SHARWAN KUMAR AGARWAL, Jaipur V. ITO, Jaipur

ITA 1128/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1994 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S L CHANDEL
• Keywords: Bogus purchase; Income from undisclosed sources
• Section: 142(1); 133(6)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 1128/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-13 SHRI SHARWAN KUMAR AGARWAL PROP. M/S AGARWAL STEELS V&P CHATARPURA VIA JAHOTA, TEHSIL AMER, DISTRICT JAIPUR CUKE VS. ITO WARD-7(4) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AHIPA4413E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 09/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2012-13 ITO WARD-7(4) JAIPUR CUKE VS. SHRI SHARWAN KUMAR AGARWAL PROP. M/S AGARWAL STEELS V&P CHATARPURA VIA JAHOTA, TEHSIL AMER, DISTRICT JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AHIPA4413E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C.PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI S.L.CHANDEL (ADDL.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/07/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 24/07/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF LD. CIT (A)-5, JAIPUR DATED 06 .10.2016 FOR A.Y. 2012-13 WHEREIN THE RESPECTIVE GROUNDS OF THE APPE AL ARE AS UNDER:- ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 2 ITA NO. 1128/JP/16 (GROUND OF ASSESSEES APPEAL): 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED ON FACTS AND IN LAW IN HOLDING THAT THE LIABILITY I N RESPECT OF THE OPENING SUNDRY CREDITORS CEASED TO EXIST AND THEREB Y CONFIRMING THE ADDITION OF RS. 45,50,712/- U/S 41(1) OF THE IT ACT IN THE YEAR UNDER CONSIDERATION. 1.1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PURCHASES P ERTAINING TO THE CURRENT YEAR AMOUNTING TO RS. 70,25,700/- REMAINS U NVERIFIABLE AND THEREBY CONFIRMING THE ADDITION OF RS. 10,53,85 5/- BY APPLYING G.P. RATE OF 15% ON SUCH ALLEGED UNVERIFIA BLE PURCHASES. ITA NO. 09/JP/2017 (GROUND OF REVENUES APPEAL): I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 59,71,845/- OUT OF TOTAL ADDITION OF RS. 1,15,76,41 2/- ON ACCOUNT OF UNVERIFIABLE PURCHASES BY APPLYING 15% ON RS. 70 ,25,700/- TREATING THE SAME AS CURRENT YEAR PURCHASES. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, CIT(A) HAS ERRED IN DELETING THE ADDITION OF R S. 1,48,722/- MADE BY THE AO ON ACCOUNT OF UNVERIFIABLE PURCHASES BY TELESCOPING THE SAME IN THE ADDITION SUSTAINED BY H IM OF RS. 10,53,855/- 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DU RING THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN OUTSTANDING SUNDRY CREDITORS OF RS. 1,28,57,478. THE AO ASKED T HE ASSESSEE TO FURNISH CONFIRMATIONS AND ACCOUNT COPIES OF VARIOUS CREDITORS, VIDE NOTICE U/S 142(1) DATED 22.01.2015. THE ASSESSEE FA ILED TO PRODUCE THE DETAILS CALLED FOR. HENCE SHOW-CAUSE NOTICE WAS GIV EN BY AO GIVING A LAST OPPORTUNITY TO THE ASSESSEE TO FURNISH THE ABO VE DETAILS, INTER-ALIA, ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 3 FAILING WHICH IT WAS MADE CLEAR THAT THE OUTSTANDIN G CREDITORS WOULD BE CONSIDERED BOGUS. IN RESPONSE, THE ASSESSEE FURNISH ED CONFIRMATIONS. THE AO SENT LETTERS U/S 133(6) TO THE CREDITORS TO VERIFY THE TRANSACTIONS/BALANCES. SUCH NOTICES WERE SENT TO TH E 12 CREDITORS BY REGISTERED POST AT THE ADDRESS GIVEN BY THE ASSESSE E. IN RESPONSE, ONLY 2 CREDITORS VIZ. S.R. TRADERS AND G.K. SALES CONFIR MED THE TRANSACTIONS WITH THE ASSESSEE AND THE BALANCE 10 LETTERS WERE R ETURNED UNSERVED. THE AO THEREAFTER GAVE A SHOW-CAUSE NOTICE TO THE A SSESSEE ASKING HIM TO PRODUCE THE CREDITORS AND THEIR LEDGER ACCOUNTS. IN RESPONSE, THE ASSESSEE FAILED TO PRODUCE THE CREDITORS AS WELL AS HIS BOOKS OF ACCOUNTS, WHICH HE STATED WERE WITH HIS ACCOUNTANT WHO HAS LEFT THE SERVICE AND THEREFORE HE WAS UNABLE TO PRODUCE THE SAID BOOKS. THE ASSESSEE ALSO GAVE NEW ADDRESSES OF THE CREDITORS I N WHOSE CASE NOTICES U/S 133(6) WERE RETURNED UNSERVED. THE AO O NCE AGAIN ISSUED NOTICES U/S 133(6) AT SUCH NEW ADDRESSES. TO SUCH N OTICES, ONLY 5 CREDITORS RESPONDED AND THE REMAINING NOTICES WERE EITHER RETURNED UNSERVED OR THE CREDITORS DID NOT RESPOND. EVEN OUT OF THE 5 CREDITORS WHO RESPONDED, ONLY 3 CREDITORS CONFIRMED THE ACCOU NT BALANCES AND THE REMAINING 2 CREDITORS STATED THAT THEY HAD NO A CCOUNT BALANCES/RECEIVABLES FROM THE ASSESSEE. IN THIS MAN NER, SUNDRY CREDITOR BALANCES OF ONLY RS. 12,81,066 COULD BE CONFIRMED I N TOTAL AND THE BALANCE SUNDRY CREDITORS OF RS. 1,15,76,416 WERE CO NSIDERED BOGUS BY THE AO ON ACCOUNT OF NON-CONFIRMATION BY THE CREDIT ORS AS WELL AS NON- PRODUCTION OF SUCH CREDITORS. ACCORDINGLY, THE AO A DDED THE AMOUNT OF RS. 1,15,76,416 AS BOGUS OR NON-EXISTENT CREDITORS. IT WAS FURTHER NOTED BY THE AO THAT THE BOOKS OF ACCOUNT WERE NOT PRODUC ED BY THE ASSESSEE DESPITE SEVERAL OPPORTUNITIES BEING GRANTED. THE AO THEREFORE REJECTED THE BOOKS OF ACCOUNT U/S 145(3) AND MADE AN ADDITIO N OF RS. 1,48,722 ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 4 BY ADOPTING THE G.P. RATE OF 3.50% IN PLACE OF 3.09 % SHOWN BY THE ASSESSEE ON TOTAL TURNOVER OF RS 3,58,60,912. 3. NOW WE REFER TO THE RELEVANT FINDING OF THE LD. CIT(A) WHICH ARE UNDER CHALLENGE BEFORE US. THE SAME ARE REPRODUCED IS AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE A SSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSEE HAS ADMITTEDLY NOT PRODUCED THE BOOKS OF ACCOUNT DURING ASSESSMENT PRO CEEDINGS AND HAS ALSO NOT CONTROVERTED THIS FACT DURING APPELLATE PR OCEEDINGS. ACCORDINGLY, SINCE THE BOOKS ARE NOT PRODUCED AT AL L, THE RELIABILITY OF BOOK RESULTS CANNOT BE ASCERTAINED. HENCE, REJECTIO N OF BOOKS OF ACCOUNT U/S 145(3) IS IN ORDER AND IS UPHELD. REGAR DING CONSEQUENT ESTIMATION OF PROFITS BY ADOPTING G.P. RATE OF 3.5% AND MAKING AN ADDITION