SHRI RADHA MOHAN MAHESWARI, Jaipur V. DCIT, Jaipur

ITA 1302/JPR/2010

• Counselvise Citation: 130223114 RSA 2010
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 08-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Search and seizure; Question of law
• Section: 153A; 131; 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1302, 1303 & 1304/ JP/2010 ASSESSMENT YEARS: 2002-03, 2005-06 & 2008-09 PAN: AARPM 0482 B SHRI RADHA MOHAN MAHESHWARI VS. THE DCIT 302-303, GURUKRIPA BUILDING CENTRAL CIRCLE- 3 CHOURA RASTA, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO.1389/ JP/2010 ASSESSMENT YEARS: 2008-09 PAN: AARPM 0482 B THE DCIT VS. SHRI RADHA MOHAN MAHESHWARI CENTRAL CIRCLE- 3 303-303, GURUKRIPA BUILDING JAIPUR CHOURA RASTA, JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI SUBHASH CHANDRA ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED THE APPEALS AGAINST RESPEC TIVE ORDERS OF THE LD. CIT(A), CENTRAL, JAIPUR DATED 27-09-2010 FOR THE ASSESSMENT YEARS 2002- 03, 2005-06 & 2008-09 AND THE REVENUE HAS FILED AN APPEAL FOR THE ASSESSMENT YEAR 2008-09. 2 2.0 FIRST OF ALL, WE WILL TAKE UP THE APPEALS FOR T HE ASSESSMENT YEAR 2008- 09. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN REDUCING THE WORKING OF INTEREST ON DEBTS AT RS. 32,96,340/- WHILE THE ASSESSEE IS AGGRIEVED THAT THE LD. CIT(A) HAS E RRED IN DETERMINING THE AMOUNT OF INTEREST ON DEBTORS AT RS. 32,39,690/- ON ACCRUAL BASIS. 2.2 SEARCH U/S 132(1) OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE AND FOUR BANK LOCKERS OF THE ASSESS EE GROUP. THE ASSESSEE DERIVES INCOME FROM TRADING OF PRECIOUS AND SEMI PR ECIOUS STONES AND ROUGHS ON WHOLESALE BASIS UNDER THE NAME AND STYLE OF M/S. R.A. GEMS. DURING THE COURSE OF SEARCH, CASH OF RS. 27,08,050/ - WAS FOUND OUT OF WHICH CASH OF RS. 28.50 LACS WAS ADMITTED AS UNACCOUNTED IN STATEMENT U/S 132(4) OF THE ACT. DURING THE COURSE OF SEARCH, MANY INCRI MINATING DOCUMENTS WERE FOUND AND SEIZED. THE STATEMENT OF THE ASSESSEE WAS RECORDED ON 22JUNE, 2007 U/S 132(4) OF THE ACT. THE AO IN HIS ORDER AT PAGE 3 HAS REPRODUCED THE RELEVANT PORTION OF THE STATEMENT IN WHICH THE ASSE SSEE ADMITTED THE UNDISCLOSED INCOME TO THE EXTENT OF RS. 5.00 CRORES . THE STATEMENT WAS RECORDED U/S 131 ON 17-07-07 BY DDIT (INV.), JAIPUR AND THE ASSESSEE ENHANCED THE OFFER OF UNDISCLOSED INCOME TO RS. 6.0 0 CRORES N THE BASIS OF THE SEIZED INCRIMINATING DOCUMENTS. THE RELEVANT Q UESTION AND ANSWER HAS 3 BEEN REPRODUCED BY THE AO AT PAGE 3 OF THE ASSESSME NT ORDER AND THE UNDISCLOSED INCOME SHOWN IN THE RETURNS BY THE ASSE SSEE FOR THE FOLLOWING THREE ASSESSMENT YEARS ARE AS UNDER:- ASSESSMENT YEAR . ADDITIONAL INCOME OFFERED . 2006-07 RS.1.00 CRORE 2007-08 RS. 3.00 CRORES 2008-09 RS. 1.00 CRORE TOTAL RS. 5.00 CRORES 2.3 THE NOTE WAS ATTACHED WITH THE RETURN THAT INCO ME RETURNED IS ON THE BASIS OF OUTSTANDING DEBTORS OF RS. 4.25 CRORES AND SEIZED CASH OF RS. 26.00 LACS. THE INCOME IS BEING OFFERED TENTATIVELY IN TH E THREE ASSESSMENT YEARS AND IN CASE THE DEPARTMENT LATER ON NOTICES THAT TH E INCOME RELATES TO DIFFERENT ASSESSMENT YEARS THEN ADJUSTMENT MAY BE M ADE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AFTER DETAILED ANALYSIS O F VARIOUS PAPERS, THE INCOME WAS WORKED OUT BY THE AO BOTH ON GENERATION BASIS AND ON INVESTMENT BASIS. ON GENERATION BASIS PROFIT WAS WO RKED OUT AT RS. 4.49 CRORE AND ON INVESTMENT BASIS AT RS. 4.59 CRORE AS AGAINST RS. 5 CRORE OFFERED BY THE ASSESSEE. YEAR WISE SPLIT OF SAID AMOUNT WAS ALSO SUBMITTED VIDE LETTER DATED 2-9-09 . THE SUMMARIZED POSITION OF INCOME SO WORKED OUT IS TABULATED BELOW:- 4 RS. IN LACS A.Y. UNACCOUNTED TURNOVER PROFIT ON TRADING DEBTORS (NET) / CASH INCOME OFFERED BY THE ASSESSEE 02-03 - - 23 - 04-05 - - 9 - 05-06 - - 42.25 - 06-07 5475 68.44 66.15 100 07-08 23631 295.39 282.99 300 08-09 6814 85.17 10 +26 100 TOTAL 35920 449.00 459.39 500 THE AO ACCEPTED THE ABOVE WORKING OF THE PROFIT AND INVESTMENT IN DEBTORS/CASH. HOWEVER THE AO ASSESSED THE INCOME YEAR WISE. THUS IN THE YEAR WHERE THERE IS NO EVIDENCE OF GENERATION OF IN COME BUT EVIDENCE AVAILABLE FOR INVESTMENT IN DEBTORS, ADDITION WAS M ADE FOR THE DEBTORS. IN