ACIT Circle , Patiala V. Sh. Inderpal Singh Chadda, Patiala

ITA 1080/CHANDI/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3521 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 01-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA DHAR
• Assessee Lawyers: DEEPAK AGARWAL
• Keywords: Set aside
• Section: 145(3)

Judgement Text

आयकर य कर , य य “A”, IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘A’, CHANDIGARH BEFORE: SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 1080/Chd/2019 (Assessment Year: 2015-16) Assistant Commissioner of Income-tax, Circle, Patiala. बनाम Sh. Inderpal Singh Chadha, S/o Sh. Makhan Singh Chadha H.No. 55A/4, Ranbir Marg, Patiala. थायी लेखा सं./PAN/TAN NO: ABIPC 2441 E नधा रती क ओर से/Assessee by : Shri Deepak Agarwal, Adv. राज व क ओर से/ Revenue by : Smt. Priyanka Dhar, CIT D.R स ु नवाई क तार ख/Date of Hearing: 30.03.2022 उदघोषणा क तार ख/Date of Pronouncement: 28.04.2022 आदेश/ORDER Per Vikram Singh Yadav, Accountant Member: This is an appeal filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals) Patiala [in short the ‘Ld. CIT(A)’] passed u/s 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) dated 29.05.2019 wherein the limited ground relates to deletion of addition of Rs. 1,91,98,342/- on account of large 2 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. increase in Sundry Creditors with respect to turnover during the year. 2. During the course of hearing, the ld. D/R taken us through the finding of the Assessing officer and submitted that one of the reasons for selection of the case for limited scrutiny was large increase in Sundry Creditors with respect to turnover as compared to preceding year. It was submitted that as per the return of income, there were sundry creditors amounting to Rs. 3,70,38,791/- as against the amount of sundry creditors of Rs. 1,78,40,449/- in the immediately preceding assessment year and given the increase in sundry creditors by Rs. 1,91,88,342/-, a show cause notice was issued to the assessee to furnish explanation with respect to large increase in sundry creditors. In response, the assessee admitted the increase in the quantum of sundry creditors and submitted that reason for such increase is attributable to increase in purchase and other direct expenses. However, the submissions so filed by the assessee were not substantiated through independent documentary evidence and a fresh show cause notice was issued to the assessee and inspite of giving specific opportunity, no explanation was received by the AO which showed that the assessee had nothing to say in the matter and, therefore, in absence of requisite explanation supported with 3 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. documentary evidence, the addition of Rs. 1,91,98,342/- was made by the AO in the hands of the assessee treating the sundry creditors as ingenuine. Further, our reference was drawn to the findings of the ld. CIT (A). It was submitted that with regard to the overseas creditors, the ld. CIT (A) himself stated that credit balances shown against overseas suppliers of Gypsum from Pakistan was intriguing, given that the trade practices involve credits given by the appellant’s bank against Letter of Credit and that having credit balances against such accounts appeared not be in consonance with regular trade practices. It was submitted that inspite of such observation, the ld. CIT (A) has gone ahead and deleted the addition so made by the A.O. It was further submitted that there were accounting anomaly with respect to accounting of such transactions and related foreign exchange fluctuation which have not been properly appreciated by the ld. CIT (A). It was accordingly submitted that the order of the ld. CIT (A) may kindly be set aside and that of the AO be confirmed. 3. Per Contra, the ld. A/R submitted that it is an admitted fact that during the course of assessment proceedings the assessee could not substantiate the increase in the quantum of sundry creditors through documentary evidence. However, during the course of appellate proceedings, the additional evidences were 4 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. furnished in the form of ledger account of purchasers and sundry creditors, copies of VAT returns and other documents in support of purchases and sundry creditors which were duly admitted and taken on record by the ld. CIT(A) and after calling for the remand report from the AO, the ld. CIT (A) has deleted the addition. It was submitted that regarding the identity of the creditors as well as genuineness of the transactions of imports as underlying the credit balances, no adverse finding has been reported by the AO in the remand proceedings. It was accordingly submitted that the revenue has no case where the AO in the remand proceedings has carried out the necessary verification and has not recorded any adverse findings in this regard and taking into account the remand report of the AO and calling for further information/clarification from the assessee, the ld CIT(A) has passed a reasoned order which should be confirmed. 4. We have heard the rival contentions and purused the material available on record. We have gone through the findings of the ld. CIT (A) which are contained at pages 18 & 19 of the impugned order which read as under:- “ I have carefully perused the findings of the Ld. AO, the written submission of the Ld. AR, the counter comments of the Ld. AO; the case laws cited and contextualized all these to the facts of the case. That the 5 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. additions in the assessment for increased in Sundry Creditors was done because the appellant failed to reply to the Show Cause Notice and filed confirmation/ explanations qua the increase in Creditors is matter of record. That in the Remand proceedings the Ld. AO has given a finding that all the Credit balances that increased during the previous year related to the assessment year of the impugned order is a matter of record and not in dispute. That the appellant has filed confirmations with regards to the domestic Creditors is also a matter of records and not in dispute. The Ld. AO has in the remand proceedings not offered any adverse comment on the veracity of closing balances of the overseas Creditors. The Ld. AO has in fact confirmed through the bank that all the payments shown in the running accounts of the overseas Creditors have been done against invoices raised and bill of Entry as well as shown to the Customs/VAT departments. Thus that the Credit Accounts are running accounts relating to regular imports what have been paid by the banks as Authorized Dealers to the Bank of the exporters of Pakistan in relation to the Invoices raised by the parties is a matter of record and confirmed by the Ld. AO during the remand proceedings. Thus qua the identity, credit- worthiness as well as genuineness of the transactions of imports as underlying the all credit balances there is no dispute and the Ld. AO has in the remand proceedings not brought on record any thing adverse in this connection. The Ld. AO has however submitted that the books of account of the Appellant are liable to be rejected u/s 145(3) on the basis of the fact that the exchange rate fluctuations have been inconsistently accounted for by the appellant. That in some cases the appellant has included reduction in cost due to lower quantity of material used along with the actual profit from exchange rate fluctuations is a matter of record and not in dispute. The appellant has claimed this is a regular practice. However, that the appellant has not followed this 6 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. methodology in all the cases and that in some instances, the exchange rate fluctuations which should have been accounted for at the time of settlement of the transaction still remain as part of balances that get reflected as sundry creditors has not been disputed by the Ld. AR instead argues on the ground of materiality and that in the final settlement of the accounts, with the Creditors, the differences credit or debit would be accounted for. That the cumulative effect of the variations found by the Ld. AO (though not explicitly quantified) is Rs. 39,437/- is a matter of record and not in dispute; that the there are similar losses with regards to exchange rate valuations which also have not been taken into account in few transaction has been examined from record. That the appellant is maintaining regular books of accounts and the books of accounts were dully audited is a matter of record and not in dispute. It is my considered view that the variation running into tens of thousands out of total imports of over Rs. 14.29 Crores, through irregular, are hardly material to warrant rejection of the entire books of accounts. That during the year the purchases of the appellant have increased from Rs. 2,80,55,799.65 in 2013-14 to Rs. 16,60,53,311.25 in 2014-15 and the turnover of the appellant from Rs. 7,57,65,296.10 to Rs. 28,62,37,139.51 is a matter of record and not in dispute. In view of the entire matrix of facts it is my considered view further that the credit balances added are all on account of trade creditors for purchases/expense3s and that the Ld. AO has not brought on record may adverse information with regards to the genuineness of the purchases/imports and that the identity & creditworthiness of the Creditors as well and genuineness of the transactions stands established. It is my considered view that there are minor irregularities with regards to the accounting of the exchange rate fluctuations which are not material given the total imports to merit rejection of books of accounts u/s 145(3) of the Act. The addition of Rs. 1,91,98,342/- on account of increase in Sundry Creditors is directed to be 7 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. deleted. It is ordered accordingly. The appellant succeeds on this ground of Appeal.” 5. We find that the ld CIT(A) has recorded a clear finding regarding domestic creditors as well as overseas creditors that their identity, credit-worthiness and genuineness of the transactions have been duly verified by the AO during the remand proceedings and no adverse finding has been recorded in this regard. During the course of hearing, nothing has been brought to our notice to disturb the said findings of the ld CIT(A) and therefore, the said findings remain unrebutted before us. Regarding the general trade practice of import against letter of credit, the ld CIT(A) has sought explanation from the assessee where the assessee has submitted that due to long standing business dealings with the suppliers of gypsum in Pakistan, they have not insisted on supply against letter of credit and the supplies have been regularly made against payments through regular banking channels and such practice is going on for a long time and being satisfied, the ld CIT(A) has accepted the said explanation and we do not find any perversity in the said findings of the ld CIT(A) given the facts of the present case as against the general trade practice. In light of the same, we hereby confirm the findings and order of the ld CIT(A) and the ground of appeal taken by the Revenue is dismissed. 8 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala. 6. In the result, appeal of the Revenue is dismissed. Order pronounced on 28.04.2022. Sd/- Sd/- ( DIVA SINGH ) (VIKRAM SINGH YADAV) याय क सद य/Judicial Member लेखा सद य/Accountant Member Dated: 28.04.2022 *Das* आदेश क % त&ल'प अ*े'षत/ Copy of the order forwarded to : 1. अपीलाथ+/ The Appellant 2. %,यथ+/ The Respondent 3. आयकर आय ु -त/ CIT 4. आयकर आय ु -त (अपील)/ The CIT(A) 5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File # $ स / By order, सह (ंज / Assistant Registrar Draft dictated 25.04.2022 Sr.PS Draft placed before author 27.04.2022 Sr.PS Approved Draft comes to the Sr.PS/PS 28.04.2022 Sr.PS Order signed and pronounced on File sent to the Bench Clerk 29.04.2022 Sr.PS Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order. 9 ITA No 1080/CHD/2019 Shri Inderpal Singh Chadha, Patiala.