OF RS. 1,48,722, THE AO SEEMS TO HAVE MISS ED THE LARGER ISSUE OF UNVERIFIABLE PURCHASES WHILE DECIDING ON THE RAT E OF G.P. TO BE APPLIED. IT IS NOTEWORTHY THAT SUBSTANTIAL PURCHASE S TO THE TUNE OF RS. 1,15,76,416 REMAIN UNVERIFIED AS HELD HEREAFTER WHI LE DECIDING GROUND NO. 2. IT WOULD THEREFORE WARRANT APPLICATION OF A SUBSTANTIALLY HIGHER G.P. RATIO IN ORDER TO TAKE INTO ACCOUNT SUCH UNVER IFIABLE PURCHASES. SUCH G.P WHICH CANNOT BE DECIDED ON THE BASIS OF TH E HISTORICAL G.P. TREND SHOWN BY THE ASSESSEE. IT HAS BEEN HELD BY TH E JURISDICTIONAL HIGH COURT AS WELL AS ITAT, JAIPUR BENCH IN SEVERAL DECI SIONS INCLUDING THAT OF VENUS ARTS AND GEMS VS. ITO (2014) 369 ITR 161 ( RAJ.) AND ANUJ KUMAR VARSHNEY VS. ITO(2014) 41 CCVH 15 THAT APPLIC ATION OF A HIGHER RATE OF G.P. MAY BY WARRANTED IN CASES INVOLVING UN VERIFIABLE PURCHASES, IN ORDER TO COVER UP FOR POSSIBLE LEAKAGES DUE TO B OOKING OF BOGUS PURCHASES. THIS REASONING ALSO FINDS SUPPORT IN DEC ISION OF GUJARAT HIGH COURT IN THE CASE OF M/S SANJAY OIL CAKES INDUSTRIE S 316 ITR 274 (GUJ.), WHEREIN APPLICATION OF G.P. RATE OF 25% WAS CONFIRM ED DUE TO THE ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 5 PRESENCE OF UNVERIFIABLE PURCHASES. ACCORDINGLY, TH E G.P. RATE OF 3.5% ADOPTED BY THE AO DOES NOT FULLY COVER UP OR COMPEN SATE FOR THE LARGER ISSUE OF UNVERIFIABLE PURCHASES, WHICH WARRANTS APP LICATION OF A HIGHER RATE OF G.P ON SUCH PURCHASES. THEREFORE, THE ADDIT ION OF RS. 1,48,722 IS HEREBY DELETED AS THE RATE OF G.P. DECIDED IN GR OUND NO. 2 BELOW WOULD TAKE CARE OF ANY UNACCOUNTED INCOME OR SUPPRE SSION OF INCOME DUE TO BOGUS PURCHASES. THIS GROUND OF APPEAL IS TH EREFORE ALLOWED. 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE AS SESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IT IS OBSERVED TH AT THE AO HAS GIVEN SEVERAL OPPORTUNITIES TO THE ASSESSEE DURING ASSESS MENT PROCEEDINGS TO PRODUCE THE CREDITORS SINCE CREDITORS AMOUNTING TO RS. 1,15,76,412 EITHER DID NOT CONFIRM THEIR TRANSACTIONS/BALANCES OR THEY DENIED HAVING OUTSTANDING BALANCES AS CLAIMED BY THE ASSESSEE. IN FACT, THE AO HAS ISSUED NOTICES U/S 133(6) ON TWO OCCASIONS TO THESE CREDITORS AT THE ADDRESSES PROVIDED BY THE ASSESSEE. IT IS SETTLED L AW THAT THE PRIMARY ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES, AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. GOLCHA PROPERTIES (P) LTD. (1997) 227 ITR 391 (RAJ.), WHEREIN IT IS F URTHER HELD THAT THE DEPARTMENT IS NOT REQUIRED TO LEAD A CLINCHING EVID ENCE TO PROVE THAT THE PURCHASES ARE BOGUS. IT IS ALSO HELD BY THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF INDIAN WOOLEN CARPET FACTORY VS. ITA T (2002) 125 TAXMANN 763 (RAJ.) THAT IF THE ASSESSEE FAILED TO P ROVE THE GENUINENESS OF PURCHASES BY PRODUCING THE PARTIES FROM WHOM PUR CHASES ARE SAID TO HAVE BEEN MADE AND WHOSE WHEREABOUTS ARE NOT KNOWN THE ADDITION IS JUSTIFIED. IN THE CASE OF THE ASSESSEE, THERE IS A DISTINCT FAILURE NOT ONLY TO SUPPLY PROPER WHEREABOUTS OF THE PARTIES BUT ALS O TO PRODUCE THEM DESPITE THE AOS INSISTENCE ON THE SAME ON AS MANY AS TWO OCCASIONS, PARTICULARLY IN VIEW OF THE FACT THAT REPEATED ISSU AL OF NOTICES U/S 133(6) TO THE SAID CREDITORS EITHER DID NOT YIELD ANY RESP ONSE OR THE CREDITORS ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 6 STRAIGHTWAY DENIED THE CREDIT BALANCES CLAIMED BY T HE ASSESSEE. THE FACTS OF THE CASE ARE SIMILAR TO THOSE IN THE C ASE OF SH. ANUJ KUMAR VARSHNEY, VIDE ORDER DATED 22.10.2014, IN ITA NO. 1 87/JP/2012. THE HONBLE ITAT, JAIPUR BENCH HAS HELD THAT THE PRIMAR Y ONUS IS ON THE ASSESSEE TO PROVE THAT THE PURCHASES WERE GENUINE. IN THAT CASE, THE PARTIES WERE KNOWN TO THE ASSESSEE, WHO FAILED TO E STABLISH THEIR EXISTENCE AND INVESTIGATIONS CONDUCTED BY THE DEPAR TMENT WENT AGAINST THE ASSESSEE, THEREFORE THE AO REJECTED THE BOOK RE SULT U/S 145(3) AFTER FOLLOWING THE DECISION IN THE CASE OF SANJAY OIL CA KE INDUSTRIES 316 ITR 274 AND VIJAY PROTEINS LTD. 58 ITD 428, AS WELL AS ITAT, JAIPUR BENCH IN THE CASE OF NAND KISHORE MEGHRAJ JEWELLERS IN ITA N O. 433/JP/2009. THE ITAT, JAIPUR BENCH SUSTAINED APPLICATION OF G.P . RATE OF 15% ON THE UNVERIFIABLE PURCHASES IN ORDER TO TAKE CARE OF SUP PRESSED PROFIT ON ACCOUNT OF SUCH BOGUS PURCHASES BEING DEBITED. FOLL OWING THE ITAT, JAIPUR BENCH ORDER IN THE SAID CASE, THE APPLICATIO N OF G.P RATE OF 15% ON UNVERIFIABLE PURCHASES IS CONFIRMED. IT IS HOWEV ER SEEN THAT OUT OF THE UNVERIFIABLE PURCHASES OF RS. 1,15,76,412 PURCH ASES OF RS. 45,50,712 PERTAIN TO EARLIER YEARS AND IS FIGURING AS CLOSING BALANCE OF SUNDRY CREDITORS IN THE BALANCE SHEET AS ON 31.03.2 011. THUS THE UNVERIFIABLE PURCHASES PERTAINING TO THE CURRENT YE AR AMOUNTS TO RS. 70,25,700. THE APPLICATION OF G.P. RATE OF 15% THER EON GIVES SUPPRESSED PROFIT OF RS. 10,53,855 FOR THE YEAR UND ER CONSIDERATION, ON ACCOUNT OF UNVERIFIABLE PURCHASES. 4.4 FURTHER, IT IS A FACT THAT THE BROUGHT FORWARD LIABILITY OF RS. 45,50,712 IS A TRADING LIABILITY WHICH HAS CEASED T O EXIST AS THE OUTSTANDING BALANCES HAVE NOT BEEN CONFIRMED BY THE RESPECTIVE CREDITORS, NOR HAVE SUCH CREDITORS BEEN PRODUCED BE FORE THE AO. IT IS HELD BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF KESORAM INDUSTREIS & COTTON MILLS LTD. (1992) 196 ITR 845 (CAL.) THAT WH ERE THE ASSESSEE DID ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 7 NOT DISCHARGE BURDEN OF PROVING THAT LIABILITIES ST ILL PERSIST, AO RIGHTLY TREATED THE SAME AS CESSATION OF LIABILITY U/S 41(1). HENCE, SUCH CEASED LIABILITY IS TAXABLE IN THE YEAR UNDER CONSI DERATION AS PER PROVISIONS OF SEC. 41(1). THIS VIEW IS ALSO SUPPORT ED BY THE FOLLOWING DECISIONS: 1. BHARAT DANA BERA V. ITO (2015) 39 ITR 632 (MUM.) (TRIB.) 2. NATURAL GAS COMPANY PVT. LTD. V. DCIT (2015) 70 SOT (MUM.) (TRIB.) 4.5 IT IS ACCORDINGLY HELD THAT SUCH UNPROVED LIABI LITIES AMOUNTING TO RS. 45,50,712 HAD CEASED TO EXIST IN THE YEAR UNDER CONSIDERATION AND ARE THEREFORE TAXABLE U/S 41(1) OF THE IT ACT. ACCO RDINGLY, ADDITION OF RS. 56,04,567 (RS. 10,53,855 + RS. 45,50,712) IS UP HELD AND THE BALANCES OF RS. 59,71,849 IS DELETED. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE AO CONSIDERED THE SUNDRY CREDITORS AS ON 31.03.2012 TO THE EXTENT OF RS. 1,15,76,412/- AS BOGUS AND MADE ADDITION FOR THE SA ME. THE LD. CIT(A), HOWEVER, HELD THAT OUT OF THE SAID AMOUNT, RS. 45,5 0,718/- IS THE BALANCE OF SUNDRY CREDITORS AS ON 31.03.2011 AND TH EREFORE, HE CONFIRMED ADDITION OF RS. 45,50,718/- U/S 41(1) BEI NG THE OPENING BALANCE IN THE ACCOUNT OF THESE CREDITORS. THE LIST OF THESE SUNDRY CREDITORS IS AT APB 4. THE COPY OF LEDGER ACCOUNT O F THESE SUNDRY CREDITORS FOR FY 2010-11 TO FY 2012-13 IS FROM APB 10-66. FROM THE COPY OF INDIVIDUAL LEDGER ACCOUNT OF SUNDRY CREDITO RS, IT CAN BE NOTED THAT THE OPENING SUNDRY CREDITORS HAVE MOSTLY BEEN PAID BY CHEQUE IN THE YEAR UNDER CONSIDERATION. SECTION 41(1) IS APPL ICABLE WHERE ANY LOSS, EXPENDITURE OR TRADING LIABILITY HAS BEEN ALL OWED AS DEDUCTION AND SUBSEQUENTLY THERE IS A REMISSION OR CESSATION THER EOF OR SUCH AMOUNT IS UNILATERALLY WRITTEN BACK BY THE ASSESSEE. IN TH E PRESENT CASE, THERE IS NO SUCH REMISSION OR CESSATION NOR THERE IS ANY UNI LATERAL WRITTEN BACK ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 8 OF SUCH LIABILITY. AO HAS ALSO NOT BROUGHT ANY EVID ENCE THAT THE OTHER PARTY HAS WRITTEN OFF THESE AMOUNTS IN THEIR BOOKS OF ACCOUNTS DURING THE YEAR. ONLY BECAUSE NOTICES WERE RETURNED UNSERVED OR THE CREDITORS DID NOT RESPOND, IT CANT PRESUMED THAT T HE LIABILITY HAS CEASED TO EXIST DURING THE YEAR MORE PARTICULARLY WHEN THE ASSESSEE WAS HAVING REGULAR BUSINESS TRANSACTIONS IN SUBSEQUENT YEARS A ND THESE CREDITORS HAVE BEEN SUBSEQUENTLY PAID OR THESE CREDITORS HAVE TURNED INTO DEBTORS BECAUSE OF ADVANCE GIVEN TO THEM OR SALES M ADE TO THEM BY THE ASSESSEE. THESE AMOUNTS ARE OTHERWISE COMING FR OM EARLIER YEARS AND HAS BEEN PAID DURING THE YEAR. THEREFORE, IN TH E ABSENCE OF REMISSION OR CESSATION OR ANY UNILATERAL WRITTEN BA CK OF SUCH LIABILITY BY ASSESSEE, THE SAME CANNOT BE TREATED AS ASSESSEES INCOME U/S 41(1). IN SUPPORT, RELIANCE WAS PLACED ON FOLLOWING DECISI ONS: CIT VS. NARENDRA MOHAN MATHUR (2014) 97 DTR 428 (RA J.)(HC) CIT VS. ALVERES & THOMAS (2016) 239 TAXMAN 456 (KAR .) (HC) ACIT VS. ZYDUS INFASTRUCTURE PVT. LTD. (2016) 161 I TD 611 (AHD.) (TRIB.) ITO VS. MARCOPOLO PRODUCTS PVT. LTD. (2016) 159 ITD 266 (KOL.)(TRIB.) CIT VS. G.K. PATEL & CO. (2012) 212 TAXMAN 384 (GUJ .) (HC) INCOME TAX VS. R.B.SETH MOOLCHAND NEMICHAND (P.) LT D. 14 ITD 473 (JPR.) (TRIB.) (TM) IN VIEW OF ABOVE, THE ADDITION TO THE EXTENT OF RS. 45,50,712/- MADE BY THE AO ON ACCOUNT OF BOGUS SUNDRY CREDITORS AND CON FIRMED BY THE LD. CIT(A) U/S 41(1) IS AGAINST LAW AND THEREFORE, THE SAME BE DIRECTED TO BE DELETED. 4.1 IT WAS FURTHER SUBMITTED THAT IN RESPECT OF THE REMAINING SUNDRY CREDITORS OF RS. 70,25,700/- (1,15,76,412-45,50,712 ), THE AO TREATED THE SAME AS BOGUS WHEREAS THE LD. CIT(A) CONSIDERED THE SAME AS ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 9 UNVERIFIABLE PURCHASES AND DISALLOWED RS. 10,35,855 /-, BEING 15% OF SUCH AMOUNT. IT IS SUBMITTED THAT THE LOWER AUTHORITIES HAVE NOT BROUGHT OUT ANY MATERIAL ON RECORD TO ESTABLISH THA T THESE PURCHASES ARE UNVERIFIABLE. THE ASSESSEE WAS HAVING REGULAR B USINESS TRANSACTIONS WITH THESE CREDITORS DURING THE YEAR AND ALSO IN TH E SUBSEQUENT YEARS. THESE CREDITORS HAVE BEEN SUBSEQUENTLY PAID OR HAVE TURNED INTO DEBTORS BECAUSE OF ADVANCE GIVEN TO THEM OR SALES M ADE TO THEM BY THE ASSESSEE. COPY OF LEDGER ACCOUNT IS AT PB 10-66 . THIS SHOWS THAT PURCHASES MADE FROM THESE PARTIES ARE GENUINE. THUS , ONLY BECAUSE SOME CREDITORS DID NOT RESPOND OR THE NOTICES WERE RETURNED UNSERVED, IT CANNOT BE PRESUMED THAT THE CREDITORS ARE BOGUS MORE PARTICULARLY WHEN THE SALES DECLARED BY THE ASSESSEE IS ACCEPTED AND THE G.P. RATE FOR THE YEAR IS REASONABLE CONSIDERING THE NATURE A ND VOLUME OF THE BUSINESS AS EXPLAINED IN PARA 4 BELOW. HENCE, BOTH THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE DIRECT ED TO BE DELETED. 4.2 IT WAS FURTHER SUBMITTED THAT OTHERWISE ALSO, W HERE BOOKS OF ACCOUNTS ARE REJECTED, SAME BOOKS OF ACCOUNTS CANNO T BE RELIED UPON FOR MAKING THE ADDITION U/S 41(1) OR FOR ALLEGED BO GUS CREDITORS. THE KARNATAKA HIGH COURT IN CASE OF CIT VS. BAHUBALI NE MINATH MUTTIN (2016) 242 TAXMAN 279 HAS HELD THAT WHERE BOOKS OF ACCOUNT OF ASSESSEE HAD BEEN REJECTED BY ASSESSING AUTHORITY, SAME BOOKS OF ACCOUNT COULD NOT BE RELIED UPON IN AN ADDITION ON ACCOUNT OF TRADE CREDITORS AND ALSO FOR ARRIVING AT CLOSING STOCK. 4.3 IT WAS FURTHER SUBMITTED THAT THE G.P. RATE DEC LARED BY THE ASSESSEE DURING THE YEAR IS 3.09% ON TURNOVER OF RS . 3,58,60,912/- AS COMPARED TO G.P RATE OF 4.32% ON TURNOVER OF RS. 1, 22,18,178/- IN A.Y 2011-12 AND G.P. RATE OF 13.02% ON TURNOVER OF RS. 3,52,914/- IN AY 2010-11. THE ASSESSEE STARTED HIS BUSINESS DURING A Y 2010-11. IN THE ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 10 FIRST YEAR, THE BUSINESS WAS ON RETAIL BASIS WITH T URNOVER OF RS. 3,52,914/-. IN AY 2011-12, THE ASSESSEE TRIED TO SH IFT HIS RETAIL BUSINESS TO WHOLESALE BUSINESS. DUE TO THIS CONVERSION, TOTA L SALES OF WHOLESALE & RETAIL TRADE BUSINESS REACHED TO RS. 1,22,18,178/-. IN THE YEAR UNDER CONSIDERATION, THE ENTIRE SALES OF RS. 3,58,60,912/ - PERTAINS TO WHOLESALE BASIS. THE DECLINE IN THE G.P. RATE OF 1. 23% DURING THE YEAR AS COMPARED TO THE PREVIOUS YEAR IS ON ACCOUNT OF I NCREASE IN THE TURNOVER BY 194% AS COMPARED TO THE LAST YEAR AND B ECAUSE OF CHANGE IN THE VOLUME OF PROFIT & NOT IN THE RATE OF PROFIT . SO FAR AS VOLUME OF PROFIT IS CONCERNED, THE SAME INCREASED FROM RS. 5. 27 LACS TO RS. 11.06 LACS. THUS, WHEN THE AMOUNT OF PROFIT DECLARED BY T HE ASSESSEE IS BETTER AS COMPARED TO THE RESULTS DECLARED IN EARLIER YEAR S, THE LD. CIT(A) HAS RIGHTLY DELETED THE TRADING ADDITION OF RS. 1,48,72 2/- MADE BY THE AO. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, IN RESPECT OF SUNDRY CREDITORS AMOUNTING TO RS 45,50,712, IT IS NOT IN DISPUTE THAT THESE RE LATE TO OPENING BALANCES OF SUNDRY CREDITORS AT THE BEGINNING OF TH E YEAR. THE AO HAS TREATED THEM AS BOGUS CREDITORS AS THE OUTSTAND ING BALANCES HAVE NOT BEEN CONFIRMED BY THE RESPECTIVE CREDITORS NOR THEY COULD BE PRODUCED AND DISALLOWED THE WHOLE OF THEM. THE LD CIT(A) HAS TERMED THE SAME AS TRADING LIABILITY WHICH HAS CEAS ED TO EXIST AND HAS INVOKED THE PROVISIONS OF SECTION 41(1) OF THE ACT AS THE OUTSTANDING BALANCES HAVE NOT BEEN CONFIRMED BY THE RESPECTIVE CREDITORS. THE LD AR HAS CONTENDED THAT THE ASSESS EE WAS HAVING REGULAR BUSINESS TRANSACTIONS WITH THESE CREDITORS IN PAST AND SUBSEQUENT YEARS AND THE OUTSTANDING BALANCES AT TH E BEGINNING OF THE YEAR HAVE BEEN PAID OFF IN THE SUBSEQUENT YEAR AND OUR REFERENCE WAS DRAWN TO THE LEDGER ACCOUNTS OF THESE CREDITORS AT APB 10-66. ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 11 WE FIND FORCE IN THE ARGUMENTS OF THE LD AR. WHERE THERE ARE REGULAR BUSINESS TRANSACTIONS BETWEEN THE ASSESSEE AND THE CREDITOR AND THE OUTSTANDING LIABILITY HAS BEEN PAID OFF IN THE SUBSEQUENT YEAR, THE PROVISIONS OF SECTION 41(1) CANNOT BE INV OKED IN THE INSTANT CASE. NON-RECEIPT OF CONFIRMATION FROM THE CREDITO RS COULD BE A PRIMA FACIE GROUND TO RAISE DOUBT OR SUSPICION IN T HE MIND OF THE AO BUT THE SAME CANNOT BE A SOLE BASIS FOR MAKING THE ADDITION UNDER SECTION 41(1) OF THE ACT. THE REVENUE HAS TO PROVE THAT THE CONDITIONS IN TERMS OF CESSATION OR REMISSION OF LI ABILITY OR UNILATERAL WRITE BACK ARE STRICTLY COMPLIED WITH TO INVOKE THE PROVISIONS OF SECTION 41(1) OF THE ACT. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT SUCH CONDITIONS ARE SATISFIED IN THE INSTANT C ASE AND HENCE, PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE. CO MING BACK TO THE AOS FINDING, THE LD AR HAS CONTENDED THAT THE ASSE SSEE WAS HAVING REGULAR BUSINESS TRANSACTIONS WITH THESE CREDITORS IN PAST AND SUBSEQUENT YEARS AND THE OUTSTANDING BALANCES AT TH E BEGINNING OF THE YEAR HAVE BEEN PAID OFF IN THE SUBSEQUENT YEAR. GIVEN THAT THERE IS NO FINDING REGARDING PAYMENT AND DISCHARGE OF TH E LIABILITY IN THE SUBSEQUENT PERIOD AS CONTENDED BY THE LD AR, WE ARE SETTING ASIDE THE MATTER TO THE FILE OF THE AO FOR THE LIMITED PU RPOSE OF VERIFYING THE PAYMENT AND DISCHARGE OF THE OUTSTANDING LIABIL ITY OF RS 45,50,712 AT THE BEGINNING OF THE YEAR AND WHERE TH E SAME IS FOUND TO BE IN ORDER, ALLOW THE NECESSARY RELIEF TO THE A SSESSEE. 6. IN RESPECT OF REMAINING SUNDRY CREDITORS OF RS 7 0,25,700, THE LD AR HAS AGAIN CONTENDED THAT THE ASSESSEE WAS HAV ING REGULAR BUSINESS TRANSACTIONS WITH THESE CREDITORS DURING T HE YEAR AND SUBSEQUENT YEARS AND THESE CREDITORS HAVE SUBSEQUEN TLY BEEN PAID OR HAVE TURNED INTO DEBTORS BECAUSE OF ADVANCE GIVE N TO THEM OR ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 12 SALES MADE TO THEM BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE FACT THAT THE PURCHASES ARE GENU INE IS DEMONSTRATED BY THE FACT THAT THE SALES HAVE BEEN M ADE OUT OF SUCH PURCHASES AND WHICH HAVE BEEN ACCEPTED BY THE REVEN UE. IN OUR VIEW, THE PRIMARY ONUS IS ON THE ASSESSEE TO DEMONS TRATE ITS BUSINESS TRANSACTIONS WHETHER IT RELATES TO PURCHAS ES OR SALE THEREOF. THE AO HAS ISSUED NOTICES SEEKING CONFIRMATION FROM THE CREDITORS AND ALSO SOUGHT PRODUCTION OF BOOKS OF ACCOUNTS. I N ABSENCE OF NECESSARY CONFIRMATIONS FROM THE CREDITORS AND NON- PRODUCTION OF BOOKS OF ACCOUNTS, THE AO HAS PROCEEDED WITH TREATI NG THE PURCHASES AS BOGUS. AT THE SAME TIME, IT IS A FACT THAT THE SALES HAVE NOT BEEN DOUBTED RATHER ACCEPTED BY THE REVENUE. FURTHER, T HE ASSESSEE HAS CONTENDED THAT THERE ARE REGULAR BUSINESS TRANSACTI ONS WITH THESE CREDITORS AND PAYMENTS HAVE BEEN MADE TO THEM IN SU BSEQUENT PERIOD WHICH CAN BE DEMONSTRATED THROUGH LEDGER AND BANK ACCOUNTS. IN OUR VIEW, WHERE THERE ARE REGULAR BUS INESS TRANSACTIONS BETWEEN THE ASSESSEE AND THESE CREDITORS, THE ASSES SEE IS CLEARLY IN A POSITION WHERE IT CAN PERSUADE THESE CREDITORS TO R ESPOND TO THE CONFIRMATION NOTICES ISSUED BY THE REVENUE. FURTHE R, THE ASSESSEE HAS TO DEMONSTRATE THE FACT THAT THERE ARE GENUINE PURCHASES FROM THESE CREDITORS DURING THE YEAR THROUGH CREDIBLE AN D VERIFIABLE PURCHASE DOCUMENTATION AND ALSO THE LINKAGE BETWEEN THE PURCHASE AND THE SALE. ONCE THESE FACTS ARE ON RECORD, ONE C AN DETERMINE THE CORRECT FACTUAL POSITION AND THE RELATED TAX CONSEQ UENCES. PRESENTLY, THERE IS NOT ENOUGH MATERIAL ON RECORD FOR US TO TA KE A VIEW IN THE MATTER. SINCE WE HAVE SET-ASIDE THE MATTER PERTAIN ING TO OUTSTANDING SUNDRY CREDITORS AT THE BEGINNING OF THE YEAR TO TH E FILE OF THE AO, THIS ISSUE IS ALSO REMANDED BACK TO THE FILE OF THE AO TO EXAMINE THE ITA NO. 1128/JP/2016 & 09/JP/2017 SHRI SHARWAN KUMAR AGARWAL, JAIPUR VS. ITO, JAIPUR 13 SAME A FRESH AFTER TAKING INTO CONSIDERATION THE CO NTENTIONS RAISED BY THE LD AR AND DECIDE THE SAME AS PER LAW. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND APPEA L OF THE REVENUE ARE DISPOSED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2017 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/07/2017. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI SHARWAN KUMAR AGARWAL, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ITO WARD-7(4), JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1128/JP/2016 & 09/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR