Hindustan Plywood Co. (Regd.), New Delhi V. ITO, New Delhi

ITA 1358/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4122 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: ASHU TANDO N; P P THUKRAL
• Keywords: Rejection of books of accounts; Business expenditure; Opportunity of being heard; Additional evidence; Onus to prove; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI C. L. SETHI, JM AND SHRI K. D. RAN JAN, AM I. T. A. NO. 1358 (DEL) OF 2010 ASSESSMENT YEAR : 2006-07. M/S. HINDUSTAN PLYWOOD CO. [ REGD. ] THE INCOME-TAX OFFICER, 2/2, DESH BANDHU GUPTA ROAD, VS. W A R D : 39 (4), P A H A R G A N J, N E W D E L H I. N E W D E L H I 110 055. P A N / G I R NO. AAC FH 0833 J. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P. P. THUKRAL, ADV.; & SHRI ASHU TANDO N, C. A.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XXVIII, NEW DELHI. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS FOLLOW S :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPE LLANT FIRMS CASE, THE LD. CIT (APPEALS) : 2 I. T. A. NO. 1358 (DEL) OF 2010 1. ERRED, FOR REASONS MORE THAN ONE, HAVING RECOURSE TO THE DISMISSAL OF GROUND NO. 1, 2 AND 3 VIDE PARAS 3.8, 3.10 AND 3.11 AT PAGE 6 AND 7 OF HIS APPELLATE ORDER; 2. FURTHER ERRED, IN UPHOLDING THE GROSS PRO FIT ADDITION IN A SUM OF RS.3,00,331/- AS RESORTED TO WITHOUT DISPASSIONATE AND OBJECTIVE CONSIDERATION OF THE REASONS FOR THE DECLINE THEREOF AS ADVANCED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS, IN TERMS OF PARA 4.4 AT PAGES 6, 7, AND 8 OF HIS APPELLATE ORDER; 3. ALSO GRIEVOUSLY ERRED IN UPHOLDING THE AD DITION OF RS.2,00,000/- REPRESENTING A GENUINE LOAN RECEIVED FROM ONE SHRI ARUN KUMAR MALHOTRA WITHOUT A DISPASSIONATE CONSIDERATION OF THE VARIOU S SUBMISSION MADE, MULTIPLE CONTENTION RAISED AND ALSO THE WEIGHT OF NUMBER OF ELABORATE AND EXHAUSTIVE JUDGEMENTS AS STRONGLY RELIED UPON BY THE APPELLANT IN WRITING DURING THE COURSE OF APPELLATE PROCEEDINGS. IT WAS SO DONE BY HIM BY LOSING SIGHT OF THE FACT THAT THE SAID JUDGEMENTS PARTICULARLY THAT OF HONBLE GUJARA T HIGH COURT RENDERED IN ROHNI BUILDERS REPORTED AS (2002) 256 ITR 360 (GU J.), WHEREIN THE WHOLE AMBIT OF THE CASE LAW IN THIS SUBJECT HAS BEEN ELAB ORATELY SURVEYED AND ANALYTICALLY SCRUTINIZED PRECISELY IN THE CONTEXT O F FACTS AND CIRCUMSTANCES OF THE APPELLANT FIRMS CASE; THE ONLY JUDGEMENT OF THE HO NBLE SUPREME COURT AS RELIED UPON BHY THE LD. CIT (APPEALS) BEING PATENTLY DISTI NGUISHABLE HAVING REGARD TO THE CIRCUMSTANCES SURROUNDING THAT CASE ---- THE IN FERENCE AS DRAWN BY THE LD. CIT (APPEALS) IN REGARD TO THE APPLICABILITY OF SECTION 68 (INSTEAD OF 269-SS AS REFERRED TO BY ASSESSING OFFICER) AS ALSO HIS DIREC TION AS TO THE DISALLOWANCE OF INTEREST PAID TO THE CASH CREDITOR (THOUGH NOT MADE BY THE ASSESSING OFFICER) IS ALSO ARBITRARY AND UNCALLED FOR; 4. AGAIN ERRED IN RESORTING TO THE DISMISSA L OF GROUND NO. 7 FOR REASON WHICH EVEN IF RIGHTFULLY PUT, CAN AT BEST BE DESCRIBED AS FRIVOLOUS IN AS MUCH AS THE SAME HAVE NEITHER THE ATTRACTION OF ANY LOGIC NOR T HE SANCTION OF ANY LAW. HIS REFERENCE TO AN INSISTENCE UPON CERTAIN EVIDENC E BY THE APPELLANT IS INDEED INCOMPREHENSIBLE AS NO SUCH EVIDENCE CAN POSSIBLY B E PROVIDED; THE GROUND OF APPEAL TAKEN BY THE APPELLANT BEING ESSENTIALLY AND PURELY LEGAL IN ITS VERY NATURE. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO ADD ITION OF RS.3,00,331/- ON ACCOUNT OF GROSS PROFIT AND ADDITION OF RS 1,96,559/- ON ACCOUNT DIF FERENCE IN THE BALANCE SHEETS. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF PURCHASE AND SALE OF PLYWOOD AND TIMBER. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD FILED DETAILS AS ON 13 TH OCTOBER, 2008, WHICH CONTAINED PHOTO COPY OF THE BALANCE SHEET AS ON 31 ST MARCH, 2006. IT WAS OBSERVED THAT THIS BALANCE SH EET WAS DIFFERENT FROM 3 I. T. A. NO. 1358 (DEL) OF 2010 THE BALANCE SHEET ENCLOSED WITH THE RETURN FILED ON 31 ST OCTOBER, 2006. BOTH THESE BALANCE SHEETS WERE AUDITED BY THE SAME AUDITOR AND DATE OF AUDIT WAS ALSO THE SAME I.E. 18/10/2006. THE AO NOTED DIFFERENCE IN THE BALANCE SHEET, AS PER THESE TWO BALANCE SHEETS. THE ASSESSEE WAS REQUIRED TO PRODUCE THE BOOKS OF ACCOUNTS AND EXPLAIN THE RE ASONS FOR DIFFERENCE IN FIGURES OF BALANCE SHEET FILED ALONG WITH RETURN OF INCOME AND BALANCE SHEET FILED ON 13/10/2008. THE ASSESSEE WAS ALSO REQUIRED TO PRODUCE BOOKS OF ACCOUNTS. THE AS SESSEE ON 26 TH DECEMBER, 2008 FILED A LETTER BUT THE BOOKS OF ACCOUNTS WERE NOT PRODUCED IN SPIT E OF REPEATED REMINDERS. THE ASSESSEE WAS AGAIN ASKED TO EXPLAIN THE DISCREPANCIES FOUND IN T HE BALANCE SHEETS. EVEN WHEN FINAL OPPORTUNITY WAS GIVEN THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS. THE AO FROM THE CONDUCT OF THE ASSESSEE CONCLUDED THAT PROPER BOOKS OF ACCOUNTS WERE NOT MAINTAINED BY THE ASSESSEE AS REQUIRED UNDER SECTION 44-AA OF THE ACT . IN THE ABSENCE OF THE BOOKS OF ACCOUNTS THE VOUCHERS, ORIGINAL BILLS, TRADING AND PROFIT AND LO SS ACCOUNT AND BALANCE SHEET COULD NOT BE TREATED AS AUTHENTICATED ON WHICH THE REVENUE COU LD RELY FOR COMPLETION OF ASSESSMENT. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE REQUIRING IT TO EXPLAIN AS TO WHY BOOK ACCOUNTS SHOULD NOT BE REJECTED. IN RESPONSE TO TH IS NOTICE THE ASSESSEE FILED REPLY DATED 24 TH DECEMBER, 2008, WHICH WAS TREATED AN AFTERTHOUGHT. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND ADDED THE DIFFERENCE IN THE BALANCE SH EET AT RS.1,96,559/-. HE ALSO ADDED THE DIFFERENCE IN GROSS PROFIT BETWEEN PREVIOUS YEAR AN D THE YEAR UNDER CONSIDERATION AT RS.3,00,331/-. 4. ON APPEAL THE ASSESSEE FILED WRITTEN SUBMISSIONS WHICH WERE SENT TO THE ASSESSING OFFICER FOR HIS COMMENTS. THE ASSESSING OFFICER WAS GIVEN AN OPPORTUNITY IN TERMS OF RULE 46-A (3) TO EXAMINE THE EVIDENCE/DOCUMENT AND TO PRODUCE ANY EV IDENCE OR DOCUMENT OR ANY WITNESS IN REBUTTAL OF ADDITIONAL EVIDENCE FILED. THE ASSESSI NG OFFICER SUBMITTED HIS REPORT AND THE ASSESSEE FILED REJOINDER. 5.1 AS REGARDS THE ADDITION OF RS.3,00,331/- ON A CCOUNT OF GROSS PROFIT WHICH HAS BEEN MADE ON ACCOUNT OF DIFFERENCE OF GROSS PROFIT BETWEEN T HE FIGURES OF PREVIOUS YEAR AND THE YEAR UNDER CONSIDERATION. WE HAVE GONE THROUGH THE DETAILS O F GROSS PROFIT EARNED BY THE ASSESSEE FROM 4 I. T. A. NO. 1358 (DEL) OF 2010 A.Y 1998-99 TO 2006-07. THE GROSS PROFIT DURING TH IS PERIOD VARIED BETWEEN 7.24 TO 8%. THE GROSS PROFIT EARNED DURING THE YEAR UNDER CONSIDERA TION IS AT 7.55% AS AGAINST IN THE IMMEDIATE PRECEDING YEAR AT 8%. NO DOUBT THERE IS FALL IN GRO SS PROFIT IN THE YEAR UNDER CONSIDERATION BUT THE ASSESSING OFFICER HAD NOT DISCUSSED ANYTHING ABOUT FALL IN GROSS PROFIT. THERE IS NOTHING MENTIONED IN THE ASSESSMENT ORDER ABOUT DIFFERENCE IN SALES AND PURCHASES. IN VIEW OF THESE FACTS NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF FALL IN THE GROSS PROFIT PARTICULARLY IN THE ABSENCE OF ANY DISCUSSION IN THE ASSESSMENT ORDER. WE, THE REFORE, DELETE THE ADDITION ON ACCOUNT OF FALL IN THE GP RATE MADE AT RS.3,00,331/-. 5.2 AS REGARDS THE DIFFERENCE IN THE BALANCE SHEET THE ASSESSING OFFICER STATED THAT THE DISCREPANCIES HAVE NOT BEEN EXPLAINED. THE ASSESSE E TRIED TO RECONCILE THE DIFFERENCE. AS REGARDS FAILURE TO PRODUCE BOOKS OF ACCOUNTS, IT WA S SUBMITTED THAT THE BOOKS WERE NOT TRACEABLE DUE TO RENOVATION AND SURGERY OF SHRI K. K. SABRA, PARTNER. THE ASSESSEE HAD FAILED TO PRODUCE THE BOOKS OF ACCOUNTS. RENOVATION OF PREMISES AND ILL HEALTH OF THE PARTNER WERE NO REASON WHY THE BOOKS COULD NOT BE PRODUCED. SINCE BOOKS OF AC COUNT WERE NEITHER PRODUCED BEFORE THE AO NOR BEFORE THE LD. CIT (APPEALS), THE LD. CIT (A) C AME TO THE CONCLUSION THAT THE ASSESSEE WAS DELIBERATELY AVOIDING PRODUCING BOOKS OF ACCOUNTS A S THEY HAVE BEEN MANIPULATED. THE MANIPULATION WAS EVIDENCED FROM PREPARATION OF TWO BALANCE SHEETS. AS REGARDS RECONCILIATION FURNISHED BY THE ASSESSEE, THE LD. CIT (APPEALS) NO TED THAT IT WAS INCOMPLETE AND VAGUE. RECONCILIATION FILED REFERRED TO SUSPENSE ACCOUNT A ND CERTAIN ADJUSTMENTS, BUT NO DETAILS WERE GIVEN IN SPITE OF ASKED TO FILE THE SAME WITH A COP Y OF RELEVANT ACCOUNTS. IT WAS, THEREFORE, CLEAR THAT THE ASSESSEE DID NOT HAVE ANY SATISFACTORY EXP LANATION REGARDING THE DIFFERENT FIGURES GIVEN IN TWO BALANCE SHEETS. IT WAS THE CLAIM OF THE ASSESS EE THAT TWO BALANCE SHEETS WERE PREPARED BECAUSE CERTAIN AMOUNTS REMAINED TO BE RECONCILED. THE LD. CIT (A), HOWEVER, HELD THAT IF THIS WAS TRUE, THEN THE ASSESSEE SHOULD HAVE PRODUCED TH E RELEVANT DOCUMENTS AND EXPLAINED THE RECONCILIATION, WHICH WAS CARRIED OUT. SINCE THE A SSESSEE HAD NOT RECONCILED THE DIFFERENCE IN TWO BALANCE SHEETS, THE LD. CIT (A) HELD THAT THE A O WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS. AS REGARDS THE DIFFERENCE IN THE BALANCE SHEET THE LD. CIT (A) NOTED THAT THE DIFFERENCE WAS ON ACCOUNT OF CLOSING STOCK AND CURRENT ASSETS. THE DIFFERENCE IN THE AMOUNT UNDER LIABILITIES SUCH AS CURRENT LIABILITIES IN THE TWO BALANCE SHEE TS SHOWED BOGUS LIABILITIES WHICH WERE LIABLE TO 5 I. T. A. NO. 1358 (DEL) OF 2010 BE ADDED TO THE INCOME. SINCE THE ASSESSEE WAS NOT ABLE TO RECONCILE THE DIFFERENCE IN TWO BALANCE SHEETS THE LD. CIT (A) UPHELD THE DISALLOWA NCE OF RS.1,96,559/- BEING THE DIFFERENCE IN THE BALANCE SHEETS. 6. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT IN ASSESSMENT YEAR 2007-08 THE CLOSING BALANCES WERE TAKEN AS OPENING BALANCE. IN ASSESSMENT YEAR 2007-08 THE TRADING RESULTS WERE ACCEPTED AS SUCH WITHOUT ANY TINKERING. THERE FORE, ADDITION OF RS.1,96,559/- MADE BY THE ASSESSING OFFICER AND UPHELD BY THE LD. CIT (A) DES ERVES TO BE DELETED. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER ON THE BASIS OF TWO BALANCE SHEET S HAS MADE ADDITION ON TWO ACCOUNTS, ONE REPRESENTS THE DIFFERENCE IN THE BALANCE SHEET AT R S.1,96,559/-. THE DIFFERENCE IN THE BALANCE SHEET HAS NOT BEEN RECONCILED AND THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE BOOKS OF ACCOUNTS. THE CONTENTION OF THE ASSESSEE IS THAT I N ASSESSMENT YEAR 2007-08 THE CLOSING BALANCES OF ASSESSMENT YEAR 2006-07 HAS BEEN TAKEN AS CORREC T IN ASSESSMENT YEAR 2007-08 AND, THEREFORE, NO ADDITION CAN BE MADE. HOWEVER, IT IS A FACT THA T THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE THE BOOKS OF ACCOUNTS. THE LD. CIT (APPEALS) HAS ALSO RECORDED A FINDING OF FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO RECONCILE THE DIFFERENCE. HOW EVER, BEING FAIR TO BOTH THE PARTIES, WE FEEL IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE A SSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE CASE OF THE ASSESSEE AFRESH. THE ASSESSEE WILL EXP LAIN THE DISCREPANCIES BETWEEN THE TWO BALANCE SHEETS. THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 8. THE NEXT ISSUE FOR CONSIDERATION RELATES TO ADDI TION OF RS.2,00,000/- MADE UNDER SECTION 68 ON ACCOUNT OF UN-SECURED LOANS. THE FACTS OF TH E CASE ARE THAT THE ASSESSEE RECEIVED A SUM OF RS.3,00,000/- FROM SHRI ARUN KUMAR MALHOTRA. THE A SSESSEE WAS FURNISHED CONFIRMATION ALONG WITH PAN ALONG WITH COPY OF BANK ACCOUNT OF SHRI AR UN KUMAR MALHOTRA. ON VERIFICATION OF THE BANK ACCOUNT WITH THE UNION BANK OF INDIA, PAHAR GA NJ BRANCH, IT WAS FOUND THAT AN AMOUNT OF RS.2,00,000/- HAD BEEN ADVANCED ON 26 TH OCTOBER, 2005 THROUGH CHEQUE, BUT ON PERUSAL OF TH E 6 I. T. A. NO. 1358 (DEL) OF 2010 BANK ACCOUNT IT REVEALED THAT SHRI ARUN KUMAR MALHO TRA HAS DEPOSITED A SUM OF RS.2,00,000/- IN CASH BEFORE ISSUE OF A CHEQUE TO M/S. HINDUSTAN PLY WOOD COMPANY. THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF THE CASH CREDIT IN THE ABSEN CE OF ANY SATISFACTORY EXPLANATION REGARDING THE DEPOSIT OF CASH OF RS.2,00,000/- JUST BEFORE IS SUE OF CHEQUE. 9. ON APPEAL IT WAS ARGUED THAT THE INTEREST PAID T O SHRI MALHOTRA HAS BEEN ALLOWED AS BUSINESS EXPENDITURE MEANING THEREBY THE LOAN OF RS .2,00,000/ HAS BEEN ACCEPTED AS GENUINE. THE LD. CIT (APPEALS), HOWEVER, UPHELD THE ADDITION MADE BY THE AO UNDER SECTION 68 OF THE ACT. HE ALSO DIRECTED THE AO TO DISALLOW THE INTER EST PAID TO SHRI MALHOTRA. THE LD. CIT (A) FURTHER NOTED THAT SHRI ARUN KUMAR MALHOTRA RECEIVE D SALARY OF RS.44,000/- PER ANNUM FROM HINDUSTAN AGENCIES P. LTD., WHICH IS A SISTER CONCE RN OF THE ASSESSEE. IN SPITE OF BEING GIVEN AN OPPORTUNITY TO THE ASSESSEE THE ASSESSEE HAD FAILED TO FILE EVIDENCE IN SUPPORT OF CREDITWORTHINESS OF SHRI MALHOTRA. NO EXPLANATION HAS BEEN GIVEN RE GARDING THE SOURCE FROM WHICH SHRI MALHOTRA DEPOSITED RS.2,00,000/- ION HIS BANK ACCOUNT. THE ASSESSEE HAD FAILED TO SHOW HOW AN EMPLOYEE DRAWING SALARY OF RS.44,000/- PER ANNUM HAD CAPACIT Y TO GIVE LOAN OF RS.3,00,000/- TO THE ASSESSEE. THE GENUINENESS OF THE TRANSACTION HAD N OT BEEN ESTABLISHED. THE BURDEN OF PROOF WAS ON THE ASSESSEE RATHER THAN THE ASSESSING OFFICER P ARTICULARLY WHEN SO MANY OTHER FACTORS SHOWED LACK OF CREDITWORTHINESS AND GENUINENESS. THE LD. CIT (APPEALS) THEREFORE, CONCLUDED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDIT ION. 10. BEFORE US THE LD. AR OF THE ASSESSEE REITERATED SIMILAR ARGUMENTS. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPE ALS). 11. WE HAVE HEARD BOTH THE PARTIES. SHRI ARUN KUM AR MALHOTRA IS AN EMPLOYEE OF M/S. HINDUSTAN AGENCIES P. LTD., A SISTER CONCERN O F THE ASSESSEE. HE WAS RECEIVING SALARY OF RS.44,000/- PER ANNUM. AN AMOUNT OF RS.2,00,000/- WAS DEPOSITED IN THE ACCOUNT OF SHRI ARUN KUMAR MALHOTRA IMMEDIATELY BEFORE THE CHEQUE WAS IS SUED. SHRI ARUN KUMAR MALHOTRA HAS GIVEN CONFIRMATION IN SUPPORT OF HIS CONTENTION THA T THE LOAN WAS OF RS 2,00,000/- WAS GIVEN BY 7 I. T. A. NO. 1358 (DEL) OF 2010 HIM TO THE ASSESSEE. HE HAD FILED COPY OF THE PAN. IN ORDER TO PROVE CASH CREDIT, AS GENUINE, THE ASSESSEE HAS TO PROVE THE IDENTITY, THE CREDITWORTH INESS AND GENUINENESS OF THE TRANSACTION. IN THE INSTANT CASE THE IDENTITY OF THE CREDITOR IS NOT IN DISPUTE. THE ASSESSING OFFICER HAD NOT FURTHER CONDUCTED ANY INQUIRY IN THE MATTER. IF ASSESSING O FFICER WAS NOT SATISFIED ABOUT THE DEPOSIT OF THE AMOUNT IN THE BANK ACCOUNT HE SHOULD HAVE INITIATED ACTION IN THE CASE OF CREDITOR. HE HAD NOT DONE SO. IN VIEW OF PECULIAR FACTS OF THE CASE WE D ELETE THE ADDITION OF RS 2,00,000/- MADE BY THE ASSESSING OFFICER. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 29 TH APRIL, 2011. SD/- SD/- [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH APRIL, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 8 I. T. A. NO. 1358 (DEL) OF 2010