M/s GSR Enterprises, Visakhapatnam V. The ACIT, Circle-4(1)., Visakhapatnam

ITA 300/VIZ/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2831 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 29-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Keywords: Set aside
• Section: 44AD; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.300/VIZ/2008 ASSESSMENT YEAR : 2005-06 GSR ENTERPRISES, VISAKHAPATNAM VS. ACIT, CIRCLE-4(1), VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAGFG 1516 R APPELLANT BY : SHRI G.V.N. HARI, CA RESPONDENT BY : SHRI B. JAYA KUMAR, DR O R D E R PER B..R. BASKARAN, ACCOUNTANT MEMBER : 1. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 24.3.2008 PASSED BY LD CIT(A)-1, VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL RELA TES TO THE ADDITION OF RS.9,44,000/- MADE BY THE ASSESSING OFFICER. 3. THE FACTS RELATING TO THE ISSUE ARE SET OUT IN BRIEF. THE ASSESSEE, A PARTNERSHIP FIRM, IS A CIVIL CONTRACTOR. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 DISCLOSING A TOTAL INCOME O F RS.3,17,610/-. THE AO REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PRO FIT AT 8% OF THE GROSS CONTRACT RECEIPTS BEFORE THE DEDUCTION OF REMUNERAT ION AND INTEREST PAYABLE TO THE PARTNERS. THE ASSESSEE ALSO AGREED TO IT. AFTER M AKING ESTIMATION AS STATED ABOVE, THE AO FURTHER DISALLOWED A SUM OF RS.9,44,0 00/-, REPRESENTING UNPROVED CREDIT BALANCE OF A CREDITOR, U/S 68 OF THE ACT. T HE FACTS RELATING TO THE SAID ADDITION NEEDS FURTHER ELABORATION. DURING THE COU RSE OF ASSESSMENT 2 PROCEEDINGS, THE ASSESSEE FILED A CONFIRMATION LETT ER FROM A CREDITOR NAMED SRI V.RAMESH BABU, WHERE IN THE OUTSTANDING BALANCE OF RS.14,63,000/- WAS CONFIRMED. THE ASSESSEE HAD GIVEN SOME WORKS ON S UB-CONTRACT BASIS TO THE SAID CREDITOR AND ACCORDING TO THE ASSESSEE, THE OU TSTANDING AMOUNT REPRESENTS PAYMENTS TO BE MADE ON ACCOUNT OF THE SUB CONTRACT WORKS. THE AO SUMMONED THE SAID CREDITOR AND RECORDED A STATEMENT FROM HIM , THE SAID CREDITOR DISOWNED THE CONFIRMATION LETTER SUBMITTED BY THE ASSESSEE A ND ALSO DENIED THE SIGNATURE PUT THEREIN. HE FURTHER STATED THAT THE AMOUNT DUE FROM THE ASSESSEE AS ON 31.3.2005 WOULD BE AROUND RS.4.00 TO RS.5.00 LAKHS. SUBSEQUENTLY THE SAID CREDITOR FILED A CONFIRMATION LETTER STATING THAT T HE ACTUAL AMOUNT DUE FROM THE ASSESSEE AS ON 31.3.2005 WAS RS.5,19,000/- ONLY AND THE SAME WAS RECEIVED DURING APRIL 2005. HE FURTHER STATED THAT THE PAYM ENTS RECEIVED AFTER APRIL, 2005 RELATED TO THE WORK EXECUTED BY HIM AFTER 1.4.2005. THIS CONTRADICTORY INFORMATION WAS CONFRONTED WITH THE ASSESSEE. HOWE VER THE ASSESSEE STOOD BY HIS EARLIER VERSION VIZ., THE CONFIRMATION LETTER W AS ISSUED BY SHRI V.RAMESH BABU ONLY AND THE OUTSTANDING BALANCE AS ON 31.3.2005 WA S RS.14,63,000/- ONLY. IN SUPPORT OF THE CONTENTIONS, THE ASSESSEE FILED A CE RTIFICATE FROM BANKER CONTAINING THE DETAILS OF PAYMENT MADE TO THE SAID CREDITOR IN THE SUCCEEDING YEAR. THE AO VERIFIED THE INCOME TAX RETURNS OF SRI V.RAMESH BAB U, WHEREIN THE SAID PERSON HAD OFFERED INCOME U/S 44AD OF THE ACT. IN THE RET URN RELATING TO THE ASSESSMENT YEAR 2006-07, HE HAD DISCLOSED THE CONTRACT RECEIPT S FROM THE ASSESSEE AT RS.5.20 LAKHS AND HAD OFFERED INCOME THERE FROM U/ S 44AD OF THE ACT FOR THE ASSESSMENT YEAR 2006-07 (I.E. ON RECEIPT BASIS). HENCE THE AO TOOK THE VIEW THAT THE CREDITOR TO THE EXTENT OF RS.9,44,000/-, I .E., THE DIFFERENCE BETWEEN RS.14,63,000/- AND RS.5,19,000/- WAS NOT PROVED AND ACCORDINGLY ADDED THE SAME U/S 68 OF THE ACT. LD CIT(A) CONFIRMED THE SAID ADDITION ON THE GROUND THAT THE ASSETS AND LIABILITIES OF THE BALANCE SHEE T WOULD BE MISMATCHED IF THE IMPUGNED CREDIT AMOUNT OF RS.9.44 LAKHS IS REMOVED AND HENCE THE DIFFERENCE IS EXIGIBLE TO TAX. HENCE THE ASSESSEE IS IN APPEAL B EFORE US. 3 4. THE CONTENTIONS OF THE ASSESSEE ARE THAT (A) THE AO, AFTER THE REJECTING THE BOOKS OF ACCOUN T, IS NOT ENTITLED TO REFER BACK THE SAME BOOK FOR MAKING FURTHER ADDITIO NS. (B) THE CREDIT BALANCE REPRESENTS A TRADE LIABILITY . SINCE THE AO HAS ACCEPTED THE RELEVANT EXPENDITURE WHILE DETERMINING THE PROFIT, THIS LIABILITY CANNOT BE DISALLOWED AGAIN. (C) THE ASSESSEE HAS FILED CONFIRMATION LETTER OBTA INED FROM THE BANKER, WHEREIN THE AMOUNT PAID TO THE SAID CREDITOR IN DIS CHARGE OF THE OUTSTANDING BALANCE WAS CERTIFIED BY THE BANKERS. LD AR FURTHER STATED THAT THE LD CIT(A), WHILE CONF IRMING THE ADDITION, ASSUMED THAT THE ASSETS AND LIABILITIES IN THE BALANCE SHEE T WOULD BE MISMATCHED, IF THE IMPUGNED LIABILITY IS REDUCED BY RS.9.44 LAKHS AND ACCORDINGLY HELD THAT THE MISMATCH AMOUNT CAN BE BROUGHT TO TAX. ACCORDING T O LD AR, THIS ASSUMPTION IS TOTALLY WRONG FOR THE REASON THAT THE AO DID NOT SU SPECT THE EXISTENCE OF ASSETS AS DISCLOSED BY THE ASSESSEE AND IN THAT CASE THE A SSET AND LIABILITY WILL TALLY DUE TO THE INCREASE IN THE CAPITAL. 5. ON THE CONTRARY, THE CONTENTIONS OF THE LD D R WERE THAT THE BOOKS WERE REJECTED BY THE AO FOR THE REASON THAT THE BILLS AN D VOUCHERS WERE NOT SUSCEPTIBLE FOR VERIFICATION. IN REGARD TO THE IMPUGNED ADDITI ON, THE AO HAS MADE DETAILED ENQUIRIES AND ESTABLISHED THAT THE ASSESSEE HAS INF LATED THE CREDITORS BALANCE AND HENCE THE ADDITION SHOULD BE SUSTAINED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E IMPUGNED LIABILITY IS A TRADING LIABILITY AND THE ASSESSEE HAS DEBITED THE RELEVANT EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT. AFTER MAKING DETAILED ENQUIRIES, THE AO CAME TO THE CONCLUSION THAT THE BALANCE AS ON 31.3.2005 DUE TO THE TRADING CREDITOR NAMED SHRI V.RAMESH BABU WAS INFLATED. FROM THE ASSESSMENT OR DER, WE NOTICE THAT THE ASSESSEE DID FILE A CONFIRMATION LETTER FROM ITS BA NKER, WHERE IN, THE PAYMENTS MADE TO THE SAID CREDITOR IN THE SUCCEEDING YEAR AR E CERTIFIED. THE CERTIFICATE OF THE BANKER IS IMPORTANT THIRD PARTY EVIDENCE, WHICH WAS NOT DISPROVED BY THE AO. 4 IN THE CONFIRMATION LETTER DATED 23.11.2007 FURNISH ED BY THE IMPUGNED CREDITOR SHRI V.RAMESH BABU, HE HAS STATED THAT THE PAYMENT RECEIVED BY HIM AFTER APRIL, 2005 RELATES TO THE WORK EXECUTED BY HIM AFTER 1.4. 2005. HOWEVER IN THE INCOME TAX RETURN FILED BY THE SAID CREDITOR FOR ASSESSMEN T YEAR 2006-07, HE HAS DISCLOSED THE RECEIPTS FROM THE ASSESSEE ONLY TO TH E EXTENT OF RS.5.20 LAKHS, THAT TOO RELATING TO THE WORK EXECUTED IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06. IT IS NOT CLEAR WHETHER THE SAID CRE DITOR DISCLOSE THE AMOUNT RECEIVED BY HIM AFTER 1.4.2005 IN HIS INCOME TAX RE TURN OR NOT. THUS THERE IS A CONTRADICTION BETWEEN THE CONFIRMATION LETTER ISSUE D BY THE CREDITOR AND THE RETURN OF INCOME FILED BY HIM. IN THAT CASE, IT CREATES A DOUBT ABOUT THE VERACITY OF THE CONFIRMATION LETTER AND THE STATEMENT MADE BY THE C REDITOR AND HENCE THEY COULD NOT BE FULLY RELIED UPON. 6.1 BE THAT AS IT MAY, IT IS TO BE NOTED THAT T HE AO HAS REJECTED THE BOOKS OF ACCOUNT SINCE HE WAS NOT SATISFIED WITH THE VOUCHER S AND ALSO SINCE HE HAS FOUND MISTAKE IN THE CREDITORS BALANCE. THE IMPUGNED CRE DITOR BALANCE RELATES TO AN EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT. WHEN THE BOOKS ARE REJECTED AND THE INCOME IS ESTIMATED ON THE GROSS RECEIPTS S HOWN IN THE PROFIT AND LOSS ACCOUNT, THE RELEVANT EXPENDITURE IS DEEMED TO HAVE BEEN ACCEPTED PARTICULARLY WHEN THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. WITH REGARD TO THE LIABILITY RELATED TO THE EXPENDITURE, THE AO H AS FULLY PLACED RELIANCE ON THE CONFIRMATION LETTER AND THE STATEMENT GIVEN BY THE SAID CREDITOR. AS OBSERVED EARLIER, THE VERACITY OF THE SAME IS DOUBTFUL FOR T HE REASONS STATED EARLIER. ON THE CONTRARY, THE ASSESSEE HAS PRODUCED CERTIFICATE FRO M THE BANKER, WHICH WAS NOT DISPROVED. IN ANY CASE, IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS BROUGHT IN ANY OTHER MONEY TO FUND THE EXPENDITURES . HENCE WE DO NOT FIND ANY MERIT IN THE IMPUGNED ADDITION OF RS.9.44 LAKHS. 6.2 THE LD CIT(A) HAS TAKEN THE VIEW THAT WHEN THE LIABILITY TO THE EXTENT OF RS.9.44 LAKHS ARE REMOVED FROM THE BALANCE SHEET, I T WOULD CAUSE MISMATCH OF THE ASSETS AND LIABILITIES AND THE MISMATCH CAN BE BROUGHT TO TAX. LD CIT(A) FURTHER OBSERVED THAT, BY INFLATING THE LIABILITIES , THE ASSESSEE HAS ATTEMPTED TO 5 SUPPRESS THE VALUE OF THE ASSETS. THIS OBSERVATION IS PATENTLY WRONG. THE ACTUAL FACT IS THAT WHEN THE LIABILITY IS INFLATED, IT WOU LD CAUSE CORRESPONDING INCREASE IN THE VALUE OF ASSETS AND NOT THE SUPPRESSION, AS OBS ERVED BY LD CIT(A). HENCE, IN OUR OPINION, THE LD CIT(A) HAS MISDIRECTED HIMSE LF. IN VIEW OF THE FOREGOING, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.9.44 LAKHS. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 2.12.2009. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 2 ND DECEMBER, 2009 A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S. GSR ENTERPRISES, D.NO.37-11-68/2, P.R. GARD ENS, VISAKHAPATNAM 02 THE ACIT, CIRCLE-4(1), VISAKHAPATNAM 03 THE CIT (A)-I VISAKHAPATNAM 04 THE CIT, VISAKHAPATNAM 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH