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2016 (11) TMI 603 - ITAT KOLKATA

2016 (11) TMI 603 - ITAT KOLKATA - TMI - Unexplained purchases - Held that:- DR had merely stated in his written submission that mere settlement of dues to the said parties does not sanctify the purchase transactions as genuine. This goes to prove that there is no case for making any addition towards unrecorded purchases and it could only have to be concluded that the unrecorded purchases found during survey were subsequently recorded in the books of accounts. Consequentially there is no questio .....

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es rendered by these two parties to the assessee. AO had not brought any comparable cases for fair market value to prove that the payment made by the assessee is excessive or unreasonable even in the remand proceedings. Without bringing the same, simply invoking the provisions of section 40A(2)(b) of the Act would be highly improper. We also find that the nature of services rendered by these two parties were also not denied or doubted by the ld AO in the remand report. Hence we hold that the ld .....

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enturion Bank against the hypothecation of stocks of business of the assessee. The liabilities reflected in the liability side in the form of bank loans were treated as explained by the ld AO. Hence, it could be safely concluded that the assets appearing in the balance sheet would be treated as explained once the corresponding entries on the liability side are explained. There is no case made out for framing an addition towards unexplained investment in fixed assets.- Decided in favour of assess .....

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em fit to interfere with the said findings of the ld CITA. With regard to creditors for goods, the ld AO did not give any comments with regard to 31 creditors out of total 47 creditors. In the absence of any adverse remarks with regard to 31 creditors, it would be just and fair to conclude that the ld AO had accepted those creditors to be genuine. With regard to 16 sundry creditors verified by the ld AO, we find that those creditors were duly settled in the subsequent year by account payee chequ .....

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that the fresh loan was availed from American Express Bank in the sum of ₹ 1,96,445/- during the year under appeal which is also reflected in the audited balance sheet filed along with the return as a separate item under ‘unsecured loans’. Hence the belief entertained by the ld CITA that the said bank loan cannot be treated as unexplained cash credit cannot be faulted with.- Decided in favour of assessee - Disallowance of various expenses - Held that:- We find that the expenditure has .....

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rd-36(2), Kolkata u/s. 144 of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2003-04 vide his order dated 27.03.2006. 2. The first issue to be decided in this appeal is as to whether the ld CIT(A) is justified in deleting the additions made on account of unexplained purchases amounting to ₹ 23,59,261/- and ₹ 5,12,471/- on account of undisclosed profit on purchases in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assesse .....

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. A search and seizure operation was carried out by the Central Excise authorities on 18.2.2000 and it was found by them that the assessee is engaged in manufacturing and selling of watches in large scale without obtaining proper license and without disclosing and paying duties thereon. The assessee filed the return of income for the Asst Year 2003-04 on 27.11.2003 declaring loss of ₹ 1,89,627/-. The books of accounts were called for by the ld AO for which the assessee replied that their b .....

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d purchases and sales outside the books of accounts. It was also found that purchase register was updated upto 19.1.2003 but some purchases made in the months of April, May, August, Sept , Oct , Nov and Dec 2002 amounting to ₹ 23,59,261/- were not entered in the purchase register. Sales of over ₹ 13 lacs approximately were also not entered in the sales register. During the course of survey, a statement of Shri Tapan Das, Accountant of assessee, was recorded and he admitted that the s .....

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sales register in the Camac Street shop. The ld AO observed that during the course of assessment proceedings, the assessee was directed to produce the books of accounts with supporting bills and vouchers which were not produced by the assessee. He observed that the submission of the assessee, that the books of accounts were washed out due to the action of the accountant who left on 31.1.2004 after destroying the accounts, could not be believed as it was found that the sales tax return for the ye .....

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s of accounts and supporting evidences were also found unsatisfactory because the accountant of the assessee had received back not only the computer from the ld AO but had taken out all the print outs of the accounts on 13.2.2003. It was also further observed that the assessee was getting the services of the accountant till 15th August 2005. 2.3. The ld AO made addition of ₹ 23,59,261/- on account of undisclosed investment in the undisclosed purchase on the ground that there was unaccounte .....

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d report from the ld AO , granted relief to the extent of ₹ 3,37,104/- stating that the balance shown by the sundry credit parties tallied with the balance shown by the assessee in its balance sheet against their names and hence the unrecorded purchases were subsequently accounted in the books after the survey needs to be accepted as stated by the assessee. In respect of purchases to the tune of ₹ 12,46,221/-, the ld CITA found that the assessee had duly paid the dues to the concerne .....

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75,936/- as undisclosed investment in purchases and undisclosed profit @ 22.49% to the extent of ₹ 1,74,508/- as against ₹ 5,13,271/- made by the ld AO. Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That the facts and circumstances of the case, the Ld. CIT(A) is not justified in allowing relief of ₹ 22,81,667/- out of addition ₹ 23,59,261/- on account of unexplained purchase and treating the same as investment out of undisclosed sources. 2. T .....

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ort its contentions. 2.6. In response to this, the Ld AR argued that the reason for non production of books of accounts was due to computerized books of accounts were washed away by two employees and the assessee had also lodged a FIR in this regard with Hare Street Police Station. Moreover, most of the bills / vouchers were impounded in survey and were lying vacant in the custody of the IT department. The ld AO was not satisfied with this explanation and eventually completed the assessment u/s .....

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l purchase of ₹ 232.51 lacs meaning thereby that the average monthly purchase was ₹ 23.51 lacs. Hence the total purchase during the year based on said monthly average works out to ₹ 282.12 lacs, whereas the audited accounts show aggregate purchases of ₹ 305.35 lacs i.e an increase of ₹ 23.23 lacs, which almost matches with the unrecorded purchases found in the course of survey. Hence it was argued that this goes to prove that the unrecorded purchases found during su .....

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ally with the balances shown by the assessee. In a case where the sundry credit balances recorded in the books of assessee tally with the balances confirmed by the respective parties, there can be no doubt that unrecorded purchases in respect of such parties were subsequently accounted for in the books of accounts. The explanation for adverse comments made by the ld AO in respect of 12 sundry creditor parties have been provided. No adverse inferences should be drawn in respect of the parties not .....

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the Officer in Charges, Hare Street Police Station regarding the destroying of records and computerized books of accounts including loss of audited print back up by the accountant. This complaint was specifically made against the accountant of the assessee. We find that the ld AO sought to verify the veracity of this claim of the assessee by making verification with the police department in terms of section 133(6) of the Act for ascertaining the action taken by the police on the compliant lodge .....

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he books before the ld AO. Moreover, the assessee had claimed that the accountant left him on 31.1.2004 and also had destroyed the accounts of the assessee. It is not mentioned in the said compliant for what period, the accounts were destroyed. Just because the assessee had filed the sales tax return and income tax return for the Asst Year 2004-05 in time, his action of lodging a compliant and expression of inability to produce books of accounts due to its destruction cannot be doubted with or f .....

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time to time to police station to know the developments in the said case. If there is no compliant lodged by the assessee in this regard, the said fact could be brought to the notice of the inspector of income tax at the first instance itself by the police authorities and there would be no need for the inspector of income tax to visit the police station from time to time to know the developments of the compliant. 2.7.1. We find that the return for the Asst Year 2003-04 was filed along with the a .....

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lied / settled by account payee cheques in the same year itself and accordingly held that the assessee had duly recorded the purchases after the survey in its books of accounts. We find when the books of accounts were not produced by the assessee, but the list of creditors together with their names and addresses were available with the ld AO, which were also subjected to verification, then , in our considered opinion, there is nothing wrong in ld CITA trying to understand the veracity of the cla .....

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not find any infirmity in the order of the ld CITA in this regard. 2.7.2. With regard to the remaining sum of ₹ 7,75,936/- (23,59,261-15,83,325) , the ld CITA had made an estimated disallowance of 10% towards unrecorded purchases. We find that this action of the ld CITA is without any basis. However, we find lot of force in the argument advanced by the ld AR of the assessee that the total purchases as per audited accounts exceed the average purchases (considered on monthly basis). It is n .....

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. We find that the assessee had submitted the audited balance sheet along with the return. The entire purchases reflected thereon were either settled in cash / cheque or reflected as sundry creditors. The ld AR also argued that these sundry creditors were fully settled by the assessee by account payee cheques either in the same year or in the subsequent year , which fact has not been controverted by the revenue before us. The ld CITA had given a categorical finding that the ld AO had not proved .....

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there is no question of making any addition on account of gross profit on the same. But we find that the additions sustained by the ld CITA towards unrecorded purchases to the tune of ₹ 77,594/- and undisclosed gross profit of ₹ 1,74,508/- has not been contested by the assessee before us. Hence in these circumstances, we feel that no interference need to be made to the order of the ld CITA in this regard. Accordingly, the Grounds 1 & 2 raised by the revenue are dismissed. 3. The .....

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s rendered to the assessee. Before the ld CITA, the assessee submitted that it had paid service charges of ₹ 30,000/- and ₹ 48,000/- to Shri Muddasir Firoz and Shri Imran Firoz respectively for looking after the sales at different showrooms. Both these parties are sons of the partner of the firm. These submissions were subjected to remand proceedings before the ld AO who mentioned that the payments with mode thereon could not be verified for want of books of account. The ld CITA obse .....

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e the addition ₹ 78,000/- u/s. 40A(2)(b) wholly since the assessee paid service charges ₹ 30,000/- and ₹ 48,000/- to two sons of a partner which is different in rates for the same type of job and did not produce Books of accounts/evidence. 3.2. The ld DR argued that quantum of expenditure does not justify its allowability when the same has not been proved by the assessee as wholly and exclusively incurred for the purpose of business and the nature of services rendered by the pa .....

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rusal of the remand report, we find as rightly pointed out by the ld AR, that the ld AO had not doubted the genuineness of the expenditure incurred and the services rendered by these two parties to the assessee. We also agree with the contention of the ld DR that the said amount remained outstanding as on 31.3.2003 and hence there is no question of verification of mode of payment of these amounts in financial year 2002-03 as stated in the remand report of the ld AO. We also find that the ld CITA .....

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ng the same, simply invoking the provisions of section 40A(2)(b) of the Act would be highly improper. We also find that the nature of services rendered by these two parties were also not denied or doubted by the ld AO in the remand report. Hence we hold that the ld CITA had rightly granted relief to the assessee in this regard. Accordingly, the Ground No. 3 raised by the revenue is dismissed. 4. The next ground to be decided in this appeal is as to whether the ld CITA is justified in deleting th .....

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ion towards unexplained investment in the sum of ₹ 54,09,993/-. Before the ld CITA, it was submitted that the investment in fixed assets cannot be treated as unexplained since the same is reflected in the balance sheet of the assessee together with its proper sources and the balance sheet has tallied. It was also submitted that there is no discrepancy in the aggregate value of the assets, though the figures for written down value (WDV) and those for the additions were inter changed in some .....

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HDFC Bank was filed before him. Further loan of ₹ 35,00,000/- was taken from Citi Bank against hypothecation of show room and the bank statement in this regard was also filed. In case of cash credit limit allowed by Centurion Bank, the ld AO mentioned that it could not be verified for non-production of books of accounts and bills. However, the bills and vouchers in respect of several additions were furnished and the same were verified to the extent of ₹ 11,82,180/-. It was also subm .....

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ailable with the assessee as the same were impounded in the course of survey and were still lying with the custody of the income tax department. The ld CITA appreciating all these contentions deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- 4. That on the facts and circumstances of the case the Ld. CIT(A) is not justified to delete the entire addition of ₹ 54,09,993/- on account of unexplained investment in assets. 4.2. The ld DR argued that sin .....

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urce of acquisition of assets. In response to this, the ld AR argued that the loan was obtained from HDFC Bank at the fag end of the financial year i.e in March 2003 and the first instalment (EMI) started from April 2003 and that is what is duly mentioned in the loan sanction letter. The assessee had duly brought the loan disbursed by the bank as its loan liability in its balance sheet. He argued that the tallied balance sheet had been filed along with the return of income wherein the entire fix .....

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iring fixed assets, among others. Hence, he argued that there is no case made out by the ld AO for making an addition towards unexplained investment in fixed assets. 4.3. We have heard the rival submissions. We find that the fixed assets have been duly reflected in the audited balance sheet filed by the assessee which represents assets and liabilities. The liabilities reflected therein clearly reflect the bank loans availed by the assessee such as auto loan from HDFC Bank, loan from Citi Bank ag .....

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investment in fixed assets. It is not in dispute that the fixed assets have been duly reflected in the balance sheet. We also find that the depreciation on entire fixed assets including the addition to fixed assets have been allowed by the ld AO. In the facts of the case, we find that the investment in fixed assets have been duly explained from the balance sheet of the assessee which is a tallied balance sheet filed along with the return of income. Hence the ld CITA had rightly granted relief t .....

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cerned parties regarding the amount due to them were also not produced before the auditors as is evident from the notes on accounts and subsequent ratification by the auditors in this office on 13.3.2006. Accordingly, he concluded that the sundry creditors reflected in the balance sheet are bogus and brought the same to tax as unexplained liabilities and added a sum of ₹ 1,15,92,543/- in the assessment. Before the ld CITA, the break up of outstanding liabilities, comprising creditors for e .....

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led. All these details were sent to ld AO for verification and comments in remand proceedings. The ld CITA observed that in respect of 6 sundry creditors parties, where the balance tallied from the balances in the books of those creditors amounting to ₹ 5,00,402/-, there is no case for any addition as there was no discrepancy. With regard to other three creditors in the sum of ₹ 14,02,504/-, the ld CITA observed that these creditors were duly discharged by the assessee in the subsequ .....

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, he observed that the full particulars were made available before the ld AO in the remand proceedings , who had not made efforts to verify them and concluded that the ld AO had not brought any positive material on record to show that the liabilities are ingenuine. He further observed that all these liabilities were duly discharged in the subsequent year by account payee cheques which is quite evident from the ledger extracts and the bank statements. 5.2. With regard to sundry creditors for good .....

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efore the ld AO. The ld CITA observed that in the remand report dated 6.8.2007, the ld AO had given favourable comments in respect of 6 creditors to the tune of ₹ 31,47,480/-. In respect of 5 creditors, the ld CITA found that the payments made to these parties in the subsequent years were cross checked with the relevant bank statements with some differences in the closing balances between two parties which were reconciled in the form of debit notes issued by creditors in the subsequent yea .....

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not convinced with the argument, confirmed the addition of ₹ 2,77,398/- made by the ld AO. Against this, the assessee had not preferred appeal before us. 5.4. The ld CITA observed that out of total 47 creditors for which the entire details were made available before the ld AO in the remand proceedings, the ld AO sought to give his comments in remand report only in respect of 16 creditors for goods. Accordingly, the ld CITA concluded that the ld AO did not have any adverse remark to state a .....

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d. CIT(A) is not justified in allowing relief to such a great extent of ₹ 1,13,07,096/- out of addition ₹ 1,15,92,543/- on account of unexplained sundry creditors where identity, genuineness and credit worthiness of some creditors are not established. 5.5. The ld DR argued that the ld CITA had merely granted relief based on subsequent payments made by the assessee to those sundry creditors and reiterated the findings of the ld AO. In response to this, the ld AR argued that the main p .....

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that the balances of creditors and debtors are subject to confirmation. This does not automatically mean that the creditors shown in the balance sheet are bogus. He argued that the ld AO had made extensive verification in respect of 16 sundry creditors for goods in the remand proceedings and had not given any adverse comments regarding 11 creditors thereon. Accordingly, the ld CITA had taken cognizance of the same and granted relief to the assessee and in respect of 5 creditors, since the partie .....

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gard to sundry creditors for expenses, they are only expenses provided on accrual basis at the end of the year which would get immediately discharged in the subsequent year and the ld CITA on factual verification of the same granted relief to the assessee. We do not deem fit to interfere with the said findings of the ld CITA. With regard to creditors for goods, the ld AO did not give any comments with regard to 31 creditors out of total 47 creditors. In the absence of any adverse remarks with re .....

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CITA rightly concluded that no adverse inference could be drawn on the same. With regard to 5 creditors totaling to ₹ 2,77,398/-, the parties did not respond to notice u/s 133(6) of the Act and ld CITA concluded the same to be bogus, against which, the assessee is not in appeal before us. Hence we do not deem fit to interfere with the same. Hence we hold that the ld CITA had passed a detailed and elaborate order by proper finding which does not call for any interference. Accordingly, the G .....

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l address, PAN of parties were not furnished and genuineness of such loans were not proved. Accordingly he proceeded to make addition u/s 68 of the Act. The ld CITA confirmed the addition of ₹ 2,03,025/- in respect of Rash Behari Agarwal and allowed relief to the extent of ₹ 2,96,445/- being loan of ₹ 1,00,000/- from Binita Kedia and ₹ 1,96,445/- from American Express Bank. The loan of ₹ 1,00,000/- from Binita Kedia was allowed on the ground that the same was verifi .....

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ress Bank since it remains unverified in the absence of evidence/confirmations. 6.2. The ld DR vehemently relied on his written submissions that the assessee had not furnished any evidence for loan taken from American Express Bank and hence the belief entertained by the ld CITA that the said loan is genuine is to be dismissed. In response to this, the ld AR relied on the order of the ld CITA. 6.3. We have heard the rival submissions. We find that the assessee had stated that the fresh loan was a .....

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