Shri Ghanshyambhai Purshottambhai Patel, Anand V. The ACIT., Anand Range, Anand

ITA 1513/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8987 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 30-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N DIVATIA
• Keywords: Unexplained cash credit; Rejection of books of accounts; Set aside
• Section: 133(6); 143(2); 145; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BEN CHES D BENCH: AHMEDABAD (BEFORE S/SHRI R.V. EASWAR, VP AND A N PAHUJA, AM) ITA NO. 1513/AHD/2005 AY: 2001-02 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL, YOGI PARK SOCIETY, GRID ROAD, ANAND [PAN :AEQPP 4892 R ] VS THE ACIT. ANAND RANGE, ANAND APPELLANT RESPONDENT ITA NO. 1527/AHD/2005 AY: 2001-02 THE A. C. I. T., ANAND RANGE, ANAND VS GHANSHYAMBHAI PURSHOTTAMBHAI PATEL, YOGI PARK SOCIETY, GRID ROAD,ANAND APPELLANT RESPONDENT ASSESSEE BY SHRI SN DIVATIA, AR REVENUE BY SHRI C. K. MISHRA, DR ORDER A N PAHUJA: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSE E DIRECTED AGAINST AN ORDER DATED 31-03-2005 OF THE L EARNED CIT(A)-II, BARODA, RAISE THE FOLLOWING GROUNDS: ITA NO.1527/AHD/2005[ REVENUE] 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN (I) HOLDING THAT IT IS NOT A FIT CASE TO REJECT BO OKS OF ACCOUNT IN SPITE OF THE FACT THAT THERE WAS A MISMA TCH OF CLOSING STOCK OF SHARE IN QUANTITY AND IN AMOUNT ON THE BASIS OF STATEMENT OF SHARES SUBMITTED DURING T HE ASSESSMENT PROCEEDING . THE LD. CIT(A) FURTHER FAIL ED TO APPRECIATE THAT BOOKS RESULTS DECLARING LOSS OF RS.30,15,568/- IN THE TRADING ACCOUNT INCLUDED LOSS IN TRANSACTIONS OF SPECULATIVE NATURE AND HENCE WERE REQUIRED TO BE BIFURCATED AND TREATED ACCORDINGLY. (II) NOT CONSIDERING STATEMENT OF TRANSACTION OF SH ARES IN DEMAT ACCOUNT AND THEREBY ERRED IN NOT DETERMINING ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 2 LOSS IN TRANSACTION OF SPECULATIVE IN NATURE INCLUD ED IN THE BOOKS RESULTS. (III) CO-RELATING THE REJECTION OF BOOKS RESULTS WI TH THE ADDITION OF RS.1,23,190/- MADE ON ACCOUNT OF DISCREPANCY IN CLOSING STOCK AND ADDITION OF RS.2,58,584/- MADE ON ACCOUNT OF CORRECT VALUATION OF CLOSING STOCK OF SHARES THOUGH THESE ADDITIONS WERE INDEPENDENT OF REJECTION OF BOOK RESULTS. THE LD. CIT(A) FURTHER OVERLOOKED THE FACT THAT EVEN IN THE REMAND ALSO DISCREPANCY IN THE CLOSING STOCK VALUATION WAS NOT BE EXPLAINED BY THE ASSESSEE. (IV) NOT APPRECIATING THE REASONS FOR MAKING ADDITI ON ON ACCOUNT OF MISMATCH OF CLOSING STOCK SHARES RESULTI NG IN RS.1,23,190/- AND NOT APPRECIATING THAT VALUATIO N OF CLOSING STOCK OF SHARES OF CERTAIN COMPANIES WAS NO T BASED ON PRINCIPLES OF ACCOUNTANCY TO THE EXTENT OF RS.2,58,584/-. 2. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICE R BE RESTORE D. ITA NO.1513/AHD/2005[ASSESSEE] 1.1 THE ORDER PASSED BY CIT(A)-II, BARODA ON 31.3 .2005 FOR A.Y. 2001-02 CONFIRMING THE ADDITION OF RS.2,00,912 /- AS UNEXPLAINED CASH CREDIT MADE BY AO IS WHOLLY ILLEGA L, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUST ICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN NOT CON SIDERING FULLY AND PROPERLY THE EVIDENCE PRODUCED AND EXPLANATION FURNISHED BY THE APPELLANT. 2.1 WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) HAS ERRED IN LAW AND OR ON FACTS IN CONFIRMING THAT THE DEPOSITS AG GREGATING TO RS.2,00,912/- AS UNEXPLAINED. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT NOT TO HAVE HELD THAT THE APPELLANT HA D FAILED TO PROVE THE CREDITWORTHINESS OF THE DEPOSITORS. ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 3 2.3 THE LD. CIT(A) HAS ERRED IN LAW AND OR ON FACT S IN HOLDING THAT THE APPELLANT SHOULD HAVE FURNISHED BANK PASS BOOK/BANK STATEMENTS OF THE DEPOSITORS. 3.1 THE LD. CIT(A) HAS ERRED IN LAW AND OR ON FACTS IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.17,912/- ON THE IMPU GNED CASH CREDITS. IT IS THEREFORE PRAYED THE ADDITION OF RS.2,00,912/ - AS UNEXPLAINED CASH CREDIT AS WELL AS DISALLOWANCE OF INTEREST OF RS.17,912/- MAY PLEASE BE DELETED. 2. ADVERTING FIRST TO GROUNDS RELATING TO REJECT ION OF BOOKS OF ACCOUNT, ADDITION OF RS.1,23,190/- ON ACCOUNT OF DISCREPANCY IN CLOSING STOCK AND RS. 2,58,584/- ON ACCOUNT OF VALUATION OF CLOSING STOCK IN THE APPEA L OF THE REVENUE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LO SS OF RS.39,94,391/- FILED ON 29- 10-2001 BY THE ASSESSEE, TRADING IN SHARES, AFTER BEING PROCESSED ON 26-08- 2002 U/S 143(1)(A) OF THE INCOME-TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT), WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF N OTICE U/S 143(2) OF THE ACT ON 30-10-2002. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER [AO IN SHORT], ON COMPARISON OF THE DETAILS SUBMITTED BY THE ASSESSEE AS PER ANNEXURE A TO THE ASSESSMENT ORDER WITH THE LIS T OF CLOSING STOCK OF SHARES FILED WITH THE RETURN, NOTICED THAT THE SHARES WORT H RS.10,09,265 DETAILED IN PARA 3 OF THE ASSESSMENT ORDER, THOUGH APPEARED IN THE S TOCK INVENTORY SUBMITTED ON 14-11-2003, DID NOT FIGURE IN THE DETAILS OF CLOSIN G STOCK FILED WITH THE RETURN. LIKEWISE SHARES OF THE VALUE OF RS. 8,86,075 DETAI LED IN PARA 4 OF THE ASSESSMENT ORDER, THOUGH APPEARING IN THE DETAILS O F CLOSING STOCK FILED WITH THE RETURN, WERE NOT INCLUDED IN THE STOCK INVENTORY S UBMITTED ON 14-11-2003.TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT THE DI FFERENCE BETWEEN THE STOCK SHOWN IN THE STATEMENT FILED ALONG WITH THE RETURN AND AS PER THE DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WAS DU E TO LONG PERIOD OF SETTLEMENT[ONE MONTH] IN THE YEAR UNDER CONSIDERAT ION. THE ASSESSEE DEBITED STOCK OF SHARES WHILE GIVING DELIVERY SLIP TO THE B ROKERS WHILE THE BROKERS SOMETIMES KEPT THE STOCK IN THEIR ACCOUNT UP TO ONE MONTH. IT WAS FURTHER EXPLAINED THAT WHILE PURCHASING THE SHARES, BROKERS ADJUST THE PURCHASE PRICE ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 4 AGAINST THE SALES MADE BY THE ASSESSEE. THE ASSES SEE FURTHER POINTED OUT THAT EXCESS ,IF ANY WOULD BE RS. 1,23,190[10,09,265-8,86 ,075]. HOWEVER, THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ADDE D THE EXCESS STOCK AS WORKED OUT BY THE ASSESSEE TO THE EXTENT OF RS.1,23 ,190/- . 2.1. THE AO FURTHER NOTICED THAT IN RESPECT OF SHAR ES MENTIONED IN PARA 7 OF THE ASSESSMENT ORDER, THE ASSESSEE DID NOT ADOPT THE RATE OF THE SCRIP PREVAILING ON THE LAST DAY OF THE YEAR WHILE VALUING THE CLOS ING INVENTORY. ACCORDINGLY, THE AO ADOPTED THE CLOSING RATES OF THE SCRIPS AND ADDE D AN AMOUNT OF RS. 2,58,584. 2.2. MOREOVER ON COMPARISON OF TRADING ACCOUNT FIL ED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITH THE TRADING ACCOUNT EN CLOSED WITH THE RETURN, THE AO NOTICED THE FOLLOWING DISCREPANCIES - AS PER TRAD. A/C FILED WITH RETURN AS PER SUBMISSION DATED 14-11- 2003 DIFFERENCE OPENING STOCK 31,22,748 32,35,746 1,12,998 PURCHASE 4,90,18,081 4,89,35,795 82,286 SALES 4,66,99,683 4,65,51,939 1,47,747 CLOSING STOCK 24,25,576 26,03,670 1,78,094 2.3 THE AO FURTHER POINTED OUT THAT THOUGH THE AS SESSEE TRADED IN SHARES OF RELIANCE INDUSTRIES, THESE WERE NOT ACTUALLY POSSES SED BY THE ASSESSEE AND THUS THE ASSESSEE CARRIED ON SPECULATIVE BUSINESS IN TH ESE SHARES. AFTER OBTAINING DETAILS OF DEMAT ACCOUNT FROM UTI BANK, THE AO FURT HER OBSERVED THAT THE ASSESSEE DID NOT RECORD ANY TRANSACTION IN RESPECT OF FOLLOWING SHARES DURING THE PERIOD 1.4.2000 TO 31.3.2001 AND THE CLOSING BALANC E WAS AS UNDER: BENEFICIARY ISIN NAME OF THE SCRIPT CLOSING BALANCE -DO- INE 055A01016 CENTURY TEXTILE EQ 700 -DO- INE 042A01014 ESCORTS EQ 400 -DO- INE236A01012 HCL INFO SYSTEMS EQ 850 -DO- INE548A01010 HFCL EQ 3,705 ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 5 -DO- INE008A01015 IDBI EQ 560 -DO- INE006A01019 IPCL EQ 433 -DO- INE15A01018 LIC HOUSING FIN. EQ 100 -DO- INE 290A01019 NAHAR SPINNING EQ 800 -DO- INE 191A01019 ORCHID CHEM. EQ 700 -DO- INE 142A01012 OSWAL AGRO EQ 1,540 -DO- INE 143A01010 OSWAL CHEM EQ 925 -DO- INE 408A01017 PENTA SOFT TECH EQ 2,510 -DO- INE 002A01018 RELIANCE IND. EQ 24 -DO- INE 014A01013 RELIANCE PETRO EQ 1,900 -DO- INE 092A01019 TATA CHEM EQ 810 -DO- INE 155A01014 TATA MOTORS EQ 320 -DO- INE 245A01013 TATA POWER EQ 50 -DO- INE 380A01018 TVS ELECTRONICS EQ 300 -DO- INE 037A 01014 UNIPHOS ENTER EQ 200 2.4. HOWEVER, THE TRADING ACCOUNT FURNISHED VIDE LE TTER FILED ON 14-11-2003 INDICATED THAT THE ASSESSEE TRADED IN THE FOLLOWING SHARES: NAME OF THE SHARE PURCHASE VALUE (RS.) SALE VALUE (RS.) CLOSING STOCK SHOWN IN THE A/C (NOS.) CLOSING STOCK AS PER DP A/C. (NOS.) CENTURY TEXTILES 66,187 40,072 700 700 ESCORTS 125,810 149,577 400 400 IPCL 229,047 229,462 2,700 433 ORCHID CHEM 22,693 16,298 700 700 PENTASOFT TECH 4,072 -- 110 2,510 RELIANCE INDS. 3,465,749 3,629,215 400 24 RELIANCE PETRO 646,150 510,914 4,900 1,900 TATA CHEM 48,670 37,900 910 810 TATA POWER 27,168 25,852 150 50 UNITED SHOSP 13,026 14,614 600 200 2.5. IN THE LIGHT OF THE AFORESAID DISCREPANCIES, THE AO WAS OF THE OPINION THAT THE ASSESSEE WAS CARRYING ON SPECULATIVE BUSINESS I N SHARES. ACCORDINGLY, THE AO REJECTED THE TRADING RESULTS, HAVING RECOURSE TO THE PROVISIONS OF SECTION 145 OF THE ACT AND DETERMINED NIL INCOME INSTEAD OF SHA RE TRADING LOSS OF RS.34,74,996/- . ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 6 3. ON APPEAL, THE ASSESSEE CONTENDED THAT THE AO DI D NOT GIVE SUFFICIENT OPPORTUNITY NOR ANY SHOW CAUSE NOTICE WAS ISSUED BE FORE REJECTION OF BOOKS OF ACCOUNTS. THE ASSESSEE MAINTAINED PROPER BOOKS OF A CCOUNT AND ALL THE PURCHASES AND SALES WERE DULY SUPPORTED BY RELEVANT BILLS. THE INFORMATION COLLECTED BY THE AO U/S 133(6) OF THE ACT FROM UTI BANK WAS NEVER CONFRONTED TO THE ASSESSEE. IT WAS POINTED OUT THAT THE AO DID NO T NOTICE THE FACT THAT THE ASSESSEE PLEDGED CERTAIN SHARES WITH UTI BANK AND T HEREFORE, THESE DID NOT APPEAR IN THE CLOSING STOCK AND THUS, CLOSING STOCK OF SHARES AS PER DEMAT ACCOUNT DID NOT TALLY WITH THE FIGURES AS PER BOOKS . IT WAS FURTHER CONTENDED THAT THE ASSESSEE WAS DEALING IN SHARES THROUGH THE BROK ER FOREVER SECURITIES AND HIS ACCOUNT WITH THE BROKER TALLIED. THE OBSERVATIO NS MADE BY THE AO IN PARA 9 THAT THERE WAS NEGATIVE CLOSING STOCK IN THE MONTH OF MAY IS ONLY GUESS WORK AND THE AO DID NOT CALL FOR ANY EXPLANATION IN THIS RES PECT. AS REGARDS SHARES OF RELIANCE INDUSTRIES, THE ASSESSEE EXPLAINED THAT OU T OF TOTAL SHARES OF 1100 SHARES PURCHASED FOR RS.3,20,997/- ON 4-4-2000, THE ASSESSEE INADVERTENTLY ENTERED 1000 SHARES OF THE VALUE OF RS.3,20,997/- , RESULTING IN NEGATIVE BALANCE OF 67 SHARES INFERRED BY THE AO AGAINST THE ACTUAL BALALNCE OF 33 SHARES. THE ASSESSEE ADDED THAT DEMAT ACCOUNT OF THE ASSESSEE I S IN AGREEMENT WITH THE ACCOUNT OF THE UTI BANK AND OF THE SHARE BROKER AND THERE WAS NO DISCREPANCY IN THE BOOKS OF ACCOUNT. THESE SUBMISSIONS OF THE ASSE SSEE WERE FORWARDED BY THE LD. CIT(A) TO THE AO WHO VIDE HIS REPORTS DATED 11- 10-2004 AND 13-12-2004 SUBMITTED THAT AFTER CONSIDERING THE ERRORS WHICH W ERE APPARENT ON RECORD AND APPEARED TO BE TYPOGRAPHICAL MISTAKE, THE FIGURES O F OPENING AND CLOSING STOCK TALLIED WITH THAT OF THE STATEMENTS FURNISHED WITH THE RETURN. THE AO, HOWEVER, STATED THAT THE OTHER REASONS GIVEN FOR REJECTION O F BOOKS BE CONSIDERED AND SUCH ACTION BE UPHELD. IN THE LIGHT OF THE SUBMISSIONS O F THE ASSESSEE AND REPORTS OF THE AO, THE LEARNED CIT(A) DELETED THE ADDITION HOL DING AS UNDER: 3.7 .. THE BOOK RESULTS HAVE BEEN NOT ACCEPTED BY THE AO MAINLY DUE TO DISCREPANCIES NOTICED DURING THE A SSESSMENT PROCEEDINGS AS THE REQUIRED DETAILS WERE NOT FURNIS HED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE APPELLANT HAS NOW ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 7 SUBMITTED THE SAME BEFORE AO DURING THE REMAND PROC EEDINGS AND THE AO HAS ALSO VERIFIED THE SAME WHEREIN NO DISCRE PANCIES HAVE BEEN NOTICED EXCEPT SOME APPARENT MISTAKES OF TYPOG RAPHICAL NATURE. SINCE THE APPELLANT HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS ALONGWITH QUANTITATIVE RECORDS AND SAME AR E AUDITED BY A FIRM OF CHARTERED ACCOUNTANTS. THE COUNSEL HAS STAT ED THAT WHILE REJECTING THE BOOKS, THE AO DID NOT AFFORD PROPER O PPORTUNITY OF BEING HEARD IN THE MATTER SO AS TO FURNISH THE PROP ER EXPLANATION FOR THE DISCREPANCIES NOTICED BY THE AO AND AO HAS TAKE N DECISION WITHOUT ISSUING SHOW CAUSE NOTICE IN THIS REGARD. T HIS PLEA OF COUNSEL IS CONSIDERED AND APPELLANT HAS BEEN ALLOWE D PROPER OPPORTUNITY AND IN THE REMAND PROCEEDINGS THE APPEL LANT HAS FURNISHED THE DETAILS WHICH HAVE BEEN FOUND TO BE P ROPER BY THE AO. THE APPELLANT HAS EXPLAINED THE DISCREPANCIES A S OBSERVED BY THE AO. THE APPELLANT HAS EXPLAINED THE DISCREPANCI ES AS OBSERVED AND STATED IN ANNEXURE-A OF THE OF THE ASSESSMENT O RDER DURING THE REMAND PROCEEDINGS AND AO HAS ACCEPTED THE SAME AS STATED IN REMAND REPORT. CONSIDERING THE FACTS AND CIRCUMSTAN CES OF APPELLANTS CASE, I AM NOT CONVINCED THAT IT IS A F IT CASE TO REJECT THE BOOKS OF ACCOUNTS. THE AO IS DIRECTED TO ACCEPT THE TRADING LOSS AS CLAIMED BY APPELLANT. SINCE ADDITIONS MADE IN THE S TOCK DIFFERENCE OF RS.1,23,190 AND 2,58,584 ARE CONSEQUENTIAL, THE AO IS DIRECTED TO DELETE THE SAME. 4. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORESA ID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHILE CARRYING US TH ROUGH THE IMPUGNED ORDERS SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASS ESSEE WHILE INVITING OUR ATTENTION TO THE COPY OF REMAND REPORTS PLACED ON PAGE NOS. 5 AND 6 AND 9 TO 12 OF THE PAPER BOOK SUBMITTED THAT ALL THE DISCREPANC IES POINTED OUT BY THE AO WERE DULY EXPLAINED BEFORE THE LEARNED CIT(A) AND C ONSEQUENTLY THE LEARNED CIT(A) DELETED THE ADDITION. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO IN HIS REMAND REPORT DATED 13.1 2.2004 ACCEPTED THE FACT THAT THE FIGURES OF OPENING STOCK, PURCHASE & SALE OF SHARES AS ALSO CLOSING STOCK SUBMITTED BY THE ASSESSEE TALLIED WITH THE FI GURES IN THE TRADING ACCOUNT ENCLOSED WITH THE RETURN. ACCORDINGLY, ON THAT BASI S THE LEARNED CIT(A) WAS CONVINCED THAT THERE WAS NO CASE FOR REJECTION OF B OOKS OF ACCOUNT AND ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 8 CONSEQUENTLY DELETED THE TWO ADDITIONS OF STOCK DIF FERENCE OF RS.1,23,190/- AND RS.2,58,584/-.WE FIND THAT AFTER DETERMINING LOSS O F RS.30,15,932/- AS PER ANNEXURE-A TO THE ASSESSMENT ORDER, THE AO CHOSE TO ADOPT NIL INCOME. IT IS NO DOUBT TRUE THAT THE AFTER REJECTION OF BOOKS OF ACC OUNTS , THE AO IS EMPOWERED TO DETERMINE THE INCOME ON THE BASIS OF MATERIAL ON RE CORD; BUT IN MAKING A BEST JUDGMENT ASSESSMENT, THE AO CANNOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE THE JUDGMENT IN THE MATTER. THE AO DOES NOT POSSESS ABSOLUTE ARBITRARY AUTHORITY TO ASSESS ANY FIGURE HE LIKES AND THAT ALTHOUGH HE IS NOT BOUND BY STRICT JUDICIAL PRINCIP LES, HE SHOULD BE GUIDED BY RULES OF JUSTICE, EQUITY AND GOOD CONSCIENCE. THOUGH THER E IS AN ELEMENT OF GUESS WORK IN A BEST JUDGMENT ASSESSMENT, IT CAN NOT BE A WILD ONE BUT SHALL HAVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CASE. IN STATE OF ORISSA V. MAHARAJA SHRI B. P. SINGH DEO [1970] 76 ITR 690 , THE HONBLE SUPREME COURT OBSERVED (AT PAGE 691) : 'APART FROM COMING TO THE CONCLUSION THAT THE MATER IAL PLACED BEFORE HIM BY THE ASSESSEE WERE NOT RELIABLE, THE ASSISTANT COLLECTOR HAS GIVEN NO REASONS FOR ENHANCING THE ASSESSMENT. HIS ORDER DOES NOT DISCLO SE THE BASIS ON WHICH HE HAS ENHANCED THE ASSESSMENT. THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORITIES IS UNRELI ABLE DOES NOT EMPOWER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. THE POWER T O LEVY ASSESSMENT ON THE BASIS OF BEST JUDGMENT IS NOT AN ARBITRARY POWER ; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. IN OTHER WORDS, THAT ASSESS MENT MUST BE BASED ON SOME RELEVANT MATERIAL. IT IS NOT A POWER THAT CAN BE EX ERCISED UNDER THE SWEET WILL AND PLEASURE OF THE CONCERNED AUTHORITIES. THE SCOPE OF THAT POWER HAS BEEN EXPLAINED OVER AND OVER AGAIN BY THIS COURT.' 5.1 AS IS APPARENT FROM THE ASSESSMENT ORDER, THE AO DID NOT DISCLOSE ANY BASIS OR REASONS FOR DETERMINING THE QUANTUM OF LOS S/INCOME AS ' NIL'. HE SHOULD HAVE GIVEN HIS REASONS FOR ARRIVING AT A PARTICULAR FIGURE OF INCOME SO THAT THE ASSESSEE IS ABLE TO APPRECIATE THE MENTAL PROCESS L EADING TO THE ASSESSMENT AND THE FIGURE ASSESSED. IN ANY CASE, ON THE BASIS OF REMAND REPORTS OF THE AO, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) CONCLU DED THAT THAT AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND CONSEQU ENTLY, DELETED THE ADDITIONS. THE PROCEDURE ADOPTED BY THE COMMISSIONER OF INCOME -TAX (APPEALS), IN OUR ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 9 OPINION, IS FULLY JUSTIFIED. THE REVENUE HAVE NOT R EFERRED US TO ANY MATERIAL CONTRARY TO THESE FINDINGS OF FACTS RECORDED BY THE LEARNED CIT(A), FOR TAKING DIFFERENT VIEW IN THE MATTER. IN THESE CIRCUMSTANCE S, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS G ROUND NOS. 1(I) TO (IV) IN THE APPEAL OF THE REVENUE . 6. ADVERTING NOW TO THE APPEAL OF THE ASSESSEE RELA TING TO ADDITION OF RS. 2,00,912/- U/S 68 OF THE ACT AND DISALLOWANCE OF IN TEREST OF RS.17,912/- THEREON, THE AO FOUND THAT THE ASSESSEE RECEIVED DEPOSITS FR OM THE FOLLOWING PERSONS: NAME OF THE DEPOSITOR DATE OF DEPOSIT AMOUNT (RS.) INTEREST CREDITED SHRI GIRISHBHAI J. PATEL 28-04-2000 15,000 1,350 SHRI YOGESHBHAI N. PATEL 04-04-2000 16,000 1,440 SHRI DIPAKBHAI N. PATEL 03-04-2000 16,500 1485 SHRI MAHENDRA C. PATEL 04-04-2000 17,000 1,530 SHRI KRISHNAKANT N. PATEL 09-03-2001 6,348 517 GHANSHYAM HARIKRISHNA 16-06-2000 84,000 7,205 KASHIBEN MAGANBHAI PATEL 09-03-2001 7,175 645 DAXESESH PRABHUDAS PATEL 09-03-2001 3,351 301 HEMALBEN N PATEL 09-04-2000 14,886 1339 HAMALBEN PRABHUDAS PATEL 09-03-2001 1,852 166 JAYABEN PRABHUDAS PATEL 09-03-2001 1,800 162 KAMLESHBHAI C. PATEL 03-04-2000 17,000 1530 TOTAL 200,912 17670 DESPITE OPPORTUNITY GIVEN, THE ASSESSEE DID NOT FUR NISH ANY EVIDENCE IN RESPECT OF SOURCE OF THE AFORESAID DEPOSITS NOR ESTABLISHED EITHER IDENTITY OR CREDITWORTHINESS OF THE AFORESAID DEPOSITORS NOR EV EN THE GENUINENESS OF THE TRANSACTIONS AND MERELY SUBMITTED THAT THESE ARE OL D LOANS. THEREFORE, THE AO ADDED THE AMOUNT OF RS.2,00,912 U/S 68 OF THE ACT B ESIDES DISALLOWANCE OF INTEREST OF RS. 17,670/-. 7. ON APPEAL, THE ASSESSEE CONTENDED THAT IN RESPE CT OF THE FOLLOWING DEPOSITORS, FUNDS HAD BEEN RECEIVED FROM ANOTHER FI RM WHERE THESE DEPOSITORS HAD EARLIER KEPT THE FUNDS: ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 10 SR. NO. NAME OF DEPOSITOR AMOUNT OF DEPOSIT (RS.) INTEREST (RS. 1 KRUSHNAKANT NARANBHAI PATEL 6348 571 2 GHANSHYAM HARIKKRUSHNA 84000 7205 3 KASHIBEN MAGANBHAI PATEL 7175 645 4 DAXESHBHAI PRABHUDAS PATEL 3351 301 5 HEMALBEN NARANBHAI PATEL 14886 1339 6 HEMALBEN PRABHUDAS PATEL 1852 166 7 JAYABEN PRABHUDAS PATEL 1800 162 8 YOGESHBHAI NARENDRABHAI PATEL 16000 1440 9 DIPAKBHAI NARENDRABHAI PATEL 16500 1485 AND CONFIRMATIONS WITH COMPLETE POSTAL ADDRESS WERE SUBMITTED IN RESPECT OF THE FOLLOWING THREE DEPOSITORS: SR. NO. NAME OF DEPOSITOR AMOUNT OF DEPOSIT (RS.) INTEREST (RS. 1 GIRISHBHAI JAYANTIBHAI PATEL 15000 1350 2 MAHENDRABHAI C PATEL 17000 1530 3 KAMLESHBHAI CHHOTABHAI PATEL 17000 1530 THE ASSESSEE PLEADED THAT THE AO WAS NOT JUSTIFIE D IN MAKING THE ADDITION. AFTER HAVING A REMAND REPORT FROM THE AO ON THE WRI TTEN SUBMISSIONS OF THE ASSESSEE AND CONFRONTING THE SAME TO THE ASSESSEE, THE LEARNED CIT(A) DELETED THE ADDITION, HOLDING AS UNDER: 4.6 I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUT FORTH BY THE LEARNED COUNSEL OF THE A PPELLANT. THE FINDING OF THE AO IN THE ASSESSMENT ORDER AND REPOR TS DATED 11.10.2004 AND 13.12.2004 HAVE BEEN CONSIDERED. THE DETAILS FURNISHED BY THE APPELLANT ARE FOUND TO BE INSUFFIC IENT SINCE NEITHER ANY BANK PASS BOOK/BANK STATEMENT OF DEPOSITORS HAV E BEEN FURNISHED SO AS TO ACCEPT THAT TRANSACTIONS ARE GEN UINE AND SOURCE THEREOF IS PROVED. THE APPELLANT HAS FURNISHED COPI ES OF LEDGER ACCOUNTS/CONFIRMATION LETTERS IN SOME CASES WHEREIN SOURCE OF SUCH DEPOSITS ARE EITHER NOT MENTIONED OR STATED TO BE P AST SAVINGS WHICH CANNOT BE ACCEPTED IN THE ABSENCE OF DOCUMENT ARY EVIDENCE AND MORE PARTICULARLY WHEN THEIR CREDITWORTHINESS R EMAINED TO BE PROVED BY APPELLANT. THE APPELLANT FAILED TO PROVE THREE CRITERIA I.E. IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWOR THINESS OF DEPOSITORS AND HENCE I HOLD THAT ADDITION MADE BY T HE AO U/S 68 IS PROPER WHICH CANNOT BE SAID TO BE IMPROPER AND SAME IS THEREFORE SUSTAINED. THE APPELLANT FAILS ON THIS GROUND. ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 11 8. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON BEHALF OF THE AS SESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LEARNED CIT(A) AND CONTENDED THAT THE LEARNED CIT(A) UPHELD THE ADDITION EVEN IN RESPECT OF THOSE DEPOSI TS WHICH WERE TRANSFERRED FROM THE FIRM M/S. PATEL CHANDRAKANT & GHANSHYAMB HAI NI. CO. . THOUGH THEY HAD FURNISHED CONFIRMATION AND COMPLETE ADDRESS IN RESPECT OF THE REMAINING THREE DEPOSITORS, THE AO DID NOT MAKE ANY FURTHER E NQUIRY. THE LD. AR WHILE RELYING ON THE DECISION IN THE CASE OF CIT VS PRAG ATI CO-OPERATIVE BANK LTD. (2005) 278 ITR 170 (GUJ) PLEADED THAT THE LD. CIT(A ) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION. ON THE OTHER HAND, THE LEAR NED DR SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ASSESSMENT ORDER REVEALS THAT BEFORE THE AO, TH E ASSESSEE DID NOT EXPLAIN THE SOURCE OF DEPOSITS WHILE BEFORE THE LD. CIT(A) PLEADED THAT THE DEPOSITS AS MENTIONED IN PARA 12 ABOVE IN RESPECT OF 9 DEPOSITO RS WERE TRANSFERRED FROM THE FIRM M/S. PATEL CHANDRAKANT & GHANSHYAMBHAI NI CO. AND IN RESPECT OF REMAINING THREE, COMPLETE DETAILS WERE FURNISHED. HOWEVER, THE LD. CIT(A) CONCLUDED THAT THE DETAILS FURNISHED BY THE ASSESSE E WERE NOT SUFFICIENT NOR ANY BANK PASS BOOK OR BANK STATEMENT OF THE AFORESAID D EPOSITORS HAD BEEN FURNISHED WHILE COPIES OF LEDGER ACCOUNT DID NOT RE VEAL SOURCE OF DEPOSITS. SINCE THE ASSESSEE DID NOT FURNISH ANY EVIDENCE REGARDING IDENTITY OR CREDITWORTHINESS OF THE AFORESAID DEPOSITORS NOR GENUINENESS OF THE TRANSACTIONS, THE LD. CIT(A) UPHELD THE ADDITION. IN THIS CONNECTION, THE PROVI SIONS OF SECTION 68 OF THE ACT STIPULATE THAT WHERE THE ASSESSEE OFFERS NO EXPLANA TION ABOUT THE NATURE AND SOURCE OF CREDIT IN THE BOOKS OR THE EXPLANATION OF FERED BY THE ASSESSEE IS NOT, IN THE OPINION OF THE AO SATISFACTORY, THEN THE SUM SO CREDITED MAY BE CHARGED TO TAX AS INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR . THE HONBLE APEX COURT IN CIT V. SMT. P.K. NOORJAHAN [1999] 237 ITR 570 HAVE LAID DOWN THAT THE WORD 'MAY' INDICATED THE INTENTION OF THE LEGISLATURE TH AT A DISCRETION WAS CONFERRED ON ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 12 THE ASSESSING OFFICER IN THE MATTER OF TREATING THE SOURCE OF INVESTMENT/CREDIT WHICH HAD NOT BEEN SATISFACTORILY EXPLAINED AS INCO ME OF AN ASSESSEE, BUT IT WAS NOT OBLIGATORY TO TREAT SUCH SOURCE AS INCOME IN EV ERY CASE WHERE THE EXPLANATION OFFERED WAS FOUND TO BE NOT SATISFACTOR Y. IN THE CASE UNDER CONSIDERATION , THE ASSESSEE SUBMITTED BEFORE THE A O THAT DEPOSITS WERE OLD WHILE THE LD. CIT(A) OBSERVED THAT EVIDENCE SUBMITT ED BY THE ASSESSEE WAS INADEQUATE TO ESTABLISH IDENTITY AND CREDITWORTHINE SS OF THE DEPOSITORS OR EVEN GENUINENESS OF THE TRANSACTIONS. THE LD. CIT(A) DID NOT RECORD ANY FINDING AS TO WHETHER OR NOT THE NINE DEPOSITS REFERRED TO ABOVE WERE ACTUALLY OLD AND WERE TRANSFERRED FROM M/S. PATEL CHANDRAKANT & GHANSHYAM BHAI NI. CO. NOR EVEN UNDERTOOK ANY INDEPENDENT ENQUIRIES TO ASCERTAIN TH E VERACITY OF STATEMENT OF THE ASSESSEE OR EVEN IN RESPECT OF IDENTITY AND CREDITW ORTHINESS OF THE AFORESAID DEPOSITORS AS ALSO GENUINENESS OF THE TRANSACTIONS. EVEN THE REPORT OF THE AO IS SILENT ON THESE ASPECTS. IN THESE CIRCUMSTANCES, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF LD. CIT(A) AN D RESTORE THE MATTER TO THE FILE OF AO WITH THE DIRECTIONS TO ALLOW A FINAL OPPORTUN ITY TO THE ASSESSEE TO ESTABLISH IDENTITY/CREDITWORTHINESS OF THE AFORESAID DEPOSITO RS AND GENUINENESS OF THE TRANSACTIONS AND THEREAFTER, READJUDICATE THE MATT ER IN ACCORDANCE WITH LAW. WITH THESE DIRECTIONS, GROUNDS NOS. 1.1 TO 3.1 RAIS ED IN THE APPEAL OF THE ASSESSEE ARE DISPOSED OF. 10. GROUND NO.2 IN THE APPEAL OF THE REVENUE, BEI NG A PRAYER ONLY, DOES NOT REQUIRE ANY SEPARATE ADJUDICATION AND IS, THEREFORE , DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED WHILE THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER,2009 SD/- SD/- (R. V. EASWAR) (A.N. PAHUJA) VICE PRESIDENT ACCOUNTANT MEMBER DATE: 18TH SEPTEMBER,2009 ITA NO.1513 AND 1527/AHD/20095 GHANSHYAMBHAI PURSHOTTAMBHAI PATEL 13 LAKSHMIKANT/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. THE ACIT. ANAND RANGE,ANAND 3. CIT(A)-II, BARODA 4. THE CIT CONCERNED 5. THE D.R. ITAT, AHMEDABAD, 6. GUARD FILE BY ORDER DR / AR, ITAT, AHMEDABAD