TMI Blog2018 (5) TMI 1379X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. A reconciliation statement of fabrics purchased and consumed during the year was filed by the assessee before the revenue authorities, which stands un- rebutted on behalf of the department. The assessee further objected that the AO did not take into account the consumables worth ₹ 1,74,67,046/- which were consumed during the year. The assessee has further pointed out major discrepancies in the calculation of fabric consumption per piece, which too doesn’t stand countered on behalf of the revenue. Therefore, in our opinion, the conclusions made by the Assessing Officer cannot be supported at all. The next method based on stock balances given to the bank, in our opinion, is also not tenable. While adopting this method the Assessing Officer appears to have dissected the trading account from 1.04.2007 to 31.08.2007 and worked out the gross profit @ 33.9% for the whole year. On this the assessee objected that the trading account has been re-casted till the month of August, 2007 and the AO has taken the duty drawback at ₹ 1,27,71,073/- whereas the assessee has shown the duty drawback of ₹ 96,75,401/- for the whole year and the amount was receivable till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had failed to substantiate the correctness and completeness of its accounts during the assessment proceedings. On the facts and in the circumstances of the case Ld CIT(A) has erred in admitting additional evidence in violation of Rule 46A of the Income Tax Rules 1962. On the facts and in the circumstances of the case Ld CIT(A) has erred in deleting the addition of ₹ 2,51,26,305/- by stating that the audited accounts and confirmations was received during the remand report proceedings, whereas no remand report has been called for the Ld. CIT(A) in this case for this year. 2. Since common questions of law and facts are involved in all these three appeals, they were heard together and are being disposed of by this consolidated order. Both the parties agreed with the parity of facts and issues involved in all these appeals, advanced their arguments in appeal for the A.Y. 2008-09 and stated that the decision in appeal for A.Y. 2008-09 shall be equally applicable to other appeals. Therefore, for the sake of convenience and brevity, we first take up the appeal for the assessment year 2008-09. 3. The brief facts leading to this appeal of the Revenue pertaining as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the given addresses by the Inspector, deputed for spot enquiry. Summons u/s. 131 issued to M/s. Ridhi International and M/s. Keshav Trading Co. were received back un-served and no response was received to other summons issued to two parties, viz., M/s. Bharat Enterprises and M/s. Girraj Overseas. No summons was issued by AO to M/s. Kartik Exports. Enquiries were also made from the assessee s bank to verify the payments made to some of the above creditors through cheques, but the bankers of the assessee did not furnish requisite information. Based on the above enquiries, the Assessing Officer doubted that the above parties were non-existent and as such, the confirmations thereof furnished and purchases made there from by assessee were not worthy of credence, as the assessee also failed to produce any of the above parties for verification. (iii). That while examining the trading results declared by assessee, the Assessing Officer asked the assessee to furnish month-wise trading account based on monthly closing stock shown to the bank as well as based on fixed average GP on the basis of yearly average Gross Profit. The assessee furnished the trading accounts as required by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order. The ld. CIT(A) called for a remand report on the submissions of the assessee vide letter dated 15.02.2013, which was submitted by the Assessing Officer. The assessee also filed rejoinder and relied on several judicial pronouncements. The ld. CIT(A), after considering the facts of the case, submissions of the assessee, remand report of AO, assessee s rejoinder and several case laws cited, deleted the addition vide impugned order. The findings reached by the first appellate authority in the impugned order read as under : 4.7. I have carefully considered the assessment order, the submissions made by the appellant, the Remand Report of the Assessing Officer, the Rejoinder and further submissions made by the ld. AR and the judicial pronouncements relied upon by the ld. AR in support of her client. Keeping in view the facts and circumstances of the case, I have come to the conclusion that the AO has decided to disallow the purchases made from five different parties on the grounds that the existence of these parties could not be confirmed. The AO arrived at this decision on the basis of the fact that letters issued by him u/s. 133(6) and summons issued by him u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Smt. Poonam Rani (supra). Jas Jack Elegance Exports (supra), the judgment of Hon'ble Andhra Pradesh High Court in the case of R. Narayana Rao Ors. (supra) and the judgment of Hon'ble Bombay High Court in the case of M/s. Nikunj Exim Enterprises Pvt. Ltd. (supra). Indeed, the ratio of these judgments weighs in favour of the case of the appellant. In a judgment pronounced by Hon'ble ITAT, Delhi in the case of YFC Projects Pvt. Ltd. Vs. DCIT in If A No. 4672/Del/2007 for A.Y. 2004-05 on 15.01.2010, the Hon ble ITAT has held that Merely non filing of confirmation from two suppliers, it cannot be held that assessee has not received the goods from these persons and the credit balance in the shape of sundry credit appearing in the books of accounts is unaccounted money of the assessee. The assessee has filed certificate front the bank indicating the fact that cheques issued by it were cleared. The Hon'ble ITAT deleted the addition made by the AO and decided the issue in favor of the assessee. In the instant case also, the assessee has been able to prove that he had made payments to the parties questioned by the AO during F.Y. 2011-12 and the cheques i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 P L 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 of burden of creditworthiness is implicit from these facts. The assessee cannot be held to be liable for any non- discharge of onus. The additions cannot be made only because the departmental authorities failed to exercise their power and duties for serving and enforcing the summons. The additions made u/s. 68 on account of difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. In the instant case also, what has been added by the AO are the credit balances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition without considering the above material in right perspective. He, therefore, urged to set aside the impugned order and to restore the assessment order. 7. On the other hand, the ld. Authorized Representative of the assessee, reiterating the detailed submissions made before the first appellate authority submitted that the ld. CIT(A) has rightly deleted the addition arbitrarily made by the Assessing Officer. The detailed submissions made are summarized as under : (i). The no purchases were made by assessee from M/s. Kartik Exports during the year under consideration, hence, the same could not be disallowed, particularly when the trading result for the A.Y. 2007-08, when the purchases from this party were made, stood accepted by the AO. (ii). Out of the summons issued to four parties, the summons issued to M/s. Bharat Enterprises and Girraj Overseas stood served on the given addresses and only two notices issued to M/s. Ridhi International and M/s. Keshav Trading Company were received un-served. Therefore, non-existence of all the four parties is based on fake assumptions of the AO. (iii) Letters sent by the assessee to the said parties on the same address on 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not attributable to the assessee to draw any adverse inference on this account. It is also not the case of AO that the amounts paid to two of the above parties during the disputed year returned back to the coffers of assessee nor has the AO made any addition u/s. 68 of the Act. (viii). The Revenue authorities failed to comment on the contention of the assessee that subsequently, the assessee has made payments to all the above five sundry creditors, aggregating to ₹ 73 lacs through account payee cheques, the details of which are given in the impugned order and the latest account from 01.04.2011 to 30.04.2011 was filed for verification. (ix). That once the export sales made by the assessee have not been disbelieved by the department as also stood accepted by Custom authorities, there was no reason to disbelieve the major part of purchases made from the above parties. (x) That the suspicion made on the purchases on the premise that current liabilities exceeded to current assets; that majority of assets were of non-business nature and that declared sundry creditors exceeded the sundry debtors, are not based on any material on record and such a vague reason is not tenab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 36.29%. i) It is submitted that the Assessing Officer has erred in taking the figure of finished quantity as well as consumption of fabric per unit. The assessee has filed 04 page details showing per mtr consumption for each item produced during the year and had worked out the average consumption per unit, which has been totally ignored by the Assessing Officer. The said 04 page details filed by the assessee vide letter-dated 20.12.2010 before the Assessing Officer are enclosed for your kind perusal as Annexure- E . ii). Further Assessing Officer has also ignored the wastage / shrinkage / rejection shown @ 25%. The assessee had explained wastage etc. in detail vide letter-dated 15.09.2010 which had been accepted by the Assessing Officer. The total wastage / shrinkage had been shown by the assessee at 3,26,116 mtr. Had this wastage been considered by the Assessing Officer, the quantity statement would have been tallied. The reconciliation statement of fabric purchased and consumed during the year is enclosed herewith as Annexure-F. iii.). The Assessing Officer had taken the average only of the dyed fabric of 6,32,081 mtr when the assessee was purchasing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If this quantity is reduced from the total purchases i.e. 13,54,188 as taken by the Assessing Officer then the quantity-wise consumption comes to 4,54,715 mtr. If this consumption of 4,54,715 mtr is divided by 188985 units (total manufactured units assumed by the Assessing Officer) then per unit consumption comes to 2.4 mtr, whereas the Assessing Officer has taken consumption at 3.34 mtr. It is needless to say that assessee is engaged in manufacturing high fashion embroidered garment. Embroidered garments require upper fabric for embroidery and lining fabric to give strength to upper fabric. Thus average at 3.34 mtr estimated by the Assessing Officer is arbitrary and without any basis. Hence, the calculation made by the Assessing Officer as per method-A is incorrect on is liable to be struck down. b). The Assessing Officer has also adopted method B to arrive at percentage margin at 33.9%. This method adopted by the Assessing Officer is also apparently incorrect. i). One of the reason given by the Assessing Officer to reject the books of accounts is that there is a discrepancy in the trading account