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.
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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.
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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.
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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
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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
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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
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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
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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
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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,
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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
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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
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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.
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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
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