TaxTMI 
TaxTMI 
2016 (11) TMI 603
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....adymade garments, crockery items, perfumes, cosmetics, leather items and sun glasses having its show rooms at Behala, Camac Street and B.B.D.Bag. The office cum showroom was also at No.4, Radha Bazar Street, Kolkata - 700001. A survey u/s 133A of the Act was conducted at the business premises of the assessee on 20.1.2003 and incriminating documents and evidences were found and impounded by the survey team. A search and seizure operation was carried out by the Central Excise authorities on 18.2.2000 and it was found by them that the assessee is engaged in manufacturing and selling of watches in large scale without obtaining proper license and without disclosing and paying duties thereon. The assessee filed the return of income for the Asst Year 2003-04 on 27.11.2003 declaring loss of Rs. 1,89,627/-. The books of accounts were called for by the ld AO for which the assessee replied that their books of accounts were washed out and they need some time to rebuild the accounts. It was contended in the letter filed before the ld AO that the accountant of the assessee left on 31.1.2004 after destroying the accounts of the assessee. The ld AO observed that this was nothing but a cooked up st....
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....ccounts on 13.2.2003. It was also further observed that the assessee was getting the services of the accountant till 15th August 2005. 2.3. The ld AO made addition of Rs. 23,59,261/- on account of undisclosed investment in the undisclosed purchase on the ground that there was unaccounted purchases found during the course of survey and the source of fund utilized for making such undisclosed purchase was not accounted for. He also made addition of Rs. 5,12,471/- on account of profit on the undisclosed purchase of Rs. 23,59,261/- since the purchases were outside the books of accounts and so the sales were also outside the books of accounts. Therefore, profit of Rs. 5,12,471/- was added by applying the disclosed gross profit rate. 2.4. The ld CITA after obtaining remand report from the ld AO , granted relief to the extent of Rs. 3,37,104/- stating that the balance shown by the sundry credit parties tallied with the balance shown by the assessee in its balance sheet against their names and hence the unrecorded purchases were subsequently accounted in the books after the survey needs to be accepted as stated by the assessee. In respect of purchases to the tune of Rs. 12,46,221/-, t....
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....s) by the amount of unrecorded purchases. He argued that the purchase register was maintained upto 19.1.2003 i.e a day prior to the date of survey which reflected total purchase of Rs. 232.51 lacs meaning thereby that the average monthly purchase was Rs. 23.51 lacs. Hence the total purchase during the year based on said monthly average works out to Rs. 282.12 lacs, whereas the audited accounts show aggregate purchases of Rs. 305.35 lacs i.e an increase of Rs. 23.23 lacs, which almost matches with the unrecorded purchases found in the course of survey. Hence it was argued that this goes to prove that the unrecorded purchases found during survey were subsequently recorded in the books of accounts and there is no case for making any addition thereon. The sundry credit balances in the books of various parties tally with the assessee's balances. The payments of unrecorded purchases were made by account payee cheques and are verifiable from the ledger extracts and evidences produced by the assessee. It was argued that the ld AO in his remand report dated 6.8.2007 admitted that the balances as appearing in the books of certain parties tally with the balances shown by the assessee. In a ca....
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....due to its destruction cannot be doubted with or faulted with. It is not the case of the revenue that proper back up was not taken by the assessee in respect of the books of accounts for the Asst Year 2004-05 which would have enabled it to file the returns in time. Moreover, the ld AO had not doubted the fact of assessee lodging compliant before the police authorities against the destruction of books by the accountant. This fact is further sanctified by the ld AO accepting in his remand report that inspector of income tax has been deputed from time to time to police station to know the developments in the said case. If there is no compliant lodged by the assessee in this regard, the said fact could be brought to the notice of the inspector of income tax at the first instance itself by the police authorities and there would be no need for the inspector of income tax to visit the police station from time to time to know the developments of the compliant. 2.7.1. We find that the return for the Asst Year 2003-04 was filed along with the audited accounts and the list of sundry creditors together with their names and addresses were duly given by the assessee before the ld AO which onl....
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....g with the return. The entire purchases reflected thereon were either settled in cash / cheque or reflected as sundry creditors. The ld AR also argued that these sundry creditors were fully settled by the assessee by account payee cheques either in the same year or in the subsequent year , which fact has not been controverted by the revenue before us. The ld CITA had given a categorical finding that the ld AO had not proved the investment made by the assessee for these alleged unrecorded purchases. We find that the ld DR had merely stated in his written submission that mere settlement of dues to the said parties does not sanctify the purchase transactions as genuine. This goes to prove that there is no case for making any addition towards unrecorded purchases and it could only have to be concluded that the unrecorded purchases found during survey were subsequently recorded in the books of accounts. Consequentially there is no question of making any addition on account of gross profit on the same. But we find that the additions sustained by the ld CITA towards unrecorded purchases to the tune of Rs. 77,594/- and undisclosed gross profit of Rs. 1,74,508/- has not been contested by th....
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....se comments were given in that regard in his remand report. 3.3. We have heard the rival submissions. We find from the remand report that the ld AO had merely stated that since the books of accounts were not produced by the assessee , the payments made to these two persons could not be verified. From the perusal of the remand report, we find as rightly pointed out by the ld AR, that the ld AO had not doubted the genuineness of the expenditure incurred and the services rendered by these two parties to the assessee. We also agree with the contention of the ld DR that the said amount remained outstanding as on 31.3.2003 and hence there is no question of verification of mode of payment of these amounts in financial year 2002-03 as stated in the remand report of the ld AO. We also find that the ld CITA had given a finding that the amount of Rs. 2,500/- per month and Rs. 4,000/- per month given to these two persons cannot be termed as excessive or unreasonable to invoke the provisions of section 40(A)(2)(b) of the Act. This fact has not been controverted by the revenue before us. We also find that the ld AO had not brought any comparable cases for fair market value to prove that the p....
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....s of accounts and bills. However, the bills and vouchers in respect of several additions were furnished and the same were verified to the extent of Rs. 11,82,180/-. It was also submitted that the claim of depreciation of Rs. 5,95,877/- of the assessee has been fully allowed by the ld AO in the assessment which admittedly includes depreciation on additions to fixed assets. It was submitted that the bills in respect of addition of Rs. 3,77,105/- on account of motor car, that of Rs. 6,91,940/- on account of showroom and that of Rs. 1,13,135/- on account of furniture and fixture were verified by the ld AO in the remand proceedings. The balance bills were not available with the assessee as the same were impounded in the course of survey and were still lying with the custody of the income tax department. The ld CITA appreciating all these contentions deleted the addition. Aggrieved, the revenue is in appeal before us on the following ground:- "4. That on the facts and circumstances of the case the Ld. CIT(A) is not justified to delete the entire addition of Rs. 54,09,993/- on account of unexplained investment in assets." 4.2. The ld DR argued that since books of accounts were....
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....plained. There is no case made out for framing an addition towards unexplained investment in fixed assets. It is not in dispute that the fixed assets have been duly reflected in the balance sheet. We also find that the depreciation on entire fixed assets including the addition to fixed assets have been allowed by the ld AO. In the facts of the case, we find that the investment in fixed assets have been duly explained from the balance sheet of the assessee which is a tallied balance sheet filed along with the return of income. Hence the ld CITA had rightly granted relief to the assessee in this regard. Accordingly, the Ground No. 4 raised by the revenue is dismissed. 5. The next issue to be decided in this appeal is as to whether the addition could be made towards sundry creditors as bogus in the sum of Rs. 1,15,92,543/- in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the ld AO observed that the assessee has not brought anything on record to show the genuineness of sundry creditors in as much as confirmation from the concerned parties regarding the amount due to them were also not produced before the auditors as is evident from the notes ....
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....d the names and addresses of those creditors which were subjected to verification in the remand proceedings. The ld CITA observed that from the ledger copies of these creditors, the assessee had payments to them by account payee cheques in the subsequent year and confirmation from creditors were also filed in some cases. He observed that the remand report of the ld AO cover only 16 creditors though full particulars of 47 creditors were available before the ld AO. The ld CITA observed that in the remand report dated 6.8.2007, the ld AO had given favourable comments in respect of 6 creditors to the tune of Rs. 31,47,480/-. In respect of 5 creditors, the ld CITA found that the payments made to these parties in the subsequent years were cross checked with the relevant bank statements with some differences in the closing balances between two parties which were reconciled in the form of debit notes issued by creditors in the subsequent years ; timing difference of cheque issued on 31.3.2003 which got cleared in April 2003 and unrecorded purchases for which addition has already been made. Accordingly , he concluded that the addition of Rs. 19,23,836/- is not sustainable. 5.3. In respec....
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....gus. He argued that the ld AO had made extensive verification in respect of 16 sundry creditors for goods in the remand proceedings and had not given any adverse comments regarding 11 creditors thereon. Accordingly, the ld CITA had taken cognizance of the same and granted relief to the assessee and in respect of 5 creditors, since the parties did not respond to notice u/s 133(6) of the Act, balance of creditors to the tune of Rs. 2,77,398/- was sustained by ld CITA. Hence he argued that extensive verification has been carried out by the lower authorities and prayed for non-interference in the order of the ld CITA in this regard. 5.6. We have heard the rival submissions. We find that the entire details of sundry creditors for expenses and for goods were provided by the assessee before the ld AO in the remand proceedings. With regard to sundry creditors for expenses, they are only expenses provided on accrual basis at the end of the year which would get immediately discharged in the subsequent year and the ld CITA on factual verification of the same granted relief to the assessee. We do not deem fit to interfere with the said findings of the ld CITA. With regard to creditors for g....
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....l before us on the following ground :- "6. That out of addition of Rs. 4,99,470/- as unexplained cash credit, the Ld. CIT(A) is not justified in deleting Rs. 1,96,445/- being loan transaction from American Express Bank since it remains unverified in the absence of evidence/confirmations." 6.2. The ld DR vehemently relied on his written submissions that the assessee had not furnished any evidence for loan taken from American Express Bank and hence the belief entertained by the ld CITA that the said loan is genuine is to be dismissed. In response to this, the ld AR relied on the order of the ld CITA. 6.3. We have heard the rival submissions. We find that the assessee had stated that the fresh loan was availed from American Express Bank in the sum of Rs. 1,96,445/- during the year under appeal which is also reflected in the audited balance sheet filed along with the return as a separate item under 'unsecured loans'. Hence the belief entertained by the ld CITA that the said bank loan cannot be treated as unexplained cash credit cannot be faulted with. Accordingly, the ground no. 6 raised by the revenue is dismissed. 7. The last issue to be decided in this appeal is as....