The ITO, Ward-9(3), Surat V. Shri Rajeevkumar N.Bodawal, Surat

ITA 1803/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8953 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTHA
• Keywords: Unexplained cash credit; Unexplained investment; Opportunity of being heard; Third party statement; Set aside
• Section: 143(3); 133(6); 69B; 68; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.1803/AHD/2008 A. Y.: 2005-06 THE INCOME TAX OFFICER, WARD 9(3), ROOM NO.420, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI RAJEEVKUMAR N. BODAWALA, PROP. NARAYAN SILK MILLS, 1/82 HANUMAN POLE, NANAVAT, SURAT PA NO. AAUPB 8187 F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. K. DHANISTHA, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-V, SURAT DATED 12 TH MARCH, 2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FI NDINGS OF THE AUTHORITIES BELOW. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. THE RECORD REVE ALED THAT THE ASSESSEE THROUGH COUNSEL SOUGHT ADJOURNMENT AND ON THE LAST DATE OF HEARING FIXED ON 26-10-2010 THE LEARNED COUNSEL FOR THE ASSESSEE REQUESTED FOR ADJOURNMENT ON THE GROUND OF COMPILIN G REQUISITE DATA FOR MAKING THE SUBMISSION AND REQUESTED THAT THE AP PEAL MAY BE FIXED PREFERABLY AFTER 15-11-2010. ON THIS REQUEST OF THE ASSESSEE THE APPEAL WAS ADJOURNED TO 22-12-2010. HOWEVER, NONE A PPEARED ON ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 2 22-12-2010. THE REQUEST FOR ADJOURNMENT IS AGAIN FO RWARDED ON THE REASON THAT THE LEARNED COUNSEL FOR THE ASSESSEE WA S BUSY IN TIME BARRING CASES. IT IS NO GROUND. CONSIDERING THE EAR LIER REQUEST OF THE ASSESSEE SEEKING FIXATION OF THE APPEAL AFTER 15-11 -2010, THERE IS NO REASON TO ADJOURN THE HEARING WITHOUT ANY JUSTIFICA TION. REQUEST FOR ADJOURNMENT IS ACCORDINGLY REJECTED AND THE ASSESSE E IS PROCEEDED EX-PARTY. ALL THE GROUNDS IN DEPARTMENTAL APPEAL AR E DECIDED AS UNDER. GROUNDS NO.1, 2 AND 3 3. GROUNDS NO. 1, 2 AND 3 OF THE APPEAL OF THE REVE NUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.1,76,011/- MADE BY THE A. O. U/S 69B OF THE ACT VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF DIFFERENCE IN LEDGER ACCOUNT WITH SISTER CONCERNS VIZ. M/S. N. M. TWISTING WORKS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.2,05,914/- MADE BY THE A. O. U/S. 69B OF THE AC T VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF DIFFERENCE IN LEDGER ACCOUNT WITH SISTER CONCERNS VIZ. M/S. JAYSHREE FABRICS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.17,908/- MADE BY THE A. O. U/S. 68 OF THE ACT VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 3 1961 DATED 31/10/2007 ON ACCOUNT OF DIFFERENCE IN LEDGER ACCOUNT WITH SISTER CONCERNS VIZ. M/S. YOGI SILK MILLS. 4. THE AO ASKED THE ASSESSEE TO FURNISH COPIES OF A CCOUNTS OF HIS SISTER CONCERNS FROM HIS BOOKS OF ACCOUNTS AND COPY OF THE CONTRA CONFIRMATION OF THE ACCOUNTS FROM THE BOOKS OF THE SISTER CONCERNS. THE ASSESSEE FURNISHED DETAILS SHOWING BALANCES IN HIS BOOKS OF ACCOUNT AND BALANCES IN THE BOOKS OF THE CONCERN PA RTIES. THE ASSESSEE EXPLAINED THAT THE DISCREPANCIES IN THE AC COUNTS WERE BECAUSE OF WRONG ACCOUNTING ENTRIES AND CLERICAL ER ROR WHICH HAVE BEEN RECONCILED. IT WAS EXPLAINED THAT THE DIFFEREN CE WAS PRIMARILY IN THE OPENING BALANCE CARRIED FORWARD SINCE MANY YEAR S AND SINCE ALL THE TRANSACTIONS WERE THROUGH CHEQUE, THERE IS NO Q UESTION OF ESCAPEMENT OF INCOME BUT THE DISCREPANCY WAS DUE TO WRONG POSTING WHICH IS RECTIFIABLE. THE AO DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE AND DIFFERENCE IN THE ACCOUNTS WAS TREATED AS INCOME OF THE ASSESSEE AND ADDITIONS WERE ACCORDINGLY MADE. T HE ADDITIONS WERE CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WA S CONTENDED THAT THE DIFFERENCES WERE DUE TO CARRY FORWARD OF THE OP ENING BALANCE AND NO ADDITION CAN BE MADE IN THE CURRENT YEAR FOR DIF FERENCE IN THE OPENING BALANCE WHICH PERTAIN TO THE EARLIER YEARS. THE LEARNED CIT(A) NOTED SPECIFIC SUBMISSIONS IN THE IMPUGNED O RDER AND ALSO NOTED THAT COPIES OF THE BANK ACCOUNT SUPPORT THE C ONTENTION OF THE ASSESSEE. THE ASSESSEE ALSO FILED LEDGER ACCOUNTS O F THE PARTIES TO EXPLAIN THAT THERE IS ACCOUNTING ERROR IN THE POSTI NG AND THAT ULTIMATELY STATEMENT OF THE ASSESSEE IS SUPPORTED BY BANK STAT EMENT. IT WAS FURTHER EXPLAINED THAT THE LEDGER ACCOUNTS OF THE P ARTIES WERE ALSO ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 4 FILED TO RECONCILE THE DIFFERENCES OF THE CURRENT Y EAR BEFORE THE AO FOR VERIFICATION BUT THE AO FAILED TO APPRECIATE THE SA ME. THE LEARNED CIT(A) CONSIDERING THE RECONCILIATION STATEMENT NOT ED THAT THE ASSESSEE HAD SATISFACTORILY RECONCILED THE CURRENT YEARS DIFFERENCES IN THE LEDGER ACCOUNT WITH EVIDENCES AND THE AO HAS FAILED TO APPRECIATE THIS FACT. AS REGARDS THE DIFFERENCES IN THE OPENING BALANCES THE LEARNED CIT(A) AGREED WITH THE ASSESSE E THAT THE SAME BEING NOT PERTAINING TO THE YEAR UNDER CONSIDERATIO N AND THEREFORE, IT CANNOT BE TREATED AS UNEXPLAINED INVESTMENT/UNEXPLA INED CREDIT IN THE CASE OF THE ASSESSEE. ALL THE 3 ADDITIONS WERE ACCORDINGLY DELETED. 5. ON CONSIDERATION OF THE ABOVE FACTS, WE DO NOT F IND IT TO BE PROPER TO INTERFERE WITH THE FINDINGS OF FACT RECOR DED BY THE LEARNED CIT(A)ON THE BASIS OF PROPER APPRECIATION OF THE FA CTS AND MATERIAL ON RECORD. THE LEARNED CIT(A) SPECIFICALLY NOTED THAT THE SUBMISSIONS OF THE ASSESSEE WERE SUPPORTED BY THE ACCOUNTS OF THE PARTIES AND THE BANK STATEMENT. THE DIFFERENCES IN THE ACCOUNTS OF THE PARTIES WERE MAINLY DUE TO OPENING BALANCES WHICH DID NOT PERTAI N TO THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE RECONCIL ED THE DIFFERENCES OF THE CURRENT YEAR AND DID NOT FIND AN Y DIFFERENCE IN THE ACCOUNTS OF THE ASSESSEE AS COMPARED WITH THE ACCOU NTS OF THE SISTER CONCERNS. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE EVIDENCES AND MATERIAL ON RECORD RIGHTLY CAME TO TH E CONCLUSION THAT NO ADDITION COULD BE MADE IN RESPECT OF DIFFERENCE IN OPENING BALANCE OF THE EARLIER YEAR. NO MATERIAL OR EVIDENCE IS PRO DUCES BEFORE US TO CONTRADICT THE FINDINGS OF FACT RECORDED BY THE LEA RNED CIT(A). WE ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 5 ACCORDINGLY, DO NOT FIND ANY JUSTIFICATION TO INTER FERE WITH THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. IN THE RESULT, GROUNDS NO.1, 2 AND 3 OF THE APPEAL OF THE REVENUE ARE DISM ISSED. GROUND NO.4 6. GROUND NO.4 OF THE APPEAL OF THE REVENUE READS A S UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.53,280/- MADE BY THE A. O. VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF EXCESS SHORTAGE IN CONSUMPTION OF YARN FOR MANUFACTURING GREY CLOTH. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO JUSTIFY THE SHORTAGE OF 492 KGS IN CONSUMPTION OF YARN AND 249 METRES IN SALE OF GREY CLOTHES SINCE T HERE WAS NO SUCH SHORTAGE IN THE EARLIER YEAR. THE ASSESSEE EXPLAINE D THAT IN THE EARLIER YEAR THE ASSESSEE HAD NOT SHOWN SHORTAGE SE PARATELY BUT THE FIGURES OF CONSUMPTION OF YEARN WAS INCLUSIVE OF SH ORTAGE. HOWEVER, IN THE CURRENT YEAR THE ASSESSEE FOR THE SAKE OF BE TTER PRESENTATION, SHORTAGE WAS SHOWN SEPARATELY. IT WAS FURTHER EXPLA INED THAT SUCH SHORTAGE IS ROUTINE AND REGULAR FEATURE IN THE ACTI VITY OF MANUFACTURING OF GREY CLOTHES. THE AO ACCEPTED PART OF THE EXPLAN ATION OF THE ASSESSEE AND ALLOWED SHORTAGE OF 249 METRES IN PROD UCTION OF GREY CLOTHES AND AS REGARDS DIFFERENCE OF 492 KGS IN CON SUMPTION OF YARN, THE AO ALLOWED SHORTAGE OF 159 KGS @1% AND ADDITIO N FOR REMAINING 333 KGS OF YARN WAS MADE AT THE AVERAGE P URCHASE RATE OF RS.160/- PER KG AMOUNTING TO RS.53,280/-. THE ASSES SEE SUBMITTED ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 6 COMPARISON OF THE SHORTAGE DURING THE PRECEDING ASS ESSMENT YEAR AND IT WAS EXPLAINED THAT IN THE PRECEDING ASSESSME NT YEAR SHORTAGE IN PERCENTAGE OF CONSUMPTION OF YARN WAS 2.65% AND IN THE ASSESSMENT YEAR UNDER APPEAL IT IS 3.09%. THE WASTA GE IN PRODUCTION IN THE PRECEDING ASSESSMENT YEAR WAS 0.10% AND IN T HE ASSESSMENT YEAR UNDER APPEAL SUCH WASTAGE IS 0.07%. IT WAS, TH EREFORE, SUBMITTED THAT SHORTAGE IS EVEN COMPARABLE WITH EAR LIER YEAR AND ADDITION IS MADE WITHOUT ANY JUSTIFICATION AND WITH OUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. TH E LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE BECAUSE IN THE EARLIER YEAR ALSO SHORTAGE WAS SHOWN WHICH WAS NOT FOUND TO BE E XCESSIVE IN THE ASSESSMENT YEAR UNDER APPEAL. IT WAS ALSO NOTICED T HAT NO SPECIFIC DEFECT IN QUANTITY RECORD WAS FOUND, THEREFORE, ADD ITION IS CLEARLY UNJUSTIFIED. THE LEARNED CIT(A) ACCORDINGLY DELETED THE ADDITION. 8. ON CONSIDERATION OF THE SUBMISSIONS OF THE LEARN ED DR WHO HAS RELIED UPON THE ORDER OF THE AO, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE AO ON THE PREMISE THAT NO SHORTAG E IS CLAIMED IN THE PRECEDING ASSESSMENT YEAR MADE THE ADDITION BY ACCEPTING PART OF THE CLAIM OF THE ASSESSEE. NO SPECIFIC DEFECT HA S BEEN POINTED OUT IN THE MAINTENANCE OF RECORD AND BOOKS OF ACCOUNTS BY THE ASSESSEE. IT IS A FACT THAT IN THE PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS SHOWN SHORTAGE/WASTAGE WHICH IS A ROUTINE OF BUSINE SS ACTIVITY OF THE ASSESSEE. AS COMPARED WITH THE PRECEDING ASSESSMENT YEAR THE SHORTAGE/WASTAGE COULD NOT BE TREATED AS EXCESSIVE. IN THE ABSENCE OF ANY SPECIFIC DEFECT IN THE MAINTENANCE OF THE BO OKS OF ACCOUNT AND ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 7 RECORD BY THE ASSESSEE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISM ISSED. GROUND NO.5 9. GROUND NO.5 OF THE APPEAL OF THE REVENUE READS A S UNDER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.28,881/- MADE BY THE A. O. VIDE ASSESSMENT ORDER U/S 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF INFLATED PURCHASES IN THE INCOME OF M/S. PREMPRIT TEXTILE IND. LTD. 10. THE AO ASKED THE ASSESSEE TO EXPLAIN THE DIFFER ENCE OF RS.3,59,717/- IN THE ACCOUNT OF ONE OF ITS SUPPLIER S M/S. PREMPRIT TEXTILES (I) LTD. THE ASSESSEE RECONCILED THE DIFFE RENCE, HOWEVER, THE AO MADE ADDITION OF RS.28,881/- STATING THAT THE SA ID DIFFERENCE WAS ON ACCOUNT OF NEGLIGENCE ON THE PART OF THE ASSESSE E FOR NOT PASSING THE ENTRY IN THE CREDIT NOTE. IT WAS EXPLAINED BEFO RE THE LEARNED CIT(A) THAT THE DIFFERENCE OF RS.17,503/- WAS REGAR DING OPENING BALANCE FOR WHICH INCOME HAD ALREADY BEEN OFFERED A S DISCOUNT IN THE EARLIER YEAR WHICH IS SUPPORTED BY LEDGER ACCOUNT O F THE EARLIER YEAR. AS REGARDS BALANCE DIFFERENCE OF RS.11,378/- IT WAS SUBMITTED THAT CREDIT NOTE FOR THE CLAIM/DISCOUNT WAS RECEIVED LAT E BY THE ASSESSEE FROM THE SUPPLIER, THEREFORE, IT WAS OFFERED AS INC OME IN THE SUBSEQUENT YEAR WHICH IS ALSO SUPPORTED BY LEDGER A CCOUNT. IT WAS, THEREFORE, SUBMITTED THAT THE ADDITION MADE BY THE AO AMOUNTS TO DOUBLE ADDITION. THE LEARNED CIT(A) ON VERIFICATION OF THE FACTS ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 8 ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION BECAUSE NO DOUBLE ADDITION COULD BE MADE. 11. ON CONSIDERATION OF THE SUBMISSION OF THE LEARN ED DR, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE AO WAS SATISFIED WITH THE RECONCILIATION FILED BY THE ASSESSEE IN RESPECT OF THE ACCOUNT OF M/S. PREMPRIT TEXTILES (I) LTD. BUT PART ADDITION I S MADE BECAUSE THE CREDIT NOTE OF DIFFERENCE OF RS.28,881/- WAS NOT NO TED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE EXPLAINED THAT PART OF THE A MOUNT W AS PERTAINING TO THE EARLIER YEAR WHICH IS OFFERED FOR TAXATION AND FOR PART OF THE AMOUNT CREDIT NOTE WAS RECEIVED LATE IN THE SUBSEQUENT YEAR AND THAT AMOUNT WAS ALSO OFFERED FOR TAXATION IN TH E SUBSEQUENT YEAR. THEREFORE, THERE WAS NO NEGLIGENCE ON THE PART OF T HE ASSESSEE NOT TO POST THE CREDIT NOTES IN THE BOOKS OF ACCOUNTS. ENT RIES ARE SUPPORTED BY LEDGER ACCOUNTS OF THE PARTY. SINCE THE ASSESSEE HAS ALREADY OFFERED THE AMOUNT IN QUESTION IN THE EARLIER YEAR AND SUBSEQUENT YEAR AND OFFERED FOR TAXATION, THEREFORE, IT WOULD AMOUNT TO DOUBLE TAXATION. THIS GROUND OF APPEAL OF THE REVENUE HAS NO MERIT. THE SAME IS ACCORDINGLY DISMISSED. GROUND NO.6 12. GROUND NO.6 OF THE APPEAL OF THE REVENUE READS AS UNDER: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.2,88,473/- MADE BY THE A. O. VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF BOGUS LIABILITY U/S. 41(1) OF THE ACT. ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 9 13. THE AO ASKED THE ASSESSEE AS TO WHY THE BALANCE OUTSTANDING IN THE NAME OF 9 CREDITORS TOTALING TO RS.2,88,473/ - SINCE LAST 5 YEARS SHOULD NOT BE TREATED AS FICTITIOUS LIABILITY. THE AO NOTED THAT LETTERS U/S 133(6) OF THE IT ACT HAVE BEEN RETURNED UN-SERV ED. THE ASSESSEE SUBMITTED THAT LIABILITIES ARE GENUINELY OUTSTANDIN G SINCE LAST 4/5 YEARS AND HE WOULD MAKE THE PAYMENTS AS AND WHEN TH E CREDITORS WOULD CLAIM THE SAME. BUT THE ASSESSEE AGREED TO OF FER THE AMOUNT PROVIDED NO PENALTY IS LEVIED. HOWEVER, THE AO DID NOT ACCEPT THE SAID OFFER OF THE ASSESSEE AND MADE ADDITION FOR TH E OUTSTANDING LIABILITIES U/S 41(1) OF THE IT ACT AND ALSO INITIA TED PENALTY PROCEEDINGS. THE ASSESSEE SUBMITTED BEFORE THE LEAR NED CIT(A) THAT THE CONDITIONS OF SECTION 41 (1) OF THE IT ACT ARE NOT SATISFIED AND THAT THE OFFER OF THE ASSESSEE WAS NOT ACCEPTED. THEREFO RE, THE ADDITION IS CONTESTED BY RAISING THIS GROUND. THE ASSESSEE RELI ED UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C IT VS SUGAULI SUGAR WORKS (P) LTD. 236 ITR 518. THE LEARNED CIT(A ) ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD THAT SECTION 41 (1)OF THE IT ACT CANNOT BE HELD TO BE APPLICABLE UNLESS THE CREDITOR S VOLUNTARILY GIVES UP THE CLAIM OR LIABILITY CEASED TO EXIST IN THE EY ES OF LAW FOR ALL INTENTS AND PURPOSES WHICH IS NOT THE FACT IN THE CASE OF T HE ASSESSEE. THE ADDITION WAS ACCORDINGLY DELETED. 14. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE SURRENDERED THE ABOVE AMOUNT FOR TAXATION AND THAT NO CONFIRMATION WAS FILED BY THE PARTIES DESPI TE INFORMATION CALLED FOR U/S 133(6) OF THE IT ACT. ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 10 15. ON CONSIDERATION OF THE SUBMISSION OF THE LEARN ED DR, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. IT I S ADMITTED FACT THAT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THE AMOUNT IN QUES TION WAS ALL ALONG PENDING WITH THE CREDITORS FOR ABOUT 5 YEARS AND WAS OLD LIABILITIES OF THE ASSESSEE. THUS, THE LEARNED CIT( A) ON PROPER APPRECIATION OF THE FACTS RIGHTLY NOTED THAT PROVIS IONS CONTAINED IN SECTION 41(1) OF THE IT ACT ARE NOT APPLICABLE IN T HIS CASE. ITAT AHMEDABAD B BENCH IN THE CASE OF SHRI NITIN S. GA RG IN ITA NOS. 169, 170, 171 AND 172/AHD/2009 VIDE ORDER DATED 04- 06-2010 HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. SECTION 41 (1) (A) OF THE IT ACT READS AS UNDER: 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 11 OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR 8.1 HONBLE MADRAS HIGH COURT IN THE CASE OF TAMILNADU WAREHOUSING CORPORATION 292 ITR 310 HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT YEAR 1989-90 AND ASSESSMENT ERAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAD SURRENDERED THE GROUP GRATUITY SCHEME WITH LIC AND RECEIVED A SUM OF RS.8,22,925/- DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 1989-90. AS THERE WAS NO PROPER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JANUARY 21,1992, THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIRECTION TO THE ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UNDER SECTION 41(1) OF THE ACT FOR THE ASSESSMENT YEAR 1989-90. THE TRIBUNAL SET AIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO THE HIGH COURT: HELD, THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT OF RS.8,22,925 AS LIABILITY IN THE BALANCE- SHEET. THE UNDISPUTED FACT WAS THAT IT WAS A LIABILITY REFLECTED IN THE BALANCE-SHEET. ONCE IT WAS SHOWN AS LIABILITY BY THE ASSESSEE, THE COMMISSIONER WAS WRONG IN HOLDING THAT IT WAS ASSESSABLE UNDER SECTION 41(1) OF THE ACT. UNLESS AND UNTIL THERE IS A CESSATION OF LIABILITY, SECTION 41 IS NOT APPLICABLE. ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 12 8.