Commissioner of Income Tax vs Manish Enterprises

This appeal under s. 260A of the IT Act, 1961 against the order dt. 13th Dec., 2013 passed by the Income-tax Appellate Tribunal ''C'' Bench, in ITA No. 1209/Kol/2009 for the asst. yr. 2005-06 has been preferred by the Revenue on the following questions:

"(i) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law and was not justified in dismissing the appeal filed by Revenue on the issue of addition of Rs. 30,93,325 made by the AO for undisclosed cash purchases and introducing bogus sundry creditors.

(ii) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law and was not justified in dismissing the appeal filed by Revenue on the issue of addition of Rs. 30,93,325 made by the AO for undisclosed cash purchase and introducing bogus sundry creditors is perverse keeping in view the fact that the AO had irrefutably proved these facts after making an extensive enquiry.

(iii) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law and was not justified in dismissing the appeal filed by Revenue is perverse keeping in view the non-consideration of following facts:

(a) Out of seven sundry creditors in relation to which addition was made by the AO, four were proprietary concerns of one individual and three were proprietary concern of another individual and a genuine businessman would not float multiple proprietary concerns for the same business.

(b) None of the seven sundry creditors for whom addition was made was available at the address given by the assessee on inquiry through Inspector and the assessee was unable to provide their latest address despite sufficient opportunity given during assessment proceedings.

(c) The amount given to the purported sundry creditors through cheque in subsequent years was either withdrawn in cash or transferred to proprietary concerns of the same persons.

(d) Almost entire purchase purportedly made from these sundry creditors were outstanding at the end of the previous year which is not a normal business practice.

(e) Payment by cheque by itself does not prove that the purchases/sundry creditors were genuine, especially, in view of the facts mentioned above.

(iv) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law and was not justified in dismissing the appeal filed by Revenue without considering the facts of the case as well as applicable statute in the case and is therefore,-perverse and liable to be set aside."

Heard Ms. A.G. Ghutghutia, learned advocate appearing for the appellant/petitioner, and Mr. Ananda Sen, learned advocate for the respondent-assessee.

In support of her contention, Ms. A.G. Ghutghutia relied upon two decisions, one is in Civil Appeal No. 2540 of 2007 Commissioner of Income Tax Vs. P. Mohanakala, and the other is unreported judgment in IT Appeal No. 493 of 2013 [CIT v. Empire Budtech (P) Ltd.] which are of no help to the Revenue in the facts and circumstances of this case.

We find that the AO had called for information from the Branch Manager, Vijaya Bank, N.S. Road Branch, Kolkata-1 of which the assessee was the constituent under s. 133(6} of the Act and had found as under:

"To verify the genuineness of the claim of payment against purchase for the year, vide this office letter No. ITO, Ward-35(4)/Kol/2007-08/1063 dt. 4th Dec, 2007, an information was sought under s. 133(6) of the Act, from the Branch Manager, Vijaya Bank N.S. Road, Branch, Kolkata-1 regarding the name of the clearing bank, branch and name of the account holder where those cheques have been cleared.

The reply of the branch manager reveals that the cheques issued from the bank account of the assessee (Vijaya Bank, N.S. Road, Kolkata-1) have been cleared in the name of the above concern to following bank and branch."

By dismissing the appeal, the Tribunal in its order had dealt with the assessment order as well as the order passed by the CIT(A) and held, inter alia, as follows:

"6.1 It is clear from the AO''s observation that the addition was made by him by doubting the purchases having been made by paying cash. As per the discussions made by the lower authorities in their respective orders, we find that the assessee has filed copies of respective purchase bills/challans and the details of payment made by account payee cheques drawn in favour of respective creditors and copies of bank statement of respective parties have also been filed.

6.2 In respect of some of the parties the opening balances are also carried forward from the earlier years, to whom the payments were made during the year by account payee cheques. Details of ledger account and copies of bill clearly indicate that the purchases were made from these parties and payments were made through bank in favour of these parties. Merely because after 2-3 years, the parties were not available at the given addresses, the AO presumed and made the addition by observing that the assessee has purchased goods by making cash payments. Once the goods ordered had been supplied satisfactorily and payments had been made by account payee cheques, the assessee is not supposed to keep track of the addresses of suppliers. However, no defect was pointed out by the AO in the books of account so as to allege availability of cash or to dislodge the reply of the assessee that the payments were made by account payee cheques. These creditors are not old creditors and also paid by account payee cheques after the purchases were materialised so as to presume that there was cessation of liability.

6.3 The creditors were paid by account payee cheques after purchases, thus, the liability is squared up by making actual payment. After recording detailed findings at para 4.3, the learned CIT(A) has deleted the addition by observing that the assessee has made actual purchases from 8 parties, who have been paid by account payee cheques. Relevant copies of ledger account, purchase bills/challans and bank statements were also filed before the AO, which clearly established that purchases were actually made from said 8 parties. The AO has not brought any material to establish that the assessee has made purchases in cash. On the other hand, material on record proved that the payments were made by account payee cheques, which were duly debited in the assessee''s bank account and credited in the bank accounts of the suppliers. AO himself verified the payments made by the assessee and such payments were duly credited in the bank account of the respective parties. The detailed finding recorded by the learned CIT(A) as reproduced above has not been controverted by bringing any positive material by the Revenue. Accordingly, we do not find any reason to interfere in the findings of the learned CIT(A) resulting in deletion of addition made on account of purchases."

Since the Tribunal had found from the materials on record that payments were made by account payee cheques which were duly debited to the assessee''s bank account and credited in the bank accounts of the suppliers and the AO had presumed and made the addition by observing that the assessee had purchased goods by making cash payments, in our view, there is no substantial question of law arises. Hence, the application and the appeal are dismissed.