Saiyed Paper Mills Ltd., Vapi V. The ACIT., Vapi Circle, Vapi

ITA 1546/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0405 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Unexplained investment; Business expenditure; Corroborative evidences; Commercial expediency; Set aside
• Section: 40A(3); 69B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A.N.PHAUJA, ACCOUNTANT MEMBER ITA NO.1546/AHD/2007 ITA NO.1197/AHD/2009 & SP NO.21/AHD/2009 (ARISING OUT ITA NO.1197/AHD/2009 ASSESSMENT YEAR:2003-04 DATE OF HEARING:23.9.09 DRAFTED: 4.11.0 9 SAIYED PAPER MILLS LTD. PLOT NO.162,PHASE-II, GIDC, VAPI-396195 PAN NO.AAECS1771K SAIYED PAPER MILLS LTD. PLOT NO.162,PHASE-II, GIDC, VAPI-396195 PAN NO.AAECS1771K SAIYED PAPER MILLS LTD. PLOT NO.162,PHASE-II, GIDC, VAPI-396195 PAN NO.AAECS1771K V/S. V/S. V/S. ACIT, VAPI CIRCLE, VAPI ACIT, VAPI CIRCLE, VAPI ACIT, VAPI CIRCLE, VAPI (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N.SOPARKAR & SMT. URVASHI SHODHAN, AR REVENUE BY:- SHRI C.K. MISHRA, SR.DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE TWO APPEALS AND STAY PETITION BY THE ASSESSE E ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-VALSAD IN APPEAL NOS. CIT(A)/VLS/311/05-06 AND CIT(A)/VLS/18/08-09 BY DIF FERENT DATE 29-11-2006 AND 22-10-2008. THE ASSESSMENT WAS FRAMED BY THE ACIT, VAPI CIRCLE, VAPI U/S.143(3) ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 2 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 30-01-2006 FOR THE ASSESSMENT YEAR 2003-04. FIRST WE WILL DEAL WITH ASSESSEES APPEAL ITA NO.15 46/AHD/2007. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF UNACCOUNTED STOCK FOUND DURING THE COURSE OF SURVEY. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION MADE BY AO OF RS.28,60,263/- ON ACCOUNT OF UNACCOUNTED STOCK FOUND DURING THE COURSE OF SURVEY U/S.69B OF THE AC T WITHOUT APPRECIATING THE FACT THAT THE STOCK OF RAW MATERIAL HAVING BEEN ENH ANCED BY THE AMOUNT DECLARED, INCOME ACCRUED ON SALE OF FINISHED GOODS WAS ALREADY ACCOUNTED FOR IN THE BOOKS OF THE APPELLATE. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT A SURVEY WAS CARRIED OUT ON THE BUSINESS PREMISES OF THE ASSESSEE ON 13-09-2002 AND DURING THE COURSE OF SURVEY, THE ASSESSEE HAS DECLARED UNACCOUNTED STOCK S AND OTHER INVESTMENTS AS UNDER:- 1. UNACCOUNTED RAW MATERIAL PURCHASE 28,60,263 2. UNACCOUNTED LAND DEVELOPMENT EXPENSES 11,21,000 3. UNACCOUNTED INVESTMENT IN THE SHOPPING CENTRE AT IMRAN NAGAR 14,55,000 4. DONATION GIVEN TO CONSTRUCT THE MASJIDS IN FORM OF RAW MATERIAL ETC. 16,14,000 70,50,263 THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS STATED THAT THE ASSESSEE HAS REFLECTED ABOVE DISCLOSURE OF ADDITION AL INCOME EXCEPT THE DISCLOSURE MADE TOWARDS UNACCOUNTED PURCHASES OF RAW MATERIAL AMOUNTING TO RS.28,60,263/-. WHEN THE ASSESSEE WAS CONFRONTED, IT STATED THAT TH E UNDISCLOSED INCOME DURING THE COURSE OF SURVEY HAS BEEN UTILIZED FOR CARRYING OUT THE PRODUCTION OF FINISHED GOODS AND THE FINISHED GOODS HAVE ALREADY BEEN SOLD AND I TS VALUE IS AUTOMATICALLY REFLECTED IN THE TRADING A/C AND THE SAME REFLECTIN G GROSS PROFIT IS INCLUDED IN THE PROFIT AND LOSS A/C AND AS SUCH THERE IS NO NEED FO R SEPARATE ADDITION OF UNDISCLOSED INCOME IN THE PROFIT & LOSS A/C. THE ASSESSEE HAS G IVEN THE FACTS AND FIGURES THAT THE ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 3 EXCESS STOCK OF 520 MT OF INDIAN WASTE PAPER VALUED AT RS.28,60,263/- WAS FOUND DURING THE COURSE OF SURVEY PROCEEDINGS AND THIS WA S ACCEPTED BY THE ASSESSEE AND EXPLAINED IN THE RG-I REGISTER FOR THE MONTH OF SEP TEMBER 2002, THE OPENING STOCK WAS 8.023 MT AND PURCHASES OF 469.344 MT WERE MADE DURING THE MONTH AND THE UNDISCLOSED STOCK OF 520 MT HAS ALREADY BEEN CONSI DERED. A SEPARATE WORKING OF CONSUMPTION OF INDIAN WASTE PAPER IS ALSO GIVEN AS PER WHICH, THE CONSUMPTION INCLUDING THE DISCLOSURE MADE COMES TO 5250.027 MT AND EXCLUDING THE EFFECT OF UNDISCLOSED STOCK IT COMES TO 4730.27 MT. THUS, ME ANING THEREBY THAT COMPLETE EFFECT OF 520 MT OF INDIAN WASTE PAPER HAS ALREADY BEEN GIVEN. BUT THE ASSESSING OFFICER HAS NOT CONSIDERED THE PLEA OF THE ASSESSEE BY STATING THAT THE RESULTS DURING THE YEAR SHOW THAT THE GROSS PROFIT MARGIN IS REDUC ED FROM 9.33% TO 6.53%. NO SATISFACTORY EXPLANATION HAS BEEN OFFERED FOR THE F ALL IN GROSS PROFIT. IT ONLY MEANS THAT ACTUAL PRODUCTION OUT OF THE ALLEGED CONSUMPTI ON OF 520 MT WHICH WOULD GIVE FINISHED GOODS OF 468 MT AT 90%, RAW MATERIAL TO FI NISHED GOODS RATIO SHOWN BY THE ASSESSEE HAS BEEN SOLD OUTSIDE THE BOOKS OF ACCOUNT . THE SAME HAS NEITHER SHOWN AS SALES NOR CLOSING STOCK AT THE END OF THE YEAR, AS SUCH IS THE STOCK OF RAW MATERIALS OF 520 MT REQUIRED TO BE TREATED AS UNEXP LAINED INVESTMENT U/S. 69B OF THE ACT AND ACCORDINGLY THE ADDITION WAS MADE. AGGRIEV ED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO DISMISSED TH E PLEA OF THE ASSESSEE BY OBSERVING IN PARA-5.4 OF HIS APPELLATE ORDER AS UNDER:- 5.4 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ATE AS WELL AS THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER. THE RE IS A FORCE IN THE CONTENTION OF THE APPELLATE AS THE TRADING RESULTS OF THE APPELLATE HAS NOT SHOWN INCREASE BY RS.28,60,263/- DECLARED TOWARDS U NACCOUNTED STOCKS OF RAW MATERIAL. IT IS ALSO OBSERVED THAT THE AR COULD NOT PROVE WITH REASONABLE EVIDENCE TO SUPPORT HIS CONTENTION THAT THE GROSS P ROFIT HAS BEEN ALREADY INFLATED DUE TO THE DECLARATION OF RS.28,60,263/- M ADE DURING SURVEY. THE CONTENTION OF THE AO THAT THE AMOUNT DECLARED BY TH E APPELLATE AND CREDITED TO PROFIT & LOSS ACCOUNT IS REFLECTED AT RS.41,90,0 00/- HAS ALSO BEEN VERIFIED FROM THE AUDITED BALANCE SHEET & PROFIT & LOSS ACCO UNT FILED DURING THE APPELLATE PROCEEDING. THEREFORE, IT IS APPARENT THA T THE APPELLATE-COMPANY HAS NOT OFFERED THE UNACCOUNTED STOCK DECLARED DURI NG THE COURSE OF SURVEY FOR TAXATION. THE ADDITION MADE BY THE AO IS UPHELD . THE APPELLANTS GROUND NO.2 IS DISMISSED. AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 4 4. AFTER HEARING THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS OF THE CASE, WE FIND THAT THE PLEA OF THE LD. COUNSEL FOR THE ASSES SEE THAT THIS WILL TANTAMOUNT WILL DOUBLE ADDITION AND ASSESSEE HAS ALREADY EXPLAINED THAT THE EXCESS STOCK OF 520 MT OF INDIAN WASTE PAPER VALUED AT RS.28,60,263/- W AS FOUND DURING THE COURSE OF SURVEY PROCEEDINGS AND THIS WAS ACCEPTED BY THE ASS ESSEE AND EXPLAINED IN THE RG-I REGISTER FOR THE MONTH OF SEPTEMBER 2002, THE OPENING STOCK WAS 8.023 MT AND PURCHASES OF 469.344 MT WERE MADE DURING THE MONTH AND THE UNDISCLOSED STOCK OF 520 MT HAS ALREADY BEEN CONSIDERED. A SEPARATE WO RKING OF CONSUMPTION OF INDIAN WASTE PAPER IS ALSO GIVEN AS PER WHICH, THE CONSUMP TION INCLUDING THE DISCLOSURE MADE COMES TO 5250.027 MT AND EXCLUDING THE EFFECT OF UNDISCLOSED STOCK IT COMES TO 4730.27 MT. THUS, THE COMPLETE EFFECT OF 520 MT OF INDIAN WASTE PAPER HAS ALREADY BEEN GIVEN AND THE RESULTS DURING THE YEAR SHOW THAT THE GROSS PROFIT MARGIN IS REDUCED FROM 9.33% TO 6.53%. LD. COUNSEL FOR TH E ASSESSEE STATED THAT THE AMOUNT OF RAW MATERIALS PURCHASED HAVE ALREADY BEEN INCLUDED AND DEBITED UNDER THE HEAD OF RAW MATERIAL PURCHASED AND THE SAME IS INCLUDED IN THE CLOSING STOCK OF FINISHED GOODS. HE STATED THAT THE RAW MATERIAL ST OCK WAS PURCHASED AND CONVERTED INTO FINISHED GOODS AND THEREFORE THE SAME HAS ALRE ADY BEEN INCLUDED IN THE STOCK AND HAS RESULTED INTO HIGHER PROFIT. WE FIND FORCE IN THE ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE THAT THE CLOSING STOCK OF RAW MATERIAL HAS ALREADY BEEN INCLUDED IN THE PURCHASE AND FINISHED GOODS AND IT NEED NOT BE INCL UDED IN THE PROFIT & LOSS A/C AS IT HAS RESULTED INTO HIGHER PROFIT. WE FEEL THAT THIS NEED NOT BE ADDED AGAIN AS IT WILL TANTAMOUNT TO DOUBLE ADDITION AS THIS IS ADDED TWIC E. ACCORDINGLY, WE DELETE THE ADDITION AND THIS ISSUE OF ASSESSEES APPEAL IS ALL OWED. 5. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF TRAVELING EXP ENDITURE MADE BY THE ASSESSING OFFICER. FOR THIS, THE ASSESSEE HAS RAISED THE FOLL OWING GROUND NO.2 :- 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE OF TRAVELING EXPENSES OF RS.63,128/ (RS.1,10,752 RS.47,624) ON AD HOC BAS IS BY IGNORING THE FACT TAT TRAVELING WAS UNDERTAKEN BY THE STAFF OF THE APPELL ATE FOR THE PURPOSE OF BUSINESS AND THEREFORE AN ALLOWABLE EXPENSES. THE L D. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY AO IN TOTALITY. 6. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS WE FIND THAT THE CIT(A) HAS CONFIRMED THAT THE ASSESSING OF FICER HAS MADE DISALLOWANCE. ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 5 THE CIT(A) ALSO CONFIRMED THE DISALLOWANCE BY RESTR ICTING AT 25% BY STATING THAT THE VOLUME OF THE BUSINESS OF THE ASSESSEE-COMPANY IS M ORE, HENCE THE DISALLOWANCE IS RESTRICTED AT 25%. FOR THIS, THE CIT(A) HAS GIVEN F OLLOWING FINDING IN PARA-6.3 OF HIS APPELLATE ORDER:- 6.3 THE FACTS REMAINS THAT THE APPELLATE COULD NOT PRODUCE SOME SUPPORTING EVIDENCES IN RESPECT OF TRAVELING EXPENSES AND THER EFORE, THE AO IS JUSTIFIED IN MAKING THE DISALLOWANCE. LOOKING TO THE VOLUME OF T HE BUSINESS OF THE APPELLATE COMPANY, DISALLOWANCE IS RESTRICTED TO 25 % OF THE TOTAL EXPENDITURE INCURRED UNDER THIS HEAD. THE APPELLATE GETS RELIEF OF RS.47,624/-. THE APPELLANTS GROUND NO. 3 IS PARTLY ALLOWED. WE FIND FROM THE ABOVE THAT ADDITION IS RESTRICTED BY OBSERVING THAT VOLUME OF THE BUSINESS IS MORE HENCE THE RESTRICTING THE DISALLOW ANCE AT 25% JUST ON AD HOC BASIS. WE FEEL THAT THERE IS NO BASIS FOR RESTRICTING THE DISALLOWANCE AND WE DELETE THE SAME. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWE D. 7. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE BY INVOKING THE PROVISI ONS OF SECTION 40A(3) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE GROUND NO.3 :- 3. THE LD. CIT(A) HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING A SUM OF RS.2,15,832/- U/S.40A(3) OF TH E ACT WITHOUT CONSIDERING THE SUBMISSIONS AND EXPLANATIONS OF THE APPELLATE T HAT ALL THE PAYMENTS WERE MADE WITHIN THE LIMITS LAID DOWN UNDER THE SECTION AND NO PAYMENT IS EXCESS OF RS.20,000/- WAS MADE OTHERWISE THAN BY CHEQUE. B OTH THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THE FACT THAT DUE TO COMMERCIAL EXPEDIENCY THE APPELLATE MADE CASH PAYMENTS TO THE SUPPLIERS BASED IN OTHER STATES AND NO CONTRAVENTION OF THE PROVISIONS OF LAW HAD TAKEN PLACE. 8. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STATE D THAT THE ASSESSEE HAS DEBITED THE SMALL PAYMENTS BELOW RS.20,000/- AND TH IS FACT CAN BE VERIFIED FROM THE ASSESSMENT ORDER AS WELL AS ORDER OF CIT(A). HE RE FERRED TO PARA-4 OF THE ASSESSMENT ORDER AND THE RELEVANT PARA READS UNDER: - 4. CASH PAYMENTS ABOVE RS.20,000/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VER IFICATION OF THE CASHBOOK PRODUCED, IT WAS FOUND THAT THE ASSESSEE HAS MADE P AYMENTS OF STEAM COAL FREIGHT TO THE VARIOUS PARTIES OF NAGPUR AND MUMBAI BY CIRCUMVENTING THE PROVISIONS OF SECTION 40A(3) OF THE I.T. ACT. TOTAL OF SUCH PAYMENTS MADE IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) WORKS OUT TO RS.10,79,162/- AS PER ANNEXURE-A ATTACHED WITH THIS ORDER. VIDE THIS OFFICE LETTER DATED 17.05.05, THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE @ 20% SHOULD NOT BE MADE OUT OF THE PAYMENTS OF COAL FREIGHT MADE BY BR EAKING THE AMOUNTS ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 6 BELOW THE LIMIT PRESCRIBED U/S.40A(3) OF THE ACT. IN RESPONSE TO THE SAME, THE ASSESSEE FILED A WRITTEN SUBMISSION DATED 03.06.05, WHICH IS REPRODUCED HEREUNDER: THE LIMIT PRESCRIBED U/S.40A(3) FOR PAY MENT IN CASH IS EXCEEDING RS.20,000/-. PLEASE NOTE THAT PROVISION SPEAKS FOR ANY PAYMENT MADE IN CASH EXCEEDING RS.20,000/- IN EACH TRANSACTION. IN OUR CASE, NO PAYMENT OF EXPENSES HAVE BEEN MADE EXCEEDING RS.20,000/- BY AN Y SINGLE TRANSACTION. THE HONBLE GUJARAT ITAT WAS PLEASED TO DECIDE THIS ISSUE IN THE CASE OF SHRII HASIB BASID SHAIK. THE COPY OF THE ITAT ORDER IS EN CLOSED HEREWITH. THEREFORE, THERE IS NO ROOM FOR ANY ADDITION ON THI S ACCOUNT AS THERE IS NO CONTRAVENTION OF PROVISION OF SECTION 40A(3). FURTHER, HE REFERRED TO PARA-7.3 OF THE CIT(A), WHICH READS AS UNDER:- I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLATE AS WELL AS THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. THE AO FOUND THA T THE APPELLATE HAS DEBITED SMALL PAYMENTS BELOW RS.20,000/- TO CIRCUMV ENT THE PROVISIONS OF SECTION 40A(3). THE AO OBSERVED THAT ACTUALLY THE P AYMENTS OF STEAM COAL FREIGHT TO VARIOUS PARTIES OF NAGPUR AND MUMBAI WER E MADE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3). THE APPELLATE FAILED TO PLACE ON RECORD THE CONFIRMATIONS FROM THE PARTIES TO WHOM, THE PAYMENT S IN CASH ARE CLAIMED TO HAVE BEEN MADE BELOW RS.20,000/-. IN ABSENCE OF SU CH EVIDENCES, THE AO HAD REASONS TO DISBELIEVE THE CONTENTIONS OF THE AR . THE DISALLOWANCE OF RS.2,15,832/- @ 20% OF AGGREGATE PAYMENT OF RS.10,7 9,162/- MADE BY CIRCUMVENTING THE PROVISIONS OF SECTION 40A(3) ARE CONFIRMED. THE APPELLATE GROUND NO.4 IS DISMISSED. WE FIND FROM THE ABOVE THAT EACH PAYMENT IS BELOW R S.20,000/- AND EVEN THE AMENDMENT IN PROVISIONS OF SECTION 40A(3) HAS BEEN BROUGHT BY THE FINANCE ACT, 2007 WITH EFFECT FROM 1-4-2008 AND THIS IS ASSESSME NT YEAR 2003-04, THAT IF THE AMOUNT OF PAYMENT EXCEEDS RS.20,000/-. 9. IN VIEW OF THE ABOVE, WE FEEL THAT THE ASSESSEE HAS NOT VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE PAYMENT IS WIT HIN THE PRESCRIBED AMOUNT AND WE DELETE THE ADDITION. THIS ISSUE OF THE ASSESSEES A PPEAL IS ALLOWED. 10. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE U/S.40A(3) OF THE ACT FOR THE ABOVEMENTIONED MADE TO THE CREDITORS OF GOODS. FOR THIS, THE ASSE SSEE HAS RAISED THE FOLLOWING GROUND NO.4 :- 4. THE LD. CIT(A) AND A.O BOTH HAVE GROSSLY ERRED IN APPLYING THE PROVISION OF SECTION 40A(3) TO THE PAYMENTS MADE TO THE CREDITOR S FOR GOODS OF RS.3,57,835/- WITHOUT APPRECIATING THE FACT THAT EV ERY PAYMENT IN EXCESS OF RS.20,000/- LIMIT LAID DOWN BY THE SECTION WAS PAID EITHER BY CHEQUE OF ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 7 DEMAND DRAFT AND NO CONTRAVENTION OF THE PROVISIONS OF THE SECTION HAD TAKEN PLACE. BOTH THE LOWER AUTHORITIES HAVE ERRED IN MAK ING DISALLOWANCE ON THE AD HOC BASIS WITHOUT CONSIDERING VARIOUS SUBMISSIONS, EVIDENCES AND PROOFS SUBMITTED BY THE APPELLATE. 11. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS ISSUE, HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 12. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE CASH CREDIT AMOUNTING TO RS.54 LAKHS U/S.68 OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE GROUND NO.5 :- 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CASH CREDIT OF RS.54,00,000/- U/S.68 OF THE ACT THAT IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS AND AS SUCH WHEN THE APPELLATE HAS ESTABLISHE D THE GENUINENESS OF THE PARTIES BY SUBMITTING THE IDENTITY, COPIES OF ACCOU NTS AND CONFIRMATION OF THE DEPOSITORS. THE ADDITION BEING WITHOUT ANY MERITS A ND JUSTIFICATION REQUIRES TO BE QUASHED. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). W E FIND THAT THE ASSESSEE HAS OBTAINED LOANS FROM THE FOLLOWING PERSONS:- 1) SMT. BANOOBEN A SAIYED RS.2,00,000/- 2) CHETAN CONSULTANCY SERVICE RS.0,50,000/- 3) SHRI J.D. BHAVSAR RS.0,50,000/- 4) NIDDHI ENGG. WORKS RS.0,50,000/- 5) SUSEELA NAIR RS.0,50,000/- 6) S.R. KADAM RS.0,50,000/- 7) SHRI D.S. SHAH RS.0,50,000 RS.5,0 0,000 A. DILIP K RAWAL 3,50,000 B. RAJESH R SHAH-HUF 5,00,000 C. M.D.PATEL HUF 4,00,000 D. N.S. RAMI 1,00,000 E. PRATIK S BHATT HUF 5,00,000 ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 8 F. RADIANT INVESTMENT 5,00,000 G. RASIK K RAWAL HUF 6,00,000 H. SHAILESH REFRIGERATOR CO. 5,00,000 I. SEJAL R TRIVEDI 6,00,000 J. SHREEJI ENTERPRISE 6,00,000 K. V.B. TANDEL 1,50,000 L. ZEALON BUSINESS SERVICES 1,50,000 49,00,000 M. AMIN YASIN SAIYED 3,50,000 N. SAIYED TRUST 3,00,000 O. SALIM KHERANI 14,50,000 THE ASSESSEE COULD NOT PRODUCE THE DEPOSITORS BEFOR E THE ASSESSING OFFICER AND NO ASSESSMENT DETAILS AND COPY OF BANK STATEMENT IN RE SPECT OF DEPOSITORS WERE FILED BY THE ASSESSEE. AS REGARDS THE CASH CREDIT OF SHRI D .S. SHAH, WHO HAS ADMITTED THAT HE HAS DEPOSITED THE CASH GIVEN BY THE ASSESSEE AMO UNTING TO RS.50,000/- IN HIS BANK ACCOUNT AND IN LIEU OF THAT HE HAS GIVEN A CHE QUES OF RS.50,000/- AS LOAN TO THE ASSESSEE. WE FIND THAT AS REGARDS TO SHRI D.S. SHAH THIS LOAN HAS TO BE CONFIRMED BUT ONE MORE OPPORTUNITY SHOULD BE GIVEN TO CROSS-E XAMINE SHRI D.S. SHAH. AS REGARDS TO OTHER CREDITORS, THE ASSESSEE NOW CONTEN DED BEFORE US THAT HE HAS ALREADY READY FILED COMPLETE DETAILS BEFORE THE AS SESSING OFFICER. WE FIND THAT THE CIT(A) HAS CONFIRMED THE ADDITION BY GIVING FOLLOWI NG FINDING IN PARA-10.3 OF HIS APPELLATE ORDER:- 10.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLATE AND THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AS WELL AS THE RE MAND REPORT. REGARDING THE DEPOSITORS AGGREGATING TO RS.5,00,000/- DETAILE D IN PARA-10.1(A) ABOVE, I FIND MERIT IN THE CONTENTION OF THE AO THAT THE APP ELLATE HAS FAILED TO ESTABLISH THE WORTHINESS OF THE CREDITORS. THE APPELLATE ON O NE HAND HAS ARGUED THAT THESE DEPOSITORS DO NOT HAVE TAXABLE INCOME AND ON THE OTHER HAND LARGE AMOUNTS ARE CLAIMED TO HAVE BEEN GIVEN FREE OF INTE REST TO THE APPELLATE COMPANY BY THESE DEPOSITORS. THE APPELLATE HAS NOT EVEN DISCHARGED HIS ONUS OF SHOWING ON RECORD THAT TRANSACTION WITH THE SE DEPOSITORS ARE GENUINE AS ONE OF THE DEPOSITOR SHRI D.S. SHAH HAS ADMITTED BEFORE THE AO ABOUT THE NON-GENUINENESS OF THE LOAN TRANSACTION WITH HIM. A FTER HAVING CONSIDERED THESE TYPICAL FACTS, I AM OF THE CONSIDERED VIEW TH AT THE AO IS JUSTIFIED IN MAKING ADDITION OF RS.5,00,000/- IN RESPECT OF THE UNSECURED LOANS BORROWED FROM THESE DEPOSITORS LISTED IN PARA-10.1(A) ABOVE. REGARDING THE REMAINING CASH CREDITS OF RS.49,00,000/- FROM DEPOSITORS LIST ED IN PARA-10.1(B) ABOVE, ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 9 THE CONTENTION OF THE APPELLATE CANNOT BE ACCEPTED AS THE APPELLATE HAS FAILED TO DISCHARGE THE ONUS OF PROVING THE GENUINENESS OF THE TRANSACTIONS AND WORTHINESS OF THESE DEPOSITORS. FROM THE WELL REASO NED OBSERVATIONS AND FINDINGS OF THE AO IN THE ASSESSMENT ORDER, I AM CO NVINCED THAT THE ADDITION OF RS.49,00,000/- MADE BY THE AO IS SUSTAINABLE IN LAW AND, THEREFORE, I UPHOLD THE ADDITION OF RS.54,00,000/- MADE BY THE A O U/S.68 OF THE ACT. THE APPELLANTS GROUND NO.7 IS DISMISSED. WE FIND THAT THE CIT(A) HAS NOT DISCUSSED THE INDIV IDUAL CREDITORS HOW THESE ARE NOT HAVING SOURCE OF INCOME I.E CREDITWORTHINESS, GENUI NENESS OF TRANSACTION. IN THE ABSENCE OF DETAILS, WE FEEL THE ISSUE REQUIRES TO B E RE-ADJUDICATED AT THE LEVEL OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 14. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMED THE ADDITION OF RS.16,11,335/- BY CONSIDE RING THE SAME AS EXPENSES. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.6 :- 6. THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.16,11,335/- BY CONSIDERING THE SAME AS EXPENSES RELATED TO THE PRIOR PERIOD AND THUS DISALLOWABLE WITHOUT APPRECIATING THE FACT THAT THE AMOUNT IN QUESTION WAS A BUSINESS EXPENDITURE PERTAINING TO THE YEAR UNDER C ONSIDERATION ONLY AND HENCE WAS AN ALLOWABLE EXPENDITURE. BOTH THE LOWER AUTHORITIES OUGHT TO HAVE ALLOWED THE CLAIM OF THE APPELLANT. 15. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE RECORDS, WE FIND THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM FORM NO.3CD THAT THE AUDITOR HAS CERTIFIED PRIOR PERIOD EXPENSES OF RS.16,11,335/- D EBITED IN PROFIT AND LOSS A/C. THE ASSESSEE WAS REQUIRED TO EXPLAIN HOW THESE EXPENSES ARE ALLOWABLE AND THE ASSESSEE EXPLAINED THAT THESE PRIOR PERIOD EXPENSES ARE NOT CLAIMED AS EXPENSES. THE ASSESSING OFFICER DISALLOWED BY STATING THAT TH E ASSESSEE FOLLOWED THE MERCANTILE ACCOUNTING METHOD AND ACCORDING TO HIM, ALL EXPENSES FOR WHICH THE LIABILITY HAS ARISEN IS DEBITED TO PROFIT & LOSS A/ C. AND THE AMOUNT OF EXPENSES MUST THEREFORE HAVE BEEN CLAIMED IN EARLIER YEAR. ACCORD INGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED APP EAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GIVING FOLLOWING FINDING IN PARA- 11.3 :- 11.3 I HAVE CONSIDERED THE RIVAL CONTENTIONS. THER E IS A MERIT IN THE CONTENTION THAT THE EXPENDITURE RELATING TO THE BUS INESS THAT HAS BEEN INCURRED ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 10 DURING THE FINANCIAL YEAR AND RELEVANT TO CURRENT Y EAR ONLY IS ALLOWED AS EXPENDITURE IN THE YEAR OF ACCRUAL OF SUCH EXPENSE. SINCE THE APPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING THE A UDITOR MUST HAVE IDENTIFIED THE PRIOR PERIOD EXPENDITURE SO THAT CORRECT RESULT / PROFITS OF THE CURRENT YEAR CAN BE DEDUCED. THEREFORE, THE AO IS JUSTIFIED IN M AKING ADDITION OF THE SAME AS THEY DO NOT RELATE TO THE YEAR UNDER APPEAL. THE APPELLANTS GROUND NO.8 IS DISMISSED . WE FIND FROM THE ABOVE THAT IT IS NOT CLEAR FROM TH E RECORDS WHETHER THE ASSESSEE HAS DEBITED THIS EXPENSES TO PROFIT AND LOSS A/C. O R NOT AS THE CLAIM MADE BY THE ASSESSEE. THE ASSESSEE HAS NOT CLAIMED THE EXPENSE S AND IN THE ABSENCE OF DETAILS, WE FEEL THAT THIS ISSUE ALSO NEEDS RE-EXAM INATION AT THE LEVEL OF THE ASSESSING OFFICER. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO VERIFY THIS ISSUE. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. NOW COMING TO ASSESSEES APPEAL IN ITA NO.1197/AHD/ 2009. 16. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE PENALTY LEVIED BY THE ASSESSING OFFI CER U/S.271(1)(C) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1-3:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING PENALTY LEVIED U/S.271(1)(C) OF THE ACT OF RS.30,35,648/- THAT IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS. BOTH THE LOWER AUTHORITIES HAVE FAILE D TO APPRECIATE THE FACT THAT THE APPELLANT HAS NEITHER FURNISHED INACCURATE PART ICULARS NOR CONCEALED ANY INCOME AND HENCE THE PENALTY LEVIED WITHOUT ANY MER ITS AND JUSTIFICATION REQUIRES TO BE QUASHED. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING PENALTY LEVIED U/S.271(1)(C) OF THE ACT AS NEITHER ANY SATISFACTIO N IS RECORDED BY AO REGARDING CONCEALMENT OF INCOME OR FURNISHING OF IN ACCURATE PARTICULARS NOR ANY COGENT MATERIAL IS BROUGHT ON RECORD TO SHOW TH AT THERE WAS DELIBERATE ATTEMPT TO CONCEAL INCOME BY THE APPELLANT. 3. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT APP RECIATING THE FACT THAT THE APPELLANT HAS CHALLENGED THE VARIOUS ADDITIONS MADE IN THE ASSESSMENT ON THE BASIS OF CONJECTURES & SURMISES THAT IS PENDING FOR HEARING BEFORE THE HONBLE ITAT AND THEREFORE PENALTY LEVIED ON THE BA SIS OF THE ADDITIONS MADE IN THE ASSESSMENT WITHOUT ANY MERITS REQUIRES TO BE QUASHED AND IS NOT JUSTIFIED. 17. WE FIND THAT PENALTY IS LEVIED IN REGARD TO ADD ITION OF RS.54 LAKHS AS UNEXPLAINED CASH CREDITS AND RS.28,60,263/- ADDED O N ACCOUNT OF UNACCOUNTED STOCK U/S.69B OF THE ACT. AS ABOVE IN QUANTUM APPEA L, WE HAVE ALREADY DELETED THE ADDITION OF UNACCOUNTED INVESTMENT MADE ON ACCOUNT OF UNEXPLAINED STOCK ITA NO.1546/AHD/2007, 1197/AHD/2009 SP 21/AHD/09 A.Y. 03-04 SAIYED PAPER MILLS LTD. V. ACIT, VAPI PAGE 11 AMOUNTING TO RS.28,60,263/-. ACCORDINGLY THIS PENA LTY WILL NOT SURVIVE AND ASSESSING OFFICER IS DIRECTED TO DELETE THE PENALTY. AS REGAR DS TO THE ADDITION OF RS.54 LAKHS ON ACCOUNT OF UNEXPLAINED CASH CREDITS, WE HAVE ALREAD Y SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER, THIS PENALTY ALSO CANNOT SURV IVE. ACCORDINGLY, WE DELETE PENALTY WITH A RIDER, IN CASE THE ASSESSING OFFICER DURING THE COURSE OF SET ASIDE PROCEEDINGS COMES TO CONCLUSION THAT THERE IS OF CONCEALMENT IN COME OR FURNISHING INACCURATE PARTICULARS OF INCOME, THE ASSESSING OFFICER MAY IN ITIATE PENALTY PROCEEDINGS AS PER PROVISIONS OF LAW. ACCORDINGLY, THIS PENALTY APPEAL IS ALLOWED. NOW WE SHALL TAKE UP ASSESSEES SP NO.21/AHD/2009. 18, SINCE WE HAVE ALREADY DISPOSED OF QUANTUM APPEA L AND PENALTY APPEAL AS ABOVE, THE STAY PETITION HAS BECOME INFRUCTUOUS. H ENCE, WE DISMISS THE STAY PETITION OF THE ASSESSEE AS INFRUCTUOUS. 19. IN THE RESULT, ASSESSEES APPEAL ITA NO.1546/AHD/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, ITA NO.1197/AHD/2009 IS A LLOWED AND THAT OF ASSESSEES SP NO.21/AHD/2009 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30/11/2009 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED :30/11/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VAPI 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD