Aahar Products Pvt.Ltd.,, Ahmedabad vs Assessee

आयकर अपील सं./I.T.A. No.1350/Ahd/2012 ( Ǔनधा[रण वष[ / Assessment Year : 2008-09) The DCIT बनाम/ M/s.Aahar Products Pvt.Ltd. Circle-1 Vs. (Now known as Anil Ahmedabad Nutrients Ltd.) 301, Aniket Building CG Road, Navrangpura Ahmedabad-380 009 èथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAGCS 5565 F (अपीलाथȸ /Appellant) .. (Ĥ×यथȸ / Respondent) And CO No.198/Ahd/2012 for AY 2008-09 (In ITA No.1350/Ahd/2012 for AY 2008-09)

M/s.Aahar Products Pvt.Ltd. vs. The DCIT Ahmedabad Ahmedabad (Cross Objector .... (Respondent) Revenue by : Shri Subhash Bains, CIT-DR Assessee by : Shri S.N. Soparkar, AR

ु वाई कȧ तारȣख / सन Date of Hearing 06/01/2015 घोषणा कȧ तारȣख /Date of Pronounce ment 23/01/2015 आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Revenue and the Cross-Objection by the assessee are directed against the order of the Commissioner of Income- Tax (Appeals)-6, Ahmedabad ('CIT(A)' in short) dated 18/04/2012 passed for Asst.Year 2008-09. Both the appeal and the cross objection ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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are taken up together and are being disposed of by this consolidated order for the sake of convenience.

2. First, we take up the appeal filed by the Revenue, i.e. ITA No.1350/Ahd/2012 for AY 2008-09. The Revenue has raised the following grounds of appeal:-

1. The ld.CIT(A) erred in law and on facts in admitting the additional evidence produced by the assessee at appellate stage, while the assessee has not complied to any of the notices during the assessment let alone production of specific information asked for.

2. The ld.CIT(A) erred in law and on facts in accepting the reasons given by the assessee for not filing the information before the A.O., without verifying the veracity of the reason given. If the accountant has resigned from the company, the same cannot prevent the Director of the CA from attending the regular notices of hearing and filing of information.

3. The ld.CIT(A) erred in law and on facts in not taking note of the design of the assessee in not attending before the A.O., but filing some information before the ld.CIT(A). This action of the assessee prevented the A.O. from detailed investigation during the scrutiny.

4. The ld.CIT(A) erred in law and on facts in deleting the addition of Rs.39,43,083/- being unsecured loans, accepting the unverified confirmations filed before him.

5. The ld.CIT(A) erred in law and on facts in deleting the addition of Rs.4,10,72,257/- being the bogus sundry creditors after accepting the unverified confirmations filed before him.

6. The ld.CIT(A) erred in law and on facts in reducing the estimation made, after upholding the rejection of books by the A.O. ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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On the fact and in the circumstances of the case and in law, the ld.CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit.

The appellant prays that the order of ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.

2.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.144 of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 14/12/2010, thereby the Assessing Officer (AO in short) made addition of Rs.39,43,083/- on account of unsecured loans by invoking the provisions of section 68 of the Act. The AO also made an addition of Rs.4,10,72,257/- on account of sundry creditors by invoking the provisions of section 68 of the Act. Further, the AO rejected the books of accounts of the assessee and computed the profit @2.74% as against the gross loss of (-)7.24%, thereby making an addition of Rs.4,30,19,408/-. Against this, the assessee filed an appeal before the ld.CIT(A) and ld.CIT(A) partly allowed the appeal. While partly allowing the appeal, the ld.CIT(A) deleted the addition made on account of unsecured loan, sundry creditors and directed the AO to restrict the addition by working out the gross profit on the basis of the average gross profit of the Annam Feeds Ltd., Kapila Krishi Udyog Ltd. and Shalimar Pellet Feeds Ltd.

ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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3. Ground Nos.1, 2 & 3 of Revenue's appeal are against in allowing the assessee to file the additional evidences. The ld.CIT-DR submitted that the ld.CIT(A) was not justified in considering the additional evidences. He submitted that the assessee was given sufficient opportunity by the AO to produce the relevant evidences during the assessment proceedings. He submitted that the explanation given by the assessee before the ld.CIT(A) that the Accountant of the assessee- company resigned, cannot be treated as sufficient cause for allowing the assessee to file the additional evidences.

3.1. On the contrary, the ld.Sr.Counsel for the assessee Shri S.N. Soparkar supported the order of the ld.CIT(A). He submitted that the AO failed to take note of the fact that during that period, the staff of the appellant-company was busy in preparation of Annual Report & Tax Audit Report and return of income. He submitted that in the month of August-2010, Deputy Manager of appellant-company had resigned from the services of the company. Therefore, the assessee was prevented by sufficient cause for not filing the details before the AO. He submitted that even otherwise also, in the interest of natural justice, the AO ought to have given opportunity to the assessee for filing the requisite details. He submitted that there is no illegality into the order of ld.CIT(A) for admitting additional evidence as a remand report sought from AO.

ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has considered the submissions of the assessee and after considering the submissions of the assessee, he has given a finding that the reason for not submitting the additional evidences during the course of assessment proceedings was that the appellant-company's Accountants resigned from the service disrupting the work of submitting details to the AO apart from serious illness of family head of directors engaging key management people away from day-to-day work. He died on 26/12/2010. The appellant submitted necessary evidences in support of these claims. Additional evidences received from the appellant were forwarded to AO for comment on admission thereof and submission of remand report. After considering the remand report and the objections of the AO, the ld.CIT(A) admitted the additional evidences. After considering the facts and the findings of the ld.CIT(A) we do not find any infirmity in the order of the ld.CIT(A) since the AO was given sufficient opportunity to submit the remand report on the additional evidences. Therefore, these grounds of the Revenue's appeal are rejected.

5. Ground No.4 is against the deletion of addition of Rs.39,43,083/- being unsecured loans, accepting the unverified confirmations filed before him. The ld.CIT-DR submitted that the ld.CIT(A) was not justified in deleting the addition. He submitted that in the remand report, ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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the AO has categorically submitted that the assessee failed to submit confirmation in the case of M/s.Abloom Investments Pvt.Ltd. who is associated-company of the assessee. It is submitted by the AO that in the case Abloom Investments Pvt.Ltd., the assessee has not established genuineness, identity and creditworthiness since the assessee has not filed the return of income.

5.1. On the contrary, the ld.Sr.Counsel for the assessee supported the order of ld.CIT(A) and submitted that it is recorded by the ld.CIT(A) that there was no transactions in respect of this lender during the year except in the case of M/s.Abloom Investments Pvt.Ltd. He submitted that the ld.CIT(A) has followed the judgement of Hon'ble Rajasthan High Court rendered in the case of CIT vs. Prameshwar Bohra reported at (2008) 301 ITR 404(Raj.). The ld.Sr.Counsel for the assessee submitted that this amount was for the earlier year and did not pertain to the year under consideration.

6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The ld.CIT(A) has given a finding on fact that there was no transaction in respect of this lender during the year except in the case of M/s.Abloom Investments Pvt.Ltd. Since the opening balance is also the closing balance, there was no new credit received during the year except in the case of M/s.Abloom Investments Pvt.Ltd. The ld.CIT(A) has followed ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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the judgement of Hon'ble Rajasthan High Court in the case of CIT vs. Prameshwar Bohra(supra), wherein the Hon'ble Rajasthan High Court has held that it does not require any elaborate argument that the carried forward amount of the previous year did not become an investment or cash credit generated during the relevant year 1993-94. This alone was sufficient to sustain the order of the Tribunal in deleting the amount of Rs.1,55,316/- from the assessment for the assessment year 1993-94. The Revenue has not brought any contrary judgement of the Hon'ble Jurisdictional High Court or the Hon'ble Apex Court, therefore we do not find any infirmity in the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of Revenue's appeal is rejected.

7. Ground No.5 is against the deletion of addition of Rs.4,10,72,257/- being the bogus sundry creditors. The ld.CIT-DR submitted that the ld.CIT(A) was not justified in deleting the addition. He submitted that before the AO the assessee failed to give the requisite details. He submitted that sufficient opportunity was granted to the assessee. He submitted that the assessee has only furnished the confirmation at the appellate stage.

7.1. On the contrary, ld.Sr.Counsel for the assessee submitted that the assessee furnished each and every confirmation. He drew our attention towards the confirmations placed at the paper-book of the sundry creditors in page Nos.141 to 194. He submitted that undisputedly the AO has made addition by invoking the provisions of section 68 of the Act on ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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the basis of estimation. He submitted that such action of the AO is not permissible under the law. He supported the order of the ld.CIT(A).

8. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The AO in para-2 of his order has observed as under:-

"2. Sundry Creditors:-

The sundry creditors of the assessee-company during the year increased form Rs.4,17,53,051/- to Rs.10,37,01,834/-. It is worthwhile to note that the turnover of the assessee-company during the year increased by 17% and there is equivalent increase in materials consumed and purchases for trading activity. However, the sundry creditors of the assessee have increased disproportionately registering an increase of 148.68%. Accordingly, the assessee vide notice issued under section 142(1) of the Act dtd. 18/08/2010 was requested to provide the complete details of the creditors of the company for the relevant previous year and the preceding two previous years along with their names addressed and PAN. However, the assessee has failed to provide the same in spite of repeated notices issued to the assessee, as noted above.

Thus, the disproportionate increase in the creditors could nto be verified. In a normal course of business, there is a direct correlation between the turnover and purchases and the genuineness of any anomaly is doubtful unless substantiated by facts. In the present case, the assessee has failed to provide the details of the creditors in spite of being provided numerous opportunity as noted above, thus, as per my judgment, the increase in the creditors in proportion to increase in the turnover can only be considered to be genuine. However, taking a lenient view a 50% increase in the creditors against 17% increase in the turnover ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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is considered to be genuine. Thus, creditors in excess of Rs.6,26,29,577/- amounting to Rs.4,10,72,257/- as per detail below are considered to be unexplained as genuineness, identity and credit-worthiness could not be proved.

A.Y. 2008-09 AY 2007-08 % increase Turnover 431230951 368709205 17% Creditors 103701834 41753051 148%

Creditors as Creditors as Creditors after Unexplained on 31/03/2007 on 31/03/2008 considering creditors 50% 41753051 103701834 62629577 41072257

In view of the above, creditors amounting to Rs.4,10,72,257/- is added to the total income of the assessee as per the provisions of section 68 of the Act.

(Addition of Rs.4,10,72,257/-)"

8.1. From the order of the AO, it is evident that the AO has made addition merely on the basis of estimation. However, the ld.CIT(A) deleted the addition, by observing as under:-

"4.5. I have considered the facts of the case; assessment order, AO's remand report and appellant's written submission. There was abnormal increase in sundry creditors during the year and therefore assessing officer asked for confirmation from sundry creditors and reasons for such rise. Appellant did not submit the informations during assessment proceedings therefore assessing officer treated part of the sundry creditors as unexplained. However appellant submitted confirmations from all sundry creditors with their PAN and also explained the reasons for increase in sundry creditors in appeal. In remand report, assessing officer accepted that appellant submitted confirmations with PAN but still held that creditworthiness and identity was not ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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proved. Appellant submitted that, it has discharged onus by submitting confirmations with PAN of all the creditors and therefore these creditors cannot be treated as unexplained. If assessing officer found any creditor non-genuine, appellant could be contorted with the same. However without finding any defect in the confirmations submitted, assessing officer cannot hold that identity and creditworthiness were not proved. It is now settled with several judicial decision that primary onus of the appellant gets discharged with the filling of confirmation with PAN of the creditors. Thereafter onus shifts to the Department to find anything wrong in the confirmations. In absence of it, it cannot be held that credits are unexplained. Considering these facts it is clear that appellant discharged its onus and explained the sundry creditors.

Assessing officer further held that appellant failed to justify the increase in creditors in proportion to increase in turnover. The disproportionate increase of sundry creditors cannot lead to any addition. If assessing officer suspected any creditor to be bogus, onus is on assessing officer to examine the creditors and find anything wrong. In the absence of any finding of bogus creditors, addition cannot be made just on the basis of increase in sundry creditors. Any abnormality in the balance sheet item can lead to investigation but the same cannot be used for making addition just like that. Since assessing officer did not find any creditor bogus or not genuine and appellant discharged its onus by submitting confirmations with PAN of all the creditors, there is no basis for treating part of sundry creditors as unexplained under section 68 of IT act. Accordingly the addition made by the assessing officer is deleted."

8.2. The above finding of the ld.CIT(A) is not controverted by the Revenue by placing any material on record suggesting that the confirmations as furnished by the assessee were bogus. Moreover, the ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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AO could have made enquiry in respect of the genuineness of the transactions. The assessee had furnished confirmations from the sundry creditors enclosed at page Nos.141 to 194 of the paper-book. In the majority of confirmations, the assessee has also furnished the PANs of the concerned creditors. The AO chose not to make further enquiry to ascertain the correctness of confirmation. Therefore, we are in agreement with the ld.CIT(A) that there is no basis for treating part of sundry creditors as unexplained u/s.68 of the Act. As per section 68 of the Act, the AO is required to give a clear finding in respect of the credit entry which is not explained by the assessee. However, in the instant case, the assessee has furnished confirmations along with PANs of the sundry creditors. The AO has not made any enquiry whether such creditors were genuine or bogus. Strangely, the AO, at one hand, invoked the provisions of section 68 of the Act and on the other hand proceeded to make addition on the basis of estimation (conjectures and surmises). The addition u/s.68 of the Act merely on the basis of estimation is not permissible under the law. Hence, this ground of Revenue's appeal is rejected being devoid of any merit.

9. Ground No.6 of Revenue's appeal is against reducing the estimation made by the AO. Ld.CIT-DR Shri Subhash Bains vehemently argued that the ld.CIT(A) was not justified in reducing the estimation made by the AO. He submitted that the AO noticed that the assessee-company has declared (-)7.24% of the GP, whereas the ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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assessee in a similar business have declared GP varied from 1.52% to 5.78%. The AO adopted the mean operating profit of the similarly situated assessee's case at 2.74%. He submitted that before the AO, the assessee did not submit any details in support of its claim of gross loss at (-)7.24%. In the absence of the requisite details, the AO was justified in estimating the gross profit.

9.1. On the contrary, the ld.Sr.Counsel for the assessee submitted that the assessee has challenged the action of the ld.CIT(A) by filing separate cross-objection for not accepting the book results. He submitted that the company has been showing incurring loss from its regular business transactions. He submitted that the comparables adopted by the AO was not even in the same business. He submitted that the assessee has been maintaining the books of accounts as per Schedule-6 of the Companies Act, 1956 and the books of accounts of the assessee maintained as per Income Tax Act, 1961. He submitted that the books of accounts maintained by the assessee was so true and fair views. He submitted that the AO has proceeded to assume the loss of Rs.312.03 lacs and as entire base for making the addition was nowhere near to actual facts. He submitted that both the authorities were not justified in rejecting the books of accounts. He further submitted that the comparables adopted by the AO are not correct.

10. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below.

ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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We find that the AO has given a finding on fact that various notices were issued to the assessee to file the requisite information in support of the accounts and to verify the veracity of the accounts. The ld.CIT(A) affirmed the view of the AO for rejecting the books of accounts. The ld.CIT(A) has given a finding on fact that no books of accounts and other evidence were placed before the AO to verify the veracity of the accounts, hence it was held that the accounts were rightly rejected by the ld.CIT(A). It is also pointed out by the ld.CIT(A) that in the remand proceedings as well the assessee did not produce the books of accounts to the AO. The contention of the assessee is that he was never asked by the AO to produced the books of accounts. However, the books of accounts were produced before the ld.CIT(A). Therefore, we are of the considered view that it was incumbent upon the assessee to produce the books of accounts in support of its claim of suffering loss, but the assessee failed to furnish the books of accounts and supporting evidences before the AO, therefore the ld.CIT(A) was justified in confirming the action of the AO for rejecting the books of accounts. Further, we find that the ld.CIT(A) has observed that the AO compared with appellant's gross profit with four different turnover. It is seen that the turnover of Snam Vijaya Feeds Ltd. (1995 Hyderabad Andra Pradesh) for manufacturing feed for laboratory animals is Rs.1.83 crores as against appellant-company is Rs.43.12 crores. The others three firms' turnovers are Rs.19.14 crores (Annam Feeds Ltd.), Rs.40.74 crroes (Kapila Krishi Udyog Ltd.) and Rs.96.9 crores (Shalimar Feeds Ltd.). Therefore, these ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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are comparable cases to the appellant-company and they are also in the similar line of business. This finding of fact is not controverted by the Revenue, therefore we do not find any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of Revenue's appeal is rejected. As a result, Revenue's appeal is dismissed.

11. Now, we take up the assessee's Cross Objection No.198/Ahd/2012 for AY 2008-09. The assessee has raised the only effective ground is against partly sustaining the GP addition made by the AO. The contention of the assessee is that in similar facts and circumstances trading results in the earlier and the subsequent years have been accepted by the Department even though there were losses and, therefore, there is no justification for the GP addition partly sustained by the ld.CIT(A). The ld.counsel for the assessee submitted that the return of income was appended by the Auditors Report and return were filed by the assessee in the prescribed proforma. He submitted that the books of account was duly supported by vouchers and stock details.

11.1 On the contrary, the ld.CIT-DR submitted that the assessee was not prevented to produce the requite details in support of its claim.

ITA No.1350/Ahd/2012 (By Revenue) and CO No.198/Ahd/2012 (By Assessee) DCIT vs. M/s.Aahar Products Pvt.Ltd.

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12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. In Revenue's appeal bearing ITA No.1350/Ahd/2012(supra), we have affirmed the view of ld.CIT(A) for confirming the rejection of books of accounts and adopting the gross profit. For the same reasoning, we do not find any merit in the contention of the assessee, therefore the Cross- Objection filed by the assessee is rejected.

13. In the combined result, the appeal of the Revenue as well as cross objection filed by the assessee both are dismissed.

Order pronounced in the Court on Friday, the 23rd of January, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सदèय ÛयाǓयक सदèय ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/ 01 /2015 टȣ.सी.नायर, व.Ǔन.स./T.C. NAIR, Sr. PS

आदे श कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to :

1. अपीलाथȸ / The Appellant

2. Ĥ×यथȸ / The Respondent.

3. संबंͬधत आयकर आयुÈत / Concerned CIT

4. आयकर आयुÈत(अपील) / The CIT(A)-6, Ahmedabad

5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स×याͪपत ĤǓत //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad