Shri Dhiraj R. Rungta, Surat V. The Income tax Officer,Ward-5(1), Surat

ITA 1687/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1750 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Unexplained cash credit; Rejection of books of accounts; Onus to prove
• Section: 131; 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.1687/AHD/2010 A. Y.: 2007-08 SHRI DHIRAJ R. RUNGTA, PROP. SHRESTY SILK, 501-503, ADARSH MARKET, RING ROAD, SURAT VS THE INCOME TAX OFFICER, WARD 5(1), AAYAKAR BHAVAN, OPP. NEW CIVIL HOSPITAL, MAJURA GATE, SURAT PA NO. ABXPR 3908 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RASESH SHAH, AR RESPONDENT BY SHRI MUDIT NAGPAL, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV , SURAT DATED 22 ND MARCH, 2010 FOR ASSESSMENT YEAR 2007-08. 2. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUND NO.7 OF THE APPEAL OF THE ASSESSEE. GROUNDS NO.8 AN D 9 OF THE APPEAL OF THE ASSESSEE ARE GENERAL AND NEED NO FIND ING. THE SAME ARE ACCORDINGLY DISMISSED. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 2 4. BEFORE CONSIDERING THE GROUNDS ON MERIT, WE MAY NOTE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINE SS OF TRADING IN SAREES AND DRESS MATERIAL IN THE NAME OF HIS PROPRI ETARY CONCERN M/S. SHRESTY SILK. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO ASKED THE ASSESSEE TO FURNISH COMPLETE BOOKS OF ACC OUNTS SO THAT THE CORRECTNESS THEREOF COULD BE VERIFIED. THE ASSESSEE INITIALLY DID NOT FURNISH THE BOOKS OF ACCOUNTS AND PRODUCED ONLY LED GER ACCOUNTS. ON VERIFICATION OF THE LEDGER ACCOUNTS THE AO NOTICED SEVERAL IRREGULARITIES LIKE (I) THE BALANCE OF CAPITAL ACCO UNTS IN THE LEDGER ACCOUNTS WAS TALLYING WITH THE AUDIT REPORT BUT CLO SING BALANCE DID NOT TALLY, (II) CASH WITHDRAWALS SHOWN IN THE CURRENT A CCOUNT WERE NOT TALLYING WITH THE CASH WITHDRAWALS SHOWN IN THE CAP ITAL ACCOUNT, (III) JOB CHARGES OF RS.15,18,878/- WAS CLAIMED TO HAVE B EEN PAID TO HIS MOTHER SMT. VIMLADEVI, PROPRIETOR OF M/S. SEEMA CRE ATION, BUT THE LEDGER ACCOUNTS SHOWED JOB CHARGES AT RS.9,63,608/- ONLY AND (IV) THE AMOUNT OF SALARY EXPENSES AS CLAIMED IN THE AUD IT REPORT WAS HIGHER BY RS.1,50,000/- AS REFLECTED IN THE LEDGER ACCOUNTS AND THE ASSESSEE HAD PAID THE ENTIRE SALARY EXPENSES IN CAS H AND THAT NO SALARY REGISTER IS MAINTAINED. FURTHERMORE, THE AO NOTICED THAT THE ASSESSEE CLAIMED WASTAGE AT 8.83% WHICH APPEARS TO BE ON HIGHER SIDE AS COMPARED TO THE WASTAGE RATE SHOWN BY OTHER ASSESSEES ENGAGED IN THE SIMILAR LINE OF BUSINESS ACTIVITY. T HUS, THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE BOOKS OF ACCO UNTS AND ACCORDINGLY ASKED THE ASSESSEE AS TO WHY PROVISIONS OF SECTION 145 OF THE IT ACT BE NOT APPLIED FOR REJECTING THE BOOK S OF ACCOUNTS. THE ASSESSEE SUBMITTED THAT HE HAD INADVERTENTLY FURNIS HED THE PRE- AUDITED BOOKS OF ACCOUNTS WHEREIN THERE WERE SEVERA L MISTAKES ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 3 WHICH WERE RECTIFIED SUBSEQUENTLY DURING THE COURSE OF AUDIT. IT WAS PLEADED TO ACCEPT A NEW AUDITED COPY OF BOOKS OF AC COUNTS. THE AO HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE BECAUSE THE EXPLANATION OF THE ASSESSEE WAS NOT SUPPORTED BY PR OPER DOCUMENTARY EVIDENCE. THE AO REJECTED THE BOOKS OF ACCOUNTS AND MADE VARIOUS ADDITIONS AND DISALLOWANCES OF WHICH T HE LEARNED CIT(A) CONFIRMED THE ADDITIONS. GROUNDS NO.1, 2, 5 AND 6 ARE, THEREFORE, CONNECTED WITH REJECTION OF BOOKS OF ACC OUNTS. IT MAY ALSO BE NOTED HERE THAT THE ASSESSEE HAS NOT CHALLENGED REJECTION OF BOOKS OF ACCOUNTS EITHER BEFORE THE LEARNED CIT(A) OR BEFORE THE TRIBUNAL. IT, THEREFORE, STANDS FINALLY CONCLUDED T HAT BOOK RESULTS REJECTED BY THE AO HAVE NOT BEEN DISPUTED BY THE AS SESSEE BEFORE THE APPELLATE AUTHORITIES. THE OTHER GROUNDS ARE AC CORDINGLY CONSIDERED AS UNDER. 4.1 ON GROUND NO.1, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.18,44,442/- ON ACCOUNT OF EXCESS WASTAGE. THE AS SESSEE HAS SHOWN WASTAGE AT TWO STAGES I.E. FIRSTLY WASTAGE OF AROUND 13% WHEN THE GREY CLOTHES WAS PROCESSED AND CONVERTED INTO D YED AND PRINTED FABRICS AND SECONDLY A FURTHER WASTAGE OF 8.83% AT THE TIME OF EMBROIDERY OF DYED AND PRINTED FABRICS AND SALES OF FINALLY FINISHED FABRICS. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAI M OF WASTAGE FOR WHICH THE ASSESSEE FILED EXPLANATION. HOWEVER, IT W AS FOUND TO BE VAGUE AND NOT BACKED BY EVIDENCES. SO FAR AS THE WA STAGE OF 13% ON THE FIRST STAGE IS CONCERNED, THE AO ACCEPTED TH E WASTAGE OF 13% WHICH AROSE IN THE PROCESS OF CONVERSION OF GREY CL OTHES INTO DYED AND PRINTED FABRICS. HOWEVER, AS REGARDS FURTHER WA STAGE OF 8.83%, ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 4 THE AO HAS OBSERVED THAT THE ASSESSEE HIMSELF CREAT ED THE SAID WASTAGE AT THE TIME OF SENDING THE DYED AND PRINTED CLOTHES FOR EMBROIDERING, THE SAID WASTE IS NOT SUPPORTED BY DO CUMENTARY EVIDENCES IN THE FORM OF EMBROIDERY JOB WORK BILLS, THERE WAS NO LOGIC FOR CREATING OF SUCH HIGH WASTAGE, THE SAID WASTAGE WAS HIGHER AS COMPARED TO OTHER ASSESSEES IN THE SIMILAR BUSINESS AND FURTHER THE SAID WASTAGE WAS SOLD AT VERY MEAGER SALE PRICE OF RE.0.73 PER METER WHEREAS THE COST THEREOF WORKED OUT AT RS.46. 76 PER METER. THE AO CONSIDERED 2% AS NORMAL WASTAGE IN THE INDUS TRY STANDARD AS AGAINST THE CLAIM OF THE ASSESSEE AT 8.83% AND A CCORDINGLY ADDITION WAS MADE. THE ADDITION WAS CHALLENGED BEFO RE THE LEARNED CIT(A) AND IT WAS EXPLAINED THAT ON PROCESSING OF G REY CLOTHES, ONE TAKA OF AROUND 109 METERS IS CONVERTED INTO 95 METE RS OF DYED AND PRINTED FABRICS. FURTHER FINISHED CLOTHES IS SOLD I N THE FORM OF SAREE OR DRESS-SUIT, EACH PIECE OF WHICH AVERAGES AROUND 14. 50 METERS AND ACCORDINGLY, THE TAKA OF 95 METERS IS CUT INTO PIEC ES OF 14.50 METERS EACH AND ACCORDINGLY THE TOTAL CLOTHES THAT CAN BE CONVERTED INTO FINISHED GOODS COMES OUT TO ONLY 87 METERS WHICH RE SULTED WASTAGE OF AROUND 8 METERS. IT WAS FURTHER PLEADED THAT WAS TAGE IS NORMAL CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE. IT WAS EXPLAINED THAT WASTAGE IS USED FOR FILLING UP EMPTY SPACES IN THE CARTOONS PREPARED FOR DELIVERY OF FINISHED PRODUCTS IN ORDER TO PROTECT THE PRODUCTS. THE LEARNED CIT(A) CONSIDERING THE SUBMIS SION OF THE ASSESSEE AND MATERIAL ON RECORD NOTED THAT THE FIGU RES OF THE LEDGER ACCOUNTS DO NOT TALLY WITH THE AUDIT REPORT AND THE ASSESSEE CLAIMED WASTAGE CONSISTENTLY IN EVERY MONTH. THE BOOKS OF A CCOUNTS WERE FOUND TO BE DEFECTIVE AND REJECTED AND NO EVIDENCE HAS BEEN GIVEN ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 5 FOR GENERATING THE WASTAGE. FURTHER ON GOING THROUG H THE COPY OF EMBROIDERY JOB CHARGES BILLS AND CHALLANS IT WAS FO UND THAT CLOTHES SENT FOR EMBROIDERY HAS BEEN MEASURED IN PRICES AND NOT IN LENGTH AND SIMILARLY EMBROIDERY JOB CHARGES BILLS ALSO SHO WS THE NUMBER OF PIECES EMBROIDERED IN WHICH THERE IS NO REPORTING O F ANY WASTAGE. IN COMPARABLE CASES NO WASTAGE IS SHOWN. SINCE THE AUD IT REPORT DID NOT TALLY WITH THE BOOKS OF ACCOUNTS, THE FINDING O F THE AO WAS CONFIRMED AND THE APPEAL OF THE ASSESSEE WAS ACCORD INGLY DISMISSED. 4.2 THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F ILED COMPARABLE CHART TO SHOW THAT WASTAGE IN THE PRECEDING ASSESSM ENT YEAR 2006- 07 WAS 8.51% ON WHICH GP RATE OF 8.22% HAS BEEN SHO WN. IN THE ASSESSMENT YEAR UNDER APPEAL THE WASTAGE IS 8.84% A ND THE GP RATE IS BETTER AT 10.75%. HE HAS REFERRED TO SAMPLE WOR KING OF THE WASTAGE WHICH TOOK PLACE AT THE TIME OF CUTTING AT 12.54% WHICH IS SUPPORTED BY BILLS AND QUANTITY OF THE MATERIAL WHI CH IS SUPPORTED BY RELEVANT BILLS. HE HAS SUBMITTED THAT THE WORKING G IVEN AT PAGE 41 OF THE PAPER BOOK WOULD SHOW THAT THERE IS WASTAGE IN MAKING DRESS MATERIAL WHICH IS ACCEPTED IN THE PAST ALSO. THEREF ORE, NO UNREASONABLE WASTAGE HAS BEEN CLAIMED. HE HAS REFER RED TO THE REPLY OF THE ASSESSEE BEFORE THE AO DATED 10-12-200 9 IN WHICH IT WAS CLAIMED THAT SEPARATE SHEETS ARE ATTACHED TO UNDERS TAND THE ACTUAL WASTAGE SUFFERED BY THE ASSESSEE. THE DETAILS ARE F ILED ALONG WITH THE REPLY. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREF ORE, SUBMITTED THAT SINCE IN THE BUSINESS OF THE ASSESSEE WASTAGE IS CLAIMED IN THE ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 6 PRECEDING ASSESSMENT YEAR ALSO, THEREFORE, ADDITION IS CLEARLY UNJUSTIFIED. HE HAS SUBMITTED THAT ALL CLARIFICATIO NS HAVE BEEN GIVEN REGARDING DISCREPANCY IN THE BOOKS OF ACCOUNTS WHIC H WERE PRE- AUDITED AND ALL THE DEFECTS HAVE BEEN RECTIFIED. CO MPLETE BOOKS OF ACCOUNTS AND BILLS WERE PRODUCED FOR VERIFICATION B EFORE THE AO. BUT THE SAME HAS NOT BEEN APPRECIATED BY THE AUTHORITIE S BELOW. 4.3. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT EVEN IN THE CO MPARABLE CASES NO WASTAGE WAS CLAIMED. THEREFORE, ADDITION HAS BEE N CORRECTLY MADE IN THE MATTER. 4.4. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE AD DITION OF RS.14,40,886/- ON ACCOUNT OF UNDER-VALUATION OF CLO SING STOCK. THE ASSESSEE HAS SHOWN CLOSING STOCK OF FINISHED GOODS AT 99302 METERS WHICH WAS VALUED AT TOTAL AMOUNT OF RS.32,02,496/- AND ACCORDINGLY PER METER COST OF CLOSING STOCK OF FINISHED GOODS W ORKED OUT TO RS.32.25 PER METER. AS AGAINST THIS, THE AO OBSERVE D THAT AVERAGE SALE RATE OF THE ASSESSEE WAS RS.52.39 PER METER AN D REDUCING GP RATE @ 10.75 THERE FROM; THE COST AMOUNT WAS WORKED OUT AT RS.46.76 PER METER. THUS, THE AO DOUBTED THAT THE ASSESSEE HAS SUPPRESSED THE CLOSING STOCK OF FINISHED GOODS BY V ALUING AT AN AMOUNT WHICH IS LOWER THAN COST AND ACCORDINGLY THE EXPLANATION OF THE ASSESSEE WAS CALLED ON ACCOUNT OF UNDER-VALUATI ON OF THE CLOSING STOCK. THE ASSESSEE MERELY FURNISHED ITEM WISE WOR KING OF CLOSING STOCK OF FINISHED GOODS AND SUBMITTED THAT THE SAME WAS VALUED ON THE BASIS OF PHYSICAL INVENTORY AND NOT ON AN AVERA GE COST BASIS. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 7 HOWEVER, THE ASSESSEE DID NOT FURNISH THE ITEM WISE QUANTITY DETAILS OF OPENING STOCK, PURCHASES, PRODUCTION AND SALES A S ALSO THE ITEM WISE COST DETAILS, SO AS TO SUBSTANTIATE THE AUTHEN TICITY OF ITEM WISE CLOSING STOCK. THE AO, THEREFORE, HELD THAT THE ASS ESSEE HAS UNDER- VALUED THE CLOSING STOCK OF FINISHED GOODS AND ADDI TION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARN ED CIT(A) THAT THE ASSESSEE WAS VALUING CLOSING STOCK OF FINISHED GOOD S AT LOWER OF COST OF MARKET VALUE AS PER THE GUIDELINES PROVIDED BY I NSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT WAS SUBMITTED TH AT ITEM WISE PHYSICAL INVENTORY IS TAKEN AT THE YEAR END AND VAL UATION OF CLOSING STOCK IS SUPPORTED BY NET MARKET VALUE OF THE SAID ITEM AND IN SUPPORT OF THE ARGUMENT THE ASSESSEE FURNISHED COPIES OF TH E SALE BILLS. IT WAS FURTHER SUBMITTED THAT THE ADDITION BE DELETED. THE LEARNED CIT(A) ON CONSIDERATION OF THE FACTS NOTED THAT THE ASSESSEE FOLLOWED THE VALUATION OF THE CLOSING STOCK AS PER THE LOWER OF THE COST OR AVERAGE VALUE WHICH IS ACCEPTED. THE LEARNED CIT(A) HOWEVER , NOTED THAT THE ASSESSEE SHOULD HAVE FURNISHED COMPLETE ITEM WISE Q UANTITATIVE DETAILS OF OPENING STOCK, PURCHASES, PRODUCTION AND SALES SO AS TO JUSTIFY THE QUANTITY OF CLOSING STOCK OF EACH ITEM. THE ASSESSEE FAILED TO FURNISHED QUANTITATIVE DETAILS ITEM WISE. VALUAT ION OF THE ASSESSEE WAS ACCORDINGLY NOT ACCEPTED. IT WAS ALSO FOUND THA T THE ASSESSEE HAS MAINTAINED HIS BOOKS OF ACCOUNTS ON COMPUTER WH EREAS THE ITEM WISE DETAILS OF CLOSING STOCK HAS BEEN PREPARED MAN UALLY. THE LEARNED CIT(A), THEREFORE, NOTED THAT THE ASSESSEE HAS NOT MAINTAINED ITEM WISE INVENTORY RECORD WHICH COULD B E OBTAINED FROM COMPUTERIZED BOOKS OF ACCOUNTS. THE ADDITION WAS AC CORDINGLY CONFIRMED. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 8 4.5 THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO THE DETAILS OF BIFURCATION OF CLOSING STOCK AT PB-58 TO 61 OF THE PAPER BOOK TO SHOW THAT THE DETAILS OF CLOSING STOCK IS MAINTA INED ITEM WISE AND THERE IS NO BAR IN MAINTAINING MANUAL QUANTITATIVE DETAILS. HE HAS SUBMITTED THAT THE OBJECTION OF THE LEARNED CIT(A) IS, THEREFORE, INCORRECT. HE HAS SUBMITTED THAT THE ASSESSEE USED LARGE NUMBER OF ITEMS IN THE BUSINESS. THEREFORE, DETAILS OF EVERY ITEM CANNOT BE MAINTAINED. HE HAS SUBMITTED THAT THERE IS NO NEED TO TAKE THE INVENTORY OF THE CLOSING STOCK ON COMPUTER. HE HAS SUBMITTED THAT SINCE ITEM WISE DETAILS OF CLOSING STOCK HAS BEEN P REPARED MANUALLY, THEREFORE, ADDITION IS UNJUSTIFIED. ON THE OTHER H AND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4.6 ON GROUND NO.5, THE ASSESSEE CHALLENGED THE DI SALLOWANCE OF RS.5,55,270/- ON ACCOUNT OF JOB CHARGES PAID TO M/S . SEEMA CREATION. DURING THE COURSE OF VERIFICATION OF THE LEDGER ACCOUNTS AND THE AUDIT REPORT IT WAS NOTED THAT THE ASSESSEE CLA IMED PAYMENT TO M/S. SEEMA CREATION AT RS.15,18,878/- WHEREAS THE L EDGER ACCOUNTS SHOW JOB CHARGES OF RS.9,63,608/-. DIFFERENCE WAS A CCORDINGLY ADDED. IT WAS EXPLAINED THAT LEDGER WAS INCOMPLETE AND THERE WAS MISTAKE IN THE PRE-AUDITED LEDGER WHICH WERE RECTIF IED AND ALL THE PAYMENTS ARE SUPPORTED BY VOUCHERS. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED AND ADDITION WAS MADE FOR INFLATING THE JOB CHARGES. SAME SUBMISSIONS WERE REITERATED BEFOR E THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT CORRECTED AND AUDI TED BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO WHICH WERE SUP PORTED BY ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 9 EVIDENCES, BUT THE AO DID NOT APPRECIATE THE FACTS AND MADE THE ADDITION. THE LEARNED CIT(A) ALSO DID NOT ACCEPT TH E CONTENTION ON THE SAME REASONING AS ADOPTED BY THE AO AND CONFIRMED T HE ADDITION. 4.7 THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AND SUBMITTED THAT EMBROIDERY WORK WAS DONE BY M/S. SEEMA CREATION FOR THE BUSINESS OF THE ASSESSEE. TH E DETAILS OF THE SAME ARE FILED AT PAGES 85 TO 87 OF THE PAPER BOOK WHICH SUPPORT THE CONTENTION OF THE ASSESSEE. COPIES OF THE SAME ARE FILED AT PB- 85 TO 89 AND THE LEDGER ACCOUNTS OF M/S. SEEMA CREATION M ATCH WITH THE LEDGER ACCOUNTS OF THE ASSESSEE. HE HAS SUBMITTED T HAT THERE IS NO DIFFERENCE IN THE ACCOUNTS. COPY OF THE AUDITED ACC OUNTS OF M/S. SEEMA CREATION ARE ALSO FILED IN SUPPORT OF THE CON TENTION TO SHOW THAT SAME JOB CHARGES HAVE BEEN MENTIONED AND SHOWN TO THE REVENUE DEPARTMENT. HE HAS SUBMITTED THAT M/S. SEEM A CREATION IS ASSESSED TO TAX AND COPY OF ACKNOWLEDGEMENT OF FILI NG OF THE RETURN IS ALSO FILED IN THE PAPER BOOK. HE HAS SUBMITTED THAT SINCE ALL THE DISCREPANCIES WERE CLARIFIED, THEREFORE, ADDITION I S UNJUSTIFIED. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 4.8 ON GROUND NO.6, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.1,50,000/- ON ACCOUNT OF SALARY EXPENSES. AS PER THE AUDIT REPORT THE ASSESSEE CLAIMED SALARY EXPENSES OF RS.6,38,613 /- WHEREAS IN THE LEDGER ACCOUNTS IT WAS NOTED AT RS.4,88,613/-. THE DIFFERENCE WAS ACCORDINGLY ADDED. THE AO FURTHER OBSERVED THAT NO SALARY REGISTER IS MAINTAINED AND THAT RECORDS HAVE BEEN RECTIFIED LAT ER ON. NO ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 10 COMPLETE ADDRESS OF THE EMPLOYEES HAS BEEN GIVEN. S ALARY IS PAID IN CASH. ADDITION OF RS.1,50,000/- WAS ACCORDINGLY MAD E. THE LEARNED CIT(A) CONFIRMED THE ADDITION. 4.9 THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT COMPLETE DETAILS WERE FILED AND DISCREPANCIES WERE REMOVED, THEREFORE, ADDITION IS CLEARLY UNJUSTIFIED. THE LEA RNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT SINCE THERE WAS DIFFERENCE IN THE LEDGER ACCOUNTS, THEREFORE, THE A DDITION HAS BEEN RIGHTLY MADE IN THE MATTER. 4.10 ON CONSIDERATION OF THE ABOVE FACTS AND FINDI NGS OF THE AUTHORITIES BELOW ON GROUNDS NO. 1, 2 5 AND 6, WE A RE OF THE VIEW THAT AUTHORITIES BELOW HAVE NOT UNDERSTOOD THE FACTS OF THE CASE IN PROPER PERSPECTIVE. IT IS NOT IN DISPUTE THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY THE AO BECAUSE OF CERTAIN DEFECTS FOUND IN THE MAINTENANCE OF THE BOOKS OF ACCOUNTS. THE ASSESSEE ACCEPTED THE FINDINGS OF THE AO WITH REGARD TO REJECTION OF THE BOOKS RESULTS. THE AO HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE DID NOT SHOW CORRECT PROFIT EARNED BY THE ASSESSEE AND, THEREFOR E, THE SAME ARE LIABLE TO BE REJECTED. ONCE, THE BOOKS OF ACCOUNTS WERE NOT FOUND TO BE RELIABLE AND REJECTED AND THE FINDINGS OF THE AO HAVE NOT BEEN DISPUTED BY THE ASSESSEE, THERE IS NO REASON FOR TH E AO TO MAKE FURTHER ADDITION BY RELYING UPON THE SAME BOOKS OF ACCOUNTS WHICH HAVE BEEN REJECTED BY HIM. ALL THE FOUR ADDITIONS M ADE BY THE AO ON GROUNDS NO.1, 2, 5 AND 6 HAVE BEEN MADE BY THE AO AFTER ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 11 SCRUTINIZING THE BOOKS OF ACCOUNTS AND THE RELEVANT DOCUMENTS PRODUCED BY THE ASSESSEE ON WHICH THE AO HIMSELF DI D NOT PLACE RELIANCE. IT WOULD HAVE BEEN BETTER FOR THE AO TO H AVE ESTIMATED A REASONABLE PROFIT OF THE ASSESSEE CONSIDERING THE H ISTORY AND NATURE OF THE BUSINESS OF THE ASSESSEE. THE AO HOWEVER, IN PARA 4.10 OF THE ASSESSMENT ORDER NOTED OTHERWISE THAT IT IS NOT A C ASE OF REJECTION OF BOOKS OF ACCOUNTS IN TOTO AND THEREBY ESTIMATING TH E PROFIT ON THE BASIS OF SOME RATIO. ONCE, THE BOOKS OF ACCOUNTS WE RE NOT FOUND TO BE ACCEPTABLE IN VIEW OF THE AO, THE SAME BOOKS OF ACCOUNTS SHOULD NOT HAVE BEEN CONSIDERED FOR THE PURPOSE OF MAKING OTHER ADDITIONS. APART FROM THAT, WE MAY ALSO NOTE IN THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE THAT THE ASSESSEE CLAIMED WASTAGE IN T HE PRECEDING ASSESSMENT YEAR 2006-07 AT 8.51% AND DISCLOSED GP R ATE OF 8.22%. IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE H AS CLAIMED WASTAGE OF 8.84% AND SHOWN GP RATE OF 10.75%. THUS, THE WASTAGE AS CLAIMED IN THE ASSESSMENT YEAR UNDER APPEAL IS A LMOST SIMILAR AS COMPARED WITH THE WASTAGE CLAIMED IN THE PRECEDING ASSESSMENT YEAR. HOWEVER, GP RATE OF THE ASSESSEE IS BETTER IN THE ASSESSMENT YEAR UNDER APPEAL AS COMPARED WITH THE PRECEDING AS SESSMENT YEAR. THUS, IT IS NOT A CASE OF INFLATING THE EXPENSES OR CLAIMING UNREASONABLE OR EXCESSIVE EXPENSES ON ACCOUNT OF WA STAGE. THE ASSESSEE FILED REPLY DATED 10-12-2009 BEFORE THE AO IN WHICH IT WAS CLAIMED THAT THE ASSESSEE HAS ATTACHED SEPARATE SHE ETS TO SHOW THE ACTUAL WASTAGE SUFFERED BY THE ASSESSEE. COPY OF TH E SAME IS FILED BEFORE US WHICH IS SUPPORTED BY MONTH WISE REGISTER OF THE GOODS SHOWING OPENING BALANCE, PURCHASES, SALES RETURN, R ECEIPT FROM THE MILL AND WASTAGE. SUCH DETAILS HAVE BEEN MAINTAINED IN EACH AND ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 12 EVERY MONTH. ACCORDING TO THE LEARNED COUNSEL FOR T HE ASSESSEE EACH DETAIL WAS SUPPORTED BY RELEVANT BILLS AND VOU CHERS. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PREPARED A SA MPLE OF THE WASTAGE TAKING PLACE AT THE TIME OF CUTTING, DETAIL S OF WHICH IS FILED AT PAGE 41 OF THE PAPER BOOK TO SHOW THAT THERE IS A R EASONABLE WASTAGE CLAIMED BY THE ASSESSEE AND THE CALCULATION OF THE ASSESSEE IS SUPPORTED BY ALL THE BILLS AND VOUCHERS COPIES O F WHICH ARE FILED IN THE PAPER BOOK FROM PAGES 41 TO 57. THESE DETAILS W OULD SHOW THAT THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR ALSO CLAIMED WASTAGE IN THE SAME RATE AS IS CLAIMED IN THE ASSES SMENT YEAR UNDER APPEAL. THEREFORE, THE FINDINGS OF THE AUTHORITIES BELOW WERE CLEARLY UNJUSTIFIED WITH REGARD TO THE WASTAGE. FURTHER, WI TH REGARD TO UNDER- VALUATION OF CLOSING STOCK, THE ASSESSEE FILED COMP LETE DETAILS IN THE PAPER BOOK FROM PAGES 58 TO 61 TO SHOW THAT ITEM WI SE DETAILS OF CLOSING STOCK HAVE BEEN PREPARED MANUALLY. THE LEAR NED CIT(A) ACCEPTED THE METHOD OF VALUATION OF THE CLOSING STO CK AS PER THE COST OR MARKET VALUE WHICHEVER IS LOWER ADOPTED BY THE A SSESSEE. MERELY BECAUSE THE ASSESSEE DID NOT MAINTAIN SUCH DETAILS ON COMPUTER BY ITSELF IS NO GROUND TO REJECT THE EXPLANATION OF TH E ASSESSEE. THE HONBLE DELHI HIGH COURT IN THE CASE OF SMT. POONAM RANI 326 ITR 223 HELD THAT ABSENCE OF STOCK REGISTER ALONE NOT A GROUND TO INFER THAT ACCOUNTS ARE INACCURATE OR INCOMPLETE. I T MAY PUT THE AO ON GUARD AGAINST THE FALSITY IN THE RETURN OF IN COME AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE BOOKS OF A CCOUNTS. FURTHER, WITH REGARD TO DISALLOWANCE OF JOB CHARGES PAID TO M/S. SEEMA CREATION, THE ASSESSEE EXPLAINED THAT THE DIS CREPANCIES HAVE BEEN REMOVED AND FILED COPY OF LEDGER ACCOUNTS OF M /S. SEEMA ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 13 CREATION IN THE PAPER BOOK TO SHOW THAT THERE IS NO DISCREPANCY IN THE BOOKS OF ACCOUNTS OF BOTH THE PARTIES. M/S. SEEMA C REATION IS ALSO ASSESSED TO TAX AND FILED THE RETURN OF INCOME ON T HE SAME FIGURE WHICH TALLY WITH THE FIGURES OF THE ASSESSEE. MEREL Y BECAUSE INITIALLY THERE WAS DISCREPANCY IS NO GROUND TO MAKE THE ADDI TION IF THE ASSESSEE IS ABLE TO EXPLAIN THE DISCREPANCY IN THE LEDGER ACCOUNTS AND THE BOOKS OF ACCOUNTS TO WHICH THE ASSESSEE CLA IMED THAT IN THE PRE-AUDITED LEDGER THERE WERE MISTAKES WHICH WERE I NADVERTENT AND DUE TO INCOMPLETENESS OF THE LEDGER. THE AO HAS NOT EXAMINED THE PROPRIETOR OF M/S. SEEMA CREATION TO CLARIFY THE DI SCREPANCY EXPLAINED BY THE ASSESSEE. IF THE FIGURES SHOWN BY THE ASSESSEE ARE SAME AS NOTED IN THE CASE OF M/S. SEEMA CREATION, T HERE WOULD NOT HAVE BEEN PERHAPS ANY ADDITION ON THIS ISSUE. IN TH E ABSENCE OF ANY PROPER INVESTIGATION INTO THE MATTER WE DO NOT APPR OVE THE FINDINGS OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS INFLATE D THE JOB CHARGE EXPENSES. SO FAR AS SALARY EXPENSE IS CONCERN, THE ASSESSEE SIMILARLY EXPLAINED THAT THE MISTAKES WERE INADVERT ENT IN THE RECORD OF THE ASSESSEE WHICH HAS BEEN SUBSEQUENTLY RECTIFIED. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND THE FACT TH AT BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN REJECTED BY THE AO THERE WAS NO REASON FOR THE AO TO HAVE MADE THE ADDITIONS BY REL YING THE SAME BOOKS OF ACCOUNTS. THE AO SHOULD HAVE CONSIDERED TH E CASE OF THE ASSESSEE ON THE RECTIFICATION OF THE RECORDS SUBSEQ UENTLY MADE BY THE ASSESSEE AND SHOULD HAVE CONSIDERED OVER ALL FA CTS AND CIRCUMSTANCES OF THE CASE CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE AND SHOULD HAVE COMPUTED THE REASONABL E PROFIT OF THE ASSESSEE, INSTEAD OF MAKING THE ADDITIONS AS ABOVE. CONSIDERING THE ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 14 FACTS AND CIRCUMSTANCES AND ABOVE DISCUSSIONS, WE A RE OF THE VIEW THAT ABOVE ADDITIONS IS UNJUSTIFIED. HOWEVER, CONSI DERING THE FACT THAT THE ASSESSEE DID NOT CHALLENGED REJECTION OF THE BO OKS OF ACCOUNTS, WE ARE OF THE VIEW THAT ENDS OF JUSTICE WOULD MEET IF A REASONABLE ADDITION IS MADE BY ENHANCING THE PROFIT OF THE ASS ESSEE. WE HAVE ALSO TO TAKE INTO CONSIDERATION THAT WHEN PROFIT IS TO BE ESTIMATED, THE NATURE OF THE BUSINESS OF THE ASSESSEE AND PREVIOUS HISTORY SHALL HAVE TO BE CONSIDERED. THE PROFIT RATIO OF THE ASSE SSEE IS BETTER AS COMPARED TO THE EARLIER YEARS. THEREFORE, IT WOULD BE REASONABLE AND PROPER TO MAKE LUMP SUM ADDITION OF RS.2,00,000/- I N ORDER TO PROTECT THE INTEREST OF THE REVENUE AND THE POSSIBLE LEAKAG ES ON ACCOUNT OF REJECTION OF THE BOOKS OF ACCOUNTS AS AGAINST THE A DDITIONS MADE BY THE AUTHORITIES BELOW ON GROUNDS NS. 1, 2, 5 AND 6. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS BANWARI LAL BANSHIDHAR 229 ITR 229 HELD THAT WHEN THE GROSS PROFIT RATE WAS APPLIED, THAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT IN CURRED ON THE PURCHASES MADE BY THE ASSESSEE. IN THE RESULT, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON GROUNDS NO.1 , 2, 5 AND 6. THE ADDITION OF RS.18,44,442/- FOR WASTAGE, ADDITION OF RS.14,40,886/- ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK, ADDITI ON OF RS.5,55,270/- ON ACCOUNT OF JOB CHARGES AND ADDITION OF RS.1,50,0 00/- ON ACCOUNT OF SALARY ARE DELETED. THE ORDERS OF THE AUTHORITIES B LOW ARE HOWEVER, MODIFIED TO THE EXTENT THAT THE AO SHALL MAKE LUMP SUM ADDITION OF RS.2,00,000/- INSTEAD OF MAKING THE ABOVE ADDITIONS . IN THE RESULT, APPEAL OF THE ASSESSEE ON GROUNDS NO.1, 2, 5 AND 6 ARE PARTLY ALLOWED. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 15 5. ON GROUNDS NO.3 AND 4, THE ASSESSEE CHALLENGED T HE ADDITION OF RS.11,00,000/- ON ACCOUNT OF UNSECURED LOANS U/S 68 OF THE IT ACT AND DISALLOWANCE OF INTEREST EXPENSES OF RS.79,249/ - ON ACCOUNT OF ADDITION MADE OF UNSECURED LOANS. 6. THE FACTS OF THE CASE IN THIS REGARD ARE THAT TH E ASSESSEE HAS ACCEPTED A LOAN OF RS.10,00,000/- FROM MINOR PREM R ATAN SHARMA, PROPRIETOR OF GEE ESS SYNTHETICS AND A LOAN OF RS.1 ,00,000/- FROM KISHANLAL SHARMA. THE AO ISSUED NOTICE U/S 133 (6) OF THE IT ACT TO BOTH THE SAID DEPOSITORS HOWEVER, IN THE CASE OF PR EM RATAN SHARMA, THE NOTICE RETURNED BACK UN-SERVED, WITH THE NOTING THAT THE ADDRESS IS INCOMPLETE WHEREAS, KISHANLAL SHARMA DID NOT RES POND TO THE NOTICE. THEREAFTER, THE ASSESSEE FURNISHED A NEW AD DRESS OF THE SAID PREM RATAN SHARMA AND ACCORDINGLY, THE AO ISSUED SU MMONS U/S 131 OF THE IT ACT TO THE SAID DEPOSITOR AND ALSO DE PUTED THE INSPECTOR TO SERVE THE SUMMONS AND CONDUCT INQUIRY. HOWEVER, THE INSPECTOR REPORTED THAT SAID PREM RATAN SHARMA WAS NOT AVAILA BLE AT THE GIVEN ADDRESS AND SOME OTHER PERSON IS RUNNING BUSINESS A T THE SAID ADDRESS. ACCORDINGLY, THE AO ASKED THE ASSESSEE TO JUSTIFY THE CASH CREDITS AS PER THE PROVISIONS SPECIFIED U/S 68 OF T HE IT ACT, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT THE S AID DEPOSITORS WOULD APPEAR BEFORE THE AO IN DUE COURSE. THOUGH TH E DEPOSITORS DID NOT APPEAR BEFORE THE AO, THE DEPOSITOR PREM RA TAN SHARMA FURNISHED A LETTER STATING THAT HE HAD PRESENTLY SH IFTED TO PUNE FROM SURAT AND ACCORDINGLY IT WAS NOT FEASIBLE FOR HIM T O APPEAR BEFORE THE AO. FURTHER, THE SAID DEPOSITOR PREM RATAN SHARMA S UBMITTED HAT HE HAD BECAME MAJOR ON 15-8-2006 I.E. DURING THE YEAR UNDER ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 16 CONSIDERATION HOWEVER, INADVERTENTLY THE CONFIRMATI ON WAS STAMPED WITH HIS OLD STAMP OF MINOR. THE SAID DEPOSITOR ALS O FURNISHED A COPY OF HIS INCOME TAX RETURN, COMPUTATION OF INCOME, PR OFIT & LOSS ACCOUNT, BALANCE SHEET AND THE RELEVANT EXTRACT OF BANK STAT EMENT. ON VERIFICATION OF THE DETAILS AND BANK STATEMENT SUBM ITTED BY THE SAID PREM RATAN SHARMA, THE AO OBSERVED THAT THE SAID DE POSITOR HAD BECOME MAJOR ON 15-8-2006, I.E. DURING THE YEAR UND ER CONSIDERATION ITSELF AND SOON AFTER BECOMING MAJOR, HE HAD DEPOSI TED CASH IN HIS BANK ACCOUNT DURING A SHORT PERIOD OF 24-8-2006 TO 15-9-2006, PRIOR TO ISSUING CHEQUES FOR LOAN TO THE ASSESSEE. THE AO FURTHER OBSERVED THAT THE TOTAL INCOME OF PREM RATAN SHARMA FOR THE YEAR UNDER CONSIDERATION 2007-08 WAS ONLY RS.1,52,880/- AND TH US, THE AO WAS OF THE OPINION THAT THE SOURCE OF CASH DEPOSITED BY THE DEPOSITOR, FOR GIVING A HUGE LOAN TO THE ASSESSEE WAS NOT GETTING EXPLAINED. THEREFORE, THE AO HELD THAT THE CREDITWORTHINESS OF THE DEPOSITOR PREM RATAN SHARMA WAS NOT ESTABLISHED AND ACCORDING LY, HE MADE AN ADDITION OF RS.10,00,000/- IN THE HANDS OF THE A SSESSEE U/S 68 OF THE IT ACT. SIMILARLY, THE AO ON VERIFICATION OF TH E BANK STATEMENT OF THE OTHER DEPOSITOR KISHANLAL SHARMA OBSERVED THAT EVEN THE SAID DEPOSITOR HAD DEPOSITED CASH IN HIS BANK ACCOUNT PR IOR TO ISSUE CHEQUES TO THE ASSESSEE FOR WHICH THE ASSESSEE DID NOT FURNISH ANY EXPLANATION OR EVIDENCE AND ACCORDINGLY THE AO MADE ADDITION OF RS.1,00,000/- FOR THE SAID LOAN U/S 68 OF THE IT AC T. ACCORDINGLY, THE AO MADE TOTAL ADDITION OF RS.11,00,000/- FOR UNEXPL AINED CASH CREDITS U/S 68 OF THE IT ACT. FURTHER, AS THE SAID UNSECURE D LOANS OF RS.11,00,000/- WAS TREATED AS UNEXPLAINED, THE AO A LSO DISALLOWED INTEREST OF RS.79,249/- PAID BY THE ASSESSEE THEREO N. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 17 7. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND THE ASSESSEES COUNSEL ARGUED THAT BY FURNISHING THE NA ME, ADDRESS, PAN, CONFIRMATION , IT DETAILS, BANK STATEMENT ETC. OF THE DEPOSITORS THE ASSESSEE HAD DISCHARGED THE ONUS CAST UPON IT U /S 68 OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO ARGUED THAT EVEN ASSESSEE DEDUCTED TAX AT SOURCE ON THE INTEREST PAID ON THE SAID LOANS. ACCORDINGLY, IN VIEW OF THESE ARGUMENTS, THE LEARNE D COUNSEL FOR THE ASSESSEE PLEADED THAT THE ADDITION U/S 68 OF THE IT ACT AS ALSO DISALLOWANCE OF INTEREST EXPENSES AS MADE BY THE AO NEEDS TO BE DELETED. THE LEARNED CIT(A) HOWEVER, CONFIRMED THE ADDITIONS AND DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS AT PAGE 10 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE, THE ORDER OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. IT THE PRESENT CASE IT IS SEEN THAT THOUGH THE APPELLANT H AS BEEN ABLE TO DISCHARGE HIS ONUS TO PROVE THE IDENTITY OF THE DEPOSITORS AND THE GENUINENESS OF THE TRANSACTION, HE HAS COMPLETELY FAILED TO DISCHARGE THE BURDEN CAST UPON HIM U/S 68 OF THE ACT TO ALSO PROVE THE CREDITWORTHINES S OF THE DEPOSITORS. IT IS A FACT ON RECORD THAT THE DEPOSIT ORS HAD DEPOSITED HUGE AMOUNT OF CASH IN THEIR BANK ACCOUNT TO ISSUE LOAN CHEQUES TO THE APPELLANT AND THE SOURCE OF SUCH CASH DEPOSITED HAS NOT BEEN FURNISHED EITHER B Y THE DEPOSITORS OR BY THE APPELLANT. FURTHER, IN THE CAS E OF THE DEPOSITOR VIZ. PREM RATAN SHARMA, IT IS SEEN THAT H E HAD ATTAINED MAJORITY ON 15-8-2006, I.E. DURING THE YEA R UNDER CONSIDERATION ITSELF AND WITHIN A VERY SHORT PERIOD OF 1 MONTH FROM THE DATE OF ATTAINING MAJORITY HE HAS DEPOSITED CASH OF RS.9.83 LACS IN HIS BANK ACCOUNT FOR LENDING UNSECURED LOAN TO THE APPELLANT. IT IS ALSO SEEN THAT THE TOTAL INCOME OF THE SAID DEPOSITOR FOR THE YEAR UNDER CONSIDERATION IS ONLY RS.1.52 LACS AND THE CL OSING CAPITAL AS ON 31-3-2007 IS ONLY RS.6.10 LACS. THUS, THE ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 18 FACT FROM WHERE THE HUGE AMOUNT OF CASH OF RS. 9.83 LACS WAS BROUGHT REMAINS UNEXPLAINED SINCE, THE DEPOSITO R NEITHER HAD ANY SOURCE OF INCOME IN THE EARLIER YEA R NOR HE HAS ANY EARNED SUBSTANTIAL INCOME DURING THE YEA R UNDER CONSIDERATION, TO JUSTIFY THE SOURCE OF DEPOS IT OF SUCH A HUGE AMOUNT OF CASH. FURTHER, EVEN IN THE CA SE OF THE OTHER DEPOSITOR VIZ. KISHANLAL SHARMA, IT IS SE EN THAT CASH HAS BEEN DEPOSITED PRIOR TO GRANTING OF LOAN T O THE APPELLANT AND EVEN IN THIS CASE, THE SOURCE OF THE CASH DEPOSITED HAS NOT BEEN EXPLAINED. THUS, IT IS CLEAR THAT THE APPELLANT HAS COMPLETELY FAILED TO DISCHARGE TH E ONUS CAST UPON HIM U/S. 68 OF THE ACT TO PROVE THE CREDITWORTHINESS OF THE DEPOSITORS. THEREFORE, I HO LD THAT THE AO IS JUSTIFIED IN TREATING THE SAID CASH CREDI TS TOTALING TO RS.11 LACS AS UNEXPLAINED AND MAKING AN ADDITION FOR THE SAME AND ALSO DISALLOWING INTEREST PAID THEREON . ACCORDINGLY, GROUNDS OF APPEAL NO. (III) AND (IV) A RE DISMISSED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES AND SUBMITT ED THAT THOUGH THE SUMMONS WERE ISSUED U/S 131 OF THE IT ACT AGAIN ST SHRI PREM RATAN SHARMA BUT THE SAID CREDITOR FILED THE REPLY BEFORE THE AO CONFIRMING GIVING OF LOAN TO THE ASSESSEE. HE HAS E XPLAINED IN HIS STATEMENT THAT DUE TO HIS SHIFTING HE COULD NOT APP EAR BEFORE THE AO ON THE DATE OF HEARING. HE HAS FILED COPY OF HIS TA X RETURN, COMPUTATION OF INCOME AND BALANCE SHEET FOR THE YEA R UNDER APPEAL ALONG WITH PROOF OF HIS IDENTITY TO SHOW THAT GENUI NE CASH CREDIT HAS BEEN GIVEN. HE HAS SUBMITTED THAT MERELY BECAUSE HE HAS DEPOSITED CASH IN HIS BANK ACCOUNT PRIOR TO GIVING LOAN TO TH E ASSESSEE IS NO GROUND FOR MAKING ADDITION AGAINST THE ASSESSEE. HE HAS SUBMITTED THAT DETAILS OF THE SAME ARE FILED IN THE PAPER BOO K FROM PAGES 73 TO 78 AND SIMILAR DETAILS HAVE BEEN FILED IN THE CASE OF THE OTHER CREDITOR ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 19 SHRI KISHANLAL SHARMA, PROPRIETOR OF ANIL TEXTILES. HE HAS SUBMITTED THAT IT WAS EXPLAINED BEFORE THE LEARNED CIT(A) THA T EVEN IN THAT CASE REPLY WAS FILED BY THE PROPRIETOR DIRECTLY TO THE A O BUT THE SAME IS NOT DISCUSSED IN THE ASSESSMENT ORDER. THE DETAILS IN H IS CASE ARE FILED AT PAGES 79 TO 84 OF THE PAPER BOOK. THE LEARNED COUNS EL FOR THE ASSESSEE RELIED UPON THE ORDER OF ITAT AHMEDABAD BE NCH IN THE CASE OF SHRI AMIT N. PRAJAPATI IN ITA NO.287/AHD/20 08 DATED 06-11- 2009 AND THE ORDER OF THE ITAT AHMEDABAD IN THE CAS E OF SMT. MAMTADEVI L. RAOL IN ITA NO.3619/AHD/2007 DATED 15- 2-2011 IN WHICH BY FOLLOWING THE DECISION OF THE HONBLE BOMB AY HIGH COURT IT WAS HELD THAT BLAME CANNOT BE ATTACHED TO THE ASSES SEE FOR FAILURE OF THE CREDITOR TO APPEAR IN RESPONSE TO THE SUMMONS. IT WAS ALSO HELD THAT NOTHING WAS BROUGHT ON RECORD TO SHOW THAT CAS H WAS DEPOSITED BY THE ASSESSEE IN THE ACCOUNT OF THE CREDITOR. 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT CASH DEPOSITED IN THE ACCOUNTS OF THE CREDITORS HAVE NOT BEEN EXPLAINED. THE CREDI TORS WERE NOT PRODUCED BEFORE THE AO FOR EXAMINATION. THE CREDITW ORTHINESS OF THE CREDITORS IS NOT PROVED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIALS AVAILABLE ON RECORD. IN THE CASE OF THE CREDITOR SH RI PRAM RATAN SHARMA, THE AO ISSUED SUMMONS U/S 131 OF THE IT ACT FOR HIS APPEARANCE BEFORE THE AO FOR VERIFICATION OF THE CR EDITS GIVEN TO THE ASSESSEE. INSTEAD OF APPEARING BEFORE THE AO, HE HA S FILED HIS REPLY AND INTIMATED THE AO THAT HE HAS SHIFTED FROM SURAT TO PUNE AND IT IS ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 20 NOT POSSIBLE FOR HIM TO APPEAR BEFORE THE AO WITHIN SHORT PERIOD. HE HAS ENCLOSED COPY OF HIS INCOME TAX RETURN, COMPUTA TION OF INCOME, PROFIT & LOSS ACCOUNT AND BALANCE SHEET FOR THE YEA R UNDER APPEAL. COPIES OF THE SAME ARE FILED IN THE PAPER BOOK. THE BALANCE SHEET OF THE SAME SHOWS THAT THE LOAN GIVEN TO THE ASSESSEE IS SHOWN BY THE SAID CREDITOR IN HIS BALANCE SHEET AND ON THE INTER EST THE ASSESSEE HAS DEDUCTED TDS. IT WOULD, THEREFORE, SHOW THAT HE HAS CONFIRMED GIVING LOAN TO THE ASSESSEE AND THAT HIS INCOME TAX REPORT SHOWS THAT THE SAME ENTRIES ARE SHOWN TO THE REVENUE DEPARTMEN T. THE ASSESSEE HAS BEEN ABLE TO PROVE IDENTITY OF THE CRE DITOR AND THE GENUINENESS OF THE TRANSACTION IN THE MATTER. THE A O HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE BECAUSE THE SAID CREDITOR MADE CASH DEPOSITS IN HIS BANK ACCOUNT PRIOR TO GIVING L OAN TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE RELI ED ON THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF SHRI AMIT N. PRAJAPATI (SUPRA) IN WHICH FACTS ARE SAME IN WHICH THERE WERE CASH DEPOSITS. IT WAS HELD THAT BLAME CANNOT BE ATTACHED TO THE ASSES SEE FOR FAILURE OF THE CREDITOR TO APPEAR IN RESPONSE TO THE SUMMONS. IT WAS ALSO HELD THAT THE CREDITOR IS ASSESSED TO TAX AND THAT IT IS DIFFICULT TO BELIEF THAT CASH DEPOSITED IN THE BANK ACCOUNT OF THE CREDITOR CAME FROM ASSESSEES RESOURCES. SIMILARLY, IN THE CASE OF SMT . MAMTADEVI L. RAOL (SUPRA) ITAT AHMEDABAD BENCH HELD THAT NO MATE RIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT SAID CASH DEPOSITS W ERE MADE BY THE ASSESSEE OR ANY MATERIAL TO SHOW THAT CASH WAS GIVE N BY THE ASSESSEE IN LIEU OF THE CHEQUES ISSUED. IT WAS FURT HER HELD THAT THE AO COULD HAVE MADE INQUIRY AND MADE ADDITION IN THE HANDS OF THE CREDITORS. BUT THE DEPOSITS CANNOT BE ASSESSED IN T HE HANDS OF THE ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 21 ASSESSEE AS UNEXPLAINED CREDIT U/S 68 OF THE IT ACT . CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE ABOVE DISCUSSIONS AND THE DECISION REFERRED TO ABOVE IT I S CLEAR THAT AFTER ISSUE OF SUMMONS DIRECTLY TO THE CREDITOR SHRI PREM RATAN SHARMA, THE CREDITOR IN RESPONSE TO THE SUMMONS FILED REPLY BEFORE THE AO DIRECTLY CONFIRMING GIVING OF LOAN TO THE ASSESSEE WHICH IS SHOWN IN HIS BALANCE SHEET AS WELL AS SHOWN TO THE REVENUE D EPARTMENT. THEREAFTER, THE AO DID NOT ASK THE ASSESSEE TO PROD UCE THE CREDITOR FOR EXAMINING BEFORE HIM. THE AO ON THE BASIS OF TH E REPLY OF THE CREDITOR AND MATERIAL BEFORE HIM CONSIDERED THE CAS E AGAINST THE ASSESSEE. THE AO HAS NOT BROUGHT ANY EVIDENCE ON RE CORD THAT THE CASH DEPOSITS IN THE BANK ACCOUNT OF THE CREDITOR C AME FROM THE SIDE OF THE ASSESSEE. THEREFORE, BOTH THE DECISIONS WOUL D CLEARLY APPLY TO THE CASE OF THE ASSESSEE. SIMILAR ARE THE FACTS IN THE CASE OF THE OTHER LOAN TAKEN FROM SHRI KISHANLAL SHARMA. IN THI S CASE ALSO THE CREDITOR HAS FILED RETURN OF INCOME AND SHOWN THE D EPOSIT GIVEN TO THE ASSESSEE IN HIS BALANCE SHEET WHICH IS SHOWN TO THE REVENUE DEPARTMENT AND THE ASSESSEE DEDUCTED TDS ON THE INT EREST AMOUNT. CONSIDERING THE ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS BEEN ABLE TO PROVE THE IDENTITY OF THE CREDITORS, G ENUINENESS OF THE TRANSACTIONS IN THE MATTER AND CREDITWORTHINESS OF THE CREDITORS. THE AUTHORITIES BELOW WERE, THEREFORE, NOT JUSTIFIED IN MAKING THE ADDITION TREATING AS UNEXPLAINED CASH CREDIT AND DISALLOWANC E OF INTEREST THEREON. WE ACCORDINGLY, SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DELETE THE ADDITION ON ACCOUNT OF UNEXPLAINED C ASH CREDIT AND DISALLOWANCE OF INTEREST THEREON. IN THE RESULT, GR OUNDS NO.3 AND 4 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. ITA NO.1687/AHD/2010 SHRI DHIRAJ R. RUNGTA VS ITO, WARD 5(1), SURAT 22 11. NO OTHER POINT IS ARGUED OR PRESSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18-03-2011 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 18-03-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD