ACIT, Circle-33, Kolkata, Kolkata V. M/S. G. D. Construction & Co., Kolkata

ITA 1596/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0635 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Rejection of books of accounts; Corroborative evidences
• Section: 143(3); 133(6); 194C; 68; 144

Judgement Text

, A , 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. 1595 / KOL / 2014 ASSESSMENT YEAR :2010-11 ACIT, CIRCLE-33, 10B, MIDDLETON ROW, 3 RD FLOOR,KOLKATA-71 V/S . DEBDAS DUTTA P.O & VILL. DHALTITHA, BASIRHAT, DIST. NORTH 24 PGNS. WEST BENGAL [ PAN NO.ADSPD 8693 D ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ADDL. CIT-DR /BY RESPONDENT SHRI D.S. DAMLE, FCA /DATE OF HEARING 12-10-2017 /DATE OF PRONOUNCEMENT 15-12-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOLKATA D ATED 06.06.2014. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-33, KOLKATA U /S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 25.03.2013 FOR ASSESSMENT YEAR 2010-11. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION MA DE ON ACCOUNT OF DISALLOWANCE @ 10% OF LABOR CHARGES OF RS.6,00,26,7 12/- ON WHICH NO TDS WAS MADE AND PAYMENTS WERE MADE IN CASH THROUGH SEL F-MADE VOUCHERS HAVING NEITHER THE ADDRESSES NOR COMPLETE IDENTITY OF THE PAYEES. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.1,06,06,716/- (RS.1,14,49,545 RS.8,42,829) MADE ON ACCOUNT OF UNVERIFIABLE SUNDRY ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 2 CREDITORS AS THE ASSESSEE FAILED TO PRODUCE ANY BOO KS OF ACCOUNT AND ALSO FAILED TO GIVE NEW ADDRESS OF THE CREDITORS FOR VER IFICATION. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.21,53,716/- I.E. 5% OF MATERIALS PURCHASED AS THE ASSESSEE FAILED TO PRODU CE ANY DETAILS OF MATERIALS CONSUMED AND ALSO NO BOOKS OF ACCOUNT & S UPPORTING DOCUMENTS WERE PRODUCED. 4. ANY OTHER GROUND, APPELLANT CRAVES LEAVE TO SUB MIT ON OR BEFORE THE HEARING OF THE APPEAL. SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE AND SHRI D.S. DAMLE, LD. AUTHORIZED REPRESE NTATIVE APPEARED ON BEHALF OF ASSESSEE. 2. FIST ISSUE RAISED BY REVENUE IN GROUND NO.1 IS T HAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER FOR 60,02,671/-ON ACCOUNT OF NON-AVAILABILITY OF SUPPORTING EVIDENCE . 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS AN IND IVIDUAL AND ACTING AS GOVERNMENT CONTRACTOR. THE ASSESSEE IS A PROPRIETOR OF TWO FIRMS NAMELY BENGAL TRADING COMPANY & BENGAL TRADING CORPORATIO N. THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT FOR 8,30,52,972/- ON LABOUR CHARGES. THE ASSESSEE OUT OF TOTAL LABOUR CHARGES HAS DEDUCTED T AX DEDUCTED AT SOURCE (TDS) TO THE TUNE OF LABOUR CHARGES OF 2,30,26,215/- AND REMAINING LABOUR CHARGES OF 600,26,712/- WAS INCURRED WITHOUT DEDUCTING TDS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE LABOUR CHARGE INCURRED WITHOUT TDS DEDUCTION ARE IN CURRED IN CASH AND SUPPORTED WITH THE SELF-MADE VOUCHERS. THE AO FURTH ER OBSERVED THAT THE SELF- MADE VOUCHERS WERE COMPLETED IN ALL RESPECTS AND NE CESSARY DETAILS SUCH AS ADDRESS AND IDENTITY OF PAYEES WERE MISSING. THUS, THE AO IN ABSENCE OF SUFFICIENT DOCUMENTARY EVIDENCE DISALLOWED @ 10% OF LABOUR CHARGES OF 60,02,671/- BY HOLDING THAT THESE ARE NOT GENUINE E XPENSES. THUS, THE LABOUR CHARGES FOR 60,02,671/- WAS DISALLOWED AND ADDED TO THE TOTAL I NCOME OF ASSESSEE. ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 3 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT :- I) LARGE NUMBER OF LABOURS WERE DEPUTED ON THE DIFF ERENT SITES OF THE PROJECTS AND ALL THE NECESSARY DETAILS IN SUPPORT O F LABOUR CHARGES SUCH AS VOUCHERS, WAGE DISTRIBUTION REGISTER AND OTHER R ELEVANT DOCUMENTARY EVIDENCE WERE DULY PRODUCED BEFORE AO. II) IT IS IMPORTANT TO UNDERSTAND THAT MOST OF THE LABOURERS EMPLOYED WERE ILLITERATE AND UNSKILLED. THESE LABOURERS WERE RESIDING IN SUCH REMOTE PLACES WHERE BANKING FACILITIES ARE NOT AVAI LABLE. THUS IN SUCH CIRCUMSTANCES, WAGES WERE DISBURSED IN CASH. III) AO FAILED TO POINT OUT ANY SPECIFIC INSTANCE O F THE EXPENDITURE WHERE THE EVIDENCE WAS NOT FURNISHED; IV) AO HIMSELF HAS ADMITTED THE FACT THAT ABOUT THE LABOUR CHARGES WHERE TDS WAS DEDUCTED AS WELL AS WHERE THE TDS WER E NOT DEDUCTED. THIS ACT OF AO SHOWS THAT HE WAS PROVIDED WITH ALL THE DETAILS OF LABOUR EXPENSE; V) THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND ASSESSMENT WAS NOT FRAMED U/S. 144 OF THE ACT WHICH PROVED THAT AL L THE NECESSARY DETAILS WERE PRODUCED BEFORE HIM DURING ASSESSMENT PROCEEDING; VI) THE AO DID NOT DISPUTE THE REASONABLENESS OF EX PENSE; LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE B Y ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND HAVE PERUSED THE DETAILS OF LABOUR CHARGES AS DEBIT ED IN THE APPELLANTS PROFIT & LOSS ACCOUNT. AS NOTED IN THE FOREGOING DU RING THE RELEVANT YEAR THE APPELLANT CARRIED ON THE BUSINESS AS A GOVERNME NT CONTRACTOR. THE APPELLANT EXECUTED CIVIL CONTRACT IN THE INTERIORS OF WEST BENGAL. THE NATURE OF APPELLANTS BUSINESS REQUIRED HIM TO ENGA GE UNSKILLED MANUAL LABOUR IN LARGE NUMBER AT THE WORK SITES. HAVING RE GARD TO THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE IT WAS ESSENTIA L FOR THE ASSESSEE TO ENGAGE LABOUR WHICH WAS MAINLY SOURCED LOCALLY. AS A GENERAL PRACTICE THE LOCAL LABOUR EXECUTING MANUAL JOBS ARE SEMI-LITERATE AND MIGRANT IN NATURE. IN THE IMPUGNED ORDER THE AO DID NOT DISPUTE THE FACT THAT THE APPELLANT HAD MAINTAINED RECORDS OF LABOUR WAGES DISBURSED AT VARIOUS SITES. AS PER THE NORMAL PRACTICE FOLLOWED IN THE BUSINESS OF ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 4 CONTRACT EXECUTION, LABOUR WAGES ARE DISBURSED PERI ODICALLY IN CASH AND THEREFORE THE MERE FACT THAT THE ASSESSEE INCUR RED THE LABOUR WAGES IN CASH CANNOT MILITATE AGAINST THE ASSESSEE. IT IS NOT DISPUTED BY THE AO THAT THE APPELLANT HAD MAINTAINED RECORDS IN RESPECT OF LABOUR WAGES PAID AND THE SAME WERE PRODUCED BEFORE HIM. ALTHOUGH THE AO ALLEGED THAT THE EXPENSES WERE NOT FULLY VER IFIABLE HE DID NOT SPELL OUT IN THE IMPUGNED ORDER ANY SPECIFIC INSTAN CE WHERE THE LABOUR PAYMENT WERE FOUND TO BE UNSUPPORTED BY RELEVANT VO UCHERS OR EVIDENCES. HAVING REGARD TO THE NATURE OF APPELLANT S BUSINESS AND ALSO HAVING REGARD TO THE FACT THAT THE LABOUR WAGE S WERE DISBURSED AT PERIODIC INTERVALS AT THE JOB SITES WHICH WERE ALL IN THE INTERIORS OF THE STATE, ADVERSE INFERENCE COULD NOT BE DRAWN ONLY BE CAUSE PAYMENTS WERE DISBURSED IN CASH. BEFORE MAKING ADHOC DISALLO WANCE IT WAS NECESSARY FOR THE AO TO BRING ON RECORD AT LEAST FE W SPECIFIC INSTANCES WHERE THE EXPENDITURE WAS FOUND TO BE NOT SUPPORTED BY ANY VOUCHERS OR OTHER SUPPORTING EVIDENCES. I HOWEVER FIND THAT JUST BY MAKING GENERALIZED OBSERVATION THAT THE APPELLANT FAILED T O PRODUCE FULL SUPPORTING EVIDENCES THE AO PRODUCED TO MAKE ADHOC DISALLOWANCE. I ALSO FIND MERIT IN THE ARS SUBMISSIONS THAT THE DI SALLOWANCE WAS MADE WITHOUT APPLICATION OF MIND. NOT ONLY THE AO DISALL OWANCE NOT POINT OUT ANY SPECIFIC INSTANCE OF UNVERIFIABLE EXPENDITURE B UT THE AO HELD THAT DISALLOWANCE AT THE RATE OF 5% OF THE EXPENSES WAS JUSTIFIABLE. HAVING SO OBSERVED THE AO HOWEVER PROCEEDED TO DISALLOW 10 % OF THE LABOUR CHARGES PAID WHICH CLEARLY SHOWS NON-APPLICATION OF MIND AND SUPPORTS THE APPELLANTS CONTENTION THAT THE DISALLOWANCE WA S BASED ON CONJECTURE. IN THE PRESENT CASE THE APPELLANTS BOO KS WERE AUDITED BY A CHARTERED ACCOUNTANT. EVEN BY ASSESSING OFFICER'S O WN ADMISSION THE APPELLANT HAD PRODUCED THE DETAILS AND EVIDENCES IN SUPPORT OF LABOUR WAGES PAID. THE AO DID NOT POINT OUT ANY SPECIFIC I NFIRMITY OR INACCURACY IN ANY OF THE PARTICULAR EXPENDITURE INC URRED. IN THE CIRCUMSTANCES EVEN BY ASSESSING OFFICER' OWN ADMISS ION 95% OF THE EXPENDITURE WAS FOUND TO BE GENUINE AND BONAFIDE BU T HE DOUBTED ONLY 5% OF THE EXPENDITURE TO BE NOT GENUINE. IN MY CONS IDERED OPINION IF THE AO FOUND 95% OF THE EXPENSES TO BE GENUINE AND DID NOT POINT OUT ANY SPECIFIC INSTANCE OF THE EXPENSES BEING UN-VERI FIABLE HE WAS NOT JUSTIFIED IN MAKING ADHOC ESTIMATED DISALLOWANCE OF 10% OF THE EXPENSES. THE DISALLOWANCE OF 60,02,671/- AS MADE IN THE IMPUGNED ORDER IS THEREFORE DIRECTED TO BE DELETED. GROUND N O.2 IS THEREFORE ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 5. BEFORE US LD. DR SUBMITTED THAT ASSESSEE WAS PRO VIDED SUFFICIENT OPPORTUNITIES OF BEING HEARD BUT MOST OF THE TIME A SSESSEE FAILED TO APPEAR BEFORE AO. THEREFORE IN THE INTEREST OF NATURAL JUS TICE MATTER SHOULD BE RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION A S ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT, BILLS AND VOUCHERS. ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 5 ON THE OTHER HAND, LD. AR REITERATED THE SUBMISSION S THAT WERE PLACED BEFORE LD. CIT(A). HE RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE INSTANT CASE, AD DITION WAS MADE BY AO ON ACCOUNT OF NON-PRODUCTION OF SUPPORTING EVIDENCE IN RELATION TO LABOUR CHARGES. THEREFORE, THE AO DISALLOWED THE LABOUR CH ARGES ON AD HOC BASIS @ 10%. HOWEVER, LD. CIT(A) REVERSED THE ORDER OF AO B Y DELETING THE SAME. NOW THE ISSUE BEFORE US ARISES WHETHER THE RELIEF G RANTED BY LD. CIT-A IN THE ABOVE FACTS AND CIRCUMSTANCES IS JUSTIFIED. 6.1 THE AO HAS FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT WHICH IS CONTRARY OF HIS OWN FINDING THAT SUPPORTING EVIDENC ES WERE NOT FURNISHED BY ASSESSEE. THE AO WAS VERY MUCH EMPOWERED TO REJECT THE BOOKS OF ACCOUNT AND TO FRAME ASSESSMENT U/S 144 OF THE ACT WHICH IN OUR CONSIDERED VIEW AO FAILED TO DO SO. 6.2 WE ALSO OBSERVED THAT AO WAS VERY MUCH EMPOWERE D TO INITIATE THE PENALTY U/S 271(1)(B) OF THE ACT IN THE EVENT OF NO N APPEARANCE OF ASSESSEE ON THE DATE OF HEARING DESPITE THE FACT THAT NOTICE S FOR HEARING WERE SENT TO HIM. ON PERUSAL OF THE ASSESSMENT ORDER, WE NOTE TH AT NO PENALTY OF WHATSOEVER HAS BEEN INITIATED BY THE AO. WE ALSO OBSERVED THAT THE AO HAS NOT INITIATED PENA LTY ON ACCOUNT OF NON- MAINTENANCE OF BOOKS OF ACCOUNT U/S 271A OF THE ACT . 6.3 WE ALSO FIND THAT VARIOUS TRIBUNALS ORDERS AS WELL AS JUDGMENTS OF VARIOUS HON'BLE HIGH COURTS HAVE HELD THAT PROFIT D ECLARED IN THE CONTRACTOR BUSINESS @ 4 TO 6% IS QUITE REASONABLE SOME OF THE CASES ARE LISTED BELOW:- 3. IN THE CASE OF METROPOLITAN ENGG. CO. OPT. SOCIE TY LTD. VS. ACIT ITA NO.S 2172 & 2172/KOL/2010 IT HAS BEEN HELD THAT IN THE AY 2001-02, THE ASSES SEE IS ENGAGED IN CIVIL CONTRACT BUSINESS WITH OTHERS B USINESS SEGMENTS. AO ESTIMATED NET INCOME FROM THE WORK CONTRACT @ 10% O N THE GROSS CONTRACT RECEIPTS. ASSESSEE FAILED TO FURNISH NECESSARY EVID ENCE FOR PURCHASE AND ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 6 OTHER EXPENSES. PURCHASE & EXPENSES NOT CONFIRMED O N AN ENQUIRY CONDUCTED BY THE AO U/S. 133(6). LD. CIT(A) CONFIRM ED THE ORDER OF THE ASSESSING OFFICER. TRIBUNAL RELIED ON THE DECISION OF HONBLE ORISSA HIGH COURT DECISION IN THE CASE OF CIT VS NANDARAM HUNDA RAM (1976) 103 ITR 433, WHEREIN IT IS HELD THAT IF THE ASSESSEE FAILED TO PRODUCE ACCEPTABLE ACCOUNTS REVENUE WOULD BE ON THE DECISION OF ROYAL MEDIAL HALL VS. CIT (1962) 46 ITR 748 (AP) WHEREIN IT IS HELD THAT ESTIMATE OF INCOME ON THE BASIS OF MATERIALS AVAILABLE AND THE PAST ASSESSMEN T RECORD WAS HELD PROPER AND TRIBUNAL DIRECTED THE ASSESSING OFFICER TO RE COMPUTED THE INCOME BY APPLYING 6% OF NET PROFIT ON GROSS CONTRA CT RECEIPTS. 4. IN THE CASE OF PRAVIN PANDURANG PATIL, ISLAMPUR IN ITA NO. 850/PN/08 IT HAS BEEN HELD THAT IN THE AY 2005-06, THE ASSESSEE IS E NGAGED IN CIVIL CONTRACT BUSINESS WITH OTHERS BUSINESS SEGMENTS. AO REJECTED THE BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3) AND ESTIM ATED NET INCOME FROM THE CONTRACT BUSINESS @ 8%. ASSESSEE FAILED TO PRODUCE THE LABOUR PAYMENT VOUCHERS AND PURCHASE BILLS TO VERIFY THE EXPENSES PURCHASE AND CLOSING STOCK. LD. CIT(A) HAS ESTIMATED THE INCOME FROM REG ULAR CONTRACT BUSINESS AT 8% OF THE CONTRACT RECEIPTS AND 4% IN SO FAR SUB-CO NTRACTING IS CONCERNED. HONBLE LORDSHIP OF TRIBUNAL, DIRECTED TO ESTIMATE T HE INCOME @ 6% FROM THE CONTRACT BUSINESS SAND SO FAR AS PROFIT ON SUB-CONT RACT BUSINESS AND ROAD ROLLER HIRING IS CONCERNED UPHOLD THE ESTIMATION AS ADOPTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO MEET THE EN D OF JUSTICE. 5. IN THE CASE OF THE ACIT GANDHIDHAM CIRCLE VS. M/ S ISHWAR CONSTRUCTION CO. GANDHIDHAM, ITA NO. 1140/RJT/2009 IT HAS BEEN HELD THAT IN THE AY 2005- 06, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIV IL CONSTRUCTION. ASSESSEE FAILS TO PROVIDE PROPER EVIDENCE IN THE SHAPE OF BI LLS, VOUCHERS, UNABLE TO VERIFY PURCHASES BEFORE THE AO AND AO MADE ADDITION FOR UNEXPLAINED PURCHASE, SUB-CONTRACT EXPENSES AND UNDER VALUATION OF WORK-IN-PROGRESS. THE LD. CIT(A) ESTIMATED THE TOTAL INCOME BY APPLYI NG NET PROFIT RATE OF 4%. BOTH THE ASSESSEE AND REVENUE HAS CHALLENGED TO THE EXTENT OF ORDER AGAINST THEM. THE TRIBUNAL INCLINED UPON THE ORDER OF THE L D. CIT(A) AND ACCORDINGLY CONFIRMED. HOWEVER, IN THE INSTANT CASE, WE FIND THAT THE ASSE SSEE HAS OFFERED NET PROFIT @ 6.5% WHICH IS QUITE REASONABLE FROM THE BUSINESS OF GOVERNMENT CONTRACTS. WE ALSO NOTE THAT THE AO HAS MADE THE DISALLOWANCE ON THE GROUND THAT IN MOST OF THE CASES SELF MADE VOUCHERS WERE PRODUCED BY THE ASSESSEE. HOWEVER ON EXAMINATION OF AO ORDER WE NOTICE CERTAI N LAPSES AS DETAILED BELOW : 1. THE AO MADE THE DISALLOWANCE ON ADHOC BASIS AND WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE VOUCHERS PRODUCED BEFOR E HIM. ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 7 2. THE AO WAS VERY MUCH AUTHORIZED BY THE STATUTE T O REJECT THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT IN THE EVE NT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE BOOKS OF ACCOUNTS. THE RELEVANT PROVISION OF SECTION 145(3) READS AS UNDER : 16 [ METHOD OF ACCOUNTING. 17 145. (1) ----------------- (2)--------------- (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUN TING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144 .] BUT WE NOTE THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 3. THE AO HAS NOT BROUGHT ON RECORD ANY COGENT REAS ONS FOR MAKING THE DISALLOWANCE OF THE ABOVE STATED AMOUNT. IT IS NOT THE CASE THAT THE EXPENSES WERE CONSIDERED TO BE BOGUS OR UNREASONABL E. THE ALLEGATION OF THE AO IS THAT THE VOUCHERS WERE HANDMADE. THERE ARE CERTAIN SITUATIONS AND CIRCUMSTANCES WHERE THE EXTERNAL DOC UMENTS IN SUPPORT OF THE EXPENSES ARE NOT AVAILABLE. ONE OF SUCH EXPE NSE APPEARS TO BE LABOUR CHARGES IN THE FACTS AND CIRCUMSTANCES OF TH E GIVEN CASE. IT IS BECAUSE THE ASSESSEE IS A GOVERNMENT CONTRACTOR WHI CH IS LABOUR INTENSIVE ACTIVITY. THEREFORE THE AO NEEDS TO REFER TO THE EARLIER YEAR FINANCIAL STATEMENT TO ENSURE UNREASONABLE EXPENSES HAS BEEN CLAIMED BY THE ASSESSEE. BUT NO SUCH EXERCISE WAS CARRIED O UT BY THE AO. IN THIS CONNECTION, WE ALSO RELY ON THE ORDER OF CO -ORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF ANIMESH SADHU VS. ACIT IN IT A 11/KOL/2013 DATED 12.11.2014. THE RELEVANT EXTRACT IS REPRODUCED BELO W.:- 4. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS DISALLOW ED 20% OF THE EXPENSES ON ESTIMATE BASIS ON THE GROUND THAT NO INDEPENDENT VERIFICATION TO BE MADE TO FIND OUT THE AUTHENTICITY OF THE EXPENSES. LD. C IT(APPEALS) HAS REDUCED THE ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 8 SAME ON THE SAME GROUND. HOWEVER, WE ARE OF THE VIE W THAT NO ESTIMATED DISALLOWANCE SCAN BE MADE FOR INABILITY TO MAKE IND EPENDENT VERIFICATION. IF ANY SPECIFIC EXPENDITURE IS UNVERIFIABLE OR IS UN-V OUCHED, THEN SUCH SPECIFIC EXPENDITURE IS DISALLOWABLE. HER NO SUCH SPECIFIC I DENTIFICATION HAS BEEN DONE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ESTIMATED DISALLOWANCE AS CONFIRMED BY THE LD. CIT(APPEALS) IS UNSUSTAINABLE. CONSEQUENTLY THE SAME STANDS DELETED. IN THE RESULT, GROUNDS NO. 2 & 3 OF THE ASSESSEES APPEAL STAND ALLOWED. IN THE LIGHT OF ABOVE REASONING, WE HOLD THAT THE O RDER OF THE LD. CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERE NCE IS CALLED FOR. CONSEQUENTLY, REVENUES GROUND IS DISMISSED. 7. NEXT ISSUE RAISED BY REVENUE IN GROUND NO.2 IS T HAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR 106,06,716/- ON ACCOUNT OF UNVERIFIABLE SUNDRY CREDITORS. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO ISSUED NOTICE TO SEVERAL CREDITORS OF THE ASSESSEE U/S 133(6) OF THE ACT BUT IN MANY CASES EITHER THE NOTICE WAS NOT SERVED OR NO REPLY WAS MA DE BY THE PARTIES EXCEPT THREE PARTIES. THE ASSESSEE WAS REQUESTED TO PRODUC E NECESSARY DETAILS IN RESPECT OF FOLLOWING PARTIES:- NAME OF THE PARTIES AMOUNT 1. SHAHABUDDIN DHALI 5,70,964 2 NUR ALI KHAN 5,16,280 3 MAJI ENTERPRISE 3,36,530 4 KONKED INTERNATIONAL 3,83,986 5 BENGAL TRADING CORPORATION 8,42,829 6 ANISUR ALAM MALICK 98,000 7 ADHUNIK TRADERS 4,53,620 8 MAZID ALI GAZI 2,18,112 9 KAMLESH BISWAS 28,,61,533 10 CHANDAN KR. VISWAS 23,76,000 11. AMIT BASU 26,93,691 12. BENGAL ENGINEERING CORPN 35,30,257 TOTAL AMOUNT RS.1,14,49,545 ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 9 AS THE ASSESSEE FAILED TO PRODUCE THE NECESSARY DET AILS THEREFORE THE ADDITION WAS MADE BY AO FOR 1,14,49,545/-. 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT AO HAS MA DE THE ADDITION IN RESPECT OF 12 PARTIES FOR THE OUTSTANDING AMOUNT AP PEARING AS ON 31.03.2010, HOWEVER, THE AO HAS NOT POINTED OUT ANY PROVISION O F THE INCOME-TAX ACT UNDER WHICH THE ADDITION WAS MADE. SIMILARLY, THE NECESSARY DETAILS IN RESPECT OF THE CREDITORS CONSISTING NAMES, ADDRESS, OPENING AND CLOSING BALANCE WERE DULY FURN ISHED BEFORE AO. THE ASSESSEE WAS DOING TRANSACTIONS REGULARLY WITH THOS E PARTIES AND ALL THE TRANSACTIONS OF PURCHASE AND PAYMENT MADE TO THEM W ERE DULY ACCEPTED BY THE AO EXCEPT THE OUTSTANDING BALANCE APPEARING AT THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION WHICH SHOWED THAT AO HAS N OT DOUBTED THE TRANSACTIONS WHICH HAVE BEEN SQUARED UP DURING THE YEAR UNDER CONSIDERATION. THE FINANCIAL STATEMENTS OF THE ASSE SSEE WERE DULY AUDITED BY THE AUDITOR AND NO DEFECT OF WHATSOEVER WAS REPORTE D IN RESPECT OF THE AFORESAID 12 PARTIES. OUT OF THE 12 PARTIES 8 PARTI ES HAD DULY REPLIED IN RESPONSE TO THE NOTICE ISSUED U/S. 133(6) OF THE AC T AND CONFIRMED THE TRANSACTIONS WITH THE ASSESSEE. THE AMOUNT OF DISAL LOWANCE MADE BY THE AO FOR 1,14,49,545/- INCLUDES THE AMOUNT OF OPENING BALANC E OF CREDITORS 45,90,956/- FOR WHICH WERE BROUGHT FROM THE EARLIER YEARS AND IN SUCH SITUATION NO ADDITION CAN BE MADE U/S. 68 OF THE AC T IN RESPECT OF SUNDRY CREDITORS BROUGHT FORWARD FROM THE EARLIER YEARS. 9.1 THE ADDITION U/S. 68 OF THE ACT CAN BE MADE IF ANY SUM IS RECEIVED BY THE ASSESSEE. IN THE INSTANT CASE, NO SUM WHATSOEVE R HAS BEEN RECEIVED BY ASSESSEE AS ALL THE TRANSACTIONS ARE ARISING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FROM THE BUSINESS. IN VIEW OF THE ABOVE, T HE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY THE AO IS BASED ON HIS CO NJECTURE AND SURMISE. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE OBSERVED CERTAIN FACTS AS DETAILED UNDER:- ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 10 A) AO FAILED TO BRING THE PROVISION OF THE ACT UNDE R WHICH THE ADDITION WAS MADE; B) OUT OF 12 PARTIES , 11 PARTIES ARE THE TRADE CRE DITORS WITH WHOM THE ASSESSEE WAS DOING REGULAR BUSINESS TRANSACTIONS; C) ALL THE CREDITORS SHOWN IN THE BOOKS OF ACCOUNT WERE ARISEN FROM THE PURCHASE MADE BY ASSESSEE THUS NO LOAN OF WHATSOEVE R WAS TAKEN BY ASSESSEE FROM THOSE PARTIES; ACCORDING LD. CIT(A) DELETED THE ADDITION MADE BY A O BY OBSERVING AS UNDER:- IT APPEARED FROM THE MATERIAL ON RECORD THAT TH E ASSESSEE HAD TRADING TRANSACTIONS WITH 11 PARTIES. FROM THE COPIES OF AC COUNTS FURNISHED, IT APPEARED THAT 11 PARTIES HAD EITHER SUPPLIED MATERI ALS OR LABOR FOR EXECUTING CONTRACTUAL JOBS. VALUE OF INVOICES RAISED BY EACH OF THE PARTY WAS CREDITED TO THE INDIVIDUAL ACCOUNT OF THE CREDITOR IN THE APPEL LANTS BOOKS. FROM THE INFORMATION ON RECORD IT APPEARED THAT IN THE COURS E OF ASSESSMENT THE APPELLANT HAD FURNISHED DETAILS OF LABOUR CHARGES P AID AS WELL AS MATERIALS CONSUMED IN EXECUTION OF CONTRACTS. COPIES WERE FIE LD. OUT OF THE TOTAL EXPENDITURE ON LABOUR CHARGES DEBITED IN THE P&L A/ C. LABOUR CHARGES OF 2,40,50,615/- WERE PAYABLE TO 13 PARTIES AND IN RES PECT OF THESE CHARGES TAX U/S.194C WAS DEDUCTED AT SOURCE BY THE APPELLANT. I N RESPECT OF THE LABOUR CHARGES PAYABLE TO THESE PARTIES, THE AO ACCEPTED T HE GENUINENESS OF THE ENTIRE EXPENDITURE AMOUNTING TO 240.50 LACS ON BEING SATISFIED. OUT OF THE 13 PARTIES TO WHOM SUCH LABOUR CHARGES WERE PAYABLE, 6 PARTIES VIZ. BENGAL ENGINEERING CORPORATION, KAMLESH BISWAS, CHANDAN BI SWAS, ANISUR ALAM MALLICK, MAZID ALI GAZI AND AMIT BIASU ARE THE PERS ONS WHOSE OUTSTANDING BALANCES AS ON 31.03.2010 WERE CONSIDERED BY THE AO FOR THE PURPOSES OF MAKING IMPUGNED ADDITION. I FURTHER FIND THAT OUT O F THE AFORESAID SIX PARTIES, 5 PARTIES VIZ. KAMLESH BISWAS, CHANDAN BISWAS, ANISUR ALAM MALLICK, MAZID ALI GAZI AND AMI BASU HAD FURNISHED THEIR LETTERS OF CO NFIRMATIONS IN THE OFFICE OF THE AO IN THE MONTH OF DECEMBER 2012. IN THEIR CONF IRMATORY LETTERS, EACH OF THE PARTY HAD CONFIRMED THEIR TRANSACTIONS WITH THE APPELLANT. IN THE LETTERS OF CONFIRMATIONS THEY HAD ALSO CONFIRMED THAT THE APPE LLANT HAD DEDUCTED TAX U/S.194C FORM THE LABOUR CHARGES PAYABLE TO THEM AN D HAD FURNISHED THEIR RESPECTIVE PAN.I ALSO FIND FROM THE IMPUGNED ORDER THAT THE AO DID NOT DOUBT THE GENUINENESS OR BONA FIDE OF THE EXPENDITURE BY WAY OF LABOUR CHARGES PAYABLE TO THESE SIX PARTIES. RATHER THE AO HAD ACC EPTED THE EXPENSES TO BE GENUINE AND TAX WAS PROPERLY DEDUCTED U/S. 194C OF THE ACT. IN THIS FACTUAL BACKGROUND, THEREFORE, THE AMOUNTS OUTSTANDING AND DUE TO THESE SIX PARTIES COULD NOT THEREFORE BE ASSESSED AS INCOME OF THE AP PELLANT. 6.5 AS REGARD TO THE AMOUNTS OUTSTANDING AND DUE TO THE REMAINING FIVE PARTIES, IT APPEARED FROM THE COPIES OF LEDGER ACCO UNTS THAT THESE PARTIES VIZ. MAJI ENTERPRISES, ADHUNIK TRADERS, NUR ALI KHAN, KO NKED INTERNATIONAL & SAHABUDIN DHALI HAD SUPPLIED MATERIALS SUCH AS SAND , STONE CHIPS, BRICKS ETC. TO THE APPELLANTS PROPRIETARY FIRM M/S BENGAL TRAD ING CO. AND THE INVOICED ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 11 VALUE FOR THE MATERIALS SUPPLIED WAS CREDITED TO TH E INDIVIDUAL PARTYS ACCOUNT IN THE BOOKS OF THE APPELLANT. IT FURTHER APPEARED THAT M/S MAJI ENTERPRISE, NUR ALI KHAN & SAHABUDIN DHALIHAD FILED THEIR CONFIRMAT ORY LETTERS IN THE OFFICE OF THE AO MUCH BEFORE THE COMPLETION OF THE ASSESSMENT . IN THEIR CONFIRMATORY LETTERS, THE PARTIES HAD CONFIRMED THEIR TRANSACTIO NS WITH THE APPELLANT. AS REGARDS ADDITION OF OUTSTANDING SUM OF 8,42,829/- MAD IN THE NAME OF BENGAL TRADING CORPORATION, I NOTE THAT THE SAID BENGAL TR ADING CORPORATION IS ANOTHER PROPRIETARY CONCERN OF SHRI DEBDAS DUTTA I. E. THE APPELLANT HIMSELF. IT THEREFORE APPEARED THAT ONE PROPRIETARY CONCERN OF THE APPELLANT HAD PROVIDED SUM OF MONEY TO ANOTHER PROPRIETARY CONCERN I.E. BE NGAL TRADING COMPANY. AS SUCH, THE TRANSACTIONS BETWEEN THE TWO PROPRIETA RY CONCERNS BENEFICIALLY BELONGED TO THE APPELLANT HIMSELF. HAVING REGARD TO THESE FACTS, I THEREFORE FIND THAT THE ADDITION MADE BY THE AO WAS FACTUALLY AS WELL AS LEGALLY UNJUSTIFIED. 6.6 AS NOTED IN THE FOREGOING, THE AMOUNTS WERE ADD ED BY THE AO WITHOUT SPECIFYING THE ENABLING PROVISION OF THE ACT WHICH PERMITTED THE AO TO MAKE ADDITION ONLY IN RESPECT OF OUTSTANDING BALANCES AP PEARING IN THE ACCOUNTS OF SUNDRY CREDITORS. THE INFORMATION AND EVIDENCES ON RECORD PROVE THAT SAVE AND EXCEPT THE TRANSACTIONS BETWEEN BENGAL TRADING CORPORATION AND BENGAL TRADING COMPANY, THE TRANSACTIONS WITH REMAINING 11 PARTIES WERE ON TRADING ACCOUNT. THE SAID 11 PARTIES HAD SUPPLIED MATERIAL OR LABOUR FOR WHICH INVOICES WERE RAISED ON THE APPELLANT. IN THE IMPUG NED ASSESSMENT ORDER, THE AO DID NOT DISALLOW THE EXPENSES INCURRED ON THE GR OUND THAT THE ASSESSEES TRADING TRANSACTIONS WERE EITHER BOGUS OR PROVED TO BE NOT GENUINE. IN THE CIRCUMSTANCES, WHOM PART OF THE TRANSACTIONS RESULT ING IN DEBIT OF EXPENSES TO THE PROFIT & LOSS ACCOUNT WAS NOT PROVED TO BE BOGU S OR UNVERIFIABLE THEN THE REMAINING PART COULD NOT BE DISBELIEVED. IN FACT, T O THE EXTENT THE APPELLANT HAD MADE PAYMENTS TO THESE 11 PARTIES DURING THE RE LEVANT YEAR, THE AO HAD ACCEPTED THE GENUINENESS OF THE PARTIES AND DID NOT DRAW ANY ADVERSE INFERENCE. ONCE PART OF THE TRANSACTIONS WITH THE S AME PARTIES AND DRAW ADVERSE INFERENCE AGAINST THE APPELLANT ONLY WITH R EFERENCE TO THE AMOUNTS REMAINING OUTSTANDING AS AT THE CLOSE OF THE PREVIO US YEAR. 6.7 IN THIS REGARD I FIND THAT THE APPELLANTS CASE IS SUPPORTED BY THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. RITU ANU RAG AGARWAL (SUPRA). IN THIS CASE, ADDITIONS IN RESPECT OF SUNDRY CREDITORS BAL ANCES WERE MADE ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT, BILLS &VOUCHERS ETC. WHILE UPHOLDING THE RELIEF ALLOWED BY THE ITAT , THE HIGH COURT OBSERVED THAT IN THE ASSESSMENT ORDER PURCHASES FROM THE PAR TIES WERE NOT DISBELIEVED NOR TRADING RESULTS DISCLOSED BY THE BOOKS REJECTED . IN THE CIRCUMSTANCES WHEN PURCHASES MADE FROM THE PARTIES WERE ACCEPTED BY THE ASSESSING OFFICER THEN ONLY IN RESPECT OF UNPAID BALANCES THE AO COULD NOT DISPUTE THE GENUINE EXISTENCE OF THE PARTIES. THE SAME VIEW WAS TAKEN BY THE SPECIAL BENCH OF THE ITAT AT DELHI IN THE CASE OF MANOJ AGA RWAL VS. DCIT (113ITD 377). IN ITS JUDGMENT THE SPECIAL BENCH SPECIFICALL Y OBSERVED THAT THERE IS A MARKED DIFFERENCE BETWEEN A CREDIT REPRESENTING A L IABILITY PAYABLE BY THE ASSESSEE AND A CREDIT REPRESENTING MONIES RECEIVED FROM ANOTHER PERSON. IT IS BECAUSE OF THIS DISTINCTION, A LIABILITY FOR PURCHA SE WHICH HAS BEEN CREDITED IN THE ACCOUNT OF THE SUPPLIER CANNOT BE ADDED UNDER S ECTION 68, MORE SO WHEN THE PURCHASE HAS BEEN ACCEPTED AS GENUINE AND A DED UCTION THEREFORE HAS BEEN ALLOWED. ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 12 6.8 APPLYING RATIO LAID DOWN IN THESE JUDGMENTS, I THEREFORE HOLD THAT SINCE IN RESPECT OF SUMS DUE TO 11 PARTIES THE AO DID NOT DI SPUTE OR DISBELIEVE THE APPELLANTS TRADING TRANSACTIONS WITH THESE PARTIES DURING THE YEAR, NO ADDITION IN RESPECT OF OUTSTANDING BALANCES WAS JUSTIFIABLE UNDER ASSESSMENT YEAR OF THE EXTANT PROVISIONS OF THE ACT. AS REGARDS ADDITI ON OF 8,42,289/- ,BEING AMOUNT OUTSTANDING AND DUE IN THE NAME OF BENGAL TR ADING CORPORATION, IT APPEARED THAT BOTH BENGAL TRADING COMPANY AND BENGA L TRADING CORPORATION WERE PROPRIETARY CONCERNS OF THE ASSESSEE HIMSELF A ND THEREFORE LIABILITY APPEARING IN THE BOOKS OF ONE PROPRIETARY CONCERN I N THE NAME OF ANOTHER COULD NOT BE ASSESSED AS THE INCOME OF THE APPELLAN T. FOR THE REASONS DISCUSSED IN THE FOREGOING, THEREFORE, THE ENTIRE A DDITION OF 1,14,49,545/- IS DIRECTED TO BE DELETED. GROUND NO.S 3, 4 & 5 ARE AL LOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 10. BEFORE US LD. DR SUBMITTED THAT BOOKS OF ACCOUN T WERE NOT PRODUCED BEFORE LD. CIT(A) AS WELL AS BEFORE AO. THEREFORE L D. CIT(A) SHOULD HAVE REJECTED BOOKS OF ACCOUNT AS HE HELD CO-TERMINUS PO WER BUT LD. CIT(A) FAILED TO INVOKE THE PROVISION OF SECTION 145(3) OF THE AC T. HE REQUESTED THE BENCH TO RESTORE THE MATTER TO THE FILE OF AO FOR FRESH A DJUDICATED IN ACCORDANCE WITH LAW. THE LD. DR HEAVILY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR SUBMITTED THAT OUT OF 12 PARTIES 8 PARTIES HAVE RESPONDED TO THE NOTICE ISSUED U/S. 133(6) OF THE A CT AND AO HAS ADMITTED THE TRANSACTIONS WITH THE PARTIES AS DISCUSSED ABOVE AS GENUINE OTHER THAN THE AMOUNT OF CLOSING BALANCE APPEARING AT THE END OF T HE YEAR UNDER CONSIDERATION. LD. AR RELIED ON THE ORDER OF LD. CI T(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ADDITION WAS MADE BY AO ON THE GROUND THAT THE TRADE CREDITORS COULD NOT RE SPOND TO THE NOTICE ISSUED U/S 133(6) OF THE ACT. HOWEVER, LD. CIT(A) REVERSED THE ORDER OF AO. IT IS UNDISPUTED FACT THAT ALL THE TRADE CREDITORS APPEAR ING IN THE BALANCE-SHEET ARE ARISING OUT OF THE EXPENSE OF MATERIAL PURCHASED BY THE ASSESSEE. THUS ALL THE PURCHASES HAVE BEEN DULY ACCEPTED BY THE AO AND SAM E WAS NOT DISPUTED. HOWEVER, THE TRADE CREDITORS WHICH ARE EMANATING FR OM THE PURCHASES HAVE BEEN DISALLOWED MERELY ON THE GROUND OF NON-RESPONS E OF NOTICE ISSUED TO THEM U/S 133(6) OF THE ACT. IN OUR CONSIDERED VIEW, THE TRADE CREDITORS CANNOT ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 13 BE DISTURBED WITHOUT DISALLOWING THE CORRESPONDING PURCHASE. IN HOLDING SO, WE DRAW SUPPORT AND GUIDANCE FROM THE ORDER OF ITAT DELHI BENCH IN THE CASE OF DCIT VS. DIVINE INTERNATIONAL REPORTED IN 134 ITD 148 (DEL) WHEREIN IT WAS HELD AS UNDER : IN THE CASE OF THE ASSESSEE THESE CREDITORS REPRESE NT THE OUTSTANDING AMOUNT ON ACCOUNT OF THE PURCHASES. THERE CAN BE TH REE ALTERNATIVE ALLEGATIONS AGAINST THE ASSESSEE. ONE CAN BE THAT T HESE CREDITS REPRESENT THE CREDIT FOR EARLIER YEARS. IF THAT BE THE CASE, NO A DDITION CAN BE MADE IN THIS YEAR UNDER SECTION 68. THE SECOND ALLEGATION CAN BE THAT THESE CREDITS REPRESENT THE PURCHASES FOR WHICH PAYMENTS HAVE BEE N MADE BY THE ASSESSEE DURING THE YEAR ITSELF. IF THIS IS SO, THE ONUS WILL BE ON THE DEPARTMENT TO ESTABLISH THAT ASSESSEE HAS MADE PAYM ENT TO THESE CREDITORS. THIS IS NOT EVEN THE ALLEGATION OF THE ASSESSING OF FICER, MUCH LESS HIS CASE AGAINST THE ASSESSEE. THE THIRD ALLEGATION CAN BE T HAT THESE CREDITS DO NOT REPRESENT THE PURCHASES WHICH HAVE BEEN MADE BY THE ASSESSEE. THE IMPLICATION OF THIS WILL BE THAT THE PURCHASES DEBI TED IN THE TRADING ACCOUNT ARE NOT GENUINE TO THAT EXTENT AND, ACCORDINGLY, THAT T HE TRADING ACCOUNT IS NOT CORRECT. HOWEVER, ON GOING THROUGH THE ASSESSMENT O RDER, IT IS EVIDENT THAT THE TRADING RESULTS HAVE BEEN ACCEPTED. DESPITE THI S, FOR THE SAKE OF ANALYSIS, IF IT IS CONSIDERED THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE CREDITORS AND, CONSEQUENTLY, THE PURCHASES TO THAT EXTENT ARE NOT GENUINE, THEN THE DECLARED GROSS PROFIT OF RS. 32,16,564 WIL L GET FURTHER ENHANCED BY RS. 37,99,907, I.E., A GP OF RS. 70,16,471 ON A TOT AL TURNOVER OF RS. 2,51,55,930 GIVING AN EXORBITANT GROSS PROFIT RATE OF 27.89 PER CENT, WHICH IS NOT THE CASE. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSEE IS IN THE BUSINESS OF EXPORTS AND ITS ENTIRE INCOME IS EXEMPT. THERE I S, AS SUCH, NO REASON FOR THE ASSESSEE TO SUPPRESS THE PROFIT AS ITS INCOME. [PARA 20] TAKING INTO CONSIDERATION THE ABOVE FACTS OF THE AS SESSEE, IT IS A FIT CASE NOT TO MAKE ANY ADDITION BY INVOKING THE DEEMING FICTION O F SECTION 68 IN RESPECT OF THE SUNDRY CREDITORS, DESPITE THE FACT THAT THE ASS ESSEE COULD NOT SUPPLY THE ADDRESSES OF THESE CREDITORS. ALL THE FACTS AND CIR CUMSTANCES OF THE CASE, INCLUDING THAT OF DESTRUCTION OF BOOKS OF ACCOUNT, OLD PERIOD, PETTY KARIGARS, ADVANCES TO THE SUPPLIERS, DEBTORS AND THE CLOSING STOCK, AND PARTICULARLY THE FACT THAT ALL THESE CREDITORS HAVE BEEN PAID OFF IN THE SUBSEQUENT YEAR AND THE RETURN FOR THAT YEAR HAS BEEN ACCEPTED BY THE DEPAR TMENT CLEARLY SHOW THAT IN THE CASE OF THE ASSESSEE IT IS NOT NECESSARY TO ADD THESE CREDITORS. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY INTERFERENCE IN THE ORDER OF LD. CIT(A). WE HOLD ACCORDINGLY. CONSEQUENTLY, GROU ND RAISED BY REVENUE IS DISMISSED. 12. NEXT ISSUE RAISED BY REVENUE IS THAT LD. CIT(A) IN DELETING THE ADDITION MADE BY AO FOR 21,53,716/-BEING 5% OF MATERIAL PURCHASE ON THE GRO UND THAT ASSESSEE FAILED TO PRODUCE SUPPORTING EVIDENCE . ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 14 13. ASSESSEE DURING THE YEAR HAS CLAIMED MATERIAL P URCHASED OF 4,30,74,339/- IN ITS PROFIT AND LOSS ACCOUNT. THE A O TO VERIFY THE GENUINENESS OF THE EXPENSES REQUESTED THE ASSESSEE TO PRODUCE T HE SUPPORTING EVIDENCE BUT ASSESSEE FAILED TO DO SO. THEREFORE, AO DISALLO WED THE MATERIALS PURCHASED EXPENDITURE @ 5% I.E. 21,53,716/- AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 14. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT ALL THE N ECESSARY DETAILS OF MATERIALS PURCHASED WERE DULY PRODUCED BEFORE AO DU RING ASSESSMENT PROCEEDINGS. THE ASSESSEE FURTHER SUBMITTED THAT IF IT HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE THEN THE AO SHOULD HAVE DI SALLOWED ENTIRE AMOUNT OF MATERIALS PURCHASED EXPENDITURE. THERE WAS NO LO GIC TO ACCEPT 95% OF EXPENSE AND DISALLOW 5% EXPENSE ON AD HOC BASIS. TH E ASSESSEE ALSO SUBMITTED THAT ALL THE NECESSARY DETAILS ALONG WITH BOOKS OF ACCOUNT WERE DULY SUBMITTED AND NO DEFECT WAS POINTED OUT BY THE AO. HAD THE BOOKS OF ACCOUNT NOT BEEN PRODUCED BEFORE AO THEN HE SHOULD HAVE REJ ECTED THE SAME U/S. 145(3) OF THE ACT AND SHOULD HAVE FRAMED THE ASSESS MENT U/S. 144 OF THE ACT WHICH HE FAILED TO DO SO. ASSESSEE ALSO CITED VARIO US COURTS CASE WHERE IT WAS HELD THAT NO DISALLOWANCE ON AD HOC BASIS CAN BE MA DE. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PARTIES. IT APPEARED THAT THE AO MADE THE DISALLOWANCE PRIMARILY ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT. THE AR OF THE A PPELLANT HAD FURNISHED DETAILS OF MATERIALS CONSUMED AND THESE DETAILS WER E FURNISHED BEFORE THE AO. ON PERUSAL OF THE IMPUGNED ORDER, IT APPEARED T HAT DESPITE APPELLANTS ALLEGED FAILURE TO COMPLY WITH NOTICES, THE AO DID NOT COMPLETE THE ASSESSMENT U/S. 144. I ALSO FIND THAT THE AO DID NO T INVOKE PROVISIONS OF SECTION 145(3) AND THEREBY DID NOT REJECT BOOKS OF ACCOUNT AND THE RESULTS AS DISCLOSED BY THE AUDITED PROFIT & LOSS ACCOUNT. THE BOOKS OF THE APPELLANT WERE AUDITED U/S. 44AB OF THE ACT AND THE AO DID NO T PROVE O INDICATE ANY FALSITY OR INFIRMITY IN THE INFORMATION STATUTORILY PROVIDED BY THE TAX AUDITOR. IN THE CIRCUMSTANCES, I FIND THAT THE AO DID NOT PROVE ANY SPECIFIC SHORT COMING OR INADEQUACY IN THE AUDITED ACCOUNTS FURNISHED BEF ORE HIM. THE APPELLANT HAD ALSO FURNISHED THE DETAILS OF MATERIALS CONSUME D AND NO SPECIFIC INFIRMITY IN THESE DETAILS WAS POINTED OUT. I FURTHER NOTE TH AT EVEN THOUGH THE AO STRESSED ON THE FACT OF NON-COMPLIANCE ON THE APPEL LANTS PART, YET 95% OF THE ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 15 EXPENSES WAS ALLOWED BY THE AO HIMSELF, MEANING THE REBY THAT THE AO WAS SATISFIED ABOUT THE GENUINENESS OF THE EXPENDITURE TO THE EXTENT OF 95%. IN THE ABOVE BACKGROUND, THEREFORE, I DO NOT SEE ANY JUSTI FICATION IN THE AO'S ACTION OF DISBELIEVING THE GENUINENESS OF ONLY ABOUT 5% OF THE EXPENSES ON ACCOUNT OF MATERIAL CONSUMPTION PARTICULARLY WHEN NO SPECIF IC INFIRMITY WAS POINTED OUT N THE DETAILS FURNISHED. I ALSO FIND THAT ON THE TU RNOVER OF 15 CRORES, THE ASSESSEE HAD DISCLOSED INCOME IN EXCESS OF 1 CRORE WHICH IN PERCENTAGE TERMS WAS APPROXIMATELY 6.5%.HAVING REGARD TO THE N ATURE OF BUSINESS AND THE TURNOVER ACHIEVED DISCLOSURE OF SUCH INCOME CAN NOT BE CONSIDERED TO BE LOW OR UNREASONABLE. FOR THE REASONS AFORESAID, THE REFORE, I DO NOT FIND ANY JUSTIFICATION FOR SUSTAINING THE ADHOC ESTIMATED DI SALLOWANCE OF 21,53,716/- ON ACCOUNT OF MATERIAL CONSUMPTION. THE DISALLOWAN CE IS THEREFORE DELETED. GROUND NOS 6 & 7 ARE ACCORDINGLY ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 14. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE FIN DING OF AO IS CONTRARY TO THE FACTS OF THE CASE. ONCE THE AO HAS REACHED TO A CON CLUSION THAT ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND NO SUPPO RTING EVIDENCE HAS BEEN FILED THEN HE SHOULD HAVE DISALLOWED ENTIRE AMOUNT OF EXPENSE OR HE SHOULD HAVE REJECTED THE BOOKS OF ACCOUNT AND SHOULD HAVE FRAMED THE ASSESSMENT U/S. 144 OF THE ACT. WE ALSO OBSERVED IN THE ABSENC E OF ANY DOCUMENTARY EVIDENCE THE AO SHOULD HAVE REFERRED TO THE HISTORI CAL DATA OF THE ASSESSEE FOR MAKING THE DISALLOWANCE IN SCIENTIFIC MANNER BU T IN THE INSTANT CASE, AO HAS MADE THE DISALLOWANCE BASED ON HIS SURMISE AND CONJECTURE. THE AO ARBITRARILY HAS DISALLOWED @ 5% OF MATERIAL PURCHAS E AND HAD ACCEPTED 95% OF THE EXPENSE WHICH IS CONTRARY TO THE FINDING OF AO. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). CONSEQUENTLY, REVENUES GROUND IS DISMISSED. IT IS ALSO IMPORTANT TO NOTE T HAT THE ASSESSEE HAS DECLARED NET PROFIT @ 6.5% WHICH IS QUITE REASONABL E IN THE LINE OF GOVERNMENT CONTRACTOR BUSINESS. ITA NO.1595/KOL/2014 A.Y. 2010-11 ACIT, CIR-33 KOL. VS. DEBDAS DUTTA PAGE 16 15.1 WE ALSO NOTE THAT THE DISALLOWANCE WAS MADE BY THE AO ON ESTIMATES WHICH IS NOT CORRECT IN VIEW OF THE ORDER OF CO-ORD INATE BENCH OF ITAT KOLKATA IN THE CASE OF ANIMESH SADHU VS. ACIT IN ITA NO.11/KOL/2013 DATED 12.11.2014.THEREFORE WE DO NOT FIND ANY REASON TO I NTERFERE IN THE ORDER OF LD. CIT(A). THUS THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 16. LAST ISSUE IS GENERAL IN NATURE AND NEEDS NO A DJUDICATION. 17. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 15 /12/2017 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP #- 15 / 12 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIRCLE-33, 10B, MIDDLETON ROW, 3 RD FLOOR,KOLKATA-71 2. /RESPONDENT-DEBDAS DUTTA, P.O.& VILL. DHALTITHA, BA SIRHAT, 24-PGNS(NORTH) 3. / 0 / CONCERNED CIT KOLKATA 4. 0- / CIT (A) KOLKATA 5. 3 66/, /, / DR, ITAT, KOLKATA 6. 9 / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO /,