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2015 (12) TMI 1177 - ITAT KOLKATA

2015 (12) TMI 1177 - ITAT KOLKATA - TMI - Addition made under the head ‘bogus purchase’ - CIT(A) deleted the addition - whether where sale is genuine, purchase cannot be bogus, whereas no stock register and quantity wise details of purchase and sale is not available? - Held that:- It is clear from the order of the CIT(A) and the evidence on record that there was no valid basis to treat the entire purchases as bogus as was done by the AO. If purchases are being disallowed to the extent of ₹ .....

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the entire purchases as bogus and making addition would result in absurd results in that the entire sale proceeds would get taxed as income. In the given facts and circumstances of the case, the addition made was rightly deleted by the CIT(A). We find no ground to interfere with the order of the CIT(A). - Decided against revenue

Addition u/s.41(1) as cessation of liability - CIT(A) deleted the addition - Held that:- There was no evidence to show cessation of liability. Assessee still .....

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Balaganesh, A.M. & Shri S.S.Viswanethra Ravi, J.M. For The Department : Shri Uday Kr. Sardar, JCIT For The Assessee : Shri Soumitra Choudhury, Advocate ORDER Per Shri S.S.Viswanethra Ravi, J.M. This is an appeal preferred by the Revenue against the order dated 18.06.2012 passed by the CIT(Appeals)-XXX, Kolkata in Appeal No.239/CIT(A)-XXX/Wd-48(1)/2009-10 for the assessment year 2007- 08 framed under section 143(3) of the I.T.Act. 2. The Revenue has raised the following grounds before us. 01 .....

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out by the Assessing Officer and even the assessee. 3. Ground no.1 of the appeal by the Revenue is against addition of ₹ 10,14,942/- as bogus purchases. Brief facts relating to this ground are that the addition has been discussed in para (4) of the Assessment Order and from the discussion made by the A.O., i t is observed that during the course of assessment proceedings, the A.O. had issued notices under section 133(6) to various parties in order to verify their transactions of sales by th .....

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ner Stores 30,194 TABLE-l, SI.NoA 5 M/s. Chowdhury Hardware Stores 93,300 TABLE-l, SI.No.5 6 M/s. R. K. Podder.& Bros. 1,16,744 TABLE-l, SI.No.6 7 M/s. Sreema Hardware 4,000 TABLE-l, SI.No.7 8 M/s. Gupta Trading Concern 17,000 TABLE-l, SI.No.8 9 M/s. Mritunjoy Treding Co. 56,190 TABLE-l , SI.No.9 10 M/s. Chatterjee Kundu & Co. 2,848 TABLE-5, SI.No.2 11 M/s. Mehta Enterprise 1,01,455 TABLE-7,SI.No.l 12 M/s. Combat Chemicals Pvt. Ltd. 1,24,618 TABLE-7, SI.No.2 13 M/s. Raj & Raj Pvt. Lt .....

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nation provided by the assessee, the A.O. held that these transactions totaling to ₹ 10,14,942/- were bogus and he based his findings on the following observations : 1. It is seen that no specific details or explanations have been offered in respect of discrepancies, mentioned above. Therefore, the said explanation is treated as very general in nature. 2. The assessee is not claiming that the purchases were made from the genuine purchasers. He received purchase bills from different entitie .....

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. Y.2007-08 were produced only once during the course of, hearing. The discrepancies found during verification, as mentioned in TABLE -3 above could not be explained. The said books of accounts have not been produced for the second time even after repeated reminders. 4. The Books of accounts for A.Y.2008-09 have not been produced also, after repeated reminders. The assessee has not shown any intention to submit specific clarification in respect of findings observed during the proceedings. 4. Bef .....

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portunity to the assessee. 5. The ld. CIT(A) called for a remand report from the AO. The CIT(A), after considering the submissions of the assessee, remand report of the AO and assessee s rejoinder and other evidences on record, gave his findings. 5.1 The CIT(A) was of the view that the AO considered purchases as bogus on the ground that purchases were made from the aforesaid parties in two year i.e. 2006-07 and 2007-08 totalling to ₹ 12,62,135/- against which only a cash payment of ₹ .....

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s also provided the details of the items purchased from these parties and supplied to M/s. CESC Ltd. In the Remand Report, the A.O. has acknowledged that the entries for (cash payments were made of the accounts for these parties and all these accounts were squared up in Financial Year ending on 31.03.2008. In respect of the remaining four parties out of the above mentioned list, the A.O. has made addition on the ground of non-reconciliation of the accounts with the assessee. The same are discuss .....

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133(6) could not be served as the notices were returned un-served by the Postal Department. 5.3. The CIT(A) was of the view that the addition has been made by the A.O. taking the dual grounds of the transactions not capable of being verified as the Inspector could not serve the notices u/S.133(6) and that nominal payments have been made against purchases in two year i.e. A.Y.2006-07 and 2007-08 whereas almost the entire outstanding balances have been paid in cash by 31.03.2008. In this regard, w .....

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seen that assessee has also provided the valuation of item wise details of closing stock amounting to ₹ 6,88,565/- as on 31.03.2007. While the A.O. has observed that verification could not be done from the above mentioned parties, however the addition in respect of disallowing the purchases from these parties does not stand test as the disallowance brings into question the sales being shown by the assessee, as his activities are, in trading nature and the entire supplies are being made to .....

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tification for the above addition. The CIT(A) held that the AO at best could have rejected the books and estimated income of the assessee but he has not done so. Adding the entire sales as income could give absurd results. The CIT(A) accordingly deleted the addition of ₹ 10,14,156/-. 6. Aggrieved by the order of the CIT(A) the revenue has raised Gr.No.1 before the Tribunal. We have heard the rival submissions. The learned DR relied on the findings of the AO. The learned counsel for the Ass .....

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A.O. was not justified in considering the entire purchases as bogus from these nine parties. The fact that the other parties avoided notices u/s.133(6) of the Act could be because they were not disclosing sales made to the Assessee in their books of accounts. The AO at best could have rejected the books and estimated income of the assessee but he has not done so. Treating the entire purchases as bogus and making addition would result in absurd results in that the entire sale proceeds would get .....

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eedings that the assessee had shown total liabilities of ₹ 16,67,546/- which were found to be non-existing. He held that the assessee failed to substantiate that these liabilities actually existed on 31.03.2007. The A.O. therefore held that these were bogus liabilities. He went on to hold that - "Application of Section 41(1) presupposes genuineness of allowed in ea1ier years. The fact that the assessee has claimed the said sum as expenditures in earlier years cannot be denied. As the .....

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ot justified. The assessee also submitted copies of accounts of these creditors in its Books of Accounts to substantiate his claim that no addition should have been made by the A.O. u/s. 41(1). A remand report was called for from the AO for verification of the details of the payments claimed to have been made in respect of these creditors from the Books of Accounts of the assessee. In response to the above directions the final report of the A.O. dated 14.02.2012 was received by the CIT(A) in res .....

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n account of payments to these sundry creditors. Therefore, if the payments were taken to be genuine in the next Financial Year then they cannot be added in the earlier Financial Year as cessation of liability. The assessee further submitted that the sundry creditors cannot be added by the A.O. if there is no remission of cessation of trading liability and hr the above contention the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd., .....

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The A.O. therefore added the purchases from the parties made in the current year from these parties as bogus purchases. However, in respect of the outstanding balances the same have been considered for addition u/s.41(1) by him in the Assessment Order. The details of these parties and the outstanding balances considered by the A.O. are reproduced as under: 8.4 As mentioned above, the A.O. had already disallowed the purchases shown from these parties in the current year on the similar grounds as .....

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cation of section 41(1) presupposes genuineness of expenditure claimed in earlier year and held that there is no denying that the assessee had claimed the expenditure in earlier years. He then went on to hold that these liabilities ceased to exist on 31.03.2007 as found during assessment proceedings and therefore disallowed the same u/s.41(1). From the above, it is clear that he has not understood the purposes or working of section 41(1) which is in respect of cessation of a liability at a parti .....

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iabilities actually existed. Secondly it is not for the assessing authority to decide that a particular liability had ceased to exist at a particular point in time but the conclusion must be based on evidence that the cessation had taken place in that relevant financial year. In the assessee's case, neither of the two conditions exist. Furthermore, as submitted by the assessee, the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd., supra has held that- "In the absence of the creditor .....

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ll settled." 8.5 This view of Hon Apex Court has been followed by the Delhi High Court in Commissioner of Income -vs- Shri Vardhman Overseas Ltd 343 ITR 408 and several other High Courts. In the assessee's there was no remission or cessation of liability therefore section 41(1) was not attracted. Section 41(1) refers to taxation of benefit in cash or otherwise by way of remission or cessation of any trading liability therefore the condition to be fulfilled first is that the liability is .....

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