Smt. R.Selvi, Erode v. ITO, Erode

IN THE INCOME-TAX APPELLATE TRIBUNAL: D- BENCH: CHENNAI (BEFORE SHRI ABRAHAM P GEORGE AM & SHRI G EORGE MATHAN JM) ITA NO.2607/MDS/2007 ASSESSMENT YEAR 2001-02 SMT. R.SELVI VS. THE ITO. 24 PARK ROAD ERODE 638001 WARD I(3 ) ERODE (GIR NO. 13PS0118) (APPLICANT) (RESPONDENT) APPLICANT BY: SHRI N.DEVANATHAN RESPONDENT BY: SHRI KEB RENGARAJAN JR. S TANDING COUNSEL ORDER PER ABRAHAM P.GEORGE ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE AGAINS T AN ORDER DATED 01-10-2007 OF THE CIT(A)-I COIMBATORE HER GRIEVANCE IS THAT ADDITIO N OF ` 94 92 177/- MADE BY THE AO CONSIDERING SUNDRY CREDITORS AS UNEXPLAINED WAS CO NFIRMED BY THE CIT(A). 2. SHORT FACTS APROPOS ARE THAT ASSESSEE A DEALER IN TEXTILES HAD FILED A RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING T OTAL INCOME OF ` 96 022/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE WAS R EQUIRED TO PRODUCE HER ACCOUNTS ITAA NO.2607/MDS/07 2 AND OTHER DOCUMENTS IN SUPPORT OF HER RETURN. ASSES SEE COULD NOT DO SO. EXPLANATION OF THE ASSESSEE WAS THAT THE BOOKS WERE WITH M/S ORIEN TAL INSURANCE CO. DIVISIONAL OFFICE ERODE FOR SUPPORTING AN INSURANCE CLAIM FILE D BY HER. AO REQUESTED THE INSURANCE COMPANY FOR SUCH BOOKS OF ACCOUNT AND THE SAID INSU RANCE COMPANY FURNISHED THE PURCHASE BILLS AND SALE BILLS TO THE AO. AS PER THE SAID INSURANCE COMPANY THESE WERE THE ONLY ITEMS AVAILABLE WITH THEM. ASSESSEE WAS CA LLED UPON BY THE AO TO FILE DETAILS OF THE SUNDRY CREDITORS AND SUCH DETAILS WERE INDEED F ILED BY HER HUSBAND SHRI K.K.RAMALINGAM WHEN HE APPEARED BEFORE THE AO. AO ISSUED SUMMONS TO SUCH CREDITORS AND THESE WERE RETURNED WITH ENDORSEMENT THERE IS NO SUCH ADDRESSEE. EXPLANATION OF THE ASSESSEE WAS SOUGHT FOR NON-SERVI CE OF THE SUMMONS. THOUGH ASSESSEE FILED A REPLY AS PER AO THIS WAS EVASIVE AND WAS OF NO EVIDENTIARY VALUE. SUNDRY CREDITORS OF ` 94 92 177/- WAS THUS ADDED AS UNEXPLAINED CREDITS B Y THE AO. 3. IN HER APPEAL BEFORE THE CIT(A) SUBMISSION OF TH E ASSESSEE WAS THAT THERE WAS A FIRE IN THE PREMISES HOUSING HER BUSINESS HER HUSB ANDS BUSINESS AND THE BUSINESS OF THE FIRM WHERE HER FAMILY MEMBERS WERE PARTNERS AND IN SUCH FIRE ALL RECORDS AND ENTIRE STOCK WERE DESTROYED. AS PER ASSESSEE SUBSE QUENT TO THE FIRE THERE WAS DISCONTINUATION OF BUSINESS AND CONSEQUENTLY NO CON TINUITY OF TRANSACTION WITH THE SUNDRY CREDITORS. FURTHER EXPLANATION WAS THAT RELA TIONSHIP WITH THE CREDITORS WAS STRAINED AND DUE TO DISCONTINUATION OF BUSINESS S HE COULD NOT OBTAIN CORRECT AND COMPLETE POSTAL ADDRESS OF SUCH CREDITORS. FURTHER AS PER THE ASSESSEE SHE HAD GIVEN THE ADDRESS AS FOUND ON THE PURCHASE BILLS BELIEVIN G IT TO BE CORRECT. AGAIN AS PER ITAA NO.2607/MDS/07 3 ASSESSEE THERE WAS A NEW LEVY OF CENVAT UNDER CENT RAL EXCISE ON TEXTILE GOODS DURING THE IMPUGNED ASST. YEAR AND CONSEQUENT TO IT SOME OF THE TEXTILE MANUFACTURERS WHO HAPPENED TO BE ASSESSEES CREDITORS HAD CLOSED TH EIR BUSINESS. IN ANY CASE AS PER ASSESSEE THE ENTIRE BALANCE OUTSTANDING AS ON 31-0 3-2001 WAS BEING ADDED ONLY FOR A REASON THAT THE LETTERS SENT TO SUCH CREDITORS WERE RETURNED UNDELIVERED AND THIS WAS CONTRARY TO EQUITY AND NATURAL JUSTICE. ASSESSEE AL SO FURNISHED BEFORE THE LD. CIT(A) LETTERS OF 37 PERSONS ALONGWITH COPIES OF CERTAIN C ONFIRMATIONS WHICH WERE ALL FORWARDED BY THE CIT(A) TO THE AO FOR A REMAND REPORT. IN SUC H REMAND REPORT THE AO STATED AS FOLLOWS: KIND REFERENCE IS SOLICITED TO THE ABOVE. AS DIREC TED BY THE CIT(A)-I . COIMBATORE SUMMONS WAS SERVED ON THE ASSESSEE ON 3 0-11-2006 IN RESPONSE TO WHICH THE ASSESSEES AUTHORIZED REPRESENTATIVE VID E HIS LETTER DATED 8-12-2006 FURNISHED LIST OF NAME AND ADDRESS OF THE SUNDRY CR EDITORS ETC. AS AT 31-3-2001 WITH SUPPORTING EVIDENCES LIKE COPY OF RECEIPTS ETC . IN ORDER TO VERIFY THE GENUINENESS AS WELL AS CREDIT WORTHINESS OF THE CRE DITORS SUMMONS WERE ISSUED TO ALL THE 37 PERSONS OF THE ADDRESSES FURNISHED BY THE ASSESSEE. THE ENTIRE SUMMONS EXCEPT ONE ADDRESSED TO M/S BHARANI TEX ERO DE-8 ARE RETURNED UNSERVED WITH POSTAL ENDORSEMENTS NO SUCH ADDRESSE E INSUFFICIENT ADDRESS ETC AND THERE WAS NO RESPONSE TO THE SUMMONS SERVED ON BHARANI TEX ON THE DATE WHEN IT WAS POSTED FOR HEARING. WHEN THIS WAS PUT FORTH THE ASSESSEE VIDE THIS OFFI CE LETTER DATED 28-12-200 THE ASSESSEE FILED A LETTER DATED 181-1-2007 REQUESTED FOR FURTHER TIME OF 2 WEEKS FOR FURNISHING ADDRESSES AND THE SAME IS YET TO REC EIVE IN THIS OFFICE. MEANWHILE VIDE HER LETTER DATED 15-12-2006 THE ASSESSEE FURN ISHED ANOTHER LIST OF ADDRESSES WHICH HAS NO RELEVANCE WITH THE ADDRESSES AS SEEN ON THE COPY OF RECEIPTS ENCLOSED WITH THE EARLIER LIST OF ADDRESSE S FILED ON 8-12-2006. IN THE CIRCUMSTANCES IT IS SUBMITTED THAT THE ASSES SEE IS GIVEN AMPLE TIME TO SUBSTANTIATE HER CLAIMS HOWEVER FAILS. IT IS FELT T HAT THE CONFIRMATION OF BALANCE BY SUNDRY CREDITORS SUBMITTED BEFORE THE CIT(A)-I COIMBATORE APPEARS TO BE FABRICATED AND THE ASSESSEE IS NOT ABLE TO EVEN PRO VE THE EXISTENCE OF SUCH CREDITORS BY FURNISHING CORRECT ADDRESSES. ITAA NO.2607/MDS/07 4 4. IT SEEMS SUBSEQUENT TO THE RECEIPT OF SUCH REMA ND REPORT ASSESSEE AGAIN FURNISHED CERTAIN SUBMISSIONS REGARDING THE SUNDRY CREDITORS WHICH WERE AGAIN FORWARDED TO THE AO BY THE CIT(A). IN THE SECOND RE MAND REPORT AO OBSERVED AS UNDER: KIND REFERENCE IS SOLICITED TO THE ABOVE. AS DIREC TED BY THE CIT(A) IN ORDER TO CAUSE NECESSARY ENQUIRIES U/S 250(4) OF THE ACT SU MMONS WERE ISSUED TO ALL THE CREDITORS AT THE ADDRESSES FURNISHED BY THE APPELLA NT VIDE THEIR WRITTEN SUBMISSIONS BEFORE THE CIT(A). THE ENTIRE SUMMONS R ETURNED UNSERVED WITH POSTAL ENDORSEMENTS NO SUCH ADDRESSEE. IN THE CIR CUMSTANCES THE CASE WAS POSTED ON 5-1-2007 ASKING THE ASSESSEE TO ADDUCE HE R EXPLANATION IN PERSON ON THE SAME. ON 5-7-2007 SHRI K.K.RAMALINGAM ASSESSEES HUSBAND APPEARED AND FURNISHED A LETTER FROM SMT.SELVI THE ASSESSEE WHERE IN IT IS STATED THAT SHE HAS ;SUBMITTED A LETTER DT.25-5-2007 (FILED IN THIS OFFICE ON 330-5- 2007) ENCLOSING THE PRESENT ADDRESSES OF THE PARTIES AND REQUEST ED FOR THE ISS UE OF LETTERS AFRESH TO THE PARTIES IN THE ADDRESSES GIVEN. AS ALREADY REPOSTED VIDE THIS OFFICE REPORT DT.1.2. 2007 ASSESSEE IS NOT ABLE TO EVEN PROVE THE EXISTENCE OF CREDITORS AND ONLY TRIE S TO GAIN TIME BY FURNISHING FALSE LIST OF ADDRESSES TO MISLEAD THE DEPARTMENT. THE ASSESSEE ORIGINALLY FILED A LIST OF ADDRESSES ON 8-12-2006 THROUGH HER AUTHORIZ ED REPRESENTATIVE AS SUPPORTED BY COPIES OF RECEIPTS ETC. ISSUED BY THE CREDITORS IN RESPONSE TO SUMMONS SERVED U/S 131 OF THE ACT ON 30-11-2006. SU BSEQUENTLY OPTED TO FURNISH A REVISED SET OF ADDRESSES ON 15-12=-2006 W HICH HAS NO RELEVANCE WITH EARLIER LIST OF ADDRESSES FILED ON 8-12-2006. WHEN LTHE CASE WAS TAKEN UP BY THE CIT(A0 THE ASSESSEE HAS FURNISHED ANOTHER SET OF AD DRESSES VIDE HER SUBMISSIONS BEFORE THE CIT(A) WHICH IS QUITE NEW FROM THE EARLI ER TWO SET OF ADDRESS. WHEN THIS OFFICE ATTEMPTED TO EXAMINE THE GENUINENESS OF THE THIRD SET UP ADDRESSES THE ASSESSEE HAS COME WITH ANOTHER SET OF ADDRESSES (FOURTH SET) ON 305-2007 AND REQUESTED FOR THE ISSUE OF LETTERS AFRESH. ALL THE ABOVE FACTS LEAD TO SUSPECT THAT THE ASSESS EE IS ONLY TRYING TO GAIN TIME BY FURNISHING FABRICATED LIST OF ADDRESSES FROM TIM E TO TIME TO OFFSET HER INABILITY TO PROVE THE GENUINENESS OF THE CREDITS. ACCORDINGL Y IT IS FELT THAT THE CREDITS APPEARING AS ON 31-3-2001 IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT GENUINE AS ALREADY HELD BY THE AO IN HIS ASSESSMENT ORDER DATED 30-3-22004. ITAA NO.2607/MDS/07 5 5. LD. CIT(A) AFTER GOING THROUGH THE REMAND REPORT S AND SUBMISSIONS OF THE ASSESSEE WAS OF THE OPINION THAT ASSESSEE COULD NO T ESTABLISH WITH SUFFICIENT SUPPORTING EVIDENCE EXISTENCE OF THE PARTIES APPEA RING AS SUNDRY CREDITORS IN HER BALANCE SHEET AND THE CAPACITY OF THESE CREDITORS T O ADVANCE THE AMOUNTS. ACCORDING TO LD. CIT(A) ASSESSEE FAILED TO ESTABLISH THE GENUIN ENESS OF THE TRANSACTIONS. HE THEREFORE CONFIRMED THE ADDITION MADE BY THE AO. 6. NOW BEFORE US LD. AR SUBMITTED THAT THERE WAS A FIRE IN THE PREMISES OF THE ASSESSEE ON 14-09-2001 SUBSEQUENT TO WHICH BUSINESS OF THE ASSESSEE WAS STOPPED. IN SUPPORT OF THIS HE RELIED ON THE ORDER OF THE J URISDICTIONAL HIGH COURT IN A.NO.2917 2917 AND 2919 OF 2004 DATED 01-12-2006 COPY OF WHICH HAS BEEN PLACED AT PB PAGES 7 TO 33. AS PER LD. AR ASSESSEES BUSI NESS WAS PART OF A GROUP AND OPERATED ON THE SAME PREMISES AS OF THE OTHER GROUP CONCERNS WHICH CONSISTED OF A CONCERN OWNED BY SHRI K.K.RAMALINGAM HUSBAND OF TH E ASSESSEE AND A PARTNERSHIP FIRM IN WHICH ASSESSEES FAMILY MEMBERS WERE PARTN ERS. AS PER LD. AR A CLAIM WAS PUT UP BEFORE THE INSURANCE COMPANY FOR THE LOSS SUFFER ED ON ACCOUNT OF THE FIRE DUE TO LOSS OF STOCK AND RECORDS. THUS AS PER THE LD. AR IT WAS DUE TO THIS REASON THAT ASSESSEE COULD NOT GIVE COMPLETE ADDRESS OF THE CRE DITORS. LD. AR SUBMITTED THAT BEFORE LD. CIT(A) ASSESSEE HAD SUBMITTED CREDIT CONFIRMAT IONS ALONGWITH AFFIDAVITS RATION CARD COPIES AND CASH RECEIPTS OBTAINED FROM SUCH PARTIES ON PAYMENTS EFFECTED BY ASSESSEE TO THEM IN THE LATER YEAR. COPIES OF THESE WERE PLA CED AT PB PAGES 27 TO 1693. PLACING RELIANCE ON THE LIST OF SUNDRY CREDITORS AND THEIR ADDRESSES GIVEN BY THE ASSESSEE BEFORE ITAA NO.2607/MDS/07 6 CIT(A) COPIES OF WHICH ARE PLACED AT PB PAGES 7 TO 11 LD. COUNSEL ARGUED THAT IN EACH CASE OF THE SUNDRY CREDITORS ASSESSEE HAD FURNISHE D CORRECT ADDRESS AND THE AFFIDAVITS ALSO CARRIED THE CORRECT ADDRESS BUT THESE DETAILS AND EVIDENCE WERE IGNORED BY THE AO AS WELL AS LD. CIT(A). FURTHER AS PER LD. AR THESE WERE ALL TRADE CREDITORS ARISING OUT OF PURCHASES MADE BY ASSESSEE AND PURCHASES WERE NEVE R DOUBTED BY AO. THEREFORE ACCORDING TO HIM TO CONSIDER WHOLE OF THE TRADE CR EDITORS AS NON EXISTENT AND MAKING AN ADDITION ON SUCH A HYPOTHESIS WAS NOT JUSTIFIED IN THE FACE OF THE RECORDS PRODUCED BY THE ASSESSEE. 7. PER CONTRA LD. DR SUBMITTED THAT WHOLE OF THE C REDIT PURCHASES WERE FROM JAWLY GREY AND AGAINST THE CREDITS OF ` 94 92 177/- THE DEBTORS OF THE ASSESSEE AT THE END OF THE RELEVANT PREVIOUS YEAR WAS ONLY ` 41 33 407/- AS PER BALANCE SHEET APPEARING AT PB VOL.II P. 53. HENCE AS PER LD. DR ASSESSEES CLAIM OF SUNDRY CREDITORS WAS NOT BELIEVABLE. PLACING RELIANCE ON THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PAPER BOOK VOL.II P.51 LD. DR ARGUED THAT ASSESSE E HAD EFFECTED CASH SALES OF JOWLY MUCH MORE THAN THE JOWLY GREY PURCHASES AND THEREFO RE IN HIS OPINION CREDITORS OUTSTANDING AS ON 31-03-2001 COULD NOT BE BELIEVED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RECORDS. BALANCE SHEET OF THE ASSESSEE AS ON 31-03-2001 SHOWED SUNDR Y CREDITORS BALANCE OF ` 97 94 015-80 OUT OF WHICH A SUM OF ` 94 92 177/- WAS CONSIDERED AS UNEXPLAINED BY ITAA NO.2607/MDS/07 7 THE AO. ESSENTIALLY WHAT WE NOTE IS THAT NONE OF T HESE WERE LOAN CREDITORS BUT WERE ONLY TRADE CREDITORS. SUCH CREDITORS HAD COME ABOUT THROUGH PURCHASE TRANSACTIONS OF JAWLY GREY BY THE ASSESSEE. AO HIMSELF HAS ADMITTED THAT THE INSURANCE COMPANY TO WHICH HE HAD WRITTEN HAD REPLIED AND FURNISHED THE PURCHASE BILLS AND SALES BILLS FOR THE RELEVANT PREVIOUS YEAR. THUS WHATEVER JAWLY GREY PU RCHASES WERE MADE BY THE ASSESSEE UNDOUBTEDLY THESE WERE SUPPORTED BY PURCH ASE BILLS. PURCHASES SHOWN BY THE ASSESSEE WAS NOT AT ALL DOUBTED BY THE AO. ASSESSE E HAD INITIALLY GIVEN THE ADDRESS OF THE SUNDRY CREDITORS BASED ON THE PURCHASE BILLS. THERE IS NO CASE FOR THE REVENUE THAT THE PURCHASE BILLS WERE FABRICATED OR A PIECE OF IN VENTED EVIDENCE. THE PURCHASES HAVING BEEN TREATED AS GENUINE ASSESSEE COULD NOT BE FAULTED IF IT PLACED RELIANCE ON SUCH PURCHASE BILLS FOR OBTAINING THE ADDRESS OF TH E SUNDRY CREDITORS. WHEN AO PUT THE ASSESSEE ON NOTICE THAT SUMMONS ISSUED TO SUCH ADDR ESS WERE RETURNED ASSESSEE MADE FURTHER INVESTIGATION AND GAVE A NEW LIST OF A DDRESS PB PAGES 7 TO 25 WHICH GIVE THE NEW ADDRESS OF EACH OF THE SUNDRY CREDITORS WOU LD CLEARLY SHOW THAT THE NAME OF THE PARTIES WERE ALL SAME BUT ONLY THEIR ADDRESSES HAD CHANGED. ASSESSEE BEING A TRADER IN TEXTILES PURCHASING GOODS FROM VARIOUS P ARTIES WE CANNOT EXPECT IT TO KEEP A TRACK OF EACH OF ITS VENDORS AND WHERE THEY HAD SH IFTED THEIR OFFICE OR BUSINESS. THE ONUS CAST ON AN ASSESSEE VIS--VIS CREDITORS ARISIN G OUT OF PURCHASES AND VIS- A VIS CREDITORS ARISING OUT OF THE LOANS CANNOT BE EQUAT ED OR VIEWED IN THE SAME MOULD. IN THE CASE OF LOANS EVIDENCES ARE REQUIRED TO PROVE THE GENUINENESS OF THE TRANSACTION CAPACITY OF THE CREDITORS AND MODE OF RECEIPT. BUT IN THE CASE OF PURCHASE CREDITORS GENUINENESS IS ESTABLISHED BY THE PURCHASE BILLS IT SELF WHICH HAS NOT BEEN DOUBTED HERE. ITAA NO.2607/MDS/07 8 AN ASSESSEE CANNOT BE ASKED TO EXPLAIN THE SOURCE F ROM WHOM THE SELLER HAD SOURCED ITS FUNDS TO FINANCE THEIR SALE. IN OUR OPINION GE NUINENESS OF THE PURCHASE TRANSACTIONS WERE NEVER QUESTIONED HERE. ASSESSEE HAD TAKEN EVER Y EFFORT TO FILE AFFIDAVITS COPIES OF WHICH ARE ALL PLACED AT PB PAGES 27 TO 1693 AND THE SE WERE FILED BEFORE THE CIT(A) AND OPINION OF THE AO ALSO RECEIVED THEREON. GRIEVANCE OF THE AO AS SEEN FROM THE REMAND REPORT REPRODUCED BY CIT(A) IN HIS ORDER AND ALSO BY US AT PARA-4 ABOVE IS THAT ASSESSEE HAD GIVEN DIFFERENT LIST OF ADDRESS AND T HERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FURNISH CORRECT ADDRESS. IN OUR OPINIO N THIS WOULD NOT BY ITSELF DISPROVE THE TRADE CREDITS. IN ADDITION TO CONFIRMATIONS AND AFFIDAVITS ASSESSEE HAD EVEN GIVEN COPIES OF RATION CARDS.IN OUR OPINION THE ONUS OF T HE ASSESSEE VIS--VIS TRADE CREDITORS STOOD MORE THAN DISCHARGED. ASSESSEES PURCHASES WE RE NOT DOUBTED. IN FACT THE PURCHASE BILLS WERE OBTAINED DIRECTLY FROM THE INSU RANCE COMPANY. THERE IS NO CASE FOR THE REVENUE THAT THE FIRE IN THE BUSINESS PREMISES OF THE ASSESSEE WAS A STORY PUT UP BY THE ASSESSEE. IN OUR OPINION PURCHASES AND SALE S HAVING NEVER BEEN DOUBTED CONSIDERING THE SUNDRY CREDITORS WHICH WERE ENTIREL Y TRADE CREDITORS AS NON-EXISTENT WAS UNCALLED FOR. ASSESSEE HAD ALSO PRODUCED RECORDS BE FORE CIT(A) TO SHOW THAT PAYMENTS WERE EFFECTED TO SUCH CREDITORS IN THE SUBSEQUENT Y EAR. THUS ASSESSEE HAD PROVED THE SUNDRY CREDITORS WHICH WERE ENTIRELY ARISING OUT O F HER PURCHASES AND PROPERLY DISCHARGED HER ONUS. AO AS WELL AS LD.CIT(A) FELL I N ERROR IN TREATING THE TRADE CREDITS ON PAR WITH LOAN CREDITS AND IN COMING TO A CONCLUS ION THAT THE ASSESSEE HAS FAILED TO PROVE THE CAPACITY OF CREDITORS TO ADVANCE SUCH AMO UNT WHEN IN FACT NONE OF THE ITAA NO.2607/MDS/07 9 CREDITORS HAD ADVANCED ANY AMOUNT BUT ONLY SOLD GO ODS TO THE ASSESSE GIVING RISE TO THE CREDIT BALANCES. THE ADDITIONS WERE TOTALLY UNC ALLED FOR. IT STANDS DELETED. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 25-02-2011. .SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 25TH FEBRUARY 2011. CC: THE ASSESSEE 2)THE ASSESSING OFFICER 3)THE C IT(A) 4) THE CIT 5)THE D.R 6)GUARD FILE. NBR