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TMI Blog2012 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... s, invoices and transport details of supplies and goods. - the additions made u/s 68 on account difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. Disallowance of technical fee and reimbursement - Assessee orally explained that it was the amount payable on account of consultancy services to Continental Carbon Co. USA – Held that:- assessee received the bills in March 2003 and by general entry entered the liability - There is no dispute about the rendering of service and the last bill drawn by Continental Carbon Co. USA - liability has crystallized in this year and cannot be called as relating to earlier year and is allowable expenditure Disallowance on account of expenses for annual chamber membership fee paid to Taj Mahal Hotels – Held that:- Amount is allowable revenue expenditure as the assessee availed the membership offered by Taj Mahal Hotels which was economical, providing the facility to use the chamber at any time during the year for meetings of clients and officers. It is a business decision for avoiding room rent expenses, the same is allowable - Addition is deleted Depreciation on computer peripherals – ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing fact mentioned by the learned AO in his order at para 2 at page 3: "We had sent request to these parties to provide us with their statement of account to reconcile the balances. We are providing herewith the copy of the invoices and bank statement in support of the transactions entered into with these parties during the year under consideration." 4. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while disallowing the expenditure amounting to Rs.4,72,452/-. 5. The appellant craves leave to add/alter any of the grounds of appeal before or at the time of hearing. A.Y. 2005-06: "1. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the addition of Rs.1,23,000/- being amount of annual chamber membership fee paid to Taj Mahal Hotels on the ground that no documentary evidence has been filed before the learned AO. 2. Because, the learned Commissioner of Income-tax (Appeals) erred in law as well as on facts while confirming the addition made by the leaned AO on the ground that assessee had failed to furnish the balance confirmations from the creditors and thereby fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept for the purpose of claiming depreciation unless put to use. Reliance is also placed on the decisions in Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265(SC); CIT vs. Suhrid Geigy Ltd. (1982) 133 ITR 884(Guj.)/CIT vs. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319(MP)(App.) 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. Brief facts are that the assessee is a manufacturer of carbon black, which is used in manufacturing of tyres and rubber related products. 99.9% share holding of the assessee company was owned by a USA company known as Continental Carbon Company. Books of account are duly maintained and audited. The purchases and sales as made by the assessee are on credit basis only and paid to suppliers by account payee cheques. At the end of A.Y. 2003-04, assessee's balance-sheet reflected debtors to the tune of Rs.51,55,69,889/- and creditors of Rs.27,99,72,730/-. During the course of assessment proceedings AO asked the assessee to furnish list of sundry creditors outstanding for last three years along with names and addresses of the curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of outstanding balances against these parties. Despite of repeated opportunity the assessee failed to provide necessary details in its support and even failed to reconcile the balances. It is well settled by the apex court in the case of Roshan Di Hatti v. CIT (1997) 107 ITR 938 (SC) that onus of proving the source of a sum or money found to have been credited by an assessee is on him. If the assessee fails to discharge its onus or explain unsatisfactorily the nature of the outstanding balance or the assessee fails to rebut the same, the same must be treated as income of the assessee of the previous year. After considering all the aforementioned facts Rs.16,36,599/- [Rs.95,119 + 174595 + + 479892 + 596993 being parties at S. no. 1,2,4 and 7 respectively] is treated purchase out of books as Rs.16,36,599/- is shown excess credit balance by the parties at s. no. 1,2,4 and 7 as compared to the amount shown by the assessee during the course of assessment proceedings. [ Addition: Rs.16,36,599/-]. 