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TMI Blog2019 (11) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called "the tribunal") in ITA No. 1321/Chny/2018 for ay: 2014-15, read as under:- "01. The order of the Commissioner of Income Tax (Appeals) is against law, facts, and equity. 02. The order of the Commissioner of Income Tax (Appeals) in upholding the additions made on creditors, in respect of the details found at the time of survey to arrive at a conclusion that, the payments has to be made within 7 days as per his calculations and the creditors standing beyond 7 days were to be considered as the liability ceased. As the cessation of liability is the matter of the Assessee's policy and prudence and they are the better judges to take a decision on cessation of Liabilities, the addition made U/s 41(1)(a) on this account needs to be deleted. 03. The Commissioner of Income Tax (Appeals) ought to have appreciated the fact in respect of the all the additions made U/s 41(1) it is relied on the decision of the Honorable Delhi High court in the case of " CIT Vs. Hotline Electronics ltd" (2012) 205 Taxmann 245 (Delhi), where in it is held that unpaid liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,97,542/- under section 68 without verify as to how in the audited books of accounts assessee gave effect to the deficit cash noticed during the course of survey. 4. The Hon'ble ITAT is requested to cancel the order of the learned CIT(A)-3 Coimbatore and uphold the order of the Assessing office on the above issues. 5. The Hon'ble ITAT is requested leave to add, amend or modify the grounds o appeal, if necessary, in future." 3. The brief facts of the case are that the assessee is engaged in the business of Milk Dairy. A survey action u/s.133A of the 1961 Act was carried out by Revenue in the premises of assessee on 06.11.2013. During the course of survey operations conducted by Revenue u/s 133A of the 1961 Act, the assessee had declared additional income of Rs. 2,05,98,000/- on account of waiver of milk creditors. The assessee in its return of income filed with Revenue, however, declared an additional income of Rs. 2 Crores. The case was selected by Revenue for framing of scrutiny assessment u/s 143(3) of the 1961 Act and statutory notices u/s 143(2) and 142(1) of the 1961 Act were issued to the assessee by the AO. The AO during the course of assessment proceedings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. The AO examined ledger accounts of these milk creditors and observed that in many cases, the sundry creditors outstanding for payment represent opening balance and continues to remain outstanding for payment throughout the year and the same were not written back as waived by creditors, by the assessee. The AO observed that total of such creditors are to the tune of Rs. 32,70,589/- for which list was annexed by the AO along with the assessment order. The AO observed that the assessee has not given proper explanation for non inclusion of these sundry creditors for waiver/declaration of income. The AO observed that these milk suppliers were poor villagers who cannot wait for more than a year to receive their payments and hence AO was of the view that it is difficult to accept version of the assessee and AO was of the view that either the assessee had paid these sundry creditors out of unaccounted funds or else the liability has extinguished which attracts provisions of Section 41(1)(a) of the 1961 Act. This led AO to make additions to the tune of Rs. 32,70,589/- as income of the assessee by invoking provisions of Sec.41(1)(a) of the 1961 Act, vide assessment order dated 30.12.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 30.12.2016 passed u/s 143(3) of the 1961 Act and added to the income of the assessee a sum of Rs. 9,61,80,915/-in the hands of the assessee by invoking provisions of Section 41(1)(a) of the 1961 Act. 3.5 The AO also observed that department has already made an addition to the income of the assessee for ay:2013-14 to the tune of Rs. 5,06,56,197/- u/s. 68 of the Act in respect of unexplained sundry creditors outstanding as on 31.03.2013. It was observed by AO that Ld.CIT(A) has already deleted the aforesaid addition for ay: 2013-14 vide appellate order dated 30.08.2016 and matter is now pending for disposal before tribunal at the behest of Revenue . The AO observed that since matter for ay: 2013-14 has not reached finality, out of additions to the tune of Rs. 10,99,14,393/- now being made on account of waiver of sundry creditors, an amount of Rs. 5,06,56,197/- is being added on protective basis and if additions for ay:2013-14 are not sustained by appellate authorities , then in that situation, the entire additions to the tune of Rs. 10,99,14,393/- will stood confirmed as income in the hands of the assessee on substantive basis for impugned ay under consideration. 4. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two new chilling plants at Aayilpatty and Karur and interest on term loans to the tune of Rs. 60,82,257/- was incurred by assessee for the year under consideration and since these two units have not commenced operations till the end of previous year relevant to impugned ay , which led AO to refer to provisions of Section 36(1)(iii) of the 1961 Act to disallow these interest expenses which stood added to the income of the asssseee by the AO, vide assessment order dated 30.12.2016 passed by the AO u/s 143(3) of the 1961 Act. 7. The AO further observed that during the course of survey operations conducted by Revenue against the assessee on 06.11.2013 u/s 133A of the 1961 Act, the cash to the tune of Rs. 26,35,769/- was physically found but however cash balance as per auditor's statement now filed with department as on the date of the survey was Rs. 56,33,311/-, which led to excess cash to the tune of Rs. 29,97,542/- reflected in books of accounts of the assessee, which led AO to conclude that assessee has introduced its unaccounted funds to the tune of Rs. 29,97,542/- in its books of accounts and since assessee has not explained sources of cash , the said cash differential to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Hotline Electronics Limited(2012) 205 taxman 245(Delhi) , while Ld.CIT(A) distinguished the aforesaid decision relied upon by the assessee and held that the assessee cannot take benefit of the said judgment which is distinguishable on facts and not applicable to the case of the assessee. 8.2 The Ld.CIT(A) also observed that assessee is in the business of collection, processing and distribution of milk . The learned CIT(A) observed that assessee procured milk from farmers through its collection centers/agents. The Ld.CIT(A) observed that on perusal of ledger accounts of milk collection centers/agents will reveal that the payments for milk purchases were made at weekly intervals which follows a particular pattern of back to back settlement leaving no credit balances. The Ld.CIT(A) also observed that these farmers/procuring agents cannot afford to extend credit period of more than one or two weeks. The learned CIT(A) also observed that assessee has also not brought on record any differences in payments made to these farmers/procuring agents owing to spoilage, quality , quantity etc.. The Ld.CIT(A) observed that total milk purchased during the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the chilling plants while working out depreciation. The learned CIT(A) held that since depreciation has been allowed by him with respect to chilling plant located at Navalpatty village, the capital subsidy received in respect of that plant shall be considered in arriving the depreciation. 8.4 With respect to additional depreciation of Rs. 66,35,246/- disallowed by AO u/s.32(1)(iia) of the 1961 Act with respect to both the chilling plants claimed to be newly commissioned during the impugned ay under consideration , the Ld.CIT(A) observed that the assessee is only collecting milk and processing & packaging it for sale and there is no manufacturing or production activity of any article or thing carried on by assessee to become eligible for additional depreciation within the provisions of Section 32(1)(iia) of the 1961 Act. The Ld.CIT(A) observed that chilling plant is used for pasteurization and standardization of milk for consumption which do not change the character of milk processed and there is no activity of production or manufacturing carried out by assessee and the assessee is not entitled for additional depreciation. The Ld.CIT(A) relied on the decision of the Hyderabad-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has come in appeal before the tribunal. The Revenue is aggrieved by deletion of addition to the tune of Rs. 2.63 Crs. by allowing further allowance of credit of one week for milk purchases by Ld.CIT(A), wherein, the earlier additions were made by AO towards waiver of sundry creditors u/s 41(1)(1) of the 1961 Act for period of outstanding for milk purchases beyond one week. Secondly , the Revenue is aggrieved by deletion of addition by learned CIT(A) of Rs. 29,97,542/- which was added earlier by the AO as the income of the assessee as an unexplained cash u/s.68 of the Act. The assessee on the other hand is aggrieved by confirmation by learned CIT(A) of the additions made by AO u/s.41(1)(a) of the Act towards waiver of sundry creditors except relief of Rs. 2.63 Crs. granted by learned CIT(A) being credit of one more week of average purchases of milk. The assessee is also aggrieved by disallowance of depreciation on chilling plant located at Karur by Ld.CIT(A). The assessee is also aggrieved by confirmation of disallowance of interest expenses by Ld.CIT(A) on the ground that new chilling plant at Karur has not commenced its operations during the previous year relevant to impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a decline in GP ratio over the year's. Our attention was drawn to ITAT order for ay: 2012-13 and 2013-14 in assessee's own case, wherein the GP ratio for last several years is stated. Thus, learned DR prayed that assessment order passed by AO be confirmed/upheld on this issue of additions being made on account of waiver of sundry creditors. The learned DR submitted that there was a statement recorded of Partner during the course of survey operations on 06.11.2013 conducted by Revenue and in reply to question number 32 , the partner has admitted that there is an inflation of purchases. It was submitted by learned DR that Ld.CIT(A) erred in granting relief of Rs. 2.63 Crs. to assessee on account of waiver of sundry creditors by way of extended credit period of one week. 9.4 The Ld.Counsel for the assessee in rejoinder relied upon decision of Hon'ble Allahabad High Court in the case of Debi Prasad Malviya v. CIT reported in (1952)22 ITR 539(All HC) and submitted that now it is not open for authorities to take any other view in this year and only additions can be made by estimating income by taking average of GP of last three years. 9.5 The learned counsel for assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of survey, the Ld.CIT(A) had deleted this addition without any basis as cash was found short during the course of survey while higher amount of cash is reflected on the date of survey in the audited books of accounts produced by assessee before the authorities during the course of assessment proceedings . It was submitted by learned DR that Ld.CIT(A) wrongly granted benefit of Rs. 2.63 Crs. to assessee u/s.41(1)(a) of the Act by extending period of credit by further 7 days without any basis. The learned DR would submit that assessee has not provided list of sundry creditors. It was submitted by learned DR that detailed assessment order is passed by AO, our attention was drawn to Page Nos. 2 & 3 of the assessment order and it was submitted that sundry creditors were outstanding for more than one year . Reliance was placed by learned DR on the decision of Hon'ble Supreme Court in the case of Shri Pradeep Kumar Biyani v. ITO reported in (2019) 260 Taxman 298(SC). It was submitted that statement of Shri S.P. Loganathan , partner in assessee firm was recorded on 24.01.2014. It was submitted that statement recorded during the course of survey operations u/s.133A is admissible and liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of question number 32 has itself admitted that the assessee is boosting its purchases in its books of accounts and fictitious purchases are introduced in the books of accounts of the assessee. The employee of the assessee Shri Ramaswamy in his statement recorded during the course of survey proceedings conducted by Revenue u/s 133A of the 1961 Act , on 20.11.2013 stated in reply to question number 6 and 7 that payment for milk purchases are made within a week's time by assessee to milk suppliers. The assessee had of his own voluntarily surrendered Rs. 2.06 crores during course of survey operations u/s 133A on 06.11.2013, towards waiver of sundry creditors on account of inflated purchases. While filing return of income with Revenue , the assessee itself has voluntarily offered for taxation Rs. 2 crores on account of waiver of milk creditors in the return of income filed with the Revenue. Incidentally , as is observed from material placed on record, large number of payments against purchases for milk were made by assessee to milk suppliers in cash and the same were not paid through banking channels. These purchases for milk are made by assessee and claimed as an expenditure/ deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is cast u/s 41(1)(a) of the 1961 Act had brought on record following incriminating evidences/material against assessee to discharge their onus while invoking provisions of Section 41(1)(a) of the 1961 Act:- a) Statement Recorded of Partner of the assessee firm , Mr. S.P.Loganathan during the course of survey operations admitting inflation of purchases. b) Statement of employee Mr. Ramaswamy recorded during course of survey wherein he stated that payments for milk are made by assessee within a week's time, while books of accounts are showing large balances of old amounts purported to be payable to milk creditors which defy the said statement of employee of the assessee. c) Surrender of Rs. 2.06 crores as income by the assessee during the course of survey operations owing to waiver of milk creditors /boosting of purchases. d) Offer for taxation , aforesaid surrender of income to the tune of Rs. 2 crores , in return of income filed voluntarily by assessee with Revenue. e) The existent of large amounts of old creditors on account of milk supplies in books of accounts of the assessee to be payable as on the last dated of previous year, which defy normal business transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse material collected or found during the survey or any other method while making the Block Assessment." It is not that the Revenue is solely relying on the statement recorded during course of survey operations rather Revenue is also relying on the difference in sundry creditors as on 31.03.2013 and 01.04.2013 as recorded in the hard disk impounded during survey operations and also on preponderance of probabilities to fasten tax liability on assessee on the grounds of waiver of sundry creditors . As is seen from ledger accounts of milk suppliers reproduced by the AO in his assessment order, that assessee is making payments for current invoices/supplies of milk to the vendors back to back against supplies of milk , while old payables for milk supplies purported to be made earlier during the year or in the preceding years are still pending/outstanding for payment in books of accounts of the assessee which led authorities below to draw adverse inference against assessee. The statement recorded during survey could be used to corroborate the evidences/material found/collected during survey and also for deviation against normal conduct of business in regular course of milk diary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding upto two weeks. The assessee has also to rebut said presumption by bringing on record complete details of each of these milk suppliers creditors such as name, address, PAN, reasons for non payments, any dispute with these milk suppliers, communication with these milk suppliers, claims filed by these milk suppliers with any court etc. . In our considered view based on facts and circumstances of the case and in the interest of substantial justice to both the parties, the assessee deserves one more opportunity and the matter needs to be set aside and restored to the file of the AO for framing fresh assessment denovo on merits in accordance with law. We have already explained the onus which lay on both the parties. The assessee is directed to produce complete details of milk suppliers to the AO in set aside proceedings for making necessary enquiries and verifications, if deem fit by the AO in set aside proceedings . The AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law. The AO shall admit evidences/explanations filed by the assessee in its defense in set aside denovo asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to produce reconciliation statement reconciling aforesaid differential in cash before the AO in set aside proceedings and justification for said differential . The AO is directed to provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law. The AO shall admit evidences/explanations filed by the assessee in its defense in set aside denovo assessment proceedings in the interest of justice and then adjudicate on merits in accordance with law. Thus , appeal filed by Revenue on this issue stand allowed for statistical purposes. We order accordingly. 12. The assessee in its appeal filed with tribunal has raised an ground of appeal being aggrieved by denial of depreciation on Buildings and Plant & Machinery with respect to its Karur Chilling Plant. The depreciation was disallowed by learned CIT(A) mainly on the grounds that Karur Chilling Plant has not commenced commercial operations until the end of previous year relevant to impugned assessment year as the assessee did not filed any evidence to substantiate the same. The assessee in course of appeal before tribunal has filed evidences by way of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding para 12 was set aside to the AO and the decision of the AO in set aside denovo proceedings shall have direct bearing on the allowability of interest on term loans availed for incurring capital expenditure for installing Karur Chilling Plat. Thus, this matter is also remitted back to the file of the AO for framing denovo assessment and our observations and directions in para 12 above of this order will also equally apply as to allowability or disallowability of interest expenditure incurred during the year on term loans borrowed for incurring capital expenditure by way of Building, Plant & Machinery etc. for installing Karur Chilling Plant. We order accordingly. 14. The next issue raised by learned counsel for the assessee is regarding allowability of additional depreciation u/s 32(1)(iia) on both the new plants at Aaiyilapatti and Karur. No grounds of appeal are raised by assessee in context thereof with respect to denial of claim of additional depreciation u/s 32(1)(iia) by learned CIT(A) and hence we are afraid that in the absence thereof, we cannot entertain this issue at this stage. We can only decide the issue which are specifically raised before us and we cannot ventu ..... 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