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2016 (7) TMI 240 - ITAT KOLKATA

2016 (7) TMI 240 - ITAT KOLKATA - TMI - Addition u/s 68 - Held that:- AO had even treated the debit balances of sundry creditors as unexplained cash credit u/s 68 of the Act by treating them as bogus liabilities. We find that there is an arithmetical error committed by the Learned AO thereby making excess addition of ₹ 3 crores towards storage charges payable (FSWAI). We also find from the details in the paper book and the arguments of the Learned AR that the assessee had heavily transacte .....

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etails filed in the paper book by the assessee, we hold that it would be fit and appropriate , in the interest of justice and fair play, to set aside all the issues raised in the grounds of appeal to the file of the Learned AO, with the following directions :- - (i) No addition need to be made on the opening balances of sundry creditors (current liabilities and provisions) in the assessment year under appeal ; - (ii) No addition need to be made on the debit balances of sundry creditors ( .....

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ecessary evidences and documents in support of its contentions in the form of reconciliation statements, confirmation of balances etc. - (vi) The assessee is also directed to adduce evidences before the Learned AO in respect of rectifications stated to have been carried out in subsequent years for the wrong credit entries made in the earlier years and also produce evidences for payments / settlements made to various creditors in subsequent years. - Decided in favour of revenue for statistica .....

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143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The revenue had raised the following grounds before us :- 1. Whether on the facts and in the circumstances of the case, ld. CIT(A) is correct in deleting the addition U/s. 68 on account of bogus liabilities amounting to ₹ 10,62,38,834/- despite the failure on the part of the assessee to furnish necessary details and documentary evidences to justify its claim. 2. Whether on the facts and in the circumstances of the .....

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ecessary details and documentary evidences to justify its claim. 4. Whether on the facts and in the circumstances of the case, ld. CIT(A) is correct in deleting the addition towards purchase suspense amounting to ₹ 25,73,43,604/- in spite of the fact that the assessee failed to prove the genuineness of the parties and their identities. 3. The brief facts of Ground No. 1 are that the assessee is a private limited company engaged in the business of trading in chemicals. During the course of .....

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the addresses of the parties in many cases. The Learned AO observed that the assessee had derived interest income of ₹ 1.12 crores and miscellaneous income of ₹ 50.44 lakhs but had totally returned income only at ₹ 53 lakhs, which goes to prove that the assessee had incurred loss in his chemical business. He doubted the veracity of the creditors submitted by the assessee and called for further information as follows:- (i) Address of creditors (ii) Details of Creditor balance on .....

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ERING INDUSTRIES LTD 11,190 DEV OVERSEAS 2,39,200 ESCORT ENTERPRISES 7,05,000 INTEGRATED SERVICES 2,34,135 J.BAXI & CO 12,983 JAY AMI PLYMERS PVT. LTD 3,48,750 MAHAVIR CHEMICALS 82,426 MANGAL DAS & COMPANY 4,750 MARC INFOTECH 8,00,521 PCN PURE CHEM PVT. LTD 5,13,504 PIONEER DYE-CHEM CORPORATION 3,78,674 RAVO ORGANICS LTD 4,46,100 SUMUDERA SHIPPING LINE INDIA PVT.LTD 3,078 SHIV PRAKASH TRANSPORT SERVICE 7,460 SOMU & CO. 24,010 STANDARD CON. PVT. LTD 2,398 STORAGE CHARGES PAYABLE 5,06, .....

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d transactions with credible documentary evidences and complete postal addresses. - that since the assessee has not even provided the PAN, the existence of these parties is doubted. - that further , for getting credits from any person or concern, physical existence of such person or concern as well as genuineness of transactions, as a result of which outstanding balances stood in their books, have to be proved. It was not ascertainable as to how the credit balances appeared in the names of the a .....

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nd details like Suspense account , the assessee has prevented the department from making any independent verification of these parties. - that it appears that the assessee has unilaterally shown all these parties as his creditors in spite of having carried on no transactions with them. Based on these observations, the Learned AO brought the closing balances of these creditors amounting to ₹ 10,62,38,834/- as unexplained cash credit u/s 68 of the Act treating the same as bogus liabilities. .....

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us Global Limited 53,00,000 53,00,000 6. Navin Chemical Enterprises 18,00,000 18,00,000 7. Nestor Pharmaceuticals Ltd 19,09,991 19,09,991 8. Paritej Molucule Pvt. Ltd 3,49,749 3,49,749 9. Priceless Investrade Pvt. Ltd 7,08,603 7,08,603 10. Sanchay Holding Ltd 3,18,130 3,18,130 11. Shree Giriraj Enterprises 45,16,112 45,16,112 12. Sudarshan Chemicals 12,85,151 12,85,151 13. Vertex Chemicals Pvt. Ltd 4,44,827 4,44,827 14. Super Chemicals Pvt. Ltd 10,53,619 10,53,619 15. K P Enterprises 22,03,133 2 .....

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to the tune of ₹ 2,93,67,494/- to tax as unexplained cash credit u/s 68 of the Act treating the same as bogus liabilities. 3.2. The brief facts of Ground No. 3 are that wherever the assessee had furnished the complete postal address of the creditors, the Learned AO made independent enquiries by sending notices u/s 133(6) of the Act and found that the closing balances did not match in the following cases :- Sl.No Name of the Party Closing Balance as per reply ( in Rs.) Closing Balance as pe .....

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7,475 9. B.R. Agrotech Nil 16,00,000 16,00,000 10. ACME Solvents Pvt. Ltd Nil 25,00,000 25,00,000 11. Ashok Alco Chem Ltd Nil 2,96,761 2,96,761 12. Elpee Overseas Pvt. Ltd Nil 2,53,321 2,53,321 13. Surbhee polymers Pvt. Ltd Nil 52,68,000 52,68,000 14. Vinision Chemical Nil 9,63,799 9,63,799 10,56,92,541 Based on the above, the Learned AO observed that the assessee had booked bogus sundry creditros in the name of these parties and the assessee could not reconcile the differences in balances. Here .....

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accounts. Accordingly, he brought the aforesaid creditors to tax as unexplained cash credit u/s 68 of the Act treating them as bogus liabilities. 3.3. The brief facts of Ground No. 4 are that during the course of assessment proceedings, from the details of current liabilities and provisions filed by the assessee, the Learned AO observed that the assessee has shown Purchase Suspense of ₹ 73,80,73,509/-. The assessee stated that the purchase suspense represents goods that were sold to certai .....

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d, and invoice not received. 75,05,000 3. Kutch Chemical Industries Repurchase of 2645MT Caustic Soda Flakes sold to Kutch Chemical Industries Ltd, and the invoice not 60,06,000 Received 4. Kutch Chemical Industries Repurchase of 1286MT Caustic Soda Flakes sold to Kutch Chemical Industries Ltd, and invoice not received 2,44,34,000 5. Bloom Decor Ltd Repurchase of 155MT Phenol sold to Bloom Decor Ltd, and the invoice not Received 1,16,25,000 6. Dujodwala Products Ltd Repurchase of 350MTPhenol sol .....

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chase of 75 MT Phenol sold to Sahastraa Exports Ltd, and the invoice not 56,25,000 Received 11. Shubham Chemicals & Solvents Ltd Repurchase of 250MT Phenol sold to Shubham Chemicals & Solvents Ltd, and15000000 the invoice not received. 1,87,50,000 12. Sundek India Ltd Repurchase of 200MT Phenol sold to Sundek India Ltd, and the invoice not Received 15,00,0000 13. Aarem Chemicals Ltd Repurchase of 450MT Phenol sold to Aarem Chemicals Ltd, and the invoice not received 3,37,50,000 14. BR Ag .....

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not received. 18. Sanjay Chemicals (India) Ltd Repurchase of 21MT Acetone sold to Sanjay Chemicals (India) Pvt. Ltd, and the invoice not received. 8,82,000 25,73,43,604 The Learned AO further observed from the notices issued u/s 133(6) of the Act to the aforesaid parties, the closing balances did not match. The Learned AO further observed that the few parties were selected on test check basis and notices u/s 133(6) of the Act were issued for third party verification. In some of the cases, he als .....

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dry creditors u/s 68 of the Act as admittedly, only the credits during the year alone , if at all, could be subjected to tax as deemed income u/s 68 of the Act. It was also argued with specific reference to the decision of the co-ordinate bench of Ahmedabad Tribunal in the case of DCIT vs Alidhara Taxpro Engineers Pvt Ltd reported in (2011) 43 SOT 1 (Ahm.) wherein it was held that neither provisions of section 68 nor provisions of section 41(1) of the Act could be applied even when the credits w .....

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in respect of all such credit entries appearing in the books of account and most of which were being carried forward from earlier year and also observed that some of the credits were made due to wrongly entry in the books of accounts in as much as the amount which should have been credited to some other accounts had been wrongly credited to such accounts and most of such entries had already been rectified by April 2010 and much before the case had been taken up by the Learned AO and hence it can .....

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ious decisions by the Learned AO. It was also mentioned that all the credits are either in respect of purchases made or in respect of expenses incurred and all of which are supported by bills and challans and payments in all the cases have been made by Account Payee Cheques only and hence applicability of provisions of section 68 of the Act would not arise. It was also argued before the Learned CIT(A) that certain debit balances of sundry creditors were also added by the Learned AO as bogus liab .....

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aded that because of global recession , certain materials sold by the assessee company during the year ended 31.3.2008 were not lifted by the purchasers and hence assessee company instead of reducing the sales by the amount of such bills, on account of business expediency showed such transactions as re-purchase of such materials and entered the same in purchase suspense account. The complete details of the same party wise were furnished before the Learned CIT(A). It was also explained that since .....

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f the lifting of materials by the concerned parties. Hence it was argued that under no circumstances, the same could be treated as deemed income in the hands of the assessee u/s 68 of the Act. The Learned CIT(A) appreciated the contentions of the assessee and deleted the additions made on account of sundry creditors as bogus liabilities and on account of purchase suspense. Aggrieved , the revenue is in appeal before us. 5. The Learned DR argued that lot of additional evidences were filed before .....

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DR stated that the Learned AO had only stated in his remand report, due to paucity of time, he is not able to look into the various additional details filed by the assessee and accordingly the Learned DR re-emphasized the argument that the matter requires to go back to the file of the Learned AO. 6. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. From the bare perusal of the details filed in the paper boo .....

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g, a Government of India Enterprises, M/s PEC Ltd. The details of transactions with PEC Ltd are as follows:- (i) Assessee has been importing material from overseas but the Letter of Credits were established by third parties like PEC Ltd and other companies. The credits in purchase suspense account during the year ended 31.3.2008 is for the imports of material, the letter of credit for which were established by third parties, and the invoices has not been raised on assessee by third parties who e .....

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d the letter of credits for the import of assessee and credited the purchase suspense account during the year ended 31.3.2008 and on the day of settling the accounts for a particular consignment, purchase suspense account is debited and respective party which has established the letter of credits for the import of assessee is credited. (v) The details of letter of credits established by third parties for the imports of assessee together with copy of agreement between assessee and the third party .....

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he note on re-purchase of materiasl from the parties to whom materials were sold. These are enclosed in pages 183 to 213 of the paper book. 6.1. The Learned DR argued that most of the details were filed and explained in detail by the assessee before the Learned CIT(A) and the Learned AO had not given any remarks about the same in his remand report. He pleaded that in the interest of justice, the case may be remanded back to the file of the Learned AO with a specific direction to relook into the .....

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he Learned DR on this aspect. For the sake of convenience, the provisions of section 250(4) of the Act are reproduced below:- Section 250 - Procedure in appeal (4) The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). 6.2. Though we find that the Learned CIT(A) had referred to various annexures in his appellate order wh .....

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