The ITO, Sabarkantha Ward-1, Himmatnagar V. Shri Dineshbhai Jashabhai Patel, Sabarkantha

ITA 1640/AHD/2019

AI Insights

The case involves an appeal by the Income Tax Officer, Sabarkantha Ward-1, against Shri Dineshbhai Jashabhai Patel concerning the assessment year 2014-15. The primary issue was the addition of Rs. 5,30,94,465 to the assessee's income, treated as bogus creditors by the Assessing Officer due to a significant increase in sundry creditors compared to the previous year. The assessee, during the appellate proceedings, provided substantial evidence to counter the addition, which the CIT(A) accepted, leading to the deletion of the addition. The Revenue's appeal to the Tribunal contested this decision, arguing that the assessee failed to provide adequate evidence during the initial assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114185 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-06-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 30-10-2019
• Other Referred Cases: CIT Vs. Nangalia Fabrics Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Additional evidence; Corroborative evidences
• Section: 68; 143(3); 192; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The ITO., Sabarkantha Ward-1, Himmatnagar-383001 (Appellant) Vs Shri Dineshbhai Jashabhai Patel, Ar-Badol Kampa, Po-Badol Ta-Vadali, Sabarkantha-383430 PAN: AJIPP1653M (Respondent) Assessee Represented: Shri Dhinal Shah, A.R. Revenue Represented: Shri Mahesh Parwani, Sr.D.R. Date of hearing : 21-06-2023 Date of pronouncement : 26-07-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 21.08.2019 passed by the Commissioner of Income Tax (Appeals)-10, Ahmedabad arising out of the exparte assessment order passed under section 143(3) r.w.s. 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2014-15. ITA No. 1640/Ahd/2019 Assessment Year 2014-15 I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 2 2. The brief facts of the case is that the assessee is an individual and Proprietor of Nishra Enterprise dealing in waste craft paper. For the Assessment Year 2014-15, the assessee filed its Return of Income on 29-11-2014 declaring total income of Rs. 3,55,840/-. The return was taken up for scrutiny assessment, as large amount of sundry creditors with respect to turnover of the assessee Firm compared to the preceding year. The assessee claimed sundry creditors amounting to Rs. 6,15,17,916/- for the Assessment Year 2014-15, whereas the previous Assessment Year 2013-14, the assessee had shown creditors of only Rs. 84,23,451/-. The assessee was given more than 10 opportunities and assessee failed to response to the notices, therefore the A.O. was not possible to verify the genuine increase in the sundry creditors. The Chartered Accountant certified that the creditors are subject to confirmation as reported in Para 3(a) of Form 3CB Report. In the absence of any details to verify the creditors, the difference of the creditors for both the Assessment Years i.e. 6,15,17,916 – 8423451 = 5,30,94,465/- which is net increase in creditors was treated as bogus creditors and thereby Ld. A.O. added as the same in the total income of the assessee and demanded tax thereon of Rs. 2.39 crores, which is inclusive of interest. 3. Aggrieved against the exparte assessment order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). During the appellate proceedings, the assessee explained his illiteracy, he was not aware about the hearing notices issued by the Ld. A.O., which resulted exparte assessment. However before the I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 3 Ld. CIT(A), assessee explained the increase in Sales, Debtors, Closing Stock and Creditors as per the balance sheet as follows: Particulars A.Y. 2013-14 A.Y. 2014-15 Sales 1,42,40,576/- 6,04,58,664/- Debtors 87,52,605/- 5,04,62,195/- Closing Stock 7,735/- 1,16,42,577/- Creditors 84,23,451/- 6,15,17,916 3.1. Thus the Assessing Officer ignored the increase in sales, closing stock but only picked up the creditors amount and made addition as bogus creditors. Thus the assessee submitted that the copy of accounts of each creditor from the books of the assessee and contra accounts with address and PAN Number which are duly reconciled. The Ld. CIT(A) admitted the above documents as the additions go to the root of the controversy involved and however called for a Remand Report from the A.O. The A.O. objected to the acceptance of additional evidences and also stated that the assessee failed to produce supporting bills/vouchers for the purchases made from the parties and also not filed bank details and proof of payments. Whereas the assessee in its Rejoinder to the Remand Report, furnished copies of Audited Accounts, Purchase Bills, Contra Accounts with Bank Statements. After considering the above details, the Ld. CIT(A) held that the assessee had continuous trading relationship with the creditors and the Assessing Officer has sent the Remand Report in a very routine manner without application of mind. 3.2. After considering the documents filed before him, the Ld. CIT(A) found that there is no discrepancy in the sundry creditors which can be added to the taxable income of the assessee and I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 4 thereby deleted the addition made by the Assessing Officer observing as follows: “...On the other hand the appellant has filed all documents as per paper book in 99 pages and stating as under: "Merits: 3. The learned AO while submitting the remand report stated that the assessee did not produce the supporting evidences. In fact, it is the duty of the AO to issue notice to the assessee to furnish the supporting evidences. In the absence of any such notice, it is not proper to take a view that in the absence of supporting evidences, the addition should be sustained. The assessee now furnishes the supporting evidences as under: (a) Audited Accounts (b) Purchase Bills from Kingston Peptech P. Ltd, and M/s. Om Enterprise. (c) The copy of accounts of Kingston Peptech P. Ltd. from the books of M/s. Nishra Enterprise i.e. assessee's books and the copy of Accounts of M/s. Nishra Enterprise from the books of Kingston Peptech P. Ltd. duly signed and confirmed by the party for A.Y. 2015-2016 with Bank statements to show that the payment is made. (d) The copy of accounts of M/s. Om Enterprise from the books of M/s. Nishra Enterprise Le. assessee's books and the copy of Accounts of M/s. Nishra Enterprise from the books of M/s. Om Enterprise duly signed and confirmed by the party for AY. 2015-2016 with Bank statements to show that the payment is made. 3.1 Further, it may please be noted that the sales, debtors and stocks as per Balance Sheet as on 31-03-2014 is as under: Particulars A.Y. 2013-2014 A.Y. 2014-2015 Sales 1,42,40,576 6,04,58,664 Debtors 87,52,605 5,04,62,195 Closing Stock 7,735 1,16,42,577 Creditors 84,23,451 6,15,17,916 3.2 From the above, it is seen that the increase in creditors is due to corresponding increase in sales, debtors and closing stock. The AQ has ignored this and picked up only creditors. This is not best judgment. I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 5 4. The Chart is also given as under: Sr. No. Name of the Party Address Amount Rs. Confirmation PAN 01 Kingston Peptech P. Ltd. Survey No. 172 Katward- Sonasan Road, Post; Sonasan Ta. Prantiji, Dist S.K. 5,32,62,380/- In the form of contra account duly singed by creditor AADCK5743A 02 M/s. Om Enterprise Javahar Market, Ahmedabad. Road, Dehgam-382305 82,55,537 In the form of contra account duly signed by creditor ASTPP8412G Total: 6,15,17,917 Less: Opening Sundry Creditors 84,23,451 As per Assessment Order 5,30,94,465 As stated in the Table, the contra accounts are forming part of paper book. The few bills for the purchase with the payment by account payee cheque shown in the bank statement are forming part of paper book. 5. From the above, it is clear that the creditors which are added by the AO are genuine and therefore the same should be allowed. Your honour is therefore prayed to allow the appeal." The judicious decision can only be arrived if the facts of the case are seen and appreciated. In this case, the appellant has in his possession the report u/s. 44AB dated 28-11-2014, copy of return of income filed by the creditors, the PAN and full addresses of the creditors, copy of account of creditors in the books of account of appellant and the proof that the appellant has continuous trading relationship with the creditors All such evidences are corroborative and cannot be manipulated at this stage. The AO had opportunity to cross verify any information if he had desired during remand proceedings but chose the path of least resistance and sent remand report in a very routine manner The independent corroborative evidences placed on record during remand proceedings cannot be ignored. The ratio in the case of Jute Corporation of India Ltd. 187 ITR 688 (SC) is applied to give fresh look once again to the evidences contained in paper book on record. In my opinion, there is no discrepancy in the sundry creditors which can be added to the taxable income of the appellant. The addition of Rs. 5,30,94,465/- is hereby deleted. The ground no. 1 is allowed. I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 6 4. Aggrieved against the same, the Revenue is in appeal before us raising the following Grounds of Appeal: 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of bogus purchases. 2. The Ld. CIT(A) failed to appreciate the fact that even during the course of remand proceeding the assessee had not been able to produce bills and evidences proving the purchase as genuine as specified in the remand report. 3. The appellant craves leave to amend alter any ground or add a new ground, which may be necessary. 5. The Ld. Sr. D.R. Shri Mahesh Parwani appearing for the Revenue in support of the Grounds raised by the Revenue submitted that the Ld. CIT(A) without considering the bills, vouchers and evidences proving the purchases as genuine deleted the addition which is not correct in law and therefore the addition made by the Assessing Officer is to be sustained and Revenue appeal is to be allowed. 6. Per contra, Ld. Counsel Shri Dhinal Shah appearing for the assessee submitted before us a Paper Book which was submitted before Ld. CIT(A) which contains the Rejoinder filed by the assessee to the Remand Report, Audited Accounts as on 31-03-2014, Bank Statements of HDFC Bank account, copy of accounts of Kingston Peptech P. Ltd. in the books of the assessee firm and contra accounts, few sample purchase bills from Kingston Peptech P. Ltd. and copy of accounts of Om Enterprise and contra entry and few sample purchase bills from Om Enterprise which are running to 99 pages. Thus the Ld. Counsel submitted that Ld. CIT(A) after considering the additional evidences filed by the assessee, after due consideration of the same with corroborative evidences on record, I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 7 deleted the addition made on account of sundry creditors as bogus creditors. 6.1. The Ld. Counsel also submitted before us Jurisdictional High Court judgment in the case of CIT Vs. Nangalia Fabrics Pvt. Ltd. reported in [2013] 40 taxmann.com 206 wherein it was held “that where purchase were supported by bills, entries were made in the books of account and payments were made by cheque, the said purchases could not be held as bogus purchases”. 6.2. The assessee further relied upon various decisions of the Tribunal in those lines and pleaded that the Ld. CIT(A) is correct in deleting the addition on account of bogus purchases made by the A.O. Thus the CIT(A) order does not require any interference and the Revenue appeal is liable to be dismissed. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. The case of the Revenue is that in spite of 10 hearing notices, the assessee failed to appear and explain the case of the assessee before Assessing Officer which resulted in passing exparte assessment order. During the appellate proceedings, the assessee explained his illiteracy and thereby filed the details of Audited accounts, HDFC Bank account transaction details, Confirmation of accounts from M/s. Kingston Peptech P. Ltd. and M/s. Om Enterprise and copies of sample sales bills from the sellers. One such sample invoice namely Invoice No. 192 dated 12-10-2013 for a sum of Rs. 1,43,382/- with proper VAT Tax and dispatch through I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 8 Truck No. GJ-1CT-6161 to Badol which is available at Page 61 of the Paper Book. 7.1. Similarly in the case of M/s. Om Enterprise Invoice No. 79 dated 24-10-2013 for a sum of Rs. 76,561/- which is inclusive VAT Tax with proper Sales Tax Registration Number of the seller. Further perusal of the HDFC Bank account makes it very clear regular cheque payments were made by the assessee through the continuation of the business with Kingston Peptech P. Ltd. as well as the Om Enterprise and various other suppliers. After considering the above material on record, the Ld. CIT(A) deleted the addition made on account of bogus sundry creditors of Rs. 5.3 crores, which is in our considered opinion does not require any interference. Further the purchasers are supported by bills entries in books of account and made payment by cheques. The Assessing Officer did not find any inflation in purchase price, but the addition made only on the ground that the assessee failed to furnish the details during the ex parte assessment proceedings. 8. The above view of ours are supported by the judgment of the Hon’ble High Court of Gujarat in the case of Nangalia Fabrics (P.) Ltd. (cited supra) as follows: “Section 68 of the Income-tax Act, 1961 - Cash credit [Unverifiable purchases] - Assessing Officer found that purchases made by assessee could not be verified as parties were untraceable- Accordingly, he made addition to assessee's income However, Tribunal held that since purchases were supported by bills, entries were made in books of account and payment was made by cheque, addition should have to be deleted - Whether issue being based on facts, required no consideration - Held, Yes [Para 4] [In favour of assessee]” I.T.A No. 1640/Ahd/2019 A.Y. 2014-15 Page No ITO Vs. Shri Dineshbhai Jashabhai Patel 9 8.1. Respectfully following the above Jurisdictional High Court judgment, we have no hesitation in confirming the order passed by the Ld. CIT(A) who deleted the addition made by the Assessing Officer. Thus the grounds raised by the Revenue are devoid of merits and the same is hereby rejected. 9. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 26 -07-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 26/07/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद