M/s. Choksi Surendrakumar Rasiklal, Nadiad V. The Income tax Officer,Ward-2, Nadiad

ITA 1167/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6497 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-04-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 09-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND MOHANDR
• Assessee Lawyers: P B DOSHI
• Keywords: Rejection of books of accounts; Unexplained expenditure; Business income; Deemed to accrue or arise in india; Assessment record; Commercial expediency
• Section: 69C; 133A; 12A; 143(1); 69B; 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' [BEFORE SHRI T K SHARMA,JM AND SHRI A N PAHUJA,AM] ITA NO.1167/AHD/2006 (ASSESSMENT YEAR: 2002-03) M/S CHOKSI SURENDRAKUMAR RASIKLAL, CHOKSI BAZAR, NADIAD [PAN:AAAHC5726K] V/S THE INCOME-TAX OFFICER, WARD-4, NADIAD (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI P B DOSHI, AR REVENUE BY:- SHRI ANAND MOHAN,DR O R D E R A N PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 24-03-2006 OF THE LD. CIT(APPEALS)-IV, BARODA, RAIS ING EIGHT GROUNDS OF APPEAL, WAS EARLIER DISMISSED VIDE ORDER DATED 5.8.2009.SUBSEQUENTLY, THE SAID ORDER DATED 5.8.200 9 WAS RECALLED VIDE ORDER DATED 5.3.2010 IN MA NO.305 OF 2009. ACC ORDINGLY, THE APPEAL WAS SCHEDULED FOR THE HEARING ON 5.4.2010. 2 ADVERTING FIRST TO GROUND NO.1 RELATING TO TRADIN G ADDITION OF RS.2,06,176/-, GROUND NO.2 RELATING TO ADDITION ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF RS.3,83,561/- AN D GROUND NO.5 IN RESPECT OF AMOUNT OF RS. 14 LACS SURRENDERED DURING THE COURSE OF SURVEY AND ADDED U/S 69 OF THE ACT, FACTS, IN BRIEF , AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING INCOME OF RS.1 ,78,660/- FILED ON 17.10.2002 BY THE ASSESSEE, DEALING IN GOLD ORNAMEN TS, AFTER BEING PROCESSED ON 28.2.2003 U/S 143(1) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT], WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 8.4.2003. IN THIS CASE A SURVEY U/S 133A OF THE ACT WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 19-2-2002, WHE N PHYSICAL STOCK OF 21717.57 GRAMS OF GOLD ORNAMENTS WAS FOUND AS AGAINST STOCK OF 18847.095 GRAMS AS PER BOOKS. FOR THE EXCE SS GOLD STOCK ITA NO.1167/AHD/2006 2 OF 2870.475 GRAMS, THE KARTA OF THE HUF SHRI SUREND RAKUMAR RASIKLAL CHOKSI SURRENDERED AN ADDITIONAL INCOME OF RS.14 LAKHS FOR THE YEAR UNDER CONSIDERATION DURING THE COURSE OF S URVEY. LATER IN REPLY TO QUESTION NO.2 OF HIS STATEMENT RECORDED O N 28.2.2002, SHRI SURENDRAKUMAR RASIKLAL CHOKSI ADMITTED THAT THE EXC ESS STOCK OF 2870.475 GMS VALUED AT RS. 14 LACS WAS HIS CURRENT INCOME AND ASSURED TO PAY TAX ON THE SAID AMOUNT. HOWEVER, AT THE TIME OF FILING OF THE RETURN, THE ASSESSEE DECLARED TOTAL INCOME O F RS.1,78,616/- ONLY AND HAD SHOWN NET LOSS OF RS.12,51,981/- IN TH E P&L ACCOUNT (EXCLUDING INCOME DECLARED AT THE TIME OF SURVEY). 2.1 ACCORDING TO THE AO, DESPITE SURRENDER OF INCO ME OF RS. 14 LACS DURING THE COURSE OF SURVEY, THE ASSESSEE HAD SHOWN THE GP OF 13.30% ONLY FOR THE YEAR UNDER CONSIDERATION AS AGAINST THE GP OF 21.01% DECLARED IN THE AY 2001-02, 17.14% IN THE AY 2000-01 & 12.42% IN THE AY 1999-2000. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SHORTFALL IN THE GP WAS DUE TO FLUCTUATING PRIC ES OF THE GOLD AND THE COMPETITIVE BUSINESS. OFTEN GOODS WERE SOLD AT LOWER PRICE TO CAPTURE THE MARKET. IT WAS POINTED OUT THAT THE ASS ESSEE WAS MAINTAINING COMPLETE QUANTITATIVE RECORDS. INTER AL IA, THE ASSESSEE RELIED UPON A NUMBER OF DECISIONS. HOWEVER, THE AO DID NOT ACCEPT THE PLEA OF THE ASSESSEE WITH THE OBSERVATIONS TH AT FACTS IN THE CASE UNDER CONSIDERATION WERE DIFFERENT FROM THE FA CTS IN THE DECISIONS CITED BY THE ASSESSEE. SINCE THE ASSESSEE HIMSELF DECLARED EXCESS STOCK OF 2870.75 GMS. OF GOLD ORNAM ENTS WHILE THE OPENING AND CLOSING STOCK WERE NOT SUPPORTED BY THE NECESSARY EVIDENCES AND THE MAJORITY OF THE BILLS CONTAINED T HE NARRATION NEW ORNAMENTS WITHOUT DISCLOSING THE EXACT DETAILS OF EITHER GOODS PURCHASED FROM THE MARKET OR RECEIVED FROM THE REFI NERY OR CUSTOMERS NOR QUANTITY WAS MENTIONED IN THE STOCK STATEMENT WHILE PROPER STOCK REGISTER WAS NOT MAINTAINED, THE AO R EJECTED BOOK RESULTS, HAVING RECOURSE TO PROVISIONS OF SEC. 145 OF THE ACT ACCORDINGLY, THE AO ADOPTED AVERAGE GP OF 18% OF THE PRECEDING THREE YEARS AND MADE AN ADDITION OF RS.2,06,176/-. BESIDES, THE AO ALSO ADDED THE SURRENDERED AMOUNT OF RS.14,00,000/- ON ACCOUNT OF ITA NO.1167/AHD/2006 3 STOCK DIFFERENCE FOUND AT THE TIME OF THE SURVEY U/ S 69 OF THE ACT, HOLDING THAT THE ASSESSEE HAD NOT BEEN ABLE TO EXPL AIN THE NATURE AND THE SOURCE OF INVESTMENT IN THE SAID EXCESS STO CK. 2.2 APART FROM THE AFORESAID ADDITION, THE AO FUR THER NOTICED THAT THE ASSESSEE HAD UNDERVALUED THEIR CLOSING STOCK I N VIEW OF THE FACT THAT THE OPENING STOCK REMAINED UNSOLD UNTIL THE CL OSE OF THE YEAR. THE ASSESSEE HAD SOLD 7980.730 GRAMS OF GOLD ORNAME NTS AND PURCHASED 7251.505GMS IN THE YEAR UNDER CONSIDERATI ON.ADOPTING FIFO METHOD, THE AO WAS OF THE OPINION THAT CONSIDE RING SALE OF ORNAMENTS OUT OF OPENING STOCK, THE ASSESSEE HAD ST ILL 11230.87 GMS UNSOLD OUT OF OPENING STOCK. SINCE THE ASSESSE E HAD ACCEPTED THE VALUE OF RS.400/- PER GRAM FOR THE OPENING STOC K AND OF THE BALANCE STOCK @ RS.487.72 PER GRAM, DURING THE SURV EY, THE AO BY APPLYING THE FIFO METHOD (FIRST IN FIRST OUT) DETER MINED THE DIFFERENCE IN THE VALUATION OF CLOSING STOCK AT RS.5,83,615/- AND ADDED THE SAME TO THE INCOME OF T HE ASSESSEE. 3 ON APPEAL, THE ASSESSEE MERELY REITERATED THEIR SUBMISSIONS BEFORE THE AO. AFTER CONSIDERING THE SUBMISSIONS MA DE BY THE ASSESSEE, THE LD. CIT(A) SUSTAINED THE ADDITION OF RS.2,06,176/-, HOLDING AS UNDER:- AT THE TIME OF THE HEARING OF APPEAL, THE APPELLAN T BASICALLY REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THAT SINCE, THE PR ICE OF GOLD HAD BEEN FLUCTUATING FROM YEAR TO YEAR, THEREFORE, THE G.P. COULD NOT REMAIN CONSTANT. THAT THE APPELLANT HAD TO SELL THE GOODS AT THE COMPETITIVE PRICE TO INCREASE THE SALES. IT HAS ALSO BEEN CLAIMED THA T COMPLETE QUANTITATIVE RECORDS OF GOLD AND GOLD JEWELLERY IS KEPT BY THE A PPELLANT AND THE ACCOUNTS ARE AUDITED. IT HAS BEEN ARGUED THAT ONCE THE PROVISIONS OF SECTION 145 OF THE ACT ARE INVOKED AND THE G.P. ADD ITION OF RS.2,06,176/- HAS BEEN MADE TO THE INCOME OF THE APPELLANT THEN F URTHER ADDITION OF RS.5,83,615/- FOR UNDERVALUATION OF CLOSING STOCK C ANNOT BE MADE TO THE INCOME OF THE APPELLANT AS IT WILL AMOUNT TO DUPLIC ATION OF ADDITIONS. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE FINDINGS OF THE A.O. AND OBSERVE THAT GOLD PRICES IN THE MARKET ARE CONTINUOUSLY ON RISE IN THE PAST FEW YEARS, THEREFORE, FLUCTUATION IF ANY, IN THE PRICE OF GOLD CAN NOT LEAD TO DECLINE IN THE AVERAGE PRICE OF THE GOLD VI S A VIS THE PRECEDING YEARS. FURTHER, SINCE HUGE DIFFERENCE IN-THE-STOCK OF GOLD WAS FOUND AT THE TIME OF THE SURVEY RESULTING IN THE DECLARATION OF UNDISCLOSED INCOME OF RS.14 LAKHS FOR THE CURRENT YEAR SHOW THAT THE ACCO UNTS WERE NOT PROPERLY ITA NO.1167/AHD/2006 4 MAINTAINED BY THE APPELLANT, HENCE, THE TRADING RES ULTS SHOWN BY THE APPELLANT ARE NOT RELIABLE. IN THE CIRCUMSTANCES, T HE ACTION OF THE A.O. INVOKING THE PROVISIONS OF SECTION 145 IS JUSTIFIED . HENCE, THE ADDITION OF RS.2,06,176/- MADE BY THE A.O. ON THE BASIS OF THE AVERAGE G.P. OF 18% COMPUTED BY TAKING THE G.P. OF LAST THREE YEARS IS JUSTIFIED AND ACCORDINGLY, THE SAME IS SUSTAINED. 4 AS REGARDS THE ADDITION OF RS.5,83,615/- MADE ON THE BASIS OF UNDERVALUATION OF CLOSING STOCK, THE CIT(A) RESTRIC TED THE ADDITION TO RS.3,76,439/- IN THE FOLLOWING TERMS:- AS MENTIONED ABOVE THAT BY APPLYING THE FIFO METHO D, THE A.O. HAS ALSO DETERMINED THE UNDERVALUATION OF CLOSING STOCK AT R S.5,83,615/- AND HAS ADDED THE SAME TO THE INCOME OF THE APPELLANT. THE APPELLANT'S ARGUMENTS THAT FIFO METHOD CANNOT BE APPLIED FOR VALUATION OF THE CLOSING STOCK OF A JEWELLER BECAUSE THE DEMAND AND PRICE OF JEWELLERY KEEPS ON CHANGING DUE TO THE CHANGE IN THE FASHION AND TRENDS IN THE MARKET IS NOT ACCEPTABLE BECAUSE THE DEMAND AND THE PRICE OF ALL CONSUMABLE GOODS IN THE MARKET DEPEND ON THE TREND OF CONSUMPTION. THE FIFO IS A PRACTICAL AND REASONABLE METHOD FOR VALUATION OF THE VALUE OF STOCK OF SUCH ITEMS WHOSE PRICES ARE FLUCTUATING IN THE MARKET. THE APP ELLANT'S FURTHER ARGUMENTS THAT AFTER MAKING THE TRADING ADDITION OF RS.2,06,176/- ON THE BASIS OF THE AVERAGE G.P. OF THE LAST THREE YEARS A ND THEN AGAIN ADDING THE DIFFERENCE DUE TO UNDERVALUATION OF CLOSING STO CK OF RS.5,83,615/- WOULD AMOUNT TO DOUBLE ADDITION, HAS SOME LOGIC. MA KING OF BOTH THE ADDITIONS DO LEAD TO DUPLICATION OF INCOME. HENCE, IN THE CIRCUMSTANCES, IT WILL BE APPROPRIATE AND REASONABLE IF THE ADDITION MADE ON THE BASIS OF UNDERVALUATION OF CLOSING STOCK AMOUNTING TO RS.5,8 3,615/- IS REDUCED BY THE TRADING ADDITION OF RS.2,06,176/-. ACCORDINGLY, THE ADDITION OF RS.5,83,615/- MADE ON THE BASIS OF UNDERVALUATION O F CLOSING STOCK IS RESTRICTED TO RS.3,76,439/-. 5 FOR THE ADDITION OF RS.14,00,000/- ON ACCOUNT OF SURRENDER OF ADDITIONAL INCOME BY THE ASSESSEE, THE CIT(A) CONFI RMED THE ADDITION AS UNDER:- AS REGARDING THE ADDITION OF RS.14,00,000/- WHICH W AS CATEGORICALLY DECLARED BY THE APPELLANT AS INCOME OF THE CURRENT YEAR AT THE TIME OF THE SURVEY, I HOLD THAT THE ASSESSING OFFICER WAS JUSTI FIED IN ADDING THE SAID AMOUNT U/S.69 OF THE ACT AS THE APPELLANT HAS NOT B EEN ABLE TO EXPLAIN THE NATURE AND THE SOURCE OF INVESTMENT IN THE EXCESS S TOCK FOUND AT THE TIME OF THE SURVEY. THE APPELLANT ON ONE HAND HAS CLAIME D TO HAVE CREDITED THE SAID AMOUNT TO THE PROFIT AND LOSS ACCOUNT AND ON T HE OTHER HAND HAS ALSO DEBITED THE STOCK TO THAT EXTENT, THUS, NEUTRALIZIN G THE EFFECT OF DECLARATION. IN THE CIRCUMSTANCES, THE ADDITION MADE BY THE A.O. UNDER SECTION 69 OF THE ACT IS CONFIRMED. ITA NO.1167/AHD/2006 5 6 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED A R ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT SINCE HE AO HAD MADE TRADING ADDITI ON AFTER REJECTION OF BOOK RESULTS, NO FURTHER ADDITION ON A CCOUNT OF UNDERVALUATION OF STOCK WAS JUSTIFIED. THE LD. AR A DDED THAT AMOUNT OF RS. 14 LACS SURRENDERED BY HIM WAS ON ACCOUNT OF BUSINESS INCOME. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, DURING THE COURSE OF SURVEY, STOCK OF 2870.475 GMS WAS FOUND TO BE EXCESS. APPARENTLY, THE ASSESSEE WAS FOUND TO BE CARRYING ON SUBSTANTIAL BUSINESS OUTSIDE THE BOOKS OF ACCOUNTS AND DID NOT MAINTAIN ANY PROPER STOCK REGISTER. CONSEQUENTLY, THE ASSESSEE DECLARED ADDIT IONAL INCOME OF RS. 14,00,000/- . NEITHER BEFORE THE AO/LD. CIT(A), THE ASSESSEE COULD EXPLAIN THE SOURCE OF INVESTMENT IN THE EXCESS STOCK FOUND DURI NG THE COURSE OF SURVEY NOR ANY MATERIAL OR EXPLANATION HAS BEEN PLACED BEFORE US. THE AO FURTHER NOTICED THAT GP RATE WAS MUCH LOWER AT 13.30% AS COMPARED T O 21.01% IN THE PRECEDING ASSESSMENT YEAR AND 17.14% IN THE AY 2000-01. THE AO AND THE LD. CIT(A) FOUND THAT OPENING AND CLOSING STOCK WAS NOT AMEN ABLE TO VERIFICATION IN THE ABSENCE OF PROPER STOCK RECORDS NOR THE ASSESSEE CO ULD EXPLAIN THE FALL IN GP RATE. IN THE LIGHT OF THESE FACTS AND THERE BEING N O MATERIAL IN SUPPORT OF THEIR EXPLANATION FOR FALL IN GP RATE, THE LD. CIT(A) U PHELD THE FINDINGS OF THE AO IN REJECTING BOOK RESULTS AND ESTIMATION OF GP . THE L D. AR ON BEHALF OF THE ASSESSEE APPEARING BEFORE US DID NOT DISPUTE THE AF ORESAID FINDINGS OF FACTS RECORDED BY THE LOWER AUTHORITIES. IN THESE CIRCUMS TANCES, ONCE THE ASSESSEE FAILED TO FURNISH THE RELEVANT DETAILS AND SUBSTANT IATE THE TRADING RESULTS FOR THE RELEVANT PERIOD UNDER CONSIDERATION, IT WAS OPEN T O THE AO AND THE LD. CIT(A) TO REJECT THE BOOK RESULTS AND ESTIMATE THE GROSS PROF IT. IT IS NOT A CASE WHERE BOOKS OF ACCOUNT ARE PROPERLY MAINTAINED AND THE ASSESSIN G OFFICER HAS SUBSTITUTED HIS OWN ESTIMATE IGNORING THE BOOKS OF ACCOUNT, WITHOUT GIVING ANY REASONS. IT MAY BE OBSERVED UNDER THE CIRCUMSTANCES THAT IT IS DIF FICULT TO CATALOGUE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHIC H MAY RENDER REJECTION OF ACCOUNTS ON THE GROUND THAT ACCOUNTS ARE NOT COMPLE TE AND FROM WHICH THE ITA NO.1167/AHD/2006 6 CORRECT PROFIT CANNOT BE DEDUCED. WHETHER PRESENCE OR ABSENCE OF STOCK REGISTER IS MATERIAL OR NOT, WOULD DEPEND UPON THE TYPE OF B USINESS. IN THE CASE UNDER CONSIDERATION, UNDISPUTEDLY, SUBSTANTIAL STOCK WAS FOUND TO BE UNACCOUNTED WHILE NO PROPER STOCK REGISTER WAS FOUND TO BE MAINTAINED . CONSEQUENTLY, THE OPENING & CLOSING STOCK WAS NOT AMENABLE TO VERIFI CATION. IT IS TRUE THAT ABSENCE OF STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATIO N MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. HO WEVER, WHERE THE ABSENCE OF STOCK REGISTER, ETC. IS COUPLED WITH OTHER FACTORS LIKE EXCESS STOCK HAVING BEEN FOUND DURING THE COURSE OF SURVEY AND SHARP DECLINE IN PROFIT, GIVE RISE TO LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS . SUCH IS THE SITUATION IN THE INSTANT CASE AND HENCE WE HOLD THAT THE LD. CIT(A) IS QUITE JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO IN REJECTING THE BOOK RESULT S, HAVING RECOURSE TO PROVISIONS OF SEC.145(3) OF THE ACT. THIS VIEW OF OURS IS ALSO FORTIFIED BY THE DECISIO N OF HONBLE ORISSA HIGH COURT IN THE CASE OF RATANLAL O MPRAKASH VS. CIT,132 ITR 640(ORISSA), AWADHESH PRATAPSINGH ABDUL REHMAN & BR OS VS CIT (1994) 210 ITR406 (ALL) AND DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. KY PILLIAH AND SONS, 63 ITR 411(SC). IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US FOR TAKING A DIFFERE NT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT (A) ON THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS. 7.1 AS REGARDS ESTIMATION OF PROFITS, NO DOUBT THE AO/CIT(A) SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT AS SESSMENT, AND IT IS THE ASSESSEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBM IT PROPER ACCOUNTS AND DETAILS.[ KACHWALA GEMS VS JCIT, 288 ITR 10 (2007)( SC) ]. SINCE THE ASSESSEE DID NOT SUBSTANTIATE THE TRADING RESULTS WITH COG ENT EVIDENCE BEFORE THE AO OR THE LD. CIT(A) NOR EVEN ANY MATERIAL HAS BEEN PLAC ED BEFORE US SO AS TO TAKE A DIFFERENT VIEW IN THE MATTER, WE DO NOT FIND ANY IN FIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) WHILE UPHOLDING REJECTION OF BOOK RE SULTS AND SUSTAINING THE ADDITION , APPLYING THE AVERAGE GP RATE OF THE IMME DIATE PRECEDING THREE ASSESSMENT YEARS. IT IS TRUE THAT ASSESSING OFFICER OR THE CIT(A) ARE NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND ARE ENTITLED TO ACT ON MATERIALS WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN COURT OF LAW, NEVERTHELE SS, THE ASSESSING OFFICER ITA NO.1167/AHD/2006 7 SHOULD ADOPT A METHOD WHICH MUST REFLECT THE PROFIT S TRULY AND JUSTLY[ GEMINI PICURES LTD. VS CIT (1958) 33 ITR 547 (MAD).] FOR E STIMATING THE GROSS PROFIT, THE AO AND THE LD. CIT(A) CAN ALWAYS HAVE A LOOK A T THE MARGIN RETURNED IN COMPARABLE CASES OR EVEN IN ASSESSEES OWN CASE. WE ARE OF THE OPINION THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ESPECIALLY WHEN THERE WAS ABNORMAL FALL IN GP RATE IN THE PERIOD UNDER CONSIDERATION VIS-- VIS PRECEDING TWO ASSESSMENT YEARS AND NO COGENT EVIDENCE HAS BEEN PLACED BEFOR E THE LD. CIT(A) OR EVEN BEFORE US IN SUPPORT OF BOOK RESULTS WHILE HUGE UNA CCOUNTED STOCK WAS DETECTED DURING THE SURVEY, THE AO/ THE LD. CIT(A) WERE JUST IFIED IN APPLYING THE AVERAGE GP RATE[18%] OF THE IMMEDIATE PRECEDING THREE ASSES SMENT YEARS WHILE UPHOLDING REJECTION OF BOOK RESULTS, HAVING RECOURS E TO PROVISIONS OF SECTION 145(3) OF THE ACT. IN THIS VIEW OF THE MATTER AND CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, GROUND NO. 1 IN THE APPEAL IS DISMISSED. 7.2 AS REGARDS ADDITION ON ACCOUNT OF UNDER VALUA TION OF CLOSING STOCK AFTER REJECTION OF BOOK RESULTS, WE ARE OF TH E OPINION THAT WITHOUT RECORDING ANY FINDINGS ON THE METHOD OF ACC OUNTING REGULARLY FOLLOWED BY THE ASSESSEE IN VALUING THE STOCK AND W ITHOUT APPLYING THE SAME METHOD TO THE OPENING STOCK AS HAD BEEN A PPLIED TO THE CLOSING STOCK, THE AO WAS NOT JUSTIFIED IN DISTURB ING THE CLOSING STOCK. THE THEORY UNDERLYING THE RULE THAT CLOSING STOCK I S TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER, IS NOW GENERAL LY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY . THE O PENING STOCK CANNOT BE VALUED IN A MANNER DIFFERENT FROM THE VALUATION OF THE CLOSING STOCK. BOTH HAVE TO BE VALUED ON THE BASIS OF THE SAME PRINCIPLE. IF CH ANGE PER SE IS FORCED UPON ASSESSEE IN VALUATION OF ITS CLOSING STOCK, A CORRE SPONDING ADJUSTMENT IN OPENING STOCK HAS TO BE CARRIED OUT OF CONSISTENCY. WHEN TH E ADJUSTMENTS ARE MADE IN THE VALUATION OF INVENTORIES, THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. WHATEVER ADJUSTMENT IS MADE IN THE VALUATION OF CLOSING STOCK, THE SAME WILL BE REFLECTED IN THE OPENING STOCK ALSO AS HEL D IN CIT VS. MAHAVIR ALUMINIUM LTD.(2008) 297 ITR 77 (DEL); SLP DISMISSED IN 307 ITR 4 (ST). IN VIEW THEREOF, ESPECIALLY WHEN CLOSING STOCK OF THE YEAR UNDER C ONSIDERATION WOULD BE OPENING STOCK IN THE SUBSEQUENT ASSESSMENT YEAR AND THUS, W OULD NOT AFFECT THE REVENUE, WE ARE OF THE OPINION THAT AFTER REJECTIN G BOOK RESULTS AND MAKING ITA NO.1167/AHD/2006 8 TRADING ADDITION, THE AO WAS NOT JUSTIFIED IN MAKI NG ANY ADDITION ON ACCOUNT OF CLOSING STOCK. THEREFORE, GROUND NO.2 IN THE APPEA L IS ALLOWED. 7.3 REGARDING ADDITION OF RS. 14 LACS ON ACCOUNT O F EXCESS STOCK FOUND DURING THE COURSE OF SURVEY, WE FIND THAT THE ASSESSEE DID NOT OFFER ANY EXPLANATION REGARDING SOURCE OF INVESTMEN T IN THE SAID EXCESS STOCK EITHER DURING THE COURSE OF SURVEY OR EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS. RATHER, KARTA OF THE HUF IN UNEQUIVOCAL TERMS ADMITTED THE EXCESS STOCK AND O FFERED THE SAID AMOUNT TO TAX. HOWEVER, IN THE RETURN, THE ASSESSEE THROUGH CREDITED THE AMOUNT TO THE P&L ACCOUNT, BUT DEBITE D THE STOCK ACCOUNT,WITHOUT EVEN DISCLOSING THE SOURCE OF INVES TMENT IN THE SAID EXCESS STOCK. AS A RESULT, THE AO ADDED THE AMOUNT U/S 69 OF THE ACT. EVEN BEFORE THE LD. CIT(A), THE ASSESSEE DID N OT EXPLAIN THE NATURE AND THE SOURCE OF INVESTMENT IN THE EXCESS STOCK FOUND AT T HE TIME OF THE SURVEY. THEREFORE, THE LD. CIT(A) UPHELD THE ADDITION. BEFO RE US, THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL REGARDING S OURCE OF INVESTMENT IN THE EXCESS STOCK ,SO AS TO ENABLE US TO TAKE A DIFFEREN T VIEW IN THE MATTER. THE ASSESSEE HAS CLAIMED BEFORE US THAT THE AMOUNT OF R S. 14 LACS IS HIS BUSINESS INCOME . IN THIS CONNECTION, THE HONBLE JURISDICT IONAL HIGH COURT IN FAKIR MOHAMMED HAJI HASSAN V. CIT 247 ITR 290 OBSERVED T HAT THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C WOULD SHOW THAT IN CA SES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE N ATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION ETC. OWNED BY THE ASS ESSEE OR THE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAI NED AT ALL OR NOT SATISFACTORILY EXPLAINED, THEN THE VALUE OF SUCH INVESTMENTS AND M ONEY, OR VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE. IT FOLLOWS THAT T HE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE B Y THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL THEREFORE BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER THE PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIO NS APPLY BECAUSE NO SOURCE IS DISCLOSED AT ALL ON THE BASIS OF WHICH THE INCOM E CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH ITA NO.1167/AHD/2006 9 DEEMED INCOME UNDER ANY OF THESE HEADS INCLUDING I NCOME FROM OTHER SOURCES WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN T HE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UND ER SECTION 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PRO VISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. IF IT IS POSSI BLE TO PEG THE INCOME UNDER ANY ONE OF THESE HEADS BY VIRTUE OF A SATISFACTORY EXPL ANATION BEING GIVEN, THEN THESE PROVISIONS OF SECTIONS 69, 69A, 69B AND 69C WILL NO T APPLY, IN WHICH EVENT THE PROVISIONS REGARDING DEDUCTIONS ETC. APPLICABLE TO THE RELEVANT HEAD OF INCOME UNDER WHICH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. IN THE FACTS OF THE CASE, INCOME HAS BEEN BROUGHT TO TAX U/S 69 OF THE ACT.THE SCOPE OF A CHARGING SECTION CANNOT BE ENLARGED BY IMPORTING FURTHER FIC TION BY DEEMING THE SUM RECEIVED AS INCOME FROM BUSINESS. IF THE WORDS OF A STATUTE ARE PRECISE AND UNAMBIGUOUS, THEY MUST BE ACCEPTED AS DECLARING THE EXPRESS INTENTION OF THE LEGISLATURE. IT WAS TRITE PROPOSITION IN LAW THAT A LEGAL FICTION HAS TO BE STRICTLY CONSTRUED. AS WAS OBSERVED BY THE HONBLE SUPREME C OURT IN BENGAL IMMUNITY CO. LTD. VS. STATE OF BIHAR (1955) 2 SCR 603 LEGAL FICTION S ARE ONLY FOR A DEFINITE PURPOSE AND THEY ARE LIMITED TO THE PURPOSE FOR WHI CH THEY ARE CREATED AND SHOULD NOT BE EXTENDED BEYOND THAT LEGITIMATE FIELD . IN THE PRESENT CASE THE FICTION IS LIMITED TO THE CASES PROVIDED IN THE SECTION 69 AND CANNOT BE EXTENDED FURTHER TO HOLD THAT INCOME IS TO BE ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. CONSEQUENTLY, THE PLEA ON BEHALF OF THE ASSESSEE IS REJECTED. THUS, GROUND NO.5 IN THE APPEAL IS DISMIS SED. 8. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.5,06,7 92/- ON ACCOUNT OF INTEREST EXPENDITURE. THE AO NOTICED FRO M THE PREVIOUS RECORDS THAT THE ASSESSEE DEBITED INTEREST AT VER Y IRREGULAR RATES VIS--VIS RATE OF INTEREST DEBITED IN THE YEAR UNDE R CONSIDERATION. TO A QUERY BY THE AO, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD RECEIVED VARIOUS DEPOSITS FROM RELATIVES AND FRIEND S AMOUNTING TO RS.89,21,909/- OUT OF WHICH AN AMOUNT OF RS. RS.80, 38,222/- CARRIED INTEREST @ 15% TO 24%, DEPENDING UPON THE N ATURE OF DEPOSIT. THE AO NOTICED THAT ON THE DEPOSITS AMOUNT ING TO RS.8,83,687/- , THE ASSESSEE DID NOT PAY ANY INTERE ST WHILE ON THE AMOUNT OF RS.15,01,207/- ADVANCED TO OTHER PARTIES , THE ASSESSEE CHARGED INTEREST RANGING BETWEEN 12% TO 20% PA. THE ASSESSEE ITA NO.1167/AHD/2006 10 ALSO EXPLAINED THAT THESE TRANSACTIONS WERE ENTERED INTO WITH THE BUSINESS PRUDENCE AND THERE WAS NO INSTANCE OF USIN G INTEREST BEARING FUNDS TO ADVANCE INTEREST FREE FUNDS. TO A QUERY BY THE AO,THE ASSESSEE REPLIED VIDE THEIR LETTER DATED 05 -03-2004 THAT THEY HAD TAKEN LOAN / DEPOSITS FROM RELATIVES AND S ISTER CONCERNS. AND PAID INTEREST AT AN AVERAGE RATE OF 20% ON SUCH DEPOSITS / LOANS. THEY HAD ALSO ADVANCED LOAN / DEPOSIT TO RELATIVES / SISTER CONCE RNS CARRYING AVERAGE RATE OF INTEREST OF 13% P.A. BESIDES THEY HAD TAKEN OVERDRA FT FROM THE BANK AGAINST THE FIXED DEPOSITS AND THE BANK HAS CHARGED INTEREST O N THE BASIS OF RATE OF INTEREST ON FIXED DEPOSITS. THE DETAILS OF INTEREST PAID TO DEPOSITORS AND INTEREST RECEIVED ON LOANS AND ADVANCES DURING THE YEAR REVEALED AS U NDER:- A) INTEREST PAID ON DEPOSITS: AMOUNT (RS.) TOTAL AMOUNT OF DEPOSITS 89,21,909/- INTEREST PAID ON DEPOSITS 16,79,194/- RATE OF INTEREST 18.82% B) INTEREST RECEIVED ON LOAN AND ADVANCES AMOUNT ( RS.) TOTAL AMOUNT OF LOAN 15,01,207/- INTEREST RECEIVED 1,97,322/- RATE OF INTEREST 13.15% THE ASSESSEE EXPLAINED THAT THEY HAD GIVEN ADVANC E OF RS.15,01,207/- ON WHICH THEY CHARGED INTEREST OF RS.1,97,322/- I.E. @ 13.15%, WHICH WAS QUITE REASONABLE. HOWEVER, THE AO DID NOT ACCEPT THE REPL Y OF THE ASSESSEE AND ADDED DIFFERENTIAL INTEREST @ 5.68%(18.82-13.14) AMOUNTING TO RS.5,06,792/-. 