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TMI Blog2016 (11) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made by the assessee is excessive or unreasonable even in the remand proceedings. Without bringing the same, simply invoking the provisions of section 40A(2)(b) of the Act would be highly improper. We also find that the nature of services rendered by these two parties were also not denied or doubted by the ld AO in the remand report. Hence we hold that the ld CIT-A had rightly granted relief to the assessee.- Decided in favour of assessee Addition on unexplained investment in fixed assets - Hel that:- We find that the fixed assets have been duly reflected in the audited balance sheet filed by the assessee which represents assets and liabilities. The liabilities reflected therein clearly reflect the bank loans availed by the assessee such as auto loan from HDFC Bank, loan from Citi Bank against hypothecation of showroom, cash credit limit from Centurion Bank against the hypothecation of stocks of business of the assessee. The liabilities reflected in the liability side in the form of bank loans were treated as explained by the ld AO. Hence, it could be safely concluded that the assets appearing in the balance sheet would be treated as explained once the corresponding entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ghyas Uddin, JCIT, Sr. DR For the Respondent: Shri Manish Tiwari, FCA ORDER Per Shri M. Balaganesh, AM This appeal by revenue is arising out of order of CIT(A)-XX, Kolkata vide appeal No. 173/CIT(A)XX/Wd-36(2)/07-08/Kol dated 01.12.2009. Assessment was framed by ITO, Ward-36(2), Kolkata u/s. 144 of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2003-04 vide his order dated 27.03.2006. 2. The first issue to be decided in this appeal is as to whether the ld CIT(A) is justified in deleting the additions made on account of unexplained purchases amounting to ₹ 23,59,261/- and ₹ 5,12,471/- on account of undisclosed profit on purchases in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is a firm engaged in the business of watches, clocks, time pieces, imitation jewellery, readymade garments, crockery items, perfumes, cosmetics, leather items and sun glasses having its show rooms at Behala, Camac Street and B.B.D.Bag. The office cum showroom was also at No.4, Radha Bazar Street, Kolkata 700001. A survey u/s 133A of the Act was conducted at the business premises of the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts were washed out due to the action of the accountant who left on 31.1.2004 after destroying the accounts, could not be believed as it was found that the sales tax return for the year ending 31.3.2004 was filed on 28.5.2004 and the income tax return for the Asst Year 2004- 05 was filed within due date after getting the same audited. He accordingly concluded that the accounts were either not destroyed as claimed by the assessee or was rebuilt within the said time and the assessee did not produce the books of accounts despite passage of more than two years from the alleged date of destruction of accounts. He further observed that the inability of the assessee to produce books of accounts and supporting evidences were also found unsatisfactory because the accountant of the assessee had received back not only the computer from the ld AO but had taken out all the print outs of the accounts on 13.2.2003. It was also further observed that the assessee was getting the services of the accountant till 15th August 2005. 2.3. The ld AO made addition of ₹ 23,59,261/- on account of undisclosed investment in the undisclosed purchase on the ground that there was unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld CITA holds good in view of the basic onus not discharged by the assessee by production of books of accounts to support its contentions. 2.6. In response to this, the Ld AR argued that the reason for non production of books of accounts was due to computerized books of accounts were washed away by two employees and the assessee had also lodged a FIR in this regard with Hare Street Police Station. Moreover, most of the bills / vouchers were impounded in survey and were lying vacant in the custody of the IT department. The ld AO was not satisfied with this explanation and eventually completed the assessment u/s 144 of the Act. The unrecorded purchases found in survey were subsequently recorded in the books of accounts. However, the ld AO did not accept it on the ground that the books of accounts were not produced before him. He argued that the total purchases as per audited accounts exceed the average purchases (considered on monthly basis) by the amount of unrecorded purchases. He argued that the purchase register was maintained upto 19.1.2003 i.e a day prior to the date of survey which reflected total purchase of ₹ 232.51 lacs meaning thereby that the average monthly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lice on the compliant lodged, whether any arrest has been made or imprisonment etc of the accountant or any other person in connivance and inspector of income tax was also deputed to the police station from time to time to know the development in this regard. These facts are stated by the ld AO in his remand report dated 6.8.2007 which is part of our records. In these circumstances, the assessee s inability to produce the books of accounts needs to be believed and accordingly he could not discharge his onus of providing the books before the ld AO. Moreover, the assessee had claimed that the accountant left him on 31.1.2004 and also had destroyed the accounts of the assessee. It is not mentioned in the said compliant for what period, the accounts were destroyed. Just because the assessee had filed the sales tax return and income tax return for the Asst Year 2004-05 in time, his action of lodging a compliant and expression of inability to produce books of accounts due to its destruction cannot be doubted with or faulted with. It is not the case of the revenue that proper back up was not taken by the assessee in respect of the books of accounts for the Asst Year 2004-05 which would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.7.2. With regard to the remaining sum of ₹ 7,75,936/- (23,59,261-15,83,325) , the ld CITA had made an estimated disallowance of 10% towards unrecorded purchases. We find that this action of the ld CITA is without any basis. However, we find lot of force in the argument advanced by the ld AR of the assessee that the total purchases as per audited accounts exceed the average purchases (considered on monthly basis). It is not in dispute before us that the purchase register has been updated upto 19.1.2003 which reflected total purchase of ₹ 232.51 lacs which gives a average monthly purchase of ₹ 23.51 lacs. Hence the total purchase during the year based on said monthly average works out to ₹ 282.12 lacs, whereas the audited accounts show aggregate purchases of ₹ 305.35 lacs i.e an increase of ₹ 23.23 lacs, which almost matches with the unrecorded purchases found in the course of survey. We find that the assessee had submitted the audited balance sheet along with the return. The entire purchases reflected thereon were either settled in cash / cheque or reflected as sundry creditors. The ld AR also argued that these sundry creditors were fully settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t showrooms and also held that the service charges so paid was not excessive or unreasonable so as to warrant the provisions of section 40A(2)(b) of the Act. Accordingly, he deleted the disallowance in that regard. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That the Ld. CIT(A) is not justified to delete the addition ₹ 78,000/- u/s. 40A(2)(b) wholly since the assessee paid service charges ₹ 30,000/- and ₹ 48,000/- to two sons of a partner which is different in rates for the same type of job and did not produce Books of accounts/evidence. 3.2. The ld DR argued that quantum of expenditure does not justify its allowability when the same has not been proved by the assessee as wholly and exclusively incurred for the purpose of business and the nature of services rendered by the parties to the assessee. In response to this, the ld AR argued that the genuineness of the said expenditure was not doubted by the ld AO in the remand report as it could be evident that no adverse comments were given in that regard in his remand report. 3.3. We have heard the rival submissions. We find from the remand report that the ld AO had merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther with its proper sources and the balance sheet has tallied. It was also submitted that there is no discrepancy in the aggregate value of the assets, though the figures for written down value (WDV) and those for the additions were inter changed in some cases. The source of ₹ 3,30,000/- is covered by car loan from HDFC Bank, ₹ 35,00,000/- loan from Citi Bank and balance by way of cash credit limit allowed by Centurion Bank. These loans were also duly reflected in the balance sheet filed before the ld AO. The relevant loan sanction letters together with the loan statements were submitted before the ld CITA which were subjected to remand proceedings. The ld AO in his remand report mentioned that copy of auto loan sanction letter from HDFC Bank was filed before him. Further loan of ₹ 35,00,000/- was taken from Citi Bank against hypothecation of show room and the bank statement in this regard was also filed. In case of cash credit limit allowed by Centurion Bank, the ld AO mentioned that it could not be verified for non-production of books of accounts and bills. However, the bills and vouchers in respect of several additions were furnished and the same were verified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient proof and hence the ld CITA had rightly relied on the tallied balance sheet and the loan sanction letters which were admittedly used for the purpose of acquiring fixed assets, among others. Hence, he argued that there is no case made out by the ld AO for making an addition towards unexplained investment in fixed assets. 4.3. We have heard the rival submissions. We find that the fixed assets have been duly reflected in the audited balance sheet filed by the assessee which represents assets and liabilities. The liabilities reflected therein clearly reflect the bank loans availed by the assessee such as auto loan from HDFC Bank, loan from Citi Bank against hypothecation of showroom, cash credit limit from Centurion Bank against the hypothecation of stocks of business of the assessee. The liabilities reflected in the liability side in the form of bank loans were treated as explained by the ld AO. Hence, it could be safely concluded that the assets appearing in the balance sheet would be treated as explained once the corresponding entries on the liability side are explained. There is no case made out for framing an addition towards unexplained investment in fixed assets. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that these creditors were duly discharged by the assessee in the subsequent years. He observed that a sum of ₹ 2,27,762/- represented opening balance of creditors which could not in any case be added as income in the year under appeal. He observed that out of outstanding liability of ₹ 33,88,194/- , two separate additions were made by the ld AO in the sum of ₹ 73,700/- towards sales tax liability and ₹ 78,000/- towards service charges payable, there is no need to add the same again treating them as bogus liability. For the remaining liability, he observed that the full particulars were made available before the ld AO in the remand proceedings , who had not made efforts to verify them and concluded that the ld AO had not brought any positive material on record to show that the liabilities are ingenuine. He further observed that all these liabilities were duly discharged in the subsequent year by account payee cheques which is quite evident from the ledger extracts and the bank statements. 5.2. With regard to sundry creditors for goods comprising of 47 parties, the assessee furnished the names and addresses of those creditors which were subjected to veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in allowing relief to such a great extent of ₹ 1,13,07,096/- out of addition ₹ 1,15,92,543/- on account of unexplained sundry creditors where identity, genuineness and credit worthiness of some creditors are not established. 5.5. The ld DR argued that the ld CITA had merely granted relief based on subsequent payments made by the assessee to those sundry creditors and reiterated the findings of the ld AO. In response to this, the ld AR argued that the main premise of the ld AO to make the addition is placing reliance on the letter dated 13.3.2006 of the auditors wherein they had stated that the balance of creditors are not confirmed before the auditors. In this regard, he argued that it is the usual practice that the auditors resort to obtaining direct confirmation from the creditors of the assessee on test check basis and since all the parties could not be practically verified by the auditors in the given time , hence it is quite usual to mention that the balances of creditors and debtors are subject to confirmation. This does not automatically mean that the creditors shown in the balance sheet are bogus. He argued that the ld AO had made extensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the ld CITA is justified in deleting the addition of ₹ 1,96,445/- towards unexplained cash credit in the facts and circumstances of the case. 6.1. The brief facts of this issue is that the ld AO observed that assessee obtained fresh loans during the year to the tune of ₹ 4,99,470/- for which confirmation from parties were not furnished . He observed that even complete postal address, PAN of parties were not furnished and genuineness of such loans were not proved. Accordingly he proceeded to make addition u/s 68 of the Act. The ld CITA confirmed the addition of ₹ 2,03,025/- in respect of Rash Behari Agarwal and allowed relief to the extent of ₹ 2,96,445/- being loan of ₹ 1,00,000/- from Binita Kedia and ₹ 1,96,445/- from American Express Bank. The loan of ₹ 1,00,000/- from Binita Kedia was allowed on the ground that the same was verified by the ld AO in the remand proceedings. Regarding the loan from American Express Bank, the ld CITA observed that the remand report was silent on this loan transaction from bank and concluded that the bank loan could not be treated as unexplained. Aggrieved, the revenue is in appeal before us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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