CIT v. Sumit Udyog. Copy of the consolidated order dt. 16th Dec., 2002, as passed by the Allahabad Bench of the Tribunal appears at pp. 48 to 50 of the assessee's paper book. The facts of these cases are that the assessees could not produce the Karigars for verification of purchases. On that basis, it was held that purchases remained unproved. The books of account were rejected and additions were made by applying a higher GP rate. The learned CIT(A) deleted such addition. Aggrieved by the order of the learned CIT(A), Revenue came in appeal before the Tribunal and their Departmental Representative, after he was confronted with the CBDT instructions (as circulated by Chief CIT, Allahabad), made Revenue's appeal non-pressed. Relevant portion of the said consolidated order is reproduced hereunder :
5. The learned Departmental Representative, Shri Ashok Kumar, appearing for the Revenue Department, on the basis of all these papers stated that the Department do not press the grounds of appeal in view of the instructions of the CBDT in the matter. In view of the statements of the learned Departmental Representative and more particularly when instructions are issued by the CBDT to withdraw the appeals which are binding on the IT authorities, we do not find any justification to interfere with the order of the CIT(A).
The assessee's compilation included various other orders also as had been passed by the Tribunal on similar lines.
17. Having discussed at length various features of the trade of Banarsi sarees, we proceed to decide the controversy before us. As has been noticed by us earlier, all the purchases made by the assessee wherever the same have been made from the Karigars are supported by the 'Purjas' issued by it (the assessee). Such 'Purjas' were found to be duly entered in 'Jama Jakar Bahi', which is a part of records kept by the assessee regularly to record its purchases from Karigars. In the financial records also, entries of the purchases of sarees have duly been made on the basis of primary records. The purchases recorded in this manner have been accepted in toto, without any kind of controversy whatsoever. After the purchases of sarees supported by the 'Purjas' have been accepted, any further verification about the Karigars in whose favour such 'Purjas' have been issued is really not necessary; the reason being that it is the Karrgar who come to the saree dealers and offers his stock for being dealt with by the saree dealers. The dealers also have no occasion to feel concerned about the names and addresses of such Karigars as purchases from them are made on "credit" and that too after due approval of the same through inspection and otherwise. In other words, it is only the verification of sarees that are brought for sale by the Karigars at the shop of the saree dealers which is relevant and not the Karigar themselves. It is for this reason that even the CBDT felt that, after the sales (made out of purchases from Karigars) are found to be verifiable, it is not necessary that there should be an insistence for producing the Karigars. The instructions like this, although, may not be capable of being treated as having binding effect, nonetheless they lay down necessary guidelines for completion of assessment in a particular line of trade. This logic is applicable with all its force in the present case. Necessity to have the addresses of the Karigars may arise only for the purposes of making enquiries from the Karigars, so far as the assessment of the saree dealers is concerned. If such a verification is not required to be made, in view of the regular system of accounting followed by the assessee as per the practice prevalent in this trade, we fail to understand as to why non-furnishing of addresses should be made an issue by the AO for making addition and that too on selective basis.
18. Further, 15 Purjas value of which has been treated as bogus liability, do contain full particulars of the Karigars. If we look at Annex. A, this itself has got a column "Names and Addresses of the Karigars" and against all the 15 'Purjas' necessary information in this respect has been given. Naturally, in the records of the assessee, only such names and addresses would be found recorded, as told to it by the Karigars themselves. Beyond this, the assessee is not concerned to ascertain correct or full addresses of the Karigars as the purchases have been made on credit. It is for the Karigars concerned or his nominee and/or transferee of the 'Purja' to collect his payment from the office of the saree dealer. Not that the saree dealer itself has to approach the Karigars for making payments to them. It has, therefore, to be held that even if the address is incomplete or even in an extreme situation, where the Karigar is not found at the address available with the assessee (as written in the Purja), no adverse inference can be drawn in the assessment of the same dealer or any of the aspects of the purchases. This is more so in a case like this where the purchases and sales have been duly accepted. This leads to a conclusion that 'Purjas' themselves as also contents thereof have got great evidentiary value. If payment against the 'Purja' recorded in the books of account, then the liability in relation to such 'Purja has to be treated as genuine unless of course some material is brought on record that the assessee has actually made payment against the same which is not recorded. In the present case, no such material having been brought on record, it could not be said that the liability is bogus. Even at the cost of repetition, we state that bogus liability pre-supposes two things, firstly, there is a liability incurred and secondly, such liability has been discharged without being recorded in the books of account. As no such material is available on record, the liability in question cannot be said to be bogus so as to attract any addition on this score.
19. It also appears to us that the AO has treated the liability to be of 'cash credit' in nature and that is why he felt anxious to have the identities of the creditors established. In this respect, first of all, we hold that credits 'in the sundry creditors (Udhar Khareed) Khata' are referable to the purchases of sarees made on credit basis. As the purchases have been held to be genuine and accepted as such, the credits that remained outstanding in such account cannot be treated to have remained unexplained. The balance appearing in this account, which included the disputed addition also, is the sum total of purchases that remained unpaid at the end of the year. As the genuineness of such purchases has not been disputed, rather, the same has been accepted, the credits stand fully explained and no adverse inference is called for, either on facts or in law.
20. Thus, on a consideration of totality of facts and circumstances of the case, as have been discussed above, we hold that the liability aggregating Rs. 1,05,800 as has been shown against 15 Purjas/Karigars could not be treated as bogus liability. The learned CIT(A) has rightly deleted the addition and no interference in the same is called for. While upholding his finding, we dismiss the grounds of appeal raised by the Revenue.
21. In the result, the appeal directed by the Revenue is dismissed.