as well as stock statement submitted to the Department, which were earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons (63 ITR 411), Hon ble Supreme Court have held that the rejection of book results and estimate of trading addition should be based on some material it cannot be arbitrary. vi). In CIT vs Ram Chandra Keshardeo (16 ITR 150)(PAT) and in Ganeshi Lal Chappan Lal vs CIT (9 ITR 81) (ALL), it is held that accounts of the assessee cannot be dissected into convenient periods at the option of Assessing Officer. The duty of the Assessing Officer is to find out the income and not to calculate the receipts of the assessee. What the law requires the Assessing Officer to see is whether system of accounting is correct or not. It is needless to say that in the present case, assessee had adopted method of accounting regularly employed by him; no infirmity has been pointed out by the Assessing Officer. In earlier years, either in 143(3) assessment or in 143(1) assessment, method of accounting adopted by the assessee had been accepted by the Assessing Officer. vii). It is further submitted that if the accounts of the assessee are rejected u/s 145, assessment has to be made by the Assessing Officer u/s 144 of the Act. Proviso to Section 144 lays down that an opportunity shall be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inspector also could not locate them at the given addresses. In this context, we find substantial force in the contention of the assessee that service of notices on two of the above parties, i.e., Bharat Enterprises and M/s. Girraj Overseas; service of letters sent by assessee through speed post to the said parties on the same addresses supported by postal service report; furnishing of audited accounts by the said parties through speed post in the remand proceedings in pursuance to the summons u/s. 131 and appearance of representatives of two of the above parties, stand in testimony of the fact that the presumption made by AO about their non-existence is vague and based on his fantasy. There is no contrary material on record to rebut the contentions of the assessee. Besides, we find no material on record to counter the plea of the assessee that in the subsequent assessment years, the assessee had made substantial payments to the said parties aggregating to ₹ 73 lacs through account payee cheques, which was supported by him from the account statement for the period from 01.04.2011 to 30.11.2011 and it has not been the case of the Assessing Officer that the amount so paid to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of fabric per unit worked out by AO has been vehemently objected to by the assessee, stating that the AO had ignored the details furnished by assesses showing average consumption per unit as well as the wastage/shrinkage/ rejection of fabrics shown @ 25%. The assessee vide letter dated 15.09.2010 had explained the wastage totaling to 3,26,116 mtrs. and it was contended that if this wastage is considered, the profit margin would tally with that declared by the assessee. A reconciliation statement of fabrics purchased and consumed during the year was filed by the assessee before the revenue authorities, which stands un- rebutted on behalf of the department. The assessee further objected that the AO did not take into account the consumables worth ₹ 1,74,67,046/- which were consumed during the year. The assessee has further pointed out major discrepancies in the calculation of fabric consumption per piece, which too doesn t stand countered on behalf of the revenue. Therefore, in our opinion, the conclusions made by the Assessing Officer cannot be supported at all. 14. The next method based on stock balances given to the bank, in our opinion, is also not tenable. While adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition that merely non-filing of confirmation from two suppliers, it cannot be held that the assessee has not received the goods from those persons. On the discharge of onus by assessee, the ld. CIT(A) has relied on the decision of Hon ble Delhi High Court in MOD Creations Pvt. Ltd. vs. ITO, 354 ITR 282 (Del.). No contrary material was placed on behalf of the revenue to counter the findings reached by the ld. CIT(A) in the impugned order. 17. In view of what has been discussed above, we don t find any justification to interfere with the impugned order which is based on cogent reasons and various judicial pronouncements considered by the first appellate authority. No material is placed on record on behalf of the revenue to discard the findings reached in the impugned order. Accordingly, the appeal of the revenue deserves to be dismissed, being devoid of merit. 18. Adverting to the rest two appeals for A.Yrs. 2009-10 and 2011-12, we find that the facts and circumstances attending to them are similar, wherein the Assessing Officer had made additions after estimating the profits of the assessee almost on the same premise as done in the case for A.Y. 2008-09. In these cases als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Atif Zari House 2224512 8. Girraj Overseas 11655206 9. Keshav Trading Co. 12334222 10. Mazhar Zari House 6416203 11. Pearl Creations 15951457 12. Riddhi International 15766783 Total 184482126** * Actual figure is ₹ 1,17,12,634/- in place of ₹ 117126624/- ** Actual figure works out to ₹ 7,90,68,136/- in place of ₹ 144482126. 19. In appeal for A.Y. 2010-11, the Revenue has challenged the admission of some additional evidence without pointing out as to which of the evidences submitted by the assessee were additional in nature. Moreover, the CIT(A) has sought remand report on each and every submission or e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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