3.2. In respect of parties from whom notices u/s 133(6) were not replied or remained unanswered; AO held that burden to produce the parties was on the assessee which was not discharged a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein they have filed a statement of reconciliation of difference viz. a viz. RK. Logistics (India) and Power Max (India) Pvt. Ltd. As far as M/s Eastern Carriers are concerned, it was submitted that the books of accounts were misplaced. However, they were enclosing the statements showing payment made to the party during the concerned period and the same mentioned by the party. Reconciliation statement was filed with regard to M/s Rathi Filters and M/s PPL Feedback Packaging Ltd. As far as M/s Goel roadways is concerned, a statement was filed filing a statement explaining a difference of 9,91,91,223/-. 7. On receipt of the reconciliation statement, another letter no. 209 dated 07-09-2009 was sent to the AO with reminders by my Ld. Predecessor. The assessee has responded vide letter no. 269 dated 28-07-2010, wherein he has objected to admission of additional evidence under Rule 46A(1). The ld. AO, inter alia, has submitted that in the reconciliation statements, the assessee company has submitted that the goods were less/excess books by parties in respect of which the difference has been noted by the AO. However, the assessee has not submitted any reason why the goods were less/e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly, in the case of Prakash Machinery Co., Disco Carbon and Ribbon Manufacturing Co., UP Bombay Road Service, Pace Carrier and Janta Roadlines no response has been received with regard to the queries raised by the ld. AO. As such, the ld. AO after relying on certain case laws has proceeded to make an addition of Rs.1,53,43,292/-. 19. The assessee has taken the stand that non-filing of the transaction confirmation by itself cannot be reason enough for disallowance. The onus was on the AO to prove that the transactions entered with the parties were not genuine. Reliance was placed on the decision of the Mumbai Tribunal in Sanchita Marine Products Pvt. Ltd. vs. DCIT (2007) 15 SOT 280. 20. I have considered the order of the ld. AO and the submissions made by the ld. AR of the assessee. It is settled law that in transactions of such nature, the assessee primarily has to prove the identity and the creditworthiness of the creditor. He also has to prove the genuineness of the transaction. One this primary onus is discharged by him, then only the onus shifts on the Revenue. In the case in hand, the primary onus which rested with the assessee has not been discharged inspite o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. 4.3. CIT(A) after hearing the assessee, allowed the claim of the assessee in respect of doubtful debts, relying on Hon'ble Supreme Court judgment in the case of CIT vs. HCL Comnet Systems and Services Ltd. (2008) 13 DTR (SC) 105 . 4.4. In respect of obsolete/non-moving stores, it was held that they amount to diminution in the value of the asset which was mentioned in the audited balance-sheet and by placing reliance on Hon'ble Supreme Court judgment in the case of Bhart Earth Movers vs. CIT 245 ITR 428 and Metal Box Co. of India vs. Their Workman (1969) 73 ITR 53. 4.5. Diminution of the asset, it was recognized in the books of account. Similarly, the provision of leave encashment was allowed to the assessee following Hon'ble Supreme Court judgment in the case of Bharat Earth Movers (supra). Aggrieved, on this count, revenue is in appeal before us. A.Y. 2005-06 5. Brief facts are that in this year the AO again made the addition in respect of sundry creditors i.e. non-reply and difference in accounts by following observations: "During the year, the assessee has shown total sundry creditors of Rs.51,02,05,428/- as on 31-03-2005 as against Rs.32,03,44,04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the communication relied upon by the AR. No cognizance of such document can be taken. A joint reconciliation between assessee company and India Oil Corporation for the period 1.08.2006 to 31.03.2007 is irrelevant and has no bearing on the subject matter. To sum up it is evident that out of all the documents filed by the AR only one confirmation in respect of credit balance of Rs.5.41.662/- in respect of M/s Store Sacks India Private Limited is acceptable and no other credit balance has been confirmed. The assessee has filed the list of the "sundry creditors" for as many as 236 creditor parties where credit balance was above Rs.1000/-. The assessee filed the creditor balances for the last three years. During the proceedings for A.Y. 2003-04 in the case of the assessee company, the AO had issued notices u/s 133(6) to various parties and in most of the parties the information was not received. On that basis, an amount of Rs.1.58 crores was added to the income of the assessee company. As discussed above in para VI.1 except for confirmation of Rs.5,41,662/-, the balance amount still remain unconfirmed though sufficient opportunities had been afforded to the assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elayed response from the purchasers, assessee could not obtain it prior to the framing of the assessment and further contended as under: It was further added that bills and relevant records were produced before Assessing Officer for establishing genuineness of the transactions during the year. During assessment proceedings, the assessee had provided the Assessing Officer with the copies of letters to' all the creditors having outstanding balances of Rs.5,00,000/- or more at the year end i.e. 31.3.2005 for their balance confirmation. The Assessing Officer at Para VI.3 page No.5 of his order has accepted the fact that regular transactions entered into by the assessee company during the year under consideration with the creditors were all duly supported by the bills, ledger accounts, etc. and thus genuine. The Assessing Officer had disallowed only the balances outstanding at the end of the year and not the transactions as such with any of the creditors meaning thereby that he had not doubted the genuinenity of expense/purchase incurred/made during the year. He has disallowed the credit balance merely on the ground of non receipt of confirmation. In this regard reference was made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, these documents are in no way the confirmation given by BVG India Ltd. ii) For Chemitech India, Allied Engineering Works, IMC Limited, Eastern Tar Pvt. Ltd., Reliance Industries Ltd. and Premier Steels, the printouts of 'e-maikls' are given which are unsigned and unauthenticated. Wherever reconciliations are filed they are not supported by evidence. Hence, this does not meet the specific query/requirement of the Assessing Officer. iii) For Kumar and Company, the appellant has filed one letter with stamp of Kumar and Company which says that eh balance of Rs.6,48,563/- reported by the appellant does not tally with the balance of Rs.6,86,479/- appearing in their books. The appellant has filed a reconciliation statement for reconciling the difference. However, no supporting document is filed in support of this reconciliation statement. Similar is the position with regard to Janta Roadlines, Dico Carbon and Mfg. Co. Ltd., Ramson Associates. Thus these documents fail to prove the credit balances in the books of the assessee as on 31-3-2005. iv) For D.S. Transport Corporation, Transport Corporation of India Ltd. and Pace Carrier Pvt. Ltd., merely photocopies of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. A.Y. 2007-08: 6. Brief facts relating to assessee's appeal for A.Y. 2007-08 are that in this year the assessment order was passed on 24-12-2009, vide order-sheet entry dated 24-11-2009 the AO asked the assessee to explain the difference and credit balances in respect of which it was claimed by the AO that notices had been returned unserved. It has been observed by AO that along with its reply dated 4-12-2009 the assessee enclosed copies of confirmations which were filed earlier and in respect of remaining creditors it was pleaded that they were running accounts on account of purchases and not cash credits. According to AO, 16 parties did not reply. It was held that the onus for providing the source of a sum of money found to have been received by the assessee, had not been explained. Therefore, following his line of action in earlier years the AO made the addition of Rs.1,83,38,680/-. 6.1. Aggrieved, assessee preferred first appeal, where assessee reiterated the contentions raised in earlier years and pleaded that: (i) AO has himself admitted that the assessee had filed copies of confirmations, which are already filed; (ii) It was pleaded that in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. Thus the appellant has not been able to discharge the onus of proving the outstanding credit balances in certain cases and addition to that extent is upheld. In the case of Uplaksh Metal Industries vs. CIT 177 Taxman 298, it has been held by Hon'ble Pubjab and Haryana High Court that in case assessee claims liability of payment to trade creditors shown in the balance sheet, it is definitely required to prima facie prove identity of trade creditors as well as genuineness of transaction. One entry of liability is not accepted, treating amount of liability as income of assessee is consequential. In view of the above discussion and also in view of the decision on similar issue for appeal in assessment year 2005-06, the Assessing Officer is directed to verify from his records and delete the addition to the extent the appellant has filed confirmations for the outstanding balances as on 31-03-2007. This ground of appeal is, therefore, treated as partly allowed." Aggrieved on this ground, assessee is in appeal. 7. Learned counsel for the assessee adverting to 2005-06contends that all the additions made by lower authorities are without appreciation of proper facts and conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as prevented by sufficient cause which was duly communicated to AO on 24-3-2006 i.e. 3 days before framing the assessment. There is neither rejection nor mention of assessee's request about time by the AO. 7.2. Vide written submissions dated 10-9-2008, the assessee made an application for admission of additional evidence, pleading that sufficient opportunity to produce the third parties' evidence on which assessee has no control, was not given. The additional evidence is listed on letter which is placed on pages 420 and 421 of the paper book. Thereafter, assessee vide letter dated 7-7-2009 and 10-8-2009 furnished details about account for reconciliation of following six parties: (i) Aar Kay Logistics Rs. 1795729/- (ii) Power Max (India) Pvt. Ltd. Rs. 974717/- (iii) Eastern Carriers Rs. 5313241/- (iv) Rathi filters and Inds. P. Ltd. Rs. 2087969/- (v) PPL Feedback Packaging Ltd. Rs. 1682532/- (vi) Goel Roadways Rs. 1221955/- 7.3. Under these circumstances, the principle of natural justice demanded that the additional evidence ought to have been admitted by CIT(A). More so when the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the admission of additional evidence in A.Y. 2003-04. The same may be admitted and since all the creditors are by and large the same for A.Y. 2005- 06 and 2007-08, the matter may be decided on merits. A.Y. 2005-06: 7.6. It is contended that in A.Y. 2005-06 the AO adopted a peculiar feature by adding all the sundry creditors minus the creditors added in A.Y. 2003-04. This action shows gross ad hoc approach of the AO who failed to notice that all these credits are not by way of loan or advance but they were day to day outstanding balances of the suppliers of the assessee from which assessee made day to day purchases of raw material. The parties were in existence in earlier years and subsequent years. One the assessee has proved the existence of parties and the fact that the amount was in credit because all the purchases which are entered in the stock register and debited to PandL A/c. AO accepted the stock register and allowed the expenditure on account of purchases. Unfortunately, he disallowed the outstanding balances only u/s 68 which is not applicable. The working of unfortunate addition made by the AO in A.Y. 2005-06 is as under: "Additions made on the ground that si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2,770,562 2,770,562 19. Ramson Associates Pvt. Ltd. 9,915,894 9,915,894 150,888,468 9,514,551 141,373,917 7.8. Coming to A.Y. 2007-08, learned counsel contends that in this year there is no issue of additional evidence as all the relevant material was before the AO. Assessee filed a proper paper book, containing all the information and requisite confirmations before CIT(A). In this case, though the entire material was on record, the CIT(A) could not find any factual discrepancy therein. However, following the order for A.Y. 2005-06, part of the additions have been confirmed. Learned CIT(A) has failed to take into consideration that the assessee has discharged its burden by filing necessary evidence before AO and the insistence of confirmations from third party by way of summons was at the behest of AO and it was his duty to have enforced the summons. This could have been done by way of appointing commissions or asking the counter parts having the jurisdiction over suppliers to get their accounts verified and submit a report. The assessee is being saddled over an impossible burden a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -material to assessee, the credit balances being on account of purchase of goods they cannot be added u/s 68. The CIT(A)'s reliance on Hon'ble Punjab and Haryana High Court judgment in the case of Uplaksh Metal Industries vs. CIT (2009) 177 Taxman 298 is not applicable to assessee's case. In that case, identity, genuineness of supplier was in doubt. In this case identity of the supplier and genuineness of purchasers is established and is accepted by the AO, by upholding the books of account and following record: (a) stock register; (b) consumption based on such purchases have been accepted; (c) utilization has not been disturbed; (d) sales have been accepted (e) The assessee's purchases with the suppliers have been accepted in one or other subsequent year. Consequently it cannot be held that assessee has failed to discharge prima facie onus for proving the purchases as genuine. AO unfortunately adopted contradictory standard on one hand, all the purchases are accepted and allowed as expenditure in PandL A/c, but the amount payable to suppliers on the basis of very same credit purchases is being disallowed because AO could not served the notice. The whole app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P) Ltd. (2008) 9 DTR 604(Trib.) (d) JCIT vs. Mathura Dass Ashok Kumar (2006) 101 TTJ (All) 810. (e) CIT vs. Smt. P.K. Noorjehan (1999) 237 ITR 570. 7.13. Apropos difference in balances of assessee and supplier, the same cannot be added u/s 68 as the existence of assessee, supplier and purchases are admitted. The difference in accounts may be due to various reasons including discount, goods returns; quality, differences, rebates and so many other business exigencies. Such differences cannot lead to addition u/s 68/69C. At the most, if the differences remain unresolved for number of years, the AO may proceed to 41(1), but not u/s 68 or 69C. Suppliers existence and transactions having been accepted, the difference thus cannot be added as income. The assessee furnished reconciliation, if the same were wrong, it was the burden of AO to demonstrate that it was not proper. If AO fails to discharge his onus, it will be inappropriate to punish assessee for the same. 7.14. Because summons could not be served u/s 133(6) or the reconciliation were not confirmed by third parties, the assessee cannot be saddled with additions as long as it has discharged its burden cast by the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa Corporation (P) Ltd. (supra), it is his duty to ensure that the proess of issue of summons is brought to a logical conclusion by enforcing summons. The enforcement can be achieved in many ways including taking action on uncomplied summoned persons, by appointing commission on the income-tax authorities having jurisdiction over them and getting the verification from their returns or accounts. In these cases neither AO nor CIT(A) adopted this course as laid down by law. 10.1. Further, on same facts and circumstances, CIT(A) partly admitted the additional evidence in subsequent year i.e. A.Y. 2005-06. In our view if the specific queries are raised at the end of assessment proceedings and the summons are not served or replied, in that case assessee deserves an opportunity to be heard in appeal. If a proper application for admission of additional evidence is filed along with reasons, the same shall be admitted. In view thereof, we see no justification in refusal of admission of additional evidence in A.Y. 2003-04, more so when in A.Y. 2005-06 CIT(A) again partly admits the additional evidence. Consequently, the evidence filed by the assessee is admitted. 10.2. Now, advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the liability amounting to Rs.1,75,26,586/- shown by the assessee in its balance-sheet as trade creditors, so it wa not relevant for us to consider as to whether the purchases made by the assessee were genuine or not or to whether the assessee has inflated those purchases or not. It is also not material to consider whether the GRs from sales-tax department were verified or not, so, the CIT(A) on considering these points was not justified in deleting the impugned addition without discussing as to whether the liability of trade creditors shown by the assessee in the absence of furnishing complete addresses of trade creditors/consignors and the payment vouchers was genuine or not." 10.4. The case is not applicable to assessee's case inasmuch as the identity of the supplier and assessees trading results have been accepted by the department in one year or the other. In view thereof, we hold that the additions made in the case of the assessee u/s 68 of the Act ought to be deleted in all these years. In our view the I.T. Act does not cast absolute burden on the assessee, sec. 68 cast a preliminary burden, which, in our view, has been duly discharged by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability crystallized. It has not been disputed that the services were rendered and there is no adverse finding about the bills or the liability having been communicated to the assessee earlier. It is further evident from the record that part of the bill was April 2002 and the balance was in March 2003. The assessee received the bills in March 2003 and by general entry entered the liability. Since the consultancy report was completed in March 2003, therefore, it is properly recorded. It is evident that the consultancy bills were raised by way of two bills i.e. April 2002 and March 2003. There is no dispute about the rendering of service and the last bill drawn by Continental Carbon Co. USA being March 2003. The liability has crystallized in this year and cannot be called as relating to earlier year and is allowable expenditure. In view thereof, we delete the addition. 13. Only other ground raised by the assessee for A.Y. 2005-06 is in respect of disallowance of Rs.1,23,000/- on account of expenses for annual chamber membership fee paid to Taj Mahal Hotels. 13.1. Learned counsel for the assessee contends that the amount is allowable revenue expenditure as the assessee ava ..... X X X X Extracts X X X X X X X X Extracts X X X X
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