AI Insights
The case involves M/s Siddhbali Metals appealing against the order of the Commissioner of Income-tax (Appeals), Faridabad, which confirmed several additions made by the Assessing Officer during the scrutiny assessment for the assessment year 2016-17. The additions were primarily based on discrepancies in cash transactions and non-deduction of tax at source on certain expenditures. The Tribunal examined the submissions and evidence presented by both parties, including the reliance on third-party statements and the adequacy of corroborative evidence for the additions made.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 112556 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 11 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-01-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
SMC
Next Hearing Date
05-12-2022
Assessment Year
2016-2017
Appeal Filed On
11-02-2020
Judgement Text
1 ITA No. 774/Del/2020 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No. _774/DEL/2020 [Assessment Year: 2016-17 M/s Siddhbali Metals, C/o CA Sahil Gupta, B-3/9, 2 nd Floor, Model Town-1, Delhi-110009. PAN- ACLFS7299E Vs Income Tax Officer, Ward-2(4), New Delhi. APPELLANT RESPONDENT Assessee represented by Sh. Sahil Gupta, CA Department represented by Sh. Sumesh Swani, Sr. DR Date of hearing 06.12.2022 Date of pronouncement 19.01.2023 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), Faridabad, dated 28.06.2019, pertaining to the assessment year 2016-17. The assessee has raised following revised grounds of appeal: “1.That on the facts and in the circumstances of the case and in law, Id CIT- A erred in sustaining the order passed by Ld AO u/s 143(3) without 2 ITA No. 774/Del/2020 appreciating that there are numerous holes in order as the sole reliance of Id AO is based on third party statement without corroborating the same with other relevant corroboree evidence. 2. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that "rubber stamp" reasons in present case are based on borrowed satisfaction and are without independent application of mind. This is further evident from glaring feature of reasons recorded that while drawing alleged inference of income escapement of Rs 16 lacs, how stated transaction is seen as accommodation entry in hands of assessee herein is unfathomable and beyond comprehension and breaks the live nexus (cause and effect) test completely. Even Ld CIT-A has not been able to overcome said debility in reasons recorded. 3. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 143(3) without appreciating that assessee is into the business of trading in scrap, which is an unorganized sector and primary mode of transaction is done in cash which have been disregarded. 4. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in not restoring the returned income declared by assessee in its return of income. 5. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in not deleting the addition made by Ld AO which was also unlawful and made in violation of principles of natural justice as no back material is confronted and cross examined to assessee during assessment proceedings despite mandate in revenue office manual which is sufficient to strike down the assessment framed (the statement of M/s Sudhir Metas & Alloys, M/s Vasu Steels, M/s Haryana Traders being edifice of present reasons and reopening has never seen the light of the day which is a serious flaw in the subject proceedings). 2. Facts giving rise to the present appeal are that for the assessment year under consideration the assessee filed its return on 10.09.2016 by declaring income of 3 ITA No. 774/Del/2020 Rs. 5,93,500/-. The same was processed u/s 143(1) of the Income-tax Act, 1961 (in short “the Act”). Subsequently the case was taken up for scrutiny assessment. The Assessing Officer while framing the assessment noticed that the assessee had claimed freight inward and labour charges amounting to Rs. 14,58,702/- and Rs. 10,44,602/- respectively. However, no tax was deducted. The Assessing Officer, therefore, disallowed the expenditure to the extent of 10% amounting to Rs. 2,50,330/-. The Assessing Officer also noticed that the assessee had made purchases from M/s Sudhar Metals & Alloys. The Assessing Officer on the basis that the assessee could not furnish the proof of payment of Rs. 5,46,169/- towards purchases, made addition amounting to Rs. 5,46,169/-. Further, the Assessing Officer similarly noticed that he assessee had made sales to Haryana Traders to the tune of Rs. 39,13,787.93 out of which Rs. 34,11,170/- was received in cash. However, the Assessing Officer found that there was a difference into payment as per the accounts of Haryana Traders and as claimed by the assessee amounting to Rs. 10,50,532/-. The assessee was asked to reconcile the same. On account of failure to reconcile, the Assessing Officer made addition of this amount. The Assessing Officer noticed that the assessee had made payment to M/s Vasu Steels amounting to Rs. 59,995/-. However, the payment was made on different dates, keeping the amount lower than Rs. 20,000/-. Hence the Assessing Officer by invoking the provisions of Section 40A(3) of the Act made addition of Rs.59,995/-. 4 ITA No. 774/Del/2020 Hence the Assessing Officer assessed income at Rs. 25,02,530/- against the declared income of Rs. 5,93,500/-. 3. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who after considering the submissions partly allowed the appeal. Thereby he confirmed the addition made by invoking the provisions of Section 40A(3) and also addition of Rs. 10,52,532/- and Rs. 5,46,169/-. However, in respect of the ad hoc disallowance of 1/10 th of the expenditure amounting to Rs. 2,50,330/- the ground of the assessee’s appeal was allowed and the addition was deleted. Aggrieved against the order of learned CIT(Appeals) the assessee is in appeal before this Tribunal. 4. Learned counsel for the assessee reiterated the submissions as made in the submissions filed by the assessee. For the sake of clarity the same are reproduced as under: “1. This appeal has been instituted against the order dated 23/12/2018 passed by Income Tax Officer Ward 2(4), Faridabad and further against CIT(A). 2. That Id CIT(A) has erred in sustaining the addition without appreciating the fact that the whole assessment order is based on a 3 rd party statement without corroborating the same with other relevant evidence. 3. That there are plethora of judgments which in nutshell says that sole reliance on third party statements cannot be a sole basis of additions: I. ITA No. 373 OF 2005 Kolkata High Court in BANGODAYA COTTON MILLS LTD: 5 ITA No. 774/Del/2020 Sole reliance on third party statement was rejected, crux at page no. 13 of compilation of case laws. II. Hon'ble SC in V.C. SHUKLA case Papers seized in premises of third party cannot be the bases on which additions can be done, crux at page no. of compilation of case laws. III. Hon'ble Delhi High Court in Lata Mangeshkar Case Third party statement is merely evidence. For additions proper corroborative evidence is required to be scrutinised, crux at page no. of compilation of case laws. Therefore in light of above judicial findings it can be concluded that sole reliance of 3 rd party statement should be corroborated with other evidence before making reliance. Facts of individual additions are as under: 4. Disallowance of purchase on account of non-pavment to vendor: That applicant had made the purchases of Rs.5,46,169/- from M/s Sudhir Metals & Alloys, AO made verification from the said vendor and it was communicated that the no payment has been made by the applicant, however the fact is that applicant has made the payment on various dates of total sum of Rs. 5,46,169/- to vendor (copy of statement is at page No.7.). Further it is alleged in the order that the applicant has not furnished any documentary evidence in respect of payment made by them to its vendor, pertinent to mention here that purchases are never doubted by AO. 5. That as per sales tax returns, the purchases from vendor of Rs. 5,46,169/- are duly reflected in returns in quarter 2, returns attached at page.32. 6. That it is held by Hon'ble Delhi ITAT in Manoj Sharma vs ITO (2019) ITA No.:- 4342/Del/2018, where there are allegations that applicant has inflated purchase and received back cash, however where the quantity of opening stock and purchases on the debit side and sales and closing stock in the credit side in the books of account has been accepted, then it cannot be held that some quantity of purchase recorded in the books are not explained or outside books of account, crux at page no. 42 of compilation of case 6 ITA No. 774/Del/2020 laws. 7. That it is not a case of bogus purchases rather it is a matter of a civil dispute where one party is saying that, they have not received the payment and the other party is saying that they have cleared their dues, however there is no loss to the exchequer as there is no revenue leakage, it is a case of genuine purchase and a case of civil dispute where Income Tax department has no jurisdiction, pertinent to mention here that if there is any sum outstanding towards vendor then nothing is placed on records to show that vendor has done any efforts to recover the sum from applicant which clearly show that in actual nothing is outstanding, then it is beyond doubt that disallowance of purchases is not tenable merely on the pretext of third party statement without corroborating it with any other document. Violation of section 40A(3). 