Shri Siddhartha Jalan, Kolkata V. ACIT, Circle - 30, Kolkata

ITA 1312/KOL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2444 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 29-07-2009
• Court: TRIBUNAL
• Department Lawyers: D R SINDHAL
• Assessee Lawyers: R SALARPURIA
• Keywords: Bogus purchase; Unexplained cash credit; Unexplained expenditure; Gift; Business income; Depreciation; Corroborative evidences
• Section: 264; 68

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH - C , KOLKATA ( ) BEFORE . . , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . . , , SHRI C.D. RAO, ACCOUNTANT M EMBER . / I.T.A.NO. 1312/KOL/2009 / ASSESSMENT YEAR 2003 - 04 SHRI SIDDHARTHA JAIAN, 118A, C.R. AVENUE, KOLKATA 700 073 PAN ACSPJ 9958 Q - - - VERSUS - . ACIT, CIRCLE 30, KOLKATA. ( / A PPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI R.SALARPURIA, AR / FOR THE RESPONDENT : / SHRI D.R.SI NDHAL, DR / ORDER . . , SHRI B.R.MITTAL, JUDICIAL MEMBER. THE ASSESSEE HAS FILED THIS APPEAL FOR THE ASSESSMENT YEAR 2003 - 04 AGAINST ORDER DT.18.6.2009 OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THE FOLLOWING GROUNDS. 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN UPHOLDING THE DIS ALLOWANCES OF RS. 1,41,91,026/ OUT OF PURCHASES OF THE RAW - MATERIALS. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW WERE GROSSLY UNJUSTIFIED IN DISALLOWING MORE THAN 75% OF THE COST OF RAW - MATERIALS ON THE ALLEGED G ROUNDS THAT THE ASSESSEE FAILED TO PROVE THE PURCHASES. 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW HAVING ACCEPTED THAT THE APPELLANT WAS ENGAGED IN MANUFACTURE AND EXPORT OF LEATHER GOODS AND FURTHER HAVING ACCEP TED THE EXPORT OF MANUFACTURED GOODS; WERE NOT JUSTIFIED IN DISALLOWING THE COST OF RAW MATERIALS; WITHOUT ITS CONSUMPTION; THE PRODUCTION WAS NOT POSSIBLE. 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE A.O. BE DIRECTED TO ALLOW DEDUC TION FOR COST OF RAW MATERIALS CONSUMED; / I.T.A.NO.1312/KOL/2009 2 COMMENSURATE WITH THE PRODUCTION OF LEATHER GOODS ACHIEVED DURING THE RELEVANT PREVIOUS YEAR. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS.L,141,91,026/ - (THE CORRECT AMOUNT IS RS.1,41,91,026) MADE OUT OF COST OF PURCHASE MAY KINDLY BE DELETED AND/OR REDUCED. 6) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE OF FABRICATION CHARGES TO THE EXTENT OF RS. 18,25 ,099/ - . 7) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN DISALLOWING PART OF THE FABRICATION CHARGES WHICH WERE INCURRED WHOLLY & NECESSARILY FOR THE PURPOSE OF PRODUCING LEATHER GOODS WHICH WERE EXP ORTED BY THE APPELLANT. 8) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS.18,25,099/ - MADE OUT OF FABRICATION EXPENSES BE DELETED AND/OR REDUCED. 9) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A ) WAS UNJUSTIFIED IN NOT ALLOWING THE APPELLANTS CLAIM FOR LOSS OF RS. 109,600/ - ON ACCOUNT OF THEFT; WITHOUT APPRECIATING CORRECT FACTS OF THE CASE. 10) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN UPHOLDING DISALLOWANCE OF THE FOREIGN TRAVEL EXPENSES OF RS.2,22,788/ - , HOLDING IT TO BE PERSONAL EXPENSES. 11) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJUSTIFIED IN UPHOLDING THE ADDITION OF RS. 15 LACS MADE U/S 68 OF THE I.T. AC T. 12) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN MAKING ADDITION OF RS.15 LACS EVEN THOUGH THE DONORS WHO WERE INCOME - TAX ASSESSES HAD AFFIRMED MAKING OF GIFTS TO THE APPELLANT & HAD PRODUCED DOC UMENTARY EVIDENCES IN SUPPORT OF THE GIFTS. 13) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ADDITION OF RS. 15 LACS MADE U/S 68 OF THE ACT BE DELETED. 14) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS UNJU STIFIED IN UPHOLDING THE ADDITION OF RS.3,22,586/ - BEING UNEXPLAINED EXPENDITURE ON REGISTRATION OF THE PROPERTY. / I.T.A.NO.1312/KOL/2009 3 15) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ADDITION OF RS.3,22,586/ - BE DELETED AS IT IS MADE WITHOUT CONSIDERING TH E FACTS OF THE CASE IN PROPER PERSPECTIVE. 16) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN DISALLOWING RS.1,967/ - OU T OF DEPRECIATION ON MOTOR CAR. 17) FOR THAT THE APPELLANT CRAVES LEAVE TO SUBMI T ADDITIONAL GROUNDS AND/OR AMEND OR ALTER THE GROUNDS ALREADY TAKEN EITHER AT THE TIME OF HEARING OF THE APPEAL OR BEFORE. 2. GROUNDS NO.1 TO 8 OF THE APPEAL ARE INTER - CONNECTED AND ACCORDINGLY THE SAME ARE CONSIDERED TOGETHER. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A PROPRIETORSHIP CONCERN CALLED EXOTIC LEDE R WAREN WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LEATHER GOODS AND EXPORTING THEM. THE LEATHER GOODS EXPORTED ARE ITEMS LIKE WALLETS, PURSES, CARD HOLDER, PASS - P ORT COVER, FILE COVER ETC. FOR MANUFACTURING THESE ITEMS, THE ASSESSEE PURCHASES LEATHER FROM THE MARKET AND GET THEM FABRICATED FROM OUTSIDE PARTIES. 4. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN PURCHASE OF RS.3,47,001 SQ.FT COW LEATHER VALUED AT RS.1,85,68,468 AND HAS SHOWN EXPORT SALES OF RS.3,34,31,004 AND RECEIPT OF EXPORT INCENTIVE OF RS.26,84,905. THE ASSESSEE HAS ALSO CLAIMED FABRICATION JOB WORK CHARGES OF RS.39,14,691. 5. FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION THE ASSESSEE FILED RETURN SHOWING INCOME OF RS.12,59,750. 6. ON 20.2.2006, A SURVEY U/S.133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE AT 25, RIFLE RANGE ROAD AND ALSO AT FACTORY PREMISES AT 45A/1, PALM AVENUE A ND DURING THE COURSE OF SURVEY THE ASSESSEE WAS FOUND TO BE IN POSSESSION OF BLANK CASH MEMOS/CHALLANS/BILLS IN RESPECT OF 37 PARTIES THE DETAILS / I.T.A.NO.1312/KOL/2009 4 OF WHICH HAS BEEN GIVEN BY THE ASSESSING OFFICER AT PAGES 2 AND 3 OF THE ASSESSMENT ORDER AND THE SAME ARE AS UNDER: SL.NO. IN THE NAME OF ADRESS 1 . AFOOK TANNERY 71D, SOUTH TANGRA ROAD, KOL.46 2 . ASIATIC LEATHER 30/B, TOPSIA ROAD, KOL - 39 3 . AYESHA 25B, KUSTIA ROAD, KOL - 39 4 . LAWRANCE LEATHER 17C/1, PAGLA DANGA ROAD, KOL - 46 5 . M.NISHAR & CO. 24, TOPSIA 2 ND LANE,KOL - 3 9 6 . NATIONAL HIDE & CO. 57/1 - B, G.J.KHAN ROAD, KOL - 39 7 . QUALITY LEATHER PRODUCT 48J,MASJID BARI LANE, KOL - 39 8 . RABBAN INDUSTRIES ` 19,TILJALA ROAD, KOL - 39 9 . S.N.DAS 6/1/3, MAHESHWARI TOLLA ROAD, KOL - 46 10 . SAHANA CREATION 27/1/A, TOPSIA ROAD, KOL - 39 11 . SERIA TANNERY 109B/1, CHAMRU KHANSAMA LANE, KOL - 17 12 . SPADIX ENTERPRISES 8B/3,TOPSIA ROAD, KOL - 39 13 . TAILIN TANNERY 100B,SOUTH TANGRA ROAD, KOL - 46 14 . TAN IMPEX 24/H/1, MASJID BARI LANE, KOL.39 15 . MD.JALIL 13, RIFLE RANGE ROAD, KOL - 19 16 . MD.ABID 32,ELIOT ROAD, KOL - 17. 7. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN PURCHASES OF LEATHER FROM THE PERSONS MENTIONED AT SL.1 TO 14 OF THE ABOVE TABLE AMOUNTING TO / I.T.A.NO.1312/KOL/2009 5 RS.1,41,86,549.THE ASSESSING OFFICER HAS FURTHER STATED THAT THE ASSESSEE HAS SHOWN FABRICAT ION CHARGES AMOUNTING TO RS.9,03,465 FROM THE PARTIES SHOWN AT SL.32 TO 37 THEREOF. 8. THE ASSESSING OFFICER HAS STATED THAT NOTICES U/S.133(6) OF THE ACT WERE ISSUED TO ALL THE PARTIES EXCEPT S.K.INDUSTRIAL CORPORATION FROM WHOM THE ASSESSEE MADE PURCHA SES OF COW LEATHER. THAT , REPLIES WERE RECEIVED FROM TWO PARTIES NAMELY M/S.DOLPHIN LEATHER IMPEX AND M/S.SANA INTERNATIONAL AND THE NOTICES WERE RETURNED UNSERVED FROM THE PARTIES MENTIONED AT SL. 1 TO 14 HEREIN ABOVE. THE ASSESSING OFFICER HAS STATED THA T THE ASSESSEE WAS INFORMED OF THE RETURN OF NOTICES AND ASKED THE ASSESSEE TO PRODUCE THE AFORESAID PERSONS. THE ASSESSEE STATED THAT HE MADE PURCHASES OF RAW MATERIAL AND OTHER ITEMS REQUIRED FOR PRODUCTION FROM MANY VENDORS OUT OF WHICH SOME WERE FROM U NORGANIZED SECTORS AND WERE VERY SMALL TIME BUSINESSMEN AND SOLD THEIR GOODS AT A VERY CHEAP RATE BECAUSE THEY DID NOT POSSESS ANY INFRASTRUCTURES OR INCURRED ANY OVERHEAD COST SO THAT THE PURCHASES MADE BY THE ASSESSEE WE RE COST EFFECTIVE AND ECONOMICAL. 9. THE ASSESSING OFFICER COMPARED THE PURCHASES MADE BY THE ASSESSEE FROM THE PARTIES TO WHOM PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES WITH THOSE PARTIES WHO M , ASSESSEE CLAIMED, WERE FROM UNORGANIZED SECTORS ; AND FOUND THAT THE AVERAGE RATE OF PURCHASE S MADE FROM PARTIES BY ACCOUNT PAYEE CHEQUES WAS APPROXIMATELY @ RS.46 PER SQ.FT, WHEREAS THE AVERAGE RATE OF PURCHASES MADE FROM PARTIES ON CASH WAS APPROXIMATELY @ RS.56 PER SQ.FT. THE ASSESSING OFFICER HAS ALSO STATED THAT THE PAYMENTS MADE BY THE ASSES SEE TO THE SO CALLED UNORGANIZED SECTORS AND PURCHASES WERE MADE IN CASH THROUGHOUT THE YEAR BUT AT THE END OF THE YEAR SOME CHEQUES WERE ISSUED IN THE NAME OF SUCH PARTIES. THE ASSESSING OFFICER MADE ENQUIRIES AND FOUND THAT ALL THOSE CHEQUES WERE BEARER CHEQUES AND ALSO FOUND THAT ALTHOUGH THE SAID SUPPLIERS WERE LOCATED AT DIFFERENT ADDRESSES BUT THE AMOUNTS WERE WITHDRAWN ON THE SAME DATE IN CASH. 10. IN RESPECT OF PAYMENT OF FABRICATION CHARGES, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE COULD NOT FURNISH PROPER ADDRESSES OF THE FOLLOWING / I.T.A.NO.1312/KOL/2009 6 FABRICATORS TO ENABLE HIM TO VERIFY, THE DETAILS OF WHICH ARE GIVEN BY THE ASSESSING OFFICER AT PAGES 5 & 6 OF THE ASSESSMENT ORDER AS UNDER : 11. THE ASSESSING OFFICER FURTHER STATED THAT THE ASSESSEE CO ULD NOT PRODUCE THE ABOVE PARTIES AND THEREFORE, THE TRANSACTIONS WITH THOSE PARTIES ARE FOUND TO BE NON - VERIFIABLE. THE ASSESSING OFFICER HAS ALSO STATED THAT THE PAYMENTS HAVE BEEN MADE IN CASH OR BEARER CHEQUES. 12. THE ASSESSING OFFICER FURTHER STATED THAT THE ASSESSEE COULD NOT PRODUCE STOCK REGISTER OR CONSUMPTION REGISTER TO JUSTIFY THE UTILIZATION OF RAW MATERIALS. THAT, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT SINCE THE BUSINESS IS OF 100% EXPORT AND MADE TO ORDER BASIS BASED ON S AMPLES & DESIGNS SELECTED AND ORDERED BY THE CUSTOMERS FROM TIME TO TIME, THERE IS NO STANDARD MEASUREMENT AND SPECIFICATIONS WITH REGARD TO THE QUANTITY OF LEATHER AND OTHER MATERIALS REQUIRED ON THE VARIOUS ITEMS. HOWEVER, THE ASSESSEE ADMITTED THAT HE I S NOT IN A / I.T.A.NO.1312/KOL/2009 7 POSITION TO FURNISH DETAILS AS THEY ARE GENERALLY NOT KEPT AFTER THE DELIVERY OF ORDER AND RECEIPT OF PAYMENT FROM THE PARTY. 13. THE ASSESSING OFFICER HAS STATED THAT IT IS UNCOMMON FOR A MANUFACTURER NOT TO MAINTAIN ANY RECORD OF MATERIAL CON SUMED WHICH IS ESSENTIAL TO DETERMINE THE COST OF GOODS SOLD. THAT, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS EXPORTED FINISHED GOODS AND RELYING ON HIS EXPORT INVOICES AND CUSTOMS DOCUMENTS AND EXPORT PROCEEDS REALIZED , IT MAY BE CONSIDERED T HAT SALE FIGURES ARE CORRECT. THE ASSESSING OFFICER HAS STATED THAT IN THE ABSENCE OF CONSUMPTION PER UNIT OR TOTAL CONSUMPTION PER YEAR AND IN VIEW OF BLANK BILLS/CHALLANS OF OTHER PARTIES FOUND DURING THE SURVEY AND DIFFERENCE IN CLOSING STOCK AS ON 31.3 .2002 AND OPENING STOCK AS ON 1.4.2002, THE PURCHASES AND FABRICATION CHARGES SHOWN BY THE ASSESSEE COULD NOT BE ACCEPTED. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE PURCHASES OF RS.1,41,91,026 AND FABRICATION CHARGES OF RS.23,91,834 (RS.9,03,465 + RS .14,88,369) TREATING THEM AS BOGUS. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 14. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT TREATING THE PURCHASE OF RS.1,41,91,026 OUT OF THE TOTAL PU RCHASES OF RS.1,85,68,468 COMPRISES OF 76.42% OF THE TOTAL PURCHASES AND FABRICATION CHARGES OF RS.23,91,834 OUT OF THE TOTAL FABRICATION CHARGES PAID OF RS.39,14,691 COMPRISES OF 61.09% AND TREATING THE SAME AS BOGUS IS NOT JUSTIFIED. IT WAS ALSO CONTENDE D THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE DULY AUDITED AND THE AUDITORS HAVE NOT QUALIFIED THEIR AUDIT REPORT IN ANY MANNER. IT WAS ALSO CONTENDED THAT THE RATE OF LEATHER DEPENDS UPON THE QUALITY OF THE LEATHER AND THERE CANNOT BE UNIVERSAL RATE WHI CH CAN BE MADE APPLICABLE FOR ALL QUALITIES OF LEATHER PURCHASED. IT WAS REITERATED BEFORE THE LEARNED CIT(A) THAT THE PARTIES FROM WHOM PURCHASES WERE MADE D ID NOT HAVE INFRASTRUCTURE OR OVERHEAD AND THE PURCHASES FROM THEM ARE CHEAPER; THAT THOSE PARTIES WERE FROM UNORGANIZED SECTORS AND WERE VERY SMALL TIME BUSINESSMEN AND HENCE NOT TRACEABLE . M ERELY BECAUSE THOSE PARTIES WERE NOT FOUND IN EXISTENCE AT THE ADDRESSES GIVEN IN THE BILLS/CHALLANS, THE PURCHASES AS WELL AS THE PA YMENTS OF FABRICATION CHARGE S COULD NOT BE TREATED AS BOGUS. IT WAS / I.T.A.NO.1312/KOL/2009 8 ALSO CONTENDED THAT ALL THE SALES OF THE ASSESSEE WAS OUT OF INDIA AND THERE WAS NO DOMESTIC SALES. THE EXPORT REMITTANCES WERE RECEIVED BY THE ASSESSEE . THEREFORE PURCHASES OF RAW MATERIALS COULD NOT BE TREATED AS B OGUS. IT WAS ALSO CONTENDED THAT TO TREAT THE PURCHASES TO THE EXTENT OF RS.1,41,91,026 OUT OF THE TOTAL PURCHASES OF RS.1,85,68,468 AS BOGUS IS TO ACCEPT THE FACT THAT THE ASSESSEES TOTAL SALES HAVE BEEN TO THE EXTENT OF RS.3,34,31,004, WHICH IS EIGHT TI MES OF THE COST OF PURCHASES GIVING GP RATE OF 763% WHICH COULD NOT BE IMAGINED IN ANY COMPETITIVE BUSINESS. IT WAS ALSO CONTENDED THAT THE EXPORT SALES TO FOREIGN BUYERS OF FOREIGN COUNTRIES ARE CLOSELY REGULATED AND MONITORED BY THE RESERVE BANK OF INDIA AND ALL THE PAYMENTS RELATING TO EXPORT SALES HAVE BEEN RECEIVED BY THE ASSESSEE IN FOREIGN CURRENCY THROUGH BANKING CHANNELS. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER HAS HIMSELF ALLOWED DEDUCTION TO THE ASSESSEE U/S.80HHC OF THE ACT TO THE EXTEN T OF RS.96.02 LAKHS. THAT THE ASSESSEE FILED A CHART BEFORE LEARNED CIT(A) SHOWING RATE OF GROSS PROFIT AND NET PROFIT RATE BASED ON THE AUDITED ACCOUNTS OF THE ASSESSEE OF THE PRECEDING TWO YEARS AND THE YEAR UNDER APPEAL SHOWING TH E AVERAGE GROSS PROFIT RATE IS 13 .08% AND THE AVERAGE NET PROF IT RATE IS 5.32% AND CONTENDED THAT THE GP RATE AS WELL AS NP RATE IN THE EARLIER ASSESSMENT YEARS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. 15. THE LEARNED CIT(A) , AFTER CONSIDERING THE ABOVE SUBMISSIONS, HAS S TATED THAT THE ASSESSEE HAS MEASURABLY FAILED TO FURNISH SATISFACTORY EVIDENCE FOR THE PURCHASES AND FABRICATION CHARGES DEBITED IN THE PROFIT & LOSS ACCOUNT; THAT THE ASSESSING OFFICER DISALLOWED ALMOST ALL THE PAYMENTS HAVING BEEN MADE IN CASH; THAT NOTI CES/LETTERS SENT AT THE ADDRESSES TO THOSE PARTIES WERE RETURNED UNSERVED WITH REMARK NO T KNOWN/ADDRESSEE NOT KNOWN; THAT BLANK BILL BOOKS/RECEIPT BOOKS OF A NUMBER OF SUPPLIERS WERE FOUND AT THE PREMISES OF THE ASSESSEE DURING THE SURVEY OPERATION . IN V IEW THEREOF, THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE OF THE PURCHASES MADE BY THE ASSESSING OFFICER OF RS.1,41,91,026. 16. IN RESPECT OF DISALLOWANCE OF FABRICATION CHARGES, THE LEARNED CIT(A) HAS STATED THAT THERE ARE CERTAIN DOUBLE DISALLOWAN CE AGGREGAT ING TO AN AMOUNT OF RS.1,00,559 . L EARNED CIT(A) HAS FURTHER STATED THAT THE ASSESSEE PRODUCED SIX / I.T.A.NO.1312/KOL/2009 9 PERSONS BEFORE THE ASSESSING OFFICER FOR HIS EXAMINATION WHEN HIS PREDECESSOR ASKED THE ASSESSING OFFICER TO GIVE ANOTHER OPPORTUNITY TO THE ASSESS EE AND THOSE SIX PARTIES CONFIRMED TO HAVE DONE FABRICATION WORK FOR THE ASSESSEE BUT THEY DO NOT HAVE ANY DOCUMENTARY EVIDENCE REGARDING ACTUAL CHARGES PAID TO THEM. IN VIEW OF ABOVE, THE LEARNED CIT(A) HAS RESTRICTED THE DISALLOWANCE OF RS.18,25,099 AS A GAINST RS.23,91,834 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FABRICATION CHARGES. 17. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 18. DURING THE COURSE OF HEARING, THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGE 137 OF THE PAPER BOOK WHICH SPELL OUT THE PROCEDURE FROM THE STAGE OF RECEIPT OF ORDERS FROM THE PARTIES AND THEREAFTER TO PURCHASE THE MATERIAL AND MAKE EXPORT OF GOODS. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT ALL SALES ARE BY WAY OF EXPORT TO OUT OF INDIA AND THERE ARE NO DOMESTIC SALES. HE FURTHER SUBMITTED THAT THE TOTAL EXPORT SALES OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS OF RS.3,34,31,004 AND THE SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER AND/OR THE LEARNED CIT(A). HE FURTHER SUBMITTED THAT ALL THE EXPORT PROCEEDS WERE REALIZED BY THE ASSESSEE IN FOREIGN CURRENCY THROUGH NORMAL BANKING CHANNELS AND THE SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER AS WELL AS BY THE LEARNED CIT(A). THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IF T HE EXPORTS OF GOODS OF THE ASSESSEE ARE NOT IN DISPUTE, THE ASSESSEE MUST HAVE ALSO PURCHASED THE RAW MATERIALS. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT EVEN IF ALL THE PURCHASES OF RS.1,85,68,468 AS CLAIMED BY THE ASSESSEE ARE NOT VERIFIED AND/OR NO T CONSIDERED AS GENUINE AS THE ASSESSEE COULD NOT PRODUCE ALL THE PARTIES FROM WHOM PURCHASES WERE MADE , THE PURCHASES TO THE EXTENT OF RS.1,41,91,026 WHICH COMES TO 76.42% OF THE TOTAL PURCHASES COULD NOT BE TREATED AS BOGUS. THE LEARNED AR OF THE ASSESS EE FURTHER SUBMITTED THAT THE FABRICATION CHARGES PAID BY THE ASSESSEE OF RS.39,14,691 AND OUT OF IT TO TREAT THE PAYMENT OF RS.23,91,834 AS BOGUS BY THE ASSESSING OFFICER WHICH COMES TO 61.09% OF THE TOTAL FABRICATION CHARGES PAID AND CONFIRMING BY THE LE ARNED CIT(A) TO THE EXTENT OF RS.18,25,099 IS ALSO NOT JUSTIFIED AND THE SAME IS BASED ON SURMISES AND CONJECTURES. / I.T.A.NO.1312/KOL/2009 10 19. THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGE 13 9 OF THE PB WHICH IS A COPY OF MANUFACTURING AND TRADING ACCOUNT FOR THE ASSESSMENT YEAR 2001 - 02 AND SUBMITTED THAT IN THAT ASSESSMENT YEAR ON AN EXPORT SALES OF RS.3,22,96,939, THE PURCHASE OF RAW MATERIAL OF RS.2,13,38,155 W AS ACCEPTED BY THE DEPARTMENT AS GENUINE. THE LEARNED AR OF THE ASSESSEE FURTHER REFERRED TO PAGE 144 OF THE PB WH ICH IS A COPY OF MANUFACTURING & TRADING ACCOUNT FOR THE ASSESSMENT YEAR 2002 - 03 AND SUBMITTED THAT ON AN EXPORT SALES OF RS.2,34,32,982 , PURCHASE OF RAW MATERIALS OF RS.1,43,25,750 AND FABRICATION CHARGES OF RS.27,38,852 WERE ACCEPTED AS GENUINE BY THE D EPARTMENT . THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGE 147 OF THE PB WHICH IS A COPY OF MANUFACTURING AND TRADING ACCOUNT FOR THE ASSESSMENT YEAR 2003 - 04 AND SUBMITTED THAT ON AN EXPORT SALES OF RS.3,34,31,004, PURCHASE OF RS.1,85,68,467 AND FABRICATIO N CHARGES OF RS.39,14,691 WERE ACCEPTED AS GENUINE BY THE DEPARTMENT. THE LEARNED AR OF THE ASSESSEE FURTHER REFERRED TO PAGE 151 OF THE PB WHICH IS A COPY OF MANUFACTURING AND TRADING ACCOUNT FOR THE ASSESSMENT YEAR 20 04 - 05 AND SUBMITTED THAT ON THE EXPOR T SALES OF RS.3,54,03,96, THE PURCHASES OF RAW MATERIAL OF RS.2,16,60,010 AND FABRICATION CHARGES OF RS.35,08,644 WERE ACCEPTED BY THE DEPARTMENT. THE LEARNED AR OF THE ASSESSEE FURTHER REFERRED TO PAGE 155 OF THE PB WHICH IS A MANUFACTURING AND TRADING A CCOUNT FOR THE ASSESSMENT YEAR 2005 - 06 AND SUBMITTED THAT ON A TOTAL SALES OF RS.3,79,82,954, THE PURCHASES OF RS.2,06,64,022 AND FABRICATION CHARGES OF RS.37,53,273 WERE ACCEPTED AND NO DISALLOWANCE WAS MADE BY THE DEPARTMENT. THE LEARNED AR OF THE ASSESS EE FURTHER FILED A CHART GIVING GP AND NP RATE FOR THE ASSESSMENT YEARS FROM ASSESSMENT YEAR 2001 - 02 TO 2006 - 07 AND SUBMITTED THAT IN THE PRECEDING TWO AYS GP RATE WAS 12.48% AND 13.03% AND THE NP RATE WAS 5.07% AND 4.68% RESPECTIVELY AS COMPARED TO THE AS SESSMENT YEAR UNDER CONSIDERATION, OF GP RATE 12.70% AND NP RATE 5.73% DISCLOSED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT IN THE SUCCEEDING THREE ASSESSMENT YEARS I.E., 2004 - 05, 2005 - 06 AND 2006 - 07, THE GP RATE WAS 13.03%, 12.96% AND 17.35% AND THE NP RA TE WAS 5. 5 5%, 4.70% AND 7.30% RESPECTIVELY. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE DISALLOWANCES SUSTAINED BY THE LEARNED CIT(A) ARE NOT JUSTIFIED AND THE SAME SHOULD BE DELETED. / I.T.A.NO.1312/KOL/2009 11 20. ON THE OTHER HAND, THE LEARNED DR STRONGLY SUPPORTED THE ORDE R OF THE LEARNED CIT(A) AND SUBMITTED THAT THE ORDER OF THE LEARNED CIT(A) IS A REASONED ORDER AND THE DISALLOWANCE S SUSTAINED BY HIM SHOULD BE CONFIRMED. THE LEARNED DR REFERRED TO PAGE 19 OF THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND SUBMITTED THAT HE HAS GIVEN SUFFICIENT REASONS TO REJECT CONTENTIONS OF THE ASSESSEE MADE BEFORE HIM TREATING THE PURCHASE OF RS.1,41,91,026 AS NOT GENUINE. HE SUBMITTED THAT THE PURCHASES WERE MADE BY THE ASSESSEE ON CASH AND ALL THE PARTIES FROM WHOM CASH PURCHASES WERE M ADE WERE NOT TRACEABLE AND THEREFORE, THE PURCHASES COULD NOT BE VERIFIED. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT DISPUTED THE FACT THAT DURING THE COURSE OF SURVEY BLANK BILL BOOKS/CHALLANS BOOKS/ RECEIPT BOOKS OF A LARGE NUMBER OF SUPPLIERS W ERE FOUND AT THE PREMISES OF THE ASSESSEE AND THEREFORE, INFLATION OF THE PURCHASES SHOWN BY THE ASSESSEE HAS RIGHTLY BEEN CONCLUDED BY THE AUTHORITIES BELOW. THE LEARNED DR SUBMITTED THAT THE ASSESSEE COULD NOT ALSO FILED SUPPORTING EVIDENCE OF PAYMENT OF FABRICATION CHARGES PAID TO THE PARTIES, THE DETAILS OF WHICH ARE MENTIONED BY THE ASSESSING OFFICER AS WELL AS BY THE LEARNED CIT(A) IN THE IMPUGNED ORDERS. HE FURTHER SUBMITTED THAT THE LEARNED CIT(A) IS JUDICIOUS TO RESTRICT THE DISALLOWANCE AT RS.18,2 5,099 AS AGAINST DISALLOWANCE OF RS.23,91,834 MADE BY THE ASSESSING OFFICER OUT OF FABRICATION CHARGES CLAIMED BY ASSESSEE. LEARNED DR SUBMITTED THAT ABOVE DISALLOWANCE S SHOULD BE SUSTAINED BY CONFIRMING THE ORDER OF THE LEARNED CIT(A). 21. WE HAVE CONSID ERED THE RIVAL CONTENTIONS OF THE LEARNED REPRESENTATIVES OF BOTH PARTIES AND HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED AND CONSIDERED THE RELEVANT PAGES OF THE PAPER BOOK PLACED ON RECORD. WE OBSERVE THAT THE ASSESSEE IS A MANUFACTURER OF LEATHER GOODS AND ALL THE SALES OF THE ASSESSEE IS OUT OF INDIA. IN THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO , THERE WERE NO DOMESTIC SALE . WE OBSERVE THAT THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAVE CONSIDERED THE SALES FI GURES SHOWN BY THE ASSESSEE OFRS.3,34,31,004 AS CORRECT. DURING THE COURSE OF HEARING BEFORE US, THE LEARNED DR HAS ALSO NOT DISPUTED THE SALES OF EXPORT SHOWN BY THE ASSESSEE. WE ALSO / I.T.A.NO.1312/KOL/2009 12 OBSERVE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS ALSO ALLOWED TO THE ASSESSEE DEDUCTIN U/S.80HHC OF THE ACT AND IT IS STATED TO THE EXTENT OF RS.96.02 LAKHS. WE ALSO OBSERVE THAT THE ASSESSEE HAS ALSO RECEIVED EXPORT INCENTIVE OF RS.26,84,905 IN THE ASSESSMENT YEAR UNDER CONSIDERATION. CONSIDERING THE A BOVE FACTS AND FIGURES THAT THE ASSESSEE HAD MADE EXPORT SALES TO THE EXTENT OF RS.3,34,31,004, THE ASSESSEE HAS MADE PURCHASES OF RAW MATERIALS AS THERE COULD BE NO SALE UNLESS THERE ARE PURCHASES OF RAW MATERIALS USED FOR MAKING THE FINISHED PRODUCTS WHI CH WERE EXPORTED BY THE ASSESSEE. WE OBSERVE THAT THE ASSESSEE HAS CLAIMED TO MAKE PURCHASES OF RS.1,85,68,468 IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAS CONSIDERED PURCHASE S TO THE EXTENT OF RS.1,41,91,026 AS BOGUS FOR THE REASONS THAT DURING THE COURSE OF SURVEY ON 20.2.2006 AT THE BUSINESS AND FACTORY PREMISES OF THE ASSESSEE, THE ASSESSEE WAS FOUND TO BE IN POSSESSION OF BLANK CASH MEMOS/BILLS/CHALLANS IN RESPECT OF 37 PARTIES, THE DETAI LS OF WHICH ARE MENTIONED HEREIN ABOVE IN PARAGRAPH 6 AND SUBSEQUENTLY WHEN THE NOTICES WERE SENT BY THE ASSESSING OFFICER TO THE PARTIES MENTIONED IN SL.1 TO 14, THE DETAILS OF WHICH ARE GIVEN IN TABLE HEREINABOVE; PARTIES WERE NOT FOUND AND AS SUCH THE PURCHASES COULD NOT BE VERIFIED. IT IS PERTINENT TO STATE THAT THE PAYMENTS TO THE AFORESAID PARTIES WERE MADE BY THE ASSESSEE ON ACCOUNT OF PURCHASES IN CASH. WE ARE OF THE CONSIDERED VIEW THAT EVEN IF THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE GENUI NENESS OF THE PARTIES TO ESTABLISH THAT THE PURCHASES HAD BEEN MADE FROM THEM, THE PURCHASES MADE BY THE ASSESSEE OF RAW MATERIALS FOR MAKING EXPORT SALES OF RS.3,34,31,004 COULD NOT BE DISPUTED. WE OBSERVE THAT IF THE PURCHASES TO THE EXTENT OF RS.1,41,9 1,026 OUT OF TOTAL PURCHASES OF RS.1,85,68,468, WHICH COMES TO 76.42% OF THE TOTAL PURCHASES, ARE TREATED AS BOGUS PURCHASES AND NOT ACCEPTED AS GENUINE AND THE SAID DISALLOWANCE IS CONFIRMED, IT WILL GIVE GP RATE OF 763% ; WHICH IS NOT REALISTIC AND POSSI BLE. HOWEVER, IT IS A FACT THAT DURING THE COURSE OF SURVEY, THE ASSESSEE WAS FOUND TO BE IN POSSESSION OF BLANK CASH MEMOS/CHALLANS/BILLS OF THE PARTIES FROM WHOM THE ASSESSEE HAS CLAIMED TO HAVE MADE PURCHASES AND THEREFORE, WE AGREE THAT INFLATION OF TH E PURCHASES SHOWN BY THE ASSESSEE COULD NOT BE RULED OUT. WE ALSO OBSERVE THAT THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER/ CONSUMPTION REGISTER TO ENABLE THE AUTHORITIES BELOW TO / I.T.A.NO.1312/KOL/2009 13 JUSTIFY AND/OR VERIFY UTILIZATION OF RAW MATERIALS SHOWN BY THE ASSESSEE. W E ALSO OBSERVE THAT THE ASSESSEE HAS NOT DISPUTED THE FACT THAT THERE WAS A DIFFERENCE IN CLOSING STOCK AS ON 31.3.2002 AND THE OPENING STOCK SHOWN AS ON 1.4.2002. IN VIEW OF THE ABOVE, WE AGREE WITH THE AUTHORITIES BELOW THAT THE ASSESSEE HAS NOT BEEN AB LE TO ESTABLISH THE GENUINENESS OF PAYMENTS FOR THE PURCHASES SHOWN BY THE ASSESSEE. 22. FURTHER IN REGARD TO DEBIT IN THE PROFIT & LOSS ACCOUNT OF FABRICATION CHARGES OF RS.39,14,691 WE OBSERVE THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIES, THE DETAILS OF WHICH ARE MENTIONED BY THE ASSESSING OFFICER AT PAGES 5 & 6 OF THE ASSESSMENT ORDER AND ALSO THE ASSESSEE WAS FOUND TO BE IN POSSESSION OF BLANK BILLS/MEMOS/CHALLANS DURING THE COURSE OF SURVEY IN RESPECT OF PARTIES MENTIONED AT SL.32 TO 37 OF THE TAB LE AS MENTIONED HEREINABOVE IN PARAGRAPH 6 AND ALSO AT PAGE 3 OF THE ASSESSMENT ORDER TO WHOM THE ASSESSEE CLAIMED TO HAVE PAID RS.9,03,465 OUT OF THE AGGREGATING AMOUNT OF RS.23,91,834 DISALLOWED BY THE ASSESSING OFFICER BECAUSE THE ASSESSEE HAS ADMITTEDL Y NOT BEEN ABLE TO ESTABLISH THE GENUINENESS OF THE ABOVE PAYMENTS BY PRODUCING THE PARTIES . HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS GOT MANUFACTURED LEATHER GOODS FROM OUTSIDE PARTIES AND EFFECTED EXPORT SALES OF RS.3,34,31,004, THE DISALLOWANCE OF FABRICATION CHARGES TO THE EXTENT OF 61.09% BY TREATING THEM AS BOGUS BY THE ASSESSING OFFICER CANNOT BE JUSTIFIED . THE LEARNED CIT(A) HAS RESTRICTED THE SAID DISALLOWANCE TO RS.18,25,099. WE HAVE CONSIDERED THE MANUFACTURING AND TRADIN G ACCOUNT FOR THE AYS 2002 - 03. 2003 - 04, 2004 - 05, 2005 - 06 PLACED AT PAGES 144, 147, 151 AND 155 OF THE PB AND OBSERVE THAT THE FABRICATION CHARGES TO THE EXTENT OF RS.27,38,852 ON AN EXPORT SALES OF RS.2 ,34, 32,982, FABRICATIONS CHARGES OF RS.39,14,7691 ON AN EXPORT SALES OF RS.3,34,31,004, FABRICATION CHARGES OF RS.35,08,644 ON EXPORT SALES OF RS.3,54,03,961 AND FABRICATION CHARGES OF RS.37,53,273 ON AN EXPORT SALES OF RS.3,79,82,954 RESPECTIVELY WERE CLAIMED BY THE ASSESSEE AND STATED TO BE ACCEPTED BY THE DEPARTMENT. CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THERE IS A MERIT IN THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE THAT THE DISALLOWANCE OF FABRICATION CHARGES OF RS.23,91,834 MADE BY THE ASSESSING OFFICER OUT OF RS.39,14,6 91 AND RESTRICTING / I.T.A.NO.1312/KOL/2009 14 BY THE LEARNED CIT(A) TO RS.18,25,099 COULD NOT JUSTIFIED IN THE ASSESSMENT YEAR UNDER CONSIDERATION, EVENIF THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE PARTIES TO ENABLE THE ASSESSING OFFICER/CIT(A) TO VERIFY THE CLAIM ; CONSIDERING T HE FABRICATION CHARGE EXPENSES CLAIMED BY THE ASSESSEE IN THE PRECEDING AND SUCCEEDING AYS TO THE ASSESSMENT YEAR UNDER CONSIDERATION VIS - - VIS THE SALES SHOWN . 23. BE THAT AS IT MAY, WE ARE OF THE CONSIDERED VIEW THAT IN THE FACTS AND CIRCUMSTANCE S, MAKIN G OF DISALLOWANCE ON AN AD HOC BASIS/ESTIMATE BASIS OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE ON FABRICATION CHARGES WILL NOT BE JUSTIFIABLE AND RATIONAL. 24. IN VIEW OF ABOVE , WE ARE OF THE CONSIDERED VIEW THAT INFLATION OF THE PURCHASES OF RAW MATERIA LS AS WELL AS INFLATION OF FABRICATION CHARGES COULD NOT BE RULED OUT CONSIDERING THAT DURING THE SURVEY THE ASSESSEE WAS FOUND TO BE IN POSSESSION OF BLANK BILLS/CHALLANS/MEMOS OF THE PARTIES FROM WHOM THE ASSESSEE MADE PURCHASES AND ALSO CLAIMED PAYMENT OF FABRICATION CHARGES ; THAT THE PARTIES COULD NOT BE PRODUCED FOR VERIFICATION OF PURCHASES/CHARGES; THAT THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER/CONSUMPTION REGISTER TO JUSTIFY UTILIZATION OF RAW MATERIALS AND ALSO THAT THE ASSESSING OFFICER OBSE RVED DIFFERENCE IN CLOSING STOCK AS ON 31.3.2002 AND THE OPENING STOCK AS ON 1.4.2002, IT WILL BE REASONABLE TO APPLY THE NET PROFIT RATE IN THE FACTS AND CIRCUMSTANCES OF THE CASE , INSTEAD OF DISALLOWING A PART OF PURCHASES OF RAW MATERIALS AND A PART OF EXPENSES CLAIMED ON ACCOUNT OF FABRICATION . 2 5 . WE OBSERVE THAT THE TOTAL SALES OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS OF RS.3,34,31,004 AND THE SAID SALES HAVE BEEN TREATED AS CORRECT BY THE AUTHORITIES BELOW. WE ALSO OBSERVE THAT IN THE PRECEDING TWO AYS THE NP RATES DISCLOSED BY THE ASSESSEE WERE 5.07% AND 4.68% AND WHEREAS IN THE NEXT TWO SUCCEEDING AYS THE NET PROFIT RATES DISCLOSED WERE 5.55% AND 4.70% RESPECTIVELY. HOWEVER, IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE NET PR OFIT DISCLOSED IS AT 5.73%. CONSIDERING THE ABOVE NET PROFIT RATES, WE ARE OF THE CONSIDERED VIEW THAT IT WILL BE REASONABLE TO APPLY THE NET PROFIT RATE OF 6% ON THE SALES SHOWN BY THE ASSESSEE I.E., OF RS.3,34,31,004 IN THE ASSESSMENT YEAR UNDER CONSIDER ATION. / I.T.A.NO.1312/KOL/2009 15 26 . IN VIEW OF THE ABOVE, WE MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW GROUNDS NO.1 TO 8 OF THE APPEAL IN PART BY DIRECTING THE ASSESSING OFFICER TO APPLY NET PROFIT OF 6% ON THE ACCEPTED SALES OF THE ASSESSEE OF RS.3,34,31,004 IN THE A SSESSMENT YEAR UNDER CONSIDERATION. 27 . IN GROUNDS NO.9 TO 10 OF THE APPEAL, THE ASSESSEE HAS DISPUTED THE DISALLOWANCE OF RS.1,09,600 CLAIMED ON ACCOUNT OF THEFT AND DISALLOWANCE OF RS.2,22,788 OUT OF FOREIGN TRAVEL EXPENSES. 2 8 . SINCE, WE HAVE HELD TO APPLY THE NET PROFIT RATE OF 6% ON THE SALES OF THE ASSESSMENT YEAR UNDER CONSIDERATION, WE HOLD THAT NO OTHER SPECIFIC DISALLOWANCE OF CLAIM S DEBITED BY THE ASSESSEE TO THE P & L ACCOUNT HAVE TO BE MADE. IN THIS REGARD, WE RELY ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS V. CIT (232 ITR 776), WHEREIN IT IS HELD THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED AND THE NET PROFIT RATE HAS BEEN APPLIED, THE R EV ENUE CANNOT RELY ON THE SAME BOOKS FOR ADDITION OF EXTRA ITEM OF EXPENDITURE CLAIMED IN THE P & L ACCOUNT , AND HONBLE ALLAHABAD HIGH COURT HAS ALSO HELD IN THE CASE OF CIT V. VS. BANWARILAL BANSHIDHAR (1998) 229 ITR 229 (ALL), THAT WHEN GP RATE WAS APPLIED, IT WOULD TAKE CARE OF EVERYTHING AND THERE WAS N O NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. HENCE, GROUNDS NO.9 AND 10 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES BY DELETING THE DISALLOWANCE OF RS.1,09,600 AND RS.2,22,788 MADE B Y THE AUTHORITIES BELOW . 29 . IN GROUNDS NO.11 TO 13 OF THE APPEAL, THE ASSESSEE HAS DISPUTED THE ADDITION OF RS.15,00,000 MADE BY THE AUTHORITIES BELOW U/S.68 OF THE INCOME - TAX ACT,1961 BY TREATING THE GIFTS AS BOGUS. 30 . THE RELEVANT FACTS ARE THAT THE ASSESSEE HAS SHOWN TO HAVE RECEIVED GIFTS OF RS.15 LAKHS FROM NINE PERSONS, DETAILS OF WHICH ARE MENTIONED AT PAGES 8 AND 9 OF THE ASSESSMENT ORDER. IN ORDER TO ASCERTAIN THE GENUINENESS OF THE GIFTS, THE / I.T.A.NO.1312/KOL/2009 16 ASSESSING OFFICER ISSUED NOTICES U/S.131 TO THE DONORS. BUT THE SAID NOTICES WERE RECEIVED BACK UNSERVED WITH THE POSTAL REMARK NOT KNOWN. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASON FOR RETURN OF NOTICES AND PRODUCE THE DONORS. THE ASSESSEE STATED THAT THE SAID DONORS AND THEIR EN TIRE FAMILY ARE OUT OF STATION AND ARE EXPECTED TO BE BACK TO KOLKATA IN A SHORT TIME. IT WAS REQUESTED TO WAIT TILL THEY COMEBACK. THE ASSESSEE STATED THAT HE WILL INFORM AS SOON AS THEY ARE IN TOWN. THE ASSESSING OFFICER HAS STATED THAT LATER ON THE ASSE SSEE STATED THAT THE ENTIRE FAMILY COMPRISING OF THOSE GIFT DONORS HAVE BEEN SHIFTED TO THEIR NATIVE PLACES AT RAJASTHAN. HOWEVER, THE ASSESSEE FILED COPIES OF I.T. ACKNOWLEDGEMENT, STATEMENT OF ACCOUNTS, PHOTO COPIES OF PAN AND COPIES OF BANK STATEMENTS IN RESPECT OF THE DONORS. IN ORDER TO EXAMINE THE GENUINENESS OF THE GIFT, THE ASSESSING OFFICER ISSUED NOTICE TO THE BANK U/S.133(6) OF THE ACT AND FOUND THAT THE STATEMENTS FURNISHED BY THE ASSESSEE ARE NOT GENUINE AS ENTRIES REFLECTED IN THE BANK STATE MENTS FURNISHED BY THE ASSESSEE DIFFER ED FROM THE ENTRIES IN THE STATEMENTS FURNISHED BY THE BANK. THE ASSESSING OFFICER ALSO OBSERVED ON PERUSAL OF THE STATEMENT OF BANK ACCOUNTS THAT THE DONORS DID NOT HAVE CAPACITY AND CREDITWORTHINESS TO GIVE GIFT S TO THE ASSESSEE IN THE RANGE OF RS.2 LAKHS TO RS.75,000. THE ASSESSING OFFICER AT PAGE 10 OF THE ASSESSMENT ORDER HAS GIVEN THE OPENING CAPITAL, SOURCE OF INCOME, GROSS INCOME AND DRAWINGS PER ANNUM ALONGWITH THE DETAILS OF THE AMOUNT OF GIFTS MADE TO TH E ASSESSEE OF ALL THE NINE DONORS. CONSIDERING THE SAME, THE ASSESSING OFFICER DID NOT ACCEPT THE GENUINENESS OF GIFT AGGREGATING TO RS.15 LAKHS AND TREATED THE SAME AS UNEXPLAINED CASH CREDITS OF THE ASSESSEE AND MADE THE ADDITION. 3 1. I N FIRST APPEAL, THE LEARNED CIT(A) HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE GENUINENESS OF THE TRANSACTIONS AND THE CAPACITY OF THE DONORS. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. / I.T.A.NO.1312/KOL/2009 17 32 . AT THE TIME OF HEARING, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE FURNISHED THE REQUISITE DETAILS OF THE DONORS ALONGWITH THEIR BANK STATEMENTS. HE FURTHER SUBMITTED THAT ALL THE GIFTS WERE RECEIVED BY ACCOUNT PAYEE CHEQUES AND ALL THE DON ORS ARE ASSESSED TO TAX. THE LEARNED AR OF THE ASSESSEE REFERRED TO PAGES 12 TO 37 OF THE PB WHICH ARE THE COPIES OF THE DECLARATION OF GIFTS, ACKNOWLEDGEMENTS OF I.T. RETURNS, PAN CARDS/VOTER IDS OF THE DONORS AND SUBMITTED THAT THE ASSESSEE HAS DISCHARGE D HIS ONUS THAT LAY UPON HIM AND THEREFORE, THE GENUINENESS OF THE GIFTS CANNOT BE DISPUTED. 3 3 . ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BE L OW . HE SUBMITTED THAT THE ASSESSEE BY FURNISHING THE ABOVE DOCUMENTS ONLY PROVED THE IDENTITY OF THE DONORS BUT HAS FAILED TO PROVE THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS., THE LEARNED DR SUBMITTED THAT MERELY BECAUSE GIFTS WERE MADE BY ACCOUNT PAYEE CHEQUES CANNOT BE SACROSANCT AND BE ACCEPTED AS GENUINE. THE LEARNED DR FURTHER SUBMITTED THAT ALL THE DONORS ARE NOT RELATED TO THE ASSESSEE. HE FURTHER SUBMITTED THAT ALL THE DONORS HAD INCOME VARYING FROM RS.49,000 TO RS.66,000, THE DETAILS OF WHICH ARE GIVEN AT PAGE 10 OF THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT THEIR WITHDRAWALS ARE MEAGER. HE FURTHER SUBMITTED THAT THERE WAS NO OCCASION ON WHICH THE ALLEGED GIFTS WERE GIVEN TO THE ASSESSEE. THE LEARNED DR PLACED RELIANCE ON THE FOLLOWING DECISIONS. 1 . SAJAN DASS AND SONS V. COMMISSIONER OF INCOME - TAX [2003] 264 I TR 435 (DEL) 2 . JASPAL SINGH VS. COMMISSIONER OF INCOME TAX (2007) 290 ITR 306 (P&H) 3 . SUBHASH CHANDER SEKHRI VS. DEPUTY COMMISSIONER OF INCOME TAX (2007) 290 ITR 300 (P&H) 4 . COMMISSIONER OF INCOME TAX VS. P. MOHANAKALA & ORS. (2007) 291 ITR 278 (SC) 5 . TIRATH RAM G UPTA VS. COMMISSIONER OF INCOME TAX (2008) 304 ITR 145 (P&H) THE LEARNED DR SUBMITTED THAT THE AUTHORITIES BELOW HAVE RIGHTLY HELD THAT THE GIFTS ARE NOT GENUINE. 34 . WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND ALSO WE HAVE / I.T.A.NO.1312/KOL/2009 18 CONSIDERED THE CASES RELIED ON BY BOTH PARTIES. WE HAVE ALSO PERUSED THE COPIES OF THE RELEVANT PAGES OF THE PAPER BOOK PLACED AT PAGES 12 TO 37 OF THE PB. WE DO OBSERVE THAT THE ASSESSEE HAS RE CEIVED THE ALLEGED GIFTS OF RS.15 LAKHS BY ACCOUNT PAYEE CHEQUES FROM NINE PERSONS, NAMELY (1) SUSHIL KUMAR AGARWAL, (2) ARUN KUMAR CHOWDHARY, (3) VIKASH AGARWAL, (4) MOHAN AARWAL, (5) SANJOY KUMAR CHOWDHARY, (6) RAJIB PRATAP AGARWAL, (7) MAHESH AGARWAL, (8) RAMESH JAISWAL AND (9) RAJENDRA JAISWAL. WE ALSO OBSERVE THAT THE ASSESSEE HAS ALSO FILED THE COPIES OF THE IT ACKNOWLEDGEMENTS EVIDENCING THAT ALL ARE ASSESSED TO TAX. THE ASSESSEE HAS ALSO FILED THE COPIES OF GIFT DECLARATIONS. HOWEVER, ON CONSIDERAT ION OF THE INCOME OF THE ALLEGED DONORS AND ALSO CONSIDERING THAT THE BANK ENTRIES WERE TAMPERED, THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE CAPACITY OF THE DONORS TO MAKE GIFTS TO THE ASSESSEE RANGING RS.75,000 TO RS.2,00,000 BY EACH OF THE DONORS. HONB LE DELHI HIGH COURT IN THE CASE OF SAJAN DASS AND SONS V. COMMISSIONER OF INCOME - TAX [2003] 264 ITR 435 (DEL) H AS HELD THAT MERE PRODUCTION OF STATEMENT OF ACCOUNTS, OR IDENTIFICATION OF THE DONOR IS NOT SUFFICIENT OF PROVING THE GENUINENESS OF THE GIFT. H ONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANIL KUMAR (2007) 292 ITR 552 (DEL) M ERE IDENTIFICATION OF THE DONOR AND MOVEMENT OF GIFT AMOUNT THROUGH BANKING CHANNELS IS NOT SUFFICIENT TO PROVE THE GENUINENESS OF GIF T . ONU S LIES ON THE ASSESSEE NOT ONLY TO ESTABLISH THE IDENTI T Y OF THE PERSON MAKING THE GIFT BUT ALSO HIS CAPACITY TO MAKE THE GIFT . CONSIDERING THE FACTS OF THE CASE BEFORE US AND THE CASES CITED SUPRA , WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS NOT B EEN ABLE TO ESTABLISH PRIMA FACIE THE CAPACITY OF THE DONORS OF MAKING THE GIFTS AGGREGATING TO RS.15 LAKHS TO THE ASSESSEE . THEREFORE, WE AGREE WITH THE AUTHORITIES BELOW THAT THE ASSESSEE HAS FAILED TO ESTABLISH PRIMA FACIE GENUINENESS OF THE GIFTS. HENC E, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND REJECT GROUNDS NO.12 TO 13 OF THE APPEAL TAKEN BY THE ASSESSEE. 35 . IN GROUNDS NO.14 TO 15 OF THE APPEAL, THE ASSESSEE HAS DISPUTED THE ORDER OF THE LEARNED CIT( A) TO UPHOLD THE ADDITION OF RS.3,22,586 BEING UNEXPLAINED EXPENDITURE ON REGISTRATION OF THE PROPERTY. / I.T.A.NO.1312/KOL/2009 19 36 . THE RELEVANT FACTS ARE THAT THE ASSESSEE GOT TWO FLATS REGISTERED IN HIS NAME IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS STATED THAT AS PER REGISTRATION DEED, THE REGISTRATION CHARGES AMOUNTED TO RS.1,59,540 AND RS.1,63,046 (INCLUDING DD CHARGES) WERE PAID IN CASH. THE ASSESSING OFFICER HAS STATED THAT THE AFORESAID PAYMENTS AGGREGATING TO RS.3,22,586 HAS NEITHER BEEN REFLE CTED IN THE BALANCE SHEET NOR SHOWN IN THE CASH FLOW STATEMENT FILED BY THE ASSESSEE AND TREATED THE SAME AS UNDISCLOSED INVESTMENT MADE BY THE ASSESSEE OUT OF HIS CONCEALED INCOME. HENCE, THE ASSESSING OFFICER ADDED THE SAME TO THE INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES. 37 . BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 38 . ON BEHALF OF THE ASSESSEE IT WAS CONTENDED BEFORE THE LEARNED CI T(A) THAT AN ADVANCE AMOUNT OF R S.11 LAKHS AGAINST PURCHASE OF THE SAID TWO FLATS WAS GIVEN TO THE SELLER NAMELY M/S.AMAL KUMAR GHOSH AND OTHERS IN 1993 - 94 AND THE SAID AMOUNT OF RS.11 LAKHS WAS CARRYING FORWARD IN HIS BOOKS OF ACCOUNT AND THE BALANCE SHEET SINCE THE YEAR 19993 - 94 ONWARDS. THE ASSESSEE ALSO FILED COPIES OF TH E BALANCE SHEETS FOR THE SAID NINE YEARS FROM 31.3.1993 TO 31.3.2003 AND SUBMITTED THAT THE CONVEYANCE DEEDS WERE REGISTERED IN THE OFFICE OF THE REGISTRAR OF ASSURANCE AND THE REGISTRATION EXPENSES WERE INCURRED BY THE SELLER OUT OF THE SAID ADVANCE PAYME NT OF RS.11 LAKHS. THE LEARNED CIT(A) DID NOT ACCEPT THE SAID CONTENTION OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 3 9 . DURING THE COURSE OF HEARING THE LEARNED A R OF THE ASSESSEE REFERRED TO PAGES 51 TO 78 AND 79 TO 106 OF THE PB WHICH ARE COPIES OF THE DEED OF CONVEYANCE FOR THE SAID TWO FLATS STATED TO HAVE BEEN PURCHASED BY THE ASSESSEE AND GOT REGISTERED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THAT THE SAI D DEED S OF CONVEYANCE SHOW THE SALES CONSIDERATION OF RS.4 LAKHS AND RS.3,50,000 RESPECTIVELY. LEARNED AR OF THE ASSESSEE SUBMITTED THAT TOTAL CONSIDERATION FOR THE / I.T.A.NO.1312/KOL/2009 20 PURCHASE OF SAID TWO FLATS AGGREGAT E TO RS.7,50,000 AND THE SAID SELLER PAID REGISTRATION CHARGES OF RS.3,22,586 OUT OF THE BALANCE ADVANCE OF RS.11 LAKHS GIVEN BY THE ASSESSEE IN THE ASSESSMENT YEAR 1993 - 94.HE SUBMITTED THAT THE SAID ADVANCE OF RS.11 LAKHS HAD BEEN SHOWN IN THE BALANCE SHEETS FROM THE YEAR1993 - 94 TO 2002 - 03 AND THE COPIES OF THE SAME WERE FILED BEFORE THE LEARNED CIT(A). TO SUBSTANTIATE HIS SUBMISSION, THE LEARNED AR OF THE ASSESSEE ALSO DREW OUR ATTENTION TO PARAGRAPH 10 OF THE ORDER OF THE LEARNED CIT(A) THAT COPIES OF THE BALANCE SHEETS WERE FILED BEFORE HIM. HE SUBMITTED T HAT THE SAID ADDITION HAS BEEN MADE MERELY ON PRESUMPTION THAT THE ASSESSEE MUST HAVE INCURRED THE EXPENSES OF REGISTRATION OVER AND ABOVE THE SALE CONSIDERATION OF RS.11 LAKHS TO THE SELLER OF THE SAID TWO FLATS. 40 . ON THE OTHER HAND, THE LEARNED DR SU PPORTED THE ORDER OF THE LEARNED CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE THAT REGISTRATION CHARGES FOR REGISTERING THE CONVEYANCE DEEDS WERE INCURRED BY THE SELLER OF THE FLATS. HE SUBMITTED THAT THE ENTRIES IN THE BOO KS OF ACCOUNT ARE NOT SUFFICIENT TO PROVE THAT THE SELLER HAS PAID THE REGISTRATION CHARGES AND RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED V. COMMISSIONER OF INCOME TAX (CENTRAL), CALCUTTA (82 I TR 363) . HE SUBMITTED THAT THE ADDITION OF RS.3,22,586 MADE BY THE AUTHORITIES BELOW BE CONFIRMED. 41 . WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO PERUSED PAGES 51 TO 78 AND 79 TO 106 OF THE PB WHICH ARE COPIES OF THE DEED OF CONVEYANCE FOR THE SAID TWO FLATS. WE OBSERVE THAT THE CONSIDERATION VALUE AS STATED IN THE DEEDS OF CONVEYANCE ARE OF RS.4 LAKHS AND RS.3,50,000 RESPECTIVELY AGGREGATING TO RS.7,50,00 0. WE OBSERVE THAT THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE ASSESSEE MADE AN ADVANCE PAYMENT OF RS. 11 LAKHS TO THE AFORESAID SELLER OF THE FLATS IN THE YEAR 1993 - 94 AND THE SAME HAS CONTINUOUSLY BEEN SHOWN IN THE BALANCE SHEETS SINCE 1993 - 94. WE OBSERVE THAT THE ASSESSEE ALSO FILED COPIES OF THE BALANCE SHEETS FOR THE LAST NINE YEARS BEFORE THE LEARNED CIT(A). NOW THE / I.T.A.NO.1312/KOL/2009 21 QUESTION IS AS TO WHETHER THE REGISTRATION CHARGES FOR REGISTERING THE SAID DEED OF CONVEYANCE HAD BEEN INCURRED BY THE ASSESSEE O VER AND ABOVE THE PAYMENT OF RS.11 LAKHS SHOWN TO HAVE BEEN PAID AS ADVANCE TO THE SELLER OF THE FLATS OR THE SAID SELLER HAS MADE THE PAYMENT OF REGISTRATION CHARGES OUT OF THE ADVANCE OF RS.11 LAKHS RECEIVED BY HIM. THE DEPARTMENT HAS NOT BROUGHT ANY EVI DENCE ON RECORD THAT THE CONSIDERATION OF THE SAID TWO FLATS AGGREGATE TO RS.11 LAKHS AND NOT RS.7,50,000 AS STATED IN THE SAID DEEDS OF CONVEYANCE, THE COPIES OF WHICH ARE PLACED AT PAGES 51 TO 78 AND 79 TO 106 OF THE PB. PRIMA FACIE AND ON THE BASIS OF E VIDENCES ON RECORD, IT IS OBSERVED THAT THE CONSIDERATION OF THE SAID TWO FLATS ARE AGGREGATING TO RS.7,50,000.THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS SHOWN IN THE BALANCE SHEETS OF MAKING AN ADVANCE OF RS.11 LAKHS TO THE SELLER AND THE SAME HAS BEEN CARRIED FORWARD FROM 1993 - 94 ONWARDS AND THUS THERE IS A BALANCE AMOUNT OF RS.3,50,000 WITH THE SAID SELLER OF THE FLATS. WE ARE OF THE CONSIDERED VIEW THAT CONSIDERING THE FACTS OF THE CASE THAT THE SAID SELLER WAS HAVING AN EXCESS AMOUNT OF RS.3 ,50,000, THE CONTENTION OF THE ASSESSEE THAT THE SAID TWO DEEDS OF CONVEYANCE WERE GOT PREPARED BY THE SELLER AND REGISTRATION CHARGES RS.3,22,586 WERE MET BY THE SELLER OUT OF THE BALANCE AMOUNT OF RS.3,50,000 FOR REGISTRATION OF THE DEEDS OF CONVEYANCE H AS MERITS IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY. THE DECISION IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED (SUPRA), RELIED UPON BY THE LEARNED DR. WHEREIN IT WAS HELD THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT SUFFICIENT BUT THAT IS NOT AN ISSUE BEFORE US. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE SAID ADDITION OF RS.3,22,586 MADE BY THE AUTHORITIES BELOW BY PRESUMING THAT THE REGISTRATION EXPENSES WERE INCURRED BY THE ASSESSEE FROM UNDISCLOSED SOURCES IS WITHOUT ANY BASIS AND NOT BASED ON ANY EVIDENCE ON RECORD . THEREFORE, WE DELETE THE SAID ADDITION OF RS.3,33,586. HENCE, GROUNDS NOS .14 AND 15 OF THE APPEAL TAKEN BY THE ASSESSEE ARE ALLOWED BY DELETING THE ADDITION OF RS.3,22,586 AS SUSTAINED BY THE LEARNED CIT( A). 42 . IN RESPECT OF GROUND NO.16 OF THE APPEAL TO DISALLOW RS.1,967 OUT OF DEPRECIATION ON MOTOR CAR, THE LEARNED AR OF THE ASSESSEE DID NOT PRESS THE SAME DURING THE COURSE OF HEARING AND HENCE, GROUND NO.16 IS REJECTED AS NOT PRESSED. / I.T.A.NO.1312/KOL/2009 22 43 . IN THE RES ULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. THIS ORDER IS PRONOU NCED IN OPEN COURT ON DT. 23.07.2010 SD / - SD/ - ( . . ) (C.D. RAO), ACCOUNTANT MEMBER ( . . ), ( B.R.MI TTAL ), JUDICIAL MEMBER ( ) DATE : 23.7.2010 - COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT : SHRI SIDDHARTHA JAIAN, 118A, C.R. AVENUE, KOLKATA 700 073. 2 / THE RESPONDENT - ACIT, CIRCLE 30, KOLKATA. 3. / THE CIT, 4. ( )/ THE CIT(A), 5. / DR, KOLKATA BENCH 6. GUARD FILE . / TRUE COPY , / BY ORDER , / DEPUTY REGISTRAR . ( /) H.K.PADHEE / SNR.PRIVATE SECRETARY.