The judgment of the court was delivered by
These two appeals have been preferred by the revenue against the order passed by Income Tax Appellate Tribunal, Bengaluru Bench in ITA No.986/Bang/2011 and ITA No.956/Bang/2011 dated 30.01.2014 whereunder appeal filed by the revenue is partly allowed and the appeal filed by the assessee came to be allowed.
2. Assessee is a partnership firm carrying on the business as cotton merchants and commission agents. For the Assessment year 2006-07 assessee filed its return of income on 24.10.2007 declaring the total income as Nil. On such return being selected for scrutiny assessment order came to be framed under section 143(3) on 29.12.2009 after issuing notice and hearing the assessee. The Assessing Officer found that assessee had shown sundry creditors (trade creditors) totaling to Rs. 10,37, 33,867/- in the balance sheet and as such called upon assessee to file confirmation. On account of non filing of such confirmation and on assessee’s failure to furnish the postal address of such creditors for verification of the balances a sum of Rs. 3,60,00,000/- was added to the total income of the assessee out of total sundry creditors. In the course of the assessment proceedings assessing officer noticed that the gross profit declared by the assessee for the earlier assessment years and the present assessment year were at variance and as such the gross profit was adopted at 4% of the total turnover.
3. Being aggrieved by this order assessee preferred an appeal before CIT(Appeals). The appellate authority during the course of proceedings called for remand report from the Assessing Officer and specifically directed the Assessing Officer to verify ledger extract and confirmations which were produced before him and submit the report on the admissibility of the same. Assessing Officer filed three remand reports and found that assessee had proved the persons and also genuineness of the transactions by producing confirmations as well as ledger extracts in its books and held that the assessee had maintained regular books of accounts which are subjected to audit under section 44AB. It was also held that since the assessee had discharged his initial burden the Assessing Officer had not brought on record to show that these outstanding balances are not genuine. Hence, he disallowed the addition of Rs. 3,60,00,000/- made by the Assessing Officer and deleted the said addition. On the issue of Gross Profit adopted by the Assessing Officer at 4% it came to be held that assessee had maintained regular books of accounts and also stock register which are duly audited under section 44AB of the Income Tax Act and concluded that differential gross profit of Rs. 5,99,101/- is to be sustained as against gross profit of Rs. 32,43,994/- made by the Assessing Officer.
4. Being aggrieved by order of CIT(Appeals) on the issue of sundry creditors, revenue filed ITA No.986/Bang/2011 and also raised a ground in the said appeal with regard to gross profit issue contending that gross profit adopted at 4% of the total turnover by the Assessing Officer was correct and modification of the same by the CIT(Appeals) was erroneous. Assessee in ITA No.956/Bang/2011 contended that CIT(Appeals) erred in sustaining the gross profit addition to an extent of Rs. 5,99,101/-. The appellate Tribunal after considering the rival contentions by order dated 30.01.2014 allowed the appeal of the assessee and deleted the addition of Rs. 5,99,101/- made by CIT(Appeals) on the issue of gross profit. On the issue of sundry creditors the tribunal held that in the remand report submitted by the Assessing Officer the sundry creditors had been bifurcated into three categories A, B and C and in respect of sundry creditors listed under A category there was no dispute since Assessing Officer himself had accepted the plea of the assessee of these creditors were genuine. Insofar as sundry creditors reflected under B and C categories the matter came to be remanded to Assessing Officer for fresh consideration for the reasons indicated in paragraph 11 and 12 of the order of the tribunal. Hence, these two appeals have been preferred by the revenue.
5. We have heard Sri.Ameet Kumar Deshpande, learned standing counsel appearing for the appellants and Sri.V.Chandrashekar, learned counsel appearing for the respondent-assessee.
6. It is the contention of Sri.Ameet Kumar Deshpande that Assessing Officer had issued notices to various creditors but no reply had been received and as such the burden was on the assessee to produce his creditors and discharge the onus. He would further contend despite opportunity extended by the Assessing Officer to the assessee to produce the creditors it was not done. He would also contend that the tribunal has grossly erred in ignoring the comparable cases considered by the Assessing Officer while estimating the gross profit at 4% and tribunal ought to have appreciated the details of cotton, kapas etc., mentioned in the trading account furnished along with the return is devoid of quantity stock tally and are not comparable of verification which would in itself is a discrepancy justifying the addition. On these grounds he contends that the substantial questions of law is to be framed, adjudicated and answered.
7. Per contra, Sri.V.Chandrashekar, learned counsel appearing for respondent would support the order of the tribunal and contends that findings recorded by the tribunal are all questions of fact and there is no substantial questions of law involved in these appeals and he prays for rejection of the appeals.
8. Having heard learned advocates appearing for the parties and on perusal of the orders of the Assessing Officer, CIT(Appeals) and ITAT, we notice that on the issue of sundry creditors Assessing Officer had added to the total income of the assessee firm a sum of Rs. 3,60,00,000/- out of total sundry creditors of Rs. 10,37,33,867/-. The CIT(Appeals) held that the assessee had proved the identity of the persons and genuineness of the transactions by producing confirmation as well as ledger extracts in its books and evidence in the form of bank account extracts to demonstrate that payments were made through bank account only. It was also held that assessee had maintained regular books of accounts and they were subjected to audit under section 44AB. However, the tribunal while reappreciating the evidence tendered by assessee had called for remand report from the Assessing Officer and on receipt of such remand report the sundry creditors were categorized under three categories namely;
1. Where no variation in the amount outstanding balances is found – Annexure-A
2. Letters issued to some of the creditors which were not served on them since not available/door locked and returned by the postal authority and in some cases where though duly served confirmation letters are not received –Annexure-B
3. Sundry Creditors wherein excess amount of outstanding balances shown –Annexure-C
9. From out of the above, tribunal found that sundry creditors who were categorized under Annexure- A there was no dispute since the Assessing Officer himself had accepted that these creditors were genuine. Insofar as Annexure-B sundry creditors are concerned it came to be held that Assessing Officer had not issued summons under section 131 of the Act to compel their attendance and there was no break up in the remand report as to which of the creditors were served but not replied or on whom it was not served. In the factual background discussed in detail by the tribunal at paragraph 11 the said issue came to be remanded to the Assessing Officer for fresh consideration. Likewise this Annexure-C sundry creditors are concerned tribunal held that assessee had filed reconciliation of some of the accounts before the Assessing Officer did not result in Assessing Officer demanding any further evidence from the assessee to substantiate the reconciliation. As such tribunal held that assessee should be afforded an opportunity to explain the discrepancy with regard to 26 creditors out of 36 creditors. By reserving liberty to file any other supporting evidence to substantiate its case the issue came to be remanded by the tribunal to the Assessing Officer.
10. The facts as discussed hereinabove would clearly indicate that these are purely questions of fact and does not involve substantial question of law.
11. Insofar as the estimation of gross profit made by the Assessing Officer modified by the CIT(Appeals), tribunal has rightly held that when the books of accounts of the assessee had not been rejected and assessment having not been framed under section 144 of the Income Tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of accounts of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in Section 145(3) of the Act are satisfied for rejection of the books of accounts. Thus, when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of accounts maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Assessing Officer for arriving at gross profit and sustained by the CIT(Appeals) and rightly held that entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law.
For reasons indicated herein above, we proceed to pass the following:
ORDER
1. ITA No.200001/2014 and ITA No.200002/2014 are hereby dismissed.
2. The order passed by Income Tax Appellate Tribunal –“A” Bench, Bengaluru in ITA No.986/Bang/2011 and ITA No.956/Bang/2011 for the assessment year 2007-08 is hereby affirmed.
3. Parties are directed to bear the cost of these proceedings.