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TMI Blog2014 (1) TMI 1724X X X X Extracts X X X X X X X X Extracts X X X X ..... e; we are of the view that the assessee should be given an opportunity to ascertain the whereabouts of those creditors and also file some other evidence to substantiate the genuineness of those credits. We are of the view that for this limited purpose, the issue should be remanded to the AO for fresh consideration As far as Annexure-C sundry creditors are concerned assessee has shown due and payable to the sundry creditors much more than the figures the sundry creditors had shown as receivable from the assessee. Such differences appear only in the case of 36 sundry creditors out of 120 sundry creditors set out in Annexure-C. It is seen that the assessee had filed reconciliation of some of these accounts before the AO and the same is at pages 4 to 6 of the assessee’s paperbook. This reconciliation is in respect of 10 sundry creditors out of 36 sundry creditors in whose accounts discrepancies were found by the AO. For ready reference, the reconciliation so filed by the assessee in respect of 10 sundry creditors is enclosed as ANNEXURE-I to this order. Despite this reconciliation, in the remand report filed by the AO after receipt of this reconciliation, there is no whisper regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding balance of sundry creditors on the basis of findings recorded by the AO in his remand report. 2. The ld CIT(Appeals) erred in ignoring the fact that the assessee failed to substantiate its claim of outstanding sundry creditors by not producing proper addresses during the course of remand proceedings as a result, the AO was prevented from discharging his statutory duties of examining these creditors. 3. The assessee is a partnership firm. It carries on business as cotton merchants and commission agents. In the course of assessment proceedings, the AO found that the assessee had shown sundry creditors (trade creditors) totaling to ₹ 10,37,33,867 in the balance sheet. The Assessing Officer called upon the assessee to file confirmation with account extract in respect of the creditors. The assessee did not file the confirmation as demanded by the AO, nor could the assessee give detailed postal addresses of the creditors for verification of the balances. According to the AO, later on the assessee filed audit report and confirmation from some of the sundry creditors. The AO therefore observed as follows:- . In view of the non furnishing of all the account extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s.68 of the Act. In respect of creditors set out in Annexure-B to the remand report, some letters had been served on the sundry creditors and some letters were returned unserved for the reason that the door was locked or the creditors were not available at that address. It can also be seen from the above table that the in respect of the creditors listed at Annexure-C, the AO found that those creditors have confirmed the outstanding balances, but the balances confirmed by them was less than what the assessee had shown as outstanding and payable in its books to the sundry creditors. 5. In respect of sundry creditors listed at Annexure-C, the assessee filed reconciliation and that reconciliation was also forwarded to the AO. In the remand report, the AO has not said anything adverse about the reconciliation furnished by the assessee. In respect of Annexure-C sundry creditors, the assessee submitted that just because there are discrepancies in the accounts between the assessee and that of the sundry creditors, no addition can be made and relied on the decision of the Delhi High Court in the case of CIT v. Multi System Securities Pvt. Ltd., 305 ITR 298 (Del). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective creditors and also substantiated the transactions with purchase bills and also the payments were made by way of bank cheques through following bank accounts: 1. Union Bank of India, Hubli Branch, A/c No.331701010011144 2. Lakshmi Vilas Bank, Ranebennur Branch CA A/c No.46 14 3. Lakshmi Vilas Bank, Ranebennur Br A/c No.06063510000001246 4. Syndicate Bank, Bailhongal Branch A/c No.05183030000023 5. Union Bank of India, Bijapur Branch CC A/c No.50001 6. Union Bank of India, Bijapur Branch CD A/c No.33190101011036 4.2. Thus, from the above bank accounts as well as the ledger accounts of the respective parties it is seen that these are running trade accounts and the appellant has made payments not only in the previous year relevant to the asst year in question but also in subsequent year by way of cheque only. Besides, from the reconciliation statement in respect of Annexure-B of the remand report, it is seen that the appellant has reconciled the party s account wherever difference is found and in many cases payments have been made in subsequent years. Thus, from the above it is seen that the appellant has discharged its onus that lay upon i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and payments have also been made in subsequent year by way of bank account cheques only. 7. The CIT(Appeals) gave the following finding:- 4.3 Thus, from the above facts, following conclusions can be drawn: (i) The appellant has proved identity of the persons and also genuineness of the transactions by producing confirmations as well as ledger extracts in its books and evidence in the form of bank account extract to show payments are made through bank account only. The appellant has maintained regular books of account which are subjected to audit under section 44AB. (ii) Once the appellant has discharged his initial burden, the burden shifts upon the department and the Assessing Officer, was not able to bring anything on record that could show that these outstanding balances are not genuine. On the other hand, the appellant by producing cogent material including reconciliation wherever, difference between amount outstanding as per its books and the parties books and the evidence to indicate all payments by cheques in subsequent year, has discharged its burden that lay upon it to prove these outstanding balances as genuine and of course, verifiable. 8. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors of Annexure-B on whom notices could not be served because they were either not residing or carrying on the business at the address given by the assessee; we are of the view that the assessee should be given an opportunity to ascertain the whereabouts of those creditors and also file some other evidence to substantiate the genuineness of those credits. We are of the view that for this limited purpose, the issue should be remanded to the AO for fresh consideration. We hold and direct accordingly. 12. As far as Annexure-C sundry creditors are concerned, the sum of ₹ 86,87,710 added by the AO is in respect of discrepancies found between the figures shown by the assessee as due to the sundry creditors and figures shown by the sundry creditors as due from the assessee. The assessee has shown due and payable to the sundry creditors much more than the figures the sundry creditors had shown as receivable from the assessee. Such differences appear only in the case of 36 sundry creditors out of 120 sundry creditors set out in Annexure-C. It is seen that the assessee had filed reconciliation of some of these accounts before the AO and the same is at pages 4 to 6 of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GP declared % age 2004-05 31,49,88,655 87,21,899 2.77% 2005-06 28,49,79,144 96,37,325 3.38% 2006-07 26,35,76,257 91,50,661 3.47% 2007-08 33,47,96,579 10,14,7869(sic) 3.03% 17. The AO called upon the assessee to show cause as to why the GP has fallen during the previous year. The assessee submitted that it purchased Kapas through commission agents which resulted in additional expenditure. The assessee also pointed out that Kapas were ginned and pressed through different factories after transporting to Hubli which involved additional expenditure. It was also pointed out that some customers had to be accommodated at lesser price because they were prompt in payment. Besides the above, increase in wages and labour and other elements was also pointed out. The assessee also submitted that it maintained regular books of accounts which were duly audited by the Chartered Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over is substantial i.e. ₹ 33,47,96,579 and due to higher turnover and additional transportation cost the GP is slightly lower at 3.03% for the year. Notwithstanding appellant s submissions it cannot be denied that the appellant s GP has gone down from immediate 2 preceding years. As mentioned in the remand report dated 2 1-4-2010, the appellant s GP in last 3 years i.e. A.Y. 2004-05, 2005-06 and 2006-07 are 2.77%, 3.38% and 3.47% respectively. When cases of the same locality have reported higher GP, the appellant s explanation for low GP is not tenable. During last three assessment years the average GP of the appellant comes to ₹ 10746970 at the average rate of 3.21%. The appellant has shown GP 3.08% at ₹ 1,01,47,869 during the year. Therefore, the differential gross profit of ₹ 5,99,101 is sustained as against the addition of GP of ₹ 32,43,994 made by the AO. 20. Aggrieved by the relief given by the CIT(A), the revenue has raised Gr.No.3 before the Tribunal. Aggrieved by the order of the CIT(A) in not deleting the entire addition made by the AO, the Assessee has filed appeal before the Tribunal. 21. We have heard the rival submissions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent u/s. 144 of the Act only when he is not satisfied with the correctness of completeness of the accounts by the assessee or other factors referred to in section 145(3) of the Act. 24. A perusal of the order of assessment shows that the AO has not made any reference to any of the factors referred to in section 145(3) of the Act. Law is well settled that AO is not entitled to resort to estimation of income without rejecting the book results of the assessee. For rejecting the books results of the assessee, the AO has to make out a case that the conditions laid down in section 145(3) are satisfied. In the present case, the order of the AO as well as the CIT(A) is silent on these aspects. Mere reference to absence of some supporting evidence in respect of entries in the books of accounts in the remand report of the AO before CIT(A) in our view would not be sufficient to invoke the provisions of Sec.145(3) of the Act. In such circumstances, we are of the view that the primary condition for resorting to an estimation of income by the AO is not sustainable. In our view, the CIT(A) ought to have deleted the entire addition made by the AO. We are, therefore, of the view that the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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