TaxTMI 
TaxTMI 
2018 (11) TMI 1003
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....h 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 a copy of the affidavit attested by the Notary public, Berhampur confirming drawin....
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....ation 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: Rs. 5,84,37,741.00 Assets Application of funds assets Current assets, loans & advances : Nil Bills receivable 1. Gopalpur Po....
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....nd 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 humble opinion, no separate addition by way of recasting of balance sheet for the year ended 31.3.2012 was required to be carried out." After considering the remand report, the CIT(A) observed that there is no justification to m....
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....e 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 and balance as on 31.03.2012. The assessee had at that time claimed that due to cyclone phylin, the same could not be furnished. Presently, the assessee has furnished list of sundry creditors along with copies of confirmation and Return of Income filed by the sundry c....
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.... 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 goods or services and unless the AO proves that the goods or services were never supplied, he cannot make an addition on account sundry creditors. Keeping the above in view and the report of the AO, the addition of Rs. 4,42,82,877/- on account of sundry creditors is deleted." 11. Ground No.5 of appeal reads as under: " On the facts and circumstances of the case, the Ld. CIT(A) is not justified in restricting the disallowance made out of the total expenses under different heads amounting to Rs. 8,72,77,179/- at the rate of 2%, whic....
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....ly. 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 M/s. Monalisha Parija a total amount of Rs. 10,70,713/-without deduction of tax at source as per the requirement of law. Hence, this amount is required to be disallowed u/s.40(a)(ia). From the balance expenses of Rs. 8,62,06,466/- (Rs.8,72,77,179 minus Rs. 10,70,713) a disallowance of 2% may be made to take care of the probable non-genuine expenses included therein. Accordingly, the disallowance to be made comes to Rs. 17,24,129/-. Besides, a disallowance of Rs. 10,70,413/- is to be made u/s.40(a)(ia). Hence, out of the total disallowance of Rs. 2,18,19,295/-, disallowance of RsJ127,94,542/- is confirmed and the balance of Rs. 1,90,2....
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.... 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 on this issue being devoid of any merit needs to be rejected in the interest of justice." 20. No arguments were advanced by ld A.R. of the assessee with regard to Ground No.5 of cross objection and hence, same is dismissed. 21. Ground No.6 of cross objection reads as under: " For that, when the learned C.I.T.(A) himself directed to disallow 2% of total expenses of Rs. 8,72,77,179.00, he should not have again applied section 40(a)(ia) of the Act to disallow part of such expenses, on the basis of Remand Report without issuing any notice to the Assessee, when the learned A.O has no Authority to suggest the learned C.I.T.(A) to disallow Rs. 10,70,413.00 by applying section 40....
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.... 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 deleted." 27. The brief facts of the case are that the Assessing Officer disallowed Rs. 61,55,000/- by invoking the provisions of section 40A(3) of the Act being the payment made in cash by the assessee to the following four parties: i) Santosh Kumar Moharana : Rs.39,25,000 ii) Ahi Bhusan Sahu : Rs.10,50,000 iii) Subhas Kr Moharana : Rs. 8,50,000 iv) Sabyasachi Panda : Rs. 3,30,000 28. On appeal, the CIT(A) confirmed the addition by observing as under: "I have considered the matter. On the facts of the case, it is clear that the capital introduced by the partners cannot be taxed as unexplained since all the partners are assessed to tax and their creditworthiness cannot be doubted fro....