TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 164
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....after called as 'the Act') issued by the Director of Income Tax (Inv.), Hyderabad has seized cash on 20.10.2010. In the sworn statement deposed before the Dy. Director of Income Tax (Inv.) on 7.1.2011, the assessee Smt. V. Jaya Naga Anitha has stated that the cash seized from her husband belongs to her. She further stated that her husband Shri V. Murali Krishna is managing the affairs of the business of M/s. Shri Ambica Readymade Garments in her name and has collected the cash from the customers located at Guntakal, Tadipatri, Ananthapur, Hindupur and adjoining areas. The said cash is collected towards amount due from the customers towards sales made by her proprietrix concern and which was duly recorded in the books of accounts maintained by her for the relevant assessment years. 3. In view of the above statement given by the assessee, proceedings u/s 153C of the Act was initiated by issuing notice on 14.11.2011, requiring her to file return of income for the assessment years from 2005-06 to 2011-12. The assessee, vide letters filed on 19.12.2011 stated that the return filed on 26.11.2010 may be treated as return filed in response to notice u/s 153C of the Act. Subsequently, the ....
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....ring the submissions of the assessee, issued a show cause letter and asked to explain why the total credits of Rs. 1,23,87,919/- should not be treated as deemed income of the assessee, in the absence of necessary bills and also confirmation letters from the creditors. The assessee, in response to show cause notice, submitted that the creditors are not traceable, because they have changed their address, therefore, not able to produce the confirmation letters. The assessee further submitted that she had purchased the goods from Kolkata and all the purchases have been accounted in the books of accounts and also reported to the sales tax authorities. The purchases are genuine and all the purchases have been reported to the authorities. Under these circumstances, no disallowance can be made for sundry creditors for want of confirmation letters. The A.O. after considering the explanations offered by the assessee made additions u/s 68 of the Act towards trade creditors. While doing so, the A.O. held that the assessee has not filed the return of income for the assessment year within the due date specified u/s 139(1) of the Act, though she has got taxable income. The turnover of the assesse....
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....sessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O.. The assessee further submitted that as regards the disallowance of sundry creditors u/s 68 of the Act, it was submitted that she had purchased garments from Kolkata and Howrah and the garment market in Kolkata is an unorganized market. The dealers do business on a platform provided under a tin shed. They purchase cloth from wholesale dealers and stitch the cloth and make readymade garments. The whole business is conducted on trust and belief. They never disclose their identity to the customers and we do not know whether they are assessed to sales tax or income tax. However, they allowed us to purchase the goods on credit and make the payment subsequently. The assessee further submitted that they normally give instructions to the customers to issue cheques in the names of their cloth suppliers or to issue bearer cheques to facilitate easy encashment of cash at Kolkata without any loss of time. Unless the customers accept their conditions, it is impossible to carry any trade with them. Under these circumstances, the trade creditors remai....
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.... markets. Therefore, the assessee was compelled to make the cash payments or bearer cheques as requested by the suppliers. The A.O. has not doubted the genuineness of the payments. When the genuineness of the payments are not doubted, no additions can be made simply because there was a cash payment by invoking the provisions of section 40A(3) of the Act. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 9. The first issue came up for our consideration is deletion of additions made by the A.O. towards trade creditors, u/s 68 of the Act. The Ld. D.R. submitted that the CIT(A) was erred in deleting the additions made by the A.O., towards trade creditors by invoking the provisions of section 68 of the Act. The CIT(A) deleted the additions by stating that when the purchases and sales are acceptable to the department, the trade creditors cannot be rejected. This view of the Ld. CIT(A) cannot be accepted on account of the fact that the onus is on the assessee to prove the identity of the creditors, genuineness of the transactions and also creditworthiness of the creditors in respect of any amount standing to the credit of trade creditors as appeared in the books of accou....
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....hout saying that the department has accepted the sales and the sales are arising out of these purchases only. It is a well known fact that there cannot be any sales without purchases. When all these facts are interlinked, the assessing officer could not have disbelieved sundry creditors for want of confirmation letters. The A.R. further submitted that the judicial forums in this country consistently held that once department has accepted the purchases, the sales and the book results as genuine, could not have disbelieved the trade creditors and make additions by invoking the provisions of section 68 of the Act. In support of his argument relied upon plethora of judgement. The A.R. further submitted that the assessing officer made the addition u/s 68 of the Act, but under the facts and circumstances of the present case, additions cannot be made u/s 68 of the Act, as the amounts represents purchases made on credit. When the assessing officer has accepted the purchases as genuine, no additions can be made towards trade creditors by holding that creditors are bogus. The assessee relied upon the following judgements: 1) CIT Vs. Pancham Dass Jain (2006) 156 Taxman 507 (All) 2) CIT Vs....
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.... the help of suppliers who supplied the goods on credit. She has developed the business over a period of time by taking the help of the supplies and sold the goods in the local market and made the payments subsequently after 2/3 months. When this is being the case, naturally the creditors at the end of the year in the books of accounts will be quite high. The assessee further stated that when the A.O. has not doubted the genuineness of the creditors and sales, there is no reason for him to doubt the trade creditors' as these creditors are arose out of credit purchases in the business. 12. The A.O. made additions solely on the ground that the trade creditors are not confirmed the transactions. The A.O. further stated that all the letters issued to the creditors have been returned unserviced therefore, held that the creditors are not genuine. We do not see any merits in the findings of the A.O., for the reason that when purchases and sales are accepted as genuine, he cannot doubt trade creditors which are arose out of credit purchases. We further noticed that the A.O. has accepted the financial statement filed by the assessee and on the basis of such financial statement the net prof....
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....ures declared by the assessee, we noticed that the sundry creditor payable to the suppliers of the goods is almost equal to the stock in trade held by the assessee and also amount receivable from the customers. It is not case of A.O. that there are investments in personal assets, which was explained by trade creditors. Under these circumstances, the A.O. was not correct in adding the trade creditors by invoking the provisions of section 68 of the Act. 15. The A.R. has furnished a statement showing workings of financial results declared by the assessee and also the profit determined by the A.O. On perusal of the financial results declared by the assessee, we found that for the period from financial year 2007-08 to 2011-12, the assessee declared a gross profit of 5 to 10% from her business. After meeting all expenditure, she has declared a net profit of 2 to 4%. As against this, the Assessing Officer has determined the total income for the above period and the percentage of profit to the total turnover as per the Assessing Officer is 40% to 205%. On perusal of the details submitted by the assessee, we noticed that the Assessing Officer has made additions towards trade creditors, whi....
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....dditions can be made towards trade creditors. The relevant portion is reproduced hereunder: "Tribunal had deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal recorded that the Books of Accounts of the respondent-assessee had not been rejected. Similarly, the sales had not been doubted and it was an admitted position that substantial amount of sales had been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad, Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. Merely because the suppliers had not appeared before the Assessing Officer or the CIT(A), one could not conclude that the purchases were not made by the respondent-assesses. The Assessing Officer as well as CIT(A) had disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents had not been produced before them." 18. The assesse....
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....issue by the AO for making addition and that too on selective basis. Further, 15 Purjas value of which has been treated as bogus liability, do contain full particulars of the Karigars. Annex. A itself has got a column "Names and Addresses of the Karigars" and against all the 15 'Purjas', necessary information in this respect has been given. Naturally, in the records of the assessee, only such names and addresses would be found recorded, as told to it by the Karigar themselves. Beyond this, the assessee is not concerned to ascertain correct or full addresses of the Karigars as the purchases have been made on credit. It is for the Karigars concerned or his nominee and/or transferee of the 'Purja' to collect his payment from the office of the saree dealer. Not that the same dealer itself has to approach the Karigars for making payments to them. It has, therefore, to be held that even if the address is incomplete or even in an extreme situation, where the Karigar is not found at the address available with the assessee (as written in the Purja), no adverse inference can be drawn in the assessment of the same dealer or any of the aspects of the purchases. This is more so ....
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....on 68 of the Act cannot be applied. The relevant portion is reproduced hereunder: "We have heard the rival submissions and carefully perused the record. The main objection of the assessee is that the trade credits cannot be added as unexplained credits under section 68 of the Act. In this regard, the Learned Authorised Representatives has relied upon the decision of this bench in the case of Sai Concrete Pavers Pvt. Ltd., referred (supra). In that case, the outstanding creditors for expenses were disallowed by the Assessing Officer. The Learned CIT(A) deleted the addition by placing reliance upon the decision of Hon'ble Allahabad High Court in the case of CIT V Panchamdas Jain (205 CTR 444), wherein it was held that the provisions of section 68 are not attracted to the amounts representing purchases made on credit, when the assessing officer has accepted the purchases as genuine. The bench also noticed that the outstanding amount had been paid in the subsequent period. Hence the bench did not find any infirmity in the decision of the Learned CIT(A)." 20. The Ld. D.R. relied upon the judgement of Punjab & Haryana High Court, in the case of Uplaksh Metal Industries Vs. CIT (2009)....
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....he IT rules. The CIT(A), without specifying the clause under which the case of assessee is covered by exception provided to sec. 40A(3) of the Act, deleted the addition which is not correct. 23. On the other hand, the Ld. A.R. of the assessee submitted that the CIT(A) has rightly deleted the additions. The A.R. further submitted that the assessing officer is not correct in arriving at the above amounts for addition by holding that the payments were made in cash. The payments considered by the Assessing Officer for disallowance u/s 40A(3) of the Act, in fact includes payment made through account payee cheques. The assessee has issued account payee cheques in the names of the agents nominated by the supplier of the goods and also in few cases she has made the payment by issuing bearer cheques. The assessee was compelled to make the payments in cash as requested by the suppliers of the goods. Unless, she obliged to the request of the suppliers, she cannot do any business with the supplies. Therefore, there was a business expediency in making the cash payments and hence, no disallowance can be made u/s 40A(3) of the Act. The assessee further submitted that the Assessing Officer has ac....
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..../-. She had done the business because of credit facility extended by the supplier of goods, unless the supplier extends the credit facility, she cannot do any business. The suppliers facilitate her to purchase the goods on credit and make the payment after 2/3 months. Under these circumstances, she was under compulsion to make the cash payment as requested by the suppliers. The assessee further stated that in few cases, she has issued bearer cheques and also account payee cheques in the name of the agents as instructed by her suppliers. However, the Assessing Officer has ignored the details furnished by her and treated the total payments as cash payments and invoked the provisions of section 40A(3) of the Act. 26. Section 40A(3) of the Act, provides for disallowance of expenditure, where the assessee incurs any expenditure, in respect of which any payment is made to any person, in cash in excess of Rs. 20,000/-, in a single day. Similarly, proviso provided to section 40A(3) of the Act, provides for no disallowance shall be made and no payments shall be deemed to be the profit & gains of business or profession under sub section (3) and this sub section, where payment or aggregate o....
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....he cash payments. It may be the condition of law that certain payments should be made either by way of account payee cheques or drafts. But, at the same time, all payments made in cash or bearer cheques cannot be disallowed, unless the Assessing Officer proved that the payments are not genuine. Therefore, we are of the opinion that when the Assessing Officer did not doubt the genuineness of the transaction or the identity of the sellers, if the payments are genuine and if the business expediency so requires the payments in cash, then the technical requirement should not come in the way of claiming it as expenditure in view of the proviso to section 40A(3) of the Act. We noticed from the documents available on record, the assessee has furnished a bank statement, wherein most of the payments are made by either account payee cheque or bearer cheques. Out of the total payments disallowed by the Assessing Officer, only few payments are made in cash and remaining payments are made in account payee cheques. Under these circumstances, the Assessing Officer was not correct in coming to the conclusion that the assessee has made the cash payments which attracts the disallowance u/s 40A(3) of ....