Shivsu Canadian Clear Waters Ltd., CHENNAI V. ITO Corporate Circle 6(2), CHENNAI

ITA 797/CHNY/2019

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 6829 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 25-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: S SRIDHAR
• Section: 133(6); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , , ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 797/CHNY/2019 / ASSESSMENT YEAR : 2014-15 M/S. SHIVSU CANADIAN CLEAR WATERS LTD., (OLD NAME: M/S. SHIVSU CANADIAN CLEAR INTERNATIONAL LTD), NO. 6B2, II FLOOR, PARIVAKKAM ROAD, LEELAVATHY NAGAR, SENNEERKUPPAM, POONAMALLEE, CHENNAI 600 056. [PAN: AAICS 2574C] VS. INCOME TAX OFFICER, CORPORATE CIRCLE -6(2), CHENNAI. ( / APPELLANT) ( #$& /RESPONDENT ) & ' / APPELLANT BY : SHRI. S. SRIDHAR, ADVOCATE #$& ' / RESPONDENT BY : SHRI. A. SUNDARARAJAN, ADDL. CIT ' /DATE OF HEARING : 03.10.2019 ' /DATE OF PRONOUNCEMENT : 23.12.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI IN ITA NO. 437/2016-17/CIT(A)-15 DATED 30.01.2019 FOR ASSESSME NT YEAR 2014-15. :-2-: ITA NO.797/CHNY/2019 2. M/S. SHIVSU CANADIAN CLEAR INTERNATIONAL LTD., T HE ASSESSEE, IS MANUFACTURING OF WATER TREATMENT PLANTS. WHILE MA KING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2013-14, THE AS SESSING OFFICER FOUND, INTER ALIA, THAT THE ASSESSEE HAS SHOWN IN I TS CURRENT LIABILITIES ADVANCES RECEIVED FROM ITS CUSTOMERS AT RS. 6,46, 53,183/- AND HENCE REQUIRED THE ASSESSEE TO FURNISH THE NAME AND ADDR ESS OF THE PERSONS FROM WHOM SUCH ADVANCES WERE RECEIVED. THE ASSESSE E HAS NOT FURNISHED THE SAME. THE ASSESSEE WAS REQUIRED TO F URNISH CONFIRMATION FROM THE PERSONS FROM WHOM IT RECEIVED THE ADVANCES . THE ASSESSEE HAS NOT FURNISHED THEM. THEREFORE, THE AO HELD TH AT SINCE THE ASSESSEE HAS NOT PRODUCED CONFIRMATION EVEN FROM A SINGLE PARTY, THE AMOUNT SHOWN UNDER ADVANCES FROM CUSTOMERS IS TREAT ED AS BOGUS CREDIT AND HENCE ADDED TO THE TOTAL INCOME. AGGRIEV ED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). BASED ON THE PL EA MADE BY THE ASSESSEE, THE LD. CIT(A) CALLED FOR A REMAND REPOR T FROM THE AO AND AFTER CONSIDERING THE REMAND REPORT AND THE ASSESSE ES EXPLANATION ETC., PARTLY ALLOWED THE APPEAL. 3. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX APPEALS, ERRED I N CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS CREDITS TO THE EXTENT OF RS.4,85,95,503/-. :-3-: ITA NO.797/CHNY/2019 2. THE COMMISSIONER OF INCOME TAX APPEALS, ERRED IN NOT CONSIDERING THE SUBMISSION OF THE APPELLANT THAT THE ENTIRE ADD ITION IS NOT LIABLE TO BE SUSTAINED, SINCE THERE IS NO CLARITY WHETHER THE ADDITION IS MADE U/S.68 OR U/S.41(1). 3. THE COMMISSIONER OF INCOME TAX APPEALS, ERRED IN NOT CONSIDERING THE SUBMISSION OF THE APPELLANT THAT EVEN IF THE AD DITION IS U/S.68 THE SAME CANNOT BE SUSTAINED WITH REGARD TO OPENING BAL ANCE AT THE BEGINNING OF THE YEAR, A VIEW SUPPORTED BY BINDING DECISIONS OF THE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL. 4. THE COMMISSIONER OF INCOME TAX APPEALS, ERRED TH AT MANY OF THE CREDITOR PARTIES ARE HAVING TRANSACTIONS DURING CUR RENT YEAR AND IN SUBSEQUENT YEARS AND THAT SEVERAL OF THE ACCOUNTS H AVE BEEN REDUCED TO NIL BALANCE AS ON DATE THROUGH TRANSACTIONS. 5. THE COMMISSIONER OF INCOME TAX APPEALS, ERRED IN NOT ADJUDICATING ON THE SPECIFIC ISSUES RAISED DURING APPEAL, IN WRI TING UNDER WRITTEN SUBMISSIONS DATED JANUARY 24, 2019 (FILED ON 25TH J ANUARY 2019) REPRODUCED BY THE HON CIT APPEALS IN PAGE 12 TO 14 OF THE IMPUGNED APPEAL ORDER. 6. IN VIEW OF THE FOREGOING WE RESPECTFULLY SUBMIT THAT THE FINDING OF THE HON CIT APPEALS CONFIRMING PART OF THE ADDITION MADE BY THE AO ON ACCOUNT OF BOGUS CREDIT NEEDS TO BE DELETED AND JUSTICE RENDERED. 7. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, AMEND OR RAISE FRESH GROUNDS AT THE TIME OF PERSONAL HEARING. 4. THE LD. AR PRESENTED THE CASE ON THE LINES OF GR OUNDS OF APPEAL, SUPRA, AND INVITED OUR ATTENTION TO THE PAPER BOO K, WHEREIN SOME OF THE COPIES FURNISHED BEFORE THE LOWER AUTHORITIES W ERE PLACED AND SUBMITTED THAT THEY HAVE NOT CONSIDERED THE ASSESSE ES CLAIM. THEREFORE, HE PLEADED THAT THE ASSESSEES APPE AL BE ALLOWED. :-4-: ITA NO.797/CHNY/2019 5. PER CONTRA, THE LD. DR SUPPORTED THE ORDER OF TH E LD. CIT(A). THEREFORE, THE RELEVANT PORTION IS EXTRACTED AS U NDER: 5.2 DURING THE COURSE OF APPEAL PROCEEDINGS, THE A R OF THE APPELLANT HAS FILED HIS SUBMISSION BEFORE THE CIT(A ) ON THE AFORESAID ISSUE AND THE SAME IS REPRODUCED BELOW: IT IS NOT CLEAR WHETHER THE IMPUGNED ADDITION IS U NDER SECTION 41 (1) SECTION 68 OF THE ACT. IF THERE IS CESSATION OF LIABILITY, THEN SUBJECT TO OTHER REQUIREMENTS TO BE SATISFIED, SECTION 41(1) MAY APPLY. UNDER IDENTICAL CIRCUMSTANCES DELHI HIGH COU RT IN CTL' VS SRI VARDHAMAN OVERSEAS 343 ITR 408 AS HELD THAT NEITHER SECTION 68 NOR SECTION 41(1) WOULD APPLY. WITHOUT PREJUDICE TO THE ABOVE - A. THE ADDITION CANNOT BE SUSTAINED U / S. 41 (1) S INCE THE SECTION APPLIES ONLY TO A CASE WHERE AN ALLOWANCE OR DEDUCTION IS ALLOWED IN A PARTICULAR YEAR AND SUBSEQUENTLY __ '. B. IF THE ADDITION IS VS SEC 68, THE ADDITION CANNO T BE SUSTAINED U/ S.68 WITH REGARD TO OPENING BALANCE AS AT BEGINNING OF THE YEAR I.E., 1.4.2013. THIS PROPOSITION IS SUPPOR TED BY THE RAJASTHAN HIGH COURT DECISION IN CL'I' VS PARAMESHW AR BOHRA 301 ITR 404, CIT VS USHA STUD AGRICULTURAL FARMS LIMITED 30 1 ITR 384 (DEL) AND JURISDICTIONAL ITAT IN NALLAM MANIAM. TEXTILES P LTD. VS APPELLANT ON 30 APRIL, 2012, (A BENCH, CHENNAI- 776/MDS/2011) AND IN 305/MDS/2016 IN SOORAJ LEATHERS VS ITO, LEXPO INTER NATIONAL, CHENNAI VS DEPARTMENT OF INCOME TAX ON 28 AUGUST, 2 012 (B BENCH, CHENNAI - 649/MDS/2012).THE DETAILS OF OPENI NG BALANCE INCLUDED IN THE DISALLOWANCE IS AS PER LIST ENCLOSE D ... ANN A C. WITHOUT PREJUDICE TO THE ABOVE, THE AO FAILED TO CONSIDER THAT MANY OF THE CREDITOR PARTIES ARE HAVING TRANSA CTIONS DURING AND IN SUBSEQUENT YEARS, INCLUDING ADDITIONAL PAYMENTS, INVOICES ETC AND HENCE THEY ARE RUNNING PARTIES ACCOUNTS AND NOT DOR MANT ACCOUNTS. THEY ALL HAVE , TNGST AND CENTRAL EXCISE REGISTRATI ON AND SEVERAL ARE CORPORATE BODIES. SEVERAL OF THE ACCOUNTS HAVE BEEN REDUCED TO NIL :-5-: ITA NO.797/CHNY/2019 BALANCE AS ON DATE, THROUGH TRANSACTIONS. BY NO STR ETCH OF IMAGINATION CAN THEY BE LABELLED AS BOGUS. D. THE AO HIMSELF CONFIRMS IN HIS REMAND REPORT THA T OF THE LETTERS SENT, AMOUNT OF MORE THAN RS. 160,57,680/- WAS CONFIRMED BY THE PARTIES (SEE PARA 5.2 OF THIS REMAND REPORT, AN N E- COPY ENCLOSED AFTER HIGHLIGHTING). ANNB. E. SOME OF THE ADVANCES RECEIVED HAVE BEEN FORFEITE D. AND THE CREDITS HAVE ALREADY BEEN WRITTEN BACK IN SUBSE QUENT YEARS (RS. 191,15,031/-IN ALL) AND OFFERED TO TAX AND BALANCES HENCE REDUCED TO NIL.' F. THE DISALLOWANCE BY THE AO IS ERRONEOUS, CONTRAR Y TO FACTS AND CIRCUMSTANCES AND DESERVES TO BE DELETED. 5.3. CIT(A)'S REMARKS AND DECISION: I HAVE CAREFULLY GONE THROUGH THE OBSERVATION OF TH E AO IN THE ASSESSMENT ORDER AS MENTIONED ABOVE UNDER PARA 5.1, AND THE APPELLANT'S SUBMISSION BEFORE THE CIT(A) UNDER PARA 5.2. 5.3.1. THE A O HAS ADDED THE CURRENT LIABILITIES TO WARDS ADVANCES FROM CUSTOMERS IN THE BALANCE SHEET TO THE EXTENT O F RS.6.46 CRORES ON THE GROUND THAT NO CONFIRMATION LETTER FOR ADVAN CE WAS FURNISHED AND THEREFORE, IT WAS TO BE TREATED AS BOGUS CREDIT . THE A O HAS FURTHER OBSERVED THAT THE AFORESAID CREDITS ARISING IN AY 2011-12 DO NOT PERTAIN TO THIS AY. BEFORE THE CIT(A), THE APPE LLANT'S AR HAS CONTENDED THAT THEY WERE GENUINE CREDITS AND IDENTI TY CAN BE PROVED. THEREFORE, THE APPELLANT'S SUBMISSION WAS F ORWARDED TO THE AO FOR A RE-EXAMINATION BY GIVING AN OPPORTUNITY TO THE APPELLANT TO PROVE THE GENUINENESS OF THOSE CREDITS. THE AO'S RE MAND REPORT DATED 13-8- 2018 HAS BEEN REPRODUCED ABOVE UNDER PA RA 3.1. THE AO HAS OBSERVED IN THE REMAND REPORT, THAT THE APPE LLANT DID NOT DISCHARGE THE PRIMARY ONUS OF FURNISHING CONFIRMATI ON LETTERS PERTAINING TO THOSE CREDITS. THE AO'S CONCLUSION IN THE REMAND REPORT IS BRIEFLY MENTIONED BELOW: :-6-: ITA NO.797/CHNY/2019 5.3.2 TOTALLY, THERE WERE 294 PARTIES AND THE APPEL LANT GAVE ADDRESSES ONLY IN RESPECT OF 129 PARTIES, IN RESPEC T OF WHOM THE A O ISSUED NOTICE U/S. 133(6) SEEKING THEIR CONFIRMATIO N. OUT OF 129 NOTICES SENT, 52 NOTICES RETURNED UNSERVED AND RESP ONSE WAS RECEIVED ONLY IN RESPECT OF 26 PARTIES. OUT OF 26 PARTIES, ONLY 15 PARTIES CONFIRMED THOSE CREDITS AND 11 PARTIES DENI ED THE CREDITS AS CLAIMED BY THE APPELLANT. 51 PARTIES DID NOT RESPON D AT ALL. 5.3.3. FROM THE ABOVE FACTS, IT IS CLEAR THAT THE A PPELLANT'S CLAIM THAT ALL THOSE CREDITS WERE GENUINE IS NOT ACCEPTABLE. W HEN THE REMAND REPORT WAS FORWARDED TO THE APPELLANT, THE AR ARGUE D THAT AT LEAST TO THE EXTENT OF CONFIRMATION OF CREDITS BY 15 PARTIES SHOULD BE DELETED. THIS SUBMISSION OF THE AR IS ACCEPTABLE. ALTHOUGH T HE AO HAS OBSERVED IN THE REMAND REPORT THAT THE ENTIRE ADDIT ION IS TO BE SUSTAINED, HE HAS NOT REFERRED TO THE CONFIRMATION OF CREDITS IN RESPECT OF 15 PARTIES AND THE A O IS NOT JUSTIFIED HOW ADDITION IN RESPECT OF CONFIRMED CREDITS CAN BE SUSTAINED. 5.3.4. AFTER CONSIDERING BOTH THE POINTS OF VIEW, I AM OF THE CONSIDERED OPINION THAT THE ADDITION OF CREDITS IN RESPECT OF 15 PARTIES WHO HAVE CONFIRMED WHEN THE AO ISSUED NOTIC ES U/S. 133(6), AMOUNTING TO RS. 1,60,57,680/- IS TO BE DELETED AND THE REMAINING ADDITION IS SUSTAINED. IN VIEW OF THE ABOVE REMARKS , THE APPELLANT'S GROUND IS PARTLY ALLOWED. 6. WE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED TH EM CAREFULLY. IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF WATER TREATMENT PLANTS. IT HAS S HOWN IN ITS CURRENT LIABILITIES ADVANCES RECEIVED FROM ITS CUSTOM ERS AT RS. 6,46,53,183/- AND HENCE AO REQUIRED THE ASSESSEE TO FURNISH TH E NAME AND ADDRESS OF THE PERSONS FROM WHOM SUCH ADVANCES WERE RECEIV ED. WHEN IT FAILED, THE AO REQUIRED IT TO FURNISH CONFIRMATIO N FROM THE PERSONS :-7-: ITA NO.797/CHNY/2019 FROM WHOM IT RECEIVED SUCH ADVANCES. ON ITS FURTHE R FAILURE, THE A O TREATED THEM AS A BOGUS CREDIT AND ASSESSED THEM. ON THE APPEAL, THE ASSESSEE CONTENDED BEFORE THE LD CIT(A), THAT THEY WERE GENUINE CREDITS AND IDENTITY CAN BE PROVED. THEREFORE, THE LD CIT(A) FORWARDED THE ASSESSEES SUBMISSIONS TO THE AO FOR A RE-EXA MINATION BY GIVING AN OPPORTUNITY TO THE ASSESSEE TO PROVE THE GENUINENE SS OF THOSE CREDITS. THE AO HAS OBSERVED IN THE REMAND REPORT, THAT THE ASSESSEE DID NOT DISCHARGE THE PRIMARY ONUS OF FURNISHING CONFIRMATI ON LETTERS PERTAINING TO THOSE CREDITS. THE A O'S CONCLUSION IN THE REMAN D REPORT BRIEFLY IS THAT THERE WERE 294 PARTIES AND THE ASSESSEE GAVE ADDRESSES ONLY IN RESPECT OF 129 PARTIES, IN RESPECT OF WHOM THE A O ISSUED NOTICE U/S. 133(6) SEEKING THEIR CONFIRMATION. OUT OF 129 NO TICES SENT, 52 NOTICES RETURNED UNSERVED AND RESPONSE WAS RECEIVED ONLY IN RESPECT OF 26 PARTIES. OUT OF 26 PARTIES, ONLY 15 PARTIES CONFIR MED THOSE CREDITS AND 11 PARTIES DENIED THE CREDITS AS CLAIMED BY THE APP ELLANT, 51 PARTIES DID NOT RESPOND AT ALL. IN SUCH FACTS AND CIRCUMSTANCES , THE LD CIT(A) HELD THAT IT IS CLEAR THAT THE ASSESSEE 'S CLAIM THAT AL L THOSE CREDITS WERE GENUINE IS NOT ACCEPTABLE. WHEN THE REMAND REPORT W AS FORWARDED TO THE ASSESSEE, THE AR ARGUED THAT AT LEAST THE CONFI RMATION OF CREDITS MADE BY THE 15 PARTIES SHOULD BE DELETED. THEREFORE , THE LD CIT(A) DIRECTED THE A O TO DELETE THE ADDITION OF CREDITS IN RESPECT OF THOSE 15 PARTIES , WHO HAVE CONFIRMED THE CREDIT, AT RS. 1 ,60,57,680/- AND :-8-: ITA NO.797/CHNY/2019 SUSTAINED THE REMAINING ADDITION. SINCE THE IMPUG NED SUM BEING CREDITS IN THE ASSESSEES BOOKS OF ACCOUNT , I T IS SETTLED LAW THAT THE ASSESSEE MUST SATISFY THREE CONDITIONS NAMELY, (1) IDENTITY OF THE CREDITOR, (2) GENUINENESS OF THE TRANSACTION AND ( 3) CREDIT WORTHINESS OF THE CREDITOR. ONCE THIS IS ESTABLISHED, THEN, IT IS HELD THAT TH E ASSESSEE HAS DISCHARGED HIS BURDEN. IN THIS CASE, IT IS CLE AR FROM THE ABOVE THAT THE ASSESSEE HAS NOT ESTABLISHED ITS ONUS EVEN AFT ER THE FIRST APPELLATE AUTHORITY GAVE AN OPPORTUNITY. THEREFORE, THE AD DITION SUSTAINED IS UPHELD SUBJECT TO THE FOLLOWING FURTHER FINDING. W E FIND MERIT IN THE ASSESSEES SUBMISSION THAT THE ADDITION ON SUCH CASES CAN NOT BE MADE DURING THIS ASSESSMENT YEAR TO THE EXTENT T HERE ARE OPENING BALANCES IN THOSE CREDITORS. THEREFORE, WE DIRECT THE AO TO COMPUTE THE ASSESSABLE CREDITS ACCORDINGLY, AFTER GIVING AN E FFECTIVE OPPORTUNITY TO THE ASSESSEE. IN THE RESULT THE ASSESSEES APPEAL I S TREATED AS PARTLY ALLOWED TO THE ABOVE EXTENT. 7. IN THE RESULT, THE ASSESSEES APPEAL IS TREAT ED AS PARTLY ALLOWED. ORDER PRONOUNCED ON 23 RD DECEMBER, 2019 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER :-9-: ITA NO.797/CHNY/2019 /CHENNAI, 0 /DATED: 23 RD DECEMBER, 2019 JPV '#1232 /COPY TO: 1. &/ APPELLANT 2. #$& /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2# /DR 6. 7 /GF