Nirula Handicragts Bazar Pvt. Ltd., New ... vs Department Of Income Tax

DCIT, M/s Nirula Handicraft Bazar, Cirle-13(1), Pvt ltd. 10&12, Doctor's Lane, Gole New Delhi Vs. Market New Delhi-110001 AAACNO140M

(Appellant) (Respondent)

Appellant by : P.Dam Kanunjna, Sr. DR. Respondent by : Sh. V. K. Gupta, CA.

Date of Hearing 03.02.2015 Date of pronouncement 22.04.2015

ORDER PER A. T. VARKEY, JUDICIAL MEMBER

This appeal filed by the Revenue arises out of the order passed by the Ld.

CIT(A)-XVI, New Delhi dated 08.6.2012 pertaining to assessment year 2009-10.

2. The grounds raised in the Revenue's appeal read as under:-

"1. Whether on the facts and in the circumstances of the case the Ld.

CIT(A) has erred in deleting the addition of Rs. 37,02,418/- on Sundry

Creditors.

2. Whether on the facts and in the circumstances of the case, the Ld.

CIT(A) has erred in accepting the additional evidence during the course of

appellate proceedings without giving any opportunity to the AO to cross

examine the additional evidence submitted by AOI.

ITA NO.5404/Del/2012

3. Whether on the facts and in the circumstances of the case, the Ld.

CIT(A) has erred in deleting the total addition of the AO despite the fact that

the assessee has submitted the documents pertaining to only 19 parties out of

53 parties.

4. Whether on the facts and in the circumstances of the case, the Ld.

CIT(A) has erred in deleting the addition of Rs. 35,680/- made on house tax

paid for the directions premises without appreciating that house tax paid is

indirect benefit to the director.

5. The appellant craves to be allowed to add any fresh grounds of appeal

and / or delete or amend any of the grounds of appeal."

3. Facts, in brief, as per the AO and ld CIT (A) are that assessee filed e-return

declaring income of Rs 1,57,77,810 on 7.3.2011. The case was picked up for

scrutiny under CASS. The assessee is engaged in Trading and Export of Carpets,

Handicrafts etc. During the year Sales has been declared at Rs. 13,63,89,728/-

(previous year : 17,39,06,908/-) after debiting various expenses in the profit and loss

account, net profit of Rs. 1,63,73,524/- (previous year : Rs. 1,89,14,442/-) has been

declared. The GP rate for the year under consideration is 42.11% as compared to

40.35% in the immediately preceding year. During the course of assessment

proceedings, the Assessing Officer asked the assessee to produce details with

addresses of sundry creditors declared in the balance sheet alongwith confirmation.

The assessee produced name, address and amount due to creditors outstanding as

on 31.3.2009; And was further asked by the AO, to furnish confirmation in respect of

sundry creditors exceeding balance of Rs. 80000/- outstanding in the books of the

assessee. Further, as a test check basis, notices u/s. 133(6) of the Income Tax Act

2 ITA NO.5404/Del/2012

1961, ( herein after the Act') were issued to 35 parties. In respect of 19 parties,

notices u/s. 133(6) of the Act were returned back unserved with the remarks

'incomplete' address or 'left without address' or no such person. Assessee was

asked by the AO to discharge its burden and asked to establish the existence of

trade creditors and to prove the genuineness of transaction; and for that the

assessee was provided with (a) a list of such parties where notices u/s. 133(6) were

received back, (b) a list of parties whose transactions have been shown during the

year whereas the assessee has suo motu surrendered the same in the previous

year due to non filing of confirmation in respect of such parties; and (c) a list of

sundry creditors where neither the assessee could file confirmation nor could be

obtained directly from such persons due to non availability of complete addresses.

The assessee's response thereto was not found tenable by the AO. According to

him, despite several opportunities granted to the assessee for furnishing the details

of sundry creditors, assessee failed to give the details. However, the AO notes that

in the submission dated 16.12.2011, the assessee itself contended that it was not

able to contact the creditors due to bad weather, but in the same paragraph it was

further explained by the assessee that creditors were not able to come due to ill

health and is engaged in some outside business etc.

Assessing Officer by referring various judgments has stated that it has been

held in the case of Sushilkumar Jaiswal vs. ITO (ITAT, Delhi) 59 TTJ 18, by the

Tribunal that summons sent to 4 creditors returned unserved - one creditor denied

transaction, then the assessee has not discharged his onus of proving the creditors.