8. That applicant had made the purchases of Rs.59,995/- from M/s Vasu Steel, AO made verification from the said vendor and it was communicated that the payment has been made by the applicant on a single date, however the fact is that applicant has made the payment on various dates of total sum of Rs.59,995/. Pertinent to mention here that purchases are never doubted by AO. 9. That provision of section 40A(3) is designed to counter evasion of a tax through claims for expenditure shown to have been incurred in cash, however if transaction is verified and identity of payee is of no doubt then there is no violation of this section. I. Hon'ble ITAT, Delhi in Shri Radhey Shyam Manchanda case (ITA No. 5238/Del/2016) taking cognizance of Attar Singh Gurmukh Singh vs. ITO reported in (1991) 191 ITR 667 (SC):- It will be clear that the provisions are not intended to restrict business activities and genuine and bonafide transactions are kept out of purview of this section, crux at page no. 55 of compilation of case laws. 7 ITA No. 774/Del/2020 10. That AO himself admitted that the purchase made by applicant firm from M/s Vasu Steel is genuine which was supported by bill / evidence. The supplier also accepting the same by giving statement of account. The identity of the payee and genuineness of the transaction is not in doubt. Thus, as per view in Attar Singh Gurmukh Singh there is no tax evasion, therefore no such disallowance should be allowed. Disallowance of sales: 11. That applicant had made the sales to its customer M/s Haryana Traders to the tune of Rs.39,13,787/- copy of ledge accounts of is at page No. 64, however as per the statement of the customer, they have shown purchases of Rs.28,63,255/- copy of ledge accounts of is at page No.66, therefore the difference of Rs.10,50,532/- is added to the total income on account of disallowance of sales. 12. That fact of the case is that during the assessment year applicant was maintaining a branch in Kosi (UP) Area along with its head office in Faridabad, for the year site wise sales of the applicant is: Faridabad Location: : Rs. 28,63,255/- Kosi (UP) Location : Rs. 10,29,935/- Total : Rs. 38,93,190/- 13. Therefore, it is clear from above that M/s Haryana Traders has confirmed the sales affected from Faridabad Location only, however, inadvertently they have not shown the sales from Kosi (UP) location. It is general accounting practice to open site wise ledger of same company for statutory reporting purpose in accounting software, therefore ledger accounts of Faridabad location is provided same can be verified by ledger name as "Faridabad" in the statement mentioned (at page No ). 14. That further the sales of Kosi location have been duly verified by Asst. Commissioner rank Sales Tax officer whose order is attached at page No , therefore it is clear case of misstatement by third party which has been accepted blindfolded without appreciating other corroborated evidences. 15. That further following judicial pronouncements should be relied for deletion of additions of account of Sales: 8 ITA No. 774/Del/2020 I. Shree Sanad Textiles Industries Ltd. V. DCIT (Ahmedabad ITAT) ITA No. 1166/Ahd/2014, We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only crux at page no. 77 of compilation of case laws. II. New Pooja Jewellers v. ITO (Kolkata ITAT) ITA No.1329/Kol/2018; held that when a receipt is accounted as income, no separate addition of the same amount as income of the assessee under any other Section of the Act can be made as it would be a double addition crux at page no. of compilation of case laws. 16. That thus in light of the judgments above it can be concluded that once the sales are reflected in credit side of profit and loss account it automatically gets offered to tax. If the purchaser did not account for the transaction in their books, the assessee cannot be penalized. The applicant is responsible for his books only and not for the books of other parties which is beyond the control. The applicant is making necessary entries in its regular books of accounts and in the stock register. Applicant has furnished the evidence in support of its contentions and established the genuineness of the transaction.” 5. On the contrary, learned DR opposed the submissions and heavily supported the orders of the authorities below, submitting that there is no infirmity into the order of the learned CIT(Appeals) as the learned CIT(Appeals) has considered all the submissions of the assessee. He contended that the assessee failed to reconcile the difference in purchases as pointed out by the learned CIT(Appeals). 6. I have heard rival submissions and perused the material available on record. The contention of the assessee is that the authorities below in respect of addition of 9 ITA No. 774/Del/2020 Rs. 10,50,532/- qua purchases have purely relied upon third party statement without giving opportunity to the assessee to rebut such statement. I find that the learned CIT(Appeals) in paras 9 & 10 of the order has decided the issue as under: “9. Ground Nos. 3 and 4 The appellant has shown sales of Rs.39,13,787/- to M/s Haryana Traders during the year and has shown receipt of Rs.34,11,7107- in cash from the said entity. In the ledger account of M/s Haryana Traders, in the books of the appellant, cash receipt of Rs.20,000/- has been shown on various dates. On verification from M/s Haryana Traders it was noted by the AO that the said entity has shown cash payment of Rs.23,63,255/- to the appellant on 30.03.2016. Further M/s Haryana Traders has shown purchases of Rs.28,63,255/- from the appellant in its books of account. The above discrepancies were confronted to the appellant. No satisfactory explanation has been furnished to reconcile the difference of sales of Rs.10,50,532/-. Thus the AO had observed that the appellant has shown excess cash receipts in its books of account from unexplained sources and therefore, made addition for Rs.10,52,532/-. It has been stated during the appellate proceedings that the appellant has maintained regular books of account and the sales were supported with the purchase/ sale bills, VAT returns. It was explained that Haryana Traders might have suppressed their purchases. The entire submission of the appellant has been reproduced as above. 10. From the facts of the case it is noted that the appellant has shown receipt of cash of Rs.34,11,710/- against sales made of Rs.39,13,787/- to M/s Haryana Traders. As a result of enquiries made by the AO it was found that M/s Haryana Traders has made purchases of Rs.28,63,255/- from the appellant and has made cash payment of Rs.23,63,255/-. Thus the appellant has shown unexplained cash receipts in its books of account for Rs.10,52,532/-. The appellant could not furnish any documentary evidence for the receipt of such cash payments from M/s Haryana Traders has claimed. The onus was on the appellant to explain the source and nature of such cash receipts credited in its books of account, duly supported with documentary evidence. The appellant has failed to do so. The results of enquiries have been communicated to the appellant. In the circumstances, there is merit in the addition of Rs.10,52,532/- made by the AO. The same is 10 ITA No. 774/Del/2020 hereby confirmed u/s 68 of the Act. Ground No. 3 of the appellant is Dismissed.” 7. It is stated by the assessee that requisite sale was duly reflected in the statutory return filed before the Excise and Sales-tax authorities. The assessee has stated that sales are duly supported by the requisite evidences. The fact that the sale was made and it is supported by the evidences, is required to be verified by the assessing authority. Therefore, the issue is restored to the file of the Assessing Officer to verify the correctness of the claim of the assessee that he had sold the material to M/s Haryana Traders and also reflected the sales in Excise/WAT returns. The Assessing Officer will verify from the record of the assessee whether such return was filed related to the transactions in question and other supporting evidences. This ground of the assessee’s appeal is allowed for statistical purpose. 8. Now coming to the ground relating to addition made by invoking the provisions of Section 40A(3), learned counsel for the assessee submitted that payments were made on different dates. However, the vendor has recorded the transactions on single date. 9. On the contrary, learned DR has relied upon the orders of the authorities below. 11 ITA No. 774/Del/2020 10. I have heard rival submissions. The learned CIT(Appeals) has given a finding of fact by observing as under: “12. From the facts of the case it is noted that the appellant could not produce any documentary evidence to show that payments have been made on different dates below Rs. 20,000/- in respect of purchase of Rs. 59,995/-. The AO has verified from M/s Vasu Steel that appellant has made cash payment of R.s 59,995/- on 01.12.2016. Thus the appellant has in violated the provisions of section 40A93) of the Act. In the circumstances there is merit in the disallowance made by the AO the same is hereby confirmed. Ground no. 4 of the appellant is Dismissed.” 11. The finding of fact recorded by the learned CIT(Appeals) is not rebutted by the assessee by filing contrary evidence. In the absence of such evidence, I do not see any reason to interfere in the finding of the authorities below. Ground raised by the assessee is rejected. 12. Appeal of the assessee is partly allowed. Order pronounced in open court on 19 th January, 2023. Sd/- (KUL BHARAT) JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI 12 ITA No. 774/Del/2020
Other Referred Cases
Bangodaya Cotton Mills Ltd vs. ITA No. 373 OF 2005, V.C. Shukla case, Lata Mangeshkar Case, Manoj Sharma vs ITO, Shri Radhey Shyam Manchanda case, Attar Singh Gurmukh Singh vs. ITO, Shree Sanad Textiles Industries Ltd. V. DCIT, New Pooja Jewellers v. ITO
Laws Referred To
Income-tax Act, 1961
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