ITO-WARD-4(1), Nagpur V. SMT. SHRAVANIDEVI AGRAWAL, Nagpur

ITA 139/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1658 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Business income; Onus to prove

Judgement Text

1 ITA NO. 139/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T. A. NO.139/NAG/2014 ASSESSMENT YEAR : 2007 - 08. THE INCOME - TAX OFFICER, SMT. SHRAVANIDEVI AGRAWAL, WARD - 4(1), NAGPUR. VS. P.S. AGRAWAL ROAD, SANTRA MARKET, NAGPUR. PANADEPA5962G. (APPELLANT) RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. . RESPONDENT BY : SHRI RAJESH LOYA. DATE OF HEARING : 10 - 08 - 2015. DATE OF PRONOUNCEMENT : 24 TH SEPT. 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 24 - 12 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2007 - 08. THE GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) E RRED IN DELETING THE ADDITION MADE BY THE AO ` 79,342/ - WITHOUT CONSIDERING THE FACT THAT ABOVE INTEREST EXPENDITURE HAS NO NEXUS WITH EARNING OF INCOME IN PERSONAL ACCOUNT. 2 ITA NO. 139/NAG/2014 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWIN G THE ADDITION MADE BY THE AO AMOUNTING TO ` 36,44,813/ - OF UNPROVED SUNDRY CREDITORS DESPITE FIELD INQUIRIES PROVED THEIR NON EXISTENCE AND ASSESSEE FAILED TO GIVE THE CONFIRMATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 39,17,825/ - MADE BY THE AO ON ACCOUNT OF NON GENUINE PURCHASES DESPITE ASSESSWEE FAILING TO GIVE PROOF OF OCTROI RECEIPTS, TRANSPORT BILLS ETC. N LOCAL ENQUIRY PARTIES WERE NOT FOUND AT THE GIVEN ADDRESS. 4. ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 45,000/ - DESPITE ASSESSEE FAILING TO PROVE NEXUS BETWEEN OWN CAPITAL AND INTEREST FREE ADVANCE. 2. APROPOS GROUND NO. 1 AND 4: THE ASSESSEE IS A T RADER IN GARMENTS AND IS RUNNING HER BUSINESS IN THE NAME AND STYLE AS M/S RAMDEO CLOTH STORES. THE AO NOTED THAT THE ASSESSEE SUBMITTED AUDIT REPORT IN FORM NO. 3CB. THAT T HE ASSESSEE PRODUCED RELEVANT DOCUMENT, BILLS, V OUCHERS, BOOKS OF ACCOUNTS VERIFIED ON TEST CHECK BASIS. THAT E XAMINING THE ASSESSEES PERSONAL BALANCE SHEET THE AO OBSERVED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN AND HAS ADVANCED IT TO THE NEAR RELATIVES AND THEIR CONCERNS. THE AO OBSERVED THAT THE ASSESSEE HAS PAID INTEREST ON THE BORROWED FUNDS. HOWEVER , SHE HAS NOT CHARGED INTEREST ON THE LOAN ADVANCES GIVEN. HENCE THE AO OPINED THAT THE INTEREST EXPENDITURE OF ` 79,342/ - IS NOT JUSTIFIED. HENCE HE DISALLOWED THE SAME. 3. BY EXAMINING THE ASSESSEES BALANCE SHEET OF THE BUSINESS, THE AO FOUND THAT TH E ASSESSEE HAS TAKEN AS BORROWED FUNDS ON INTEREST. FOR THIS THE ASSESSEE HAS PAID ` 1,39,544/ - AS INTEREST. THE AO FURTHER NOTED THAT THE ASSESSEE HAS ALSO 3 ITA NO. 139/NAG/2014 ADVANCED LOANS TO FRIENDS AND RELATIVES AND HAS RECEIVED INTEREST AMOUNTING TO ` 52,912/ - . THE AO ASKED THE ASSESSEE TO SUBMIT DETAILS IN THIS REGARD. IN THE ABSENCE OF NECESSARY DETAILS THE AO OPINED THAT PROPORTIONATE DISALLOWANCE OF INTEREST TO THE TUNE OF ` 45,000/ - IS TO BE MADE. 4. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) DELETED THE ADDITIO N H O LDING AS UNDER : ON CAREFUL EXAMINATION OF THE FACTS AND THE SUBMISSION OF THE AR, IT IS SEEN THAT THE APPELLANT HAD SUFFICIENT INTEREST FREE CAPITAL AVAILABLE WITH HER AS ON 31 .03.2007. THE INTEREST - FREE CAPITAL AVAILABLE WITH THE APPELLANT AS ON 31 .03.2007 IS ` 10,70,654/ - , AS AGAINST WHICH, THE INTEREST - FREE ADVANCES AS ON 31.03.2007 ARE ` 9,25,000/ - . THE AR, IN THE COURSE OF ASSESSMENT PROCEEDINGS, HAS SUBMITTED THE DULY AUDITED BOOKS OF ACCOUNT, THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT, INCLUDING THE DETAILS OF INTEREST PAID AND CONFIRMATIONS FROM THE PARTIES. SIMILARLY, AS REGARDS TO THE PROPORTIONATE DISALLOWANCE OF ` 45,000/ - , THE AR OF THE APPELLANT, IN HIS SUBMISSION, HAS CLEARLY DEMONSTRATED THAT SUFFICIENT INTEREST - FREE FUNDS ARE A VAILABLE WITH THE ASSESSEE AGAINST THE INTEREST - FREE BORROWED FUNDS. THEREFORE, THE DISALLOWANCE OF INTEREST OF ` 79,342/ - & ` 45,000/ - MADE BY THE AO, IS WITHOUT ANY BASIS, HENCE DIRECTED TO BE DELETED. 5. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED D.R. RELIED UPON THE ORDER OF THE AO. PER CONTRA, LEARNED COUNSEL OF THE ASSESSEE SUMMARIZED HIS SUBMISSIONS AS UNDER : GROUND NO.1: THE LEARNED CIT(A) AFTER APPRECIATION OF FACTS OF THE CASE HAS PROPERLY HELD THAT SUFFICIENT INTEREST FREE CAPITAL IS AVAILABLE WITH THE APPELLANT AGAINST 4 ITA NO. 139/NAG/2014 THE INTEREST FREE ADVANCES. THE LEARNED CIT(A) DELETED THE ADDITION OF ` 79,342/ - . FOLLOWING SUBMISS IONS WERE CONSIDERED BY LEARNED CIT(A). (1) THE CAPITAL OF THE PROPRIETOR (INTEREST FREE) IS ` 10,70,440/ - AGAINST WHICH ADVANCES ARE ONLY ` 9,25,000/ (2) THE OUTSTANDING UNSECURED LOAN IS ` 8,70,440/ ON WHICH INTEREST OF ` 79,342/ - WAS PAID. THE INVEST MENT IN PROPRIETORSHIP FIRM AS ON 31 - 3 - 2007 IS ` 8,38,683/ - FROM WH ERE THE ASSESSEE EARNED PROFIT OF ` 2,31,601/ - AND THEREFORE THE DEDUCTION WAS CLAIMED AGAINST THE BUSINESS INCOME. GROUND NO. 4: THE LEARNED CIT(A) AFTER APPRECIATION OF FACTS OF T HE CASE HAS PROPERLY HELD THAT SUFFICIENT INTEREST FREE CAPITAL AND FUNDS ARE AVAILABLE WITH THE APPELLANT AGAINST THE INTEREST FREE ADVANCES. THE LEARNED CIT(A) DELETED THE ADDITION OF ` 45,000/ - . FOLLOWING SUBMISSIONS WERE CONSIDERED BY LEARNED CIT(A). ( 1) THE AUDITED FINANCIAL STATEMENT OF M/S RAMDEO CLOTH STORES MAY KINDLY BE SEEN. SUFFICIENT INTEREST FREE AMOUNTS WERE AVAILABLE, DETAILS OF WHICH ARE AS UNDER : (A) OWN CAPITAL ` 8,38,684/ - 5 ITA NO. 139/NAG/2014 (B) INTEREST FREE UNSECURED LOAN ` 6,39,529/ - (C) SUNDR Y TRADE CREDITORS ` 50,66,827/ - ---------------------- ` 65,45,039/ - --------------------- AS AGAINST THE ABOVE MENTIONED AMOUNT THE TOTAL OF INTEREST FREE LOANS AND ADVANCES IS ONLY ` 43,44,108/ - (47,53,337/ - - 4,09,229/ - ) (2) COPY OF LEDGER ACCOUNT OF PARTIE S TO WHOM LOANS AND ADVANCES WERE GIVEN WERE FURNISHED BEFORE THE AO AND LEARNED CIT(A) TO SUPPORT THE ARGUMENT THAT SOME OF ADVANCES ARE OUTSTANDING FROM PREVIOUS YEAR. RAMDEO AGRAWAL P.B. PAGE 67. SANJAY AGRAWAL ` 1,00,000/ - OPENING BALANCE TIRUMALA NEWS AGENCIES ` 3,00,000/ - OPENING BALANCE (3) THE PAYMENT OF ADVANCES WHERE MADE FROM CURRENT ACCOUNT OF PUNJAB NATIONAL BANK AND NOT FROM ANY LOAN ACCOUNT. (4) THE CASH CREDIT BANK ACCOUNT IN INDUSIND BANK ON WHICH INTEREST IS PAID MAY KINDLY BE SEEN. THE LOAN COMMENCED FROM NOVEMBER, 2006 AND THE PAYMENTS WERE IN RELATION TO PURCHASES. (5) THE NET INTEREST EXPENDITURE OF ` 86,632/ - IS REASONABLE CONSIDERING TURNOVER OF THE ASSESSEE AT ` 1.04 CRORES. 6 ITA NO. 139/NAG/2014 7 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. AS REGARDS THE DISALLOWANCE OF INTEREST OF ` 79, 342/ - IS CONCERNED, WE NOTE THAT AS PER THE PERSONAL BALANCE SHEET OF THE ASSESSEE, INTEREST FREE CAPITAL AVAILABLE AS ON 31 - 03 - 2007 WAS ` 10,70,654/ - . AS AGAI NST THIS INTEREST FREE ADVANCES AS ON 31 - 03 - 2007 ARE AT ` 9,25,000/ - . THIS IS DULY B ACKED BY AUDIT ED BOOKS OF ACCOUNTS. IN THIS REGARD THE SUMMARY OF ASSESSEES PERSONAL BALANCE SHEET AS BROUGHT OUT BY THE AO IN HIS ASSESSMENT ORDER IS AS UNDER : CAPITAL 1 070654 ASSETS 41500 UNSECURED LOANS 920440 INVESTMENT 958393 LIABILITIES 8902 LOANS & ADVANCES 925000 CASH & BANK BALANCE 75102 FROM THE ABOVE IT IS EVIDENT THAT THE CAPITAL OF THE ASSESSEE IS SUFFICIENT TO PROVIDE THE LOANS AND ADVANCES. HENCE IT CANNOT BE SAID THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED. IT IS SETTLED LAW THAT WHEN THERE ARE MIXED FUNDS THE PRESUMPTION IS THAT INTEREST FREE FUNDS HAVE BEEN USED FOR AS PER THE PR EROGATIVE OF THE ASSESSEE WHICH IS MORE BENEFICIAL TO IT. IN THI S REGARD WE MAY REFER TO THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., INCOME TAX APPEAL NO. 1398 OF 2008, ORDER DATED 09 01 2009 WHEREIN THE HONBLE HIGH COURT EXPOUNDED THAT WHERE THE ASSESSEE HAD ITS O WN FUNDS AS WELL AS BORROWED FUNDS AND IT ADVANCED FUNDS TO ITS SISTER CONCERN, THE PRESUMPTION CAN B E MADE THAT THE ADVANCE S FOR NON BUSINESS PURPOSES HAVE BEEN MADE OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE. AC CORDINGLY THE DISALLOWANCE OF INTEREST ON THE BORROWED FUNDS IS NOT JUSTIFIED. 7 ITA NO. 139/NAG/2014 8. THE SAME IS THE CASE WITH REGARD TO THE DISALLOWANCE OF INTEREST ON ADHOC BASIS AND ADDITION OF ` 45,000/ WITH RESPECT TO THE ASSESSEES BUSINESS BALANCE SHEET. 9. AS REGARDS THE DISALLOWANCE OF INTEREST OF ` 45,000/ - , WE NOTE THAT THE ASSESSEE IS CLAIMING INTEREST FREE FUNDS AMOUNTING TO ` 65,45,049/ - . AS AGAINST THE ABOVE, THE INTEREST FREE LOANS AND ADVANCES ARE ` 4344109/ . APPLYING THE SAME ANALOGY AND CASE LAW WE FIND THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND HENCE NO CASE AN BE MADE OUT FOR THE DIVERSION OF INTEREST BEARING FUNDS AND HENCE THE DISALLOWANCE OF INTEREST OF ` 45,000/ HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE ORDER OF LEARNED CIT(APPEALS). 10 . APROPOS GROUND NO. 2: ON THIS ISSUE THE AO NOTED THAT THE CREDITORS LEDGER OF THE ASSESSEE SHOWS A TYPICAL PATTERN WHEREIN IT IS SEEN THAT DURING THE YEAR THE ASSESSEE HAS REPAID A NOMINAL AMOUNT TO THE CREDITORS AND BALANCE AMOUNT IS SHOWN TO BE DUE TO THE CREDITORS. THE AO GOT THE CREDITORS EXAMINED AND ENQUIRED THROUGH ACIT, SURAT. FROM THE REPORT OF ACIT, SURAT IT WAS EVIDENT T HAT WHILE SOME OF THE CREDITORS HAD CONFIRMED AND IN MANY CASES THERE WAS MENTION OF INCOMPLETE ADDRESS. IN SOME CASES NO PERSONS WERE FOUND. HOWEVER, THERE WAS NO CASE OF ANY DENIAL OF TRANSACTION OR NON CONFIRMATION. CONSIDERING THE ABOVE, THE AO CONCL UDED AS UNDER : AS CAN BE SEEN FROM THE ABOVE EVEN THE CURRENT YEARS LIABI LI TIES OF THE ASSESSEE ARE NOT CONFIRMED BY THE PARTIES. HENCE A COPY OF THE REPORT OF THE ACIT WAS GIVEN TO THE ASSESSEE AND WAS ASKED TO SUBSTANTIATE ASSESSEES CLAIM THAT THE C REDITORS ARE GENUINE AND THEY REALLY DO EXIST. THE ASSESSEE 8 ITA NO. 139/NAG/2014 ONLY SUBMITTED THAT THE MOST OF THE OUTSTANDING LIABILITIES ARE SQUARED OFF BY THE ASSESSEE THROUGH CHEQUES OR DEMAND DRAFTS IN THE NEXT YEAR AND THE LIABILITIES DID EXIST BECAUSE THE GOODS SUPPL IED WERE OF POOR QUALITY HENCE THE SAME REMAINED OUTSTANDING. THE ASSESSEE WAS ASKED TO SUBMIT CONFIRMATIONS FROM THE CREDITORS AND ALSO TO PROVIDE THEIR PAN NUMBERS, ADDRESS AND PHONE NUMBER/MOBILE NUMBER, SO THAT GENUINENESS OF THESE CREDITORS CAN BE GO T CONFIRMED. BUT THE ASSESSEE DESPITE BEING AFFORDED OPPORTUNITY ON 14.12.2009, 18.12.2009 AND 21.12.2009 COULD NOT PRODUCE THE REQUIRED INFORMATION. HENCE IT IS HELD THAT THIS IS CASE OF CESSATION OF LIABILITY. BURDEN TO PROVE WHETHER THE LIABILITY REALLY EXISTS/SUBSISTS DURING THE YEAR IS ON THE ASSESSEE, WHICH HAS NOT BEEN DISCHARGED BY THE ASSESSEE. HENCE IT HELD THAT THIS IS CASE OF CESSATION OF LIABILITY AND HENCE THE CREDITOS TO THE TUNE OF ` 3644813 ARE HELD AS INCOME OF THE ASSESSEE AND ADDED TO TH E INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS. PENALTY PROCEEDINGS U/S 271(1)(C) ARE SEPARATELY INITIATED FOR CONCEALMENT OF INCOME AND FILING INACCURATE PARTICULARS OF INCOME. 11 . UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) FOUND THAT ASS ESSEES BOOKS OF ACCOUNTS ARE AUDITED, ALL THE BILLS AND VOUCHERS HAVE BEEN PRODUCED AND NO DEFECT HAS BEEN FOUND. LEARNED CIT(APPEALS) ALSO NOTED THAT THE AO HAS NOT MADE ANY EFFORT TO BIFURCATE CURRENT YEARS CREDIT BALANCES AND THE EARLIER BROUGHT FORWA RD CREDIT BALANCES WITH A VIEW TO ASCERTAIN ALL THE AMOUNT OF THE CREDITORS OF THE EARLIER YEARS. AS REGARDS THE CURRENT YEARS CREDIT BALANCES ARE CONCERNED, LEARNED CIT(APPEALS) OPINED THAT IT IS PREMATURE TO CONCLUDE THAT ITS CESSATION OF LIABILITY MEREL Y ON THE GROUND THAT THE ASSESSEE COULD NOT FURNISH THE CONFIRMATION LETTERS. LEARNED CIT(APPEALS) FURTHER O B SERVED THAT THE ASSESSEE HAD MADE NOMINAL PAYMENTS TO THESE CREDITORS WHICH FACT SHOWS THAT SUCH PARTIES EXIST. LEARNED CIT(APPEALS) CONCLUDED AS UNDER : THE AR OF THE APPELLANT, IN HIS SUBMISSIONS, HAS ELABORATELY CLARIFIED THE MANNER OF PURCHASES IN THE MARKETS LIKE SURAT, WHEREFROM THE APPELLANT HAS PURCHASED THE GOODS THROUGH THE AGENTS/BROKERS AND MADE THE PAYMENTS AFTER DELIVERY OF GOODS MOS TLY THROUGH THE ACCOUNT PAYEE CHEQUES OR HANDED - OVER TO SUCH BROKERS AT THE SHOP ITSELF, WHICH IS FOUND REFLECTED IN THE BOOKS OF THE APPELLANT. ALL SUCH PURCHASES ARE SUPPORTED BY BILLS AND VOUCHERS AND 9 ITA NO. 139/NAG/2014 TRANSPORTABILITY, WHICH ARE REFLECTED IN THE AUDITED BOOKS OF ACCOUNT VERIFIED BY THE AO. IN THIS REGARD, IT IS SIGNIFICANT TO NOTE THAT ALL THE SALES DISCLOSED BY THE APPELLANT AS HER TURNOVER ARE ACCEPTED AND THE TAXES PAID ON THE RESULTANT INCOME ARISING ON SUCH SALES HAVE BEEN BROUGHT TO TAX IN THE AS SESSMENT ORDER. THUS, THE LD. AO, HAVING ACCEPTED THE PROFIT ON SALES OF THE APPELLANT, WITHOUT POINTING OUT ANY INFIRMITY IN THE BOOKS, IS NOT JUSTIFIED TO TAKE A DIFFERENT VIEW AS REGARDS TO THE CREDITORS FOR PURCHASES, IN THE ABSENCE OF ANY CONTRARY EVI DENCE ON RECORD. THE REPORT OF THE ACIT, CIRCLE - 5, SURAT, AS REPRODUCED IN THE ASSESSMENT ORDER, AS SUCH, DOES NOT CONTAIN ANY ADVERSE FINDING. THE ACIT HAS STATED IN THE REMARKS COLUMN THAT SOME OF THE PARTIES HAVE CONFIRMED THE TRANSACTIONS, WHEREAS IN REMAINING CASES, THE ADDRESS WAS EITHER INCOMPLETE OR THE PARTY HAS LEFT THE PREMISES. SINCE THE AR OF THE APPELLANT HAS SUBMITTED THAT SOME OF THE PURCHASES FROM SURAT MARKET ARE THROUGH BROKERS/AGENTS, THEREFORE, SUCH SITUATION OF NON - AVAILABILITY OF PARTY AT THE TIME OF INVESTIGATION MAY ARISE. THEREFORE, THE SUBMISSIONS MADE BY THE AR OF THE APPELLANT CARRIES MUCH SUBSTANCE, HENCE CANNOT BE DISCARDED IN THE ABSENCE OF ANY CONTRARY EVIDENCE BROUGHT ON RECORD. IN THE FACTS AND CIRCUMSTANCES, THIS CANNOT BE INFERRED TO BE A CASE OF CESSATION OF LIABILITY. THEREFORE, THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. 1 2 . AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 1 3 . LEARNED DR RELIED UPON THE ORDERS OF THE AO. LEARNED COUNSEL OF THE ASSESSEES SUBMISSION IN THIS REGARD ARE SUMMARIZED AS UNDER : GROUND NO. 2: THE ADDITION OF ` 36,44,813/ - IS MADE BY THE AO HOLDING THAT THERE IS A CESSATION OF LIABILITY IN CASE O F PARTIES HAVING OUTSTANDING BALANCE FOR THE REASON MENTIONED IN PAGE NO. 4 AND 5 OF THE ASSESSMENT ORDER. FOLLOWING SUBMISSIONS WERE CONSIDERED BY LEARNED CIT(A): (1) THE LEARNED CIT(A) DELETED THE ADDITION HOLDING THAT THERE IS NO INFIRMITY FOUND IN THE AUDITED BOOKS OF ACCOUNTS AND DOCUMEN T S 10 ITA NO. 139/NAG/2014 PRODUCED. FURTHER THE PURCHASES ARE MADE THROUGH BROKERS OR FROM THE PARTIES WHEN THEY VISIT THE SHOP AND THERE IS NO DIRECT CONTACT OF THE ASSESSEE THEREAFTER WITH THEM. THE PURCHASES ARE SUPPORTED BY BILLS, VOUCHERS AND TRANSPORT BUILTY AND THE PAYMENT ARE MADE MOSTLY BY ACCOUNT PAYEE CHEQUES. THE SALES HAVE BEEN ACCEPTED BY THE AO. (2) THE AGGREGATE CLOSING BALANCE OF MOST OF THE PARTIES CONSIST OF PURCHASES IN THE Y EAR UNDER CONSIDERATION AND EARLIER YEARS. THE PARTYWISE BIFURCATION WAS ALSO EXAMINED DETAILS OF WHICH ARE AVAILABLE ON PAPER BOOK PAGE N. 3 AND 4. AFTER EXAMINATION OF THE COPY OF ACCOUNT, IT WAS HELD THAT IT IS PREMATURE TO CONCLUDE THAT THERE IS A CES SATION OF LIABILITY OF THE CURRENT YEARS CLOSING CREDIT BALANCE. (3) THE REPORT OF ACIT, CIRCLE 5 SURAT DOES NOT CONTAIN ANY ADVERSE FINDING ABOUT THE PARTIES EXCEPT THAT THE PARTIES HAVE EITHER LEFT OR THE ADDRESS IS INCOMPLETE. CONSIDERING THE FACTS OF THE CASE, SUCH SITUATION OF NON AVAILABILITY OF PARTY AT THE TIME OF INVESTIGATION MAY ARISE. (4) ALL THE CREDITORS HAVE BEEN MADE PAYMENT FROM TIME TO TIME WHICH WAS ALSO EXAMINED. THE DETAILS OF SUCH PARTIES ARE AVAILABLE IN THE PAPER BOOK. 11 ITA NO. 139/NAG/2014 1 4 . UPON CAREFUL CONSIDERATION WE NOTE THAT ON THIS ISSUE THE ASSESSING OFFICER HAS MADE OUT THE CASE OF CESSATION OF LIABILITY ON ACCOUNT OF SUNDRY CREDITORS. THE MAIN BASIS FOR ASSESSING OFFICERS DISALLOWANCE IS THE REPORT OBTAINED FROM ACIT, SURAT REGARDING THE EXAMINATION OF SUNDRY CREDITORS. IN THIS REGARD WE NOTE THAT IT IS THE ASSESSEES SUBMISSION THAT THE ASSESSEE HAD MADE THE PURCHASES FROM MARKET LIKE SURAT THROUGH AGENTS/BROKERS AND MADE PAYMENTS AFTER DELIVERY OF GOODS. THESE PURCHASES ARE SUPPORTED BY BILLS AND VOUCHERS AND TRANSPORTATION DOCUMENTS. SALES TURNOVER HAS ALSO BEEN ACCEPTED BY THE ASSESSING OFFICER. THE REPORT OF ACIT, SURAT REFERRED IN THE ASSESSMENT ORDER STATES THAT SOME OF THE PARTIES HAVE CONFIRMED THE TRANSACTION WHEREAS IN REMAINING CASES THE ADDRESS WAS EITHER INCOMPLETE OR THE PARTY HAS LEFT THE PREMISES. IN OUR CONSIDER ED OPINION THIS OBSERVATION IS NOT SUFFICIENT TO HOLD THAT THE LIABILITY ON ACCOUNT OF SUNDRY CREDITORS IS NO LONGER IN EXIST ENCE . AS A MATTER OF FACT THE ASSESSING OFFICER HAS NOT EVEN BOTHERED TO IDENTIFY THE PERIOD THROUGH WHICH THE CREDITS ARE OUTSTAND ING. THERE IS NOT EVEN A SINGLE CASE WHERE THERE IS A DENIAL OF TRANSACTION OR NON CONFIRMATION. THE ASSESSING OFFICER HAS EVEN HELD SOME OF THE PURCHASES OF CURRENT YEAR ALSO AS THE CASE OF CESSATION OF LIABILITY. IN OUR CONSIDERED VIEW LEARNED CIT(APPEA LS) WAS CORRECT IN OBSERVING THAT IT WILL BE PREMATURE TO CONCLUDE THAT IT IS A CESSATION OF LIABILITY ON ACCOUNT OF CURRENT YEAR PURCHASES SIMPLY BECAUSE CONFIRMATION LETTERS ARE NOT THERE. THE ASSESSING OFFICER IS ALSO NOT DENYING THAT THE ASSESSEE HAS M ADE SOME PAYMENTS IN THE CREDITORS ACCOUNTS. IN THESE CIRCUMSTANCES IN OUR CONSIDERED OPINION THE LEARNED CIT(APPEALS) I S RIGHT IN HOLDING THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN HOLDING THAT THERE IS A CESSATION OF LIABILITY. THE TRANSACTIONS ARE DULY APPEARING IN THE BALANCE SHEET OF THE ASSESSEE. IT IS NOT THE CASE THAT THE ASSESSEE HAS WRITTEN OFF THE LIABILITY. IT IS ALSO NOT THE CASE THAT THERE IS DENIAL OF TRANSACTION BY THE CREDITORS . NO CASE HAS ALSO BEEN MADE OUT BY THE ASSESSING OFFICER T HAT CREDITS ARE LYING IN INDIVIDUAL ACCOUNTS FOR AN UNDULY LONGER PERIOD 12 ITA NO. 139/NAG/2014 WITHOUT ANY TRANSACTION. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THERE IS NO COGENT BASIS TO HOLD THAT THERE IS A CESSATION OF LIABILITY. HENCE IN OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(APPE A LS). ACCORDINGLY WE UPHOLD THE SAME. 1 5 . APROPOS GROUND NO. 3: ON THIS ISSUE, THE AO NOTED THAT ALONG WITH THE EXAMINATION OF CREDITORS AS ABOVE, PURCHASES OF ASSESSEE WERE ALSO GOT VERIFIED THROUGH ACIT, SURAT. THE REMARKS OF THE REPORT RECORDED THAT WHILE SOME OF THE ADDRESSE ES ARE LEFT, IN SOME CASES THERE WAS INCOMPLETE ADDRESS. IN ONE CASE IT WAS NOTED THAT NO SUCH PERSON EXISTS. FROM THIS THE AO CONCLUDED AS UNDER : AS CAN BE SEEN FROM THE A BOVE EVEN THE CURRENT YEARS PURCFHASES OF THE ASSESSEE ARE NOT CONFIRMED BY THE PARTIES. HENCE A COPY OF THE REPORT OF THE ACIT WAS GIVEN TO THE ASSESSEE AND WAS ASKED TO SUBSTANTIATE ASSESSEES CLAIM THAT THE PURCHASES ARE GENUINE AND THEY REALLY DO EXIS T. THE ASSESSEE SUBMITTED THAT MOST OF THE PURCHASES ARE DONE THROUGH CHEQUES OR DEMAND DRAFTS. THE ASSESSEE WAS ASKED TO SUBMIT CONFIRMATIONS FROM THE PURCHASERS AND ALSO TO PROVIDE THEIR PAN NUMBERS, ADDRESS AND PHONE NUMBER/M OBILE NUMBER, SO THAT GENUI NENESS OF THESE PURCHASES CAN BE GOT CONFIRMED. BUT THE ASSESSEE DESPITE BEING AFFORDED OPPORTUNITY OF 14.12.2009, 18.12.2009 AND 21.12.2009 COULD NOT PRODUCE THE REQUIRED INFORMATION. HENCE IT IS HELD THAT THE ASSESSEE HAS INFLATED HER PURCHASES TO THE TU NE OF ` 3917825/ - WHICH ARE NOT GENUINE. THE ASSESSEE DESPITE BEING GIVEN OPPORTUNITY DID NOT BRING ON RECORD THE BILLS FOR THE PURCHASES, PAYMENT OF OCTROI RECEIPT, TRANSPORTATION CHARGES PAID RECEIPT, CONFIRMATIONS FROM THE PURCHASERS, THEIR PAN NUMBERS, ADDRESS AND PHONE NUMBER/MOBILE NUMBER ETC. HENCE, IT IS HELD THAT THE PURCHASES TO T HE TUNE OF ` 3917825/ - ARE NOT GENUINE AND ARE ADDED TO THE INCOME OF THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. PENALTY PROCEEDINGS U/S 271(1)(C) ARE SEPARATELY INITIATED FOR CONCEALMENT OF INCOME AND FILING INACCURATE PARTICULARS OF INCOME. 13 ITA NO. 139/NAG/2014 1 6 . UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) DELETED THE SAME HOLDING AS UNDER : ON CAREFUL EXAMINATION OF THE FACTS AND THE SUBMISSIONS OF THE AR OF THE APPELLANT, IT IS SEEN THAT THE AO HAS PROCEEDED TO MAKE THE ADDITION ON ACCOUNT OF INFLATED PURCHASES ON THE SIMILAR LINES, ON WHICH THE AO HAS TREATED THE CREDITORS AS NON - EXISTING. THE REPORT OF THE ACIT, CIRCLE - 5, SURAT, AS REPRODUCED FROM PARA NO. 8 OF THE ASSESSMENT ORDER, IS GIVEN IN THE IDENTICAL MANNER AS IN THE CASE OF CREDITORS, INDICATING THEREIN THE REMARKS SUCH AS LEFT AND INCOMPLETE ADDRESS . ON THE FACE OF IT, THE REPORT IS QUITE AMBIGUOUS AND DOES NOT GIVE ANY CONCRETE FINDING ON MERITS. SINCE THE ISSUE OF ALLEGED INFLATED PURCHASES AND THE CREDITORS FOR PURCHASES OF GOODS BY THE APPELLANT ARE INTERLINKED, THEREFORE, FOR THE DETAILED REASONS DISCUSSED IN THE CONCLUDING PARA NO. 10 A BOVE, THE ADDITION MADE BY THE AO IS FOUND TO BE WITHOUT ANY BASIS, HENCE IS DIRECTED TO BE DELETED. 1 7 . AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 1 8 . LEARNED D.R. RELIED UPON THE ORDERS OF THE AO. THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE A SSESSEE ARE SUMMARIZED AS UNDER : THE ADDITION OF ` 39,17,825/ - IS MADE BY THE AO HOLDING THAT THE PURCHASES TO THAT EXTENT ARE NON GENUINE FOR THE REASON MENTIONED IN PAGE NO. 7 OF THE ASSESSMENT ORDER. FOLLOWING SUBMISSIONS WERE CONSIDERED BY LEARNED CIT(A): (1) THE LEARNED CIT(A) DELETED THE ADDITION HOLDING THAT THERE IS NO INFIRMITY FOUND IN THE AUDITED BOOKS OF ACCOUNTS AND DOCUMENTS PRODUCED. FURTHER THE PURCHASES ARE MADE THROUGH BROKERS OR FROM THE PARTIES WHEN THEY VISIT THE SHOP AND THERE IS NO DIRECT CONTRACT THEREAFTER WITH THEM. 14 ITA NO. 139/NAG/2014 THE PURCHASES ARE SUPPORTED BY BILLS, VOUCHERS AND TRANSPORT BUILTY AND THE PAYMENT ARE MADE MOSTLY BY ACCOUNT A PAYEE CHEQUES THE SALES HAVE BEEN ACCEPTED BY THE AO. (2) THE REPORT OF ACIT, CIRCLE 5 SURAT DOES NOT CONTAIN ANY ADVERSE FINDING ABOUT THE PARTIES EXCEPT THAT THE PARTIES HAVE EITHER LEFT OR THE ADDRESS IS INCOMPLETE. CONSIDERING THE FACTS OF THE CASE, SUCH SITUATION OF NON AVAILABILITY OF PARTY AT THE TIME OF INVESTIGATION MAY ARISE. (3) ALL THE IMPUGNED CREDITORS HAVE BEEN PAID BY ACCOUNT PAYEE CHEQUE IN THE ACCOUNTING YEAR ITSELF WHICH IS UNDISPUTED. THE DETAILS OF SUCH PARTIES AND PAYMENTS ARE AVAILABLE IN THE PAPER BOOK. 1 9 . ON THIS ISSUE ALSO THE PURCHASES WERE HELD TO BE BOGUS OR NON GENUINE ON THE SAME BASIS AS IN THE CASE OF DISALLOWANCE OF SUNDRY CREDITORS ABOVE. IT IS NOT THE CASE OF THE REVENUE THAT THE PURCHASE VOUCHERS ARE NOT THERE. IT IS ALSO NOT THE CASE THAT CORRESPONDING SALES HAVE BEEN FOUND TO BE BOGUS . THE SOLE BASIS OF ASSESSING OFFICERS DISALLOWANCE IS THAT IN THE REPORT OF THE ACIT, SURAT REGARDING CONFIRMATION OF THE CREDITORS IN SOME OF THE CASES THE TRANSACTION COULD NOT BE VERIFIED AS THE ADDRESSEES HAVE EITHER LEFT OR THE ADDRESS HAS BEEN INCO MPLETE. THUS WE AGREE WITH THE LEARNED CIT(APPEALS) THAT NO DEFECT HAS BEEN FOUND IN THE BOOKS OF ACCOUNTS. ALL THE PURCHASE VOUCHERS ARE THERE. IT IS ALSO NOT THE CASE THAT DISALLOWANCE OF ANY CORRESPONDING SALES HAS BEEN BOGUS. IT IS SETTLED LAW THAT SAL ES CANNOT BE MADE WITHOUT CORRESPONDING PURCHASES. ALL THE BILLS OF PURCHASES AND TRANSPORTABILITY ARE THERE. PAYMENT VOUCHERS HAVE NOT BEEN FOUND DEFECTIVE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCORD INGLY WE UPHOLD THE SAME. 15 ITA NO. 139/NAG/2014 20 . IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPT. 2015. SD/ SD/ (MUKUL K. SHRAWAT) ( SH AMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH SEPT., 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR