DDIT(IT)-1(1)KOL, Kolkata V. M/S JOY PARTNERSHIP, Kolkata

ITA 149/KOL/2009

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1285 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N B SOM
• Assessee Lawyers: SUSHMITA BASU
• Keywords: Business expenditure; Additional evidence; Permanent establishment; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 149/KOL/200 9 ASSESSMENT YEAR : 2005-0 6 DDIT(IT)-1(1), KOLKATA -VS- M/S JOY P ARTNERSHIP [PAN: AADFJ 6427 H] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI N.B SOM, ADDL . CIT SR. DR FOR THE RESPONDENT : SMT. SUSHMITA BASU, AR DATE OF HEARING : 20.09.2017 DATE OF PRONOUNCEMENT : 17.10.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XL, KOLKATA [ IN SHORT THE LD CITA] IN APPEAL NO. 95/CIT(A)- XL/07-08 DATED 20.10.2008 AGAINST THE ORDER PASSED BY THE ADIT(IT)-1, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 27.12.2007 FOR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF PAYROLL COSTS DUE T O DIFFERENCE IN FIGURES REFLECTED IN THE PROFIT AND LOSS ACCOUNT AND TDS RETURN IN FORM NO. 24, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A NON-RESIDENT PARTNERSHIP FIRM FORMED BY A DEED OF AGREEMENT DATED 23.12.1998 IN T HE UNITED KINGDOM BETWEEN JOY 2 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 2 MINING MACHINERY LTD (JMML) HAVING REGISTERED OFFIC E AT BROMYARD ROAD, WORCESTOR AND JOY MANUFACTURING COMPANY (U.K.) LTD HAVING REG ISTERED OFFICE AT 1, BLYTHESWOOD SQUARE, GLASGOW, U.K. . THE ABOVE TWO PARTNERS IN THE PARTNERSHIP UNDER THE NAME JOY PARTNERSHIP AND KIER INTERNATIONAL MINING PARTNERSH IP (ANOTHER PARTNERSHIP BODY IN THE U.K.) HAD FORMED A JOINT VENTURE IN THE U.K. NAMELY JOY KIER JOINT VENTURE AND ENTERED INTO A CONTRACT DATED 6.4.1999 WITH SOUTH EASTERN C OALFILEDS LTD (SECL) BILASPUR, M.P. A GOVERNMENT OF INDIA UNDERTAKING AND A WHOLLY OWNE D SUBSIDIARY OF COAL INDIA LTD FOR PROVIDING SERVICES AT THE CHIRIMIRI COLLIERY ZE RO SEAM UNDERGROUND MINES IN THE CHIRIMIRI AREA OF THE SAID COMPANY. SUBSEQEUNTLY, KIER INTERNATIONAL MINING PARTNERSHIP WITHDREW FROM THE JOINT VENTURE AND JOY PARTNERSHIP (ASSESSEE HEREIN) BECAME THE SOLE EXECUTOR OF THE CONTRACT. THE SCOP E OF SERVICES INCLUDE SUPERVISION AND ASSISTANCE IN ERECTION AND COMMISSIONING OF SECLS EQUIPMENTS , PROVIDING TRAINING TO SECL PERSONNEL, PROVIDING MINE LAYOUT AND OPERATION SEQUENCE, OVERHAULING OF EQUIPMENT, MAINTENANCE OF EQUIPMENT ETC. THE CONTR ACT BECAME OPERATIONAL FROM 1.11.2001. LATER THE ASSESSEE ENTERED INTO ANOTHER CONTRACT WITH WESTERN COALFIELDS LTD, NAGPUR , ALSO A SUBSIDIARY OF COAL INDIA LTD, FOR P ROVIDING SERVICES AT THEIR COLLIERIES LOCATED AT TANDSI. WORK UNDER THIS CONTRACT STARTE D DURING THE ASST YEAR 2004-05 AND CONTINUED DURING THE YEAR UNDER APPEAL. THE PROJECT OFFICE OF THE ASSESSEE IS SITUATED AT MINING CENTRE, 85/2, TOPSIA ROAD (SOUTH) ROAD, KOLK ATA- 700046 , WHICH IS ALSO THE PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA TH ROUGH WHICH THE BUSINESS IS CONDUCTED. 2.2. THE ASSESSEE DECLARED LOSS FOR THE YEAR UNDER APPEAL BY FILING THE RETURN ON 29.3.2006. THE LD AO OBSERVED THAT: CLAIM OF EXPENSES UNDER 'PAYROLL COSTS' 3. AN AMOUNT OF RS.8,65,03,022/- WAS DEBITED TO P&L A/C. UNDER THE HEAD 'PAYROLL COSTS', WHICH HAS INCREASED SUBSTANTIALLY COMPARED TO THE LAST YEAR'S FIGURE OF RS. 5,81,30,802/-.1N RESPONSE TO THE QUERY REGARDING TH E REASONS FOR SUCH HUGE INCREASE, IT WAS SUBMITTED BY THE ASSESSEE THAT A PORTION OF THE SE EXPENSES ACTUALLY RELATES TO LOSS DUE TO EXCHANGE FLUCTUATION. REFERRING TO THE DETAI LS/PARTICULARS FILED IN THIS REGARD IT 3 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 3 WAS CLARIFIED BY WRITTEN SUBMISSION FILED ON 28.09. 07 THAT THE EXPENDITURE WOULD NOT EXACTLY MATCH WITH THE PARTICULARS FURNISHED IN THE ANNEXURE TO FORM 24 ( ANNUAL RETURN OF TDS ON SALARY), PRIMARILY BECAUSE SUCH EX CHANGE DIFFERENCE OCCURRED AS A RESULT OF PAYMENT TO EXPATRIATE EMPLOYEES IN FOREIG N CURRENCY. THE FOLLOWING REASONS ARE ASSIGNED TO THE DIFFERENCE: AS PER THE ACCOUNTING POLICY OF THE ASSESSEE FIRM , THE EXPENDITURE INCURRED DURING THE YEAR IS TRANSLATED AT THE AVERAGE EXCHAN GE RATE PREVAILED DURING THE YEAR WHEREAS, THE INCOME FROM REMUNERATION OF THE R ESPECTIVE EXPATRIATES WHICH HAS BEEN SUBJECTED TO DEDUCTION OF TAX AT SOURCE HA VE BEEN CONSIDERED AND TRANSLATED INTO INR AS PER RULE 115 OF THE I.T.RULE S, 1962. THERE IS FURTHER EXCHANGE FLUCTUATION AT THE TIME OF CONVERSION OF USD/ZAR, BEING THE CURRENCY USED FOR PAYMENT OF REMUNERATION TO EXPATRIATES, INTO GBP. THE AMOUNT DEBITED INCLUDES SALARY PAID TO A NUMB ER OF CASUAL WORKERS AT THE MINES. THE TOTAL SALARY OF SUCH WORKERS BEING LOWER THAN THE TAXABLE LIMIT THE SAME IS NOT REFLECTED IN THE ANNEXURE TO FORM 24. T HE TOTAL OF SUCH PAYMENTS AMOUNT TO RS. 12,53,600/-. THE AMOUNT DEBITED ALSO INCLUDES EXPENDITURE INCU RRED TOWARDS ROOF BOLTING LABOUR CHARGES OF RS.30,53,003/-, WHICH DOES NOT FE ATURE IN FORM 24. AN AD-HOC PROVISION OF RS. 1,10,00,000/- MADE TOW ARDS EXPECTED BONUS OF EXPATRIATES WAS INCLUDED IN 'PAY ROLL COSTS'. THIS AMOUNT IS OFFERED FOR TAXATION. 3.1. THE FOLLOWING INFERENCES CAN BE DRAWN FROM THE ABOVE EXPLANATIONS: THE EXACT QUANTUM OF ADDITIONAL EXPENSES INCURRED DUE TO EXCHANGE FLUCTUATION COULD NOT BE FURNISHED. THE CASE WAS SO UGHT TO BE ESTABLISHED BY FILING DETAILS IN RESPECT OF ONLY TEN (10) EXPATRIA TE EMPLOYEES OUT OF 34, TO WHOM REMUNERATION OF RS. 1,53,95,519/- WAS STATED TO HAV E BEEN PAID. EXCHANGE FLUCTUATION LOSS ATTRIBUTABLE TO SUCH PAYMENTS AMOU NTS TO RS. 13,98,364/- THE ASSESSEE ADMITTED THAT THE EXPENSE UNDER THE HEAD PAYROLL COSTS WAS INFLATED TO THE TUNE OF RS.1.10 CRORES . THUS, IT IS CONSIDERED TO BE ONLY FAIR AND REASONAB LE TO CONCLUDE THAT THE ASSESSEE FAILED TO ESTABLISH THE CORRECTNESS OF THE ENTIRE AMOUNT T O THE TUNE OF RS. 8.65 CRORES DEBITED AS PAYROLL COSTS. 4. AS PER THE ANNEXURE TO FORM 24 FILED, TOTAL REMU NERATION OF RS.5,80,86,146/-WAS PAID TO EMPLOYEES WORKING IN INDIA(EXCLUDING PAYMEN T TO CASUAL WORKERS & ON ACCOUNT OF LABOUR CHARGES FOR ROOF BOLTING) AND INCLUSIVE O F EXPENSES DUE TO EXCHANGE DIFFERENCE. OUT OF THIS RS. 6,50,500/- WAS PAID TO TWO (2) INDIAN EMPLOYEES IN INR, SO QUESTION OF EXCHANGE DIFFERENCE DID NOT ARISE IN TH EIR CASES. THEREFORE, THE BALANCE 4 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 4 AMOUNT WHICH INCLUDES EXCHANGE DIFFERENCE LOSS WAS OF RS. 5,74,35,646/-(5,80,86,146- 6,50,500). 4.1. AS DISCUSSED ABOVE, THE ASSESSEE FILED SAMPLE DETAILS IN RESPECT OF 10 CASES WHERE ADDITIONAL EXPENSE DUE TO EXCHANGE LOSS OF RS. 13,9 8,364 1- WAS INCURRED FOR PAYMENT OF REMUNERATION OF RS. 1,53,95,5191- REFLECTED IN T HE ANNEXURE TO FORM 24. IF THE PROPORTION OF 13,98,364/1,53,95,519 OR 0.09 IS APPL IED TO THE TOTAL AMOUNT OF RS.5,74,35,646/- (SUPRA), IT CAN BE SAID THAT 5,74, 35,646X 0.09 OR RS. 51,69,2081- WAS THE ESTIMATED AMOUNT WHICH CAN BE ATTRIBUTED TO THE EXCHANGE DIFFERENCE. 4.2. IF THE ABOVE AMOUNT OF RS. 51,69,208/- TOGETHE R WITH THE AMOUNT OF RS. 12,53,600/- & RS. 30,53,003/- CLAIMED TO HAVE BEEN PAID TO CASU AL WORKERS AND FOR 'ROOF BOLTING CHARGES' RESPECTIVELY, AND RS. 5,80,86,1461- BEING THE GROSS AMOUNT AS PER ANNEXURE TO FORM 24 IS DEDUCTED FROM THE TOTAL DEBIT UNDER 'PAY ROLL COSTS' I.E. [8,65,03,022- 5,80,86,146+51,69,208+12,53,600+30,53,003] , IT STI LL LEAVES A BALANCE AMOUNT OF RS. 1,89,41,265/-, WHICH IS LIABLE TO BE DISALLOWED BEI NG EXCESS CLAIM UNDER THE HEAD 'PAYROLL COSTS'. OUT OF THIS, ASSESSEE OFFERED FOR TAX RS. 1,10,00,00/- BEING AD-HOC PROVISION MADE TOWARDS EXPECTED BONUS OF EXPATRIATE S. THIS ACT OF DISCLOSURE IN THE COURSE OF HEARING, HOWEVER, DOES NOT ABSOLVE THE AS SESSEE FROM THE CHARGE OF FILING INACCURATE PARTICULARS OF INCOME. PENALTY PROCEEDIN GS U/S 271(1)(C) IS, THEREFORE, INITIATED SEPARATELY FOR DISALLOWANCE OF RS.L,89,41 ,265/- . 4.3. THE AMOUNT OF EXCHANGE LOSS OF RS. 51,69,208/- IS INCLUSIVE OF RS. 13,98,364/- IN RESPECT OF WHICH THE ASSESSEE WAS ABLE TO IDENTIFY THE EMPLOYEES. THE BALANCE OF RS. 37,70,844/-(5169208-1398364) IS PURELY AN ESTIMATED AMOUNT, THE CORRECTNESS OF WHICH COULD NOT BE ESTABLISHED EVEN BY WAY OF ANY CALCULA TION. WHILE THE POSSIBILITY OF INCURRING EXCHANGE LOSS, SIMILAR TO THAT OF THE SAM PLE CASES, CANNOT BE RULED OUT, IT IS THE ONUS OF THE ASSESSEE TO JUSTIFY ANY CLAIM BY AD DUCING ADEQUATE SUPPORTING EVIDENCES. IN ABSENCE OF WHICH 1/5 TH OF SUCH AMOUNT BEING RS.7,54, 169/- IS DISALLOWED ON ESTIMATE BASIS. 2.3. THE ASSESSEE PRODUCED FURTHER EVIDENCE BEFORE THE LD CITA TO EXPLAIN THE DIFFERENCE BETWEEN THE AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THE FIGURE MENTIONED IN FORM NO. 24 AS UNDER:- OVERSEAS INSURANCE PREMIUM FOR EXPATRIATE EMPLOYEES - 18,24,080 GROSSING UP DUE TO TAX ELEMENT BORNE BY ASSESSEE - 45,00,717 VISA, PASSPORT, TRAVELLING ETC CHARGES OF EXPATRIAT E EMPLOYEES- 12,56,672 ----------------- 75,81,469 ----------------- 5 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 5 THIS BREAK UP EXPLAINING THE DIFFERENCE WAS ADMITTE D AS ADDITIONAL EVIDENCE BY THE LD CITA AND NO OPPORTUNITY WAS GIVEN TO THE LD AO TO R EBUT THE SAME. THE ASSESSEE SUBMITTED THE OVERALL RECONCILIATION OF PAYROLL COS TS BEFORE THE LD CITA AS UNDER:- GROSS SALARY SHOWN IN FORM NO. 24- AS CONSIDERED BY AO 58,086,146 ADD: AMOUNT DEBITED TO PAYROLL COSTS OFFERED TO TAX BEING PROVISION 11,000,000 ADD: PAYMENT TO CASUAL LABOUR NOT REQUIRED TO BE RE FLECTED TO BE REFLECTED IN TDS 1,253,600 RETURN ADD: ROOFBOLTING LABOUR CHARGES NOT REQUIRED TO BE REFLECTED TO BE SHOWN IN TDS 3,053,003 RETURN ADD: DIFFERENCE DUE TO EXCHANGE FLUCTUATION 5,528,804 ADD: OVERSEAS INSURANCE PREMIUM OF THE EXPARTRIATE EMPLOYEES 1,824,080 ADD: DEBIT TO P&L A/C DUE TO GROSSING UP 4,500,717 ADD: VISA, PASSPORT, TRAVELLING ETC. CHARGES OF EXP ATRIATE EMPLOYEES 1,256,672 28,416,8 76 86,503,022 2.4. THE LD CITA GRANTED PARTIAL RELIEF TO THE ASSE SSEE BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE SUBMISSIONS MADE WITH REGA RD TO GROUNDS 1 & 2 OF THE APPEAL. I NOTE THAT BEFORE THE AO THE ASSESSEE HAS DULY EXP LAINED THE DIFFERENCE IN THE AMOUNT DEBITED UNDER THE ACCOUNT HEAD PAYROLL COSTS AND TH AT SHOWN AS GROSS SALARY IN THE TDS RETURN FOR THE YEAR. APPRECIABLY, IN NO CASE COULD THE AMOUNT OF GROSS SALARY SHOWN IN A TDS RETURN WOULD EXACTLY AGREE WITH THE EXPENDITURE DEBITED TO THE CORRESPONDING ACCOUNT HEAD WHICH RECORDS SALARY. THERE COULD BE M ANY REASONS. IN THE CASE OF THE PRESENT ASSESSEE, GIVEN ITS PECULIARITY THERE COULD BE A NUMBER OF REASONS FOR THIS DIFFERENCE. THERE IS NO DISPUTE TO THE FACT THAT TH E ASSESSEE EMPLOYS A NUMBER OF EXPATRIATE EMPLOYEES WHO ARE PAID SALARY ABROAD. TH US, THERE HAS TO BE DIFFERENCE ON ACCOUNT OF EXCHANGE FLUCTUATION ON THIS ACCOUNT WHI CH ARE NOT REQUIRED TO BE REFLECTED IN THE TDS RETURN. FURTHER, SINCE THESE EMPLOYEES A RE TO TRAVEL FROM ABROAD TO INDIA FOR RENDERING SERVICE IT IS BUT NORMAL THAT THE ASSESSE E WOULD BE REQUIRED TO INCUR EXPENDITURE ON THEIR TRAVELLING, VISA, PASSPORT ETC . THE EXPENSES OF RS. 12,56,672/- INCURRED BY THE ASSESSEE IN THIS REGARD AND WHICH H AS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD PAYROLL COST IS VERY REASON ABLE GIVEN THE NATURE OF THE BUSINESS OF THE ASSESSEE AND ITS FINANCIALS. THE INSURANCE P REMIUM PAID OVERSEAS OF RS. 18,24,080/- IS ALSO A ROUTINE BUSINESS EXPENDITURE AND FORMS PART OF THE DIFFERENCE BETWEEN THE FIGURES SHOWN UNDER PAYROLL COSTS AND T HAT SHOWN AS GROSS SALARY IN THE TDS RETURN. AS THE ASSESSEE IS BEARING THE TAX OF I TS COMPUTED HAS TO BE SEPARATELY DEBITED TO THE PAYROLL COSTS AND THUS ALSO ACCOUNTS FOR A PORTION OF THE SAID DIFFERENCE. THERE IS NO DISPUTE WITH REGARD TO THE PAYMENTS TO CASUAL LABOUR OF RS. 12,53,600/- AND ROOFBOLTING LABOUR CHARGES OF RS. 30,53,003/- WHICH HAS ALSO BEEN ACCEPTED BY THE AO AND THE ASSESSEE HAS ITSELF OFFERED TO TAX THE AMOU NT OF RS. 1.10 CRORE BEING PROVISION DEBITED IN THE ACCOUNT HEAD PAYROLL COSTS. I AM THU S OF THE OPINION THAT THE DIFFERENCE BETWEEN THE AMOUNT DEBITED UNDER THE PAYROLL COSTS AND THAT SHOWN AS GROSS SALARY IN 6 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 6 THE TDS RETURN FOR THE SUBJECT PERIOD HAS BEEN DULY EXPLAINED BY THE ASSESSEE WHICH ARE DIFFERENT FROM LAST YEAR. GIVEN THE FACTS OF TH E CASE AND THE DETAILS /DOCUMENTS ON RECORD I FIND MYSELF INCLINED TO AGREE WITH THE CON TENTIONS OF THE ARS THAT THE IMPUGNED AGGREGATE DISALLOWANCE OF RS. 79,41,265/- CANNOT BE SUSTAINED ON MERITS AND IN LAW. THE DISALLOWANCE OF RS. 79,41,265/- IS THER EFORE DELETED AND THE AO IS DIRECTED ACCORDINGLY. GROUND NO. 1 OF THE APPEAL IS THUS DEC IDED IN FAVOUR OF THE ASSESSEE. WITH REGARD TO DISALLOWANCE OF RS. 7,54,169/- ON AC COUNT OF EXCHANGE FLUCTUATION I NOTE THAT OUT OF THE TOTAL EXCHANGE FLUCTUATION OF RS. 5 5,28,804/- THE AO HIMSELF HAS ACCEPTED RS. 44,15,039/-. AS I HAVE MENTIONED ABOVE THAT IN THE CASE OF THE PRESENT ASSESSEE, THERE IS BOUND TO BE THE ELEMENT OF EXCHANGE FLUCTU ATION AS THE SALARY IS PAID ABROAD TO THE EXPATRIATE EMPLOYEES. HOWEVER, THOUGH IT IS ALW AYS NOT POSSIBLE TO FURNISH 100% DETAILS OF SUCH EXCHANGE FLUCTUATION BUT BEFORE ME ALSO THE ASSESSEE HAS NOT FILED ANY FURTHER DETAILS FOR THE CLAIM OF RS. 7,54,169/-. UN DER THESE FACTS AND CIRCUMSTANCES OF THE CASE, I FEEL THAT THE DISALLOWANCE OF RS. 7,54, 269/- MADE BY THE AO ON THIS ACCOUNT IS REASONABLE WHICH IS ACCORDINGLY CONFIRMED. GROUN D NO. 2 OF THE APPEAL IS THUS DECIDED AGAINST THE ASSESSEE. 2.5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN DELETING OF RS. 79,41,265/- ON ACCOUNT OF PAYROLL COSTS DISALLOWED BY THE ASSESSING OFFICER AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCES IN RESP ECT OF PAY ROLL COSTS WHEN ALL THE DUE OPPORTUNITIES WERE PROVIDED BY THE ASSESSIN G OFFICER DURING THE ASSESSMENT PROCEEDINGS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCES IN RESP ECT OF PAY ROLL COSTS WITHOUT ALLOWING ANY OPPORTUNITY TO THE ASSESSING OFFICER T O EXAMINE THE SAME OR TO FURNISH ANY REBUTTAL THERETO WITHIN THE MEANING OF RULE 46A(3) OF THE INCOME TAX RULES, 1962? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCE FURNISHE D BY THE ASSESSEE IN RESPECT OF PAYROLL COSTS IN VIOLATION OF RULE 46A(1) OF THE IN COME TAX RULE, 1962 WITHOUT SATISFACTION OF ANY OF THE 4(FOUR) EXCEPTIONAL CIRC UMSTANCES PROVIDED IN THE PROVISIONS OF THE INCOME TAX RULES, 1962? 2.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE REVENUE HAD RAISED A GROUND THAT CERTAIN ADDITIONAL EVIDENCES WERE FILED BEFORE THE LD CITA BY THE ASSESSEE AND THE 7 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 7 SAME WERE NOT SUBJECTED TO ANY REBUTTAL BY THE LD A O AS NO REMAND REPORT WAS SOUGHT BY THE LD CITA. HENCE THERE IS VIOLATION OF PROVIS IONS OF RULE 46A OF THE IT RULES. IT IS A FACT THAT THE ASSESSEE HAD GIVEN FURTHER EXPLA NATION FOR THE DIFFERENCE IN PAYROLL COSTS BEFORE THE LD CITA FOR THE FIRST TIME. WE FI ND THAT THE LD CITA HAD APPRECIATED THE CONTENTIONS OF THE ASSESSEE ONT HE BASIS OF REA SONABLENESS WHICH CANNOT BE THE RELEVANT CONSIDERATION. THE LD AO ALSO MADE THE DI SALLOWANCE ONLY ON THE GROUND THAT PROPER RECONCILIATION WAS NOT SUBMITTED BY THE ASSE SSEE FOR THE PAYROLL COSTS BETWEEN THE FIGURE REFLECTED IN THE PROFIT AND LOSS ACCOUNT AND THAT REFLECTED IN TDS RETURN IN FORM 24. THE REASONABLENESS OF THE SAID EXPENDITUR E WAS NEVER GONE INTO BY THE LD AO. WE HOLD THAT THE LD CITA OUGHT TO HAVE OBTAINED THE REMAND REPORT FROM THE LD AO BY PROVIDING HIM REASONABLE OPPORTUNITY IN RESPECT OF FURTHER EVIDENCES AND EXPLANATIONS GIVEN BY THE ASSESSEE FOR THE FIRST TIME. WE ALSO FIND THAT THE EXPLANATIONS GIVEN BY THE ASSESSEE WAS ACCEPTED BY THE LD AO ON THE TEST OF R EASONABLENESS, WITHOUT ANY SUPPORTING EVIDENCES FILED FROM THE SIDE OF THE ASS ESSEE TO JUSTIFY THE CLAIM. IT WAS ARGUED BY THE LD AR THAT THE ASSESSEE HAD GIVEN THE EXPLANATIONS BEFORE THE LD AO IN THE FORMAT REQUIRED BY THE LD AO. HENCE THERE WAS NO O CCASION FOR THE ASSESSEE TO EXPLAIN FURTHER BEFORE THE LD AO. WE FIND THAT IN ANY CAS E, THE EXPLANATIONS FURNISHED BY THE ASSESSEE BY WAY OF DETAILED RECONCILIATION OF PAYRO LL COSTS WERE NOT FILED BEFORE THE LD AO. HENCE THE ARGUMENT OF THE LD AR THAT NO NEW EV IDENCES WERE FILED BEFORE THE LD CITA WARRANTING ANY OPPORTUNITY TO BE GIVEN TO LD A O IN TERMS OF RULE 46A OF THE RULES, STANDS DISMISSED. WE FIND FORCE IN THE ARG UMENT OF THE LD DR THAT EVEN IF THE EXPLANATION GIVEN BEFORE THE LD CITA IS ONLY IN THE FORM OF RECONCILIATION OF PAYROLL COSTS, THE SAME ARE WITHOUT ANY EVIDENCES AND HENCE HAD TO BE REMANDED TO LD AO FOR HIS VERIFICATION. HENCE IN THE INTEREST OF JUSTI CE AND FAIRPLAY, WE DEEM IT FIT AND APPROPRIATE, TO REMAND THIS ISSUE TO THE FILE OF TH E LD AO , TO DECIDE THE ISSUE AFRESH, IN ACCORDANCE WITH LAW , IN THE LIGHT OF EVIDENCES SUB MITTED BY THE ASSESSEE. NEEDLESS TO MENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPOR TUNITY OF BEING HEARD. ACCORDINGLY, THE GROUNDS 1 TO 4 RAISED BY THE REVENUE ARE ALLOWE D FOR STATISTICAL PURPOSES. 8 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 8 3. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS IN THE SUM OF RS 3,15,34,354/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O OBSERVED THAT THE ASSESSEE HAD SHOWN IN THE BALANCE SHEET AS ON 31.3.2005 CREDITORS OF R S 11,49,60,862/-. THE ASSESSEE FILED THE DETAILS OF SUNDRY CREDITORS ON 29.11.2007 AS UN DER:- PAYABLE AGAINST EXPENDITURE 9,48,31,243 PAYABLE TO COUNTRYWIDE 82,91,033 OUTSTANDING PAYROLL COST 1,18,38,587 ----------------- 11,49,60,863/- 3.1.1. ON 19.12.2007, THE ASSESSEE FILED FURTHER DE TAILS OF AFORESAID CREDITORS AS UNDER:- A) SUMMARY OF BANK ACCOUNTS MAINTAINED FOR CHIRIMIR I AND TANDSI PROJECT OFFICE IN INDIA. B) DETAILS OF CREDITORS SEPARATELY INDICATING THE E XPENSES ACCOUNTED FOR FROM INDIA AND FROM OUTSIDE INDIA AS QUOTED BELOW:- CREDITORS RELATING TO EXPENSES MADE FROM OUTSIDE IN DIA 10,30,83,814 (A) CREDITORS RELATING TO EXPENSES ACCOUNTED FOR FROM I NDIA ON ACCOUNT OF SERVICE TAX (AMOUNT AGAINST TAXABLE S ERVICE YET TO BE RECEIVED FROM CUSTOMER AS ON 31.3.05) 47,58,112 ON ACCOUNT OF TDS 41,30,719 9 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 9 STORES AND SPARES CONSUMED (ANJU HARDWARE, MAHAMAYA TRADING AGENCY, GULATI TRADING CO., MINE O-CRAFT) 14,73,639 CONSUMMABLES (AGARWAL HARDWARE, SALUJA & BROTHERS, MINE-O-CRAFT, JEET ENGINEERING WORKS) 49,183 PAYROLL COST (INCLUDING ROOFBOLTING LABOUR CHARGES KALINGA MINING & CIVIL CONSTRUCTION PVT LTD & INDIAN PAYROL L COST) 9,74,218 OTHERS (INCLUDES SUNDRY MISC.EXPENSES INCLUDING EXP ENSES DEBITED UNDER THE ADMINISTRATION COST IN INDIA) 4,91,178 ---------------------- TOTAL OF (B) 1,18,77,049 --------------------- TOTAL (A) + (B) 11,49,60,863 3.2. THE LD AO OBSERVED THAT THE ASSESSEE COULD NOT FURNISH ANY FURTHER BREAK UP TO IDENTIFY THE NATURE OF EXPENSES , PARTIES INVOLVED AND AMOUNTS OUTSTANDING AGAINST EACH PARTY IN RESPECT OF HUGE SUM OF CREDITORS RELATING TO EXPENSES INCURRED FROM OUTSIDE INDIA. THE ASSESSEE COULD NOT FURNISH ANY BREAK U P OF THE AMOUNTS INDICATING HOW MUCH OF THE EXPENSES PERTAINS TO THE CURRENT YEAR A ND HOW MUCH TO THE EARLIER YEARS. THE ASSESSEE FURTHER REPLIED THAT THE SUMMARY OF BA NK ACCOUNTS OF CHIRIMIRI AND TANDSI PROJECT OFFICE IN INDIA WERE FILED IN THE EARLIER H EARING AND SUBMITTED THAT MOST OF THE PAYMENTS AGAINST THESE CREDITORS OUTSTANDING WERE M ADE ONLY FROM THE SAID BANK ACCOUNT. THE LD AO OBSERVED THAT THE ASSESSEE HAD MERELY MENTIONED THAT THE PAYMENTS WERE MADE TO PARTIES WHICH INCLUDE RMT, PA YROLL COST, BONUS, CWP, E&Y, PWC, GROUP COMPANY, OTHERS MISC. CREDITORS. THE LD AO OBSERVED THAT NO MOVEMENT OF THESE CREDITORS WERE FILED BY THE ASSESSEE I.E. THE OPENING BALANCE, TRANSACTIONS DURING THE YEAR, PAYMENTS MADE DURING THE YEAR AND CLOSING BALANCE AS ON 31.3.05. HE OBSERVED THAT AMOUNTS PAYABLE TO COUNTRY WIDE PROJE CTS (P) LTD , NEW DELHI (CWP) OF RS 82,91,033/- AND OUTSTANDING PAYROLL COSTS OF RS 1,18,38,587/- HAVING ALREADY BEEN IDENTIFIED WAS TREATED AS EXPLAINED. HE OBSERVED T HAT THE ASSESSEE HAD VOLUNTARILY OFFERED A SUM OF RS 1,10,00,000/- UNDER THE HEAD PA YROLL COSTS BEING OF THE NATURE OF 10 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 10 FICTITIOUS EXPENSES DEBITED TO PROFIT AND LOSS ACCO UNT AND SIMILARLY AN AMOUNT OF RS 74,73,180/- UNDER THE HEAD MACHINE COMMISSIONING E XPENSES WAS OFFERED BY THE ASSESSEE FOR ASST YEAR 2004-05 (I.E. IMMEDIATE PREC EDING ASSESSMENT YEAR). BASED ON THIS, HE OBSERVED THAT THEY ARE INDICATIVE OF THE F ACT THAT THE ASSESSEE IS IN THE HABIT OF INFLATING EXPENSES UNDER VARIOUS HEADS AND MAKING F ICTITIOUS CLAIM IN THE ACCOUNTS. HENCE THE LD AO ARRIVED AT THE UNEXPLAINED SUNDRY C REDITORS FIGURE AT RS 8,29,54,194/- AS UNDER:- TOTAL CREDITORS OUTSIDE INDIA 10,30,83,814 LESS: COUNTRY WIDE PROJECTS (P) LTD 82,91,033 OUTSTANDING PAYROLL COSTS 1,18,38 ,587 ----------------- 2,01,29,620 ------------------ 8,29,54,194 ------------------ 3.2.1. SINCE NO EXPLANATIONS WERE GIVEN FOR THIS RE MAINING CREDITORS OF RS 8,29,54,194/-, THE LD AO RESORTED TO MAKE AN ADDITION BASED ON EST IMATED BASIS. FOR THIS PURPOSE, HE MADE AN ANALYSIS BASED ON THE PAST PERFORMANCE OF T HE ASSESSEE AS PER ITS BALANCE SHEET AND FOUND THAT THE CREDITORS FOR EXPENSES HAS BEEN CONSISTENTLY INCREASING YEAR ON YEAR. THE LD AO LINKED THIS WITH ONE OF THE REASONS FOR A SSESSEE INCURRING LOSS DURING THE YEAR THOUGH IT WAS EXECUTING CONTRACT WORK WITH COAL IND IA LTD. THE LD AO ALSO ASSIGNED TWO MORE REASONS FOR WHICH THE ASSESSEES BUSINESS ACTIVITY DURING THE YEAR HAD RESULTED IN LOSS AS UNDER:- I) OLD DUES NO LONGER REQUIRED TO BE PADI ARE NOT W RITTEN BACK AND OFFERED TO TAX. II) FICTITIOUS EXPENSES ARE CLAIMED IN THE ACCOUNTS . NO REAL PAYMENTS LEADING TO ACCUMULATION IN SUNDRY CREDITOR BALANCE. 11 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 11 3.2.2. ACCORDINGLY THE LD AO SOUGHT TO INVOKE THE PROVISIONS OF SECTION 41(1) OF THE ACT THAT THESE LIABILITIES HAD CEASED TO EXIST. H E OBSERVED THAT IN ASST YEAR 2004-05 (IMMEDIATE PRECEDING ASST YEAR) , THE PROFIT PERCEN TAGE ARRIVED AFTER MAKING ALL ADDITIONS WORKED OUT TO 22.48%. HENCE BY ADOPTING THE SAME PROFIT PERCENTAGE THIS YEAR AT 22.50% ON THE TOTAL TURNOVER OF RS 15,67,33,372/- , HE PRE-DECIDED THE TOTAL INCOME OF THE ASSESSEE AT RS 3.52 CRORES AND BACK WORKED THE ADDITION TO BE MADE ON ACCOUNT OF SUNDRY CREDITORS ON AN ESTIMATED BASIS AFTER TAKING INTO ACCOUNT OTHER DISALLOWANCES CONTEMPLATED IN THE ASSESSMENT. ACCORDINGLY HE ARRI VED AT THE FIGURE OF RS 3,15,34,354/- AS UNEXPLAINED SUNDRY CREDITORS. 3.3. THE ASSESSEE PLEADED BEFORE THE LD CITA THAT A LL THE DETAILS RELATING TO SUNDRY CREDITORS WERE DULY FILED / PRODUCED BEFORE THE LD AO FROM TIME TO TIME AND FILED EVIDENCES IN SUPPORT OF THE SAME. IT WAS PLEADED T HAT THE ENTIRE DETAILS OF EACH AND EVERY EXPENDITURE HEAD DEBITED IN THE PROFIT AND LO SS ACCOUNT AS DESIRED BY THE LD AO WAS FURNISHED AND THE LD AO NEVER SHOWED ANY RESERV ATION WITH REGARD THERETO. THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE BEFORE T HE LD AO WERE EXAMINED AND THE SAME WERE NOT REJECTED BY THE LD AO BY POINTING OUT SOME DEFECTS THEREON. THE ASSESSEE FILED THE SUMMARY OF MOVEMENT OF TOTAL SUN DRY CREDITORS BEFORE THE LD CITA AS UNDER:- OPENING BALANCE AS ON 1 ST APRIL, 2004 PAYMENTS/ADJUSTMENTS MADE DURING THE YEAR IN RELATION TO THE OPENING BALANCE ACCRETION TO CREDIT BALANCE ON ACCOUNT OF EXPENDITURE/ADJUSTMENTS MADE DURING THE YEAR CLOSING BALANCE AS ON 31 ST MARCH, 2005 (A) (B) (C) (A) (B) + (C) 8,04,28,658 3,87,66,417 7,32,98,21 11,49,60,862 12 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 12 3.3.1. WITH REGARD TO CESSATION OF LIABILITY U/S 41 (1) OF THE ACT, IT WAS ARGUED THAT THE ASSESSEE HAD NOT WRITTEN BACK ANY LIABILITY IN ITS ACCOUNTS AND THE SAID CREDITORS WERE ACTUALLY PAID OFF IN THE SUBSEQUENT YEARS. IT WAS FURTHER EXPLAINED BEFORE THE LD CITA THAT THE TRANSACTIONS UNDERTAKEN DURING THE YEAR WH ICH AGGREGATES TO RS 7,32,98,621/- CONSISTS OF TWO TYPES AS UNDER:- I) TRANSACTIONS WHICH ARE DEBITED TO PROFIT AND LOS S ACCOUNT. II) TRANSACTIONS WHERE MEMORANDUM ENTRIES ARE PASSE D WHICH ONLY EFFECT THE BALANCE SHEET. 3.3.2. AS REGARDS TRANSACTIONS WHICH ARE DEBITED TO PROFIT AND LOSS ACCOUNT AND REMAINED OUTSTANDING AS AT THE YEAR END WHICH AGGREGATED TO RS 3,20,06,669/- AND WAS INCLUDED IN THE CLOSING BALANCE OF RS 11,49,60,862/-, THE ASSES SEE SUBMITTED THAT THESE CONSISTS OF ROUTINE BUSINESS TRANSACTIONS WHICH WERE ALSO EXPLA INED TO THE LD AO. IN PARTICULAR, THE CREDITORS ON ACCOUNT OF AUDIT FEES & OTHER EXPENSES INCLUDING TDS OF RS 55,96,114/- INTER ALIA INCLUDING TDS OF RS 41,30,719/-, ROOFBOL TING LABOUR CHARGES & INDIAN PAYROLL COSTS, AUDIT FEES, ADMINISTRATIVE COSTS IN INDIA, C ONSULTANCY & PROFESSIONAL FEES ETC, MEDICAL EXPENSE, MARKING CLOTH EXPENSES , TRAVELLIN G, BOARDING & LODGING EXPENSES ETC , THE SUM OF RS 15,22,822/- SHOWN UNDER THE HEAD STOR ES AND SPARES AND CONSUMABLES INCLUDES STORES AND SPARES AND EXPENSES ON VARIOUS CONSUMABLES BEING BRUSHES, OIL, BEARING, ALUMINIUM COILS, RUBBER TAPES, SOCKETS, AN GLES, ETC., THE AMOUNT PAYABLE TO CWP OF RS 82,91,033/- INCLUDES EXPENSES INCURRED ON TRAVELLING, CANTEEN, HOUSEKEEPING, HOTEL , PROJECT PLANNING ETC, AN AMOU NT OF RS 47,58,112/- REMAINED OUTSTANDING ON ACCOUNT OF SERVICE TAX PAYABLE ON TA XABLE SERVICE YET TO BE RECEIVED FROM CUSTOMERS OF ASSESSEE AND RS 1,18,38,587/- WAS OUTS TANDING TOWARDS ACCRUED WAGES. THE ASSESSEE FURTHER SUBMITTED THAT OUT OF TOTAL OU TSTANDING TOWARDS PAYROLL COSTS OF RS 1,18,38,587/-, THE ASSESSEE ITSELF OFFERED TO TAX A SUM OF RS 1,10,00,000/- BEING PROVISION. 13 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 13 3.3.3. WITH REGARD TO OTHER TYPES OF ENTRIES NAMELY , TRANSACTIONS WERHE MEMORANDUM ENTRIES ARE PASSED WHICH ONLY EFFECT THE BALANCE SH EET, THE ASSESSEE SUBMITTED THAT THESE ENTRIES AGGREGATED TO RS 4,12,91,952/- WHICH WAS IN CLUDED IN THE CLOSING BALANCE OF SUNDRY CREDITORS ACCOUNT AND COMPRISES OF HEDGING L OSS OF RS 2,32,00,663/- AND CREDIT BALANCE ON ACCOUNT OF CURRENT ACCOUNT TRANSACTIONS OF RS 1,80,91,290/-. 3.3.4. IT WAS FURTHER SUBMITTED THAT THERE IS NO QU ESTION OF CLAIMING FICTITIOUS EXPENSES AS THESE CREDITORS WERE ACTUALLY PAID OFF IN THE SU BSEQUENT PERIODS AS IS EVIDENT FROM THE VOUCHERS. MOREOVER, THE ASSESSEE HAS BEEN FILING ITS RETURNS FROM 2002 ONWARDS AND THERE WAS NO ALLEGATION ON THE PART OF THE LD AO ON THE ASSESSEE THAT IT IS INDULGING IN DEBITING FICTITIOUS EXPENSES. 3.4. THE LD CITA OBSERVED FROM THE BOOKS OF ACCOUN TS OF THE ASSESSEE, THERE HAS NOT BEEN WRITE BACK OF ANY LIABILITIES IN THE BOOKS AND ACCORDINGLY THE LIABILITIES CEASED TO EXIST IN TERMS OF SECTION 41(1) OF THE ACT CANNOT B E INVOKED. HE OBSERVED THAT THE ASSESSEE HAD DULY PAID ITS CREDITORS SUBSEQUENTLY T O THE EXTENT OF RS 3,87,66,417/- AND THUS THERE CANNOT BE ANY APPLICATION OF PROVISIONS OF SECTION 41(1) OF THE ACT. HE FURTHER HELD THAT IN ANY CASE, THERE CANNOT BE ANY ADDITION TOWARDS THE OPENING BALANCE OF SUNDRY CREDITORS. HE AGREED WITH THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF TRANSACTIONS WHERE MEMORANDUM ENTRIES ARE PASSED WH ICH ONLY EFFECT THE BALANCE SHEET (I.E RS 4,12,91,952/- ) AS NOT AFFECTING THE PROFIT AND LOSS ACCOUNT AND HENCE NO ADDITION COULD BE MADE ON THAT ACCOUNT. WITH REGARD TO THE REMAINING SUM OF CREDITORS TO THE TUNE OF RS 3,20,06,669/-, HE OBSERVED THAT THE SAME ARE ONLY ROUTINE BUSINESS CREDITORS OUTSTANDING AT THE YEAR END. HE DELETED THE ADD ITION BY FURTHER OBSERVING AS UNDER:- ON ANALYSIS OF THE NATURE AND EACH AND EVERY EXPEN DITURE WHICH WAS OUTSTANDING AT THE END OF THE YEAR, I FEEL THAT THERE CANNOT BE AN Y QUESTION OF PASSING FICTITIOUS ENTRIES. OUT OF THE AMOUNT OF RS. 3,20,06,669/- THE AO ACCEP TED THE AMOUNTS OF RS. 82,91,033/- AND THE AMOUNT OF RS. 1,18,38,587/- (WHICH INCLUDES THE AMOUNT OF RS. 1,10,00,000/- OFFERED TO TAX BY THE ASSESSEE ITSELF), THE GOVERN MENT DUES AGGREGATES TO RS. 88,88,831/- (RS. 41,30,719 + S. 47,58,112). THE BALANCE OF RS. 29,88,218 CONSISTED OF EXPENSES OUTSTANDING ON ACCOUNT OF ROOFBOLTING LABOUR CHARGE S & INDIAN PAYROLL COSTS, AUDIT FEES, 14 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 14 ADMINISTRATIVE COSTS IN INDIA, CONSULTANCY AND PR OFESSIONAL FEES ETC, MEDICAL EXPENSE, MARKING CLOTH EXPENSES, TRAVELLING, BOARDING AND LO DGING EXPENSES ETC, AND STORES AND SPARES AND EXPENSES ON VARIOUS CONSUMABLES BEING BR USHES, OIL BEARING, ALUMINIUM COILS, RUBBER TAPES, SOCKETS, ANGLES. SUBSEQUENTLY, FOR ALL OUTSTANDING DUES PAYMENTS HAVE ALSO BEEN MADE BY THE ASSESSEE. SO, THE FACTS ITSELF SUPPORTS THAT THERE CANNOT BE ANY FICTITIOUS ENTRIES. MOREOVER, THE AO HAD NOT PO INTED OUT ANY SPECIFIC DISALLOWANCE AND HAVE ALSO NOT GIVEN THE REASONS FOR NOT ACCEPTI NG THE AUDITED RESULTS. I ALSO AGREE THAT APPLYING LAST YEARS PROFIT PERCENTAGE ON CUR RENT YEARS TURNOVER AND DETERMINING ESTIMATED PROFIT FOR THE SUBJECT YEAR WAS INCORRECT ON THE PART OF THE AO . TO ESTABLISH THE ESTIMATED AD HOC PROFIT BACK CALCULATED ADDITIO N OF EXPENDITURE MADE DURING THE YEAR WAS AGAIN INCORRECT. FURTHER, THE FACT THAT THE AO PRESUMED THAT THERE M UST BE PROFIT EVERY YEAR IS NOT CORRECT. IF THERE IS LOSS THAT DOES NOT MEAN THAT HE WILL ESTIMATE PROFIT BY APPLYING PROFIT PERCENTAGE OF LAST YEAR ON CURRENT YEARS TURNOVE R. THIS ENTITY IS DOING BUSINESS IN INDIA FROM 2002. TILL LAST YEAR NEITHER HIS PREDECE SSORS NOR THE AO HIMSELF HAS EVER ALLEGED REGARDING FICTITIOUS ENTRIES. AS THERE IS A LOSS THIS YEAR, THE AO WENT FOR ESTIMATED AD HOC PROFIT. THE AOS ACTION ON THIS G ROUND ALONG SHOULD BE QUASHED IN LIMINE. ALSO, THERE CANNOT BE A QUESTION OF ESTIMAT ION OF PROFIT BY APPLYING LAST YEARS PROFIT PERCENTAGE ON CURRENT YEARS TURNOVER. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FILED ALL THE DETAILS AS DESIRED BY THE AO AND IN THE ORDER UNDER APPEAL ALSO THE AO HAS NOT BEEN ABLE TO POINT OUT ANY SPECIFIC DISALLOWANCE OUT OF THE EXPENDITURE SO DEBITED BY THE ASSESSEE IN I TS PROFIT AND LOSS ACCOUNT FOR THE YEAR. I AM THUS OF THE CONSIDERED OPINION THAT THERE WAS NO COGENT REASON FOR THE AO TO MAKE THE IMPUGNED ESTIMATED DISALLOWANCE OF RS. 3,15,34, 354/-. I THEREFORE, DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE OF RS. 3,15,34,354 /- THE APPEAL IS ALLOWED ON THIS GROUND. 3.5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 5. WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 3,15,34,354/- DISALLOWED AS FICTITIOUS SUNDRY CREDITORS AND FICTI TIOUS LIABILITY U/S 41(1) OF THE INCOME TAX ACT, 1961? 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCES IN RESP ECT OF SUNDRY CREDITORS WITHOUT ALLOWING ANY OPPORTUNITY TO THE ASSESSING OFFICER T O EXAMINE THE SAME OR TO FURNISH ANY REBUTTAL THERETO WITHIN THE MEANING OF RULE 46A(3) OF THE INCOME TAX RULES, 1962? 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCES IN RESP ECT OF SUNDRY CREDITORS WHEN ALL THE DUE OPPORTUNITIES WERE PROVIDED BY THE ASSESSIN G OFFICER DURING THE ASSESSMENT PROCEEDINGS? 15 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 15 8. WHETHER THE LD. CIT(A) WAS CORRECT IN HOLDING TH AT THE DOCTRINE OF ESTOPPLES PREVENTS THE ASSESSING OFFICER FROM MAKING ANY DISA LLOWANCE OUT OF THE OPENING BALANCE OF SUNDRY CREDITORS ARISING OUT OF THE TRAN SACTIONS OF EARLIER YEARS IN RESPECT OF WHICH NO ADVERSE STAND WAS TAKEN BY HIM IN RESPECTIVE ASSESSMENT YEAR? 9. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCE FURNISHE D BY THE ASSESSEE IN RESPECT OF SUNDRY CREDITORS IN VIOLATION OF RULE 46A(1) OF THE INCOME TAX RULE, 1962 WITHOUT SATISFACTION OF ANY OF THE 4 (FOUR) EXCEPTI ONAL CIRCUMSTANCES PROVIDED IN THE PROVISIONS OF THE INCOME TAX RULES, 1962? 10. WHETHER THE LD. CIT(A) WAS CORRECT IN HOLDING T HAT WRITING BACK OF LIABILITY IN THE BOOKS OF THE ASSESSEE IS A PRE CONDITION FOR APPLYING THE PROVISION OF SECTION 41(1) OF THE INCOME TAX ACT, 1961? 11. WHETHER THE ACTION OF THE LD. CIT(A) IS IN DIRE CT CONFLICT WITH THE PROVISIONS OF RULE 46A AS LAID DOWN IN VARIOUS CASES BY THE JU RISDICTIONAL HONBLE ITAT IN VARIOUS RULINGS? 3.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD A R ARGUED THAT THE VERY SAME AO ACCEPTED THE SUBSEQUENT YEAR PAYMENTS MADE TO SUNDR Y CREDITORS AS GENUINE TRANSACTIONS AND THEN HOW COULD THE SAME CREDITORS BE BOGUS OR F ICTITIOUS IN THE YEAR UNDER APPEAL. IN SUPPORT OF THIS, SHE FILED COPY OF THE SCRUTINY ASS ESSMENT ORDER FRAMED U/S 143(3) OF THE ACT DATED 31.12.2008 FOR THE ASST YEAR 2006-07 WHER EIN NO ADDITION WAS MADE ON ACCOUNT OF SUNDRY CREDITORS. WE FIND THAT THE ASS ESSEE HAD DULY EXPLAINED BEFORE THE LD AO GIVING THE MOVEMENT OF CREDITORS AS WELL AS ITS DETAILS TOGETHER WITH THE EXPLANATIONS VIDE LETTERS DATED 24.12.2008 AND 29.1 2.2008 (ENCLOSED IN PAGES 141 TO 143 OF PAPER BOOK). ADMITTEDLY THE ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS REPRESENT CREDITORS FOR EXPENSES ONLY. WE FIND TH AT THE ASSESSEE HAD FILED THE DETAILS OF EACH AND EVERY EXPENDITURE HEAD DEBITED IN THE PROF IT AND LOSS ACCOUNT BEFORE THE LD AO. WE FIND THAT THE LD AO HAD NOT FOUND ANY DEFECTS IN THE SAID DETAILS AND WITHOUT POINTING OUT SPECIFICALLY AS TO UNDER WHICH HEAD OF EXPENDITURE, CERTAIN FICTITIOUS EXPENDITURES WERE DEBITED BY THE ASSESSEE, THE LD A O CANNOT RESORT TO TREAT THE SUNDRY 16 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 16 CREDITORS THEREON AS FICTITIOUS. WE FIND THAT THE A SSESSEE HAD DULY FILED THE DETAILS OF VARIOUS EXPENDITURE VIDE PAGES 12,13,14,15,23 & 24 OF PAPER BOOK, WHICH ARE ALSO ACKNOWLEDGED BY THE LD DR IN HIS WRITTEN SUBMISSION S BY MAKING REFERENCE TO DATE WISE ORDER SHEET ENTRIES. THE LD CITA HAD GIVEN A CATEGO RICAL FINDING THAT THE ASSESSEE HAD MADE SUBSEQUENT PAYMENTS TO THESE CREDITORS WHICH H AS BEEN VERIFIED BY HIM FROM THE BOOKS OF ACCOUNTS AND BANK STATEMENTS AND THERE WAS NO WRITE BACK OF ANY LIABILITY IN THE YEAR UNDER APPEAL. HENCE THE PROVISIONS OF SEC TION 41(1) OF THE ACT CANNOT BE INVOKED AT ALL BY STATING THAT THE LIABILITIES HAD CEASED TO EXIST. WE FIND THAT THE LD CITA HAD MADE AN OBSERVATION QUASHING THE ACTION OF THE LD AO IN LIMINE ON THIS GROUND AND THE REVENUE HAD NOT CHALLENGED THE QUASH ING OF THIS OBSERVATION BEFORE US. HENCE THE ADJUDICATION OF THE GROUNDS RAISED IN THI S REGARD BY THE REVENUE BECOMES ACADEMIC IN NATURE. HENCE WE HOLD THAT THE GROUND S RAISED BY THE REVENUE DESERVE TO BE DISMISSED BOTH ON MERITS AND ON THE GROUND THAT THE LD CITA HAD QUASHED THE ACTION OF THE LD AO AS IN LIMINE AND REVENUE NOT CHALLENGI NG THE SAME BEFORE US. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 17.10.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17.10.2017 SB, SR. PS 17 ITA NO.149/KOL/2009 M/S JOY PARTNERSHIP A.YR.2005-06 17 COPY OF THE ORDER FORWARDED TO: 1. DDIT(IT)-1(1), KOLKATA, AAYAKAR BHAWAN, 4TH FLOO R, ROOM NO. 4/5, P-7, CHOWRINGHEE SQUARE, KOL-69. 2. M/S JOY PARTNERSHIP, MINING CENTRE, 85/1, TOPSIA ROAD (SOUTH), KOL-700046 3..C.I.T.(A)-XL, KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S