THE YEARS WHERE BOTH EVIDENCE OF GENERATION OF INCOME A ND INVESTMENT IN DEBTORS EXIST, HIGHER OF THE TWO WAS CONSIDERED AS INCOME BUT IF THE INCOME DISCLOSED BY THE ASSESSEE IS MORE THAN THE SAID AMO UNT, HE ADOPTED THE AMOUNT DISCLOSED BY THE ASSESSEE AS INCOME IN THAT YEAR. HE ALSO WORKED OUT INTEREST ON THE DEBTORS AND ASSUMED THAT THE SAME I S REALIZED ON YEAR TO YEAR BASIS. SUMMARILY THE AO ASSESSED THE INCOME OF THE ASSESSEE IN VARIOUS ASSESSMENT YEARS IN THE FOLLOWING MANNER:- A.Y. PROFIT FROM UNDISCLOSE D TRADING ACCRUED INTEREST ON DEBTORS TOTAL INCOME FROM TRADING AND INTEREST NET INVESTMENT IN DEBTORS / CASH INCOME OFFERED BY THE ASSESSEE INCOME ASSESSED BY AO 02-03 - 86,940 86,940 23,00,000 - 23,00,000 03-04 - 1,91,287 1,91,287 - 1,91,287 04-05 - 2,47,834 2,47,834 9,00,000 - 9,00,000 05-06 - 4,44,474 4,44,474 42,25,000 - 42,25,000 06-07 68,44,000 11,51,573 79,95,573 66,15,000 100,0 0,000 100,00,000 5 07-08 295,39,000 26,26,165 321,65,165 282,99,411 30 0,00,000 321,65,165 08-09 * 85,17,000 50,36,637 135,53,637 10,00,000 + 26,00,000 (CASH) 100,00,000 135,53,637 TOTAL 449,00,000 97,84,910 5,46,84,910 459,39,411 5 00,00,000 633,35,089 IN A.Y. 2008-09, AO FURTHER MADE ADDITION OF RS. 49 ,00,000/- BY NOT ACCEPTING THE AMOUNT REALIZED FROM DEBTORS AFTER SE ARCH, UTILIZED IN PAYMENT OF TAXES AND THUS FOR THIS YEAR UNDISCLOSED INCOME WAS ASSESSED AT RS. 1,84,53,637/- (135,53,637 + 49,00,000). 2.4 THE FACTS IN BRIEF IN RESPECT OF ADDITION OF R S. 50,36,637/- REPRESENTING ACCRUED INTEREST ON DEBTORS ARE AS UND ER:- IN SEARCH CERTAIN APPROVAL MEMO WERE FOUND. THESE APPROVAL MEMOS ARE IN RELATION TO OUT OF BOOKS TRAN SACTIONS IN KHARAD AS EXPLAINED BY THE ASSESSEE IN STATEMENT RECORDED U/S 132(4). ON SOME OF THESE SLIPS THE RATE OF INTERES T IS MENTIONED WHEREAS ON SOME SLIPS RATE OF INTEREST IS NOT MENTI ONED. THE AO OBSERVED THAT THE ASSESSEE HAS NOT OFFERED THE ACCR UED INTEREST ON THESE DEBTORS. ACCORDINGLY HE CALCULATED THE INTERE ST ON THE AMOUNT OF THESE DEBTORS FROM THE DATE MENTIONED ON THE SLI P TILL THE END OF THE YEAR AS PER RATE MENTIONED ON THE SLIP. WHEREVE R NO RATE WAS MENTIONED, THE RATE OF THE ADJACENT PERIOD WAS ADOP TED. THE TOTAL INTEREST CALCULATED BY THE AO IS RS. 50,36,637/-. T HIS CALCULATION IS MADE PART OF THE ASSESSMENT ORDER AS ANNEXURE-C 2.5 WHILE MAKING THE ADDITION, AO THE HAS MADE FOLL OWING OBSERVATIONS:- (I) THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING AND THEREFORE INTEREST ON ACCRUAL BASIS NEEDS TO BE TAXED. 6 (II) INTEREST IS NOT ONLY EARNED IN THE YEAR IN WHICH TH E AMOUNT WAS GIVEN BUT ALSO IN SUBSEQUENT YEARS AS THE DEBTORS WERE OUTSTA NDING AS ON THE DATE OF SEARCH. (III) INTEREST IS INVARIABLY EARNED BY THE ASSESSEE FROM EACH DEBTOR IRRESPECTIVE OF THE FACT THAT RATE OF INTEREST HAS BEEN MENTIONE D OR NOT ON THE APPROVAL MEMO. (IV) IN OUR SOCIETY NO PRUDENT MAN WILL LEND THE MONEY W ITHOUT INTEREST PARTICULARLY IN MONEY LENDING BUSINESS. 2.6 THE LD. CIT(A) RESTRICTED THE ADDITION TO RS. 3 2,39,690/- AFTER GIVING THE FOLLOWING FINDINGS. (I) THE ARGUMENT OF ASSESSEE THAT NO EVIDENCE WAS FOUND IN SEARCH THAT THE INTEREST WAS REALIZED FROM THE DEBTORS IS TOTALLY I NCORRECT AS THE ASSESSEE IN HIS STATEMENTS RECORDED DURING POST SEARCH PROCEEDI NGS, WHILE EXPLAINING THE NATURE OF TRANSACTIONS RECORDED ON THE SEIZED P APERS HAS STATED IN REPLY TO Q. NO. 10, 11 AND 9 THAT THESE PAPERS ARE IN REL ATION TO CALCULATION OF INTEREST. (II) THE ARGUMENT OF ASSESSEE THAT THE AMOUNT OUTSTANDI NG IN THESE SLIPS ARE NOT RECOVERABLE AND CONSEQUENTLY INTEREST CANNOT BE CHARGED, IS INCORRECT AS THE APPELLANT HAS RECOVERED LOAN FROM MANY PERSO NS IN DIFFERENT YEARS. (III) ANOTHER ARGUMENT OF ASSESSEE THAT THE INTEREST HAS TO BE TAXED ON CASH BASIS IN VIEW OF NON-MAINTENANCE OF REGULAR BOOKS O F ACCOUNT IS ALSO DEVOID OF ANY MERIT, AS THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNTS AND THESE DEBTS ARE UNACCOUNTED. (IV) FURTHER THE ARGUMENT THAT INTEREST WAS NOT RECEIVED AFTER THE SEARCH IS ALSO DEVOID OF ANY MERIT IN VIEW OF THE FACT THAT THERE IS CLEAR MENTION OF CHARGING OF INTEREST ON PARTICULAR RATE ON THE APPR OVAL MEMO AND THERE IS NO CHANCE OF NOT RECEIVING INTEREST AFTER SEARCH WH EN THE DEBTS ARE OUTSTANDING. 7 (V) IN SEARCH THE RECORD OF EACH AND EVERY TRANSACTION FOR RECOVERY OF INTEREST COULD NOT HAVE BEEN RECOVERED OR DUE TO THE UNACCOU NTED ENTRIES IT MAY NOT HAVE BEEN MAINTAINED, BUT IT IS APPROPRIATE TO CALCULATE INTEREST ON ACCRUAL BASIS. (VI) THE CASES REFERRED BY THE ASSESSEE ARE QUITE DISTIN GUISHABLE AS THEY ARE RELATED TO PAWING BUSINESS WHERE THE CREDITORS RETU RN THE AMOUNT TOGETHER WITH INTEREST AND TAKE BACK HIS ORNAMENTS. WHEREAS IN THE CASE OF ASSESSEE DEBTS HAVE BEEN GIVEN AND THE INTEREST IS RECOVERAB LE AFTER EVERY 2 TO 3 MONTHS AS ADMITTED BY THE ASSESSEE. 2.7 BEFORE US, THE LD. AR SUBMITTED THAT APPROVAL M EMO DID NOT PERTAIN TO THE TRANSACTIONS OF KHARAD WHERE THE PARTY DID NOT MAKE PAYMENT. THEREFORE, FOR SUCH OUTSTANDING DEBTORS, APPROVAL M EMO WAS OBTAINED. WHEREVER THERE WAS A STIPULATION ABOUT INTEREST, TH E RATE OF INTEREST IS MENTIONED ON THE APPROVAL MEMO. WHERE THERE WAS NO STIPULATION OF INTEREST, NO RATE IS MENTIONED. THERE ARE NUMBER OF APPROVAL MEMOS PERTAIN TO PERIOD PRIOR TO A. Y. 2006-07 AND IN RESPECT OF SUCH APPROVAL MEMO, THE ASSESSEE HAS NOT BEEN ABLE TO REALISE EVEN THE PRIN CIPAL AMOUNTS UPTO THE DATE OF SEARCH AND THEREFORE, THE QUESTION OF ACCRUAL OF INTEREST ON THESE MEMOS DO NOT ARISE. HENCE, IN RESPECT OF SUCH APPROVAL M EMO, THERE IS NO QUESTION OF ACCRUALL OF INTEREST. IN THE ACCRUAL SYSTEM OF A CCOUNTING, INCOME IS TO BE ACCOUNTED FOR IF THERE IS A REASONABLE CERTAINTY OF REALIZATION. THE RELIANCE WAS PLACED ON PARA 9.2 OF ACCOUNTING STANDARDS -9 I SSUED BY ICAI. IN CASE THE REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM FOR 8 INTEREST, REVENUE RECOGNITION SHOULD BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IF THE PRINCIPAL AMOUNT COULD NOT BE RECOVERED AFTER MORE THAN 6 YEARS THEN THE INCOME SHOULD BE TAXED O N THE REAL INCOME. 2.8 THE LD. AR HAS RELIED UPON THE FOLLOWING CASE L AWS: - CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC): IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH I N BOOK-KEEPING AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME WHICH DOES NOT M ATERIALISE. WHERE INCOME HAS IN FACT BEEN RECEIVED AND IS SUBSEQUENTL Y GIVEN UP IN CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE REC IPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INC OME CAN BE SAID TO HAVE NOT RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACC RUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT IN CERTAI N CIRCUMSTANCES HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. - SRI KEWAL CHAND BAGRI VS. CIT 183 ITR 207(CAL.): INCOME TAX IS A LEVY ON INCOME. THOUGH THE INCOME TAX ACT TAKES INTO ACCOUN T TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPTS, YET THE SUBSTANCE OF THE MATTER IS THE IN COME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH I N BOOK KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME WHICH DOES NOT M ATERIALIZE. 2.9 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE AO. THE LD. DR REFERRED TO THE APPROVAL MEMO IN WHICH RATE OF I NTEREST IS BEING MENTIONED. THE ASSESSEE HAS ADMITTED TO HAVE RECEIV ED THE INTEREST IN ADVANCE FOR TWO TO THREE MONTHS. THE ASSESSEE IS MA INTAINING THE ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING AND HENCE THE I NTEREST STANDS ACCRUED. IT 9 IS THE NORMAL PRACTICE OF THE ASSESSEE TO CHARGE TH E INTEREST FROM THE DEBTORS. HENCE, IT CANNOT BE ACCEPTED THAT APPROVAL MEMO ON WHICH INTEREST RATE IS NOT MENTIONED CANNOT BE EXCLUDED. FOR THE PURPOSE O F COMPUTING INTEREST ON ACCRUAL BASIS, IT WAS THEREFORE, SUBMITTED THAT THE AO WAS JUSTIFIED IN INCLUDING INTEREST ON ACCRUAL BASIS. 2.10 THE ASSESSEE IS DOING BUSINESS AS PER REGULAR BOOKS OF ACCOUNTS AND IS ALSO DOING BUSINESS OUTSIDE THE BOOKS OF ACCOUNTS F OR WHICH NO REGULAR CASH BOOK OR LEDGER HAS BEEN MAINTAINED. THE INCRIMINAT ING DOCUMENTS FOUND DURING THE COURSE OF SEARCH DO SUGGEST THAT THE ASS ESSEE WAS INDULGING IN THE BUSINESS OUTSIDE THE BOOKS OF ACCOUNTS AND THIS IS NOT DISPUTED BY THE ASSESSEE. WE REQUIRED THE ASSESSEE TO SHOW AS TO WH ETHER INTEREST WAS BEING CHARGED FROM TRADE DEBTORS TO WHOM THE GOODS WERE B EING SOLD ON CREDIT. THE LD. AR HAS FILED THE INFORMATION ALONGWITH COPI ES OF P & L A/C AND BALANCE SHEET PREPARED ON THE BASIS OF REGULAR BOOK S OF ACCOUNT. IT WAS SUBMITTED THAT THE BALANCE SHEET SHOWED THAT THERE ARE TRADE DEBTORS IN THE REGULAR BOOKS OF ACCOUNT. ON THE ANOTHER QUERY RAIS ED BY THE BENCH, THE LD. AR STATED THAT NONE OF THE SEIZED PAPERS INDICATE A NY RECEIPT OF INTEREST. NO EVIDENCE IN RESPECT OF REALIZATION OF INTEREST ON OUTSTANDING DEBTORS WAS FOUND. THE LD. AR HAS ALSO FILED THE COPY OF DECISI ON OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VT C LEASING & FINANCE 10 LTD. NOW REPORTED AT 215 CTR 51 IN WHICH HON'BLE HI GH COURT HELD THAT ONLY REAL INCOME IS TO BE TAXED. ONE HAS TO CONSIDE R THE REALITIES OF LIFE WHILE ARRIVING AT THE TAXABLE INCOME. 2.11 WE HAVE HEARD BOTH THE PARTIES. THE ONLY DISPU TE BEFORE US IS AS TO WHETHER INTEREST IS TO BE CONSIDERED AS ACCRUED ON THE BASIS OF MENTIONING OF RATE OF INTEREST ON THE SLIPS FOUND DURING THE COUR SE OF SEARCH. IT IS TRUE THAT THE ASSESSEE IS MAINTAINING THE MERCANTILE SYSTEM O F ACCOUNTING. HOWEVER, SECTION 145 CANNOT OVERRIDE SECTION 5 OF THE ACT. S ECTION 5 IS CHARGING SECTION AND IN CASE THE INCOME HAS NOT ACCRUED THEN THE SAME CANNOT BE TAXED U/S 145 OF THE ACT. THERE ARE OUTSTANDING DEB TORS FOR MORE THAN 05 YEARS. THE ADVANCE INTEREST REALIZED IS UTILIZED FO R MAKING FURTHER ADVANCE AND THAT STANDS INCLUDED IN THE QUANTUM OF DEBTORS. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF FGP LTD. VS. CIT, 326 IT R 444 HAD AN OCCASION TO CONSIDER AS TO WHETHER THE DISPUTED ROYALTY CAN BE CONSIDERED TO HAVE ACCRUED. THE HON'BLE HIGH COURT FOLLOWING THE DECIS ION OF HON'BLE APEX COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS . CIT, 225 ITR 746 HELD THAT THERE IS NO REAL ACCRUAL OF INCOME. IT WILL BE USEFUL TO REPRODUCE THE FOLLOWING PARA FROM THIS DECISION THE APEX COURT IN GODHARA ELECTRICITY CO. LTD. (SUPRA) HAS LAID DOWN THE TEST OF ASSESS INCOME IN THE 11 HANDS OF AN ASSESSE. THE ASSESSEE THEREIN WAS ALSO FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND HAD MADE ENTRIES IN THE BOOKS REGARDING ELECTRICAL CHAR GES FOR THE SUPPLY MADE TO THE CONSUMERS, HOWEVER NO REAL INCOME HAD ACCRUED TO THE ASSESSEE COMPANY. THE TRIBUNAL HAD HELD THAT IT REPRESENTED HYPOTHETICAL INCOME AND THE AO WAS NOT RIGHT IN ASSESSING IT TO TAX. BE FORE THE SUPREME COURT, IT WAS URGED THAT EVEN IN CASE OF MERCANTILE SYSTEM OF ACCOUNTING TAX CAN ONLY BE IMPOSED IF THERE IS REAL INCOME AND INCOME TAX CANN OT BE IMPOSED ON HYPOTHETICAL INCOME. THE COURT HELD EVEN IN MERCANTILE SYSTEM WHAT HAS TO BE SEEN IS WHETHER IN COME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE COMPANY. THE COURT REFERRED TO THE JUDGMENT OF THE COURT IN H.M. KAHIPAREKH & CO. LTD. VS. CIT (1960), 39 IT R 706 (BOM.) WHICH VIEW WAS APPROVED BY THE SUPREME COURT IN CIT VS. BIRLA GWALIOR (P) LTD. 1973 CTR (S C) 349: (1973) 89 ITR 266 (SC). WHAT CAN THEREFORE, BE ASSESSED IS REAL INCOME AS INCOME-TAX IS A TAX ON I NCOME. THE TEST THEREFORE, BEFORE INCOME CAN BE TAX IS WHE THER THERE IS REAL ACCRUAL OF INCOME. IN OUR OPINION, TH E RATIO OF THAT JUDGEMENT FULLY APPLIES TO THE FACTS OF THE PRESENT CASE. 12 2.12 THE HON'BLE JURISDICTIONAL HIGH COURT IN THE C ASE CIT VS. VTC LEASING FINANCE LTD. 215 CTR 51 HAD AN OCCASION TO CONSIDER THE FOLLOWING QUESTION OF LAW. (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED TRIBUNAL WAS JUSTI FIED IN DELETING THE ADDITION OF RS. 17,35,958/- ON ACCOUN T OF INCOME FROM LEASE RENT MADE BY THE AO AND AS UPHELD BY THE LD. CIT(A) SPECIALLY WHEN THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS ON MERCANTILE METHOD AS PROVIDED U/S 145 O F THE ACT? 2.13 HON'BLE JURISDICTIONAL HIGH COURT THEREAFTER D ECIDE THE ABOVE REFERRED QUESTION OF LAW AFTER OBSERVING AS UNDER:- 5. SO FAR AS THE FIRST QUESTION IS CONCERNED, OF COURSE, IT HAS COME THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS BY BOTH MANNERS VIZ . BY RECEIPT BASIS, AND ON MERC ANTILE BASIS AS WELL, INASMUCH AS, WITH RESPECT TO ACCRUAL OF LE ASE INCOME, MERCANTILE SYSTEM WAS ADOPTED. HOWEVER, FOR LEASE A ND HIRE INCOME, THE RECEIPT BASIS WAS ADOPTED.. TRUE IT ALS O IS THAT BY VIRTUE OF SECTION 145 AS AMENDED, THE INCOME CHARGE ABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON OR INCOME FROM OTHER SOURCES IS SUBJECT TO PROVISION S OF SUB- SECTION (2), TO BE COMPUTED IN ACCORDANCE WITH EITH ER CASH OR MERCANTILE SYSTEM OF ACCOUNTING, REGULARLY EMPLOYED BY THE ASSESSEE. EARLIER THE PROVISION WAS THAT SUCH INCOM E WAS TO BE 13 COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE. IN THE PRESENT CASE, THE LD. TRIBUNAL HAS FOUND THAT THIS UNDISPUTED AND SETTLED PRINCIPLE OF FISCAL LAW, THAT ONLY THE REAL INCOME IS TO BE TAXE D AND THAT THE SAME INCOME CANNOT BE TAXED TWICE. IT WAS ALSO TAKE N TO BE SETTLED PRINCIPLE OF LAW, THAT REALITIES OF LIFE HA VE TO BE CONSIDERED WHILE ARRIVING AT THE TAXABLE INCOME. IT WAS NOTICED THAT AMENDMENT IN IN SECTION 145 HAS BEEN CARRIED O UT WITH THE SOLE AIM OF CHECKING THE ESCAPEMENT OF INCOME, WHIC H OCCURRED DUE TO HETEROGENEOUS SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THEN IT WAS FOUND AS A FACT THAT THE ASSE SSEE HAS BEEN FOLLOWING THE SAME SYSTEM AND HAS ALSO THE SAME SYS TEM IN THE IMMEDIATELY PRECEDING YEARS, AND THE SAME HAD BEEN ACCEPTED BY THE DEPARTMENT. WITH THIS IT HAS BEEN FOUND THAT IN PARA 10 THAT FOR THE PURPOSE OF SHOWING THE INCOME OF LEASE RENT, THE ASSESSEE HAD BEEN FOLLOWING THE RECEIPT BASIS AS AC COUNTING, EVEN THOUGH OTHERWISE HE WAS FOLLOWING THE MERCANTI LE SYSTEM. THEN THE REALITIES OF LIFE WERE CONSIDERED ABOUT TH ERE BEING DEFAULT IN PAYMENT AND DISPUTES AND SOMETIMES THE H IRER REFUSED TO MAKE PAYMENT. THEN VARIOUS JUDGMENTS HAD BEEN CONSIDERED, AND IT WAS AGAIN CONSIDERED, BUT THE RE AL INCOME IS TO BE CONSIDERED WITH REFERENCE TO COMMERCIAL AND B USINESS REALITIES OF THE SITUATION, AND NOT MERELY WITH REF ERENCE TO ENTRIES MADE IN THE BOOKS OF ACCOUNTS. THEN JUDGEME NT OF HON'BLE SUPREME COURT IN ANDHRA BANK LTD. VS. CIT, (1997) 140 CTR (SC) 344 : (1997) 225 ITR 447 (SC) WAS FOLL OWED, 14 WHEREIN IT WAS HELD THAT THERE CANNOT BE A TAX IF N O INCOME RESULTED, DESPITE THE ENTRY IN THE BOOK KEEPING. TH EREFORE, IT WAS FOUND THAT TO ARRIVE AT A REAL INCOME IN THE CA SE IN HAND, THE ACCRUAL BASIS CANNOT BE A JUSTIFIED ONE. THEN POSSI BILITY OF DOUBLE TAXATION WAS ALSO CONSIDERED, AND THUS THE G ROUND RAISED BY THE ASSESSEE WAS ACCEPTED. 6. IN OUR VIEW, SO FAR AS THE LEGAL PROPOSITION PROPOUNDED, AND CONSIDERED BY LD. TRIBUNAL ARE CONC ERNED, THEY ARE NOT IN DISPUTE, MORESO, WHEN THE TRIBUNAL HAS P ROCEEDED ON THE BASIS OF JUDGEMENT OF HON'BLE SUPREME COUT IN ANDHRA BANK LTD. CSE. THEREFORE, IT REMAINS ONLY A QUESTIO N OF FACT, AS TO WHETHER ANY INCOME WAS DERIVED BY THE ASSESSEE I N THE RELEVANT PERIOD, SO AS TO BE ABLE TO TAX, AND THE L D. TRIBUNAL HAS CONSIDERED, THAT TAX LIABILITY CANNOT BE ATTRACTED MERELY ON THE BASIS OF ENTRIES IN THE BOOK KEEPING UNLESS INCOME IS ACCRUED. THUS, IN SUBSTANCE THE FINDING OF FACT, IS TO BE EF FECT, THAT THE ASSESSEE DID NOT EARN THE INCOME, WHICH HAS BEEN DE LETED BY THE TRIBUNAL BY THE IMPUGNED ORDER. IN THAT VIEW OF THE MATTER, THE QUESTION NO. 1 AS FRAMED, IS ANSWERED ACCORDINGLY, AND IT IS HELD THAT THE CONCLUSION OF THE TRIBUNAL WAS CORRECT. 2.14 THE HON'BLE PUNJAB & HARYANA HIGH COURT IN TH E CASE OF CIT VS. FEROZPUR FINANCE (P) LTD. 124 ITR 619 HELD THAT UN LESS INCOME IS ACCRUED, THERE SHOULD BE NO TAX LIABILITY AND THAT EVEN IN M ERCANTILE SYSTEM OF ACCOUNTING AN ASSESSEE COULD FORGO THE WHOLE OR PA RT OF A DEBT WHICH WAS 15 IRRECOVERABLE AND THE SAME COULD NOT BE ADDED TO TH E INCOME OF THE ASSESSEE. IT IS ILLUSORY TO TAKE CREDIT FOR INTEREST WHERE PR E-CONDITION IS DOUBTFUL OF RECOVERY. THE HON'BLE PUNJAB & HARYANA HIGH COURT REFERRED TO THE DECISION OF HON'BLE APEX COURT IN THE CASE OF IN TH E CASE OF SHORRJI VALLABHDAS & CO. 46 ITR 144. THE HON'BLE APEX COUR T IN THAT CASE DISMISSED THE APPEAL OF THE DEPARTMENT AGAINST THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT REPORTED IN 144 ITR 50 (ST). IT WILL BE USEFUL TO REPRODUCE RELEVANT PORTION OF ACCOUNTING STANDAR D AS-9 9 EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE I S MEASURABLE AND THAT AT THE TIME OF SALE OF THE REND ERING OF THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTI MATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM, E.G. FOR ESCALATION OF PRICE, EXPORT INCENTIVES, IN TEREST ETC. REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINLY INVOLVED IN SUCH CASES, IT MAY BE APPROPRIATE TO RE COGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THE ULTI MATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO THE ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 16 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF G OODS, THE RENDERING OF THE SERVICE OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CON SIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS, THE R ECOGNITION OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENU E OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 2.15 IF WE APPLY THE ABOVE REFERRED PORTION OF ACCO UNTING STANDARD AS-9, THEN IT IS CLEAR THAT IN THE INSTANT CASE THERE ARE DEBTORS WHERE PRINCIPLE IS DOUBTFUL. IT IS ALSO NOT ASCERTAINABLE FROM ANY SEI ZED DOCUMENTS THAT THE ASSESSEE HAS RECEIVED THE INTEREST THOUGH THE ASSES SEE ADMITTED THAT HE HAS RECEIVED THE ADVANCE INTEREST ONLY FOR 2/3 MONTHS. THE CONTENTION OF THE ASSESSEE IS THAT THE INTEREST IS MENTIONED IN THE A PPROVAL MEMO SO THAT THE DEBTOR SHOULD BE UNDER PRESSURE TO REPAY THE AMOUNT AS EARLY AS POSSIBLE. IN CASE INTEREST IS REALIZED THEN THE SAME IS USED FOR MAKING ADVANCE AND RECEIPT OF INTEREST IS ACCRUING AS AND WHEN THE DEBT IS REA LIZED. THE ASSESSEE IS 17 BASICALLY EARNING FROM THE TRADING OF ROUGH STONES I.E. KHARAR AND THE EARNING OF THE INTEREST IS INCIDENTAL. THE TAXABI LITY ON THE BASIS OF THE REAL INCOME THEORY HAS BEEN CONSIDERED IN THE FOLLOWING CASE LAWS : 1. CIT VS. FAL INDUSTRIES LTD. , 314 ITR 47 (MAD.) 2. CIT VS. CITY UNION BANK LTD. (MAD.) 3. CIT VS. FEDERAL BANK LTD., (KER.) 4. CIT VS. BIRLA GWALIOR (P) LTD., 89 ITR 266 (SC) 5. RAJASTHAN STATE GANGANAGAR SUGAR MILLS LTD. VS. DCI T (ITA NO. 28/JP/2010 DATED 20-08-2010) 6. MADAN LAL JAIN VS. ACIT,(ITA NO. 198.JP/2005), ITAT JAIPUR (COPY OF AVAILABLE IN PAPER BOOK) WHEN WE ARE RELYING ON SOME PART OF THE STATEMENT O F ASSESSEE AS CORRECT THEN WE MUST APPRECIATE THAT ASSESSEE HAS GIVEN A T RUE STATE OF AFFAIR. MENTION OF INTEREST WAS TO HAVE PRESSURE ON DEBTORS TO REPAY. HENCE REALIZATION OF INTEREST IS NOT CERTAIN. IT IS THERE FORE, HELD THAT THE INTEREST IS TO BE TAXED AT THE TIME WHEN THE SAME ACCRUES TO THE A SSESSEE AT THE TIME OF REALIZATION OF DEBT. SUCH REALIZATION STANDS INCLUD ED IN THE AMOUNT OF DEBTORS AND HENCE NO FURTHER ADDITION IS REQUIRED TO BE MAD E. AFTER THE DATE OF SEARCH, THE DEBTORS HAVE NOT PAID THE INTEREST AS P ER CONTENTION OF THE ASSESSEE AND THERE IS NO ADVERSE MATERIAL TO SUGGES T THAT INTEREST HAS BEEN REALIZED ALONGWITH REALIZATION OF DEBT. WE THEREFOR E, FEEL THAT THE LD. CIT(A) 18 WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF INT EREST TO THE EXTENT OF RS. 32,39,690/-. THUS GROUND NO. 1 O THE ASSESSEE IS AL LOWED AND GROUND NO. 1 OF THE REVENUE IS DISMISSED. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 49.00 LACS BE ING MONEY ALLEGED TO HAVE BEEN REALIZED FROM THE DEBTORS AND UTILIZED FOR PAY MENT OF DEBTS. 3.2 THE ASSESSEE PAID THE TAX OF RS. 45,57,1160/- ON THE INCOME OFFERED BY HIM. SUCH TAX WAS PAID OUT OF RS. 49.00 LACS FR OM DEBTORS WHICH WAS OFFERED TO TAX ON THE BASIS OF APPROVAL MEMOS DURIN G THE SEARCH. THE AO REQUIRED THE ASSESSEE TO SUBMIT COMPLETE NAME AND A DDRESS AND CONFIRMATION OF THE OUTSTANDING DEBTORS FROM WHOM THE AMOUNT HAS BEEN REALIZED. SINCE THIS INFORMATION WAS NOT PROVIDED, THEREFORE, THE A O ADDED BACK A SUM OF RS. 49.00 LACS. 3.3 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER:- THE CIT(A) DELETED THE ADDITION HOLDING THAT CONS IDERING THE VERY NATURE OF DEBT WHICH WAS UNACCOUNTED AND OFFERED FOR TAX B Y THE ASSESSEE, THE REALIZATION FROM THESE ADVANCES WOULD NOT STRICTLY CONFIRM TO A LL THE 3 INGREDIENTS NAMELY NAME, CREDITWORTHINESS AND GENUINENESS OF THE TRANS ACTIONS. IT IS ALSO HELD THAT THESE ARE NOT NEW LOAN TAKEN BY THE ASSESSEE BUT IT IS RECOVERY FROM THE DEBTORS ON WHICH TAX HAS ALREADY BEEN PAID BY THE ASSESSEE ADM ITTING IT AS UNACCOUNTED DEBTS. THE ADDITION ON REALIZATION OF THESE ADVANCES WOULD CERTAINLY RESULT INTO DOUBLE ADDITION. THE CIT(A) RELIED ON THE DECISION OF HON BLE ITAT IN CASE OF MADANLAL JAIN IN ITA NO. 198/JP/2005 DATED 13-10-06 WHEREIN THE ADDITION MADE BY THE 19 AO BY NOT TREATING MONEY REALIZED FROM THE HUNDIES FOR PAYMENT OF TAXES HAS BEEN DELETED. 3.4 THE LD. DR SUPPORTED THE ORDERS OF THE AO. ACCO RDING TO HIM, THE AO, THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE S OURCE OF PAYMENTS IN RESPECT OF TAX DEPOSITED. IN ABSENCE OF ANY INFORM ATION, THE AO WAS JUSTIFIED IN MAKING THE ADDITION OF RS. 49.00 LACS. 3.5 ON THE OTHER HAND, THE LD. AR HAS FILED THE FOL LOWING WRITTEN SUBMISSION. THE ASSESSEE HAS OFFERED THE AMOUNT MENTIONED ON THE APPROVAL MEMOS AS UNDISCLOSED INVESTMENT IN DEBTORS WHICH TH E AO HAS ACCEPTED. IN ORDER TO MAKE PAYMENT OF TAX ON UNDISCLOSED INCO ME, THE ASSESSEE AFTER SEARCH COULD REALIZE SOME OF THE DEBTORS. IN RESPEC T OF SUCH REALIZATION THE EXPECTATION OF THE AO TO FURNISH CONFIRMATION IS UN REASONABLE, SINCE THE TRANSACTIONS WERE UNRECORDED TRANSACTIONS. ONCE THE AO ACCEPTS THE AMOUNT INVOLVED IN APPROVAL MEMOS AS UNDISCLOSED IN VESTMENT OF THE ASSESSEE IN DEBTORS ON THE BASIS OF STATEMENT OF TH E ASSESSEE WITHOUT MAKING ANY INDEPENDENT ENQUIRY, THEN ON THE BASIS O F THE AFFIDAVIT OF THE ASSESSEE HE OUGHT TO ACCEPT THE REALIZATION FROM TH ESE DEBTORS. THE AO CANNOT BLOW HOT AND COLD AT THE SAME BREATH . HE SHOULD NOT ADOPTED AN ATTITUDE OF HEAD I WIN, TALE YOU LOSE . THEREFORE, THE OBSERVATION OF THE AO TO FURNISH CONFIRMATION OF THE BORROWERS TO PROV E THE REALIZATION FROM DEBTORS IS WHOLLY UNJUSTIFIED AND FAR FETCHED. IN C ASE THE AMOUNT INVOLVED IN THE APPROVAL MEMOS IS CONSIDERED UNDISCLOSED AND TAXED, AGAIN TAXING THE REALIZATION OF THESE APPROVAL MEMOS WOULD RESUL T IN DOUBLE TAXATION OF THE SAME AMOUNT. 20 IT IS A SETTLED LAW THAT, STRICT RULE OF EVIDENCE D OES NOT APPLY TO THE INCOME TAX PROCEEDINGS. THE HUMAN PROBABILITY IS TO BE CONSIDERED IN ASSESSING AN INCOME. THE SUPREME COURT IN CASE OF S UMATI DAYAL V. CIT 214 ITR 801 HAS HELD THAT WHEN THE APPARENT IS NOT REAL THE MATTER SHOULD BE CONSIDERED ON THE BASIS OF SURROUNDING CIRCUMSTA NCES AND APPLYING TEST OF HUMAN PROBABILITIES. APPLYING THIS TEST OF HUMAN PROBABILITIES IT CANNOT BE ASSUMED THAT, ASSESSEE HAS INCOME FROM SOME OTHE R SOURCES FROM WHICH HE MADE PAYMENT OF TAXES AND NOT FROM THE REALIZATI ON OF DEBTORS WHICH HAS BEEN CONSIDERED FOR TAX. HENCE, THE ADDITION MA DE BY THE AO IS UNCALLED FOR AND UNJUSTIFIED. SIMILAR ISSUE HAS BEEN DECIDED BY HONBLE ITAT, JAI PUR BENCH IN CASE OF MADANLAL JAIN VS. ACIT IN ITA NO. 198/JP/20 05 DATED 13-10-2006 (PB 67-87) WHEREIN THE AO MADE ADDITION OF RS. 77,2 0,000/- ON THE GROUND THAT EVIDENCE OF REALIZATION OF HUNDIES UTIL IZED FOR PAYMENT OF TAXES COULD NOT BE FURNISHED BY THE ASSESSEE BUT HO NBLE ITAT DELETED THE SAID ADDITION. THE FINDINGS GIVEN IN THIS ORDER IS REPRODUCED AT PAGE 12 OF THE ORDER OF CIT(A). 3.6 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S OFFERED THE INCOME ON THE BASIS OF THE DEBTORS MENTIONED IN THE DOCUME NTS AND THE APPROVAL MEMO. IN RESPECT OF TRANSACTION RECORDED OUTSIDE T HE BOOKS OF ACCOUNTS, IT IS NOT POSSIBLE BY THE ASSESSEE TO PROCURE CONFIRMATIO N FROM THE PARTIES. ONCE IT IS ACCEPTED THAT THERE WERE DEBTORS FROM WHICH THE AMOUNT CAN BE REALIZED THEN THE CONTENTION OF THE ASSESSEE IS TO BE ACCEPT ED AND SUCH AMOUNT HAS BEEN UTLISED FROM THE DEBTORS. WE THEREFORE, FEEL T HAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 49.00 LAC S.. 21 4.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 24,880/ -. 4.2 THE AO DISALLOWED EXPENSES OUT OF TELEPHONE EXP ENSES, GENERAL EXPENSES AND TRAVELING EXPENSES. 4.3 THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 1 5% OUT OF GENERAL EXPENSES AND TRAVELING EXPENSES. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2008-09 IS BEING MADE FOR THE FIRST TIME BECAUSE RE TURN HAS BEEN FILED AFTER THE SEARCH. THIS IS A REGULAR ASSESSMENT AND THE AS SESSMENT IS TO BE MADE U/S 153A BECAUSE SEARCH AND SEIZURE ACTIONS HAVE BEEN U NDERTAKEN. HENCE, THE AO WAS JUSTIFIED IN MAKING DISALLOWANCE OUT OF THE EXPENSES. 4.4 AFTER HEARING BOTH THE PARTIES, WE FEEL, THAT T HE LD. CIT(A) WAS FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE OF RS. 24,880/-. 5.0 NOW WE TAKE UP THE APPEAL FOR THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03. 5.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF 23.00 LACS ON A CCOUNT OF UNDISCLOSED INVESTMENT IN DEBTORS. 5.2 THE AO ON THE BASIS OF THE INCRIMINATING DOCUME NTS NOTICED THAT THERE WERE DEBTORS TO THE EXTENT OF RS. 23.00 LACS AT THE END OF THE OF PREVIOUS YEAR RELATING THE BUSINESS OUTSIDE THE BOOKS OF ACCOUNTS . THE CONTENTION OF THE 22 ASSESSEE IS THAT IT HAS SURRENDERED INCOME ON THE B ASIS OF THE DEBTORS FOR THREE ASSESSMENT YEARS. HENCE, IT WAS SUBMITTED BEF ORE THE AO THAT EITHER THE ADDITION SHOULD BE MADE OR THE SAME SHOULD BE R EDUCED FROM THE INCOME RETURNED. THE AO WAS NOT SATISFIED WITH THE CONTENT ION OF THE ASSESSEE AS ACCORDING TO HIM THE INCOME IS TO BE TAXED FOR PREV IOUS YEAR DURING WHICH THE INCOME RELATES. 5.3 THE ADDITION HAS BEEN CONFIRMED BY THE LD. CIT( A) AFTER CONSIDERING THE SUBMISSIONS OF THE LD. LD. AR. 5.4 WE HAVE HEARD BOTH THE PARTIES. WE FEEL THAT T HE INCOME IS TO BE TAXED FOR THE PRECEDING YEAR. AS PER CHARGING SECTION 4 O F THE INCOME TAX ACT,, THE AO WAS THEREFORE, JUSTIFIED IN MAKING THE ADDIT ION OF RS. 23.00 LACS. THE ALTERNATIVE SUBMISSION OF THE ASSESSEE IS THAT THE EXCESS INCOME SHOULD BE SET OFF FOR THE ASSESSMENT YEARS 2006-07 TO 2008-09 . WHILE DECIDING FOR A PARTICULAR ASSESSMENT YEAR, NO DIRECTION CAN BE GIV EN FOR OTHER ASSESSMENT YEARS. THE ISSUE IF ARISES IN OTHER ASSESSMENT YEAR S FOR SET OFF THEN THE SAME IS TO BE CONSIDERED IN THAT ASSESSMENT YEAR. HENCE, THE ALTERNATE SUBMISSION OF THE ASSESSEE IS ALSO REJECTED. 5.5 IN RESPECT OF INTEREST ON DEBTORS, WE HAVE ALR EADY HELD WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 THAT SU CH INTEREST IS TO BE CONSIDERED AS ACCRUED WHEN THE DEBT IS REALIZED. SI NCE THE DEBTS HAVE NOT 23 BEEN REALIZED THEREFORE, THE ADDITION IN RESPECT OF INTEREST COULD NOT HAVE BEEN MADE. 5.6 THE OTHER GROUNDS OF APPEAL IN RESPECT OF DISA LLOWANCE OF EXPENSES TO THE EXTENT OF RS. 11,151/- BY THE LD. CIT(A) AS AGA INST RS. 16,535/- MADE BY THE AO. WE HAVE PERUSED THE ORDERS OF THE LOWER AUT HORITIES. WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DIS ALLOWANCE TO RS. 11,151/-. 6.0 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2005-06. 6.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 42.25 LACS 6.2 THIS ISSUE IS SIMILAR TO THE ISSUE CONSIDERED I N THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03. FOLLOWING OUR FIND INGS FOR THE ASSESSMENT YEAR 2002-03, WE HOLD THAT THE LD. CIT(A) WAS JUSTI FIED IN CONFIRMING THE ADDITION OF RS. 42.25 LACS. 6.3 THE ALTERNATE SUBMISSION IS IN RESPECT OF ALLO WING SET OFF OF EXCESS INCOME AGAINST RETURNED INCOME FOR THE ASSESSMENT Y EAR 2006-07 TO 2008-09. FOLLOWING OUR FINDING IN RESPECT OF ASSESSMENT YEA R 2002-03, THIS ALTERNATE CONTENTION OF THE ASSESSEE IS REJECTED. 6.4 THE NEXT GRIEVANCE IS IN RESPECT OF INCLUSION OF INTEREST. THIS ISSUE HAS BEEN DECIDED WHILE DECIDING THE APPEAL THE APPE AL FOR THE ASSESSMENT 24 YEAR 2008-09 AND ACCORDINGLY IT IS HELD THAT INTERE ST IS TO BE TAXED ON THE REAL INCOME THEORY AND THAT IS TO BE CONSIDERED AS ACCRU ED AS WHEN THE DEBT IS REALIZED. 7.1 THE LAST GRIEVANCE IS IN RESPECT OF DISALLOWAN CE OF EXPENSES OF RS. 30,143/-. 7.2 AFTER PERUSING THE ORDERS OF THE AUTHORITIES BE LOW, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF 30,143/-. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE P ARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14-07 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 14 /07/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI RADHA MOHAN MAHESHWARI, JAIPUR 2. THE DCIT, CENTRAL CIRCLE- 3, JAIPUR 3. THE LD. CIT (A) JAIPUR 4. THE LD. CIT BY ORDER 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1302/JP /10) A.R, ITAT, JAIPUR FIT FOR PUBLICATION JM AM 25 26 27