The Hon'ble MP High Court in the case of VISP(P) Ltd. vs. CIT (MP) 265 ITR 202,

have held that Section 68 of the I.T. Act, 1961 does not confine to cash entries in

books only and it extended to trade creditors also. Furthermore, Hon'ble Calcutta

3 ITA NO.5404/Del/2012

High Court has held that credits appearing in the name of third party - assessee

must prove identity of creditors, capacity of creditors to advance money and

genuineness of transaction as held in Shankar Industries Vs. CIT (Calcutta) 144 ITR

689. In the case of S. Punjabi vs. ACIT (ITAT, Madras), 62 TTJ 749, Hon'ble

Tribunal has upheld the addition u/s. 68 even where confirmation letters were filed in

respect of few creditors but none were produced for examination - neither was the

AO requested to issue notice u/s. 131.

According to AO no evidence was placed on record to show that any effort

was made by these parties ( sundry creditors) for recovery of their dues from the

assessee. And neither was any evidence furnished by the assessee of any business

transaction with any of the parties during the year under consideration. And only a

few self drawn vouchers were produced which appeared to have been made in a

single sitting. And in the previous assessment year i.e. AY 2008-09, the assessee

had itself surrendered a sum of Rs. 45.76 lacs in view of the non - filing of

confirmation from some creditors. So the AO was of the opinion that since in the

present year too, the assessee has not been able to prove the genuineness of the

transaction as also the identity and creditworthiness of the persons coupled with the

fact that no evidence of trade / business transaction with the same creditors having

been brought on record, it was held that the creditors and balances thereof are not

open to verification and accordingly, the AO made the disallowance of Rs.

37,02,418/- on account of sundry creditors.

3.1 With regard to disallowance out of House tax of Rs. 35,680/-. the assessee

has paid house tax on rental properties amounting to Rs. 1,68,138/-. Out of Rs.

1,66,138/- the assessee has disallowed a sum of Rs. 1,18,686/- in the computation

of income towards House Tax for self owned properties. As regards to balance Rs. 4

ITA NO.5404/Del/2012

47,452/- (Rs. 1,66,138 - Rs. 1,18,686/) the assessee has submitted that some

portion of the house tax pertains to properties owned and used by the assessee and

the balance house tax paid pertains to properties taken on rent from Director of the

company. The assessee was show caused as to why the house tax paid on rental

properties should not be disallowed. It has been submitted by the assessee that the

House Tax Payment provisions is as per Rental Agreement. The reply of the

assessee was not acceptable to the AO as the house tax paid pertains to Rental

properties which are owned by the Directors of the assessee. According to the AO it

is on indirect benefit derived by the Director from the assessee company which is

excessive and unreasonable. Therefore, the house tax paid, not owned by the

assessee was disallowed amounting to Rs. 35,680/-.

4. Against the aforesaid order of the Assessing Officer, assessee appealed

before the Ld. CIT(A), who vide his order dated 08.6.2012 has allowed the appeal of

the assessee by deleting the additions.

5. Now the Revenue is in appeal before us.

6. Ld. DR relied upon the order of the Assessing Officer. Ld. DR further

submitted that the ITAT, 'E' Bench, in assessee's own case for the asstt. year 2008-

09 vide order dated 12.10.2012 passed in ITA No. 3886/Del/2012 has dealt

similar and identical issues and remanded back the issue to the file of the Ld. CIT(A)

to follow Rule 46A of the Income Tax Rule' (herein after the rule) in accordance with

Delhi High Court decision in the case of CIT vs. Manish Buildwell 16 Taxmann.com

27(Del) because in this case also the ld CIT (A) did not follow the procedure

prescribed U/Rule 46 (A) before admitting additional evidence before passing the

appellate order. Hence, he requested that the issue in dispute may also be sent

5 ITA NO.5404/Del/2012

back to the file of the CIT(A) with the same directions as given in the assessment

year 2008-09 by the Co-ordinate Bench in assessee's own case, as aforesaid.

7. On the contrary, Ld. Counsel of the assessee opposed the request of the Ld.

DR and relied upon the order of the Ld. CIT(A).

8. We have heard both the parties and perused the records. We find that

according to AO no evidence was placed before him to show that any effort was

made by the sundry creditors for recovery of their dues from the assessee. And

neither was any evidence furnished by the assessee of any business transaction

with any of these parties during the year under consideration. Only a few self

vouchers were produced before him, that too appeared to have been made in a

single sitting. And in the previous assessment year i.e. AY 2008-09, the assessee

had itself surrendered a sum of Rs. 45.76 lacs in view of non filing of confirmation

from some of these creditors only. So according to the AO, the assessee has not

been able to prove the genuineness of the transaction as also the identity and

creditworthiness of the persons coupled with the fact that no evidence of trade /

business transaction with the same having been brought on record, it was held by

the AO that the sundry creditors and balances thereof could not be verified.

Therefore, the AO made the addition of Rs. 37,02,418/-. We also find that Ld.

CIT(A) has admitted additional evidences and deleted the addition. We find that a

co-ordinate Bench, in assessee's own case for the asstt. year 2008-09 passed an

order dated 12.10.2012 passed in ITA No. 3886/Del/2012 has dealt a similar and

identical issue and remanded back the issue to the file of the Ld. CIT(A) to follow

Rule 46A, in accordance with Delhi High Court decision in the case of CIT vs.

Manish Buildwell (Supra). The Tribunal in the assessment ear 2008-09 has

adjudicated the issue as under:-

6

ITA NO.5404/Del/2012

"6. We have heard both the parties and gone through the facts

of the case. Indisputably, the assessee surrendered an amount

of `. 45,76,244/- in relation to 23 creditors ,when the AO asked

the assessee to furnish the confirmations of all the creditors

exceeding `.80,000/- each. There is nothing in the letter dated

24.12.2010 of the assessee, as extracted in the assessment

order ,that it desired further time to submit the confirmations of

remaining 23 creditors and instead, the assessee suo motu

offered the amount to tax. Though the ld. AR relied upon a

decision dated 22.9.1971 of the Hon'ble Apex Court in

Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala in civil

appeal no.10 of 1969,where it was observed that an admission

is an extremely important piece of evidence but it cannot be said

that it is conclusive and that It is open to the person who made

the admission to show that it is incorrect, there is no such

dispute with this proposition of law. In the instant case, neither

before the ld. CIT(A) nor even before us, the ld. AR attempted to

show as to how the surrender was incorrect and what prompted

the assessee to file appeal without even retracting the

surrender. Even after surrender of the amount, the assessee

approached the ld. CIT(A) and furnished additional evidence in

terms of rule 46A of the IT Rules,1962. There is nothing in the

impugned order as to why the assessee offered the amount to

tax suo motu and then preferred the appeal. The ld. CIT(A) did

not care to ascertain as to how the assessee is aggrieved with

7 ITA NO.5404/Del/2012

the findings of the AO when it itself offered the amount to tax.

The AO in his remand report dated 14.07.2011 succinctly

pointed out that since the assessee itself expressed its inability

to furnish further confirmations and produce the persons for

cross-examination and offered the amount of Rs. 45,76,244/- to

tax. 9 I.T.A .no.-3886/Del./2012 There is nothing on record to

suggest that the AO did not allow sufficient opportunity to the

assessee to submit confirmations. When the assessee

expressed its inability to furnish further confirmations or to

produce the persons, it offered the amount to tax; and the AO

accepted the said offer and completed the assessment. In these

circumstances, how conditions stipulated in clause (b) of rule

46A(1) of the IT Rules,1962 could be said to have been fulfilled,

is not evident from the impugned order. Even otherwise there is

nothing to suggest as to whether or not the ld. CIT(A) examined

the genuineness of additional evidence submitted by the

assessee nor the AO seems to have been asked to verify its

genuineness. In these circumstances, we are of the opinion that

the ld. CIT(A) admitted additional evidence submitted by the

assessee in its application under rule 46A of the IT

Rules,1962,without following the procedure prescribed therein.

As is apparent from the findings in the assessment order, the

assessee was given sufficient opportunity by the AO to submit

the confirmations. The ld. CIT(A) without taking cognizance of

the fact that the assessee itself surrendered the amount to tax,

8 ITA NO.5404/Del/2012

proceeded to admit additional evidence, without allowing any

opportunity to the AO.. In this situation, how the assessee could

be said to be aggrieved with the findings of the AO, is not

evident from the impugned order. The assessee in its

application submitted that the AO refused to grant time to enable

it to submit the balance confirmations. The ld. CIT(A) without

ascertaining the veracity of this statement admitted additional

evidence. Before admitting the additional evidence, the ld.

CIT(A) did not allow any opportunity to the AO or confronted him

with this statement of the assessee. In nutshell, the ld. CIT(A)

deleted the addition without following the procedure laid down

under Rule 46A of the IT Rules,1962 . The ld. CIT(A) arrived at

his conclusions without ascertaining as to whether or not the

assessee was prevented by sufficient cause from submitting the

aforesaid additional documents/information before the AO as

per provisions of Rule 46A of the IT Rules, 1962 . Here we may

have a look at the relevant provisions of Rule 46A of the IT

Rules 1962, which read as under:

"(1) The appellant shall not be entitled to produce before the

Deputy Commissioner (Appeals) or, as the case may be, the

Commissioner (Appeals), any evidence, whether oral or

documentary, other than the evidence produced by him during

the course of proceedings before the Assessing Officer, except

in the following circumstances, namely:--

9

ITA NO.5404/Del/2012

(a) where the Assessing Officer has refused to admit evidence

which ought to have been admitted; or

(b) where the appellant was prevented by sufficient cause from

producing the evidence which he was called upon to produce by

the Assessing Officer; or

(c) where the appellant was prevented by sufficient cause from

producing before the Assessing Officer any evidence which is

relevant to any ground of appeal; or (d) where the Assessing

Officer has made the order appealed against without giving

sufficient opportunity to the appellant to adduce evidence

relevant to any ground of appeal.

(2) No evidence shall be admitted under sub-rule (1) unless the

Deputy Commissioner (Appeals) or as the case may be, the

Commissioner (Appeals) records in writing the reasons for its

admission.

(3)The Deputy Commissioner(Appeals) or, as the case may be,

the Commissioner (Appeals) shall not take into account any

evidence produced under sub-rule (1) unless the Income-tax

Officer has been allowed a reasonable opportunity (a) to

examine the evidence or document or to cross-examine the

witness produced by the appellant, or

(b) to produce any evidence or document or any witness in

rebuttal of the additional evidence produced by the appellant

10 ITA NO.5404/Del/2012

(4) Nothing contained in this rule shall affect the power of the

Deputy Commissioner (Appeals) or, as the case may be, the

Commissioner (Appeals) to direct the production of any

document, or the examination of any witness, to enable him to

dispose of the appeal, or for any other substantial cause

including the enhancement of the assessment or penalty

(whether on his own motion or on the request of the Assessing

Officer) under clause (a) of sub section (1) of section 251 or the

imposition of penalty under section 271.."

6.1 It is evident from the aforesaid provisions that the ld. CIT(A)

can take into account any evidence produced under sub-r. (1)(b)

& (c) of Rule 46A of the IT Rules, 1962 if the assessee was

prevented by sufficient cause . In Haji Lal Mohd. Biri Works'

case [2005] 275 ITR 496 (All), by making an elaborate

discussion on rule 46A of the Rules in paragraph 10 at page 500

and 501, it was held that under rule 46A the authority is not

permitted to act whimsically while exercising the jurisdiction

under it .In the case under consideration, the assessee placed

before the ld. CIT(A),certain additional evidence and admittedly,

the said documents were not submitted before the AO. The

powers of the CIT(A) in terms of rule 46A to admit fresh

evidence, entail an element of discretion which is required to be

exercised in a judicious manner. The powers of the CIT(A) to

admit additional evidence are not only in situations where the

evidence could not be produced before lower authorities owing

11 ITA NO.5404/Del/2012

to lack of adequate opportunity but also in situations where the

fresh evidence would enable the CIT(A) to dispose of the appeal

or for any other substantial cause. Of course, the power is to be

exercised judiciously and for reasons to be recorded. Here we

may point out that the Hon'ble jurisdictional High Court in CIT

vs. Manish Build Well (P.) Ltd.,16 Taxmann.com27(Delhi) held

that that the conditions prescribed in Rule 46A must be shown to

exist before additional evidence is admitted and every

procedural requirement mentioned in the Rule has to be strictly

complied with so that the Rule is meaningfully exercised. Once

the assessee invokes Rule 46A and prays for admission of

additional evidence before the CIT (A), then the procedure

prescribed in the said rule has to be scrupulously followed. A

distinction should be recognized and maintained between a

case where the assessee invokes Rule 46A to adduce additional

evidence before the CIT (A) and a case where the CIT (A),

without being prompted by the assessee, while dealing with the

appeal, considers it fit to cause or make a further enquiry by

virtue of the powers vested in him under sub-Section (4) of

Section 250. It is only when he exercises his statutory power

suo motu under the above sub-section that the requirements of

Rule 46A need not be followed. On the other hand, whenever

the assessee who is in appeal before him invokes Rule 46A, it is

incumbent upon the CIT (A) to comply with the requirements of

the Rule strictly so that the Rule is meaningfully exercised and

12 ITA NO.5404/Del/2012

not exercised in a routine or cursory manner. The Hon'ble High

Court held that sub-rule (3) of Rule 46A interdicts the CIT (A)

from taking into account any evidence produced for the first time

before him unless the AO has had a reasonable opportunity of

examining the evidence and rebut the same. In the instant case,

there is nothing in the impugned order of the ld. CIT (A) to show

that after the objections were raised by the AO in his remand

report dated 14.7.2011 against admission of additional

evidence, the ld. CIT(A) asked the AO to examine the

genuineness of the additional evidence. Thus, the end result has

been that additional evidence was admitted and accepted as

genuine without the AO furnishing his comments and without

verification. Since in the case under consideration, the ld. CIT(A)

did not follow the procedure laid down in Rule 46A of the IT

Rules,1962 , we find merit in the contentions of the ld. DR and

therefore, in the interest of justice and fair play, vacate the

findings of the Ld. CIT(A) and restore the issues raised in

various grounds of appeal before us to his file, with the

directions to follow the mandate in terms of Rule 46A of the IT

Rules, 1962 as also principles of natural justice and thereafter,

dispose of the matter in accordance with law after allowing

sufficient opportunity to both the parties, bringing out clearly as

to how the assessee is aggrieved with the findings of the AO

after suomotu surrender of the amount and how the conditions

stipulated in rule 46A of the I.T. Rules, 1962 are fulfilled. With

13 ITA NO.5404/Del/2012

these directions, ground no. 2 in the appeal is disposed of, as

indicated hereinbefore. As a corollary, ground no.1 raised in the

appeal does not survive for our adjudication at this stage."

9. We concur with the aforesaid order of the co-ordinate Bench and respectfully,

following the same as aforestated, we set aside the findings of the Ld. CIT(A) and

restore the issues raised in ground no 1 before us to the file of the Ld. CIT(A), with

the direction to follow the mandate in terms of Rule 46A of the I.T. Rules, 1962 as

also keep in mind the principles of natural justice and thereafter, dispose of the

matter afresh in accordance with law after allowing sufficient opportunity to both the

parties, and how the conditions stipulated in Rule 46 A of the I.T. Rules, 1962 are

fulfilled. With these directions, ground no. 2 and 3 in the appeal are disposed of. As

a corollary, ground no. 1 raised in the appeal does not survive for our adjudication at

this stage.

10. With regard to ground no. 4 is concerned, i.e. regarding deletion of addition

of Rs. 35,680/- made on house tax paid for the directors premises. In this regard, it

is seen from the records that the assessee has paid house tax on rental properties

amounting to Rs. 1,68,138/-. Out of Rs. 1,66,138/- the assessee has itself

disallowed a sum of Rs. 1,18,686/- in the computation of income towards House Tax

for self owned properties. As regards to balance Rs. 47,452/- (Rs. 1,66,138 - Rs.

1,18,686/) the assessee has submitted that some portion of the house tax pertains to

properties owned and used by the assessee and the balance house tax paid pertains

to properties taken on rent from Director of the company. On a show cause as to

why the house tax paid on rental properties should not be disallowed, it has been

submitted by the assessee that the House Tax Payment provisions is as per Rental

Agreement. The reply of the assessee was not acceptable to the AO as the house 14 ITA NO.5404/Del/2012

tax paid pertains to Rental properties which are owned by the Directors of the

assessee. According to AO it is an indirect benefit derived by the Director from the

assessee company which is excessive and unreasonable. Therefore, the house tax

paid, not owned by the assessee was disallowed by the AO which amount to Rs.

35,680/-. We find that on appeal by the assessee the Ld. CIT(A) has observed that

similar issue arose for adjudication in the immediately preceding year in the case of

the assessee. There is no change in the facts of the case this year. Not only that,

the assessments of the assessee company for the assessment years 2005-06 and

2007-08 were completed u/s. 143(3) and no such disallowance was made by the

Assessing Officer. Since the properties have been taken on rent by the company

for its business purposes and the rent agreements provide for payment of the house

tax by the assessee company, it was held that this payment was for business

considerations and was therefore an allowable expenditure in the case of the

assessee. It has also been submitted that, there has been no revision of the rent of

the premises for the last so many years and for that reason too the payment of

house tax by the assessee was justified. In these circumstances, the disallowance

made by the AO was deleted We find no infirmity in the impugned order and the Ld.

CIT(A) has passed a reasoned, order and on the principle of consistency too

the impugned order does not need any interference from our part, hence, we

uphold the same. Therefore, the ground no. 4 raised by the Revenue is

rejected.

11. In the result, the Appeal filed by the Revenue stands is partly allowed for

statistical purposes.

15

ITA NO.5404/Del/2012

Order pronounced in the open court on 22.04.2015.

-Sd/- -Sd/- (N.K.SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 22/04/2015 A K Keot (DOC)

Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

16