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Asstt.Commissioner of Income Tax, Circle-1, Meerut. Vs Eastern Drug & Sanitary Products, 770, Soti Ganj, Meerut.
October, 30th 2015
ITA No. 224/Del/2012
Asstt.Year: 2008-09

                IN THE INCOME TAX APPELLATE TRIBUNAL
                       DELHI BENCH `B' NEW DELHI

          BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
                            AND
           SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER


                            I.T.A.No.224/Del/2012
                           Assessment Year : 2008-09
Asstt.Commissioner of Income Tax,      vs Eastern Drug & Sanitary Products,
Circle-1,                                  770, Soti Ganj, Meerut.
Meerut.                                    (PAN: AAAFE2946D)
(Appellant)                               (Respondent)
                       Appellant by: Smt. Parwinder Kaur, Sr.DR
                    Respondent by : Shri R.K. Garg, Advocate
                              Date of Hearing: 19.08.2015
                      Date of pronouncement: 29.10.2015
                              ORDER

PER CHANDRAMOHAN GARG, J.M.

       This appeal by the revenue      has been directed against the order of

CIT(A), Meerut dated 12.10.11 in Appeal No. 228/10-11 for AY 2008-09. The

grounds raised by the revenue read as under:-


             "1. Whether in the facts and circumstances of the case,
     the Ld. Commissioner of Income tax (Appeals) has erred in
     deleting the Addition of Rs.61,96,307/-in spite of the fact that the
     assessee failed to file balance confirmations even after availing
     sufficient opportunities and assessee was never prevented from
     producing the same before the AO. The onus was certainly upon
     the assessee to prove the credits appearing in its books. Reliance
     is placed on the following judgments :-        l
             I. CIT vs Korlay Trading Co. Ltd. (Cal.) 232 ITR 820.


                                        1
ITA No. 224/Del/2012
Asstt.Year: 2008-09

          II. "Krishan Kumar Jhamb vs ITO and Anr (Punjab &
     Haryana) 17 DTR 249"
          III. M/s Sejai International Ltd vs CIT Meerut (All.)
     Appeal No.306 of 2010
           2. Whether Ld. CIT (Appeal) was justified in accepting the
     fresh confirmations as submitted by the assessee to prove the
     genuineness of trade creditors. Further, it was an additional
     evidence accepted by Ld. CIT (A) without providing opportunity
     to AO ignoring the provisions of Rules 46 A(3) of the Income Tax
     Rules 1962.
            3.     Whether in the facts and circumstances of the case,
     the Ld. Commissioner of Income tax (Appeals) has erred in
     deleting the Addition of Rs.6,00,000/- in spite of the facts that
     complete books of accounts and supportive documents were not
     produced before the AO. Even in the audit report the Auditor has
     mentioned that in absence of proper bills and vouchers,
     genuineness of the expenses credit and PIL a/c can not be
     verified."
2.     Briefly stated the facts giving rise to this appeal are that the case was

selected for scrutiny and statutory notice u/s 143(2) of the Income Tax Act,

1961 was issued and served upon the assessee. The AO noted that the assessee

was asked to produce the books of accounts but it failed to produce the same.

The AO rejected the trading results of the assessee by invoking the provisions

of section 145(3) of the Act as the AO was not satisfied with the completeness

of the books of accounts. The AO completed the assessment at taxable total

income of Rs. 1,28,10,160 on account of bogus credit liability relevant to

trading purchases. However, subsequently the AO himself rectified and deleted

the addition of Rs.66,13,853 in respect of M/s Rajasthan Drug and

Pharmaceuticals Ltd., Jaipur and thus the addition came down to Rs.61,96,307.





                                       2
ITA No. 224/Del/2012
Asstt.Year: 2008-09

The CIT(A) Meerut directed the assessee to delete both the said additions and

hence the revenue is before this Tribunal in this second appeal with the grounds

as reproduced hereinabove.


Ground No. 2 of the revenue

3.     Ld. DR submitted that the Ld. CIT (Appeal) was not justified in accepting

the fresh confirmations as submitted by the assessee to prove the genuineness of

trade creditors. Ld. DR further contended that the CIT(A) accepted, admitted

and considered additional evidence without providing due opportunity to

comment upon admissibility and merit of the same and ignoring and violating

the provisions of Rules 46 A(3) of the Income Tax Rules 1962.


4.     Replying to the above, ld. Counsel of the assessee has drawn our attention

towards copy of the remand report filed by the AO before the CIT(A) available

at pages 46 and 47 of the assessee's paper book and submitted that the CIT(A)

admitted and considered additional evidence as per provisions of Rule 46A of

the Rules as the additional evidence was sent to the AO to comment upon the

admissibility and merits of the proposed additional evidence and the AO

submitted remand report dated 22.9.2011 objecting to the admissibility of

additional evidence as well as on the merits of additional evidence on both the

issues. Ld. counsel also pointed out that the AO placed his detailed comments

objecting to the admissibility of additional evidence and also on merits,

therefore, there is no validity of Rule 46A of the Rules.
                                         3
ITA No. 224/Del/2012
Asstt.Year: 2008-09

5.     On careful consideration of above submissions and from vigilant reading

of the remand report dated 22.9.2011, we clearly observe that in para (iii), the

AO has submitted his views objecting to the admissibility of additional

evidence and in para (i) and (ii) of the remand report, the AO has elaborately

commented and submitted his stand on both the points alleging the merits and

consideration of the proposed additional evidence, hence, we are unable to see

any situation wherein the CIT(A), Meerut has flouted the relevant provisions of

Rule 46A of the Rules. We are unable to agree with the contention of ld. DR

that the CIT(A) admitted and considered additional evidence in contravention to

provisions of Rule 46A of the Rules. Accordingly, ground no. 2 of the revenue

being devoid of merits is dismissed.


Ground No. 1

6.     Apropos ground no.1, ld. DR submitted that the AO rightly noted that the

assessee has declared sundry creditors of huge amount under the head of current

liability which was approximately 62% of the total turnover. Ld. DR further

contended that when the AO asked the assessee to file confirmation of these

sundry creditors with the details of outstanding balance above Rs.1 lakh, then

from the list submitted by the assessee, it was observed that the balance was

payable to 389 persons and the assessee failed to produce confirmation of 32

persons against whom outstanding amount was Rs. 1,28,10,160/- having

balance of more than Rs.1 lakh. Ld. DR further submitted that the assessee

                                       4
ITA No. 224/Del/2012
Asstt.Year: 2008-09

failed to discharge its onus of proving the genuineness of the credit liability

shown in its account. Therefore, the AO rightly made addition in this regard

treating the same to be bogus.


7.     Ld. DR vehemently contended that the CIT(A) granted relief to the

assessee without any basis and, therefore, the impugned order may be set aside

by restoring that of the AO.


8.     Replying to the above, ld. Counsel of the assessee has drawn our attention

towards para 6 to 6.5 of the impugned order and submitted that the AO herself

rectified and deleted the addition of Rs.66,13,853. Subsequently, on the basis

of confirmation filed by the assessee pertaining to M/s Rajasthan Drug and

Pharmaceuticals Ltd., Jaipur, ld. Counsel of the assessee further submitted that

the assessee filed detailed submissions before the lower authorities and all

relevant confirmations were also filed which were properly considered by the

CIT(A) and hence relief granted to the assessee on the basis of proper

confirmation of 32 alleged creditors. Ld. Counsel vehemently pointed out that

during the remand proceedings, the AO did not care and consider the

confirmations filed by the assessee and when the assessee has discharged its

onus to prove genuineness of sundry creditors by way of filing confirmation and

other relevant details, then onus was shifted to the AO to bring out any defect or

deficiency in the expenditure and confirmation filed by the assessee.         Ld.

Counsel lastly pointed out that the AO herself rectified addition of Rs.66,13,853

                                        5
ITA No. 224/Del/2012
Asstt.Year: 2008-09

in respect of M/s        Rajasthan Drug and Pharmaceuticals Ltd., Jaipur after

accepting the confirmation filed by the assessee. From the assessment order, we

note that the AO made addition by observing that the assessee failed to

discharge its onus of proving the genuineness of the credit liability shown in its

accounts and the AO treated the same to be bogus and addition was made on

this basis.    During first appellate proceedings, the assessee filed required

confirmations and the CIT(A) also called comments of the AO and the AO

submitted remand report contending that the contention of the assessee is not

correct and deserves to be rejected. The AO also filed rejoinder and submitted

that the AO completed the assessment proceedings in a hasty manner and,

therefore, the assessee filed application under Rule 46A during first appellate

proceedings. From the operative part of the impugned order, we note that the

CIT(A) granted relief to the assessee with following observations and

conclusion:-


              "6.2.    AR's submissions:
              AR made submissions as under:
     "Ground No. 2 Addition of Rs. 1,28,10,160/-:
     That the learned A.O. required confirmation from all sundry
     creditors, having the balance of Rs. 1,00,0001-, or more. Out of
     the total sundry creditors, the assessee has filed confirmation of
     more then 100 creditors, and vide letter dated 16112/2010, it was
     submitted "That confirmation from the creditors obtained till
     today are enclosed herewith. The balance copy of account has
     been sent for confirmation, which may be filed, as soon as they
     are received. The creditors represent the unpaid balance again
     the credit purchase, the payment of which is being made in

                                           6
ITA No. 224/Del/2012
Asstt.Year: 2008-09

     regular course of business and your honour is requested to
     accept the creditor." The learned A.O., however, did not
     entertain remaining confirmation, which were obtained upto
     23/1212010, on the plea that no further time can be allowed, as
     the case is going to be barred by limitation. However, on
     rectification application filed, the learned A.O. was kind enough
     to reduce the amount of Rs. 66,13,853/-, in respect of Rajasthan
     Drug and Pharmaceutical Ltd., whose confirmation was already
     on record. As the assessee was prevented by sufficient cause not
     to file the confirmation, an application u/r 46A, is tiled with
     request to admit 32, confirmations, which could not be filed, as
     not received till 16/12/2010. Your honour is requested to admit
     the same, as the case of the assessee is covered under sub clause
     (a), (b),(c) & (d).
           As the sundry creditor represents outstanding payment
     against the credit purchases, there is no justification, to hold that
     sundry creditors have bogus, in absence of any material placed
     on record. As regards the onus, to prove the same is proved from
     the books of accounts maintained and audited by the auditor, the
     nature of deposit was against the credit purchase and the source
     was the material purchased .from the manufactures and credit
     worthiness is from the fact that the manufacturing the goods and
     supply the same on credit to the appellant. There is no instance
     that the purchases are not genuine or payment was not
     outstanding against the assessee. Thus the addition of Rs.
     1,28,10,160/-, minus 66,13,853/-, i.e. 61,96,307/-, being without
     any basis deserves to be deleted."
       6.3.   AO's comments in Remand Report:
     "Addition on account of disallowance of sundry creditors:
     The addition of Rs.1,28,10,160/- was made on account of
     disallowance of sundry creditors in respect of whom
     confirmations were not filed by the assessee. Out of this addition,
     addition of Rs.66,13,853/- was reduced on account of allowance
     of sundry creditor in the case of M/s. Rajasthan Drug and
     Pharmaceuticals Ltd., Jaipur. As regards, balance sundry
     creditors, the assessee was frequently asked to file the same
     during the assessment proceedings. But the assessee failed to file
     the same till date of assessment. The contention of the assessee
     that it produced balance confirmations on 23.12.2010 but were
     not entertained by the AO is not correct as it is clear from the
                                         7
ITA No. 224/Del/2012
Asstt.Year: 2008-09

     order sheet dated 23.12.2010 that the counsel of the assessee
     appeared on that date and the case was discussed. Had he
     produced the balance confirmations of sundry creditors, there
     would be no reason with the AO for not entertaining them.
     Hence, the contention     of the assessee is not correct and
     deserves to be rejected." -
     6.4. AR's rejoinder:
     "Disallowance on sundry creditors:
            Out of the outstanding sundry creditors of 398, persons,
     the learned A.O. required to produce confirmation from 131
     persons. The assessee filed confirmation of 100 persons and
     requested to produce the balance confirmation, as soon as they
     are received, in as much as, obtaining the confirmation from
     sundry creditors was beyond the control of assessee, however,
     the creditor were verifiable with the support of credit purchases
     and copy of account produced. On hearing dated 18/12/2010,
     assessee furnished the confirmation and for the balance
     confirmation requested to give more time as two brothers of
     existing accountant met with fettle accident and accountant was
     not able to attend the office for which necessary documents were
     not produced. On 23 December, under signed counsel appeared
     and ask to allow further time but the learned A.O. on the plea
     that the case is going to be barred by limitation completed the
     assessment with the understanding that the confirmation shall the
     considered if received on the very next date. It was not possible
     to furnish balance confirmation on next date, however the
     confirmation tried to be filed on the next working day on 27th
     December were not admitted. Now the assessee has produced all
     the confirmation, which deserve to be considered in view of,
     fairness equity and justice and provision contained in rule 46A."
      6.5. Decision and reasons therefor:
             I have considered facts carefully. I find that the assessee
     obtained confirmation of 32 creditors by 23.12.2010 but the AO
     did not entertain the same and passed the assessment order on
     27.12.2010. In any case, even during remand proceedings, the
     AO has not cared to consider and examine the confirmations
     filed. The sundry creditors are all trade creditors. Out of the total
     addition of Rs.1,28,10,160/- the AO herself rectified the addition
     of Rs.66,13,853/- subsequently in assessee's favour on the basis
     of the confirmation filed. On a consideration of totality of these
                                         8
ITA No. 224/Del/2012
Asstt.Year: 2008-09

      facts, the addition of Rs.61,96,307/- towards balance sundry
      creditors is not found sustainable. The addition is accordingly
      deleted."
9.     In view of above, we are of the considered opinion that the AO made

addition by observing that the assessee failed to discharge its onus and during

first appellate proceedings, the assessee filed explanation and confirmation and

after calling remand report from the AO, the CIT(A) granted relief to the

assessee by observing that the AO has not cared to consider confirmation and

other relevant details filed by the assessee even during the remand proceedings.

The CIT(A) further observed that sundry creditors are all trade creditors and

major part of addition was deleted by the AO herself subsequently and finally

the CIT(A) granted relief to the assessee and directed the AO to delete entire

addition. We are unable to see any infirmity, perversity or any other valid

reason to interfere with the impugned order and we uphold the same.

10.    Accordingly, ground no. 1 of the revenue being devoid of merits is also

dismissed.


Ground No.3

11.    Apropos ground no. 3, ld. DR submitted tha ld. Commissioner of Income

tax (Appeals) has erred in deleting the addition of Rs.6,00,000/- in spite of the

facts that complete books of accounts and supportive documents were not

produced before the AO. Ld. DR vehemently contended that even in the audit

report the auditor has mentioned that in absence of proper bills and vouchers,

                                       9
ITA No. 224/Del/2012
Asstt.Year: 2008-09

genuineness of the expenses credited to profit and loss account could not be

verified. Ld. DR submitted that the impugned order may be set aside by

restoring that of the AO. Replying to the above, ld. Counsel of the assessee

submitted that the books of accounts of the assessee were duly audited and

disclosed the higher turnover, GP and NP rate as compared to the preceding

years. Ld. Counsel further pointed out that out of total expenditure claimed by

the assessee, the assessee has paid FBT on amount of Rs.2,20,674/- which were

covered by the provisions of FBT and there was no logic or justification to

make further ad hoc addition of Rs. 6 lakh. Ld. counsel contended that when

books of accounts were audited and no defect has been pointed out by the AO,

no addition can be made in this regard.

12.    On careful consideration of above submissions, we note that the CIT(A)

has granted relief to the assessee with following observations and conclusion:-


             "5.2. AR's submissions:
             AR made submissions as under:
             "Ground No.1. Addition of Rs. 6,00,000/- in trading
      result:
            That the learned assessing authority on the plea, that since
      assessee has failed to produce the books of accounts, the cause of
      death of accountant was not convincing and made in ad hoc
      addition of Rs. 6,00,000/-, in order to cover the possible leakage.
      The appellant produced the cash book, along with copy of ledger
      and documents, however, in absence of part ledger the learned
      A.O. did not examine the books of accounts. It may be pointed
      out that copies of account of all major expenses were filed and
      assessee produced the bills and vouchers. None of the expense
      was found to be not related to business or excessive. The learned
                                          10
ITA No. 224/Del/2012
Asstt.Year: 2008-09




     A.O. has not pointed out the specific disallowance of any
     expenditure incurred or not comsurating to expenses incurred in
     the preceding years. The turnover disclosed by the assessee was
     higher, the gross profit disclosed was almost giving the same
     gross profit rate and there was increase of not profit from Rs.
     13,92,225/-, to Rs. 23,95,2981-. All these facts were available on
     the record, however, the addition has been made for sake of
     addition. Thus addition made by the learned AO is not based on
     any material placed on record but only on presumption surmises
     and conjectures, which deserves to be deleted."
             5.3.      AO's comments in Remand Report:
             "Addition of Rs.6,00,000/-
           The assessee has submitted before your honour that it had
     produced cash book along with copy of ledger and documents
     and also the bills and vouchers. But as mentioned in the
     assessment order, the assessee did not produce complete books
     of accounts during the assessment proceedings. On the basis of
     incomplete books and supporting bills and vouchers, correct
     income and expenses cannot be ascertained. Further the reasons
     given by the assessee were not acceptable in the light of the fact
     that during the course of assessment proceedings for the A.Y.
     2007 -08 also the assessee failed to produce books of accounts.
     Hence, in the circumstances, the AO was right to reject the
     trading results declared by the assessee and make addition of
     Rs.6,00,000/- in the absence of complete books of accounts. "
              5.4.     AR's rejoinder:
             "Addition of Rs. 6,00,000/-.
            The observation of the learned A.O. that complete books of
     accounts were not produced, is not denied, however fact remains
     that books of accounts were produced out of which one volume of
     ledger which was with the deceased accountant could not be
     produced for the reasons submitted vide reply dated 16/12/20 10.
     The appellant assessee is old assessee, disclosing the progressive
     turnover and profit. Reasons for non production of part of the
     ledger were not accepted by the learned A.O. with the remark.
     "The statement of assessee considered carefully but found not
     conversing since during A. Y 2007-08, also, the assessee has
     failed to produce books of accounts. So the cause shown by the
     assessee being death of accountant is not conversing." From the

                                            11
ITA No. 224/Del/2012
Asstt.Year: 2008-09

      books of accounts produced, no infirmity or abnormality in the
      expenditure shown was noted. The books of accounts were duly
      audited and disclosed the higher turnover, GP and NP, as
      compared to the preceding years. Out of the total expenditure
      claimed the assessee has paid FBT on amount of Rs. 2,20,674/~,
      which were covered by the provision of FBT and there was no
      logic or justification further to made ad hoc addition of Rs. 6
      lacs, by the learned A.O., when book result are progressive.
             5.5. Decision and reasons therefor:
             I have considered the facts of the case emanating from the
      AO's order and the AR's submissions. The AO has harped on the
      fact that complete books of accounts were not produced. The AR
      has pleaded that cash book was produced and copies of accounts
      of all major expenses along with bill and vouchers were
      produced and that only part ledger could not be produced for
      reasons beyond control. I find that the books of accounts were
      audited. The AO did not find any defects in the part of books of
      accounts produced. The trading result shown has been
      progressive. On a totality of these facts, I do not see justifiable
      reasons for: an ad hoc addition. The addition of Rs.6 lakhs is,
      therefore, deleted."
13.    In view of above, we are in agreement with the conclusion of the CIT(A)

that the AO merely harped on the fact that complete books of account were not

produced. At the same time, we cannot ignore that the assessee filed audit

report along with cash book and copies of all relevant accounts of all major

expenses along with bills and vouchers. The CIT(A) rightly noted that the AO

did not find any defect in any part of the books of accounts produced before him

and the result shown by the assessee has been progressive, therefore, the

impugned ad hoc addition could not be held as sustainable and in accordance

with law and, therefore, the CIT(A) rightly deleted the addition. Accordingly,

ground no. 3 of the revenue is dismissed.


                                        12
ITA No. 224/Del/2012
Asstt.Year: 2008-09

14.        We are unable to see any infirmity, perversity or any other valid reason to

interfere in the order of the CIT(A).


15.        In the result, the appeal of the revenue is dismissed.

           Order pronounced in the open court on 29.10.2015.

      Sd/-                                                Sd/-

(T.S. KAPOOR)                                     (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER                                     JUDICIAL MEMBER

DT. 29th October 2015
`GS'


Copy forwarded to:-

      1.   Appellant
      2.   Respondent
      3.   C.I.T.(A)
      4.   C.I.T. 5. DR                                  By Order

                                                         Asstt.Registrar




                                             13

 
 
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