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2016 (9) TMI 915 - ITAT KOLKATA

2016 (9) TMI 915 - ITAT KOLKATA - TMI - Addition u/s 68 - advance received from 469 parties by the assessee - Held that:- In the instant case, from the aforesaid findings , it could be safely concluded that the amounts received by the assessee were only trade advances and the same were duly squared up by supply of sand by the assessee to those customers and sales were booked in the Asst Year 2007-08 which was also accepted by the ld AO in the rectification proceedings u/s 154 of the Act while gr .....

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ash Agarwal, Advocate and Shri P. K. Himatsinghka, FCA ORDER Per Shri M. Balaganesh, AM: This appeal by revenue and cross objection by assessee are arising out of order of CIT(A)-I, Kolkata vide appeal No. 446/CIT(A)-/3(4)/08-09 dated 16.01.2010. Assessment was framed by ITO, Ward-3(4), Kolkata u/s. 143(3)(ii) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2006-07 vide his order dated 30.12.2008. 2. The only issue to be decided in this appeal is as to whether the advanc .....

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re than 60 villages. Thus assessee enjoyed monopoly in sand business in these three districts. The ld AO observed that assessee had commenced trading of sand from January 2006 onwards. He observed that the assessee had advanced a sum of ₹ 7,75,69,556/- to various mining authorities as below:- Assistant Mining Officer, Arrah ₹ 4,44,53,209.50 Assistant Mining Officer, Chapra ₹ 11,37,175.50 District Mining Officer, Patna ₹ 3,19,79,171.00 ₹ 7,75,69,556.00 The sources of .....

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them for which sales have been effected subsequently and ₹ 27,50,000/- (inclusive of opening carried forward figure of ₹ 7,50,000/- ) from M/s Amba Steel Works against sale of steel, total aggregate amounting to ₹ 8,02,84,884/- and the same were duly disclosed in the balance sheet of the assessee as on 31.3.2006. The entire sales were disclosed in the audited profit and loss account for the year ended 310.3.2007 and TCS claimed thereon in terms of provision u/ s 206C(4) of the .....

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vide its letter dated 17.11.2008 explained the deficiencies in address and submitted the current address including pin code etc. Ultimately all the 470 customers responded owning the payment of advances to the assessee and squaring off the entire advances against supply of sand made by the assessee except Mr Jaykant whose advance of ₹ 49,000/-. Most of the creditors submitted their identity proof like voter iD card, residence proof, ration card, PAN card (wherever available) etc. The ld C .....

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8 of the Act on the following reasons:- (a) The assessee has no past experience in sand business. (b) The company had not commenced any business of sand trading and did not receive any advances. (c) Generally no advance is given in the nature of trade as carried on by the assessee. (d) Mr. Jaykant denied the transaction. (e) Age of 4 creditors out of 471 at the time of payment of advance were ranging between 20 to 23 years. (f) 10-20 notice u/s. 133(6) were received by other persons on behalf of .....

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dav & Mr. Umesh Singh were received in Oct. 08 against non service of notice u/s. 133(6) to them. (m) Replies from customers residing in one village namely Bijay Kumar from P.O. Koilwar, Dist. Bhojpur, Rakesh Kumar Tiwari from P.O. Panchrukhiya Kala, Dist. Bhojpur, Rana Pratap from P.O. Daulatpur, Dist. Bhojpur, Rajnath Sharma from P.O. Panchrukhiya kala, Dist. Bhojpur, Asraf Hussain from P.O. Koilwar, Dist. Bhojpur and Rita Kumari from P.O. Panchrukhiya kala, Dist. Bhojpur. The replies were .....

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otices were mostly returned back in the earlier instances had managed the local post office. In this regard it was submitted that more than 60 post offices situated on several districts / villages of Bihar consisting of 470 customers , wherein the ld AO had conducted enquiries us/ 133(6) of the Act by issuing registered letters without the knowledge of the assessee. It was submitted that the ld AO could not appreciate the fact that it is the common practice in small villages that one common man .....

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party / stranger by putting their Government job at stake. Accordingly the allegation leveled against the assessee was pointed as baseless and absolutely irrelevant. Moreover, all the 22 addressees on whose account, these allegations were leveled against by the ld AO, had duly complied to the notices u/s 133(6) of the Act and admitted to having given advances and confirmed the receipt of supply of sand in the financial year 2006-07 from the assessee against the said advance. 4.1. It was argued .....

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internet, contacting some known persons from the village etc. Moreover, the ld AO himself admitted at page 2 & 3 of his order that undelivered notices were shown to the ld AR who started work in compiling the full address for onward submission to ld AO with a view to co-operate in the enquiry. It was argued that the ld AO should have appreciated the promptness of the ld AR instead of being suspicious especially when time barring period was fast approaching. 4.2. With regard to another allega .....

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by it from 470 parties to the tune of ₹ 8,02,84,884/- scattered in various villages within a short span of one month. In this regard, it was submitted that the suspicion of the ld AO has no basis specifically when assessee obtained the work order from Bihar Government through the process of tender and ld AO himself had allowed credit of TCS collected by Government of Bihar upon payment of royalty against work order, determined the business income and collect tax from the said sand busines .....

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e the revenue for the Government. Earlier these works were allotted and executed by the co-operative society taking advances from the local people residing in nearby river sand ghat / villages against the supply of sand at a subsequent date. Local people themselves approach the entity who get the work order from the Government of Bihar and pay advances to get the assurance of supply of sand, just because this is the only source of income in addition to the agriculture in that area. Hence there i .....

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categorically accepted to have given advances to the assessee against enquiry conducted u/s 133(6) of the Act. M/s Shristi Developers Private Limited is a regular income tax assessee and had also submitted a copy of ledger account of assessee as appearing in their books of accounts along with their audited accounts which duly tallied with assessee s records. In spite of this, the ld AO considered the balance amount of advances as unexplained cash credit u/s 68 of the Act after deducting the sal .....

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d AO in the aforesaid observation had raised question about the age of four customers, namely Rakesh Kumar Tiwary, Smt Rita Kumari, Rana Pratap and Jai Prakash Singh. The assessee replied in this regard as follows:- "Rakesh Kumar Tiwary -Voter identity card Paper Book No. 3, page no.194 to page no. 196 provided by the Rakesh Kumar Tiwary directly to the Ld. AO, reveals the age 19 years as on 01.01.2005 and the advances was given to the appellant in December 2005 meaning thereby age around 2 .....

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nce." "Jai Prakash Singh - Voter identity card Paper Book No. 2, page no.84 to 86 shows the age of aforesaid customer 21 years as on 01.01.2004 and the advances was given in December 2005. At the time of accepting advances from aforesaid four, all were majors and thus there is no infirmity in accepting advances. These advances were further squared up against sales." 4.7. The ld. AO in para 10 of his order had stated that From the master roll of parties from whom advance was receiv .....

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respect of other details of creditors, since they are matching. Father name of Mr. Upendra Prasad Yadav & Mr. Ashok Kumar (2) are matching, still Ld. AO made the issue and drawn adverse inference for the reason best known to him. In respect of other two creditors, there might be typing error committed by the computer operator. Further, in response to notice u/s 133(6), the above two impugned customers have categorically accepted to have given advance to the appellant and also provided copy .....

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08 that section 133(6) notices to parties like Subhash Pd. Yadav, Umesh Kumar, Manoj Kumar , Harendra Prasad and Ashok Kumar were returned unserved with remark Not found . But in page 9 of the assessment order, based on the replies received from these parties it was mentioned that advances were proportionate with their income and they were not income tax assessee. It was submitted that how these two situations could be possible. 4.9. It was submitted that the ld AO had written the following name .....

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ngh Rita Kumari Uma Devi Sri Umesh Kumar 4.11. It was further submitted that the ld AO vide its show cause letter dated 6.11.2008 had stated that out of 471 notices u/s 133(6) of the Act, 149 notices were returned back unserved. In reply to this show cause, the assessee had filed its submission dated 26.12.2008 wherein it was stated that the letters issued by the ld AO had numerous defects like wrong address, wrong district, wrong name etc. That is why these letters might have probably returned .....

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ted to have given advance to the assessee and that their entire advances were squared up against supply of sand in the Asst Year 2007-08 except Mr. Jaykant who had advanced a sum of ₹ 49,000. 4.12. It was submitted that the ld AO had observed that notices were sent to the balance parties who had advanced sums below ₹ 1,00,000/- which were duly received by the respective parties and duly replied by them. Even this list was considered as unexplained cash credit u/s 68 of the Act by the .....

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erely because a creditor turns hostile, the contention of the assessee setting up a cash credit should not be disbelieved otherwise the creditors could bring the assessee to ransom. 4.14. It was submitted that the ld AO at page 8 of his order had referred few names with the amount of advance admitted to have given to assessee are not income tax assessees and therefore concluded that they have no creditworthiness. It was argued that those parties had given factual position and admitted to have en .....

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to have given ₹ 49,875/- vide bank draft and had enclosed his election ID card for his identification. Similarly Mr Kuldip Yadav had also admitted to have given ₹ 49,900/- vide bank draft and enclosed his election ID card. Likewise all other replies were also received by the ld AO confirming to have given advances and adjustment of entire advance against supply of sand at subsequent date. It was submitted that Mr Bhola Prasad Yadav of Koilwar, Bhojpur had replied to ld AO with duly .....

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ances were received by the assessee. At least the advances received from these 416 persons should have been treated as genuine which was also not done by the ld AO. 4.17. It was further submitted that the custom and history of providing advances in lieu of sand is very old in the districts of Bihar, where primary source of income is agriculture and business of sand. Earlier they used to work under co-operative society consisting of local public as its customers and used to collect advances from .....

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names under the head advance from customers were common. 4.18. Finally, it was submitted that the sale of sand to these customers were subject matter of verification by the ld AO in the Asst Year 2007-08 against the petition made u/s 154 of the Act dated 2.3.2009 for seeking credit of TCS u/s 206C(4) of the Act on the basis of corresponding income upon sale of sand to those impugned customers from whom advances were received by the assessee in the year under appeal. Detailed customer wise list .....

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ted that assessee has ever carried on business of sand in the absence of past experience and therefore possibility of receipt of advances is remote, consequently applied the above judgment. It was submitted that the reliance on the said judgment has no basis in view of the fact that the work order for raising sand were allotted by the Government of Bihar and the ld AO himself had allowed credit of TCS collected by Government of Bihar. Moreover, the assessee had paid royalty of ₹ 5,01,25,00 .....

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it is shown that there are reasons to believe that the apparent is not the real . In the instant case, it is not in dispute that the supply of sand had been made by the assessee in the Asst Year 2007-08 to those customers from whom advances were received and the same were also subjected to due verification by the ld AO in the rectification proceedings u/s 154 of the Act. In these circumstances, What is apparent is real is proved beyond doubt. 5. The ld CITA appreciating the aforesaid contentions .....

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from 469 parties made u/s.68 of the I.T. Act 1961 as ingenuine cash credits without properly appreciating the evidence brought on record by the AO. (ii) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in deleting the addition of ₹ 7,74,85,884 made u/s.68 of the I.T. Act, 1961 in spite of the fact that the assessee has failed to establish the genuineness of relevant transactions with 469 parties and their capacity to make advances as required by law. (iii) Ld. C .....

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ly appreciating the fact that the AO has brought adequate evidence on record to prove that the transactions with 469 parties were not genuine as the repayment by alleged sale of sand to such parties by assessee has not been conclusively established. (v) Ld. CIT(A) has erred on the facts & circumstances of the case and in law in accepting the assessee's explanation that allowing credit of TCS in order u/s.154 of the I.T. Act proves the genuineness of sales made to 469 parties who have mad .....

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4,85,884 made u/s.68 of the 1. T. Act, 1961 without appreciating that all these conditions viz. identities, genuineness of transaction & capacities of parties in respect of cash credits should be satisfied cumulatively, which is not there in this case. (viii) On the facts & circumstances of the case the order of Ld CIT (A) is perverse, hence same may be set aside and order of AO be restored. The assessee had raised the following cross objections before us :- 1. That under the facts & .....

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the addition made u/s 68 of the Act. In response to this, the ld AR reiterated the submissions made before the ld CITA and took us to the relevant pages of the paper book filed before us. 7. We have heard the rival submissions and perused the materials available on record including the various paper books filed by the assessee comprising the entire details of advances received from customers together with their identity proof , confirmation letters, among others. We find that the assessee had t .....

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om the audited financial statements of the assessee enclosed in the paper book. We find that the 470 customers had responded to the ld AO enclosing their voter ID card or ration card, residence proof and other proof of identity. Some of them had filed affidavit affixing their recent photo confirming the entire transactions with the assessee. We find from the paper book that all the customers except Mr. Jaykant (advance received ₹ 49,000/-) had admitted that the advance deposit was made wit .....

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Act. It is not in dispute that the assessee had preferred rectification petition u/s 154 of the ct on 2.3.2009 for Asst Year 2007-08 seeking for credit of TCS deducted by Bihar Government u/s 206C(4) of the Act, enclosing the customer wise details corroborating the sales figure disclosed in the audited profit and loss account for the year ending 31.3.2007. The TCS credit was granted by the ld AO after extensive verification of the veracity of the claims made thereon together with the entire supp .....

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d its case by showing that deposits so found credited in its books was the money belonging to the customers to whom sales had been made in the subsequent Asst Year 2007-08 and their account stood settled by the supply of sand to them. These facts were admitted and confirmed by all the customers except Mr Jaykant in an enquiry conducted u/s 133(6) of the Act by the ld AO. It is not in dispute the sales so confirmed and admitted by those depositors were duly reflected as such in the audited profit .....

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purpose of receiving the notices and giving replies thereon. We hold that the finding of the ld AO that the assessee had managed the local post office is wild presumption and allegation of the ld AO. We hold that this finding of the ld AO is highly unwarranted in the facts and circumstances of the case highly doubting the system of working of the Department of Government of India. 7.3. We find that : (a) The assessee got its work order from the Bihar Government through the process of tender. (b .....

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O while determining the business income of the assessee. (e) Enquiries were conducted by the ld AO u/s 133(6) of the Act by sending notices to all the 470 customers of the assessee from whom the assessee had received advances against supply of sand. (f) All the 470 customers had duly responded to notice u/s 133(6) of the Act before the ld AO and confirming the fact of having paid the monies to the assessee and the same having got squared up against the supply of sand made by the assessee in the .....

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133(6) of the Act behind the back of the assessee. All these parties had duly confirmed the fact of having business relationship with the assessee by paying advance to the assessee and those advances getting squared up by supply of sand by the assessee in the subsequent Asst Year 2007-08. (j) It has been proved beyond doubt that the general practice in the sand industry is that the willing customers would pay advance to the supplier of sand. In the instant case, some of the customers were even c .....

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aspect cannot be doubted with in the facts and circumstances of the case when more so, it has been proved on record that the major source of income in Bihar is agriculture and business of sand. These facts are not disputed by the revenue before us. (k) All the allegations of the ld AO and discrepancies alleged to have existed have been duly met by the ld AR before us point by point and with sufficient evidences by making specific references to the detailed paper book filed and forming part of re .....

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o him in the subsequent year and sales have been booked in Asst Year 2007-08. This is also accepted by the ld AO in the Asst Year 2007-08. (n) We find that ld AO at page 6 para 6 had referred the names of two customers namely M/s Shristi Developers (P) Ltd and Mr Chhotelal Shaw (who had paid an advance of ₹ 45 lacs and ₹ 4.99 lacs against which sales were effected for ₹ 15 lacs and ₹ 1.99 lacs respectively) and the balance amount that remained outstanding as on 31.3.2006 .....

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hat the ld AO had also obtained certified copies of the sales tax compliances of the assessee directly from the Bihar Government in respect of sales of sand made by the assessee. 7.4. With regard to the advance received from Mr Jaykant in the sum of ₹ 49,000/- , we find that though the party had denied the fact of having transaction with the assessee and the ld CITA had stated that the assessee did not chose to cross examine Mr Jaykant when provided with an opportunity , the fact of monies .....

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st supplies of sand and sales booked by the assessee have been duly accepted by the revenue in the Asst Year 2007-08. In these circumstances, holding that the receipt of money in the form of advance from customers is a mere colourable device by the ld AO is devoid of any merit. In any case, the provisions of section 68 of the Act could not be invoked in respect of trade deposits received from customers. Reliance in this regard is placed on the following decisions in support of this proposition : .....

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ecision of Hon ble Bombay High Court in the case of CIT vs S.D. Investment & Trading Co. reported in (2008) 306 ITR 31 (Bom) Respectfully following the aforesaid decisions, we hold that the ld AO erred in treating the trade advances received from customers, which were adjusted against sale of sand, as unexplained cash credit u/s 68 of the Act. 7.6. We also find that the issue is also squarely covered by the decision of the Hon ble Jurisdictional High Court in the case of Crystal Networks (P) .....

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rect nexus with the present issue and while completely ignoring all the relevant materials and evidence available ? II. Whether the addition of ₹ 8,50,000/- to the income of the assessee as unexplained cash credit by the Tribunal is sustainable in law and/or is not unreasonable and perverse ?" The decision rendered thereon is as under:- Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that ITO did not consider the material evidence showing .....

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nal has relied on the entire judgment of the CIT (Appeals), therefore it was not proper to take up some portion of the judgment of the CIT (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the CIT (Appeals). In this connection he has drawn our attention to a decis .....

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counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT (Appeal) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers s .....

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nal did not really touch the aforesaid fact finding of the CIT (Appeal) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows :- "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of .....

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