TMI Blog2019 (6) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the addition has been made u/s. 41(1) or 68 and since the Assessing Officer has accepted purchases as genuine and the amount outstanding in the name of sundry creditors have been paid through banking channels in subsequent years and purchases made from the said parties in subsequent years has been accepted by the revenue without any doubt and since the notices issued to the three parties were never returned back as per the letter addressed by the Assessing Officer to the assessee, therefore, merely because the said creditors were not produced before the Assessing Officer for his examination, in our opinion, cannot be a ground for making the disallowance. - Decided in favour of assessee Disallowance of 25% of the various expenses claimed in the P L account (except bank interest and bank charges) - assessee did not furnish the bills and vouchers - CIT(A) restricted the same to 10% of the expenses - HELD THAT:- While disallowance of expense on adhoc basis is justified on account of non submissions of bills and vouchers, however, considering the totality of the facts of the case disallowance of 10% of the expenses sustained by the CIT(A) appears to be on the higher s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditors filed by the assessee are on the assessee s own letter head without PAN number and TIN number of the creditors, therefore, the Assessing Officer disregarded confirmations from the said parties which were filed on the letter head of the assessee and made addition of ₹ 1,50,26,811/-. The Assessing Officer further made addition of ₹ 6,80,218/- being 25% of the expenses claimed in the P L account except bank interest and bank charges in absence of any details furnished by the assessee to substantiate the same. However, no addition has been made on account of unsecured loans. 4. Before the CIT(A) the assessee sought to file the following evidences :- 1. Audited BS for the AY 2014-15 2. Details of Payment Made to Creditors in FY 2013-14 3. Bank Statements for the period 01/04/2012 to 31.03.2014 4. Sales Tax Return for the period 01/04/2012 to 31.03.2014 5. Sales Tax Assessment Order for the year 2012-13 2013-14 5. However, the Ld. CIT(A) held that these evidences cannot be admitted as additional evidence under Rule 46 A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments advanced by the assessee and upheld the addition of ₹ 1,56,26,811/- made by the Assessing Officer by observing as under :- 6.3.1 The Assessing Officer noted that Assessee has shown creditors amounting to ₹ 2,01,85,243/- in the balance sheet as on 31.03.2013. The Assessing Officer asked the Assessee to explain the sundry creditors with the documents, bills vouchers. The Counsel of the Assessee only furnished the balances in the accounts and failed to furnish the copy of ledger accounts pertaining to sundry creditors. It was explained that fire broke in the godown / office in the premises on 04.03.2016 resulting in destruction of computer and office records consisting of cash book, ledger, vouchers etc. It was also submitted that the information had already been submitted to the Chartered Accountant for the tax audit. 'The Assessee expressed inability to provide remaining information with respect to expenses claimed to Profit Loss Account. The Assessing Officer issued notices u/s 133(6) to the creditors on the addresses given by the Assessee. All the notices were received back with the postal remarks No Such Address . The Assessee had f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce that the creditors in respect of which debit entries were made in the Profit l.oss Account, belong to earlier Financial Years. The Assessing Officer has not made the addition u/s 68 calling for distinction between a trade liability or capital liability. The decisions cited by the Ld. AR, as may be seen, are distinguishable on facts, hence, cannot be relied on to deliver the judgment in this case. Accordingly, the addition is t confirmed and the ground is dismissed. 9. So far as the disallowance of expenses amounting to ₹ 6,80,218/- is concerned, the Ld. CIT(A) restricted the same to ₹ 2,72,087/- and deleted an amount of ₹ 4,08,131/- by observing as under :- 7.3.1 The Assessing Officer has disallowed 25% of total claim of the expenses, excluding bank interest and charges amounting to ₹ 16,49,472/-. The Appellant has explained that fire broke in the godown / office of the Assessee leading to burning of computer, relevant documents and office record consisting of cash book and ledger vouchers. There is a slight increase in the GP ratio and NP ratio as compared to the preceding Assessment Year. The accounts of the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,50,26,811/-. 5. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law by confirming the disallowance of expenses of ₹ 2,72,087/- which is claimed and allowable as per the provisions of the Act. 11. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining the addition of ₹ 1,50,26,811/- on account of unexplained creditors and sustaining the disallowance of expenses of ₹ 2,72,087/-. 