Calcutta H.C : Where assessee took care to purchase materials for business by way of account payee cheques from a third party and after three years said third party did not appear before Assessing Officer pursuant to notice or even had stopped business, claim of assessee on that account could not be discarded as non-existent

High Court Of Calcutta

Diagnostics vs. CIT

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

Assessment Year : 1998-99

Section : 40A(2)

IT Appeal No. 153 Of 2004

March  4, 2011

JUDGMENT

Bhaskar Bhattacharya, J.-This appeal under section 260A of the Income-tax Act, 1961 is at the instance of the assessee and is directed against the order dated November 13, 2003, passed by the Income-tax Appellate Tribunal, “B” Bench, Kolkata in I.T.A. No. 1507/Kol/2001 for the assessment year 1998-99.

2. The facts leading to the filing of the present appeal may be summed up thus :

(a) The appellant filed its return of income for the assessment year 1998-99 with the statement of accounts and in the said return, the assessee disclosed a loss of Rs. 300.

(b) After filing of the return, the Assessing Officer processed the return of income under section 143(1)(a) on the total income of Rs. 23,129 raising a demand of Rs. 10,850. Notice under sections 143(2) and 142(1) was thereafter served upon the appellant and in response to the said notice, the authorized representative appeared before the Assessing Officer. The appellant alleged that it had made payment of Rs. 1,00,737 to M/s. Imprint’s-N-Trade, a sum of Rs. 50,675 to M/s. Soma Enterprises and a further sum of Rs. 3,12,302 to M/s. Selvas Photographics.

(c) So far as the payments made to M/s. Selvas Photographics are concerned, it appears that those were paid by account payee cheques for the purpose of transaction of business conducted by the appellant.

(d) As regards the payments made to M/s. Soma Enterprises and M/s. Imprint’s-N-Trade those were, however, made by cash.

(e) The Assessing Officer gave opportunity to the appellant to produce those three parties for verification of the claim, but it appears that none of them appeared before the Assessing Officer.

(f) In such circumstances, the Assessing Officer was of the view that those were fictitious claim.

3. Being dissatisfied, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals) and the said officer accepted the claim of the appellant regarding payment on those three accounts.

4. Being dissatisfied, the Revenue preferred an appeal before the Tribunal below and by the order impugned herein, the said Tribunal has allowed the appeal preferred by the Revenue in respect of those three items.

5. The Appellate Tribunal came to the conclusion that those transactions with those three parties could not be established and the purchases were found to be bogus. According to the Tribunal below, although the assessee was given full opportunity none of those three parties were traceable at the given address and the assessee also could not produce them for verification. In such circumstances, the Tribunal below was of the view that the Commissioner of Income-tax (Appeals) was not justified in reversing the order of the Assessing Officer in the facts and circumstances of the case.

6. Being dissatisfied, the assessee has come up with the present appeal.

7. It appears from record that a Division Bench of this court, at the time of admission of the appeal, formulated the following substantial questions of law :

“(i) Whether on the facts and in the circumstances of the case the learned Tribunal was right in law in holding that genuine purchase from M/s. Selvas Photographics, M/s. Soma Enterprises and M/s. Imprint’s-N-Trade were bogus when on the contrary the relevant documents and/or evidence in support of the said transactions and the existence of the parties were made available before the same and whether the said arbitrary confirmation and/or addition of amounts of Rs. 3,12,302, Rs. 50,675 and Rs. 1,00,737, respectively, is perverse ?

(ii) Whether on the facts and in the circumstances of the case the learned Tribunal could ignore the order of the Commissioner of Income-tax (Appeals) which was the order impugned before the learned Tribunal and which contained the necessary details about the genuineness of the transaction of the petitioner and whether such total go-by of the order of the Commissioner of Income-tax (Appeals) and on the contrary confirmation of the order of the Assessing Officer was perverse ?”

8. After hearing Mr. Sen, the learned advocate appearing on behalf of the appellant, and Mr. Agarwal, the learned advocate appearing on behalf of the Revenue and after going through the materials on record, we agree with the Tribunal below that so far as the purchases from M/s. Soma Enterprises and M/s. Imprint’s-N-Trade were concerned, the alleged payments being made in cash and the amount involved being Rs. 50,675 and Rs.1,00,737, respectively, during the relevant assessment year and at the same time, the appellant having failed to produce any of the aforesaid parties except the bills alleged to be raised by those two concerns, the Tribunal below was justified in disbelieving those transactions and we do not find any reason to interfere with such finding which is basically a finding of fact based on appreciation of material evidence.

9. However, as regards the payments made to M/s. Selvas Photographics are concerned amounting to Rs. 3,12,302, we find that those have been made by account payee cheques and those have been encashed through the bankers of M/s. Selvas Photographics. It appears that according to the appellant, at the time of assessment, the appellant had no business transaction with M/s. Selvas Photographics and consequently, the said party did not co-operate with the Assessing Officer. However, the transaction having taken place through account payee cheques, we are unable to accept the contention of Mr. Agarwal, the learned advocate appearing for the Revenue that the transaction was a non-existent one. If an assessee took care to purchase materials for his business by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the Assessing Officer pursuant to the notice or even has stopped the business, the claim of the assessee on that account cannot be discarded as non-existent. In the case before us, the Revenue has not put forward any other ground, such as, it was not a genuine transaction for other reasons but has simply rejected the claim on the ground as if there was no such transaction.

10. The transaction having taken place through payment by account payee cheques, such plea is not tenable and in such circumstances, the Tribunal below erred in law in reversing the finding arrived at by the Commissioner of Income-tax (Appeals) accepting the said transaction as a genuine transaction.

11. We, therefore, set aside the order of the Tribunal below only in respect of the deletion of the amount of Rs. 3,12,302 paid to M/s. Selvas Photographics by account payee cheques and direct the Assessing Officer to deduct the said amount as business expenditure of the appellant.

12. We, thus, answer the two questions in favour of the assessee only in respect of Rs. 3,12,302 but affirm the order of the Tribunal in respect of other two payments allegedly made to M/s. Soma Enterprises and M/s. Imprint’s-N-Trade.

13. The appeal is, thus, disposed of in terms of the aforesaid order.

14. In the facts and circumstances, there will be, however, no order as to costs.

Sambuddha Chakrabarti J.-I agree.

[Citation : 334 ITR 111]

Leave a Reply

Your email address will not be published. Required fields are marked *