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TMI Blog2016 (5) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... by invoking the provisions of section 40A(3) of the Act amounts to double additions which is not permissible under the law. There exists a business expediency in making the cash payments towards purchase of goods. The assessee was obliged to make the cash payments required by the suppliers. Therefore, no disallowance can be made towards cash payments by invoking the provisions of section 40A(3) of the Act. The CIT(A) rightly deleted the additions. We do not see any error or infirmity in the order passed by the CIT(A). - Decided in favour of assessee - I.T.A.Nos.506 to 510/Vizag/2013 - - - Dated:- 31-3-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri G. Guruswamy, DR For The Respondent : Shri C. Subrahmanyam,AR ORDER PER G. MANJUNATHA, Accountant Member: These five appeals filed by the revenue are directed against the separate, but identical orders of the CIT(A), dated 18.4.2013 and it pertains to the assessment years 2007-08 to 2011-12. Since, the issues involved in these appeals are common, they are clubbed, heard together and disposed off, by way of this common order for the sake of convenien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement, however inspite of repeated opportunities, failed to produce purchase bills/sale bills, etc. The assessee further stated that she had purchase and sale bills pertaining to the assessment year 2009-10 and also part of the purchase bills for the current financial year up to 30.11.2010, however, remaining bills are with the accountant who has taken the bills for writing the books of accounts. Therefore, she is unable to produce the purchase bills/sale bills for the above period. During the course of assessment proceedings, the A.O. noticed that the assessee has shown trade creditors of ₹ 1,58,52,399/-. In view of assessee s failure to produce purchase and sale bills, letters were addressed to the trade creditors as per the address given by the assessee, calling for account copy of the assessee as appearing in the books of accounts of creditors under the provisions of section 133(6) of the Act. However, most of the letters were returned un-served and it is found that not even a single case confirmation from the trade creditors was received. Therefore, the A.O. has asked assessee to produce confirmation from all trade creditors. The assessee, vide reply dated 11.12.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, on verification of the books of accounts, the A.O. noticed that the assessee has made cash payments towards purchase of goods. The A.O. further noticed that on verification of the bank statement filed by the assessee, it was found that the assessee has issued bearer cheques towards purchase of goods and also issued cheques to third parties without any mandate from the creditors. Therefore, issued a show cause notice and asked to explain why the cash payments made towards purchase of goods shall not be disallowed u/s 40A(3) of the Act. In response to show cause notice, the assessee submitted that she had issued cheques towards purchase of goods. Though, in few cases, bearer cheques are issued, the cheques are issued as directed by the suppliers, therefore, there exist a business expediency in making the cash payment and hence, no disallowance can be made u/s 40A(3) of the Act. The A.O. after considering the explanations furnished by the assessee disallowed the payments by invoking the provisions of section 40A(3) of the Act. While doing so, the A.O. held that the assessee, while deposing the statement before the investigating officer stated that she had purchased goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished photocopies of confirmation letters for verification. Similarly, as regards the disallowance of cash payments u/s 40A(3) of the Act is concerned, the assessee submitted that she has made the cash payment and also bearer cheques as per the request of the sellers. The sellers being unorganized business people never accepted any cheque payments. She had paid cash as directed by the suppliers and there was a business expediency in making the cash payments, therefore, no disallowance can be made by invoking the provisions of section 40A(3) of the Act. 8. The CIT(A) after considering the explanations furnished by the assessee, deleted the additions made towards sundry creditors u/s 68 of the Act. The CIT(A) deleted the additions by holding that it is a settled position of law that when trading results, i.e. sales and purchases have been accepted as genuine, no addition u/s 68 of the Act can be made for unexplained sundry creditors. The CIT(A) further held that it is important to note here that before making any addition u/s 68 of the Act over all facts should be considered. Merely, because the assessee is unable to furnish confirmation letter from sundry creditors, addition u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation letters from the creditors to prove the genuineness of the transactions. Under these circumstances, the CIT(A) was completely erred in deleting the additions. Therefore, the assessment order passed by the A.O. should be upheld. 10. On the other hand, the Ld. A.R. Submitted that the assessee is a small retail trader in readymade garments purchased garments from the city of Kolkata and Howrah. The A.R. further submitted that the supplier of goods facilitated credit facility to the assessee, because of her reputation in the market and also in good faith. The assessee has purchased the goods on credit and made the payments subsequently. The A.O. at the time of assessment has accepted the purchases declared by the assessee and at the same time made additions towards trade creditors, by stating that the assessee has not proved the identity and genuineness of the transactions. Once the purchases have been accepted as genuine, no additions can be made towards trade creditors, because of the reason that the trade creditors arises because of credit purchases. The A.R. further submitted that the assessee has started her business in the financial year 2005-06 with a meager investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e additions towards trade creditors. The A.O. was of the opinion that the assessee has failed to furnish confirmation letters from trade creditors, therefore, fails to discharge initial onus cast upon her to prove the identity, genuineness and creditworthiness of the transactions. The A.O. further observed that the assessee has failed to furnish even bills for purchases claimed in the books of accounts. The A.O. further held that the letter issued to the trade creditors reported un-serviced. When these facts were confronted to the assessee, the assessee stated that the creditors are unorganized sellers, they do not disclose their identity, and therefore, not possible to furnish confirmation letters. The A.O. further held that as per the provisions of section 68 of the Act, the onus is on the assessee to prove the genuineness of the credit. Section 68 of the Act does not confine only to cash credits in the books of accounts, but applies to any liability shown in the account, which is found to be bogus and there is no plausible and reasonable explanations from the assessee, then the amounts can certainly be added towards trade creditors. It was the contention of the assessee that she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o avoid unnecessary problems. In case the customers do not accept their conditions, they do not do any business with us. We find force in the arguments of the assessee for the reason that the readymade garment market in Kolkata in unorganized market and it is quite possible that there are every chance of not issuing any sales bills. The total transactions happen purely on trust and belief. As contended by the assessee, they facilitate credit purchases and allowed the customers to purchase goods on credit and make the payment subsequently. This fact was not disputed by the revenue. In fact the A.O. has accepted the purchases as genuine. Under these circumstances, addition u/s 68 of the Act towards trade creditors by holding that the confirmation letters has not been filed his not correct. 14. The A.R. submitted that the assessee is a small retail trader and started her business with a meager initial capital of ₹ 18,000/-. The A.R. further submitted that the assessee business is managed by her husband. Before she ventured into this business, he was unemployed for a quite period and also worked as a salesman in a readymade garment shop and with this minimum experience he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ora of judgements and submitted that when purchases and sales are accepted as genuine, no additions can be made towards trade creditors as bogus. Therefore, it is pertinent to discuss the case laws in the light of the facts of the present case. The assessee has relied upon the Hon ble High Court of Allahabad judgement, in the case of CIT Vs. Pancham Dass Jain (2006) 156 Taxman 507. The Hon ble Allahabad High Court, under similar circumstances deleted the additions made towards trade creditors. The relevant portion is reproduced hereunder: The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of s. 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en accepted in toto without any kind of controversy whatsoever. After the purchases of sarees supported by the 'Purjas' have been accepted, any further verification about the Karigars in whose favour such Purjas' have been issued is really not necessary; the reason being that it is the Karigar who come to the saree dealers and offers his stock for being dealt with by the same dealers. The dealers also have no occasion to feel concerned about the names and addresses of such Karigars as purchases from them are made on credit and that too after due approval of the same through inspection and otherwise. In other words, it is only the verification of sarees that are brought for sale by the Karigars at the shop of the saree dealers which is relevant and not the Karigar themselves. It is for this reason that even the CBDT felt that after the sales (made out of purchases from Karigars) are found to be verifiable, it is not necessary that there should be an insistence for producing the Karigars. The instructions like this, although may not be capable of being treated as having binding effect, nonetheless they lay down necessary guidelines for completion of assessment in a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstly, there is a liability incurred and secondly such liability has been discharged without being recorded in the books of account. As no such material is available on record, the liability in question cannot be said to be bogus so as to attract any addition on this score. It also appears that the AO has treated the liability to be of cash credit' in nature and that is why he felt anxious to have the identities of the creditors established. In this respect, first of all, credits 'in the sundry creditors (Udhar Khareed) Khata' are referable to the purchases of sarees made on credit basis. As the purchases have been held to be genuine and accepted as such, the credits that remained outstanding in such account cannot be treated to have remained unexplained. The balance appearing in this account, which included the disputed addition also is the sum total of purchases that remained unpaid at the end of the year. As the genuineness of such purchases has not been disputed, rather the same has been accepted, the credits stand fully explained and no adverse inference is called for either on facts or in law. Thus, on a consideration of totality of facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The coordinate bench, in the above mentioned case, simply rejected the miscellaneous petition filed by the assessee without any findings with regard to the additions made u/s 68 of the Act. 21. Considering the facts and circumstances of the case, we are of the opinion that no addition can be made on trade creditors, when purchase has been accepted as genuine. The CIT(A) after considering the relevant details filed by the assessee has rightly deleted the additions made by the Assessing Officer. We do not find any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the order passed by the CIT(A) and reject the ground raised by the revenue. 22. The next issue came up for our consideration is disallowance of cash payments u/s 40A(3) of the Act. The Ld. D.R. submitted that the CIT(A) was erred in deleting the additions made by the Assessing Officer towards cash payments. The Ld. D.R. further submitted that the assessee has accepted before investigation and also before the Assessing Officer that she has made the payment either by way of cash or bearer cheques. Therefore, there is a clear violation of section 40A(3) of the Act and accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Assessing Officer invoked the provisions of section 40A(3) of the Act and disallowed the cash payments made towards purchase of goods. The Assessing Officer was of the opinion that the assessee has admitted in the statement recorded during the course of investigation that she had made the payment either by way of cash or bearer cheques. The Assessing Officer further was of the opinion that though assessee claims to have made the payment through the agents of the supplier, failed to furnish any evidences in support of her claim, therefore, disallowed the amount by invoking the provisions of section 40A(3) of the Act. It was the contention of the assessee that she was under the obligation to make the cash payment, as the suppliers have insisted for either cash or bearer cheques. Therefore, there was a business expediency in making the cash payment and hence, no disallowance can be made u/s 40A(3) of the Act. 25. The facts of the case, which are under consideration, needs to be examined in the light of the fact that whether there exist any business ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also other relevant factors. In the present case on hand, on perusal of the facts, we find that the assessee is a retail trader in garments. It is a well known fact that the garment industry is mostly run by the unorganized sectors of the society. As contended by the assessee, she had purchased the goods from readymade garments market from Kolkata. The readymade garment market of Kolkata is unorganized one and the suppliers did not disclose their identity and also not issued any bills or confirmation letters for the transactions. The total transaction between the suppliers of readymade garments and the customers is purely done on the basis of trust and belief. The suppliers insist for cash payments, therefore, she was obliged to make the payment either in cash or bearer cheques to avail the credit facility. Therefore, there exist a business expediency and accordingly, no disallowance can be made by invoking the provisions of section 40A(3) of the Act. We find force in the arguments of the assessee, for the reason that each and every payment in cash are not automatically get disallowed u/s 40A(3) of the Act. In a particular case, where there exists a business expediency and other r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Assessing Officer with regard to the additions u/s 68 of the Act and additions made u/s 40A(3) of the Act, the percentage of profit works out to 50% to 205%. If you consider the nature of business carried out by the assessee, such a huge profit from the retail trade of garments cannot be earned. Therefore, we are of the opinion that the Assessing Officer, without any valid reason simply made additions by invoking the provisions of section 40A(3) of the Act. If you take into account the total additions made by the Assessing Officer, it exceeds the total purchases made by the assessee in all the financial years, which cannot happen in any case. Therefore, we are of the opinion that the Assessing Officer has no reason to disallow cash payments by invoking the provisions of section 40A(3) of the Act, when he has not doubted the genuineness of the purchases. The assessee has made the cash payment against purchases. The assessee has reported the purchases and the Assessing Officer has accepted such purchases and computed the profit as per the financial statement filed by assessee. Under these circumstances, we are of the opinion that making additions by invoking the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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