ITO 23 (2)(6), MUMBAI V. MAHENDRA KUMAR L MEHTA (HUF), MUMBAI

ITA 7961/MUM/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7786 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 25-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 133(6); 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “F”, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA No. 7961/MUM/2019 Assessment Year: 2014-15 The Income Tax Officer-23(2)(6), Room No. 303, 3 rd Floor, Earnest House, Nariman Point, Mumbai - 400021 Vs. Mahendra Kumar L. Mehta (HUF), (Pro. Nakoda Exports), 51/54, 1 st Floor, Vithalwadi, Kalbadevi Road, Mumbai - 400002 PAN: AAFHM1062F (Appellant) (Respondent) Revenue by : Shri S.N. Kabra (DR) Assessee by : Shri Ajay Singh (AR) Date of Hearing : 27/10/2021 Date of Pronouncement: 24/11/2021 O R D E R PER SAKTIJIT DEY, JM This is an appeal by the revenue against order dated 18.10.2019 of learned Commissioner of Income Tax (Appeals)-24, Mumbai, for the assessment year 2014-15. 2. The dispute in the present appeal is confined to deletion of addition made of Rs. 2,20,36,370/- under section 41(1) of the Income Tax Act, 1961. 3. Briefly the facts are, the assessee is a resident Hindu Undivided Family (HUF) engaged in export of textile goods. For the assessment year under dispute, assessee filed its return of income declaring total income of Rs. 1,46,620/-. In course of assessment proceedings, the assessing officer (AO) on 2 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 verifying the materials on record noticed that while the assessee has shown purchase of Rs. 1,11,47,495/-, the sundry creditors are shown at Rs. 4,64,38,512/-. Therefore, he called upon the assessee to furnish the details of sundry creditors along with their confirmation and postal address. As alleged by the AO, the assessee failed to furnish the required details. As observed by the AO, notices under section 133(6) of the Act were issued to six parties out of which four notices returned back un-served and in case of other two, though, notices were served but there was no response. Thus, alleging that the assessee failed to furnish the confirmations and other details relating to sundry creditors, the AO disallowed an amount of Rs. 2,20,36,370/- representing twenty three sundry creditors. Assessee contested the aforesaid disallowance before learned Commissioner (Appeals). In course of hearing, before the first appellate authority, the assessee furnished comprehensive details including ledger accounts of all twenty three parties, bank statements showing payments made to them etc. In course of appellate proceeding, learned Commissioner (Appeals) called further details from the assessee regarding the sundry creditors, which were furnished. After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) found that out of the twenty-three parties, in case of nineteen parties bulk of the purchases were made in Financial Year 2011-12and payments were also made in Financial Year 2011-12. He found that there are further purchase as well as repayment in Financial Year 2012- 13 and 2013-14 also. Whereas, there are no purchase after 2013-14 but only payments in Financial Years 2014-15 and 2015-16 and the entire outstanding 3 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 were repaid by 31.03.2016. Learned Commissioner (Appeals) has noted that the assessee also explained the error in sundry creditors in the balance sheet in respect of other four parties. From the details furnished in respect of these four parties, learned Commissioner (Appeals) found that due to financial crunch the assessee could not repay the creditors for purchase of goods. Thus, considering the material available on record, learned Commissioner (Appeals) observed that the disallowance made by the assessee is unjustified. However, keeping in view the fact that certain purchases, specially from Bhiwandi, are not verifiable, some addition on account of profit margin can be made on estimate basis. Accordingly, he restricted the disallowance to 10% of the amount disallowed by the AO. 4. We have considered rival submissions and perused the materials on record. For deciding the issue, the following observations of learned Commissioner (Appeals) would be crucial: “4.5. In the appellate proceedings, it was emphasized that complete comprehensive details were filed on 27.12.2016, including ledger accounts of 23 parties, bank statements showing repayments made by account payee crossed cheques. The purchases for FY 2012-13 was Rs.1,03,80,859/and for FY 2013-14 was Rs. 1,35,27,173/-. Further, creditors as 0n31.3.2012 was Rs 705,34,047/-, and as on 31.3.2013 was of Rs. 7,32,54,830/and creditors as on 31.03.2014 was of Rs. 4,53,15,062/was furnished. Further, in its submission the appellant has stated that entire creditors has been repaid by the FY 2015-16 in support of which the entire ledger copies of creditors for FY 2015-16 was filed. This event had occurred prior to the assessment order being passed. Thus none of the amounts added by the assessing officer was remaining unpaid on the date of passing of the assessment order. It has been further stated that export of goods are through proper channels with thorough inspection by custom authorities and with adequate documentary evidences. Thus, it cannot be held that entire exports were 4 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 made on paper without actual goods being sent across borders. The creditors details filed showed that the amount paid during FY 2012-13 was Rs, 76,60,103, and during FY 2013-14, it was Rs. 4,14,66,941. The copy of bank statement filed before the AO was submitted in the appellate proceedings, During the year sales turnover was Rs 111,47,495/- as against purchases of Ra 135,27,173/The books are audited u/s 44AB and no qualifications are put by the auditor. The appellant also filed its profitably across the years as under:- Particulars Year ended 31.03.2016 Year ended 31.03.2015 Year ended 31.03.2014 Year ended 31.03.2013 Year ended 31.03.2012 Sales 11974661 NIL 111,47,495 82,38,106 19,49,81,208 Purchase NIL NIL 135,27,173 103,80,859 20,12,15,686 Gross Profit 509781 NIL 14,01,525 12,60,464 103,39,139 Net profit 421021 NIL 246,622 135,437 744,833 G P Ratio 4.26% NA 12.57% 15.30% 5.30% N P Ratio 3.51% NA 2.21% 1.64% 0.38% The appellant was asked to tabulate the date of payments made to the outstanding creditors year wise and to crosstally the same with the ledger accounts. The appellant submitted that substantial payments has been made to the creditors up till FY 2015-16 and it had difficulty in obtaining further support from the creditors specifically obtaining their tax details, as called for by the AO. Nevertheless, the payments of these purchases has been made by account payee cheques/RTGS, which is duly reflected in the appellant’s bank statement. These details were filed before the AO in the assessment proceedings, but were ignored or not appreciated by the AO. 4.7 I have considered the submissions carefully. From the details called and filed by the appellant it is noted that in the case of 19 out of the 23 parties bulk of the purchases were made in FY 2011-12. There were payments also in FY 2011-12. There are further purchases as well as repayments in FY 2012-13 and FY 2013-14 also. There are no purchases after 2013-14 but only payments in FY 2014-15 and FY 2015-16 when the entire outstanding were repaid by 31.3.2016. The error in the listing of creditors in the balance sheet in respect of 4 parties is explained. In these cases also the outstanding were repaid by 31.3.2016. Key items and computation from the details of the audited accounts called for and filed by the appellant is tabulated below. Particulars Year ended 31.03.2012 Year ended 31.03.2013 Year ended 31.03.2014 Year ended 31.03.2015 Year ended 31.03.2016 5 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 Sales 19,49,81,208 82,38,106 1,11,47,495 NIL 119,74,661 (out of closing stock) Purchase 20,12,15,686 103,80,859 135,27,173 NIL NIL Creditors for goods 7,05,34,074 7,32,54,830 4,53,15,062 4,53,15,062 NIL Paid during the year Data Not Available 76,60,103 4,14,66,941 NIL 4,53,15,062 Debtors 6,66,89,410 6,59,16,764 3,67,63,223 3,67,63,223 21,59,108 4.8. The above table shows that the appellant had significantly large operations (turnover Rs 19.49 crores) in FY 2011-12 and business declined thereafter. It is also noted that a large part of sales realizations were stuck) and at the year ending 31.3.2012, debtors outstanding was Rs.6.66 crores. This also resulted in creditors remaining unpaid. Thus the figures support the claim of the appellant that it was facing financial crunch in repaying the creditors for purchase of goods. The debtors were realized mainly in FY 2013-14 and FY 2015-16 when the major payments to creditors took place. | 4.9. The assessing officer has not indicated the basis for adding the creditors. If the assumption is that the creditors are not payable and section 41(1) applies, then clearly it is not correct since the repayments took place by FY 2015-16 and was before the assessment order was passed on 29.12.2016. There are no unpaid creditors., If the assumption is that the creditors are not genuine, it implies that the purchases are also not genuine. The assessing officer has disallowed Rs.2,20,36,370 out of total of Rs. 4,53,15,062 of creditors as on 31.3. 2014. Since the purchases are only Rs 135,27,173 during the year, this implies that the entire purchases of the current year is disallowed and further, purchases of earlier year is also disallowed. From the details filed, it is noted that purchases from the 19 parties, whose credits are added by the assessing officer, is to the tune of Rs. 34,92,177-/ in the current year. There are no purchases from the remaining 4 parties. The appellant has explained that there was a typographical error and the creditors outstanding were actually of another 4 parties. In respect of these other 4 parties, purchases during the year is Rs. 11,66,339/Thus as against the purchases during the year from the 23 parties of Rs. 46,58,516/-, a total of Rs.2,20,36,370 is disallowed. There can be no sales without purchases. The large part of sales was exported. There is also merit in the 6 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 contention of the appellant that since the creditors were paid, they may not have cooperated in the verification by the assessing officer. Further that all the. payments are made by way of cheques and through banking channels. On the other hand, the assessing officer was not fully satisfied that the creditors are genuine and are assessed to tax. Looking at the entire gamut of facts in this case, in my view this can be a from elsewhere and bills obtained through brokers This appears likely since the purchases are from Bhiwandi where it appears that such practice thrives. In such circumstances, the benefit can be estimated by considering the profit margin. In this case a disallowance @ 10% would meet the ends of justice. Hence the disallowance is restricted to Rs. 22,03,637/-. The grounds of appeal are partly allowed as above.” 5. A careful reading of the aforesaid observations of learned first appellate authority would reveal that in course of assessment proceeding itself, the assessee had furnished various documentary evidences to prove the sundry creditors. As could be seen from the observations of learned Commissioner (Appeals), out of twenty three creditors, the entire outstanding in case of nineteen sundry creditors have been repaid by 31.03.2016. As regards, the balance four creditors, the assessee has established on record that they have not ceased to exist and assessee was unable to repay due to severe financial crunch. Further, there is a clear factual finding of learned Commissioner (Appeals) that before the date of passing of the impugned assessment order, repayments have already been made during the Financial Year 2015-16. The finding of fact recorded by learned Commissioner (Appeals) remains uncontroverted before us. 6. A reading of section 41(1) of the Act reveals that the provision gets attracted only when the liability ceases to exist. In the facts of the present case, undisputedly, the assessee in most of the cases has squared off the 7 ITA No. 7961/MUM/2019 Assessment Year: 2014-15 liability and in some cases the liability remains to be paid. However, the liability has not been written off in the books and continues to exit. Therefore, the provision of section 41(1) would not apply. In the aforesaid view of the matter, we do not find any infirmity in the decision of learned Commissioner (Appeals). Grounds are dismissed. 7. In the result, appeal is dismissed. Order pronounced in the open court on 24 th November, 2021. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 24/11/2021 Alindra, PS आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, म ुंबई / ITAT, Mumbai