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Case Law Details

Case Name : Shital Builders Vs ITO (ITAT Ahmedabad)
Appeal Number : ITA No. 1653/Ahd/2013
Date of Judgement/Order : 20/01/2023
Related Assessment Year : 2009-2010
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Shital Builders Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad held that all necessary details and evidences to establish genuineness of the unsecured loans duly furnished by the assessee, accordingly, addition towards the same unsustainable.

Facts- The assessee firm is engaged in the business of construction work as developer of buildings, commercial complex, residential complex, bungalows, road projects etc. During the year under consideration, the assessee had constructed a commercial complex “Shital Varsha-V” at Shivranjani Cross Road, Ahmedabad, and shown gross receipt of Rs.3.75 crores on which net profit declared, before remuneration to partners, was Rs.23,70,039/-. The total income returned to tax was Rs.9,18,841/-. During assessment proceedings several additions were made to the income of the assessee totaling in all to Rs.13,15,38,617/- which majorly included addition of Rs.11,86,87,480/- being current liabilities reflected in the books of the assessee, added for the reason that the genuineness of the credit balance remained unexplained. Minor additions made were on account of disallowance of building construction expenses & depreciation on motor cars amounting to Rs.59,10,574/-& Rs.14,79,549/- respectively.

The matter was carried in appeal before the ld.CIT(A) who deleted the entire addition made on account of unexplained credit balance of Rs.11.86 crores except for an amount of Rs.70,000/-.With respect to the disallowance made of building construction expenses the ld.CIT(A) deleted majority of the disallowance of Rs.50,46,501 and confirmed only the balance of Rs.8,64,073/-; so also, with respect to the disallowance of car depreciation the ld.CIT(A) deleted disallowance of Rs.8,63,961/- and upheld the balance of Rs.4,67,633/-. Aggrieved by this order of the ld.CIT(A) both the Revenue and the assessee have come up in appeal before the Tribunal.

Conclusion- We have noted that the ld.CIT(A) has deleted the addition with respect to the aforesaid unsecured loans finding that all necessary details and confirmation of the parties was filed by the assessee and nothing adverse was found by the AO. The ld.CIT(A) has also, we have noted, dealt with the remand report of the AO wherein he had noted no information, details or confirmations being filed with respect to the said parties, stating that the AO had incorrectly noted the said facts. The ld.DR was unable to controvert this factual finding of the ld.CIT(A) that the assessee had furnished all necessary details and evidences to establish genuineness of the unsecured loans relating to the aforesaid three parties with evidences. In view of the above, we see no reason to interfere in the well reasoned order of the ld.CIT(A), passed after appreciating all relevant facts relating to the issue. Ground no.2 raised by the Revenue is dismissed.

On going through the above, we find that the Ld.CIT(A) had confirmed the disallowance of depreciation on cars of Rs.4,67,633/-finding that the assessee was unable to establish with evidence that motor vehicle was wholly and exclusively usedforthe purpose of business of the assessee and also for the reason that the assessee had claimed depreciation at a higher rate of 50% on Toyota car which rate of depreciation is allowable only on commercial vehicles and the assessee unable to establish that the said vehicle was commercial vehicle. In view of the same we see no reason to interfere in the order of the Ld.CIT(A) upholding the disallowance of depreciation of Rs.4,67,633/- .The ground raised by the assessee in this regard is dismissed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The above cross appeals by the Revenue and the assessee are against order of the ld.Commissioner of Income Tax (Appeals)-XV, Ahmedabad [hereinafter referred to as “ld.CIT(A)”] dated 14.3.2013 Fpassed under section 250(6)of the Income Tax Act, 1961 [hereinafter referred to as “the Act” for short] pertaining to Asst.Year 2009-10.

2. Brief background relating to the present appeal is that the assessee firm is engaged in the business of construction work as developer of buildings, commercial complex, residential complex, bungalows, road projects etc. During the year under consideration, the assessee had constructed a commercial complex “Shital Varsha-V” at Shivranjani Cross Road, Ahmedabad, and shown gross receipt of Rs.3.75 crores on which net profit declared, before remuneration to partners,was Rs.23,70,039/- . The total income returned to tax was Rs.9,18,841/-. During assessment proceedings several additions were made to the income of the assessee totaling in all to Rs.13,15,38,617/- which majorly included addition of Rs.11,86,87,480/- being current liabilities reflected in the books of the assessee, added for the reason that the genuineness of the credit balance remained unexplained. Minor additions made were on account of disallowance of building construction expenses & depreciation on motor cars amounting toRs.59,10,574/-& Rs.14,79,549/- respectively. The matter was carried in appeal before the ld.CIT() who deleted the entire addition made on account of unexplained credit balance of Rs.11.86 crores except for an amount of Rs.70,000/-.With respect to the disallowance made of building construction expenses the ld.CIT(A) deleted majority of the disallowance of Rs.50,46,501 and confirmed only the balance of Rs.8,64,073/-; so also, with respect to the disallowance of car depreciation the ld.CIT(A) deleted disallowance of Rs.8,63,961/- and upheld the balance of Rs.4,67,633/-. Aggrieved by this order of the ld.CIT(A) both the Revenue and the assessee have come up in appeal before the Tribunal.

Since major grievance against order of the ld.CIT(A) is of the Revenue relating to the deletion of sundry credit balance of Rs.11,86,17,480/- it was agreed to first deal with the appeal of the Revenue.

ITA No.1853/Ahd/2013 :Asst.Year 2009-10 (Revenue’s appeal)

3. The ld.DR at the outset pointed out that the department had filed revised grounds of appeal on 2nd August, 2018 which be accordingly considered for the adjudication. The ld.AR fairly agreed with the same. Accordingly, revised grounds of the appeal are being dealt with by us, and the same are reproduced hereunder:

“1 (a) The Ld. CIT(A) has erred in law and on facts in deleting an amount of Rs.1,19,93,502/- ( being part of the total addition of Rs. 2,34,38,053/-made by A.O. as discussed in Annexure ‘A’ of CIT(A)’s order) ignoring the fact that the bills claimed to have been issued by different parties to the assessee concerning this amount were identical in pattern and had common handwriting and hence, were not reliable pieces of evidence for granting relief.

(b) The Ld. CIT(A) further erred in noticing the fact that the assessee at many instances had failed to furnish third party evidences before the AO even during the remand stage and had merely furnished the self serving copies of its ledger A/cs before the AO which were not acceptable pieces of evidences.

(c) The Ld. CIT(A) further erred in treating the bills pertaining to these ledger A/cs as genuine which were furnished only before him by the assessee after the remand stage and remained unverified by AO( instances summarized in Statement of Facts).

2 (a) The Ld. CIT( A) has erred in law and facts in deleting the additions of (i) Rs. 25,00,000 from Devendra C. Vaghela, (ii) Rs. 35,89,950/- from Leesa Security Pvt. Ltd, (iii) Rs. 55,00,000/- from Samir C. Nair made by A.O in respect of amounts claimed to have been received as unsecured loans without appreciating the fact that its genuineness could not be substantiated by the assessee.

(b) The Ld. CIT(A) has deleted these additions, forming part of Annexure ‘C’ of his order, despite the Assessing Officer’s stand in the remand report that no evidentiary documents like confirmations, PAN or addresses etc were furnished by the assessee in respect of these transactions, and even further, these were not squared-up in subsequent years nor these were found part of the opening balance.

3. The Ld. CIT(A) has erred in taking the opening balance at Rs.3,62,12,517/- in Annexure ‘C’ of his order, whereas on totaling, the actual opening balance comes to Rs. 3,10,87,717/- and thus granted excess relief amounting to Rs.51,25,800/-.

4. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax(Appeals)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer on above issues in accordance with above.”

4. The ld.DR pointed out that Ground No.1(a) to (c) related to same issue i.e. deletion of credit balance pertaining to sundry creditors amounting in all to Rs.1,19,93,502/-.

ld.DR first drew our attention to the facts of the case from the assessment order (para 3.2) wherein he pointed out that the AO had noted from Schedule-10 of Audit Report that the assessee had shown current liabilities as follows:

Sundry creditors                     Rs.2,32,06,459/-

Deposit of Shivranjani          Rs.9,16,81,021/-
Advance from Shivranjani   Rs. 38,00,000/-

Total                              Rs.11,86,87,480/-

In the absence of any details submitted by the assessee to establish genuineness of these creditors, the entire amount of Rs.11,86,87,480/- was added back to the income of the assessee. The ld.DR thereafter pointed out that during appellate proceedings before the ld.CIT(A) the assessee submitted additional evidence to prove genuineness of these credit balances, which was admitted by the ld.CIT(A) and thereafter sent to the AO for his report thereon. The AO duly filed his remand report, on which the comments of the assessee were called for and after considering all of the above, the ld.CIT(A) deleted the entire addition except for an amount of Rs.70,000/- relating to sundry creditors.

5. DR stated that in ground No.1 the Revenue has challenged deletion of addition of credit balances pertaining to the sundry creditors as reflected in its current liabilities as noted by the AO of Rs.2.32 crores. He clarified that during appellate proceedings, the ld.CIT(A) examined all the details and evidences filed by the assessee and gave a finding of fact that the total outstanding sundry creditors of the assessee amounted to Rs.2,34,35,970/- as at the end of the year i.e. on 31-3-2009, while in four cases on account of debit of Rs.2,29,512/- net sundry creditors were of Rs.2,32,06,458/-; that accordingly the assessee had submitted details with respect to the sundry credit balance of Rs.2.34 crores which were examined during the appellate proceedings. He further clarified that out of the total addition made by the AO on account of credit balance of sundry creditors of Rs.2,34,38,053/-,the Revenue was contesting only the deletion of addition to the extent of Rs.1,19,93,502/-.

6. Having stated so, the ld.DR took us to the finding of the ld.CIT(A) holding that the assessee had established genuineness of sundry creditors of Rs.2.34 crores at page no.40 in para-5.2.2(p) as under:

“(p) In conclusion, out of the total addition of Rs.11,86,87,480/- as per para 5.2.2(h) the outstanding creditors ofRs.2,34,38,053/- were held to be genuine creditor for which AO was not justified in making addition u/s.68 of the Act.”…

7. The ld.DR pointed out that his specific finding on the various creditors being found genuine at para 5.2.2 (g) & (h) are as under:

“(g) The appellant during the appeal proceedings with the prayer to admit additional evidences submitted a list of all sundry creditors showing Name of the party, op. balance, purchases during previous year, payments during previous year, other debits and final balances in respect of sundry creditors of Rs.2,32,06,458.55/- which was subjected to remand report. The remand report and rejoinder report are already discussed. The details / evidences with this list was already examined by A.O. during remand proceedings. The further details and evidences as submitted by appellant with rejoinder to remand report were examined by me along with the details & evidences filed earlier in this regard and this Ann. A is prepared on above discussed parameter. It is evident from the list submitted earlier by appellant with submission dt. 09/07/12 and subjected to remand report (page 18-19) that there are sundry creditors of Rs. 2,34,35,970.55/- as on 31/03/09 while in 4 cases on account of debit of Rs. 2.29.512/-, the net sundry creditor were of Rs. 2,32,06,458.55/-. It is in this regard the Ann. A reflect the total amount of sundry creditor at Rs. 2,34,38,053/-. From this analysis of Annexure-A following discrepancies were culled out:

(i) Sr.no. 2 Shri Anand V. Dave whose bill for consultancy (solicitor and advocate) dt. 1G/OG/08 for Rs. 3,82,024/- is credited and remained outstanding. No. T.D.S deducted from Rs.3,82,024/- hence as per provisions of section 40(a)(ia) of the Act same has to be disallowed. But, it was found that A.O. in the asstt. order separately dealt with this issue. Therefore, addition made by A.O. of this amountunder unexplained sundry creditor is the duplicacy i.e. double addition.

(ii) Sr no. 9 M/s Bahubali Enterprise, Sr. no. 40 M/s KrupaliEntp., Sr. no. 41 M/s Laxmi Traders and Sr. no. 49 M/s Maruti Traders having outstanding balance of Rs. 2,51,100/-, Rs.10,07,050/-, Rs. 13,91,142/- and Rs.8,06,225/- except having ledger account and contention with detail that such outstanding were paid to respective party by appellant through account payee cheques, there is no other details viz. address of the party, PAN, confirmation or copy of Invoices. In the case of-M/s Bahubali Entp. (page 36 of P.B. dt. 09/07/12) for the various purchases of sand in the month of Sept. 2008 aggregating Rs. 2,51,0007- was paid by appellant vide cheque from his account with Axis Bank No. 0032010200033105, Vastrapur Branch, Ahmedabad on 13/11/09. Similarly in the case of KrupaliEntP. (page 89 of P.B. dt. 09/07/12) for the purchases of greet, kapchi& Brick for the month of September 2008, the total outstanding of Rs. 10,07,050/- was paid by appellant through cheque on 16/11/2009 from Axis Bank. In the case of Laxmi Traders (page 90 of P.B. dt. 09/07/12) for various purchases in the month of September 2008 for steel, the outstanding balance of RS. 13,91,142/- was paid through cheque of Rs. 6,50,0007-dt. 28/05/09 and Rs.7,41,000/- dt. 02/06/09. In the case of Maruti Traders (page 105 of P.B. dt. 09/07/12) as against the purchase of cement during month of September 2008, the total outstanding balance of Rs. 8,06,225/- was paid by appellant vide cheque of Rs. 5,00,000/- dt. 28/05/09, Rs.2,59,000/- dt. 02/06/2009 and Rs. 47,225/- dt. 07/11/2009. Therefore considering these fact one cannot held them as unexplained current liabilities.

(h) In all the other parties, there are sufficient evidences for confirming the balances as on 31/03/09. In view of the above facts, the disallowance and addition made in respect of these sundry creditors of Rs. 2,34,38,053/- are not justified and not sustainable.”

8. The ld.DR thereafter stated that on the earlier date of hearing the Bench had directed the Revenue to file a chart summarizing party wise the facts/basis of the addition made by AO, deleted by Ld.CIT(A) and the arguments of the Revenue against the order of the Ld.CIT(A).He stated that in accordance with the said direction the arguments against the deletion of addition by the Ld.CIT(A) had been summarized in a chart giving details of the basis on which the AO in his remand report had found these sundry creditors to be not genuine, the basis on which the ld.CIT(A) had held them to be genuine and also detailing his arguments against the finding of the ld.CIT(A). Copy of the chart was filed before us and is reproduced as under:

Chart giving all relevant details in respect of each and every Creditors which is in dispute – M/s Shital Builders PAN ABGFS5271G – AY 2009-10

Assessee has submitted name, address and payment is made through bank. There is sufficient evidence for confirming the balance as on 31.03.2009 and disallowance and addition made in respect of creditor is not justified and not sustainable.

9. DR stated that he relied on the said chart for his arguments, which briefly put were to the effect that while the ld.CIT(A) had held all the sundry creditors to be genuine, finding that the assessee had submitted all details as to names, addresses of the creditors, their copies of bills and also the fact that the payment was made through bank, the ld.CIT(A) had conveniently ignored the fact that the AO had noted the bills raised by these parties to be fabricated, being drawn in identical pattern with common hand-writing and also that no third party evidence to prove genuineness of the balances was furnished by the assessee.

10. The ld.AR countered by making several arguments, viz.

i) On the challenge of the Department to the finding of the ld.CIT(A) that the credit balance of sundry creditors were genuine, the ld.counsel for the assessee contended that the finding of the ld.CIT(A) at para 5.2.2 (g)(h) were very specific, given after examining all the documents furnished by the assessee to the effect that all necessary details of the sundry creditors had been filed by the assessee giving their names, address and copies of bills, and also submitting the fact that the payment was made through banking channel. He contended that the Revenue had not controverted any of the above facts except for stating that bills appeared to be manipulated/fabricated. He contended that this alone was not sufficient to hold the balance to be ingenuine, more particularly, when the creditors were shown to have been paid through banking channels. He further drew our attention to PB Page No.180 which was a detailed submission by the assessee to the ld.CIT(A) in response to the discrepancies noticed by the AO in the submissions of the assessee wit respect to these creditors during the remand proceedings. The same are reproduced as under:

1: Discrepancies noticed in Sundry Creditors for Goods & Exp.:

Sr. No
Name of the Sundry Creditors for Goods & Exp.
Page no
Credit Balance as on 31.03.09 (Rs.)
Discrepancy noticed in the
Submission of the assessee.
Remarks
1
Aakash Enterprise
20
16750
No PAN, Not Confirmed by the creditor, enclosed erasure bill puts its genuineness in doubt.
Name & complete address & Phone No. aong with copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation of party isenclosed. PAN:ACE PS6290C.
2
Anand V.Dave
22
382024
Not Confirmed by the Creditor
Name & complete address & Phone No. aongwith copy of bill of the consultant submitted. PAN : AAOPD 7887 L also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
3
Aniruddh S. Save
24
216333
Not Confirmed by the Creditor
Copy of Bill of the supplier alongwith PAN : AJJPD 2855 N submitted. TDS deducted.
4
Ankit Traders
26
11564
Not Confirmed by the Creditor
Name & Address along with copy of PAN CARD of supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: AAFF A3859C.
5
Arth Communication
28
11948
Not Confirmed by the Creditor
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: AACP Z8943K
6
Art Lime Images P. Ltd
30
59247
Not Confirmed by the Creditor
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. PAN : AADCA 9653 P of supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
7
Ashok Thakkar & co
32
11236
PAN submitted is in the name of Individual
Auditors Remuneration. Address & PAN of proprietor Ashok Thakkar was submitted. PAN: ABA PT5307J.
8
Babulal R Patel Bricks
33
125600
PAN submitted is in the name of Charbhuja Bricks Mfg. Co
Name & complete address & Phone No. aongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
9
Bahubali Enterprise
36
251100
No Pan/ Address, no Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
10
Bapashree Elevators
37
4184000
No Pan not Confirmed by the assessee.
Name & complete address & Phone No. aongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: AJEP P9487H
11
Bharat R. Mer
39
662489
Not Confirmed by the Creditor
Name & complete address & Phone No. aongwith copy of bill of the supplier submitted. PAN: ATCPM 3885 A of the supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
12
Bharat Trading Co
41
1525570
No Pan not Confirmed by the Creditors.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE. PAN:ACAPS5023M
13
Dev Corporation
42
353650
No Pan not Confirmed submitted by the Creditors.
Name & complete address  of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: APIPP8571N.
14
Dhuliben Tanchodbhai
43
3203
No Pan/ Address, no Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
15
Dinesh Traders
45
7500
No PAN, Not Confirmed by the creditor.
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: ABTPV8242M.
16
Ganpat R Vatukia
47
434995
No PAN, Not Confirmed by the creditor.
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: AGQPV9254R.
17
Gayatri Corporation
49
12253
No PAN, Not Confirmed by the creditor.
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: AADFG5230F.
18
Govindbhai M.
Jograna
51
35903
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN:AKPPJ7831H.
19
Gujarat Steel & Pipes
53
366894
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN:AABFG7077N
20
Gulabsinh Amarsinh
55
92378
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: AXLPP1577F.
21
Hani Trading Corporation
57
425193
No PAN, Not Confirmed by the creditor.
Name & complete address  of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
22
H.K. Trading Corporation
58
29782
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: ATBPS8146B.
23
H.K. Trading Corporation
58
29782
No Confirmation given
EXPLANATION ALREADY GIVEN IN POINT NO.22 ABOVE.DUPLICAT E ENTRY
24
Innovative Infra P Ltd
60
645417
No Confirmation given
Name & complete address & Phone No. alongwith copy of bill of the supplier submitted. PAN: AABCI2364P. Confirmation of the supplier is enclosed.
`
25
Jainam Traders
63
76924
No PAN, Not Confirmed by the creditor.
Name & complete address of the supplier submitted Payment duly made by A/c Payee Cheques in subsequent years. Confirmation isenclosed.PAN:AAHHS3448D.
26
Jala Hardware & sanitary
64
1998
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: AAFPL1219H.
27
Jay Ambe Enterprise
66
13256
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
28
Jay Bhavani
Enterprise
68
486730
PAN Submitted is not in the name of creditors
Proprietary Firm, Pan Card copy submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
29
Jay Chamunda Transport
70
20400
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted.
30
Jay Corporation
72
314347
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
31
Jay Madi Trading Co
74
417199
PAN of Vasantbhai S Patel (AHWPP2907L)
Proprietary Concern, Pan Card copy submitted. Payment duly made by A/c Payee Cheques insubsequent years. Copy of A/c for payment verification is enclosed.PAN: AHWPP2907L.
32
Jayshree Rameshwar Bricks
76
38700
No Pan/ Address, &no Transaction during Confirmation submitted by the assessee.
Opening Balance. Confirmation is enclosed. PAN: AAMPP2527K.
33
Jay shreesadhi
Transport
77
1413
No Pan/ Address, &no Transaction during Confirmation submitted by the assessee.
Opening Balance. Confirmation is enclosed. PAN: AMKPP9781D.
34
Jignesh Construction Co
78
350
No Pan/ Address, &no Transaction during Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed.PAYMENT MADE.PAN: AAGFJ4082R.
35
Jignesh L Mer.
79
111849
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Confirmation is enclosed. PAN: ASQPM4830N.
36
KankubenRamjibhai
81
3080
No Pan/ Address, &no Transaction during Confirmation submitted by the assessee.
Staff Worker. Salary of March 09 pending. Payment duly made in subsequent years. Copy of A/c for payment verification is enclosed.
37
Kaileshben Ravjibhai
83
3432
No Pan/ Address no Confirmation submitted by the assessee.
Staff Worker. Salary of March 09 pending. Payment duly made in subsequent years. Copy of A/c for payment verification is enclosed.
38
K. K . Stones
85
9985
No PAN, Not Confirmed by the creditor.
Name & complete address  of the supplier submitted Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
39
K. K . Stones &
Builders
86
6554
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
40
KrupaliEnterpise
89
1007050
No Pan/ Address, &no Transaction during Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
41
Laxmi Traders
90
1391142
No Pan/ Address, &no Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
42
Laxmi Trident
91
123279
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification & contra confirmation is enclosed. PAN: AAEFL1373M.
43
Lobanbhai K Mavee( Bhagat)
93
129142
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: AWAPM3120D.
44
Mahavir Enterprise
95
47250
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification & contra confirmation is enclosed. PAN: AJYPM0162C.
45
Mahavir Sales Agency
97
1014031
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification & contra confirmation is enclosed. PAN: ACVPP7944H.
46
Maheshbhai H Solanki
99
40871
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. PAN:BSNPS3382P.
47
Manjibhai Mer
101
171489
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN:ASSPM1101G.
48
Maruti Stone Industries
103
35945
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
49
Maruti Traders
105
806225
No Pan/ Address, &no Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
50
Mukesh Trading Co
106
591600
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: ALVP P6526E.
51
Narayan Trading Co
110
1334595
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
52
Nishant B Acharya
112
72500
No Pan/ Address, &no Confirmation submitted by the assessee.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
53
Parth Enterprise
113
1544570
PAN of Baldevbhai M Patel (APHPP8800B)
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the proprietor also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN:APHPP8800B.
54
Prakash Corporation
115
1410243
PAN is not in the name of Prakash Corporation
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the proprietor also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: ADW PD9348K.
55
Radha Krishan
Traders
119
350
No PAN, Not Confirmed by the creditor.
Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAYMENT MADE
56
Riddhi Sales
Corporation
120
9425
No Pan/ Address, &no transaction during the year.
Opening Balance Confirmation is enclosed. PAN: AMKPP9771B.
57
SamjubenGandabhai
121
3203
No Pan/ Address, &no Confirmation submitted by the assessee.
Staff Worker. Salary of March 09 pending. Payment duly made by in subsequent years. Copy of A/c for payment verification is enclosed.
58
Sanjay L Gohil
123
815740
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. PAN: AKTPG3546J.
59
Sarvodaya Enterprise
125
2789
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.PAN:AARF S2707D.
60
Shalibhadra Traders
128
2925
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
61
Shantinath Transport
130
2925
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
62
Shivam Traders
132
74230
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted.
63
Shiv shakti Transport
134
8900
No Pan/ Address, &no Confirmation submitted by the assessee.
Opening Balance Confirmation is enclosed. PAN: AMKPP9770A
64
Shree Laxmi Sales Corporation
135
1060
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. payment verification is enclosed.
65
Shree Ramdev
Transport
138
72224
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Confirmation is enclosed. PAN: ABTPV8242M.
66
Shree Sahjanand Trading Corporation
141
15247
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
67
Shree Vallabh Traders
143
2170
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
68
S N Enterprise
145
444444
PAN submitted is not in the name of S N Enterprise.
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the proprietor also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: ACTPJ8197L.
69
Sugam Engineers
150
2025
No PAN, Not Confirmed by the creditor.
Name & complete address alongwith copy of bill of the supplier submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: ACVPS6056K.
70
Timber Point
152
140018
No Confirmation given
Name & complete address alongwith copy of bill of the supplier submitted. PAN of the supplier also submitted. Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed. PAN: AADFT5198L.
71
Yogini Trading Co
155
749200
No PAN, Not Confirmed by the creditor.
Name & complete
address  of the supplier submitted Payment duly made by A/c Payee Cheques in subsequent years. Copy of A/c for payment verification is enclosed.
Total
2,34,38,053

Referring to the above he pointed out that each and every discrepancy noticed by the AO had been explained as being of no relevance and taking note of which the Ld.CIT(A) had found and held the sundry creditors as been genuine.

ii) The next argument taken up by the ld.counsel for the assessee was that primary argument of the Revenue for challenging the findings of the ld.CIT(A) to the effect that the sundry creditors were genuine ,was that bills of purchases of these parties were bogus, which imply that the Revenue found the purchases made from these parties to be bogus. The ld.counsel for the assessee contended that in this background it was the purchases which needed to be disallowed and not balances of outstanding purchases relating to these parties. He further stated that outstanding balance in some cases related to opening balance also, and in which case no addition could have been made either on account of bogus purchases or even as unexplained credit under section 68 of the Act;

11. He pointed out that in various judicial decisions it has been held that credit balance pertaining to sundry creditors could not be added back under section 68 of the Act as unexplained credits. In this regard, he relied upon the decision of ITAT, Delhi Bench in the case of Ipsita Naik Vs. ITO, ITA No.678/del/2019 dated 21.1.2020.Copy of the decision was placed before us. He further relied upon various decision of Hon’ble High Courts, relied upon by the ITAT while rendering the said decision as under:

“18. We find the Hon’ble Delhi High Court in the case of CIT vs. Ritu Anurag Aggarwal (supra), while deciding an identical issue has dismissed the appeal filed by the Revenue as under:-

“1. The assessee filed his return for the Assessment Year 2001-02, declaring an income of Rs.4,10,544/-. This return was processed under Section 143(1)(a) and the case was selected for scrutiny thereafter. Notice under Section 143(2) was issued to the assessee. The Assessing Officer doubted the veracity and genuineness of sundry creditors of an amount of Rs. 1 lakh and above, as shown by the assessee in its books of accounts. He found that those parties/sundry creditors were neither the income tax assessee nor having PAN numbers. According to the Assessing Officer, the genuineness of the secured creditors was in doubt. The assessee also failed to produce the books of accounts, entries sales and purchase bills in support of his case. In these circumstances, the Assessing Officer disallowed the sundry creditors and added the amount in the income of the assessee under Section 68 of the Income Tax Act. The appeal filed by the assessee before the CIT(A) against the aforesaid order, was also dismissed. However, on further appeal before the ITAT, the assessee had succeeded, inasmuch as his appeal was allowed by the ITAT vide its order dated 13.04.2007. The order of ITAT has been challenged in this appeal. It would be worthwhile to mention that the aforesaid creditors shown in the books of accounts, are the sundry creditors, from whom as per the assessee, he had made purchases. They are thus the creditors. The Tribunal found that even if it is accepted that the books were rejected, significantly the Assessing Officer had not disallowed the purchases from those creditors nor the trading results have been disturbed. In this behalf, learned counsel for the assessee also drew our attention to the orders of the AO, as per which the assessee had shown the total turnover of Rs.1,03,44,054/-, on which gross profit rates declared was 68.94% as compared to sales of Rs.21,18,994/- in the previous year. The AO accepted the aforesaid figures and categorically observed as under:

“The GP rate as well as the sales has been substantially increased during the year in comparison to the last year. Sales trading results are not disturbed.”

3.This finding of AO remained undisturbed before the CIT(A) as well and has been accepted by the ITAT. Proceeding on this basis, the ITAT observed that the sales, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer.

4. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this aspect while making additions of the sundry creditors under Section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchases, no addition could be made under Section 68 inasmuch as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO.

5. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed.”

19. We find the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. Kulwinder Singh (supra), while holding that the provisions of section 68 are not attracted to the amounts representing purchases made on credit, has observed as under:-

“4. A perusal of the order passed by the Tribunal shows that the assessee had shown numerous sundry creditors along with details in his balance sheet. The assessee being a road Contractor received material for the construction of the road. The amounts in question represented purchases made on credits. According to Section 68 of the Act, where any sum is found credited in the books of account of an assessee maintained for any previous year and the asseessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It has been categorically recorded by the Tribunal that the provisions of Section 68 of the Act were clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier years i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted. The relevant findings recorded by the Tribunal in this regard read thus:-

“Having heard the rival contentions in the light of the material available on record, it is seen that in para-3 of the assessment order, the AO observed that the assessee had shown numerous sundry creditors along with details, as was available from the examination of the assessee’s books of account vis-à-vis his balance sheet. The assessee is a road contractor. He received material for the construction of the road. The amounts in question represented purchases made on credits. The provisions of Section 68 of the Act are clearly not attracted to amount representing purchases made on credits, as is also held in ‘CIT Vs. Pancham Dass Jain’, 205 CTR 444 (All). The assessee raised this issue by way of written submissions (APB 37 to 160, relevant portion at para-5, on page 43) dated 10.05.2014 filed before the CIT(A). The ld. CIT(A) has, however, not addressed this grievance at all and merely upheld the addition made under Section 68 of the Act. On behalf of the assessee, a comparative chart of net profit rate of the assessee for the assessment years has been filed before us. In the earlier years also, no such addition was made. For the assessment year 2007-08, under scrutiny assessment, the assessment was made at 8%. The position remained much the same for the assessment year 2008-09. The year under consideration is assessment year 2009-10. The material supplied to the assesseee by the concerned department is part of the assessee’s turnover. The net profit rate of the assessee for the year under consideration was in line with the preceding assessment year. Further, the trade creditors in the earlier years, i.e. assessment years 2007-08 and 2008-09 stand accepted in scrutiny assessments. Thus, the genuineness of the expenses under consideration cannot be doubted. Moreover, the genuineness of the expenditure was not at all called into question. It was only that no-verification thereof raised doubts of the incurrence thereof. Then, even if the credits concerning the purchases and transportation of the material are not to be accepted, as discussed, still, the provisions of Section 68 of the Act cannot be invoked to make the addition.”

20. We find the Hon’ble Allahabad High Court in the case of CIT vs. PanchamDass Jain (supra), while holding that the provisions of section 68 would not be attracted to purchases made on credit, has observed as under:-

“6. We have heard Shri Shambhoo Chopra, learned standing counsel for the Revenue.

7. He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of Section 68 of the Act was squarely attracted in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him Section 68 of the Act also covers up the case of purchases made on credit.

8. The submission is misconceived. 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 respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of Section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the basis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the Department, the question of addition of the aforesaid two amounts under Section 68 of the Act did not arise inasmuch as the provisions of Section 68 of the Act would not be attracted on the purchases made on credit.

9. We, accordingly, answer the question referred to us in affirmative, i.e., in favour of the assessee and against the Revenue. There will be no order as to costs.”

21. We find the Delhi Bench of the Tribunal in the case of ITO vs. Swati Housing & Construction (P) Ltd., while dealing with an identical issue, has observed as under:-

“15. Lastly in so far as addition on account of sundry creditors are concerned, Ld. DR submitted that all the sundry creditors remained unverified even in response to enquiries made by the AO u/s 133(6). AO at page 5 of the assessment order has clearly mentioned that assessee has not filed any supporting bills/ vouchers or books of accounts. Accordingly, he submitted that such an addition has to be made u/s 68 and in support he relied upon the following judgment of Hon’ble Karnataka High Court in the case of Rekha Krishna Raj Vs. ITO [2013] 215 Taxman 159/33 taxmann.com.

16. On the other hand, Ld. Counsel for the assessee submitted that assessee has filed copy of ledger account of the sundry creditors which gives the opening and closing balances as well as bill numbers, details of payment made and additions made during the year. Ld. AO without even verifying the books of accounts or the records as produced before him has made the entire addition u/s 68 when most of the amount were not credited during the year and they are coming from the earlier years. He thus strongly supported the order of the Ld. CIT (A).

17. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as material referred to before us. The entire basis for the additions made by the AO is that, none of the parties have responded to notices sent u/s 133(6) and beyond that he has neither examined the nature of sundry creditors or ledger account or the bills. First of all, from the perusal of the copy of the ledger account and the balance sheet, it is quite clear that during the year addition on account of sundry creditors are only Rs. 35,36,546/-; and if AO is invoking section 68, ostensibly, the entire addition of Rs. 2,22,59,664/- could not have been made u/s 68, because these are not credits in the books of account for the relevant previous year. Moreover, from the perusal of the ledger account of the sundry creditors it is seen that all these parties were having regular transactions from whom assessee has been making purchases and all the payments has been made though account payee cheques against specific bills and also mentions vouchers numbers. The bills of these parties contain the entire details of purchases made by the assessee. Once from all the partiesassessee was having regular business transaction and regular payment has been made from these parties, duly backed by bills and payment vouchers, then where is the question of disallowance. If the purchases made from these parties have been duly accounted for and are part of trading account and neither the debits side nor the credit side of the trading results have been disturbed nor books of accounts have been rejected, then no addition on account of sundry creditors can be made. Accordingly, the addition as confirmed by the Ld. CIT( A) is confirmed and additions stands deleted.”

12. To this, the ld.DR countered by saying that the AO had not invoked section 68 of the Act.

13. The ld.counsel for the assessee again countered by drawing our attention to page no.33 of the CIT(A)’s order wherein the ld.CIT(A) had dealt with the issue of application of provision of law under which the addition was made , pointing out that the AO has not specified the section under which he has made the addition whether as unexplained credits u/s 68 of the Act or u/s 41(1) of the Act as liability ceasing to exist. The relevant portion of the order is as under:

“….One cannot comprehend reasonably that such assessee can have bogus depositors and all sundry creditors as unexplained to such level of Rs. 11 cr. & more. In reference to current liability, I am inclined with the contention of appellant that A.O. when has no dispute about genuinity of purchase, sale, op. stock and cl. stock then without rejecting books of accounts, how all such liabilities can be held as unexplained. On the merit side also, the A.O. has not discussed even mentioned that if such liabilities are unexplained then under which provisions of Act this addition is made. Whether the same is under 68 of the Act since the addition of deposits are also aggregated with it or under section 41(1) of the Act contending these liabilities are now nonexistent.”

14. At this juncture noting the fact that the entire disallowance pertained to sundry creditors relating to the business of the assessee, certain financial facts pertaining to the issue were called for at Bar. It was asked as to what was the total purchase booked by the assessee in its P&L account during the year, and what was the quantum of disallowance made by the AO. To which the ld.counsel for the assessee drew our attention to PB filed by the department which contained tax audit report of the assessee disclosing all financial information. Referring to the same, he pointed out that while the assessee has booked total purchases of Rs.4.5 crores, the AO had disallowed Rs.2.34 crores out of the same i.e. approximately 50% of the purchases. Note was taken of the above.

15. We have heard contentions of both the parties, have gone through the order of the ld.CIT(A) and all other documents referred to before us, and also considered the case laws referred to before us. The Revenue in this ground has challenged deletion of addition of balances relating to sundry creditors, which the AO had made of Rs.2.34 crores, the ld.CIT(A) had deleted it entirely, but the Revenue has challenged the deletion of addition of only Rs.1.19 crores. This addition pertains to the balance outstanding as at the end of the year i.e. 31.3.2009 of sundry creditors.

16. We have gone through the relevant finding of the ld.CIT(A) to which our attention was drawn by both the parties at para 5.2.2. (g) & (h) deleting the entire disallowance. We have gone through the details furnished in tabular form by the assessee to the ld.CIT(A) establishing genuineness of these sundry creditors to counter the finding of the AO in remand , which was placed before us at PB Page Nos.180 to 190 reproduced above. We have also gone through the details submitted by the ld.DR before us in tabular form to challenge finding of the ld.CIT(A) deleting the disallowance made. A perusal ofall ofthe above reveals that the assessee had filed names, addresses and copies of the bills,and also established the fact of payments made to these parties through banking channels. The Revenue does not challenge the above except for the fact that the bills raised by these sundry creditors appear to be manipulated or bogus and the reason /basis for arriving at this finding by the AO is that the bills were found to be identical in pattern and in common hand writing. For this reason they were found by the AO to be not reliable piece of evidence for granting relief. Further, the Department’s plea is alsothat no third party evidence confirming the advance outstanding was filed by the assessee.

17. Admittedly all these sundry creditors pertain to purchases made by the assessee during the course of carrying on its business and that out of total purchase of Rs.4.58 crores accounted for by the assessee in its P& L account during the impugned year, the AO had disallowed an amount of Rs.2.34 crores i.e. approximately 50% of the purchases. Further, we also noted the fact that there is no analysis before us as to whether this outstanding balance of sundry creditors of Rs.1.19 crores pertained to purchases made during the year alone or reflected a part of the opening balance also.

18. Considering all of the above, we find that the AO had disallowed balance outstanding of the sundry creditors relating to the business of the assessee for the reason that their bills appeared to be bogus, and there was no confirmation of their outstanding balance. What it implies is two folds;

(i) n that the purchases booked by the assessee relating to these parties was bogus since the bills were found to be bogus and their outstanding balances were also not confirmed.

(ii) That considering that only addition of outstanding balances was made in the absence of balance confirmations:

  • it could either be a case of addition made u/s 41(1) of the Act on account of cessation of liabilities, or;
  • u/s 68 of the Act as unexplained credit balances.

The AO has not specified the provision of law under which the addition has been made as noted by the Ld.CIT(A) also at page 33 of his order reproduced above. But having said so we find that on any count the addition was not sustainable as rightly held by the Ld.CIT(A) also.

19. In the circumstance, if the purchases are found to be bogus, then it is the entire purchases made from these parties which are to be disallowed and not only the balance outstanding as at the end of the year. Disallowing only the balance outstanding tantamounts to accepting the purchases made from these parties balances of which are not outstanding since payments pertaining to them have been made by the assessee. Meaning thereby that by disallowing only balance outstanding of these parties as at the end of the year, the Revenue has both accepted purchases as genuine with respect to balance that are not outstanding, while at the same time holding them to be ingenuine or bogus in relation to purchases whose balances are outstanding at that end of the year. The department has therefore taken a contradictory stand on the issue by disallowing only outstanding balances of sundry creditors finding them to be bogus.

Treating the purchases as bogus, even otherwise can attract disallowance only of purchases made during the year. If the outstanding balances contain the balance relating to the preceding year, the addition of these opening balance cannot be made by treating the purchases of the current year to be bogus. The disallowance pertaining to opening outstanding balances can be made only in the year in which the purchases relating to them are booked by the assessee;

20. On the invocation of section 68 of the Act for unexplained credit balances deemed to be income of the assessee, addition on this account in any case could have been made only of balances pertaining to the impugned year.

21. Invocation of section 41(1) of the Act for cessation of liability could not have been possibly done on balances pertaining to the impugned year considering the very short period of the liability for treating it as ceasing to exist. The AO has neither specified the section being invoked for making the disallowance nor isthere any analysis of the outstanding balances as relating to the current year and the preceding years.

Therefore the addition is held not sustainable on these counts also.

22. Moreover we agree with the ld.CIT(A) that the assessee had discharged its onus of establishing genuineness of these sundry creditors having furnished all details relating to the sundry creditors and also establishing the fact that the payment to all of them was made through banking channel,which fact hasnot been controverted by the Revenue. The Revenue’s case for holding them as non-genuine rests only on account of bills of these parties appearing to be manipulated. No exercise however has been carried out by the Revenue to confirm this aspect from an expert. Therefore, on merit also considering specific finding of theld.CIT(A) regarding assessee’s discharging its onus of establishing genuineness of these sundry creditors by furnishing relevant documents being undisturbed, we see no reason to interfere in the order of the ld.CIT(A) holding sundry creditors to be genuine.

23. We may conclude by adding that even otherwise from the facts as noted by us, the Revenue has attempted to hold approximately 50% of the purchases made by the assessee as bogus, resulting in GP increasing by 50%, which is highly improbable figure in any line of business.

Therefore, on all the above counts, we hold that the ld.CIT(A) is justified in treating the sundry creditors to the extent of Rs.1.19 crores as genuine. Ground No.1(a) to (c) raised by the Revenue are accordingly dismissed.

24. Taking up, Ground no.2, the ld.DR contended that the same related to the deletion of addition pertaining to unsecured loans of third parties as noted in the grounds raised above viz. (i) Devendra C. Vaghela Rs.25,00,000/-; (ii) Leesa Security P.Ltd. Rs.35,89,950/-; and (iii) Samir C. Nair Rs.55,00,000/-.

25. The ld.DR contended that these amounts were disallowed by the ld.AO in the consolidated disallowance of the credit balance of Rs.11.86 crores as pointed out in the earlier part of our order, for want of establishment of genuineness of the same by the assessee. The ld.DR thereafter took us to Annexure-‘C’ of the ld.CIT(A)’s order wherein he had tabulated a summary of details submitted by the assessee of booking advance received and had dealt with the above three parties as under:

Sr. No.
Name of the person whom has given booking advance
Page No.
Credit Balance as on 31.3.09 (Rs.)
PAN
Name & address submitted
Amt.      of New Deposit received during the       FY 2008-09
Whether confirmation of party
submitted
Whether amount     of deposit repaid or
squared up by sale  of property   in the subsequent year
Remarks
9
DevensinhC Vaghela
177
2500000
ADNPV3956A
Yes
2500000
Yes
28
Leesa Security P Ltd.
231
3839950
AABCL4624R
Yes
3839950
Yes
36
Samir Chandra
Nair
267
5500000
ABAPN3285F
Yes
5500000
Yes

26. Referring to the same, he pointed out that theld.CIT(A) deleted the disallowance noting that name, address, PAN and confirmation of the parties was submitted by the assessee. The ld.DR contended that the finding of the ld.CIT(A) was contrary to what the AO had noted in the assessment proceedings with respect to the said parties stating clearly that no PAN or address or no confirmation with respect to these parties had been submitted by the assessee. He drew our attention to the page no.18 and 20 of the CIT(A) order containing the report of the AO in remand proceedings with respect to the said parties at point no.76, 87 and 26 as under:

Sr.
No.
Name  of   the creditor/ depositor Page No. Credit Balance as on 31.3.2009 (Rs.) Discrepancy noticed in  the submission of
the assessee
76 Devensinh C.

Vaghela

177 250000 No PAN/Address no confirmation submitted by
the assessee
87 Samirchandra Nair 267 5500000 No PAN/Address no confirmation submitted by
the assessee
26 Leesa Security P.Ltd. 231 25000 No confirmation given

27. The ld.counsel for the assessee countered by stating that the ld.CIT(A) had dealt with the finding of the AO in his remand report and had found them to be contrary to the facts on record, and after taking note of all the evidences filed by the assessee tabulated in Annexure-‘C’ of his order, the ld.CIT(A) had deleted the addition. He drew our attention to para 36(i) of the CIT(A)’s order finding the above facts and deleting the addition made on account of above three unsecured loans on the basis of the facts as noted and tabulated by him in Annexure-‘C’ as under:

“(j) Now in respect of 44 parties related to unsecured loan / advances for booking deposit etc. for which A.D. in the remand report made adverse remarks, it was found that in majority of cases the A.O. has not appreciated the details so furnished by appellant vide submission dt 09/07/12. In some cases PAN is there but it is taken as no PAN, in most of the cases opening balance is there but the same is ignored, in other cases details are submitted about subsequent transaction of funds received and sale of property but that is also ignored by A.O.. In three cases, appellant submitted contra account & confirmation with rejoinder to remand report considering all these details & report, a chart is prepared of all such parties on following parameters:

(i) Name of the party who has given booking advance

(ii) Page no. from the details in paper book dt. 09/07/12

(iii) Credit balance as on 31/03/09

(iv) PAN

(v) Name & address of the party

(vi) Amount of new deposit accepted during previous year

(vii) Whether confirmation submitted

(viii) Whether the amount squared up as repaid or sale of property in subsequent year.

(ix) Remarks particularly if opening balance is there.”

28.  We have heard the rival contentions and gone through the relevant portion of order of the CIT(A) to which our attention was drawn to by both the parties and also the documents pointed out to us. We have noted that the ld.CIT(A) has deleted the addition with respect to the aforesaid unsecured loans finding that all necessary details and confirmation of the parties was filed by the assessee and nothing adverse was found by the AO. The ld.CIT(A) has also, we have noted, dealt with the remand report of the AO wherein he had noted no information, details or confirmations being filed with respect to the said parties, stating that the AO had incorrectly noted the said facts. The ld.DR was unable to controvert this factual finding of the ld.CIT(A) that the assessee had furnished all necessary details and evidences to establish genuineness of the unsecured loans relating to the aforesaid three parties with evidences. In view of the above, we see no reason to interfere in the well reasoned order of the ld.CIT(A), passed after appreciating all relevant facts relating to the issue. Ground no.2 raised by the Revenue is dismissed.

29. Ground No.3 raised by the Revenue, it was pointed out, relates to discrepancy in totaling of opening balance noted by theld.CIT(A) in Annexure-C of loans and advances. It was pointed out that while dealing with the issue of addition made on account of unsecured loans, the ld.CIT(A) had tabulated all information in Annexure-C relating to various parties, and had held that with respect to the opening balance of the said parties, no addition in any case could be made under section 68 in the impugned year, and had accordingly deleted the addition on account of the same. In the present ground, the plea of the Revenue is that there is a calculation error with respect to the opening balance made by the ld.CIT(A).That while opening balances were to the tune of Rs.3.10 crores, the ld.CIT(A) noted the same at Rs.3.60 crores, therefore giving excess relief of Rs.51.31 lakhs. Both the parties agreed that the issue may be restored back to the AO to verify the facts, and thereafter allow relief to the extent of correct opening balance. In view of the above, this issue is restored back to the AO with the direction to verify the total of the opening balance of the Annexure-C and grant relief to the assessee to the extent of the same only. Ground No.3 is allowed in above terms.

30. In the result, the appeal of the Revenue is partlyallowed for statistical purposes.

31. Taking up the appeal of the assessee in ITA No.1653/Ahd/2013, the grounds raised are as under:

“1.1 The order passed u/s.250 on 14-3-2013 for A.Y.2009-10 by CIT(A)-XV, Abad upholding partly the additions/disallowances made by AO is wholly illegal, unlawful and against the principles of natural justice.

1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions.

2.1 The Ld.CIT(A) has grievously erred in law and on facts in confirming the following additions/disallowances:

(a) Out of sundry deposits (Para- 5.2. l(p) Rs. 70,000

(b) Out of building Construction exp. [Para-5.2.3(vi) Rs. 8,64,073

(c) Out of Motor car depreciation [Para-5.2.4] Rs.4,67,633

2.1 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the above said additions/disallowances. The

3.1 Ld. CIT(A) has erred in upholding that the Toyoto Motor car was not a commercial vehicle within the meaning of Rule-5 r.w. Appendix-1 so that higher depreciation was not admissible.

3.2 That in the facts and circumstances of the case the CIT(A) ought to have held that Toyoto Motor car a commercial vehicle and higher depreciation was admissible on it.”

32. As is evident from the grounds, the assessee has challenged the confirmation of addition with respect to the sundry creditors, expenses for building construction and motor car depreciation.

33. The findings of the ld.CIT(A) at para 5.2.1 (p) of his order upholding the addition on account of sundry creditors of Rs.70,000/- is as under:

“(p) In conclusion, out of the total addition of Rs.11,86,87,480/- as per para 5.2.2(h) the outstanding creditors of Rs. 2,34,38,053/- were held to be genuine creditor for which A.O. was not justified in making addition u/s 68 of the Act. ln respect of 26 parties from unsecured loan outstanding amounting to Rs. 2,87,45,854/-, the A.O. has no adverse comment in remand report and as per para 5.2.2(1) the same were held as genuine and explained deposit. In respect of 44 parties with total unsecured loan 7 advances 7 deposit of Rs. 6,29,34,4677-, ten parties having outstanding opening balance of Rs. 74,27,1317- were found to be having no details but as per para 5.2.2 (k) the A.O. has to initiate proper proceedings in the year when such loan/deposit were accepted and addition u/s 68 for the previous year was found not justified. Out of the balance, it is only deposit of Rs. 70,000/-(para 5.2.2(1)) which was found to be justifiable for addition u/s 68 of the Act. As per para 5.2.2(m) the balance advances of Rs. 38,00,000/-were found to be genuine and explained. Therefore, out of Rs.11,86,87,480/- only Rs. 70,000/- is upheld and confirmed and balance of Rs. 11,86,17,480/- (11,86,87,480 – 70,000) is directed.”

Para 5.2.2(l) dealing with unsecured loans of Rs.70,000/-disallowed is as under:

“(I) Out of the balance 34 cases, it is only in the case of Shri Amarsinhbhai D. for an amount of Rs. 70,000/- which was accepted by appellant during previous year and for which no details like address, PAN, confirmation was submitted. It is therefore, the addition u/s 68 of the Act for this amount is confirmed and upheld. In respect of balance 33 cases, the appellant by filling PAN, Name, addresses, and confirmation/or details of sale of shop for opening balance discharged its onus u/s 68 of the Act hence additions u/s 68 of the Act are neither justified nor sustainable hence directed to be deleted.”

34. The ld.counsel for the assessee vehemently argued that the addition upheld was un-justified. The ld.DR on the other hand supported order of the ld.CIT(A).

35. We have gone through order of the ld.CIT(A) and we have noted that the ld.CIT(A) confirmed the addition of Rs.70,000/- being unsecured loans/advances for booking deposits from one Shri Amarsinh amounting to R.70,000/- noting that no details like address, PAN, confirmation was submitted by the assessee. This finding of the fact has remained uncontroverted before us. In view of the same, it is evident that the assessee has been unable to discharge its onus under section 68 of the Act with respect to the amount of advance of Rs.70,000/- received from Amarsinhbhai. The order of the ld.CIT(A), therefore, upholding the addition of Rs.70,000/- is,we hold,justified calling for no interference. The ground raised by the assessee in this regard is dismissed.

36.  With respect to the disallowance of building construction expenses of Rs.8,64,073/- confirmed by the ld.CIT(A), the same has been adjudicated at para 5.2.3(i) to (vi) of the order as under:

“(i)  Shri JigneshbhaiLaljibhai Mer

As per appellant’s submission dated 09.07.2012, at page 295 of the Paper book the appellant submitted a running bill No.3 dated 09.06.2008 for an amount of Rs. 1,42,385.35. It was contended by appellant that detail is available in sundry creditors confirmation. At page 79 of the paper book ledger account of this party reflect the amount credited of Rs. 1,47,852 on 09.06.2008 and deduction of IDS on labour at Rs.3404 on 16.11.2008 being debited. But, no corresponding bill for this expenditure is there. Further, in rejoinder to remand report vide ‘SC-42’ a contra account with confirmation from the party with PAN ASQPM 4830 N was submitted for the period 10.05.2008 to 01.08.2010 where this entry of Rs.1,47,852 and IDS entry of Rs.3404 is mentioned. I am not inclined with these evidences for allowability of difference in bill of Rs.5467 (147852 -142385). As per settled legal proposition, any expenditure or part thereof as claimed by appellant u/s.37(1) of the Act has to be duly supported by bills or vouchers to reflect that the same is business expenditure and wholly and exclusively incurred by appellant for business. By deducting IDS out of it and by producing confirmation from the party does not absolve the appellant from the onus to furnish / submit necessary bills related to such expenditure. Therefore the difference of expenditure of Rs.5,467 is upheld and confirmed.

(ii) Shri RameshbhaiRamsinghNinama

The appellant neither with details dated 09.07.2012 nor in the rejoinder to remand report furnished any details viz. bill, ledger account, confirmation etc. It is therefore, as per reasoning given above at (i), the disallowance of Rs.56,513 and addition thereof is upheld and confirmed.

(iii) Shri Maheshbhai Himmatbhai Solanki

The appellant vide detail dated 09.07.2012 at page No.99 submitted a ledger account copy of the party showing this amount of Rs.78,000 as credited on 16.7.2008 but no bills / vouchers was furnished.

In the rejoinder to remand report at ‘SC-55’ the appellant submitted contra account and confirmation from the party for the ledger account for the period 11.07.2008 to 17.06.2008 where the entry dated 16.7.2008 of Rs.78,000 and corresponding entry of IDS dated 16.11.2008 is mentioned. The party’s PAN is BSNPS3382P. However, as discussed above at (i), such confirmation may discharge onus for identity and sundry credit balance but does not discharge the onus of allowability of expenditure u/s.37(i) of the Act being expenditure is incurred wholly and exclusively for the purpose of business. It is therefore the disallowances and addition so made is upheld and confirmed.

(iv) Shri Anirudh Subodhbhai Dave

The appellant vide detail dated 9.7.2012 at page 24 submitted the copy of ledger account showing this amount of Rs.2,04,593 dated 26.7.2008 credited in the account and debit of corresponding TDS of Rs.4715 on 16.11.2008. The appellant vide rejoinder to remand report at ‘SC-31 submitted a ledger account for the period 26.7.2008 to 26.6.2009 showing these entries with PAN of the party as AJJPD2855N. But as discussed above at (i) & (iii) such ledger account with PAN are not sufficient to discharge the onus u/s.37(1) of the Act. The disallowance and addition so made of Rs.2,04,593 are therefore upheld and confirmed.

Shri M/s.Jignesh Construction Co.

The appellant vide detail dated 09.07.2012 at page 78 submitted a ledger copy of the party showing entry of credit on 29.9.2008 and corresponding TDS deduction of Rs.10,150 dated 31.3.2009. In the rejoinder to remand report ‘SC -41’ the appellant submitted contra account and confirmation from the party for the ledger account for the period 19.09.2008 to 01.04.2011 with PAN AAGFJ 4082 R. But, as discussed at (i) & (iii) above, such ledger account and confirmation does not discharge the appellant from the onus as casted u/s.37(1) of the Act. It is therefore, the disallowance and addition so made of Rs.5,10,500 is upheld and confirmed.

(vi) In respect of balance parties the appellant vide page No.289 to 307 submitted copies of bills with name and address of labour parties. In some of the cases PAN is also provided on the bills itself which in most of the cases being same party for multiple expenditure (Page 289) the PAN, confirmation is available in the details of sundry creditors. It is therefore, the addition and disallowances for those expenditure as made by A.O. is neither justified nor sustainable. In conclusion the additions of Rs.8,64,073 (5467 +65513 + 78000 + 204593 + 51050) are upheld and confirmed as discussed above. The A.O. is directed to delete the balance disallowance and addition of Rs.50,46,501 (5910574 – 864073). The appellant gets part relief.”

37. We have gone through order of the Ld.CIT(A) and have noted that the disallowance was upheld by him in the absence of any substantiation of the same by the assessee with necessary evidences.

The ld.counsel for the assessee was unable to controvert the factual finding of the ld.CIT(A), though he vehemently argued before us that the expenses were genuine. In view of the same, we see no reason to interfere in the order of the Ld.CIT(A) upholding the disallowance of building construction expenses amounting to Rs.8,64,073/-. This ground of appeal of the assessee is dismissed.

38. With to disallowance of motor car depreciation confirmed by the ld.CIT(A) to the extent of Rs.4,67,633/-, the ld.CIT(A) has dealt with the same at para 5.2.4(e) of his order as under:

“(e) I am inclined with the contention of the appellant that in view of tax audit report and the details in the form of ledger account reflecting the source of purchase of vehicles, the presumption of A.O. that there may be double or multiple claim of depreciation on such vehicle are misfounded and illogical. As discussed in earlier para, some of the group concern are assessed with the same A.O. and he could have verified this aspect. Otherwise also, in the absence of details of source he should have disallowed the complete claim of depreciation rather 90%. It is therefore, the A.O. in an arbitrary manner and on the basis of presumption and assumption made such disallowances mainly on the issue that appellant failed to establish the usage of such vehicles wholly and exclusively for the purpose of business. As per settled legal proposition, the partner’s name are used for the Registration of vehicles and A.O. should have verified from the ledger account that source of funds for the vehicles is from the books of accounts of appellant. It is therefore not only source but dominion control /deemed ownership of said vehicles are with appellant firm. The A.O. utilized the detail of depreciation claim from schedule 4 of the Tax Audit Report but failed to look into Schedule 2 of the same report where under the head ‘secured loan’ details of loan taken for the purchase of various vehicles is given as follows:

i) Altis car, HDFC bank loan A/c.14193 Rs.987258

ii) HDFC bank, used car loan Honda Civil Rs.265435

iii) Honda City GLX car loan-HDFC. Bank Rs. 27975

made by A.O. are improper, without appreciating facts and not justified since based on assumptions and arbitrary figures of 90%. However, I am not inclined with the contention of the appellant that in the absence of any evidence to substantiate that these vehicles were wholly and exclusively used for the purpose of business, the depreciation so claimed be allowed in full on account of nature and volume of appellant’s business and tax audit report. As per settled legal proposition the onus is on assessee to establish with evidences for the claim of depreciation that such assets were wholly and exclusively used for the purpose of business or partly used for the business. Reference is invited to Hon’ble Madras High Court decision in the case of New Ambadi Estate Pvt.Ltd. v. State of Tamil nadu (2002) 256 ITR 0064. It is therefore a reasonable disallowance out of such depreciation is justified. Further, in the case of Toyota Altis car’ the appellant claimed depreciation of Rs.3,28,500 being 50% of eligible claim being the vehicle was acquired after 30.09.2009 i.e. owned and used for less than 180 days. But, the rate of depreciation adopted is 50% at the place of 15% resulting into excess claim of Rs.2,29,950.(3,28,500 – 7.5% of 13,14,000).The appellant has not submitted any explanation about adoption of such higher rate of depreciation of 50% which is as per I.T.Rule is permissible for only “New commercial Vehicle which is acquired on or after 01.01.2009 but before 01.10.2009 and it is put to use before 01.10.2009 for the purpose of business and profession” (Refer Rule 5 of the I.T.Rule 1962 and Appendix I where under the head ‘III Machinery and Plant at clause 3 (via) such rate is provided). The purchased vehicle is not a commercial vehicle because the appellant’s business is of construction and development. Further as per I.T.Rule 1962 Notes attached to Ann.I for rates at Sr.No.6 the ‘commercial vehicle’ means ‘Light Motor vehicle’ shall have the meaning assigned to them in section 2 of the Motor Vehicle Act 1988 (59 of 1988). As per Motor Vehicle Act 1988 clause (21) the “Light Motor Vehicle means a transport vehicle or Omni bus the gross vehicle F weight of either of which or a motor car or tractor or road roller the unladen weight of any of which, does not exceed 7500 kg.” The Toyota Altis car’ is not transport vehicle ajid appellant failed to submit any detail in this regard. It is therefore, the excess claim of depreciation of Rs.2,29,950 is otherwise disallowable being excess claim of appellant. Now after exclusion of this out of the balance claim of depreciation of Rs.11,88,417 (1418367 -229950), 20% can be taken as reasonable disallowance considering that as against two vehicles last year, the appellant now have six vehicles and five out of them were purchased during previous year. Considering the fact that appellant failed to substantiate the use of vehicle wholly and exclusively for the purpose of business, this disallowance of 20% will meet both the hand a justice and according to the provisions of section 38(2) of the Act. The disallowance therefore worked out to Rs.2,37,683 (20% of 1188417). It is therefore the total disallowance out of depreciation so claimed on vehicles (motor cars) is Rs.467633(229950 + 237687). The disallowance and addition to this extent of Rs.467633 is therefore upheld and confirmed. The A.O. is directed to delete the balance of Rs.863961 (1331594-467633). The appellant gets part relief.”

39. On going through the above, we find that the Ld.CIT(A) had confirmed the disallowance of depreciation on cars of Rs.4,67,633/-finding that the assessee was unable to establish with evidence that motor vehicle was wholly and exclusively used for the purpose of business of the assessee and also for the reason that the assessee had claimed depreciation at a higher rate of 50% on Toyota car which rate of depreciation is allowable only on commercial vehicles and the assessee unable to establish that the said vehicle was commercial vehicle.

The ld.AR was unable to controvert the factual finding of the ld.CIT(A) .

40. In view of the same we see no reason to interfere in the order of the Ld.CIT(A) upholding the disallowance of depreciation of Rs.4,67,633/- .The ground raised by the assessee in this regard is dismissed.

In effect the appeal of the assessee is dismissed.

41. In the result, the appeal of the Revenue is partly allowed for statistical purposes; and appeal of the assessee is dismissed.

Order pronounced in the Court on 20th January, 2023 at Ahmedabad.

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