TaxTMI 
TaxTMI 
2018 (11) TMI 1003
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....e assessee as a Firm which has not been rebutted by the assessee with documentary evidence, the Ld. C1T(A) is not correct in directing the AO to treat the status of the assessee as Firm and allow deduction towards salary and interest to the partners." 6. The CIT(A) has adjudicated the issue as under: " The AO has taken the status as AOP (association of persons) doubting the genuineness of the reconstituted partnership for certain reasons and as a consequence of the same has disallowed salary and interest payment to the partners. In the course of appeal hearing, the matter was referred to the AO for examination and report since the assessee filed certain documents to prove the genuineness of reconstituted partnership deed. The relevant portion of the AO's remand report is reproduced below; "The contention of the assessee was verified with respect to the submissions made by it. The assessee also produced the original reconstitution of deed of partnership dated 01.04.2011 for verification before the undersigned on 17.02.2017. It also submitted copy of Form-C for reconstruction of firm along with the copy of the Deed of partnership. It was also supplemented by ....
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....Sri Avantika Contractors (I) Limited as appearing in their books in the name of the assessee, On verification of the same, it is seen that Gopalpur Port Ltd. has shown the bills payable to the assessee at Rs. 5,83,25,291,00 and Sri Avantika Contractors (I) Ltd. at Rs. 1,57,72,593.00, totaling to Rs.Rs.7,40,97,884/-. Thus, there Is a difference of Rs. 1,34,44,311.00 in the case of Gopalpur Port Ltd. and Rs,49,45,263.48 in the case of Sri Avantika Contractors (1) Ltd. between the amount shown by the assessee and the contractees. Taking into consideration the amounts shown as payable by the contractees in place of the amounts shown by the assessee, if the balance sheet of the assessee for the year ending on 31,03,2012 is re-casted, the same stands as under: RECASTED BALANCE SHEET FOR THE YEAR ENDING ON 30.03.2012 LIABILITIES: Source of funds Patners capital fund Rs.1,41,39,864.00 Current liabilities & provisions Audit fees payable Rs. 5,000.00 Consultancy fees payable Rs. 10,000.00 Sundry creditors Rs.4,42,82,877.00 Rs.4,42,97,877.00 Total....
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....not be disregarded). The company has also confirmed vide its letter dated 5.3.2015 that Rs. 52,80,036/- was debited to its account and this amount has been claimed by the assessee in two years i.e. F.Y 2011-12, Rs. 45,263.48 and F.Y. 2012-13 Rs. 33,4772.52 respectively. Thus, the closing balance in the books of SACIL was shown as Rs. 1,57,72,593/-. The total gross contract receipt Rs. 8,01,86,760/- in the case of GPL and Rs. 1,57,72,593/ from SACIL. The total gross contract receipts declared by the assessee in the P&L A/c for the year ending 31.3.2012 has been shown as Rs. 9,57,26,243/- (GPL Rs. 7,83,86,748/- & SACIL Rs. 1,73,39,495/- during F.Y. 2011-12.) The pendency in balance receivable and balance payable between the assessee and two parties have been explained by the assesse. In this respect, the books of account (said to be washed away by cyclone phylin), the assessee's production of confirmation from the two parties is treated as sufficient evidence for explaining the difference. As the assessee has declared a composite contract sum received in P&L account as Rs. 9,57,26,243/-, which is inclusive of sum receivable by the assessee for the year ended 31.3.2012. In my....
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....ee failed to do so. It was simply stated on behalf of the assessee that all the books of account and other documents were washed away by the super cyclone 'phalin'. Other than this contention, no documents/papers and/or evidence was furnished to prove the genuineness and the correctness of the claim with their identity. For the reasons discussed above, t is held that the claim of sundry creditors made by the assessee at Rs. 4,42,82,877/- is not at all genuine and correct and hence, the same is added to the income of the assessee. 7.1 The matter was remanded to the AO for fresh verification on the basis of additional evidences produced by the assessee at the time of appeal ring. After examination of the documents and accounts produced before the AO in his remand report dt.2.3.2017 has submitted as under: "Addition of Rs. 4,42,82,877/- was made by disallowing the claim of sundry creditors out of the fact that it had not furnished details such as name and address of the sundry creditors opening balance as on 01.04.2011 total amount Of transactions made during the year then total amount of payment made during the year along with date wise payment and mode of payment a....
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....shed away by cyclone phylin, the above data is considered as sufficient for proving the genuineness of creditors, genuineness of the transactions and the confirmation from the creditors prove the credit worthiness of the sundry creditors. 7.2 I have considered the matter with reference to the facts on record and the remand report of the AO. I find that the sundry creditors were considered as not genuine in the assessment because the assesee failed to furnish the relevant details and documents to prove the genuineness of the same. Apparently, the addition was made u/s.68 though there is no reference to that section in the assessment order. In the course of remand proceedings, the assessee has furnished all the relevant details and documents examination of the same, the AO is of the opinion that the credit liabilities disclosed in the accounts are genuine. Moreover, the provisions of section 68 cannot be applied to sundry creditors and the assessee cannot be applied to sundry creditors and the assessee cannot be asked to prove the 3 ingredients of cash credits in respect of sundry creditors. The sundry credits have arisen out of transactions with the assessee of supply of go....
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....ified." 8.1 In the remand report dt.2.3.2017, the AO has submitted as under: "As the assessee had failed to furnish the books of accounts, on the plea that these were washed away by cyclone phylin, out of the expenses amounting to Rs. 8,72,77,179/-, the 25% disallowance amounting to Rs. 2,18,19,295/- was found fair and reasonable. During the course of hearing, since, the assessee submitted explanation head-wise along with TDS deducted particulars of expenses, these expenses can be allowed. The assessee has shown to have paid M/s Monalisha Parija Rs. 1,01,016/- and Rs. 9,69,697/- on 21.12.2011 and 30.12.2011 respectively. It is seen that, no TDS has been deducted for these payments. Hence, disallowance u/s 40(a) (ia) is called for on this payment of Rs. 10,70,713/-." 8.2 I have given careful consideration to the matter. The fact remains that the assessee has failed to produce the books of account and the bills & vouchers in support of various expenses before the AO. It is another matter that the reason for non-production given by the assessee is that the books and vouchers destroyed by the cyclone 'philyn'. The AO has reported that the assessee has paid to ....
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....n the interest of justice. 3. For that, the learned C.I.T.(A) is justified in deleting the addition of Rs. 1,83,89,574.00 on the basis of explanations offered by the Assessee and the remand report submitted by the A.O. In view of this, the grounds taken by the learned A.O. being without any basis has no leg to stand, as such, needs to be rejected in the interest of justice. 4.For that, the learned C.I.T(A) is justified in deleting the addition of Rs. 4,42,82,877.00 on account of sundry creditors made by the learned A.O. on the basis of remand report submitted by the A.O. In view of this, the grounds taken on this issue being not sustainable is liable to be rejected in the interest of justice." 18. In view of our decision in revenue's appeal, Ground Nos.1 to 4 of cross objection have become infructuous and hence, dismissed. 19. Ground No.5 of cross objection reads as under: " For that, since disallowance of 25% of total expenses of Rs. 8,72,77,179.00 on estimation basis was excessive taking into consideration of nature of business and without any basis, the learned C.I.T.(A) is justified in restricting such disallowance to 2%, hence the grounds taken....
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....puted by ld D.R. Hence, we find that addition made by the CIT(A) was on wrong appreciation of facts and, therefore, we set aside the order of the CIT(A) and delete the addition of Rs. 10,40,713/ and allow this ground of cross objection of the assessee. 26. Ground No.7 and 8 of cross objection read as under: 7. For that, when the learned A.O as well as the learned C.I.T.(A) himself have verified evidences and accepted the fact that Rs. 61,55,000.00 were invested by the partners and these investments were made while meeting the business exigency of the Firm by partners, the learned C.I.T(A) should not have disallowed it in the hand of the Firm by applying section 40A(3) of the Act on the basis of remand report without issuing any notice to the Appellant. In view of this the impugned disallowance confirmed by the learned C.I.T.(A) is liable to be deleted in the interest of justice. 8. For when section 40A(3) of the Act has no application under the facts and in the circumstance of the case, the learned C.I.T(A) should not have applied this section to disallow Rs. 61,55,000.00. Thus the impugned disallowances being not sustainable in the eye of law is liable to be d....