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF SMT. SITA DEVI JUNEJA 187 TAXMAN 96 HELD AS UNDE R: IT IS THE CONCEDED POSITION THAT IN THE ASSESSEES BALANCE SHEET THE AFORESAID LIABILITIES HAVE BEEN SHOWN, WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES, SHOWN IN THE BALANCE SHEET, INDICATE THE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSEE. MERELY BECAUSE, SUCH LIABILITY IS OUTSTANDING FOR THE LAST SIX YEARS, IT CANNOT BE PRESUMED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO CONCEDED POSITIN THAT THERE IS NO BILATERAL ACT OF THE ASSESSEE AND THE CREDITORS, WHICH INDICATES THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL ACT, THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAVE CEASED. 8.3 ITAT AHMEDABAD BENCH IN THE CASE OF N. R. CHAUHAN ORDER DATED 23-01-2009 HELD AS UNDER: THE LD. COUNSEL FOR THE ASSESSEE SPECIFICALLY DRAWN OUR ATTENTION TO THE ACCOUNT COPIES AND STATED THAT THESE ARE OUTSTANDING AS ON DATE AND THIS AMOUNT ARE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDINGLY, THE SAME CANNOT BE ADDED U/S. 41(1) OF THE ACT AS THE LIABILITY OF OUTSTANDING AND THE PARTIES ARE IN EXISTENCE. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, AS IS SEEN FROM THE DOCUMENTS AND PAPERS FILED BEFORE US THAT THE PARTIES DO EXIST AND THESE AMOUNTS ARE OUTSTANDING IN THE BOOKS OF THE ASSESSEE AS PAYABLE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FEEL THAT THESE AMOUNTS CANNOT BE ADDED EITHER U/S. 68 OR 41(1) OF ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 13 THE ACT. WE DELETE THE ADDITION AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 8.4 ITAT LUCKNOW BENCH IN THE CASE OF DCIT VS ALLIE D LEATHER FINISHERS (P) LTD. 32 SOT 549 HELD AS UNDER : 21.7 A LIABILITY COULD NOT BE TREATED AS A CESSATION IF IT WAS BEING MERELY CARRIED FORWARD FOR YEARS. A NON-GENUINE NON-TRADING LIABILITY STANDING IN THE BALANCE SHEET CAN BE TAXED BUT UNDER SECTION 68 IF IT CAME IN THE BOOKS IN THE CURRENT YEAR. IF SUCH NON-GENUINE NON- TRADING LIABILITY CAME IN THE BOOKS IN AN EARLIER YEAR THAN SAME CANNOT BE TAXED IN THE CURRENT YEAR EVEN UNDER SECTION 68. A NON-GENUINE TRADING LIABILITY CAN BE CONSIDERED IN THE CURRENT YEAR IF IT IS RELATED TO CURRENT YEARS TRADING/MANUFACTURING OR PROFIT & LOSS ACCOUNT BUT NOT UNDER SECTION 41(1) OR UNDER SECTION 68. IT CAN BE CONSIDERED ONLY UNDER SECTION 28, I.E. IT CAN BE CONSIDERED FOR DISALLOWANCE WHILE EXAMINING THE CLAIM OF EXPENSES OR OUTGOINGS AGAINST REVENUE RECEIPTS. CURRENT YEARS GENUINE TRADING LIABILITIES, WAVED/REMITTED OR CEASED TO EXIST IN THE CURRENT YEAR ITSELF WILL NOT FORM PART OF TRADING/MANUFACTURING OR P/L ACCOUNT EXCEPT A NOTE APPENDED TO THEM AS DISCLOSURE OF INFORMATION. 21.10 EVEN IN A CASE WHERE A LIABILITY CEASED TO EXIST DUE TO LIMITATION I.E. THE CLAIM OF THE CREDITOR IS BARRED BY LIMITATION UNDER LIMITATION ACT OF 1963 BUT IF THE LIABILITY SUBSIST OR HAS NOT BEEN WRITTEN OFF BY THE ASSESSEE, OR THE ASSESSEE DOES NOT ABSOLVE HIMSELF FROM THE LIABILITY, THOUGH ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 14 NOT LEGALLY ENFORCEABLE, IT CANNOT BE TAXED UNDER SECTION 41(1). 8.5 THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS PRAMESHWAR BOHRA (SUPRA) HAS HELD AS UNDER: THE ASSESSEE ON THE FIRST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1993-94 I.E. ON APRIL 1, 1992, CREDITED AN AMOUNT OF INVESTMENT/CASH CREDIT OF RS.1,55,316 IN HIS BOOKS OF ACCOUNT. THE ASSESSING OFFICER ADDED THIS AMOUNT IN THE INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT IN THE ASSESSMENT YEAR 1993- 94. THE TRIBUNAL HELD THAT THIS WAS NOT A CASE OF CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DURING THE YEAR BUT IT WAS A CASE IN WHICH THE ASSESSEE HAD INVESTED THE CAPITAL IN THE BUSINESS AND THIS AMOUNT WAS SHOWN AS A CLOSING CAPITAL AS ON MARCH 31, 1992 AND ON APRIL 1, 1992, IT WAS AN OPENING BALANCE. THEREFORE THE TRIBUNAL HELD THAT WHAT WAS ALREADY CREDITED IN THE BOOKS OF ACCOUNT ENDING ON MARCH 31, 1992, FOR FINANCIAL YEAR 1991-92 RELEVANT TO ASSESSMENT YEAR 1992-93 COULD NOT BE UNEXPLAINED CASH CREDIT OR INVESTMENT IN THE BOOKS OF ACCOUNT MAINTAINED FOR THE FINANCIAL YEAR 1992-93, THE ACCOUNTING PERIOD FOR WHICH ENDED ON MARCH 31, 1993. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE CARRIED FORWARD AMOUNT OF THE PREVIOUS YEAR DID NOT BECOME AN INVESTMENT OR CASH CREDIT GENERATED DURING THE RELEVANT YEAR 1993-94. THIS ALONE WAS SUFFICIENT TO SUSTAIN THE ORDER OF THE TRIBUNAL IN DELETING THE AMOUNT OF R.1,55,316 FROM THE ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 15 ASSESSMENT FOR THE ASSESSMENT YEAR 1993- 94. 8.6 ITAT MUMBAI BENCH IN THE CASE OF ACIT VS VIP INDUSTRIES 30 SOT 254HELD AS UNDER: SECTION 41(1) IS ATTRACTED WHEN THERE IS CESSATION FOR REMISSION OF A TRADING LIABILITY. SIMPLY BECAUSE A PERIOD OF THREE YEARS HAS EXPIRED AND THE CREDITOR CANNOT LAWFULLY ENFORCE HIS CLAIM, IT DOES NOT MEAN THAT THERE IS A CESSATION OR REMISSION OF LIABILITY. THERE MAY BE SEVERAL SITUATIONS WHEN THE MONEY IS NOT CLAIMED OR PAID BY ONE PARTY TO ANOTHER WITHIN THREE YEARS AND THEREAFTER THE CLAIM IS MADE AND HONOURED BY THE OTHER. SO, SIMPLY BECAUSE A PARTICULAR AMOUNT IS OUTSTANDING FOR A PERIOD OF MORE THAN THREE YEARS, THAT DOES NOT CONSTITUTE INCOME UNDER SECTION 41(1). 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE PROVISIONS AND THE DECISION REFERRED TO ABOVE , IT IS CLEAR THAT THE EXPENDITURE CLAIMED AS DEDUCTION IN THE EARLIER YEAR HAVE NOT BEEN DISALLOWED IN THE EARLIE R YEAR IN WHICH THEY WERE CLAIMED. EVEN THE AO IN THE EARLIER YEAR HAS NOT DOUBTED THE EXISTENCE OF THE PARTIES. THE L EARNED COUNSEL FOR THE ASSESSEE FILED COPIES OF BALANCE SH EET OF THE ALL YEARS UNDER APPEAL, AS WELL AS PROCEEDINGS EARLIER ASSESSMENT YEARS WHICH PROVE THAT THE OUTSTANDING LIABILITIES FROM EARLIER YEARS WERE CARRIED FORWARD ED TO THE ASSESSMENT YEARS UNDER APPEAL STARTING FROM ASSESSM ENT YEAR 2001-02. THE LIABILITIES IN ASSESSMENT YEAR 20 00-01 WERE IN A SUM OF RS.1,29,83,564/-. THE PARTICULARS OF THOSE PARTIES AGAINST WHOM THE LIABILITIES WERE SHO WN IS MENTIONED AT PB-3, 4 AND 5. THE SAME PARTIES CONTIN UED IN THE ASSESSMENT YEAR 2001-02 UNDER APPEAL BUT THE BALANCES OF SOME OF THE PARTIES HAVE REDUCED WHICH WOULD SHOW THAT PART PAYMENTS HAVE BEEN MADE TO THE M. ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 16 THE ABOVE FACTS WOULD SHOW THAT THE LIABILITIES SHO WN IN THE BALANCE SHEET IN THE ASSESSMENT YEAR UNDER APPE AL I.E. 2001-02 WHICH ARE OPENING BALANCES WHICH ARE CARRIED FORWARD FRO THE PRECEDING ASSESSMENT YEAR. THE LIABILITIES HAVE BEEN SHOWN IN THE BALANCE SHEET OF THE ASSESSEE WHICH WOULD SHOW THAT THE ASSESSEE ACKNOWLEDGED THE LIABILITIES OF THE OUTSTANDING AMO UNTS. THE BALANCES WERE THUS CARRIED FORWARD FROM EARLIER YEARS. IN ASSESSMENT YEAR 2002-03, THE AO MADE ADDITION OF RS.1,60,590/- IN RESPECT OF ROYAL ENGIN EERING WORK WHOSE BALANCE WAS ALSO OUTSTANDING IN THE ASSESSMENT YEAR 2000-01 AND 2001-02. IT WOULD, THEREFORE, SHOW THAT SIMILAR ADDITION IS MADE IN THE ASSESSMENT YEAR 2002-03 WHICH WOULD AMOUNT TO DOUBL E ADDITION IN RESPECT OF THE SAME PARTY. IN ASSESSMEN T YEAR 2003-04 THE AO MADE ADDITION OF RS.40,032/- IN RESP ECT OF SANJAY SPAL , RS.32/-, ANKIT ENGINEERING RS.20,0 00/- AND MOTILALJI RS.20,000/-. THESE AMOUNTS WERE NOT C ARRIED FORWARD FROM EARLIER YEARS AS PER THE DETAILS FILED IN THE PAPER BOOK. IT WOULD SHOW THAT THESE ARE THE CURREN T LIABILITIES OF THE ASSESSEE IN THE ASSESSMENT YEAR 2003- 04. SIMILARLY, IN ASSESSMENT YEAR 2006-07 THE AO MA DE ADDITION OF RS.1,32,118/- IN RESPECT OF AMOUNT OF RS.45,409/- AND RS.86,709/- IN RESPECT OF MAHALAXMI ROADWAYS AND NIHAL ROADWAYS. THESE WERE THE CREDIT BALANCES IN THE ASSESSMENT YEAR UNDER APPEAL WHICH WERE CARRIED FORWARD IN THE PRECEDING ASSESSMENT YE AR 2005-06 AND IN THAT YEAR THERE WERE DEBIT BALANCES AGAINST THESE PARTIES AS PER THE DETAILS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THESE FACTS WOULD SHOW THAT THE AUTHORITIES BELOW HAVE NOT APPLIED TH EIR MIND TO THE FACTS OF THE CASE THAT THESE ARE NOT TH E FIT CASES FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE IT ACT IN THE MATTER AS DONE BY THE AO. 9.1 CONSIDERING THE FACTS OF THE CASE AS NOTED ABOV E IT IS CLEAR THAT THE ASSESSEE HAD CONTINUED TO SHOW TH E ADMITTED AMOUNTS AS LIABILITIES IN ITS BALANCE SHEE T. THE LIABILITIES REFLECTED IN THE BALANCE SHEET CANNOT B E TREATED AS CESSATION OF LIABILITIES. MERELY BECAUSE THE LIA BILITIES ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 17 ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE I NFERRED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO A FACT THAT THE ASSESSEE HAS NOT WRITTEN OFF THE OUTS TANDING LIABILITIES IN THE BOOKS OF ACCOUNT AND THE OUTSTAN DING LIABILITIES ARE STILL IN EXISTENCE WOULD PROVE THAT THE ASSESSEE ACKNOWLEDGED HIS LIABILITIES AS PER THE BO OKS OF ACCOUNT. SECTION 41(1) OF THE IT ACT IS ATTRACTED W HEN THERE IS CESSATION OR REMISSION OF A TRADING LIABIL ITY. THE AO SHALL HAVE TO PROVE THAT THE ASSESSEE HAS OBTAIN ED THE BENEFITS IN RESPECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. MERELY BECAUSE THE ASSESSEE OBTAINED BENEFIT OF DEDUCTION IN THE EARLI ER YEARS AND BALANCES ARE CARRIED FORWARD IN THE SUBSE QUENT YEAR, WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSESSEE HAVE BECOME NON-EXISTENT. IT MAY ALSO BE NOTED HERE THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF THE EXPENDITURE IN ALL THE ASSESSMENT YEARS UNDER APPEAL. THE DECISIONS CITED BY THE LEARNED CO UNSEL FOR THE ASSESSEE SQUARELY APPLY TO THE FACTS OF THE CASE. THEREFORE, WE ARE OF THE VIEW THAT PROVISIONS OF SE CTION 41 (1) (A) OF THE IT ACT HAVE BEEN WRONGLY APPLIED IN THE MATTER. WE MAY ALSO NOTE HERE THAT THE LEARNED COUN SEL FOR THE ASSESSEE HAS FILED DETAILS OF PARTICULARS O F PAYMENTS OF LIABILITIES IN SUBSEQUENT YEARS WHICH A RE IN THE NATURE OF ADJUSTMENT THROUGH JOURNAL ENTRY, CAS H PAYMENT AND SOME PAYMENTS BY BANKING CHANNEL. THE LEARNED DR OBJECTED TO THE FILING OF SUCH DETAILS A T THIS STAGE AND FURTHER SUBMITTED THAT THE PAYMENT BY CAS H AND JOURNAL ENTRY WOULD NOT PROVE GENUINENESS OF THE PAYMENTS. WE DO NOT AGREE WITH THE SUBMISSION OF TH E LEARNED DR BECAUSE THOSE DETAILS WERE CALLED FOR BY THE BENCH DURING THE COURSE OF HEARING AND EVEN PAYMENT BY CHEQUES AND/OR JOURNAL ENTRY WOULD NOT ABSOLVE THE AO FOR MAKING OUT A CASE U/S 41 (1) (A) OF THE IT ACT. THE LAST CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT SINCE INCOME OF THE ASSESSEE IS COMPUTED U/S 4 4AE OF THE IT ACT, THEREFORE, PROVISIONS OF SECTION 41( 1) OF THE IT ACT WOULD NOT APPLY. HOWEVER, CONSIDERING THE FI NDING GIVEN ABOVE THAT PROVISIONS OF SECTION 41 (1) WOULD NOT ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 18 APPLY TO THE FACTS AND CIRCUMSTANCES OF THE CASE; T HERE IS NO NEED TO GIVE FURTHER FINDINGS ON THIS ISSUE. 10. ON CONSIDERATION OF THE ABOVE DISCUSSION, WE FI ND THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MA KING THE ADDITIONS AGAINST THE ASSESSEE IN ALL THE ASSESSMEN T YEARS UNDER APPEAL OF THE ABOVE AMOUNTS WITH THE A ID OF SECTION 41(1)(A) OF THE IT ACT. AS A RESULT, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITIONS. 11. IN VIEW OF THE ABOVE FINDINGS, THE DECISIONS CI TED BY THE LEARNED DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. 12. AS A RESULT, THESE GROUNDS OF APPEAL OF THE ASSESSEE IN ALL THE APPEALS ARE ALLOWED. 16. SINCE IN THIS CASE, THE AO DID NOT ACCEPT THE O FFER OF THE SURRENDER OF THE ASSESSEE AND PROCEEDED WITH THE MA TTER, THEREFORE, THE SURRENDER MADE BY THE ASSESSEE AT THE ASSESSMEN T STAGE FOR TAXATION OF THE ABOVE AMOUNT IN QUESTION WOULD NOT BE RELEVANT. UNLESS THE OFFER OF THE ASSESSEE TO SURRENDER THE A MOUNT SUBJECT TO NO PENALTY IS ACCEPTED BY THE AO, THE ASSESSEE HAS EVERY RIGHT TO AGITATE THE ADDITION BEFORE THE LEARNED CIT(A) ON M ERIT. THE LEARNED DR COULD NOT POINT OUT ANY ILLEGALITY OR IRREGULARI TY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION ON MERIT. I N THIS VIEW OF THE MATTER, WE DO NOT FIND ANY ERROR IN THE ORDER OF TH E LEARNED CIT(A) IN DELETING THE ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. GROUND NO.7 ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 19 17. GROUND NO.7 OF THE APPEAL OF THE REVENUE READS AS UNDER: 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.84,000/- (RS.24,000/- + RS.60,000/-) MADE BY THE A. O. VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. ACT, 1961 DATED 31/10/2007 ON ACCOUNT OF DISALLOWANCE OF SALARY AND BOGUS LIABILITY OF SALAR Y EXPENSES IN THE NAME OF SHRI KHEMRAJ NARANBHAI. 