9 ON APPEAL, THE ASSESSEE REITERATED THEIR SUBMISS IONS BEFORE THE AO. IN THE LIGHT OF THESE SUBMISSIONS, T HE LEARNED CIT(A) SUSTAINED THE ADDITION IN THE FOLLOWING TERMS:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE FINDINGS OF THE ASSESSING OFFICER. THE APPELLANT HAS NOT GIVEN ANY DETAILS REGARDING THE COMMERCIAL EXPEDIENCY UNDER WHICH THE AMOUNT WAS BO RROWED AT SUCH A HIGH RATE OF 21% TO 24% ON ONE HAND AND ON THE OTHE R HAND IT HAS GIVEN ADVANCES AT AN AVERAGE RATE OF 13.14% ONLY. AS A PR UDENT BUSINESS ORGANISATION, IT SHOULD HAVE FIRST UTILISED ITS OWN SURPLUS FUNDS FOR ITS BUSINESS RATHER THAN LENDING IT TO THE OUTSIDERS AT LOW RATE AND THEN BORROWING FROM OUTSIDE BANKS AND OTHER PARTIES ON A MUCH HIGHER RATES AND THEREBY INCREASING ITS INTEREST LIABILITY SUBST ANTIALLY AND AS A RESULT, PROPORTIONATELY REDUCING ITS PROFITS. HENCE, UNDER THE CIRCUMSTANCES, THE PROPORTIONATE DISALLOWANCE OF INTEREST MADE BY THE A.O. IS QUITE JUSTIFIED AND ACCORDINGLY, THE SAME IS SUSTAINED. ITA NO.1167/AHD/2006 11 10 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD.AR ON BEHALF OF T HE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE CIT(A) WHI LE RELYING UPON DECISION IN THE CASE OF ANIL KUMAR VS. IAC,15 ITD 6 95(ASR). THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 11 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT BEFORE THE AO OR THE LD. CIT(A), THE ASSESSEE DID NOT PLACE ANY EVIDENCE AS TO HOW THE FUNDS BORROWED BY IT HAD BEE N UTILIZED AND WHAT WAS THE COMMERCIAL EXPEDIENCY IN BORROWING AT SUCH HIGH RAT ES OF INTEREST. IN THIS CONNECTION, THE RELEVANT PROVISIONS OF SECTION 36(1 )(III) OF THE ACT PROVIDE FOR DEDUCTION OF INTEREST ON THE BORROWED FUNDS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION, THE ONUS IS ON THE ASSESSEE TO SATISFY THE AO THAT LOANS RAISED BY THE ASSESSEE WERE USE D FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF CLAIM FOR SUCH A DEDU CTION, IT TRANSPIRES THAT THE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO ANY OTHER PE RSON WITHOUT ANY INTEREST OR AT LOWER RATES OF INTEREST, THERE WOULD BE A VERY H EAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE AO TO THE EFFECT THAT IN S PITE OF PENDING LOANS ON WHICH THE ASSESSEE IS INCURRING THE LIABILITY TO PAY INT EREST, STILL THERE WAS JUSTIFICATION TO ADVANCE LOANS TO OTHER PERSONS FOR NON-BUSINESS PUR POSES AT LOWER RATES OF INTEREST. IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC) HONBLE SUPREME COURT OBSERVED THAT UNDER S. 10(2)(III) OF THE 1922 ACT( NOW SEC. 36(1)(III) OF THE 1961 ACT), THREE CONDITIONS ARE R EQUIRED TO BE SATISFIED IN ORDER TO ENABLE THE ASSESSEE TO CLAIM A DEDUCTION IN RESPECT OF INTEREST ON BORROWED CAPITAL, NAMELY, (A) THAT MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE, (B) THAT IT MUST HAVE BEEN BORROWED FOR T HE PURPOSE OF BUSINESS, AND (C) THAT THE ASSESSEE MUST HAVE PAID INTEREST ON TH E SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. IT WAS ALSO HELD THAT THE EXPRESSIO N 'FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THA N THE EXPRESSION 'FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS'. IN TH E CASE UNDER CONSIDERATION, THERE IS NOTHING IN THE ORDER OF LOWER AUTHORITIES TO SUGGEST THAT THE ASSESSEE DISCHARGED THE ONUS LAID DOWN UPON HIM THAT BORRO WED FUNDS HAD INDEED BEEN ITA NO.1167/AHD/2006 12 UTILIZED FOR THE PURPOSE OF ITS BUSINESS SO AS TO E NTITLE IT TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT. THE ONLY THING SUFFICIENT TO DISALLOW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS ADVANCED TO A SISTER CONCERN OR OTHER RELATIVES/PERSONS, AT LOWER RATES OF INTEREST FOR NON-BUSINESS PURPOSES WOULD BE THAT THE ASSESSEE HAD SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE ASSESSEE HAD SOME SURPLUS AMOUNT WHICH, AC CORDING TO HIM, COULD NOT BE REPAID PREMATURELY TO ITS CREDITORS, STILL THE S AME IS EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATES INCOME AND NOT THAT IT IS DIV ERTED TOWARDS SISTER CONCERNS OR OTHER PERSONS FREE OF INTEREST OR AT LOWER RATES OF INTEREST. THIS WOULD RESULT IN NOT PRESENTING THE TRUE AND CORRECT PICTURE OF THE ACCO UNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSESSEE, THE SISTER CON CERN OR THE OTHER PERSON WOULD BE ENJOYING THE BENEFITS THEREOF. IT CANNOT BE HELD THAT THE FUNDS TO THE EXTENT DIVERTED TO SISTER CONCERNS OR OTHER PERSONS AT LOWER RATES OF INTEREST, WERE REQUIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUS INESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. AS IS APPARENT FROM THE IMPUGNED ORDERS, THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE PLACED ANY MA TERIAL BEFORE THE AO/LD. CIT(A) FOR EXAMINING THE COMMERCIAL EXPEDIENCY IN ADVANCING FUNDS TO VARIOUS PERSONS AT LOWER RATES OF INTEREST NOR THE ASSESSE E ESTABLISHED AS TO HOW BORROWED FUNDS HAD BEEN UTILIZED. IT MAY BE TRUE TH AT THE QUESTION AS TO WHETHER ADVANCE TO THE ASSOCIATE CONCERNS OR RELATIVES WAS GIVEN OUT OF THE INTEREST FREE FUNDS OR SALE PROCEEDS OR OUT OF THE BORROWED FUNDS FROM THE DEPOSITORS OR FROM THE BANKS IS ESSENTIALLY A QUESTION OF FACT, BUT SU CH QUESTION OF FACT MUST BE DETERMINED ON THE BASIS OF THE MATERIAL, WHICH IS AVAILABLE WITH THE ASSESSEE ALONE. SECTION 106 OF THE INDIAN EVIDENCE ACT OR TH E PRINCIPLES ANALOGOUS THERETO PLACES THE BURDEN IN RESPECT THEREOF UPON THE ASSES SEE, AS THE FACTS ARE WITHIN ITS SPECIAL KNOWLEDGE. HOWEVER, A PRESUMPTION MAY B E RAISED IN A GIVEN CASE AS TO WHY AN ASSESSEE WHO FOR THE PURPOSE OF RUNNING I TS BUSINESS IS REQUIRED TO BORROW MONEY FROM BANKS AND OTHER LENDERS WOULD BE GIVING ADVANCES TO ASSOCIATE CONCERNS AND RELATIVES AT LOWER RATES OF INTEREST AND THAT TOO WHEN IT PAYS A HEAVY INTEREST TO ITS LENDERS. WE ARE NOT OB LIVIOUS OF THE FACT THAT WHILE ARRIVING AT SUCH A FINDING, A NEXUS BETWEEN THE BOR ROWINGS FROM THE BANKS AND OTHER CREDITORS BY THE ASSESSEE AND LENDING IT TO S ISTER CONCERNS AND RELATIVES MUST BE FOUND OUT, BUT SUCH NEXUS MUST ALSO BE FOUN D OUT FROM THE MATERIAL AVAILABLE WITH THE ASSESSEE. IN THIS CASE, THE AO F OUND THAT THE ASSESSEE HAD ITA NO.1167/AHD/2006 13 CHARGED A LOWER RATE OF INTEREST @13.15% FROM THE PARTIES FROM WHOM AMOUNT OF RS. 15,01,207/- WAS DUE. BEFORE THE LD. CIT(A), THE ASSESSEE DID NOT PLACE ANY MATERIAL BEFORE HIM REGARDING UTILIZATION OF BORROW ED FUNDS FOR THE PURPOSE OF BUSINESS NOR ESTABLISHED COMMERCIAL EXPEDIENCY IN B ORROWING AT SUCH HUGE RATES OF INTEREST OF 21% TO 24% . IN THE ABSENCE OF ANY EVIDENCE AVAILABLE ON RECO RD, THE LEARNED CIT(A) UPHELD THE ADDITION. EVEN BEFORE US, THE LEARNED AR ON BEHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL FOR TAKI NG A DIFFERENT VIEW IN THE MATTER. SINCE THERE IS NOTHING TO SUGGEST THAT THE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AT LOWER RATES OF INTEREST WHILE THE ASSESSEE FAILED TO ESTABLISH NEXUS OR USE OF BORRO WED FUNDS FOR THE PURPOSE OF BUSINESS TO CLAIM DEDUCTION UNDER SECTION 36(1)(III ) OF THE ACT, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A ). WE MAY POINT OUT THAT THE DECISION RELIED UPON ON BEHALF OF THE ASSESSEE WAS RENDERED ON DIFFERENT FACTS NOT RELEVANT TO THE FACTS OF THE CASE UNDER CONSIDE RATION NOR THE LD. AR ESTABLISHED AS TO HOW THIS DECISION HELPS THE ASSES SEE. THEREFORE, GROUND NO. 3 RAISED BY THE ASSESSEE IS DISMISSED. 12 GROUND NO.4 IN THE APPEAL RELATES TO ADDITION O F RS.14,354/- ON ACCOUNT OF BALANCE SHEET DIFFERENCE. THE AO FOUND THAT THERE WAS A DIFFERENCE OF RS.14,354/- ON LIABI LITY SIDE OF BALANCE SHEET. THE ASSESSEE SUBMITTED THAT THE DIFFERENCE I N BALANCE SHEET INCLUDES THE DIFFERENCE OF EARLIER YEAR ALSO, WHICH IS ALREADY ADDED TO THE INCOME FOR AY 2001-02. SINCE THE ASSESSEE DI D NOT PLACE ANY EVIDENCE BEFORE THE AO THAT THE AMOUNT OF RS.6,95 5/- RELATED TO AY 2001-02 WAS TAXED AS CLAIMED, HE MADE THE ADDITI ON OF RS.14,354/-. 13. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE A DDITION HOLDING AS UNDER:- IT WAS NOTED BY THE A.O. THAT THERE IS A' DIFFEREN CE OF RS.14,354/- ON LIABILITY SIDE OF THE BALANCE SHEET. THE APPELLANT AT THE TIME OF THE HEARING OF APPEAL REITERATED THE SUBMISSIONS MADE BEFORE TH E A.O. THAT THE DIFFERENCE OF RS.14,354/- INCLUDED THE DIFFERENCE O F RS.6,955/- PERTAINING TO THE EARLIER YEAR WHICH HAS ALREADY BEEN ADDED TO THE INCOME OF A.Y.2001-02. HENCE, THE ACTUAL DIFFERENCE IN THE CU RRENT YEAR IS ONLY ITA NO.1167/AHD/2006 14 RS.7401/-. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND OBSERVE THAT THE CLAIM OF THE APPELLANT THAT THE AM OUNT OF RS.6,955/- WAS THE DIFFERENCE OF AN EARLIER YEAR, WHICH HAD BEEN A CCOUNTED FOR IN THE A.Y.2001-02 IS NOT SUPPORTED BY ANY DOCUMENTARY EVI DENCE. MOREOVER, ONCE THE DIFFERENCE OF RS.6,955/- HAD BEEN COVERED IN THE A.Y.2001-02, THEN THERE WAS NO REASON FOR CARRYING FORWARD THE S AME IN THE SUBSEQUENT YEAR. HENCE, THE EXPLANATION OF THE APPELLANT IS DE VOID OF ANY MERIT. HENCE, THE ADDITION MADE BY THE A.O. IS SUSTAINED. 14 THE ASSESSEE IS NOW IN APPEAL BEFORE US. THE LE ARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LD. CIT(A) WHILE THE LEARNED DR, ON THE OTHER HAND, SUP PORTED THE ORDER OF THE AUTHORITIES BELOW. 15 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE DID NO T PLACE ANY MATERIAL BEFORE THE AO OR THE LD. CIT(A) THAT THE BALANCESHEET DIFFERENCE OF RS. 14,353/- INCLUDED DIFFERENCE OF RS. 6,955/-, WHICH HAD ALREADY BEEN OFFERED TO TAX IN THE PRECEDING AS SESSMENT YEAR. BEFORE US, THE ASSESSEE REFERRED TO COMPUTATION OF INCOME FILED ALONG WITH THE RETURN FOR THE AY 2001-02[PG. 12A OF THE PB] ,WHEREIN AN AMOUNT OF RS. 6,955/- HAS BEEN OFFERED TO TAX. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) IN RESPECT OF AMOUNT OF RS. 6,955/- AND RESTORE THE MATTER TO THE FILE OF THE AO WITH THE D IRECTIONS TO VERIFY FROM THE ASSESSMENT RECORDS FOR THE AY 2001-02 AS TO WHETHER OR NOT THE AMOUNT OF RS. 6,955/- IS INCLUDED IN THE A MOUNT OF RS.14,353/- AND HAD BEEN OFFERED TO TAX IN THE AY 2 001-02 AND THEREAFTER, PASS APPROPRIATE ORDERS IN ACCORDANCE W ITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. IF THE AMOUNT OF RS. 6,955/- IS FOUND TO BE INCLUDED IN THE AMOUNT OF R S.14,353/- AND HAD BEEN OFFERED TO TAX IN THE AY 2001-02 , THIS SH OULD NOT BE ADDED AGAIN IN THE YEAR UNDER CONSIDERATION. THE ADDITION ON ACCOUNT OF REMAINING AMOUNT IS SUSTAINED, ESPECIALLY WHEN THE LD. AR DID NOT MAKE ANY SUBMISSIONS NOR COULD EXPLAIN THE BALALNC ESHEET DIFFERENCE TO THAT EXTENT. WITH THESE OBSERVATIONS, GROUND NO. 4 IS DISPOSED OF. ITA NO.1167/AHD/2006 15 16. GROUND NO.6 IN THE APPEAL RELATES TO THE ADDIT ION OF RS.18,543/- TOWARDS CASH DIFFERENCE NOTICED AT THE TIME OF SURVEY. THE ASSESSEE STATED AT THE TIME OF SURVEY ON 19-02- 2002 THAT CASH IN HAND AS PER BOOKS WAS RS. 2,29,687/- WHILE PHYSI CAL CASH FOUND WAS RS. 2,48,230/-. HOWEVER, LATER ASSESSEE STATED THAT THE CORRECT POSITION OF CASH BALANCE AS PER THE CASH BOOK ON 19 -02-2002 WAS RS.2,42,856/-, AND THEREFORE, THERE WAS A DIFFERENC E OF ONLY RS.5374/- AND NOT RS.18,543/-. HOWEVER SINCE THE AS SESSEE COULD NOT RECONCILE THE DIFFERENCE NOR PLACED ANY MATERI AL OR EVIDENCE BEFORE THE AO REGARDING THE DIFFERENCE IN CASH OF R S.18,543/-, HE ADDED THE AMOUNT OF RS.18,543/-. 17. ON APPEAL, THE ASSESSEE MERELY REITERATED T HEIR SUBMISSIONS BEFORE THE AO. SINCE THE ASSESSEE DID NOT RECONCILE THE DIFFER ENCE EVEN BEFORE THE LD. CIT(A), HE CONFIRMED THE ADDITION IN THE FOLLOWING TERMS:- AT THE TIME OF THE SURVEY, ACTUAL CASH OF RS.2,79, 600/- WAS FOUND, WHEREAS, AS PER BOOKS THE CASH RECORDED WAS RS.2,29 ,687/-. THE EXCESS CASH OF RS.49,913/- FOUND AT THE TIME OF THE SURVEY WAS EXPLAINED AS BELONGING TO ANOTHER FIRM. SUBSEQUENTLY, AT THE TIM E OF THE ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED THAT OF THE TOTAL CAS H OF RS.2,79,600/- FOUND, RS.31,370/- BELONGED TO ONE M/S GAYATRI JEWELLERS, HENCE THE CASH ACTUALLY FOUND WAS RS.2,48,230/-. IT HAD BEEN CONTE NDED THAT CASH AS PER BOOKS AS ON 19-2-2002 WAS RS.2,42,856/- INSTEAD OF RS.2,29,687/- RECORDED AT THE TIME OF THE SURVEY. THUS, THE DIFFE RENCE IN CASH WAS ONLY RS.5,374/-. THE AO THOUGH ACCEPTED THE EXPLANATION OF THE ASSESSEE REGARDING THE ACTUAL CASH FOUND AT THE TIME OF THE SURVEY AT RS.2,48,230/- BUT REITERATED THAT CASH BALANCE AS PER THE BOOKS O N THE DATE OF SURVEY WAS RS.2,29,687/-. ACCORDINGLY, HE ADDED THE DIFFER ENCE OF RS.18,543/- TO THE INCOME OF THE ASSESSEE U/S 69A OF THE ACT FOR T HE REASON THAT NO EXPLANATION FOR THE SOURCE AND NATURE OF ACQUISITIO N OF THE MONEY WAS GIVEN BEFORE THE AO. EVEN AT THE TIME OF THE APPELL ATE PROCEEDINGS, THE APPELLANT HAS SIMPLY REITERATED THE SUBMISSIONS GIV EN BEFORE THE AO AND NO EXPLANATION REGARDING THE NATURE AND THE SOURCE OF DIFFERENCE IN CASH OF RS.18,543/- HAS BEEN FURNISHED, HENCE, THE ADDIT ION MADE BY THE AO IS HELD TO BE JUSTIFIED AND SUSTAINED. 18. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE CIT(A) CONTENDED THAT AT THE TIME OF SURVEY, THE ASSESSEE INFORMED ESTIMATED CASH BALANCE AS PER BOOKS AS RS.2,29,687/ - WHILE LATER ITA NO.1167/AHD/2006 16 ON IT WAS FOUND THAT ACTUAL CASH BALANCE AS PER BOO KS WAS RS.2,42,856/-.A COPY OF AN EXTRACT FROM CASH BOOK REVEALING ENTRIES AS ON 19.2.2002 WAS ALSO PLACED IN THE PAPER BOOK. ACCORDINGLY, THE LD. AR PLEADED THAT MATTER SHOULD BE REMANDED TO THE AO FOR NECESSARY VERIFICATION.THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 19 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDERS THE ASSESSEE DID NOT PLACE ANY EVIDENCE BEFORE THE AO O R THE LD. CIT(A) THAT THE OPENING BALANCE AS PER CASH BOOK AS ON 19. 2.2002 WAS ACTUALLY RS.2,42,856/- WHILE NOW IT IS BEING CONT ENDED THAT THE SAID AMOUNT WAS ACTUAL CASH AVAILABLE IN THE BOOKS AND COPY OF RELEVANT EXTRACTS FROM CASH BOOK AS ON 19.2.2002 HA VE BEEN PLACED BEFORE US. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A ) AND RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTIONS TO EXAMINE THE CASH BOOK IN ORDER TO ASCERTAIN THE ACTUAL CASH BALANCE AS PER BOOKS OF ACCOUNTS AND THEREAFTER, PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE AS SESSEE. IN THE EVENT CLAIM OF THE ASSESSEE IS FOUND TO BE CORRECT, ADDITION SHOULD BE RESTRICTED TO RS.5,374/-. WITH THESE DIECTIONS, GROUND NO. 6 IS DISPOSED OF. 20. GROUND NO.7 BEING GENERAL IN NATURE,DOES NOT REQUIR E ANY SEPARATE ADJUDICATION NOR ANY SUBMISSIONS WERE MADE ON THIS GROUND WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GRO UND NO. 8 IN THE APPEAL, BOTH THESE GROUNDS ARE DISMISSED. 21. IN THE RESULT, APPEAL IS PARTLY ALLOWED,BUT F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30-4-2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30 -04-2010 ITA NO.1167/AHD/2006 17 COPY OF THE ORDER FORWARDED TO : 1. M/S CHOKSI SURENDRAKUMAR RASIKLAL, CHOKSI BAZAR, NADIAD 2. THE ITO, WARD-4, NADIAD 3. THE CIT CONCERNED 4. THE CIT(A)-IV, BARODA 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD