Veda Commercial Pvt Ltd, Kolkata V. Addl C.I.T Rg - 10,kolkata, Kolkata

ITA 1326/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9361 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBASH AGARWAL SHRI
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Unexplained cash credit; Business income; Source of fund; Question of law; Corroborative evidences
• Section: 143(3); 133(6); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI ABY.T VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1326 & 2101 / KOL / 2013 ASSESSMENT YEAR :2008-09 VEDA COMMERCIAL PVT. LTD. 5/1, ANIL MOITRA ROAD KOLKATA-700 019 [ PAN NO.AAACV 8506 H ] INCOME TAX OFFICER, WARD-10(4), P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, ROOM NO.73 KOLKATA-700 069 V/S . V/S . ADDL. CIT, RANGE-10, P-7, CHOWRINGHEE SQUARE KOLKATA-700 069 M/S VEDA COMMERCIAL PVT. LTD., 5/1 ANIL MOITRA LANE, KOLKATA-19 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI SUBASH AGARWAL, ADVOCATE /BY REVENUE SHRI VIJYENDRA KUMAR, JCIT-SR-DR /DATE OF HEARING 10-01-2017 ! /DATE OF PRONOUNCEMENT 23-02-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THE ASSESSEE AS WELL AS REVENUE IS IN CROSS-APPEAL S AGAINST THE COMMON ORDER DATED 12.03.2013 PASSED BY COMMISSIONE R OF INCOME TAX (APPEALS)-XII, KOLKATA. ASSESSMENT WAS FRAMED BY AD DL. CIT, RANGE-10, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27.12.2010 FOR ASSESSMEN T YEAR 2008-09. ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 2 SHRI, SUBASH AGARWAL, LD. ADVOCATE APPEARED ON BEHA LF OF ASSESSEE AND SHRI VIJYENDRA KUMAR, LD. SENIOR DEPARTMENTAL REPRESENTA TIVE REPRESENTED ON BEHALF OF REVENUE. 2. BOTH THE APPEALS ARE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY WAY OF CONSOLIDATE ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO.2101/KO L/2013 . 3. ONLY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT LD CIT(A) ERRED IN HOLDING THE INCOME FROM TRANSACTIONS IN SHARES A S CAPITAL GAIN WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS IN BUSIN ESS OF SHARE TRADING. 4. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SHOWN FOLLOWING SOURCES OF INCOME : S.NO. SOURCES OF INCOME AMOUNT 1. LONG TERM CAPITAL GAIN 61,78,630/- 2. SHORT TERM CAPITAL GAIN 90,62,028/- 3. DIVIDEND INCOME 5,28,122/- 4. READYMADE GARMENTS BUSINESS 2,45,814/- THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSM ENT PROCEEDINGS OBSERVED THAT THE INCOME UNDER THE HEAD CAPITAL GA IN IS ACTUALLY A BUSINESS INCOME OF THE ASSESSEE ON ACCOUNT OF THE FOLLOWING REASONS : 1. THE ASSESSEE HAS SHOWN IN THE TAX AUDIT REPORT T HE NATURE OF BUSINESS AS EXPORT OF READY-MADE GARMENTS AND TEXTILES AND INVESTMENT IN SHARES. 2. THE SUBSTANTIAL PART OF THE FUND WAS INVESTED IN THE ACTIVITIES OF PURCHASE AND SALE OF SHARES WHEREAS NEGLIGIBLE FUND WAS DEPLOYED IN THE BUSINESS OF READY-MADE GARMENTS. 3. THE TURNOVER FROM THE ACTIVITIES OF PURCHASE AND SALES OF SHARES WAS HUGE WHEREAS THE TURNOVER FROM THE READY-MADE BUSIN ESS WAS NEGLIGIBLE. THE SAME PATTERN WAS ALSO OBSERVED IN T HE IMMEDIATE PRECEDING FINANCIAL YEAR. ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 3 4. THE FREQUENCY OF TRANSACTIONS OF PURCHASE AND SA LE OF SHARES WAS QUITE REGULAR IN ALMOST IN ALL THE SCRIPTS EXCEPT F EW. THE PERIOD OF HOLDING OF THE SECURITIES WAS ALSO ARRANGING BETWEE N 1 TO 3 MONTHS. IN VIEW OF ABOVE, THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE FOR TREATING THE INCOME SHOWN UNDER THE HEAD CAPITAL GAIN AS BUSIN ESS INCOME. IN COMPLIANCE THERETO IT WAS SUBMITTED THAT THE ASSESS EE IS IN EXPORT BUSINESS OF READY-MADE GARMENTS SINCE 1991 AND IT HAS FIRST TIM E MADE INVESTMENT IN THE YEAR 2001 OUT OF ITS FREE OWN FUNDS. SINCE 2001, T HE ASSESSEE HAS BEEN SHOWING THE TRANSACTIONS FOR PURCHASE AND SALE OF S HARES UNDER THE HEAD INVESTMENT. THERE IS NO RESTRICTION UNDER THE ACT FOR MINIMUM HOLDING THE SHARES. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE AND HELD THAT FREQUENCY, MAGNITUDE OF SHARES TRANSACTIONS IN A SYSTEMATIC MANNER IS BUSINESS ACTIVITY OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 5. APPEAL ON GROUNDS NO. 10 TO 14 ARE AGAINST THE A DDITION OF RS.9062028/-ON LONG TERM CAPITAL GAINS AND RS.6178630/- ON ACCOUNT OF SHORT TERM CAPITAL GAINS. THE AO IN THE AM ORDER HAS GIVEN HIS FINDING THAT THE ASSESSEE COMPANY IS ENGAGED IN SHARE TRADING CONTRADICTING A SSESSEES CLAIM THAT THE PURCHASES OF SHARES WERE INVESTMENT. THE AR HAS SUB MITTED THAT APPEAL ON THIS GROUND IS SQUARELY COVERED IN ASSESSEES FAVOU R BY CIT(APPEALS)S ORDER IN AY 2006-07 VIDE APPEAL NO.243/XII?C-410/2008-09 DT. 25.02.2010 AND IN AY 2007-08 VIDE APPEAL NO. 676/XIICIR-10/2009-10 DT . 29.04.2010. I HAVE CONSIDERED THE FINDING OF THE AO AND WRITTEN SUBMIS SION FILED BY THE AR. I FIND THAT MY PREDECESSOR HAS GIVEN A SPEAKING ORDERED FR OM THIS ISSUE IN AY 2006-07 AND 2007-08. I FIND NO REASON TO INTERFERE WITH THE FINDINGS OF MY PREDECESSOR ON THIS ISSUE IN ASSESSEES OWN CASE. A CCORDINGLY, ASSESSEES APPEAL ON GROUNDS NO. 10 TO 14 ARE ALLOWED. BEING AGGRIEVED BY THIS REVENUE HAS COME IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(APPEAL) HAS ERRED IN ACCEPTING THE ASSESSEES CONTENTION THAT THE INC OME FROM TRANSACTIONS IN SHARES WERE CAPITAL GAINS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS ENGAGED IN FREQUENT PURCHASE AND SALE OF SHARES BEI NG THE PRINCIPAL BUSINESS ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 4 ACTIVITIES OF THE ASSESSEE WITH THE MOTIVE BEHIND T HE TRANSACTIONS BEING TO EARN PROFIT. 6. LD DR FOR THE REVENUE BEFORE US VEHEMENTLY SUPPO RTED THE ORDER OF AO WHEREAS THE LD AR BEFORE US FILED A PAPER BOOK COMP RISING OF PAGES FROM 1 TO 149. THE LD AR BEFORE US SUBMITTED THAT THE ASSESSE E HAS BEEN MAINTAINING ITS SHARES ACTIVITIES UNDER THE HEAD INVESTMENT WHI CH HAS BEEN ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. THE LD AR BEFORE US RELIED ON ORDER OF LD. CIT(A). 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE AFO RESAID DISCUSSION AND SUBMISSION THAT THE AO HAS TREATED LTCG/STCG AS BU SINESS INCOME OF ASSESSEE CONSIDERING THE VOLUME AND FREQUENCY OF TH E TRANSACTIONS IN A SYSTEMATIC AND ORGANIZED MANNER. AS PER THE AO NUME ROUS TRANSACTIONS OF BUYING AND SELLING OF SHARES WERE CARRIED OUT BY AS SESSEE AND WHICH CONSTITUTE BUSINESS ACTIVITY. IT WAS ALSO OBSERVED THAT MANY TRANSACTIONS WERE COMPLETED WITHIN A SHORT SPAN OF TIME. ACCORDINGLY, THE AO HELD SUCH TRANSACTIONS AS THE BUSINESS ACTIVITY AND THEREFORE THE PROFIT FROM SUCH TRANSACTIONS IS BUSINESS PROFIT. 7.1 AT THIS STAGE, WE FIND THAT ACTIVITY OF SALE-PU RCHASE OF SHARE HAS BEEN THE SUBJECT-MATTER OF NUMEROUS DISPUTES SO AS TO TR EAT THE SAME AS BUSINESS TRANSACTIONS OR CAPITAL GAIN TRANSACTIONS. VARIOUS COURTS HAVE HELD THE ISSUE IN FAVOUR OF ASSESSEE AND AT THE SAME TIME, VARIOUS COURTS HAVE ALSO DECIDED THE ISSUE IN FAVOUR OF REVENUE. HOWEVER, TO STOP TH E LITIGATION BETWEEN THE DEPARTMENT AND ASSESSEE, THE CBDT VERY RECENTLY HAS CAME OUT WITH A NOTIFICATION NO.6/2016 DATED 29.02.2016 AND RELEVAN T OPERATIVE PORTION OF THE SAID NOTIFICATION READS AS UNDER:- 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAY ERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E., WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN O R BUSINESS INCOME), CBDT ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 5 REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRAN SACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUC E LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORE SAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOW ING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE P ERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK- IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOU LD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSF ER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQU ENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED T O ADOPT A DIFFERENT CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CO NTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. FROM THE PLAIN READING OF CLAUSE (A) OF THE SAID N OTIFICATION, WE FIND THAT IT HAS BEEN INSTRUCTED THAT IF THE ASSESSEE IS IRRESPECTIV E OF THE PERIOD OF HOLDING TREAT THE TRANSACTION FOR SALE-PURCHASE OF THE SHARE AS S TOCK-IN- TRADE THEN THE DEPARTMENT SHA LL NOT DISPUTE ON THIS MATTER. ACCORDINGLY, IN THIS CASE, ASSESSEE HAS BEEN TREATING THE INCOME ARISING FROM THE SALE- PURCHASE OF THE SHARE AS STCG/LTCG, THEREFORE, AO CANNOT DISPUTE THE SAME AS BUSINESS INCOME. IN THIS CONNECTION, WE ALSO RELY IN THE JUDGMENT OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GOPAL PUROHIT (2010) 228 CTR 0582 : (2010) 34 DTR 0052 : (2011) 336 ITR 0287 : ( 2010) 188 TAXMAN 0140 WHERE IT WAS HELD AS UNDER : THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT TH E ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TR ANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUS INESS. THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSIT ION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE R ELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED T RANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NAT URE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOU LD BE TREATED EITHER AS ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 6 SHORT-TERM OR, AS THE CASE MAY BE, LONG- TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. THE TRIBUNAL HAS OBSERVE D IN ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGA RD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE P RESENTATION OF SH ARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS . THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE PRINCIPLE OF RES JUD ICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRI BUNAL HELD THAT THERE OUGHT TO BE UNIFORM ITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REV ENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPOSITION THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCL USIVE IN DETERMINING THE NATURE OF INCOME. THE TRIBUNAL HAS APPLIED THE CORR ECT PRINCIPLE IN ARRIVING AT THE DE CISION IN THE FACTS OF THE PRESENT CASE. THE FINDIN G OF FACT DOES NOT CALL FOR INTERFERENCE IN AN APPEAL UNDER S. 260A. N O SUBSTANTIAL QUESTION OF LAW IS RAISED.GOPAL PUROHIT VS. JT. CIT (2009) 122 TTJ (MUMBAI) 87 : (2009) 20 DTR (MUMBAI)(TRIB) 99 AFFIRMED. TRIBUNAL HAVING ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE IS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS NAMELY, INVE STMENT IN SHARES AND DEALING IN SHARES FOR THE PURPOSES OF BUSINESS A ND HELD THAT THE DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM IS TO BE TREATED AS SHORT -TERM OR LONG- TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF SHARES A ND THAT THERE OUGHT TO BE UNI FORMITY IN TREATMENT AND CONSISTENCY IN VARIOUS YEA RS WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, NO SUBSTANTIAL QUE STION OF LAW ARISES. IN VIEW OF THE ABOVE, WE FIND THAT MAGNITUDE OF THE TRANSACTIONS DO NOT ALTER THE NATURE OF THE TRANSACTIONS. THE REFORE, MAGNITUDE OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN OUR VIEW SHOULD NOT BE VERY MATERIA L IN COMING TO THE CONCLUSION THAT INCOME IN QUESTION IS INCOME FROM BUSINESS. THOUGH THE RES JUDICATA IS NOT APPLICABLE BUT THE PRINCIPAL OF CONSISTENCY WILL DEFINITELY APPLY AND ON THAT BASIS THE CLAIM OF THE ASSESSEE SHOULD BE HELD PROPER. IN VIEW OF ABOVE WE ARE INCLINED NOT TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND G ROUND RAISED BY REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED . COMING TO ASSESSEES APPEAL IN ITA NO.1326/KOL/2013 . 8. IN THIS APPEAL VARIOUS GROUNDS RAISED OUT OF WHICH GROUND NO.4 WAS NOT PRESSED AND, THEREFORE, SAME IS DISMISSED AS NOT PR ESSED. GROUND NO.5 IS OF GENERAL NATURE AND DOES NOT REQUIRE SEPARATE ADJUDI CATION. THE ONLY ISSUE RAISED ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 7 BY ASSESSEE IN THIS APPEAL IN GROUND NO. 1 TO 3 ARE THAT T HAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE ADDITI ON OF 89,02,420/- AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. 9. THE ASSESSEE IN THIS BALANCE SHEET HAS SHOWN VAR IOUS SUNDRY CREDITORS INTER ALIA THE FOLLOWING TRADE CREDITORS. SL. NO. NAME OF COMPANY ADDRESS AS PER RETURN ADDRESS AS PER BILL OPENING BALANCE TRANSACTION DURING THE YEAR (RS) CLOSING BALANCE (RS) 1 LAXMI TRADING CO. C/O PAWAN KEJJRIWALA, BALKA APARTMENT, 164, BANGUR AVENUE, BLOCK-B 3 RD FL, KOL-55 6, MANDIR STREET,KOL-73 NIL 7,64,830 7,64,830 2 MAHIMA FASHIONS C/O PAWAN KEJJRIWALA, BALKA APARTMENT, 164, BANGUR AVENUE, BLOCK-B 3 RD FL, KOL-55 178/3, ROY BAHADUR ROAD, KOL-34 NIL 16,20,545 16,20,545 3 SIMRAN SAREES 85, N.S. ROAD, ROOM NO.313, 3 RD FLOOR, KOLKATA-1 23, GANGULI LANE, KOLKATA-7 NIL 4,81,550 4,81,550 4 GITA IMPEX C/O PAWAN KEJRIWAL, BALKA APARTMENT, 1164, BANGUR AVENUE, BLOCK-B, 3 RD FLOOR, KOLKATA-55 53/10/3, BONBEHARI BOSE ROAD, HOWRAH- 711101 NIL 11,62,648 11,62,648 5 SHREE SALASAR TRADERS C/O PAWAN KEJRIWAL, BALKA APARTMENT, 164, BANGUR AVENUE, BLOCK-B, 3 RD FLOOR, KOLKATA-55 100/1, R.N.MUKHERJEE ROAD, KOLKTA-61 22,21,262 15,76,075 33,64,812 6 BABA SAREES 85, N.S ROAD, ROOM NO 313, 3 RD FLOOR, KOLKATA-1 356/2, UPPER CHITPUR ROAD, KOLKATA-7 10,07,025 5,01,010 15,08,035 THE AO DURING ASSESSMENT PROCEEDINGS DIRECTED THE A SSESSEE TO PRODUCE THE ABOVE PERSONS FOR EXAMINATION ALONG WITH DOCUMENTS IN SUPPORT OF THE ABOVE OUTSTANDING BALANCE. THE ASSESSEE ACCORDINGLY SUBMI TTED VARIOUS SUPPORTING EVIDENCE BUT FAILED TO PRODUCE THE ABOVE PARTIES IN PERSON BEFORE THE AO. THEREAFTER THE AO DEPUTED INSPECTOR TO CONDUCT THE ENQUIRIES TO VERIFY THE GENUINENESS OF THE AFORESAID PARTIES. IN TURN THE I NSPECTOR SUBMITTED THAT THERE EXIST NO SUCH PARTIES. HOWEVER THE INSPECTOR OF THE INCOME TAX COLLECTED THE INFORMATION ABOUT SHRI PAWAN KEJRIWAL (FOR SHORT SP K) WHO WAS THE PROPRIETOR OF TWO FIRMS NAMELY MAHIMA FASHIONS AND SALASAR TRA DERS. THE STATEMENT OF ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 8 SPK WAS RECORDED UNDER OATH UNDER SECTION 131 OF TH E ACT. AS PER THE STATEMENT SPK DENIED TO HAVE ANY TRANSACTION WITH T HE ASSESSEE AND FURTHER SUBMITTED THAT THE CHEQUES ACCEPTED FROM THE ASSESS EE WAS EN-CASHED AND THE MONEY WAS RETURNED BACK TO THE ASSESSEE AFTER D EDUCTING BROKERAGE OF 0.5% ON THE TOTAL AMOUNT CREDITED IN THE ACCOUNT. IN VIEW OF ABOVE THE AO SOUGHT CLARIFICATION FROM T HE ASSESSEE ON THE AFORESAID AMOUNT SHOWN IN THE NAME OF SUNDRY CREDIT ORS. THE ASSESSEE REPLIED THAT ALL THE NECESSARY DETAILS SUCH AS COPI ES OF THE LEDGER, PAN, TRADE LICENSE, STOCK REGISTERS, BILLS, BOOKS OF ACCOUNTS, BANK STATEMENTS ALONG WITH THE EXPORT DETAILS WERE DULY SUBMITTED. THE ASSESSE E FURTHER SUBMITTED THAT NO CASH WAS RECEIVED FROM SPK AND REQUESTED THE AO FOR CROSS EXAMINATION BEFORE TAKING ANY ADVERSE INFERENCE. THE STATEMENT OF THE DIRECTOR OF THE COMPANY WAS ALSO RECORDED AT THE TIME OF ASSESSMENT PROCEEDINGS WHERE IT WAS CLAIMED THAT ALL ARE GENUINE CREDITORS BUT EXPR ESSED INABILITY TO PRODUCE THEM IN PERSON AS IT DOES NOT HAVE ANY DEALING WITH THEM NOW. HOWEVER THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE AND T REATED THE AFORESAID AMOUNT OF SUNDRY CREDITORS AS UNEXPLAINED CASH CRED IT UNDER SECTION 68 OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D CIT(A) WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER :- 4. I HAVE CONSIDERED THE FINDING OF THE AO IN HIS ASSESSMENT ORDER DT. 27.12.2010 AND THE WRITTEN SUBMISSION FILED BY THE AR DURING THE APPELLATE PROCEEDING. APPEAL ON GROUNDS NO. 1 TO 9 ARE AGAINST THE ADDITION OF RS.89,02,420/- U/S. 68 OF THE IT ACT, 1 961. THE AO HAS GIVEN HIS FINDING THAT IN THE BALANCE SHEET OF THE ASSESS EE FOR AY 2008-09 OUTSTANDING LIABILITIES OF RS.23393600/- WAS THERE. THE AO ASKED THE ASSESSEE TO PRODUCE TWELVE CREDITORS FROM THE LIST OF SUNDRY CREDITORS IN ORDER TO VERIFY OUTSTANDING AGAINST THEM. THE ASSES SEE FAILED TO DO SO. THE AO THEN DEPUTED AN INSPECTOR TO MAKE SPOT ENQUI RIES. THE INSPECTOR INTIMATED THAT SIX PARTIES ABOUT WHOM HE WAS MAKING ENQUIRIES WERE NEITHER PRESENT ON THE GIVEN ADDRESS NOR ANY ACTIVITIES WAS GOING ON THERE. FROM LOCAL ENQUIRY IT WAS FOUND THAT THE ALLEGED CREDITORS NEVER EXISTED ON THOSE ADDRESSES. LATER O N, THE INSPECTOR FOUND ONCE SRI PAWAN KEJRIWAL WHO CONFIRMED THAT HE WAS ONLY A BROKER OF CLOTHS HE NEVER DID ANY TRADING. SO THERE WAS NO QUESTION OF SELLING OF ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 9 CLOTHS/TEXTILES TO M/S VEDA COMMERCIAL PVT. LTD. HE ALSO ADMITTED THAT CHEQUES WERE RECEIVED BY HIM HIS ACCOUNT AND THE SA ME WAS ENCASED AND AFTER DEDUCTING HIS BROKERAGE @ 5%. BALANCE CAS H WAS RETURNED BACK TO M/S VEDA COMMERCIAL. THE AO WANTED TO SEND NOTICES U/S. 133(6) AND SUMMONS U/S 131 OF THE IT ACT, 1961. BUT THE ASSESSEE DID NOT FURNISH COMPLETE POSTAL ADDRESS OF PARTIES. ACC ORDINGLY, THE AO MADE AN ADDITION OF RS.8902420/- OUTSTANDING AMOUNT AGAINST THOSE PARTIES. DURING THE APPELLATE PROCEEDING THE AR HAS SUBMITTED THAT THE AO HAS NOT CONTRADICTED NET PROFIT RATIO OF THE ASS ESSEE. THE AR HAS ALSO SUBMITTED THAT THE AO HAS NOT ACTED IN A PRUDE NT MANNER AND LAST THAT THE AO DID NOT PRODUCE MR PAWAN KR KEJRIWAL FO R CROSS VERIFICATION. I HAVE CONSIDERED THE FINDING OF THE AO AND THE WRI TTEN SUBMISSION FILED BY THE AR. DESPITE DIFFERENT OBJECTIONS RAISED BY THE AR IT IS A MATTER OF RECORD THAT THE AR HIMSELF COULD NOT PRODUCE CREDIT ORS AS REQUIRED BY THE AR. IT IS ALSO A MATTER OF RECORD THAT THE AR D ID NOT FURNISH COMPLETE POSTAL ADDRESS OF CREDITORS FOR VERIFICATION. IN TH IS SITUATION A SPOT ENQUIRIES MADE BY THE INSPECTOR BECOME IMPORTANT. A CCORDINGLY, AO IS JUSTIFIED IN MAKING ADDITION ON THIS BASIS. THUS, A SSESSEES APPEAL ON GROUNDS 1 TO 9 ARE DISMISSED. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) THE ASSES SEE IS IN SECOND APPEAL BEFORE US ON THE FOLLOWING GROUNDS OF APPEAL:- 1) FOR THAT THE LD. CIT(A) ERRED IN DISMISSING APP EAL GROUND NOS 1-9 WITHOUT PASSING A SPEAKING ORDER AND WITHOUT CONSID ERING VARIOUS OBJECTIONS RAISED BY THE APPELLANT. 2) FOR THAT THE LD. CIT(A) SIMPLY RELIED UPON THE I NSPECTORS REPORT, COMPLETELY IGNORING THE FACTS ALREADY ON RECORD W.R .T. CREDITWORTHINESS/IDENTITY OF THE TRADE PARTIES. 3) FOR THAT, ALTERNATIVELY, SINCE THE APPELLANT WAS A TRADER/EXPORTER HENCE EVEN IF PURCHASE FORM FEW TRADE CREDITORS ARE DOUBTED, THE SAME MIGHT HAVE BEEN PURCHASED FROM OTHERS. 11. THE LD AR BEFORE US FILED A PAPER BOOK COMPRISI NG OF PAGES FROM 1 TO 149 AND SUBMITTED THAT THE BOOKS OF ACCOUNTS, BILLS , VOUCHERS AND STOCK DETAILS WERE DULY FURNISHED BEFORE THE AO AT THE TI ME OF ASSESSMENT. NO ADVERSE INFERENCE WAS DRAWN BY THE AO. THE LD AR FU RTHER SUBMITTED THAT THE SALES SHOWN BY THE ASSESSEE HAS BEEN DULY ACCEPTED BY THE AO AND WITHOUT PURCHASE SALES CANNOT BE COMPLETED. THE LD AR DREW OUR ATTENTION ON PAGES 1 AND 2 OF THE PAPER BOOK WHERE THE DETAILS WITH TH E CREATORS WERE PLACED. OUR ATTENTION WAS ALSO FURTHER DRAWN TO THE STOCK S UMMERY WHICH IS PLACED ON ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 10 PAGES 25 TO 32 OF THE PAPER BOOK. THE NECESSARY DET AILS SUCH AS TRADE LICENSE, PAN, ID. PROOF ETC. OF THE PARTIES ARE PLA CED ON PAGES 84 TO 103 OF THE PAPER BOOK. ON THE OTHER HAND, LD DR BEFORE US VEHEMENTLY SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 12. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION, WE FIND THAT THE BALANCE OF SUNDRY CREDITORS WERE ADDED BY AO U/S 68 OF THE ACT ON ACCOUNT OF NON RESPONSE OF NOTICE ISSUED U/S. 133(6) OF THE AC T, STATEMENT OF THE PARTY AND NON-AVAILABILITY OF PARTIES AT THE GIVEN ADDRES SES. THE VIEW OF THE AO WAS SUBSEQUENTLY UPHELD BY LD. CIT(A). 12.1 WE FIND THAT THE ADDITION WAS MADE IN RESPECT OF OUTSTANDING CREDITORS WITHOUT DISALLOWING THE CORRESPONDING PURCHASE CLAI MED BY ASSESSEE. ONCE THE PURCHASE HAS BEEN ACCEPTED THEN THE DISALLOWANC E ON ACCOUNT OF SUNDRY CREDITORS CANNOT BE MADE. IN THE CASE BEFORE US, TH E ASSESSEE HAS SUBMITTED ALL THE NECESSARY DETAILS OF THE PARTIES AS DISCUSS ED ABOVE AND NO DISCREPANCY WAS POINTED OUT BY THE LOWER AUTHORITIE S. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DULY ACCEPTED AND NO DEFECT WA S REPORTED BY THE LOWER AUTHORITIES. ALL THE PAYMENTS TO THE AFORESAID SUND RY CREDITORS WERE PAID THROUGH THE BANKING CHANNEL. WE FIND THAT THE ASSES SEE HAS DISCHARGED ITS INITIAL BURDEN BY GIVING NECESSARY DETAILS TO THE A O AT THE TIME OF ASSESSMENT PROCEEDINGS. IT WAS FOR THE LOWER AUTHORITIES TO RE BUT THE BURDEN BY PROVING OTHERWISE BY CONDUCTING ENQUIRIES WITH THE BANK OF CREDITORS, FROM THE INCOME TAX PAN DETAILS, TRADE LICENSE DEPARTMENT OF KOLKAT A MUNICIPAL CORPORATION ETC. IT IS CLEAR THAT THE TRANSACTIONS OF PURCHASE AND SALE WERE RECORDED IN THE BOOKS OF ACCOUNT AND THESE TRANSACTIONS LED TO PROF IT TO THE ASSESSEE, WHICH WAS BROUGHT TO TAX. IF SALES HAVE BEEN EFFECTED OUT OF PURCHASES MADE FROM THESE PARTIES, THEN, IT CANNOT BE SAID THAT THE PUR CHASES WERE BOGUS. THE FINDING OF BOGUS SALE CAN ONLY LEAD TO THE INFERENC E THAT THE CORRESPONDING ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 11 AMOUNT SHOULD BE DELETED FROM THE TURNOVER OF THE A SSESSEE. THE AO HAS ALSO NOT REJECTED THE BOOKS OF ACCOUNT TO ESTIMATE PROFI T ON THESE TRANSACTIONS IN CASE IT WAS A FIRM FINDING THAT PURCHASES AND SALES WERE BOGUS. IN SUCH A SITUATION THE ADDITION U/S 68 OF THE ACT CANNOT SUS TAIN . SO FAR AS THE FINDING OF LOWER AUTHORITIES THAT THE GENUINE EXISTENCE OF THE PARTIES HAS NOT BEEN PROVED IS CONCERNED, THEIR FINDING IS CORRECT AND WE SUSTA IN IT FOR THE REASONS GIVEN BY THEM. BUT THE SAID FINDING DOES NOT AUTOMATICALLY G O TO ESTABLISH THAT THE GOODS IN QUESTION HAD NOT BEEN PURCHASED BY THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION. THE GOODS IN QUESTION HAVING B EEN PURCHASED AND THE PROFIT ARISING THEREFROM HAVING BEEN ACCEPTED BY TH E AO, IT APPEARS DIFFICULT FOR US TO VISUALIZE AS TO HOW THE DEBITS MADE BY THE AS SESSEE WITH REGARD TO THE SAID PURCHASES AND THE SIMULTANEOUS CREDITS TO THE SELLERS ACCOUNT COULD SIMULTANEOUSLY BE HELD BY HIM TO BE CASH CREDITS. T HE CREDITS IN THE ACCOUNTS OF THE SAID PARTIES ARE ADMITTEDLY ON ACCOUNT OF TH E PURCHASES. THESE PURCHASES ARE NOT BOGUS, THOUGH THE NAMES OF THE PE RSONS, FROM WHOM THE PURCHASES HAVE BEEN MADE, ARE BOGUS. THE ABSENCE OF PROOF REGARDING THE EXISTENCE OF THE PARTIES CANNOT, IN OUR OPINION, BE CONFUSED WITH THE QUESTION OF GENUINENESS OF THE PURCHASES. IF THE GOODS PURCH ASED HAD BEEN ACCEPTED BY THE DEPARTMENT, IT WOULD NOT, IN OUR OPINION, BE POSSIBLE FOR THE DEPARTMENT TO TURN ROUND AND SAY THAT THE DEBITS APPEARING ON ACCOUNT OF THESE PURCHASES IN THE NAME OF PARTIES WERE CASH CREDITS. BUT THE L OWER AUTHORITIES DO NOT CHALLENGE THE CORRECTNESS OF THE TRADING PROFIT, AN D IN DOING SO, THEY IMPLIEDLY ACCEPT THE GENUINENESS OF THE PURCHASES. AS PURCHAS ES WERE ON CREDIT, CORRESPONDING DEBITS FOR THEM SHOULD APPEAR IN SOME ACCOUNTS. SUCH CREDITS IN THOSE ACCOUNTS WOULD NOT BE FOR CASH BUT FOR GOO DS AND IT WOULD BE WRONG TO CALL THEM CASH CREDITS. THE NAMES OF THE SUPPLIE RS MAY BE WRONG, BUT THE SUPPLIES OF THE GOODS WERE REALITY. FOR WRONG NAMES OF SUPPLIERS, THE REALITY OF PURCHASES CANNOT BE NEGATIVE. IT IS A CASE OF PURCH ASES HAVING BEEN MADE BY THE ASSESSEE WITHOUT PROPERLY DISCLOSING THE IDENTI TY OF THE SUPPLIERS. SUCH A SITUATION IS NOT COVERED BY S. 68 OF THE ACT. WE, T HEREFORE, DELETE THE ADDITION MADE ON ACCOUNT OF SUCH CREDITS. ITA NO.1326 & 2101/KOL/2013 A.Y. 2008-0 9 VEDA COMMERCIAL PVT. LTD. VS. ADDL. CIT, RNG-10 KOL. PAGE 12 WE ALSO FIND THAT THE STATEMENT OF SPK RECORDED DUR ING ASSESSMENT PROCEEDINGS WAS NOT CROSS EXAMINED BY THE AO THOUGH THE ASSESSEE MADE VERY SPECIFIC REQUEST. WHILE HOLDING SO WE RELY IN THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. EASTERN COMMERCIAL ENTERPRISES REPORTED IN 210 ITR 103 (CAL) WHEREIN IT WAS HELD T HAT THE REVENUE CANNOT MAKE ANY ADDITION ON THE BASIS OF A WITNESS WHO EXA MINED AT THE BACK OF THE ASSESSEE. IN VIEW OF ABOVE, WE REVERSE THE ORDER OF AUTHORITI ES BELOW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, APPEAL OF REVENUE STANDS DISMISSED A ND THAT OF ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 23/ 02/2017 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 23 / 02 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-VEDA COMMERCIAL PVT. LTD.,5/1, ANIL MOITR A ROAD, KOLKATA-19 2. /REVENUE-ADDL. CIT, RANGE-10, P-7, CHOWRINGHEE SQUA RE, KOLKATA-69 3.#,#-. / / CONCERNED CIT KOLKATA 4. /- / CIT (A) KOLKATA 5.2 3455-., -.!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# -.!,