Case Law Details
Fazal Frozen Food (P) Ltd. Vs JCIT (ITAT Delhi)
Ld. Counsel for the assessee pleaded that the disallowance is being made on the ground that the payments are being made in cash and higher than Rs.20,000/-. They are entered in the books Rs.20,000/- per transaction. He submitted that the assessee’s books have not been faulted and the same have not been rejected. If the suppliers did not maintain books of account, the assessee could not be faulted for that and disallowance cannot be made in the hands of the assessee.
Addition has been made by holding that payment are made in violation of section 40A(3) of the Act without any defect pointed out in assessee’s books of accounts.
ITAT held that in this case disallowance u/s 40A(3) of the Act has not been found from the books of accounts of the assessee. Rather the plea is that the suppliers have not maintained proper books of accounts. Hence, it could not be co-related. We note that the disallowance u/s 40A(3) in this case has not been made on the basis of anything found from the assessee’s books. Rather this case has been made out that the suppliers did not maintain books of account and same could not be traced. We also rely upon the ITAT order in assessee’s own case for Assessment Year 2007-08 referred above. The suppliers are small type of butchers living in various locations and are illiterate as noted by the Tribunal. Instead of money receipts, assessee was using slip system, which in such areas is not uncommon. The recipients of such type of slips do not preserve such slips and this is not uncommon phenomenon. Therefore, in our considered opinion, the disallowance made u/s 40A(3) is not reasonable and hence, we set-aside the orders of the authorities below and deleted the addition.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of ld. CIT (Appeals), Meerut, dated 31.03.2016 and pertains to Assessment Year 2011-12.
2. The grounds of appeal reads as under:-
“1. The Ld. Commissioner of Income Tax (Appeals) has, on the facts and circumstances the case, misdirected sustenance of Addition of Rs.9,91,425/- u/s 40(A)(3).
2. The Ld. Commissioner of Income Tax (Appeals) has erred in enhancing the initial addition of Rs.1,63,55,491/-. Observations made, inference drawn and findings recorded for so doing are against the facts, arbitrary, illegal and at any rate highly excessive.”
2. It is noted that this appeal was earlier heard by ITAT and order was passed ex-parte vide order dated 17.10.2019. Subsequently, in MA No.41/Del/2020, vide order dated 05.03.2021, the same was recalled to enable the assessee an opportunity to argue the case. Subsequently to this recall, this appeal has been heard by us.
3. Brief facts of the case are that the assessee company is engaged in the business of processing and trading of buffalo meat. During the course of assessment, the Assessing Officer examined the sundry creditor. The Assessing Officer examined responses from the creditors. After examining the creditor’s response, the Assessing Officer was of the opinion that 20%of the total cash credit of Rs.2,18,28,275/- needs to be disallowed. However, the assessee submitted that all creditors are genuine. Considering the response of all the creditors and reply of the assessee, the Assessing Officer disallowed 20% of the cash credit appearing in the balance sheet. Thereafter, the Assessing Officer examined the purchase of raw material. On this issue, the Assessing Officer noted that as against total purchases of Rs.2,66,64,300/-, perusal of details of payment, it is seen that the assessee paid only Rs.48,35,025/- against the purchases made during the year. The Assessing Officer issued notice u/s 133(6) of the Act to the suppliers. One of the supplier, namely Mohd. Nasim Qureshi, denied to have any business with the assessee, the amount pertains to him i.e. Rs.9,91,425/- which is shown paid to him during the year under consideration. In response, the assessee has furnished a copy of account of the said person. However, the Assessing Officer was not convinced and he disallowed the payment of Rs.9,91,425/- considering as cash payment u/s 40A(3) of the Act.
4.1. Further, The Assessing Officer noted that the assessee company has purchased in cash and suppliers are not traceable. Hence, he proposed 10% of totally payment of Rs.1,63,55,491/- is disallowed on account of unverified payment. The assessee’s response was that all payments are below 20,000/-, however, the Assessing Officer was of the opinion this cannot be co-related as suppliers did not maintain any books of accounts. Hence, he disallowed 10% of the total purchase amounting to Rs.1,63,55,491/-.
5. Against this order, the assessee appealed before the Ld. CIT(A).
6. The Ld. CIT(A) has not only confirmed the addition but also enhanced the same. The Ld. CIT(A) was of the opinion on the issue of addition of Rs.16,35,549/- proposed to enhance the same on the ground that although the assessee has maintained own books of accounts however, these were not co-related with the books maintained by the suppliers as they did not maintain books of accounts. The Ld. CIT(A) proceeded to hold that there is no proof that entire payment of Rs.1,63,55,491/- in cash is not violation of provision of section 40A(3) of the Act. Accordingly, he enhanced the same by remaining Rs.1,47,19,942/-.
7. Against the above order, the assessee is in appeal before us.
8. We have heard both the parties and perused the records. The Ld. Counsel for the assessee pleaded that the disallowance is being made on the ground that the payments are being made in cash and higher than Rs.20,000/-. They are entered in the books Rs.20,000/- per transaction. He submitted that the assessee’s books have not been faulted and the same have not been rejected. If the suppliers did not maintain books of account, the assessee could not be faulted for that and disallowance cannot be made in the hands of the assessee. In this regard, the ld. counsel for the assessee submitted that in assessee’s own case for Assessment Year 2007-08, in ITA No.5626/Del/2010 vide order dated 22.07.2011, this ITAT has similarly deleted the addition u/s 41 of the Act by observing as under:-
“6. We have heard both the counsel and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) observed that assessee has filed confirmations and copies of accounts. He also found that these creditors were against purchase made by the assessee and accepted by the Assessing Officer. The Assessing Officer has made the addition without specifically bringing out how the credit balances of suppliers against purchases made from them could be deemed as remission or cessation of liability in terms of section 41 of the Act. The Ld. Commissioner of Income Tax (Appeals) has further noted that the persons involved are small time butchers who collected meat from various places and supplied in a very crude operation. They were mostly uneducated and illiterate. It was also stated before the Assessing Officer that they could be examined by sending Inspector at their given addresses for which assessee was prepared to bear the cost. But the Assessing Officer did not choose to do so. The Ld. Commissioner of Income Tax (Appeals) has further noted that books of accounts were accepted and so were the trading results which obviously included sundry creditors. The Assessing Officer in earlier years duly accepted the sundry creditors appearing in accounts. Many creditors in current year were also creditors in earlier years also. Thus, we find that the Ld. Commissioner of Income Tax (Appeals) has made a reasonable order which does not need any interference on our part. Accordingly, we uphold the same.”
9. The ld. counsel for the assessee submitted that in that case addition was made u/s 41(1) but the Tribunal found that it was not up to the mark and deleted the addition. For the present time, the addition has been made by holding that payment are made in violation of section 40A(3) of the Act without any defect pointed out in assessee’s books of accounts.
10. Per Contra, the Ld. DR relied upon the orders of the authorities below.
11. Upon careful consideration, we find ourselves in agreement with the submission of the ld. counsel for the assessee that disallowance u/s 40A(3) of the Act has not been found from the books of accounts of the assessee. Rather the plea is that the suppliers have not maintained proper books of accounts. Hence, it could not be co-related. We note that the disallowance u/s 40A(3) in this case has not been made on the basis of anything found from the assessee’s books. Rather this case has been made out that the suppliers did not maintain books of account and same could not be traced. We also rely upon the ITAT order in assessee’s own case for Assessment Year 2007-08 referred above. The suppliers are small type of butchers living in various locations and are illiterate as noted by the Tribunal. Instead of money receipts, assessee was using slip system, which in such areas is not uncommon. The recipients of such type of slips do not preserve such slips and this is not uncommon phenomenon. Therefore, in our considered opinion, the disallowance made u/s 40A(3) is not reasonable and hence, we set-aside the orders of the authorities below and deleted the addition.
12. In the result, this appeal of the assessee stands allowed.
Order pronounced in the open court on 24th March, 2023.
