M/s. Paras Spares & Accessories Ltd., New Delhi V. ITO, New Delhi

ITA 2066/DEL/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6542 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Additional evidence; Rule 8D
• Section: 131; 68; 144; 234B; 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “F” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.2066/Del/2017 [Assessment Year : 2009-10] M/s Paras Spares & Accessories Ltd. B-1/126, 2 nd Floor, New Ashok Nagar, (Near Metro Pillar No.166), New Delhi-110096 ITO, Ward No.19(3), New Delhi PAN- AADCP2321D Assessee Revenue Assessee by None Revenue by Sh. Om Prakash, Sr. DR Date of Hearing 13.12.2021 Date of Pronouncement 13.12.2021 ORDER PER R.K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 03.11.2016 of the Ld. CIT(A)-7, New Delhi, relating to AY 2009-10. 2. None appeared on behalf of the assessee at the time of hearing before us. No adjournment application has been filed by the ITA No.2066/Del/2017 2 | P a g e assessee seeking adjournment of the case. A perusal of the order- sheet entries shows that the assessee was not appearing on the earlier occasions. The notices issued by the Registry through RPAD were returned un-served by the postal authority with the remark “no such person at address” or “left”, etc. Therefore, this appeal is being decided on the basis of material available on record and after hearing the ld. DR. 3. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 30.09.2009 declaring loss of Rs.1,28,259/-. During the course of assessment proceedings, the Assessing Officer asked the assessee to file the details along with the confirmation of sundry creditors above Rs.1 lakh. However, the assessee did not file the requisite details as called for by the Assessing Officer. In absence of any reply from the side of the assessee, despite number of opportunities granted, the Assessing Officer made addition of Rs.15,53,20,898/- to the total income of the assessee u/s 68 of the Act. During the course of assessment proceedings, the Assessing Officer noted that the assessee has shown advance from customers at Rs.14,18,97,256/- as against Rs.25,72,549/- in the preceding year. Despite opportunities ITA No.2066/Del/2017 3 | P a g e granted by the Assessing Officer, the assessee did not file the requisite details of advance from customers. The Assessing Officer, therefore, made addition of Rs.13,93,24,707/- u/s 68 of the Act. The Assessing Officer, further, noted that the assessee has shown investment in shares the income of which is exempt from tax. He, therefore, asked the assessee to explain as to why disallowance u/s 14A r.w.r. 8D should not be made. In absence of any reply from the side of the assessee, the Assessing Officer disallowed Rs.8,869/- u/s 14A r.w.r. 8D of the Rules. Similarly, the Assessing Officer disallowed an amount of Rs.10,89,402/- out of various expenses claimed by the assessee on ad-hoc basis for want of supporting evidence. Thus, the Assessing Officer determined the total income of Rs.29,56,15,620/- in order passed u/s 144 of the Act. 4. In appeal, the ld. CIT(A) partly sustained the addition by observing as under:- 6. Ground No. 1, 3 & 11 are general in nature which need no specific adjudication. 7. Ground No. 2 is directed against denial of proper and reasonable opportunity provided by the AO. From the assessment order, it is observed that due opportunity was provided by the AO Therefore, this ground of appeal has no merit and is dismissed. 8. Ground No. 4 &5 are directed against additions of Rs.15,53,20,898/- & Rs. 13,93,24,707/- u/s 68 of the Act on account of unexplained Sundry Creditors and advances from customers respectively. ITA No.2066/Del/2017 4 | P a g e 8.1. I have carefully considered the assessment order, written submissions filed, the additional evidence furnished, Remand Reports by the AO and the Rejoinder to the Remand Reports filed by the Lei. AR. 8.2. Additions of Rs. 15,53,20,898/- & Rs.13,93,24,707/- are made by the AO as the appellant company did not file the confirmations of the impugned sundry creditors above Rs.1 lac and also did not respond to the show cause notice issued by the AO vide letter dated 21.11.2011.The AO issued notices u/s 133(6) to the sundry creditors which were either received back or remained un-complied with. Due opportunity was provided to the appellant company by way of a show cause dated 21.11.2011 stating that adverse inference would be drawn by treating the credits as unexplained as no compliance was made. As the case was getting barred by limitation, the order was passed ex-parte u/s 144 on the basis of material available on record with the AO. 8.3. The appellant filed the present appeal and in proceedings before me, filed an affidavit signed by the Director stating that additional evidence by way of confirmation from parties, copy of ledger accounts of expenses incurred, bank statement etc. had been filed as the appellant could not furnish the aoove documents before the AO as he did not have, any accounting or clerical staff and was unable to follow up the details required in the form of confirmation and furnishing of complete accounting data. 8.4. The additional evidence so furnished was forwarded to the AO for Report who vide his letter dated 21.04.2014 furnished the Remand Report. In terms, thereof, notice was issued by the AO to the appellant company calling for confirmation of the sundry creditors and also production of books of accounts. This letter however, was received back un¬served with remarks (by the postal authority “Left” without address). The AO again issued a letter to the appellant company on another address available on record calling for compliance with reference to the additional evidence which was received back with the remarks “incomplete address”. The AO therefore, reported that the appeal may be decided on merits. 8.5. Subsequently, in response to letter dated 11.06.2014 issued by the then CIT(Appeals) to the then CIT-V, Delhi that the AO may contact AR of the appellant company for examining the additional evidence, the AO issued a letter dated 24.06.2014 to the AR. Another notice was issued to the appellant company on 20.08.2014 on the address provided in the ledger account which was returned back with a comment “No such firm”. The AO, however, contacted the AR who attended the proceedings on 26.08.2014 and was requested to provide the correct address of the appellant company ITA No.2066/Del/2017 5 | P a g e as also of those company/firms wherein notices u/s 133(6) were returned un-served. The AO issued letters u/s 133(6) to 10 persons/entities appearing as sundry creditors/advances from customers on the addresses provided by the Ld. AR. Since compliance was received only in 6 cases, the AR again submitted new addresses of 8 cases vide his letter dated 01.09.2014. As per the Remand Report, reply was received in these cases. 8.6. However, with a view to verify the genuineness and identity of the sundry creditors as well as parties from whom advances were received, the AO issued summons u/s 131 of the Act to the following: 1. Passion Enterprises Pvt. Ltd 2. Mangalm Associates Pvt. Ltd 3. Uniword Telecom Ltd 4. A & Company 5. Salasar Trading Company 6. Megnostar Telecommunication Pvt. Ltd 7. Asia Telecom 8. Universe Electronics 9. Sameesha Technologies 10. Baffin Engineering Projects Ltd. 11. Magtronic Devices Pvt. Ltd. 8.7. It is reported by the AO that in respect of S. No. 1 to 5, the summons were returned back with the comment “Left/Incomplete address No such firm”. Further, as for S. No. 6 to 10 there was no compliance by the parties. The AO has stated that a letter dated 16.01.2015 was addressed to the appellant company to produce all the above parties which was again returned back un-served. The AO deputed the Inspector at the address of the appellant company which was provided by the AR for verification. The Inspector reported that no such company was found at the said premise which was a rented property. In view thereof, the AO concluded that the appellant had failed to prove the genuineness and identity of the sundry creditors/advances received from customers. As can be observed from the facts narrated above, the in spite of more than sufficient opportunities given to the appellant, no proper confirmations could be given. 8.8. At the time of assessment proceedings, during first remand proceedings, the AO issued summons to the creditors. When the summons were returned back un-served in respect of several parties or there was no compliance to summons issued, the AO issued a letter to the appellant to produce the parties, but even this ITA No.2066/Del/2017 6 | P a g e letter was returned back un-served. All the facts leads one to the conclusion that the creditors/advances are not genuine. 8.9. It is evident from the Remand Report that despite numerous opportunities, the appellant company has failed to establish the genuineness and identity of the parties and entities appearing as sundry creditors/advances from customers in the Balance sheet. On the first occasion i.e. during assessment proceedings, neither any confirmation was filed and the attempts by the AO to verify the balances appearing in the sundry creditor’s account by way of notice u/s 133(6) was unsuccessful as the said notices were either received back or remained un-complied. The AO’s attempt to complete the verification exercise in the first round of remand proceedings with reference to the additional evidence did not yield any results as letters issued to the appellant company were received back (Reference: Remand Report dated 21.04.2014). In the second round of remand proceedings, addresses were provided by the AR of the appellant company. Admittedly, response was received to the notice u/s 133(6) from the parties concerned. However, when the AO issued summons u/s 131 of the Act to the parties on the address provided by the AR, the same were either returned back or there was no compliance thereto. Even, in case of the company itself, the letter addressee by the AO on the address provided by the AR came back un-served. Visit of the Inspector deputed by the AO for verification did not yield any result as the company was not found at the address provided by the AR. 8.10. The facts of the case are peculiar. While there was response to notices issued u/s 133(6) from the addresses provided by the AR of the appellant company, the summons issued were either returned un-served or compliance was not forthcoming from the same entities and from the same addresses provided by the Ld. AR. The compliance history of the appellant company right from the assessment stage was one of avoidance. Even, during the remand proceedings, compliance was made only after addresses were made available by the AR. However, there was no response again from the same addresses. Even, the letter issued to the appellant company on the address provided by the Ld. AR returned un- served. Inspector’s verification report of the address is negative. In these circumstances, the additional evidence furnished by the appellant company which is admitted with a view to afford full justice to the appellant company, does not survive the test of identity and genuineness of transactions recorded. The Hon'ble Supreme Court in the case of Sumati Dayal v. C/7 [1995] 214 ITR 801 held that the genuineness of the transaction is to be considered on the basis of surrounding circumstances, human probabilities and the conduct of the connected parties. In the instant case, repeated non compliance and non service of ITA No.2066/Del/2017 7 | P a g e notices/summons on addresses provided by the Ld. AR raises serious doubts about the genuineness of the transactions. In view of the facts and circumstances of the case, it is held that the identity and genuineness of the sundry creditors and the amounts appearing under the head advances from customers are not established and therefore, the action of the AO in treating the same as unexplained credit u/s 68 is sustained. Additions of Rs. 15,53,20,898/- & Rs. 13,93,24,707/- u/s 68 of the Act on account of unexplained Sundry Creditors and advances from customers respectively is upheld. These grounds of appeal are ruled against the appellant. 9. Ground No. 6 & 7 are directed against addition of Rs.8,869/- u/s 14A read with rule 8D of with Rule 8D. 9.1. The AO disallowed Rs.8,869/- by applying provisions of Section 14A read 8D as investments in shares were disclosed in the Balance sheet. It is stated by the Ld. AR no dividend income is received and claimed as exempt during the year and therefore, provisions of Section 14A is not applicable to the appellant. 9.2. The Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT - VI (ITA 749/2014) decided on 02.09.2014 has ruled that section 14A will not apply if no exempt income is received during the relevant previous year. The Hon'ble Court ruled as under: "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.” 9.3. Respectfully following the decision of the Hon'ble High Court of Delhi, the disallowance made by the AO is not sustainable as there was no exempt income earned by the appellant during the year. The disallowance of Rs.8,869/- made by the AO is, therefore, deleted. This ground of appeal is ruled in favour of the appellant. 10. Ground No. 8 is directed against addition of Rs. 10,89,402/- on account of 50% of expenses (Administrative Expenses, Personnel Expenses and Manufacturing Expenses) debited to P/L Account. 10.1. The AO disallowed 50% of the expenses claimed in the P & L A/c under the head Administrative Expenses, Personnel Expenses and Manufacturing Expenses as the appellant company did not furnish any reply to the show cause and books of accounts ITA No.2066/Del/2017 8 | P a g e and supporting evidence were not providing in the assessment proceedings u/s 144 of the Act. 10.2. in the remand report dated 27.02.2015 the AO has stated that the appellant company provided the ledger and copy of bank account which reflected the entries debited by the appellant company in the P & L A/c. In light of the report, I am of the view that the impugned addition is not sustainable, it is not the case of the AO that the expenditure is not incurred and examination of the additional evidence admitted has not resulted in any adverse finding. Addition of Rs.10,89 402/- is therefore, ordered to be deleted. This ground of appeal is ruled in favour of the appellant. 11. Ground No. 9 is in respect of penalty proceedings initiated u/s 271(1)(c). This ground is premature as only notice has been issued and no penalty has been imposed. Therefore, this ground is dismissed as premature. 12. Ground No. 10 is in respect of charging of Interest u/s 234B and 234D of the Act Levy of interest is mandatory and consequential. The AO may give appeal effect and re-compute the interest accordingly. 13. In the result, the appeal is partly allowed.” 5. Aggrieved with such order of the Ld. CIT(A), the assessee is appeal before us by raising the following grounds:- (1) That the order of CIT (Appeals) confirming the addition made by the Assessing Officer is arbitrary, biased, bad in law and facts and circumstances of the case. (2) That the Learned CIT (Appeals) has grossly erred in brushing aside the submissions of the appellant and in summarily dismissing the contention of the assessee. (3) That the Learned CIT (Appeals) has grossly erred in confirming the addition made by the Assessing Officer under section 68 of the Act for alleged unexplained sundry creditors of Rs.15,53,20,898/- (4) That the Learned CIT (Appeals) has grossly erred in confirming the addition of Rs. 13,93,24,707/- made under section 68 of the Act for alleged unexplained advance from customers under section 68 of the Act. ITA No.2066/Del/2017 9 | P a g e 4.1) Without prejudice to the ground number 4 advocated as above, the Learned CIT (Appeals) has grossly erred in confirming the addition of Rs. 5,68,75,801/- under section 68 for alleged unexplained advance from customers without realizing that the amount of Rs. 5,68,75,801/- forming part the above grouping of Advance from Customers pertaining to 4 parties as under had been brought forward from last year which could not have been added under section 68 of the Act in the income for the year under appeal. i) M/s A & Company Rs.66,75,240.00 ii) M/s B.R. Matels Rs.77,142.30 iii) M/s Gaurav Metal Cor. Rs.1,20,843.00 iv) M/s Sameesha Technologies Rs.5,00,02,576/- (5) That the Learned CIT (Appeals) has grossly erred in confirming the addition under section 68 by the Assessing Officer ignoring the fact that the parties grouped under the heading Sundry Creditors and Advance from Customers had confirmed the ledger balances due to them as per books of accounts of the appellant and were income tax assessee and PAN holders and were filing their returns of income. (6) That the Learned CIT (Appeals) has grossly erred in confirming the addition for alleged unexplained receipt of Advance from Customers and Sundry Creditors as referred to above without appreciating that the non-appearance of the concerned parties could not be held against the assessee ignoring the judicial precedents and the judgment of the Apex Court on the issue. (7) That the Learned CIT (Appeals) has grossly erred in giving significance to the form rather than to the substance of the transaction while confirming the addition made by the Assessing Officer under section 68 of the Act for alleged unexplained sundry creditors and advance from customers.” 6. We have heard the Ld. DR and perused the record. We find despite repeated opportunities granted by the Assessing Officer, the assessee did not appear before him and did not file the requisite details for which the Assessing Officer passed the ex-parte order ITA No.2066/Del/2017 10 | P a g e u/s 144 of the Act and made various additions. We find the Ld. CIT(A) after considering the submissions made by the assessee partly sustained the additions, the details of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the Ld. CIT(A), who after considering the various submissions filed before him has taken a judicious view which in our opinion is justified. Even before us also, nothing has been brought to our notice to take a contrary view than the view taken by him. We, therefore, uphold the same. The grounds raised by the assessee are accordingly dismissed. 7. In the result, the appeal of the assessee is dismissed. Order pronounced in the Open court at the time of hearing itself i.e. on 13.12.2021. Sd/- Sd/- (KUL BHARAT) (R.K.PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi/Date. 13.12.2021 f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI