ASSISTANT COMMISSIONER INCOME TAX-CENTRAL CIRCLE-1(3), NAGPUR V. RADHIKA METALS AND MINERALS, VIZIANAGARAM

ITA 23/NAG/2024

AI Insights

The case involves the Asstt. Commissioner of Income Tax Central Circle-1(3), Nagpur as the appellant and Radhika Metals and Minerals as the respondent. The appeal by the Revenue was against the order of the learned CIT(A) which had deleted the additions made by the Assessing Officer regarding unexplained expenditures and disallowances related to sundry creditors and contractor's work. The Tribunal examined the validity of these additions under section 69C of the Income Tax Act, 1961, which pertains to unexplained expenditures. The Tribunal's decision was influenced by the fact that the expenditures in question were not incurred in the assessment year under consideration and that the creditors' balances were carried forward from previous years.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24217 (ITAT-NAGPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: Glen Williams v/s ACIT, ITO Vs Rahul kantilal Shah, Syntensia Network Security Vs. ITO, Shri Vardhman Overseas Ltd. v/s ACIT, CIT v. Vardhman Overseas Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEE; SANDIPKUMAR SALUNKE
• Assessee Lawyers: MUKESH AGRAWAL
• Keywords: Business income; Business expenditure; Unexplained expenditure; Period of limitation; TDS; Bogus
• Section: 147; 148; 143(3); 142(1); 143(2); 250; 68; 69; 69C; 13; 133A; 101

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER ITA no.23/Nag./2024 (Assessment Year : 2017–18) Asstt. Commissioner of Income Tax Central Circle–1(3), Nagpur ……………. Appellant v/s Radhika Metals and Minerals Shreeramanagar (P.O), DFN Colony Garividi, Vizianagaram 535 101 PAN – AAABFR2796R ……………. Respondent Assessee by : Shri Mukesh Agrawal Revenue by : Shri Sandipkumar Salunke Date of Hearing – 18/11/2024 Date of Order – 27/01/2025 O R D E R PER V. DURGA RAO, J.M. The captioned appeal by the Revenue is directed against the impugned order dated 29/11/2023, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, [“learned CIT(A)”], for the assessment year 2019–20. 2. In its appeal, the Revenue has raised following grounds:– “1. On the fact and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 3,14,08,070/- being sundry creditors as assessee failed to prove the genuineness & creditworthiness of the sundry creditors amounting to Rs. 3,14,08,070/-. 2. On the facts and in the circumstances of the case, the Id. CIT(A) erred in deleting the addition of Rs.3,14,08,070/- & Rs.85,55,612/- without appreciating the facts that, during the course of search proceedings, statement of Shri Bandaru Ramesh, one of the creditors of the firm was 2 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 recorded. In the said statement Shri Bandaru ramesh had stated that he never undertook any contract work. 3. On the facts and in the circumstances of the case, the Ld CIT(A) erred in deleting the addition of Rs.3,14,08,070/- & Rs.85,55,612/- without appreciating the facts that, during the course of search proceedings, statement of Shri Bandaru Ramesh, one of the key person of the firm was recorded and he stated that as per his knowledge the employees shown as creditors have not provided. any services to the firm. 4. Further, the Ld. CIT(A) failed to appreciate the fact that had the search not been conducted, amount of Rs.3,14,08,070/- & 85,55,612/- as sundry creditors bong contractor's work remain unearthed and escaped assessment had never been brought to tax as the same has been reflecting in balance sheet under Sundry Creditors. 5. Any other ground that may be raised during hearing.” 3. Facts in Brief:– The assessee is a partnership firm carrying on business of extraction and marketing of Manganese Ore minerals and different grades since 1984. There was a search action under section 133A of the Income Tax Act, 1961 (\"the Act\") was conducted in Radhika Group of cases on 13/04/2023. Subsequently, notice under section 148 of the Act was issued in response to which the assessee filed its return of income on 30/04/2023, and declaring total income of ` 3,11,36,784. The case was selected for scrutiny and ultimate the assessment order was passed under section 143(3) r/w section 147 of the Act after making addition of ` 3,14,08,070, towards opening sundry creditors and disallowance of ` 85,55,612 towards contractor under section 69C of the Act. 4. On appeal, the learned CIT(A), considering the entire submissions made by the assessee, deleted the additions of ` 3,14,08,070 and ` 85,55,612 respectively made by the Assessing Officer. The relevant findings of the order passed by the learned CIT(A) covering the above two additions are extracted below:– 3 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 Addition of Rs. 3,14,08,070/- deleted by the learned CIT(A) “4. Decision & Discussion: The appellant has raised five grounds of appeals. Out of which ground no. 1, ground no. 2 and ground no. 5 are general in nature and not adjudicated. Hence these grounds of appeals are hereby dismissed. Ground no. 3 is regarding the addition of Rs. 3,14,08,070/- made under section 69C of IT Act towards Opening Balances of Sundry Creditors. The AO during the assessment proceeding noticed that there are opening credit balances in accounts of 13 Sundry creditors totalling to Rs. 3,46,91,553/- out of which 3 creditors totalling to Rs.32,83,483/- have been declared by assessee as income under the Voluntary Disclosure of Income Scheme. The AO asked appellant to prove genuineness of remaining creditors totalling to Rs.3,14,08,070/–. The appellant submitted various document such as copy of bills raised by these parties in respective years, nature and quantity of work done by creditors, TDS details on bills raised, their ledger account in assessee's books of accounts confirmation from parties and copy of income tax return filed by these creditors. However, the AO relied on statement of three creditors recorded at the time of survey and held the creditors as bogus and added the amount of ` 3,14,08,070/– as unexplained expenditure u/s 69C of the Act. During appellate proceedings, the appellant submitted that the addition u/s 69C is unjustified as the credit balance of Rs. 3,14,08,070/- in the account of various creditors is opening balance brought forward from earlier years and since the expenditure has not been incurred in the previous year relevant to AY under reference, no addition could have been made u/s 69C of IT Act. For this argument appellant has relied on following judgements- ITA No. 1078/Bang/2014 in Glen Williams v/s ACIT ITO Vs Rahul kantilal Shah ITA No. 6805/Mum/2018 Syntensia Network Security Vs. ITO (ITA No.2927/Mum/2017) The appellant further argued that even on merits these creditors are genuine, assessee has regular business transactions with them and they have been paid these amounts in the relevant previous year through banking channels. Appellant furnished various documents as mentioned in page 7 of the assessment order to support its claim of genuineness of the creditors. Appellant also submitted that major part of this credit balance has been paid in the relevant previous year and subsequent years. Appellant further submitted that the expenses on account of labour contractors were incurred in previous year relevant AY 2013-14 to AY 2015-16 and assessment of AY 2013-14 and AY 2014-15 have been completed u/s 143(3) accepting these expenses and creditors as genuine. I have gone through the assessment orders, submission of the appellant and various documents furnished by him. The argument of the Appellant carries 4 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 weight and in agreement with the same. It is undisputed fact the amount of Rs514,08,070/- added by AO u/s 69C of the Act is opening balance bought forward from earlier years. Appellant has neither incurred nor claimed expenses of Rs 3,14,08,070/- in the previous year relevant to AY under reference te. AY 2017-18. There is no credit entry in the accounts of aforesaid creditors during the previous year relevant to AY 2017-18. As such this amount this amount cannot be added u/s 69C of the Act in AY 7-18. Hon'ble Delhi ITAT IN Shri Vardhman Overseas Ltd. v/s ACIT, (27 CCH 053) has ruled as under:– “10. We have carefully considered the rival submissions in the light of the material placed before us. From the perusal of copy of account of all the parties with regard to which the addition has been made, it revealed that no new amount has been credited by the assessee in their account during the year under consideration. Therefore, applicability of s. 68 is ruled out and addition could not be made under s. 68. Now, coming to the applicability of s. 41(1), it is observed that assessee company is a limited company and its accounts are accessible to general public. The balances are brought forward balances. If the same are added on account of their non-genuineness, then also these amounts cannot be added to the income of the assessee for the year under consideration as the question of genuineness thereof can be examined only in the year in which they were credited in the account of the assessee. The amount also cannot be considered to be the income of the assessee on the ground of expiry of limitation as, according to well settled law explained by Hon'ble Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. (supra) in the absence of creditor, it is not possible for the Department to come to the conclusion that the debt is barred and has become unenforceable and there may be some circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act. It will be relevant to reproduce these observations of their Lordships from the said decision:- \"The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act.” 11. In view of the above observations of Hon'ble Supreme Court, in the absence of creditor, it cannot be concluded by the Department that the debt is barred and has become unenforceable more particularly when the assessee is a limited company whose accounts are accessible to general-public. In the case of Sugauli Sugar Works (P) Ltd (Supra) the assessee had credited the amount which was added to its income u/s 41(1) of the Act but in the case of the assessee such amount was not even been credited to the P&L a/c. Thus, the case of the assessee is on sound footing than the case of the assessee in that case. Therefore, on 5 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 the ground of expiry of limitation, the addition upheld by the CIT(A) under s. 41(1) cannot be held justified. The above judgement of Delhi ITAT has been confirmed by Delhi High Court in CIT v. Vardhman Overseas Ltd reported in 343 ITR 408. Similar view has been taken in following ITAT judgements that the opening balances cannot be added u/s 68/69 of IT Act. ITA No. 1078/Bang/2014 in Glen Williams v/s ACIT ITO Vs Rahul kantilal Shah ITA No. 6805/Mum/2018 Syntensia Network Security Vs. ITO (ITA No.2927/Mum/2017) Respectfully following the views expressed by various ITAT the addition of Rs.3,14,08,070/- made u/s 69C of the Act is directed to be deleted as the assessee has neither incurred nor claimed any expenditure of Rs. 3,14,08,070/- during the year under consideration. Ground No.3 is hereby allowed.” Addition of Rs. 85,55,612/- deleted by the learned CIT(A) “Ground no. 4 is regarding the addition of Rs. 85,55,612/- made under section 69C of IT Act by disallowing payment made to labour contractors. The AO, during assessment proceeding noticed that the appellant has incurred expenditure of Rs 85,55,612/- towards mining expenses. These expenses are on account of extraction of manganese ore to following labour contractors- 1. N. Appalla Ramalu ` 40,95,090 2. S. Hussain ` 44,60,222 3. ` 85,55,612 During assessment proceeding appellant has submitted copy of bills issued by labour contractors, their Ledger account in the books of appellant, copy of form 16A downloaded from Traces site and copy of income tax returns filed by the labour contractors. However, the Id. AO held that in the statement recorded during survey, these labour contractors have denied of having done any work for the appellant, hence the expenses incurred for labour contractors is bogus and added it u/s 69C of the Act. During appellate proceedings, the appellant submitted that the Appellant is carrying on mining activities since 1984. The mines are open cast manual mine situated at Garividi, Dist.: Vizianagaram. As the mining activities are going on since 1984, the depth of the mine has reached over 250 Ft. To carry on such deep mining activities, huge teams of man-power in terms of labourersare required. The team of the management has appointed several labour contractors to carry out various mining activities. The work awarded to the labour contractor comprises of digging, carrying over burden, making path, stacking of ore and mutty, etc. The contractors are being appointed by the agent of the company who normally takes the stock situation of labour team, their financial condition and integrity of the contractor. After appointment, work is awarded to different contractors for different pits so as 6 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 to calculate the work done by them. The agent personally supervises the work of each contractor and verifying the same directs the contractor to prepare his work bill. The work bill is being verified by the mining supervisor who transfers the said bill to the accounts department. After receiving the bills, the accounts department verifies the rates, etc. and after deducting \"Tax at Source\" makes payment to the contractor. The village Garividi is a very small place, and it is very difficult to find labour contractors, so some time it also happens that some known persons of the appellant's firm / staff also engage in contract work and with their acquaintances form a labour team they executes the contract work. Appellant further submitted that the expenses on account of labour contractors are genuine business expenses, supported by bills issued by contractors, and their acceptance of it by showing contract receipts in Income Tax returns filed by them. The argument of the Appellant carries weight and I am in agreement with the same. The appellant has discharged its ends by providing copy of bills submitted by these contractors' showing details of work done by them. Appellant has also provided their complete name, address, and PAN numbers. The contractors have shown the contract amount as income in there respective income tax returns and paid due taxes thereon. The A.O. has not found any defect in the documents produced by the appellant nor has the A.O. falsified these documents. It is also undisputed that the appellant has sold goods worth Rs. 24.81 crore during eh relevant previous year. Without employing labourers through contractors such sales would not have been possible. The Id. AO has not doubted appellant's production and sales figures. As regards statement of contractor D Govind Rao taken at the time of survey, it has no evidentiary value because it has been rebutted by him before Special Magistrate, Vishakhapatnam in Affidavit dated 08/12/2021. No statements of other three labour contractors were recorded during survey and on the contrary they have confirmed receipt of money by filing their IT returns and paid taxes thereon. The addition made by AO is solely based on surmise and conjecture without bringing any corroborative evidence on record which cannot be sustained. Therefore, the addition of Rs. 85,55,612/- made u/s 69C is directed to be deleted and Ground No. 4 is hereby allowed.” Against this order of the learned CIT(A), the Revenue is in appeal before the Tribunal. 5. Before us, the learned Departmental Representative strongly argued and relied on the order of Assessing Officer. The learned counsel for assessee submitted that the addition of opening creditors of ` 3,14,08,070, as unexplained expenditure is unjustified as the assessee has not incurred this expenditure during the relevant previous year, the creditors are brought 7 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 forward from earlier years and paid subsequently. As regards payment to contractors of ` 85,55,512, the counsel submitted that the assessee has discharged onus by producing copy of bills, details of work done by them, payment through banking channel after due deduction of tax at source and return of income filed by the contractors. The learned Counsel supported order of the learned CIT(A). 6. We have gone through the order of the authorities below as well as details submitted before us. It is undisputed fact that the amount of ` 3,14,08,070 added by Assessing Officer under section 69C of the Act is the sum of opening balance of various creditors brought forward from earlier years. No expenditure is incurred during the relevant previous year. The assessee has produced evidences regarding its payment in relevant previous year and subsequent years. The learned CIT(A) has decided this issue and the same is reproduced above. We find no infirmity in the order of the learned CIT(A). We decline to interfere with the order passed by the learned CIT(A) which is hereby upheld by dismissing the grounds raised by the Revenue. 7. The next issue relates to deletion of addition of ` 85,55,612, on account of expenses on labour contractor for mining expenses. 8. The learned CIT(A) has dealt with this issue at Page-14 & 15 of his order which are reproduced above. 9. We find that we have already decided this issue in another case of Group concern of the assessee in its appeal being ITA no.234/Nag./2024, for 8 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 A.Y. 2020-21 vide Para-29 to 31, which are reproduced below for ready reference:- “29. We have gone through order of the learned CIT(A) as well as details submitted before us. We also find that the assessee is carrying on mining activities since the year 1944. The mines are open cast manual mine situated at Garividi, Dist. Vizianagaram. As the mining activities are going on since 1944, the depth of the mine has reached over 250 FT to carry on such deep mining activities, huge teams of man-power in terms of labourers are required. The team of the management has appointed several labour contractors to carry out various mining activities. The work awarded to the labour contractor comprises of digging, carrying over burden, making path, stacking of ore and mutty, etc. The contractors are being appointed by the agent of the company who normally takes the stock situation of labour team, there financial condition and integrity of the contractor. After appointment, work is awarded to different contractors for different pits so as to calculated the work done by them. The agent personally supervises the work of each contractor and verifying the same directs the contractor to prepare his work bill. The work bill is being verified by the mining supervisor who transfers the said bill to the accounts department. After receiving the bills, the accounts department verifies the rates, etc. and after deducting \"Tax at Source\" makes payment to the contractor. The village Garividi is a very small place, and it is very difficult to find labour contractors, so some time it also happens that some known persons of the assessee's firm/staff also engage in contract work and with their acquaintances from a labour team they execute the contract work. We are also gone through the assessment order, entire addition was made by the Assessing Officer under section 69C of the Act. The provisions of section 69 of the Act reproduced as under:- SECTION 69C. Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 2448[Assessing Officer), satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. From the plain reading of section 69C it is clear that there are two conditions for invoking section 69C. First is, that the assessee has incurred any expenditure in the relevant previous year, and second is that the assessee does not offer any explanation about source of such expenditure. If both the conditions are fulfilled then only section 69C can be applied. But in the present case 1) Assessee is a partnership firm carrying on business of Mining of Manganese Ore minerals. It maintains regular books of accounts which are audited u/s 44AB of I.T. Act. 9 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 2) A Survey u/s 133A of IT act was conducted at premises of the assessee on 25.08.2021. Assessee filed return of income on 13.02.2022 declaring total income of Rs. 18,01,81,210/-. Case was selected for scrutiny and notice under section 143(2) and 142(1) were issued which were duly replied by the assessee. In the assessment order passed u/s 143(3) the AO has made entire addition additions U/s. 69C which are in dispute in appeal. In the present case though the assessee has incurred expenditure during the year but all these expenses are duly recorded in books of accounts and they have been incurred from the regular business income of the assessee. The AO has neither during entire assessment proceeding nor in the assessment order doubted about the source of such expenditure. In view of the above we are opinion that the second limb of section 69C is not attracted in the present case, therefore we are deleted the addition made U/s. 69C.\" 30. We have considering the rival argument of the learned Counsel for the assessee as well the learned D.R. The learned CIT(A) has rightly deleted the additions under section 69C and we uphold the order of learned CIT(A) and this ground of appeal of the department were dismissed. Hence, ground no.5, raised by the Revenue is dismissed. 31. It is pertinent to mention here that the grounds raised by the Revenue harp upon the applicability of provisions of section 69C of the Act to all the additions made by the Assessing Officer. Thus, it is important to examine at the very behest as to whether the charging provisions of section 69C of the Act is at all applicable as to the facts and circumstances of the case. It is deemed expedient to refer to the provisions of section 69C of the Act which are reproduced elsewhere in the order. Here the Assessing Officer has unequivocally noted that the expenditure is recorded in the regular books of account. It is not the case that the Assessing Officer has found out some expenditure which is not reflected in the regular books of account. Thus, where the expenditure is already reflected, the source of incurring such expenditure need not be explained, as the same is evident by analysis of the books of account. Accordingly, application of provisions of section 69C of the Act fails at the very threshold. The learned D.R. could not satisfactorily explain the anomaly but he prayed before the Bench to apply the provisions of section 37 f the Act. His request is not acceptable since the same is contrary to the grounds of appeal raised by the Revenue and he is not permitted to change the colour and contour off the Revenue. Consequently, there is no merit in the additions generated under section 69C of the Act.“ 10. Since the issue before us is squarely covered by the aforesaid decision of the Tribunal rendered cited supra, we decline to interfere with the order passed by the learned CIT(A) which is hereby upheld by confirming the deletion of addition of ` 85,55,612. Thus the grounds raised by the Revenue are dismissed. 10 Radhika Vegetable Oils Pvt. Ltd. ITA no.23/Nag./2024 11. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 27/01/2025 Sd/- K.M. ROY ACCOUNTANT MEMBER Sd/- V. DURGA RAO JUDICIAL MEMBER NAGPUR, DATED: 27/01/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "