IN INCOME TAX APPELLATE TRIBUNAL BENCH, CHENNAI, BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . I.T.A. Nos.1211 & 1212 Mds 2014 Assessment years : 2009-10 & 2010-2011 Deputy Commissioner Vs. M s. Olympic Cards Ltd, of Income Tax, 165, NSC Bose Road, Company Circle V(4) Chennai 600 001. Chennai 600 034. [PAN AAACO 3651L ] ( Appellant) ( Respondent) Appellant by : Shri. Shiva Srinivasas, IRS, JCIT. Respondent by : Shri. R. Venkatesh, C.A. Date of Hearing : 07-09-2016 Date of Pronouncement : 21-09-2016 ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: appeals filed by Department are directed against common order of Commissioner of Income-tax (Appeals)-V, Chennai in ITA No.738, 832 13-14(A)-V, dated 20.12.21013 for :- 2 -: ITA Nos.1211 & 1212 Mds 14 above assessment years passed u s.143(3) and 250 of Income Tax Act, 1961 (herein after referred to as Act ). 2. first ground raised by Revenue in these two appeals are that ld. Commissioner of Income Tax (Appeals) erred in deleting addition made u s.40(a)(ia) of Act on ground that expenses were paid before 31.03.2009 and disallowance u s.40(a) (ia) of Act can be made only for payments lying outstanding as on 31.03.2009 relying on various judicial pronouncements. For sake of convenience, we take up facts in ITA No.1211 Mds 2014 of assessment year 2009-2010 for adjudication. 3. Brief facts of case are that lorry freight charges of .24,47,934 - having been directly incurred on various occasions and dates for different lorry hires in course of business, there is force in assessee 's, submissions that Sec. 194C do not apply to such payments to various lorry freights supported with decision of Punjab & Haryana High Court in case of Bagavathy Steels reported in 326 .ITR 108. In this case, assessee has not deducted any TDS in respect of all four items of expenses including that on lorry freight charges. Therefore, following decisions in case of Vector Shipping and Merlyn Shipping and in case of Sathya :- 3 -: ITA Nos.1211 & 1212 Mds 14 Tours & Travels, decided by Hon'ble "B" Bench ITA T, Chennai in ITA' No. 706 & CO No. 91 Mds 2013 ld. Commissioner of Income Tax (Appeals) constrained to follow jurisdictional ITA T order and also following other judicial precedents as mentioned above directed ld. Assessing Officer to delete addition of 26,29,613 -. Aggrieved by order, assessee filed appeal before Commissioner of Income Tax (Appeals). 4. In appellate proceedings, ld. Commissioner of Income Tax (Appeals) deleted addition. Aggrieved by Commissioner of Income Tax (Appeals) order, Revenue has assailed appeal before Tribunal. 5. After hearing both parties, we are of opinion that similar issue was considered by Co-ordinate Bench of Tribunal in case of T. Palanivelu vs. Income Tax Officer, in ITA No. 618 Mds 2015, dated 29.04.2015 wherein it was held as under:- 3. We have heard both sides and perused material on record. We find that Special Bench of Tribunal in case of Merilyn Shipping and Transports vs. ACIT (2012) 136 ITD 23 (Visakhapatnam) and judgment of Gujarat High Court in case of CIT vs. M s. Vector Shipping Services (P) Ltd in ITA No.122 of 2013 dated 09.7.2013 held that sec 40(a)(ia) is not applicable when there is no outstanding balance at end of close of year relevant to assessment yea in respect of these payment. However, assessee :- 4 -: ITA Nos.1211 & 1212 Mds 14 has not brought on record, details of outstanding expenses or schedule of sundry creditors showing whether impugned amount is outstanding at end of close of previous year relevant to assessment year either in name of party or outstanding expenses. Hence, in interest of justice, we are remitting issue back to file of Assessing Officer with direction to verify claim of assessee and assessee shall place necessary evidence in support of his claim. 4. Further, we make it clear that if impugned amount is not outstanding at end of close of assessment year in respect of expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to Assessing Officer for fresh consideration . In view of above order of Tribunal, we are inclined to remit issue to file of ld. Assessing Officer for fresh consideration. This ground of Revenue is partly allowed for statistical purpose. 6. Next ground raised in ITA No.1211 Mds 2014 of assessment year 2009-2010 is that ld. Commissioner of Income Tax (Appeals) erred in holding that 3.05 lakh, out of 4.08 lakh has been expended for purchase of AC, paneling and installation charges to be of Revenue in nature on ground that they have negligible resale value and use if dismantled by relying on Madras High Court decisions in Madras Auto Services in 233 ITR 468 and TVS Lean Logistics 293 ITR 432. :- 5 -: ITA Nos.1211 & 1212 Mds 14 7. After hearing both parties, we are of opinion that amount incurred for paneling and installation charges of Air Conditioners in leasehold building cannot be considered as Capital Revenue in view of judgment of jurisdictional High Court in case of Madras Auto Services and TVS Lean Logistics (supra). Accordingly, we do not find any infirmity in order of ld. Commissioner of Income Tax (Appeals) and same is confirmed. This ground of Revenue is dismissed. 8. Next ground in ITA No.1212 Mds 2014 of assessment year 2010-2013 is that ld. Commissioner of Income Tax (Appeals) erred in deleting addition made u s.68 on ground that Sec. 68 cannot be invoked in respect of trade creditors. 9. facts of case are that ld. Assessing Officer added total of credit side of ledger account of three parties i.e. Gurudev Enterprises 56,29,871 -, Universal Papers 40,37,270 - and Star Screens 15,47,051 -, total aggregating to 1,12,14,192 -. amounts added, though described as balance, are not balance due to parties but aggregate of all credits in their respective account which includes opening balance and also bank transaction. three trade parties had supplied products to :- 6 -: ITA Nos.1211 & 1212 Mds 14 assessee were registered under T.N VAT CST act. goods purchased as per invoices of parties had been received and payments were made for supply through bank regularly and these details were with ld. AO in as much as details of bank account and cash account transactions were given. In respect of each of three trade creditors assessee made submissions that case of M s. Universe papers, Assessee had purchased JK papers from said party. said trade party is registered TN VAT dealer having TIN No 33801242852 2008-2009 and CST NO.955249. It was submitted that Assessee had availed Input tax credit in TN VAT return, in electronic mode which was allowed in electronic cross verification and also by revenue authorities which reflects that trade transaction had been carried out with trade party. TN VAT Assessment order for impugned year was placed before ld. Assessing Officer payment to creditor had been made regularly through account payee cheques mounting to Rs.20,36,552 - as may be seen from their account and bank statements. Assessee is listed public limited company having many divisions and managed by professionals. According to assessee identifying of trade supplier party is not prerequisite to transact with them. On other hand product; quality, timely supply etc :- 7 -: ITA Nos.1211 & 1212 Mds 14 are important which are carried out with appropriate check and controls of making payment only after supply of goods purchased. registered office of business entity need not be place of its business. Therefore, it is not possible nor required cause on Assessee to produce trade parties. Further, it cannot be case of ld. Assessing Officer that purchases are not made as purchased products had been received, taken to stock and used in process of business of Assessee. In these circumstances, it is highly erroneous to invoke provisions of Sec. 68 on aggregate of purchase credits of 40,37,270 for disallowance. This fact was brought to ld. AO vide letter dated 22.03.2013 filed in proceedings. In respect of Star Screens it is registered TN VAT dealer having TIN No 3391162131 2008-2009 and CST NO.955049 and had supplied paper products. It is submitted that Assessee had availed Input tax credit in TN VAT return, in electronic, mode which was allowed in electronic cross verification and also by revenue authorities which reflects that trade transaction had been carried out with trade party. TN VAT Assessment order for impugned year was also placed before ld. Assessing Officer. payment to trade creditor had been made regularly through account payee cheques amounting to 5,46,382 - as :- 8 -: ITA Nos.1211 & 1212 Mds 14 may be seen from their account and bank statements. Assessee is listed public limited company havinq many divisions and managed by professionals. Identifying of trade supplier party was not prerequisite to transact with them, On other hand product, quality, timely supply etc are important which are carried out with appropriate check and controls of making payment only after supply of goods purchased. registered office of business entity need not be place of its business. Therefore it is not possible nor required cause on Assessee to produce trade parties. Further, it cannot be case of ld. AO that purchases are not made as purchased products had been received taken to stock and used in process of business of Assessee . In these circumstances, it is highly erroneous to invoke provisions of Sec 68 on aggregate of purchase credits of 15,47,051 - for disallowance. This fact was brought to ld. AO vide letter dated 22.03.2013. In case of M s. Gurudev Enterprises, partly is supplier of paper in. Ld AO did not give any pre-assessment notice for proposing aggregate of credit in said trade creditor to be disallowed u s 68. It was submitted that Assessee had availed Input tax credit in TN VAT return, in electronic mode which was allowed in electronic :- 9 -: ITA Nos.1211 & 1212 Mds 14 cross verification and also by revenue authorities which reflects that trade transaction had been carried out with trade party. TN VAT Assessment order for impugned year was submitted before ld. Assessing Officer payment to trade creditor had been made regularly through account payee cheques amounting to Rs.20,22,556 - as may be seen from their account and bank statements. Assessee is listed public limited company having many divisions and managed by professionals. Identifying of trade supplier party is not prerequisite to transact with them, On other hand product; quality, timely supply etc are important which are carried out with appropriate check and _ controls of making payment only after supply of goods purchased. registered office of business entity need not be place of its business. Therefore it is not possible nor required cause on Assessee to produce trade parties. Further, it cannot be case of ld. AO that purchases are not made as purchased products had been received, taken to stock and used in process of business of Assessee. In these circumstances, it is highly erroneous to invoke provisions of Sec 68 on aggregate of purchase credits including opening balance of 56,29,871 - for disallowance. This fact was brought to ld AO vide letter dated 22.03.2013 filed in :- 10 -: ITA Nos.1211 & 1212 Mds 14 proceedings. opening balance in account is 1,50,000 - (credit) and closing balance is 36,07,315 -(credit). However, ld. Assessing Officer added credit amounts in account of parties u s.68 of Act. Aggrieved by order, assessee filed appeal before Commissioner of Income Tax (Appeals). 10. In appellate proceedings, ld. Commissioner of Income Tax (Appeals) observed from account statement and details filed before him that u s.68 of Act AO has added aggregate of credits in account of three purchase parties amounting to 1,12, 14,192 -. These credits represent purchase of materials on various dates under various invoices from respective parties, except that in case of Gurudev Enterprises, aggregate of credit of 56,29,871 - taken by AO for addition, includes opening credit balance of .1,50,000 - as on 01.04.2009. three trade creditors are registered dealers under TN VAT CST Act. assessee had taken credit for VAT paid on purchases made from three parties as per their invoices and has filed TN VAT CST returns through electronic mode quoting registration number of parties. It is shown that :- 11 -: ITA Nos.1211 & 1212 Mds 14 VAT credit from three parties have been allowed to establish that 3 trade creditors are in business and had carried on invoice with assessee. In support of this assessee has also placed TN VAT & CST assessment order for impugned year. In present indirect tax administration monitored and regulated electronically, transaction with registered dealer quoting number are matched to establish claim for tax credits. In present case, view of AO that parties are registered dealers and payments to them were made through cheques cannot be conclusive proof for genuineness of transaction, cannot be valid legal ground to sustain addition. submissions of assessee that it is large business entity and dealing with large number of suppliers, it is not pre requisite to identify their address in transacting with them, especially when goods purchased are delivered at door filed, it cannot be said that payments have not been made; payments are delayed but made through bank. It was not case here, that no payments have been made or that trade creditors are carried over months and years. Commissioner of Income Tax (Appeals) was of opinion that assessee had purchased from registered dealers and registration number for purpose of availing VAT credit was :- 12 -: ITA Nos.1211 & 1212 Mds 14 accepted in electronic mode involved in process of assessment in VAT CST Act is valid ground in favour of assessee s claim. case laws relied by assessee especially that of Allahabad High Court in case of CIT vs. Pancham Dass Jain 156 Taxmann 507 support plea of assessee that requirement of proof and conditions laid in Sec. 68 cannot be enforced in respect of creditors from whom purchases have been made. Accordingly, ld. Commissioner of Income Tax (Appeals) deleted addition of 1,12,14,192 -. Aggrieved by Commissioner of Income Tax (Appeals) order, Revenue has assailed appeal before Tribunal. 11. Before us, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) failed to consider fact that no such creditors existing in address given by assessee in case of Universal Papers and Gurudev Enterprises and in respect of third party viz Star Screens, confirmation submitted did not clearly show name of person who furnished them. Further, ld. Commissioner of Income Tax (Appeals) failed to appreciate that assessee did not prove beyond doubt and with conclusive evidence that existing of creditors and hence, ld. :- 13 -: ITA Nos.1211 & 1212 Mds 14 Assessing Officer was right in law in making addition u sec. 68 of Act. 12. On other hand, ld. Authorised Representative submitted that details of enquiry conducted by ld. Assessing Officer was not furnished to assessee. He also submitted that these are trade creditors and also ld. Assessing Officer considered opening balance as unexplained credit u s.68 of Act without making proper enquiry and as such submitted that order of Commissioner of Income Tax (Appeals) has to be affirmed. 13. We heard rival submissions, perused material on record. Admittedly, ld. Assessing Officer made enquiry regarding nature of transactions. Some parties are not properly responded. Further, ld. Assessing Officer has not put enquiry report before assessee for its comments. In our opinion enquiry report required to be furnished to assessee for assessee s comments. Further, ld. Commissioner of Income Tax (Appeals) observed that in respect of trade creditors of Sec. 68 of Act cannot be applied which is also not correct. Whenever any credit appeared in Books of account in relevant assessment year, assessee bound to prove identity and capacity of parties and genuineness of :- 14 -: ITA Nos.1211 & 1212 Mds 14 transactions. burden cast on assessee in not discharged by assessee. Hence, we remit issue to file of ld. Assessing Officer to prove all incredence before ld. Assessing Officer. Accordingly, this issue is remitted to file of ld. Assessing Officer for fresh consideration. assessee shall co-operate with ld. Assessing Officer and it has to prove transactions. ground of Revenue is partly allowed for statistical purpose. 14. In result, appeals of Revenue in ITA No.1211 Mds 2014 is dismissed and ITA No.1212 Mds 2014 is partly allowed for statistical purpose. Order pronounced on Wednesday, 21st day of September, 2016, at Chennai. Sd - Sd - (G. PAVAN KUMAR) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai Dated:21.09.2016 KV Copy to: 1. Appellant 3. ( ) CIT(A) 5. DR 2. Respondent 4. CIT 6. GF Deputy Commissioner of Income-tax, Company Circle V(4) Chennai v. M/s. Olympic Cards Ltd