12. So far as the addition of ₹ 1,50,26,811/- on account of unexplained sundry creditors is concerned the Ld. Counsel for the assessee drew the attention of the bench to the querry raised by the Assessing Officer during the course of assessment proceedings, copy of which is placed at page 36 and 37 of the paper book and submitted that the Assessing Officer issued notice u/s. 133 (6) to the following four parties :- 1. M/s. Crop Care Chemicals 554/2 F, Vanagram Road, Ambattur, Chennai -600058 2. M/s. Krishna Agri Science 40/1, Mambala Pattu Road, Villupuram, Tamil Nadu, -605602 3. M/s. Godwari Pes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Electrodes Ltd, the Ld. Counsel for the assessee drew the attention of the bench to para 9 of the order and submitted that there is no legal obligation on the part of the assessee to produce the director and failure to produce them cannot be a ground for making the addition when various other details were produced and the Assessing Officer did not make any attempt to summon the directors. The order of the Tribunal deleting the addition was accordingly upheld. 17. Referring to the decision of Hon ble Bombay High Court in the case of CIT Vs. Nikunj Exim Enterprises Pvt Ltd. 372 ITR 619, he submitted that where sales are supported by purchases and payments made through banks merely because suppliers had not appeared before the Assessing Officer, the purchases could not be rejected as bogus. 18. Referring to the decision of Hon ble Delhi High Court in the case of CIT Vs. Vardhman Overseas Limited reported in 343 ITR 408, he submitted that remission or cessation of trading liability is governed by section 41 (1) and not by section 28 (IV). Relying on various other decisions he submitted that the addition made by the Assessing Officer and sustained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gudawari Pesticides 13,75,000 62,85,750 49,10,750 Padmawati Crop Science 14,50,000 66,95,800 52,45,800 Krishna Agri Science 18,23,432 16,38,193 - Total 51,58,432 2,01,85,243 1,57,22,050 23. Similarly, the Assessing Officer made addition of ₹ 6,80,218/- being 25% of the expenses except bank interest and bank charges for want of details. We find the Ld. CIT(A) confirmed the addition of ₹ 1,50,26,811/- on account of unexplained creditors and restricted the disallowance of expenses to ₹ 2,72,087/- being 10% of such expenses, the reasons for which has already been reproduced in the preceding paragraphs. 24. So far as the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t doubted and the assessee has made payments to the creditors in the subsequent years through banking channels and the purchases made from some of the above parties in the subsequent years were not doubted and the notices u/s. 133 (6) issued to the 3 parties were never returned back meaning thereby these were served on the parties, therefore, addition in our opinion on account of difference in the opening and closing balance of sundry creditors in absence of non production of the creditors is not justified. It is also not understood as to under which provision the addition has been made i.e. either u/s. 41 (1) and section 68. 28. We find the Hon ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd. (supra) has observed as under :- 9. There was no legal obligation on the assessee to produce some director or other representative of the applicant-companies before the Assessing Officer. Therefore/ failure of the assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the Assessing Officer, if he so wante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1.33 crores was not bogus. No fault can be found with the order dated 30-04-2010 of the Tribunal. 30. We find the Hon ble Delhi High Court in the case of Shri Vardhman Overseas Limited (supra) has decided an identical issue. The assessee in that case was a company engaged in the manufacture of rice from paddy. It was also selling rice after purchasing the same from the local market. While verifying the sales and the sundry debtors shown by the assessee in its books of account as on 31-3-2002, the Assessing Officer decided to verify the sundry creditors shown in the books of account as on the said date. This was because he took the view that if the consignment sales were not genuine, the purchases shown to have been made by the assessee on credit basis could also not be treated as genuine. He, therefore, called upon the assessee to submit confirmation letter from the sundry creditors. The assessee did not submit the confirmation letters, but wrote to the Assessing Officer that it was not aware of the present whereabouts of the creditors after a lapse of four years and whatever addresses were available with the assessee had been 'given by the suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital or bogus share application money and therefore, all these decisions are distinguishable and not applicable to the facts of the present case. 32. Since in the instant case it is not understood as to whether the addition has been made u/s. 41(1) or 68 of the IT Act , 1961 and since the Assessing Officer has accepted purchases as genuine and the amount outstanding in the name of sundry creditors have been paid through banking channels in subsequent years and purchases made from the said parties in subsequent years has been accepted by the revenue without any doubt and since the notices issued to the three parties were never returned back as per the letter addressed by the Assessing Officer to the assessee, therefore, merely because the said creditors were not produced before the Assessing Officer for his examination, in our opinion, cannot be a ground for making the disallowance. We, therefore, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the addition. 33. So far as the disallowance of ₹ 2,72,087/- out of ₹ 6,80,218/- made by the Assessing Officer is concerned, we find ..... 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