Surya Prabha Sunkavalli, Hyderabad V. Income Tax Officer, Ward-14(3), Hyderabad

ITA 1327/Hyd/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9914 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2014-2015
• Appeal Filed On: 20-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Onus to prove; TDS
• Section: 68; 139; 143(3); 40(a)(ia); 48; 13

Judgement Text

आयकर अपीलीय अिधकरण, हैदराबाद पीठ म IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 1327/Hyd/2018 (िनधा रण वष / Assessment Year: 2014-15) Surya Prabha Sunkavalli, Hyderabad [PAN No. ANZPS3739A] Vs. Income Tax Officer, Ward-14(3), Hyderabad अपीलाथ / Appellant यथ / Respondent िनधा रती ारा/Assessee by: Shri P.Jitendra Kumar, AR राज व ारा/Revenue by: Shri Kumar Aditya, DR सुनवाई की तारीख/Date of hearing: 21/06/2022 घोषणा की तारीख/Pronouncement on: 06/07/2022 आदेश / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 01/03/2018 passed by the learned Commissioner of Income Tax (Appeals)-6, Hyderabad (“Ld. CIT(A)”) in the case of Smt. Surya Praha Sunkavalli (“the assessee”), for the assessment year 2014-15, the assessee preferred this appeal. 2. Briefly stated facts are that the assessee is the proprietrix of M/s Prabhaas, dealing in trading of articles made of silver and jewellery items. ITA No.1327/Hyd/2018 Page 2 of 12 For the AY. 2014-15, she has filed the return of income on 30/11/2014 declaring an income of Rs. 10,78,120/-. Assessment under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) was complete by order dated 30/12/2016 at Rs. 51,86,226/- by making an addition of Rs. 40,30,297/- under section 68 of the Act and a sum of Rs. 77,809/- by making disallowance under section 40(a)(ia) of the Act for not deducting TDS in respect of the payment of interest of Rs. 77,809/- to M/s. Religare Finvest Ltd. 3. Aggrieved by such an action of the learned Assessing Officer assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A) by impugned order, confirmed both the additions and dismissed the appeal. Hence the assessee filed this appeal before us challenging both the additions. 4. Insofar as the first addition of Rs. 40,30,297/- is concerned, case of the learned Assessing Officer is that the Balance Sheet shows that the sundry creditors as on 31/03/2014 were to the tune of Rs. 1,12,58,771/- whereas the sundry creditors as on 31/03/2013 were only Rs. 72,28,474/- and, therefore, there is an increase in the sundry creditors to the tune of Rs. 40,30,297/-. According to the assessing officer when the assessee was called upon to produce the confirmation letters in support of her claim, though the assessee pleaded for some time by way of letter dated 13/12/2012, no such confirmation letters were filed at all before the learned Assessing Officer. Learned Assessing Officer, therefore, added the unexplained sundry creditors to the income of the assessee. 5. On this aspect the Ld. CIT(A) recorded that even during the First appellate proceedings also, the assessee did not produce any confirmation ITA No.1327/Hyd/2018 Page 3 of 12 letters. On the other hand, the record reveals that the assessee had taken the plea that inasmuch as the assessee had produced the details of the name and address, PAN, Ledger accounts etc., it is the duty of the learned Assessing Officer to examine the parties and verify the genuineness of the transactions. The sum and substance of the arguments advanced before the Ld. CIT(A) is that merely by production of certain details like name and address, PAN, Ledger account etc., it becomes the duty of the learned Assessing Officer to search for the material in support of the assessee and to grant her relief. 6. Ld. CIT(A), in this context, considered two questions, namely, whether the assessee has discharged the burden of proof cast on her with regard to the genuineness of sundry creditors outstanding as on 31/3/2014 or not? And whether the unexplained sundry creditors can be brought to tax under section 68 of the Act or not? 7. Insofar as the first question formulated by the Ld. CIT(A) is concerned, Ld. CIT(A) considered the material and observed that when there is no dispute as to the increase in the sundry creditors evident from the books of accounts of the assessee, the primary burden lies with the assessee to explain such increase and unless and until the assessee discharges the primary burden, it does not fall to the share of the learned Assessing Officer to disprove the assessee’s contentions. Ld. CIT(A) held that inasmuch as the assessee failed miserably to explain the increase in the sundry creditors with reference to the confirmation letters, the issue goes against the assessee. ITA No.1327/Hyd/2018 Page 4 of 12 8. Ld. CIT(A) considered the Second question of applicability of section 68 of the Act to the case of the assessee, in the light of the decisions reported in V.I.S.P.(P) Limited Vs. CIT (2004) 265 ITR 202 (MP), Gumani Ram Siri Ram Vs. CIT (1975) 98 ITR 337 (P & H) and Suresh Kumar T. Jain Vs . ITO in ITA No. 667/Bang/2009 dated 08/01/2010 and more particularly by reading the provisions under section 68 of the Act, held that there is no distinction between cash credits/loan credits and other credits, including trade credits, amounts credited to the books of account towards advances received from outside parties, amounts credited towards purchase of stock in trade, capital assets etc., and amounts credited to the parties towards various services provided by them to the assessee are all covered under the mischief of section 68 of the Act. Ld. CIT(A) referred to the expression “any sum, which is found credited in the books of accounts of the assessee” and held that the learned Assessing Officer rightly added the amount towards unexplained income. Ld. CIT(A) further rejected the plea taken by the assessee that the learned Assessing Officer made double addition since the purchases made from the parties namely, creditors has been converted into the revenue on the ground that this question would have been relevant. If the assessee is in a position to prove the genuineness of the sundry creditors. 9. It is argued by the Ld. AR before us that the incremental creditors have already been offered to income in the year under consideration as the sales were affected of goods purchased on credit and therefore, if the sundry creditors are also added to the income of the assessee it would amount to double taxation. It is further pleaded that inasmuch as the sales are accepted, so also the purchases, it is not open for the Revenue to ITA No.1327/Hyd/2018 Page 5 of 12 dispute the correctness of the sundry creditors and their increase. Ld. AR submitted that the addition made is for the sole reason of non- confirmation from the suppliers despite other corroborative evidence establishes the transaction and, therefore, deserves the deletion. 10. Per contra, Ld. DR submitted that in this sort of cases it is but common that the paperwork is meticulously done and when once the learned Assessing Officer entertains a doubt as to the identity of the creditors, their creditworthiness or the genuineness of the transaction, -is not open for the assessee to say that the learned Assessing Officer shall look into the papers alone without questioning the identity of the creditors, their creditworthiness and the genuineness of the transaction. According to him, insofar as there is a doubt as to the increase in the creditors, it is for the assessee to explain such increase with reference to the confirmation letters or any other material that is sought by the learned Assessing Officer. 11. In reply, the learned AR placed reliance on certain decisions, and argued that when the sales and purchases are accepted, it is not open for the learned Assessing Officer to make the addition of the entire amount, but only the profit component has to be added. 12. We have gone through the record in the light of the submissions made on either side. Absolutely there is no dispute that the sundry creditors as on 31/03/2013 were to the tune of Rs. 72,28,474/-, as on 31/03/2014 were to the tune of Rs. 1,12,58,771/- and there is a clear increase to the tune of Rs. 40,30,297/-. It is also an admitted fact that the learned Assessing Officer called upon the assessee to produce the ITA No.1327/Hyd/2018 Page 6 of 12 confirmation letters in support of the claim of the assessee. It is also an admitted fact that the assessee failed to produce the same even as on the date. In this factual matrix, the contention of the assessee is that when once the purchases and sales are accepted, it is not open for the learned Assessing Officer to make any addition on the ground of increase in the sundry creditors and that when once the assessee furnished the details of the sundry creditors, even if the assessee does not file any confirmation letters as required by the learned Assessing Officers, still the learned Assessing Officer cannot make any addition on that score and it is for the learned Assessing Officer to enquire into the existence and creditworthiness of the creditors and the genuineness of the transaction. Learned AR relied upon certain decisions in support of his contentions. 13. Coming to the decisions relied upon by the assessee in Manju Sharma Vs. ITO in ITA No.8275/Del/2019 for AY.2014-15 the facts are that the sundry creditors were paid in subsequent years and there was no evidence to suggest that the money so paid has come back to the assessee directly or indirectly in any form. In Vithaldas and Company Vs. DCIT, ITA No.1746/Hyd/2019 for AY.2010-11 there is a reference to the view taken by the Tribunal in ITA No.755 to 757/Hyd/2017 by order dt.18/08/2021 to the effect that in case of bogus purchases, only a percentage of purchases than the entire amount has to be disallowed. In ITO Vs. Ismailbhai M. Lokhandwala, ITA No.5618/Mum/2017, dt. 15/06/2021, the learned Assessing Officer treated 100% of the outstanding credit purchases and the Tribunal held that 5% of the value of such purchases has to be treated as income. In Suresh Mehta HUF Vs. ITO, ITA No.1408/Mum/2019 also the view was that when the learned Assessing Officer or the Ld. CIT(A) did not ITA No.1327/Hyd/2018 Page 7 of 12 doubt the sales made by the assessee out of the bogus purchases then the profit has to be estimated. In PCIT Vs. M/s.Paramshakti Distributors Pvt. Ltd., in Income Tax Appeal No.413 of 2017 on the file of the Hon'ble Bombay High Court the Revenue has not rejected the instances of purchases by accepting the sales, it was proper to tax the profit embedded in such purchases. In ACIT Vs. M/s.Technotrade Impex India Pvt. Ltd., in ITA Nos.5382 and 5383/Mum/2016, Vijay Trading Co., Vs. ITO in TA No.1245 to 1248/2006 on the file of Hon'ble Gujarat High Court, in DCIT Vs. M/s.Aspee Agro Equipment Pvt. Ltd., in ITA No.589/Mum/2020 in Sri Piyush A. Mehta Vs. ITO in ITA No.735 to 737/Mum/2020 and Suresh Mehta HUF Vs. ITO in ITA 1066/Mum/2020 in Bhagatram Vs. ACIT in ITA No.1753/Hyd/2018 - in all these cases, where the purchase and sales are accepted, it was held that the entire amount cannot be added but only profit embedded therein has to be added. 14. In the case on hand it is beyond any question that there is increase in the sundry creditors. However, the authorities below found that such increase in the sundry creditors is not properly explained by the assessee and the assessee for the reasons best known to them failed to produce even the confirmation letters from these parties. It is not the case of the assessee that at any point of time subsequently there is payment to these sundry creditors. The decisions relief upon by the assessee are, therefore, have no bearing on the facts of this case. 15. Further contention of the assessee is that inasmuch as the assessee has produced the details of the creditors no further question need be asked. Ld. CIT(A) observed that the primary burden always lies with the assessee to prove the identity and creditworthiness of the creditors and ITA No.1327/Hyd/2018 Page 8 of 12 the genuineness of the transaction, at the least by filing the confirmation letter and then only, the question of disproof of the same arises by way of shifting the burden. 16. On this aspect, we are of the considered opinion that the scope of enquiry by the learned Assessing Officer extends much beyond the verification of the papers produced by the assessee. In order to satisfy himself about the identity of the creditors, their capacity to extend the credit and the geniuses of the transaction, as could we gather from the view of the Hon'ble Apex Court in the case of PCIT Vs. NRA Iron and Steel (P) Ltd (2019) 13 taxmann.com 48 (SC), it is legitimate for the Learned Assessing Officer to verify the details like whether there is any business relationship between the assessee and the creditor, the mode by which parties approached each other; whether the transaction is entered into through written documentation to protect the interest of the creditor; how the creditor believed the credit-worthiness of the assessee; what is the object and purpose of the credit; ; whether the assessee discharged the onus to establish the credit transaction; did the assessee do anything more than mere furnishing the details of the creditors to discharge the onus under Section 68 of the Act; and whether the assessee discharged the obligation of the repayment of the credit. 17. It is, therefore, not open for the assessee to limit the scope of enquiry by the learned Assessing Officer by saying that the learned Assessing Officer has to look into the papers without asking any further questions. Law does not permit such a course. Assessee cannot say that after advancing the credits to the assessee, all such persons melted into air. Business relations will be enduring. It is difficult to believe that a person ITA No.1327/Hyd/2018 Page 9 of 12 who arranged credit to the assessee to the tune of Rs. 40,30,297/- will not cooperate with the assessee. So far as facts are concerned, there are no compelling reasons for us not to agree with the authorities below. 18. Now coming to the applicability of section 68 of the Act, law is clear on this aspect that any sum, which is found credited in the books of accounts of the assessee will be the subject matter of section 68 of the Act if it goes without proper explanation. Findings on this aspect by the Ld. CIT(A) are well supported by the judicial opinion and, therefore, we do not propose to interfere with the same. So also the finding of the Ld. CIT(A) that unless and until the assessee discharges the burden of proving the genuineness of the sundry creditors, the question of double addition does not arise. Holding so, we dismiss grounds 2 to 6. 19. Coming to the Second addition of Rs. 77,809/- and the failure of the assessee to effect TDS on the interest paid to M/s. Religare Finvest Ltd., is concerned, facts are admitted. Assessee failed to effect TDS on the amount. It further stands admitted that the payee, namely, M/s. Religare Finvest Ltd. filed their return of income on 29/11/2014 which falls in the financial year 2014-15 relevant for the assessment year 2015-16. Ld. CIT(A) referred to the Second proviso to 40(a)(ia) of the Act wherein it is stated that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any sum, but is not deemed to be an assessee in defaulter under the First proviso to subsection (1) of section 201, then, for the purpose of this subclause, it shall be deemed that the assessee has a deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. Ld. CIT(A), therefore, held that inasmuch as ITA No.1327/Hyd/2018 Page 10 of 12 the date on which the payee filed the return of income on 29/11/2014, which falls in the financial year 2014-15 relevant to the assessment year 2015-16, the assessee would be entitled to treat such deduction only in respect of the assessment year 2015-16 but not in respect of the assessment year 2014-15. Assessee challenges this finding. 20. Since facts are admitted, and the question is only in respect of the application of law, we have gone through the relevant provisions. The mandate of Second proviso to section 40(a)(ia) of the Act is that the assessee shall be deemed to have deducted the tax in accordance with the provisions of chapter XVII-B only on the date on which the payee referred to in the First proviso. Though the counsel referred to the First proviso and submitted that under First proviso the assessee shall be deemed to have affected the TDS during the previous year in which the assessee deducted the tax. According to him inasmuch as the Second proviso says that there was declaration of the sums received by the payee in their return of income, such fact will relate back to the assessment year in respect of which such deemed deduction applies. 21. We find it difficult to agree with the submission made by the Ld. AR. First proviso deals with the cases where the assessee deducted the tax in any subsequent year or deducted during the previous year but paid subsequent to the due date specified in section 139 (1) of the Act. Insofar as the case on hand is concerned, the assessee never made any deduction in respect of the interest amount paid to M/s. Religare Finvest Ltd. It is only the Religare Finvest Ltd. that declare this income in the return of income. To this specific case the Second proviso alone is applicable and no reference need be made to the First proviso in the context. It, therefore, ITA No.1327/Hyd/2018 Page 11 of 12 goes without saying that the assessee shall be deemed to have made the deduction not in the relevant previous year but in the previous year in which the payee filed the return of income. It is not otherwise. When the law is clear in its import, it is not open for the adjudicatory authority to take a different view and that too impermissible under First proviso. With this view of the matter, we find it difficult to agree with the Ld. AR. Accordingly we dismiss the other grounds of appeal also. 22. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on this the 6 th day of July, 2022 Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER TNMM Hyderabad, Dated: 06/07/2022 ITA No.1327/Hyd/2018 Page 12 of 12 Copy forwarded to: 1. Smt.Surya Prabha Sunkavalli, 6-3-456/A/1, First Floor, Flat No.109, Model House, Punjagutta, Hyderabad. 2. Income Tax Officer, Ward-14(3), Hyderabad. 3. The CIT(Appeals)-6, Hyderabad. 4. The Pr.CIT-6, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD