Kishorebhai D.Shah, Baroda vs Assessee

आयकर अपील सं./I.T.A. No.2979/Ahd/2011 ( Ǔनधा[रण वष[ / Assessment Year : 2007-08) Shree Kishorbhai D.Shah बनाम/ The ACIT Prop. Of Kishore Metal Vs. Circle-2(1) Corporation Baroda 749-4 GIDC Estate Makarpura, Baroda - 390 014 èथायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AGAPS 6480 L (अपीलाथȸ /Appellant) .. (Ĥ×यथȸ / Respondent)

अपीलाथȸ ओर से / Appellant by : Shri Tushar P. Hemani Ĥ×यथȸ कȧ ओर से/Respondent by : Shri M.K.Singh, Sr.DR

ु वाई कȧ तारȣख / सन Date of Hearing 18/12/2014 घोषणा कȧ तारȣख /Date of Pronounce ment 09/01/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-II, Baroda ('CIT(A)' in short) dated 23/09/2011 pertaining to Assessment Year (AY) 2007-08. The Assessee has raised the following grounds of appeal:-

1. The ld. CIT(A) has erred in law and on the facts of the case in not appreciating the facts that the Appellant had ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -2-

already placed on record the relevant evidences to prove genuineness of the purchases and they were not the additional evidences.

2. The ld. CIT(A) has further erred in law and on facts of the case in confirming the action of the ld. AO in disallowing purchase Rs.15,74,663/- after treating the same as bogus purchases.

3. The ld. CIT(A) has erred in law and on facts of the case in confirming the action of ld. AO by making addition of Rs.46,585/- being @ 20% of Rs.2,32,926/- after treating the same as of personal nature.

4. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

5. The ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in charging interest u/s 234B/C/D of the Act.

6. The ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in initiating penalty proceedings u/s 271(1)(c) of the Act.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 24/12/2009, thereby the Assessing Officer (AO in short) made disallowance of Rs.15,74,663/- treating the same as expenditure on account of bogus purchases and also made adhoc disallowance @ 20% on the expenditures related to conveyance, telephone & petrol treating ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -3-

the same as personal in nature. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, dismissed the appeal. Aggrieved by the order of the ld.CIT(A), the assessee has filed the present appeal before us.

3. Apropos to ground No.1, at the outset, the ld.counsel for the assessee submitted that he does not wish to press this ground. The ld.Sr.DR has no objection of the submission of the ld.counsel for the assessee. Hence, ground No.1 is dismissed as not pressed.

4. Second ground of appeal is against confirming the addition of Rs.15,74,663/- after treating the same as bogus purchase. The ld.counsel for the assessee submitted that the ld.CIT(A) has erred in not appreciating that the assessee has placed on record relevant evidences to prove the genuineness of purchases before AO as well. Hence, relevant material was before the lower authorities. He submitted that in any case, if the ld.CIT(A) was of the view that such evidences were additional evidences, then in the larger interest of justice, he ought to have admitted the same and called for a remand report the AO. He relied on the judgement of Hon'ble Delhi High Court rendered in the case of CIT vs. Text Hundred India (P.) Ltd. reported at (2013) 351 ITR 57 (Delhi). He submitted that the AO made the impugned addition respect of closing balances of parties; namely, M/s.Bhagyoday Enterprise of ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -4-

Rs.14,96,267/- and M/s.Bhavana Trading of Rs.78,396/- totalling to Rs.15,74,663/-. He submitted that the aforesaid addition was made after erroneously concluding that the aforesaid parties were engaged in issuing bogus bills for purchase. He submitted that the AO and CIT(A) ought to have appreciated that the assessee has placed on record the documentary evidences regarding confirmation of Bhagyoday Enterprise at page Nos.22 & 23 of the paper-book, purchase bills issued by Bhagyogday Enterprise placed at page Nos.24 to 62 of the paper-book and ledger of Bhavana Trading for FYs 2006-07 & 2007-08 placed at page Nos.63 & 64 of the paper-book. He submitted that the AO and CIT(A) ought to have appreciated that payments have been made to these parties by way of cheques. He submitted that the aforesaid amounts are reflected in audited accounts which are placed at Page Nos.1 to 21 and at page No.6 of the paper-book under the head "Sundry Creditors" and no adverse comments were made by Auditor in respect of the same. He submitted that the aforesaid evidences amply prove that the said purchase transactions are genuine and not bogus transactions. He further submitted that the statement of such parties alleged to have been recorded u/s.131(1A) by Department in which such parties have stated details about their modus operandi were never provided to the assessee. Assessee was also not given an opportunity of cross-examining such parties. This violates the principles of natural justice. He submitted that in respect of purchases made from M/s.Bhagyoday Enterprise, the AO ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -5-

has disallowed 'closing balance' (i.e. Rs.14,91,267/-) and not the total purchases (i.e.27,95,297/-) made during the year which are placed at page Nos.22 & 23 of the paper-book. He submitted that the closing balance cannot be subject matter of addition if purchases are treated as bogus. Act of AO implies he considers only the outstanding balance as bogus purchases and considers rest of purchase as genuine in respect of which payment has been made. Such an act is not tenable in the eye of law. He submitted that therefore the addition to the extent of Rs.14,91,267/- could not have been made. He further submitted that in respect of M/s.Bhavana Trading, no purchases have been made during the year under consideration. The sum of Rs.78,396/- was opening balance during the year under consideration and also the closing balance. He submitted that the said liability has been discharged in subsequent year. He drew our attention towards copies of ledger of M/s.Bhavana Trading Co. that are placed at page Nos.63 & 64 of paper-book. He submitted that no purchases have been made from M/s.Bhavana Trading during the year under consideration, no addition can be made in respect of closing balance by treating the same as bogus purchases. He submitted that in any case, addition in respect of closing balance of sundry creditors can be made only u/s.41(1) provided the statutory requirements as mentioned therein are fulfilled. He submitted that it is settled law that even if genuineness of creditors is under serious doubt, no addition can be made u/s.41(1). He relied on the judgement of ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -6-

Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Bhogilal Ramjibhai Atara in Tax Appeal No.588 of 2013 dated 04/02/2014. He submitted that thus even u/s.41(1), the addition could not have been made. Therefore, under these facts and circumstances of the case and in view of the submissions made before the Tribunal, the ld.counsel for the assessee prayed the addition made by the authorities below be deleted.

5. On the contrary, ld.Sr.DR Shri M.K. Singh vehemently opposed the submissions of the ld.counsel for the assessee and submitted that there is a categorical finding that the parties from whom the assessee has made purchases were issued bogus bills. He supported the orders of the authorities below.

6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements relied upon by the ld.counsel for the assessee. We find that the AO treated the expenditure of Rs.14,96,267/- and Rs.78,396/- totalling to Rs.15,74,663/- in respect of the purchases made from M/s.Bhagyoday Enterprise and M/s.Bhavana Trading Co. as bogus purchases. The basis of treating the same was that on verification regarding banking cash transaction tax were made by the DDIT(Inv)-I, Baroda with HDFC Bank and subsequent enquires made by the ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -7-

DDIT(Inv), Baroda, it was found that the parties (assessees); namely, M/s.Bhagyodaya Enterprise and M/s.Bhavana Trading Co. are issuing bogus bills for purchases. It is recorded by the AO that statement u/s.131A of the Act were recorded on oath from these parties in which they have stated in detail about the modus operandi of their business. We find that the Revenue has not placed the statement recorded u/s.131A of the Act. It is also undisputed fact that the assessee was not afforded cross-examination of the parties whose statement were recorded and on the basis of statement, it was inferred by the AO that the purchases were bogus. The AO has also recorded that the Inspector who was deputed for service of the notice has submitted report that no such parties as M/s.Bhagyodaya Enterprise, C-163, Raj Ratan Society, Near Bagi Khana, Baroda and M/s.Bhavna Trading Co., C-163, Raj Ratan Society, Near Bagi Khana, Baroda, exist and on further enquiries, it revealed that no member of the society knows about M/s.Bhagyoday Enterprise. On this basis, the AO proceeded to treat the purchases claimed to have been made from M/s.Bhagyoday Enterprise and Bhavna Trading Co. as bogus purchases. The ld.CIT(A) confirmed the addition by observing as under:-

"3.1 As mentioned in preceding paras, though several opportunities were given to the appellant, time and again, to attend the hearings, he failed to do so leading one to the impression that the appellant has nothing to say in his defence ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -8-

against the assessment order of the Assessing Officer. The Authorized Representative once requested to admit additional evidences u/s 46A and then revoked his request. He then wanted to produce relevant records to prove the genuineness of purchases, which was never done, despite repeated opportunities. On the other hand, the Assessing Officer has noted that the DDIT(Inv), Baroda had carried out enquiries and found that the following 2 parties, had issued bogus bills to many parties including the assessee.

1) M/s. Bhagyoday Enterprise 2) M/s. Bhavana Trading Co.

Their statements were also recorded on oath, in which they have admitted their modus operandi. Even the Assessing Officer got field enquiries conducted by the Inspector and found that no such parties exist at the given address. Accordingly the Assessing Officer disallowed the purchases of Rs.15,74,663/- shown from these parties, treating them as bogus. Since there is nothing on record to shed light on this ground of appeal except the assessment order wherein, the issue has been discussed in detail and the addition has been made on proper appreciation of facts and carrying out field enquiry, I see no reason to interfere with the order of the Assessing Officer and confirm the same."

6.1. The ld.CIT(A) has recorded the Authorized Representative requested that the appellant would like to prove the genuineness of the purchases by producing day-to-day stock register, quantitative tally, VAT audit report and the retraction of the two parties who had earlier admitted to have been given bogus bill to parties, including the assessee. The assessee was given time to produce these records on 03/08/2011, 17/08/2011, 02/09/2011, 15/09/2011 and on 15/09/2011, no one attended ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08 -9-

nor any adjournment was sought for. Under these circumstances, the ld.CIT(A) confirmed the additions by observing that there is nothing on record to shed light on this ground of appeal except the assessment order. We find that the assessee has given a certificate stating therein that page Nos.1 to 64 were placed before the lower authorities. From page Nos.22 to 64 are the confirmations, etc. These documents were not considered by the ld.CIT(A). Under these facts, we are of the considered view that the ld.CIT(A) was not justified in confirming the action of the AO without giving any finding on the evidences produced by the assessee. The contention of the ld.counsel for the assessee is also that these documents were placed even before the AO. The AO has observed that copies of audited balance-sheet, profit and loss account along with schedules and audit report in Form Nos.3CB and 3CD were called for, verified and placed on record. Details as per questionnaire were called for, verified and placed on record. Books of account, bank pass-books and other details were called for and verified on test check basis. Therefore, the observation of the ld.CIT(A) that only assessment order was on record is not correct. The conduct of the assessee as recorded by the ld.CIT(A) also cannot be justified in view of the fact that the assessee himself had requested to ld.CIT(A) to grant opportunity for producing day-to-day register, quantitative tally, VAT audit report and the retraction of the two parties; namely, M/s.Bhagyoday Enterprise and M/s.Bhavana Trading Co. The assessee has also not placed anything on ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08

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record suggesting that it had made any request to the lower authorities for cross-examining those persons who had made statements, on the basis the authorities have proceeded to treat the purchases made from those parties as bogus.

6.2. After considering the totality of the facts and circumstances of the case and in the light of settled principle of law, that the assessee has to prove the expenditure incurred for business purpose, in the case in hand, there is specific finding recorded by the ld.CIT(A) that the AR requested that the appellant would like to prove the genuineness of purchases by producing day-to-day stock register, quantitative tally, VAT audit report and retraction of the two parties who had earlier admitted to have given bogus bill to the parties, including the assessee. Accordingly, the AR was given time to produce these records and date was fixed for 03.08.2011. No one attended on 03/08/2011 and the case was fixed for hearing on 17/08/2011. On 17/08/2011, the AR sought adjournment and the case was fixed for 02/09/2011. Again on 02/09/2011, the AR sought adjournment and the case was fixed for 15/09/2011. On 15/09/2011, no one attended nor any adjournment was sought for. We feel that this issue be restored to the file of ld.CIT(A) for decision afresh in accordance with law. Needless to say that the ld.CITA) would afford reasonable opportunity of hearing to both the parties. Thus, this ground assessee's appeal is allowed for statistical purposes.

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7. Next ground is against in confirming the addition of Rs.46,585/- being 20% of various expenses aggregating to Rs.2,32,926/- after treating the same as of personal nature by the ld.CIT(A). The ld.counsel for the assessee submitted that the AO made impugned disallowance @ 20% of the expenditure are made purely on the basis that these various expenses, such as, conveyance, telephone and petrol incurred for personal and non- business purpose cannot be ruled out. The ld.counsel for the assessee submitted that the AO ought to have appreciated that such expenses from part of duly audited accounts. The ld.counsel for the assessee submitted that such expenses have been incurred exclusively for the business purpose of the assessee. The AO has not found such expenses to be non- genuine. He submitted that there is no firm basis for making such disallowance. He submitted that the action of the authorities below is contrary to the settled position of law.

7.1. On the contrary, Sr.ld.DR supported the orders of the authorities below.

8. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The AO made disallowance by observing that during the course of assessment proceedings, the assessee was asked to furnish the details like ITA No.2979/Ahd/2011 Shree Kishorbhai D.Shah vs. The ACIT Asst.Year - 2007-08

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bills/vouchers of the expenses debited to the profit and loss account for verification. Some vouchers are defective and not fully verifiable. Most post the payments were made in cash. The AO observed that these types of transactions, expenses incurred for personal and for non-business purposes cannot entirely be ruled out. On the contrary, the contention of the ld.counsel for the assessee is that the expenditure is well audited as the accounts are audited by the auditors, therefore adhoc disallowance without any basis is not called for.

9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The AO has not doubted the correctness of the accounts of the assessee, therefore the adhoc disallowance made on the basis of conjectures and surmises cannot be sustained. Hence, the AO is hereby directed to delete the addition. Thus, this ground of assessee's appeal is allowed.

10. Ground No.4 is general in nature which requires no independent adjudication.

11. Ground No.5 is against charging of interest u/s.234B, 234C & 234D of the Act which is consequential in nature.

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12. Ground No.6 is against initiation of penalty proceedings u/s.271(1)(c) of the Act. The issue is pre-mature and, therefore, the same is dismissed as such.

13. In the result, Assessee's appeal is partly allowed for statistical purposes.

Order pronounced in the Court on Friday, the 09th day 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 09 / 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 आयÈ ु त(अपील) / The CIT(A)-II, Baroda

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