The ITO, Ward-2, Mehsana V. M/s. Rajendra Brothers, Mehsana

ITA 1479/AHD/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67959 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N DIVETIA
• Keywords: Charitable institution
• Section: 69C; 143(3); 145

Judgement Text

ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH , AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 1479 /AHD/2009 (ASSESSMENT Y EAR: 2006-07) THE ITO, WARD-2 MEHSANA V/S M/S RAJENDRA BROTHERS, 16, SAMARPAN COMPLEX, HIGHWAY, MEHSANA-2 (APPELLANT) (RESPONDENT) PAN: AACFR 1981 R APPELLANT BY : SHRI P.L. KUREEL, SR. D.R. RESPONDENT BY : SHRI S.N. DIVETIA ( )/ ORDER DATE OF HEARING : 13-11-2013 DATE OF PRONOUNCEMENT : 22 -11-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A), GANDHINAGAR DATED 03.03.2009 FOR A.Y. 2006-07. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TRADI NG IN ISABGOL ON WHOLESALE BASIS AND FINANCING. IT FILED ITS RETURN OF INCOME FOR AY 2006- 07 ON 8.12.2006 SHOWING TOTAL INCOME OF RS 3,65,640 /-. THE CASE WAS ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 2 SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 29.12.2008 AND THE TOTAL INCOME WA S DETERMINED AT RS 56,39,700/-. AGGRIEVED BY THE ORDER OF ASSESSING OF FICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 3.3.2009 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY TH E ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED T HE FOLLOWING GROUNDS: 1. THE LEARNED CIT(APPEAL) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS. 41,41,474/- MADE ON ACCOUNT OF INTEREST EXPENSES. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 7,74,270/- MADE ON ACCOUNT ESTIMATE OF G.P. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 3,39,490/- MADE ON ACCOUNT OF UNDISCLOSED INCOME . GROUND NO 1 IS WITH RESPECT TO ADDITION ON ACCOUNT OF INTEREST EXPENSES: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PERU SAL OF THE PROFIT AND LOSS ACCOUNT, AO NOTICED THAT ASSESSEE HAS EARNED I NTEREST INCOME OF RS 27,96,313/- AND INTEREST EXPENSES OF RS 69,37,787/- (INCLUDING INTEREST PAID TO BANK AMOUNTING TO RS 39,49,753/- AND RS 28, 95,869/- TO OTHERS) AND THUS THERE WAS NET INTEREST EXPENSE OF RS 41,41 ,4747-. HE ALSO NOTICED THAT ASSESSEE HAS TAKEN LOAN OF RS 3.50 CRO RE FROM MEHSANA URBAN BANK AGAINST PLEDGE OF STOCK OF ISABGOL AND H AD PAID INTEREST OF RS 39,49,753/-. HE ALSO NOTICED THAT ASSESSEE HAD NOT PURCHASED ANY ISABGOL DURING THE YEAR AND THE ENTIRE SALESWAS FROM THE OP ENING STOCK AS ON 1.4.2005. HE WAS THEREFORE OF THE VIEW THAT SINCE T HERE WAS NO PURCHASE OF ISABGOL IN THE YEAR, THE UTILISATION OF LOAN FOR PURCHASE OF ISABGOL DOES NOT ARISE AND THEREFORE THE LOAN WAS NOT UTILISED F OR THE PURPOSE OF BUSINESS. HE WAS FURTHER OF THE VIEW THAT THE BANK LOAN HAS BEEN USED FOR GIVING ADVANCES AT LESSER RATE THAN THE BANK RATE W HICH HAS RESULTED IN EXCESS PAYMENT OF INTEREST THAN WHAT IS RECEIVED AN D THUS ASSESSEE HAD ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 3 SHOWN LOSS OF RS 41,41,474/- IN SARAFI BUSINESS. TH E AO WAS THUS OF THE VIEW THAT ASSESSEE HAD UNDERTAKEN SARAFI BUSINESS N OT TO EARN INTEREST BUT TO SUFFER LOSS. HE ACCORDINGLY CONCLUDED THAT ASSES SEE HAS NOT GIVEN ANY SATISFACTORY EXPLANATION FOR THE LOSS IN SARAFI BUS INESS AND THUS DISALLOWED THE LOSS ON ACCOUNT OF INTEREST CLAIMED IN THE SARA FI BUSINESS OF RS 41,41,474/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDI NG AS UNDER: 2.3.1 IT IS CLEAR FROM THE ABOVE THAT THE APPELLANT IS INVOLVED IN THREE ACTIVITIES, (I0 ISABGUL SALES, (II)DIVELA VAYDA VEPAR AND (III) SAR AFI BUSINESS. THE CHARGE OF INTEREST AMOUNTING TO RS. 41,41,474/- IS NET OF THE INTEREST PAID TO BANK FOR ISABGUL BUSINESS (AS CLAIMED BY THE APPELLANT) AS WELL AS I NTEREST PAID AND RECEIVED FROM PARTNERS ON THEIR CREDIT OR DEBIT BALANCES RESPECTI VELY. THEREFORE FIRSTLY, ASSESSING OFFICERS TREATMENT OF THE SUM OF RS. 41,41,474/- O N THE FOOTING AS BEING BANK INTEREST IS FACTUALLY AS WELL AS CONCEPTUALLY INCORRECT. THI S IS A NET FIGURE OF ALL KINDS OF INTEREST CHARGED AND PAID. 2.3.2 FOR ITS SARAFI BUSINESS, THE APPELLANT IS GET TING AN INTEREST OF RS. 25,72,318/- AND IS PAYING INTEREST OF RS.28,95,869/-. FROM THE DETA ILS FURNISHED BEFORE ME, IT APPEARS THAT THE ADVANCES ARE AT COMMERCIAL TERMS BECAUSE T HE INTEREST CHARGED IS FROM 6% TO 16% (BESIDES THE INTEREST-FREE ADVANCES). FURTHER, OUT OF THE TOTAL INTEREST PAID OF RS.28,95,869/-, ONLY RS.2,40,188/- HAS BEEN PAID TO PERSONS COVERED U/S.40A(2)(B). THEREFORE, IN THE CIRCUMSTANCES, IT WOULD BE FAIR T O ASSUME THAT THE APPELLANT IS RUNNING A SARAFI BUSINESS IN A COMMERCIAL SENSE AND THERE MAY HAVE BEEN GAINS OR LOSSES AS PER THE COMMERCIAL ENVIRONMENT. THE ASSES SMENT ORDER DOES NOT HAVE ANYTHING SPECIFIC TO HOLD THAT, IN GENERAL OR ANY S PECIFIC CASES, THERE HAS BEEN ANY INSTANCE OF ANY NON-COMMERCIAL VENTURE. 2.3.3 AS FAR AS THE INTEREST PAID TO PARTNERS IS CO NCERNED, THE LIABILITY OF THE SAME HAS TO BE AS PER PARTNERSHIP DEED. UNDER NORMAL CIRCUMS TANCES, THE ASSESSING OFFICER WOULD HAVE CHECKED IT AND THEREFORE IT WOULD NOT CA LL FOR DETAILED COMMENTS. BUT THE FACT OF DISALLOWANCE MEANS THAT IT HAS NOT BEEN DON E. 2.3.4 REGARDING THE BANK INTEREST OF RS.39,49,753/- , WHILE IT IS DIFFICULT TO ACCEPT THE APPELLANT'S POINT OF VIEW THAT THE LOAN OBTAINED HA S BEEN ONLY UTILIZED FOR THE ISABGUL TRADING BUT IN THE ULTIMATE ANALYSIS IT MAY NOT AFF ECT THE APPELLANT'S CLAIM. THE SAID LOAN WAS OBTAINED AGAINST THE STOCK OF ISABGUL WHIC H HAD ALREADY BEEN BOUGHT BY THE ASSESSEE AND THE LOAN WAS PARTLY LIQUIDATED, AS SOM E OF THE COPIES OF ACCOUNTS OF THE BORROWERS AND LENDERS SHOW THAT THE BY THE FUNDS AR ISING OUT OF THE TRANSACTION IN THE SARAFI BUSINESS. IN THE MANNER THE APPELLANT IS RUN NING ITS BUSINESS, IT IS CLEAR THAT THE FUNDS OBTAINED FROM THE BANK AGAINST THE STOCK IN H AND GOT MERGED WITH THE OVERALL FUNDS OF THE OTHER BUSINESSES, BUT NEITHER ANY OF-T HE TRANSACTION HAS BEEN CLAIMED TO BE BOGUS BY THE ASSESSING OFFICER NOR ANY SPECIFIC DEFECT POINTED OUT. MERE FACT THAT FUNDS OBTAINED FOR RUNNING ONE BUSINESS HAVING GOT MIXED WITH THE FUNDS OF OTHER BUSINESSES AND THEREBY THE POSSIBILITY OF BEEN UTIL IZED FOR OTHER BUSINESS WOULD NOT ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 4 LEAD TO DISALLOWANCE OF INTEREST PAYABLE ON THE BAN K FUNDS, TO THE EXTENT SUCH FUNDS WERE USED COMMERCIALLY, FOR ONE OR THE OTHER BUSINE SS OF THE APPELLANT. 2.3.5 AS FAR AS THE ISSUE OF DIVERSION OF SUCH FUND S TO THE ADVANCES HAVING LOWER RATE OF INTEREST IS CONCERNED, THE SAME ALSO DOES NOT AP PEAR TO BE QUITE JUSTIFIED. AS STATED EARLIER, THE BANK FUNDS HAVE MERGED WITH THE NON BA NK FUNDS OF THE APPELLANT, THE TOTAL AMOUNT OF FUNDS AVAILABLE FROM SARAFI BUSINES S OF THE ASSESSEE IS ALMOST OF THE SAME ORDER AS FUNDS AVAILABLE FROM BANK. IN SUCH SI TUATION, TO COME TO A REASONABLE CONCLUSION THAT THE BANK FUNDS AS AVAILABLE HAVE BE EN DIVERTED TO INTEREST-FREE OR A LOWER INTEREST ADVANCES IS NOT PRACTICABLE. 2.3.6 WHEREVER THE APPELLANT HAS CHARGED INTEREST, IT HAS BEEN IN THE REGION OF 12% TO 15%. IT IS WORTH POINTING OUT THAT IN THE CASE OF T HE BIGGEST DEPOSITOR, I.E. RAKESH CONSTRUCTION COMPANY WITH AN OUTSTANDING OF RS.1,79 ,14,524/-, THE APPELLANT HAS CHARGED 12% INTEREST ONLY. THE ONLY SIGNIFICANT VAR IATION IS THE ADVANCE TO ONE M/S. PURUSHOTTAMBHAI A PATEL, HUF WHERE 6% HAS BEEN CHAR GED (OTHER ITEMS OF 6% ARE MINOR AND IGNORED): OTHER THAN THAT, THERE ARE CERT AIN CHARITABLE TRUSTS TO WHOM THE INTEREST-FREE ADVANCES HAVE BEEN GIVEN. BUT THE SUM TOTAL OF SUCH INTEREST-FREE ADVANCES OF LESS THAN 12% RATE OF INTEREST IS SO SM ALL COMPARED TO THE OVER ALL LEVEL OF ADVANCES MADE OR THE FUNDS RECEIVED WHETHER FROM BA NK OR OTHERWISE THAT NO SPECIFIC NEXUS CAN BE ESTABLISHED BETWEEN THE EXACT SOURCE O F FUNDS AND THEREFORE TO HOLD IT AGAINST THE APPELLANT WOULD BE UNFAIR. 2.3.8 HERE AGAIN THE RATE OF INTEREST IS IN THE REG ION OF 6% TO 15% (OTHER ITEMS BEING MINOR), WHICH IS IN LINE WITH THE OVERALL RANGE OF INTEREST CHARGED BY THE ASSESSEE AND THEREFORE IT IS DIFFICULT TO SAY IN THE FACE OF OVE RALL MERGER OF THE FUNDS FROM DIFFERENT SOURCES THAT THE ASSESSEE HAS PAID HIGHER INTEREST TO PERSONS COVERED U/S. 40A(2)(B), WHEN COMPARED TO THE OVERALL BORROWING. 2.3.9 THEREFORE, TO SUM UP, THE ASSESSING OFFICERS STAND APPEARS TO BE NOT WELL FOUNDED AND NEITHER ANY DISALLOWANCE IS CALLED FOR OUT OF THE BANK INTERET, ON THE REASON THAT THE SAME HAS NOT BEEN UTILIZED FOR THE PURPOSE OF BUSINESS NOR DO THE FACTS LEAD TO ANY DIRECT OR INDIRECT DISALLOWANCE OF THE INTEREST PAID AND RECEIVED IN THE SARAFI BUSINESS ON THE GROUND OF DIVERSION OF FUNDS TOWARDS LOWER INTEREST ADVANCES. HENCE THE DISALLOWANCE OF RS. 41,41,474/- IS DELETE D. THIS IS, HOWEVER, SUBJECT TO VERIFICATION OF INTEREST PAID AND RECEIVED FROM PAR TNERS AT THE APPEAL EFFECT STAGE, AS PER PROVISIONS OF SECTION 40(B) (IV)). THE APPELLAN T GETS THE RELIEF TO THE EXTENT. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, THE LD. D.R. POINTED TO THE FINDINGS OF AO AND SUBMITTED THAT ASSESSEE HAS DIVERTED THE LOAN OBTAINED FROM BANK F OR ISABGOL BUSINESS IN THE SARAFI BUSINESS AND IN WHICH ASSESSEE HAS INCUR RED LOSS. HE FURTHER SUBMITTED THAT IN SARAFI BUSINESS INCURRING OF LOSS CANNOT BE VISUALIZED. HE THUS STRONGLY SUPPORTED THE ORDER OF AO. LD. A.R . ON THE OTHER HAND ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 5 REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND T HUS SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE THE AO HAS HELD THE INTEREST LO SS ON ACCOUNT OF EXCESS OF INTEREST PAID OVER THE INTEREST GAIN TO BE NOT O UT OF TRADING OF ISABGOL BUT LOSS ON ACCOUNT OF SARAFI BUSINESS AND SINCE TH E LOSS OF SARAFI BUSINESS WAS NOT PROPERLY EXPLAINED THE SAME WAS NOT ALLOWAB LE. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT AS SESSEE WAS RUNNING SARAFI BUSINESS IN A COMMERCIAL SENSE. HE HAS FURTH ER NOTED THAT THE MANNER IN WHICH THE ASSESSEE WAS RUNNING THE BUSINE SS, THE FUNDS OBTAINED FROM THE BANK AGAINST THE STOCK GOT MERGED WITH THE OVERALL FUNDS OF THE OTHER BUSINESSES AND THE BANK LOAN THA T WAS OBTAINED BY THE ASSESSEE AGAINST THE STOCK OF ISABGOL WAS PARTLY LI QUIDATED BY THE FUNDS ARISING OUT OF THE TRANSACTION IN SARAFI BUSINESS. HE HAS FURTHER HELD THAT THE TOTAL AMOUNT OF FUNDS AVAILABLE FROM SARAFI BUS INESS WAS ALMOST OF THE SAME ORDER AS FUNDS AVAILABLE FROM BANK AND IN SUCH A SITUATION IT WAS NOT PRACTICABLE TO ASSUME THAT BANK FUNDS HAVE BEEN DIVERTED AS INTEREST FREE/LOWER INTEREST ADVANCES AND NO NEXUS HAS BEEN ESTABLISHED OF DIVERSION OF INTEREST BEARING FUNDS BEING DIVERTED AS LOW/INTREST FREE ADVANCE. HE HAS ALSO GIVEN A FINDING THAT RATE OF I NTEREST PAID BY THE ASSESSEE TO PERSONS COVERED U/S 40A(2)(B) WERE IN T HE OVERALL RANGE OF INTEREST CHARGED BY THE ASSESSEE. BEFORE US, THE RE VENUE HAS NOT BROUGHT ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A) N OT HAS IT BROUGHT ANY MATERIAL TO PROVE THAT THE SARAFI BUSINESS OF THE A SSESSEE WAS BOGUS. IN VIEW OF THE AFORESAID FACTS WE FIND NO REASON TO IN TERFERE WITH THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 6 2 ND GROUND IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF GROSS PROFIT (GP): 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTI CED THAT ASSESSEE HAD NOT MAINTAINED DAY TO DAY STOCK REGISTER. FROM THE COMPARATIVE GROSS PROFIT OF LAST 3 YEARS, AO NOTICED THAT FOR THE YEA R UNDER REVIEW THE GROSS PROFIT IN ISABGOL BUSINESS WAS SHOWN AT 4.27% (RS 1 9,15,422) WHICH ACCORDING TO HIM WAS ON A LOWER SIDE. HE REJECTED T HE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145 FOR THE R EASON OF NON MAINTENANCE OF DAY TO DAY STOCK REGISTER AND THEREA FTER ESTIMATED THE GP AT 6% AND WORKED OUT THE PROFIT AT RS 2689695/- AND MADE ADDITION OF RS 7,74,270 (RS 26,89,695 LESS RS 19,15,422). AGGRIEVE D BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT( A) DELETED THE ADDITION BY HOLDING AS UNDER: 3.3 THE MATTER HAS BEEN CONSIDERED AND I AGREE WI TH THE AUTHORISED REPRESENTATIVE. THE ASSESSING OFFICER HAS NOT SHOWN ANYWHERE IN THE ORDER THAT TH E GROSS PROFIT RATE DECLARED IS LOW EITHER BY COMPARISON WITH THE ASSESSEE'S OWN RECORD OR IN COM PARISON WITH THE OTHER PARTIES. SECONDLY, MERE NON-MAINTENANCE OF DAY-TO-DAY STOCK REGISTER DOES N OT LEAD TO REJECTION OF BOOKS. PARTICULARLY WHEN THE ASSESSEE IS ABLE TO RECONCILE ITS QUANTITATIVE DETAILS OF ITS SALES AND PURCHASES FROM THE BILLS A ND INVOICES, IT WAS UPON ASSESSING OFFICER TO SHOW FUR THER AS TO HOW THE ABSENCE OF DAY-TO-DAY STOCK REGISTER HAS COMPROMISED THE ACCOUNTS. INTERESTINGL Y, THE ASSESSING OFFICER HAS NOT FOUND ANY FAULT WITH THE SALES FIGURE AS THE 6% GROSS PROFIT RATE H AS BEEN TAKEN ON THE SALES RETURNED BY THE APPELLAN T. IN SUCH A SITUATION, ARITHMETICALLY IT IS DIFFICULT TO RECONCILE ABOUT THE FACT OF INCREASED GROSS PRO FIT WHEN THE ENTIRE STOCK IS BROUGHT FORWARD FROM THE P RECEDING YEAR. FINALLY, THE FIGURE OF 6% IS A COMPLETE AD-HOC FIGURE WITHOUT ANY BASIS. THEREFORE , NEITHER THE REJECTION OF THE ACCOUNTS HAS ANY BASIS NOR THE SUBSEQUENT ESTIMATE. THEREFORE, THE A DDITION OF RS. 7,74,270/- CANNOT BE SUSTAINED AND HENCE IS DELETED. 9. AGGRIEVED BY THE ORDER OF AO, REVENUE IS NOW IN APP EAL BEFORE US. BEFORE US, LD D.R. RELIED ON THE ORDER OF AO AND ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED HIS ORDER. ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 7 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AO HAD PROCEEDED TO REJECT THE BOOKS OF ACCOUNT ON ACCOUNT OF NON MAINTENANCE OF STOCK REGISTER AND THEREAFTER ESTIMA TED THE GROSS PROFIT. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT A SSESSEE WAS ABLE TO RECONCILE THE QUANTITATIVE DETAILS OF ITS SALES AND PURCHASE FROM THE BILLS AND INVOICES. HE HAS FURTHER NOTED THAT AO HAS NOT FOUND ANY FAULT WITH THE SALES FIGURE REPORTED BY THE ASSESSEE. HE HAS A LSO NOTED THAT AO HAS NOT SHOWN BY COMPARISON OF ASSESSEE'S OWN RECORDS O R IN COMPARISON OF OTHER PARTIES AS TO HOW THE GROSS PROFIT DECLARED B Y THE ASSESSEE WAS LOW. BEFORE US, REVENUE HAS ALSO NOT BROUGHT ANY MATERIA L ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A) AND THEREFORE WE HAVE NO REASON TO INTERFERE WITH THE ORDER OF CIT((A). THUS THIS GROU ND OF REVENUE IS DISMISSED. 3 RD GROUND IS WITH RESPECT TO ADDITION OF RS 3,39,490/ - MADE ON ACCOUNT OF UNDISCLOSED INCOME. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTI CED THAT ON THE TOTAL BUSINESS OF RS 4.97 CRORE, ASSESSEE HAS INCURRED EX PENSES ON ACCOUNT OF STAFF SALARY OF ONLY RS 2000/- AND FURTHER NO EXPEN DITURE WAS INCURRED IN ACCOUNT OF TELEPHONE, FREIGHT, ELECTRICITY, TRAVELL ING ETC. ASSESSEE WAS ASKED TO EXPLAIN THE SAME. ASSESSEE INTERALIA SUBMI TTED THAT IT WAS DOING THE BUSINESS OF SHROFF AND STOCKIST OF ISABGOL AND NOT TRADING IN ISABGOL. IT WAS FURTHER SUBMITTED THAT IT HAD SEATING ARRANGEME NT WITH RAKESH PREMISES AND THEREFORE THERE WAS NO EXPENDITURE ON ACCOUNT OF LIGHT, TELEPHONE ETC. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO. HE THEREAFTER PROCEEDED TO ESTIMATE THE VARI OUS EXPENSES UNDER ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 8 VARIOUS HEADS AS LISTED ON PAGE 10 OF HIS ORDER AND WORKED OUT THE TOTAL EXPENSES AT RS 3,39,490/-AND CONCLUDED THE SAME TO BE INCURRED OUT OF UNDISCLOSED SOURCE OF INCOME AND ACCORDINGLY MADE A N ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: 4.2 AS PER THE APPELLANT, THE ASSESSEE HAS SITTING ARRA NGEMENTS WITH RAKESH CONSTRUCTION COMPANY, MEHSANA SINCE LONG AND SINCE IT IS DOING THE BUSINESS OF SHROFF AND IS A STOCKIST OF ISABGUL, NO SEPARATE OFFICE OR STAFF IS EMPLOYED OR TELEPHONE REQUIREMENT IS MADE. THERE ARE ONLY A FEW TRANSACTIONS OF SARAFI BUSINESS AND SALE OF ISABGUL HAS BEEN MADE DURING T HE MONTH FROM DECEMBER 05 TO MARCH 2006 ONLY. IT WAS FURTHER STATED THAT T HE ASSESSING OFFICER HAS ESTIMATED VARIOUS TYPE OF ADMINISTRATIVE EXPENSES W ITHOUT ANY EVIDENCE OF SUCH EXPENDITURE HAVING BEEN INCURRED BY THE APPELLANT A ND WITHOUT EVEN REFERRING THE SECTION UNDER WHICH THE ADDITION HAS BEEN MADE. IT STATED THAT PRESUMING SECTION 69C OF THE ACT HAS BEEN INVOKED, IT WAS NEC ESSARY FOR THE ASSESSING OFFICER TO PROVE THAT IN THE FINANCIAL YEAR THE ASS ESSEE HAS INCURRED ANY EXPENDITURE AND THAT THE ASSESSEE HAS NO EXPLANATIO N ABOUT THE SOURCES OF SUCH EXPENDITURE. THE PRIMARY ONUS WAS ON THE ASSESSING OFFICER TO ESTABLISH THE EXISTENCE OF EXPENDITURE AND THE FAILURE OF THE APP ELLANT TO EXPLAIN IT. HENCE IT WAS STATED THAT THE ADDITION MADE IS NOT SUSTAINABL E IN LAW. 4.3 THE MATTER HAS BEEN CONSIDERED. IT IS DIFFICULT TO SUPPORT THE WAY THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER, BY HYPOTHET ICAL WORKING OF THE LIKELY EXPENSES, WITHOUT BRINGING ANY MATERIAL INFORMATION ON RECORD TO REBUT THE STAND OF THE ASSESSEE. IF THE ASSESSING OFFICER HAD ANY APPREHENSION ABOUT THE POSITION AS DECLARED BY THE ASSESSEE, HE HAD ALL PO WERS UNDER THE ACT TO INQUIRE / VERIFY / SPOT INSPECTION / SURVEY TO FIND OUT THE CORRECT POSITION. OTHERWISE HOW A BUSINESS IS TO BE DONE IS NOT THE DEPARTMENT' S RESPONSIBILITY, THE ASSESSEE HIMSELF IS THE BEST JUDGE. AS RIGHTLY STAT ED BY THE AUTHORISED REPRESENTATIVE, SECTION 69C REQUIRES FOR THE ASSESS ING OFFICER TO BRING IN RECORD THE PROOF OF THE ASSESSEE HAVING BEEN INCURR ED THE EXPENSES BEFORE THE SAME BEING DEEMED AS THE INCOME OF THE ASSESSEE AND ADDED TO THE TOTAL INCOME. THIS HAS NOT OCCURRED HERE. THEREFORE, IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO SITUATION WHERE AN ADDITI ON OF RS.3,39,490/- COULD HAVE BEEN MADE. HENCE THE ADDITION OF RS. 3,39,490/ - IS DELETED. 12. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. STRONGLY SUPPORTED THE ORDER OF AO. ON THE OTHER HAND LD A.R. SUBMITTED THAT ADDITION HAS BEEN MADE BY AO ONLY ON THE ITA NO 1479/AHD/ 2009 . A.Y. 2006- 07 9 BASIS OF PRESUMPTION AND HAS NOT BROUGHT ANY MATERI AL ON RECORD IN SUPPORT OF THE ADDITION. HE THUS SUPPORTED THE ORDE R OF CIT(A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT A DDITION HAS BEEN MADE BY THE AO BY HYPOTHETICAL WORKING OF THE LIKELY EXP ENSES WITHOUT BRINGING ANY MATERIAL INFORMATION ON RECORD TO REBU T THE STAND OF THE ASSESSEE. HE HAS FURTHER NOTED THAT A.O. HAS NOT BR OUGHT ANY MATERIAL ON RECORD TO PROVE THE INCURRING OF EXPENDITURE. BEF ORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD THE CONTROVERT THE F INDINGS OF CIT(A) AND THEREFORE WE HAVE NO REASON TO INTERFERE WITH THE O RDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 14. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 22 -11 - 2013. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD