9911796707
TMI Blog2012 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... use, 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 appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 25 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.) 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 and 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. [ Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/-. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Confirmation signed by Accounts Manager on behalf of Store Sacks India Private Limited confirming balance of Rs.5,41,662/- is accepted. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) For BVG India Ltd. the appellant has filed one copy of reconciliation statement along with the copy of balance confirmation. However, this in fact, is a letter sent by the 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 and Company, the appellant has filed one letter with stamp of Kumar and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal, I find that for the outstanding balances which remain unverified/unconfirmed, the Assessing Officer is justified in treating the amount of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond 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 has been held by Hon'ble Pubjab and 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 control, was not given. The additional evidence is listed on letter which is placed on pages 420 and 421 of the paper book. Thereafter, assessee vide letter dated 7-7-2009 and 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. 531 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent 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 PandL 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence 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. 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 and 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 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmons 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 and 2007-08 on record. The assessee's purchase transactions with these parties is 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, sund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 PandL a/c by allowing same as 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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, applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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