18. THE AO NOTICED THAT AN AMOUNT OF RS.84,000/- WA S SHOWN AS OUTSTANDING IN THE NAME OF SHRI KHEMRAJ NARANBHAI A GAINST SALARY ACCOUNT OUT OF WHICH A SUM OF RS.24,000/- BEING SA LARY EXPENSES OF THE CURRENT YEAR AND OUTSTANDING BALANCE OF RS.60,0 00/- PERTAINING TO EARLIER YEARS AS BOGUS LIABILITY. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT REPLY OF SHRI KHEMRAJ NARANBHAI U/S 133 (6) OF THE IT ACT CONFIRMING THE TRANSACTION WAS FILED IN THE OFFICE OF THE AO AT THE ASSESSMENT STAGE AND RECEIPTED COPY OF THE SAME WAS ALSO FILED BEFORE THE LEARNED CIT(A). IDENTITY PROOF OF THAT P ERSON WAS ALSO FILED. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT REPLY U/S 133(6) OF THE IT ACT WAS SUBMITTED TO THE AO BY SHRI KHEMRAJ NARANBHAI AND HIS IDENTITY WAS ALSO PROVED, THEREFORE, THERE IS NO BASIS FOR MAKING THE ADDITION. THE ADDITION W AS ACCORDINGLY DELETED. 19. ON CONSIDERATION OF THE SUBMISSION OF THE LEARN ED DR, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT( A). THE LEARNED DR CONTENDED THAT SINCE THE NOTICE U/S 133(6) OF THE I T ACT RETURNED UN- SERVED BY THE POSTAL AUTHORITIES, THEREFORE, THE AO RIGHTLY MADE THE ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 20 ADDITION. BUT THE CONTENTION OF THE LEARNED DR CANN OT BE ACCEPTED BECAUSE THE LEARNED CIT(A) SPECIFICALLY NOTED THAT THE REPLY WAS FILED BY THIS PERSON ON 10-09-2007 AND THIS FACT IS ALSO CONFIRMED FROM THE OBSERVATION OF THE AO WHO AFTER RETURN OF THE LETT ER U/S 133(6) OF THE IT ACT HANDED OVER THE SAME TO THE ASSESSEE AND THE ASSESSEE SUBMITTED REPLY BEFORE THE AO ON BEHALF OF SHRI KHE MRAJ NARANBHAI. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY MERI T IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISM ISSED. GROUND NO.8 20. GROUND NO.8 OF THE APPEAL OF THE REVENUE READS AS UNDER: 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATIN G THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.3,16,026/- OUT OF TOTAL ADDITION OF RS.4,04,567/ - MADE BY THE A. O. VIDE ASSESSMENT ORDER U/S. 143(3) OF THE I. T. AC, 1961 DATED 31/10/2007 ON ACCOUNT OF BOGUS YARN TWISTING EXPENSES. 21. THE AO ASKED THE ASSESSEE THAT ONLY CONFIRMATIO N FROM M/S. MITTAL TEXTILES FOR YARN TWISTING EXPENSE OF RS.3,1 6,026/- HAVE BEEN SUBMITTED. THE AO FURTHER STATED THAT THE CONFIRMAT ION FROM THIS PARTY IS SIGNED BY THE SAME PERSON WHO HAS ALSO SIGNED ON BEHALF OF M/S. JAI KHODIYAR TWISTER. THE AO ALSO NOTED THAT FROM BANK STATEMENT OF M/S. MITTAL TEXTILES CASH HAS BEEN WITHDRAWN AGAINS T CHEQUE GIVEN BY THE ASSESSEE WHICH CREATES DOUBT AS REGARDS GENU INENESS OF THE EXPENSES. THE ASSESSEE PRODUCED COPY OF BILL OF THE PARTY ALONG WITH CONFIRMATION OF M/S. MITTAL TEXTILES AND PA NUMBER AND COPY OF THE BANK STATEMENT BEFORE THE LEARNED CIT(A) AND EXPLAI NED THAT HE HAS ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 21 DISCHARGED THE ONUS OF PROVING THE GENUINE EXPENDIT URE. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION. 22. ON CONSIDERATION OF THE SUBMISSION OF THE LEARN ED DR, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATIO N AT THE LEVEL OF THE LEARNED CIT(A). THE AO NOTED THAT THE ASSESSEE HAS SUBMITTED A CONFIRMATION FROM M/S. MITTAL TEXTILES FOR THE EXPE NSES OF RS.3,16,026/-. THE AO ALSO NOTED ON OBSERVATION OF THE BILL IN RESPECT OF M/S. MITTAL TEXTILES AND M/S. JAI KHODIYAR TWIST ERS THAT THE SAME DEPICT SIGNATURE OF THE SAME PERSON. THE AO FURTHER NOTED THAT THE LETTER SENT TO M/S. MITTAL TEXTILES U/S 133 (6) OF THE IT ACT WAS RETURNED UN-SERVED AND THAT THOUGH PA NUMBER IS FURNISHED, B UT NO RECORD OF ANY RETURN FILED BY THE PARTY IS AVAILABLE. THE AO FURTHER NOTED THAT THOUGH PAYMENT IS MADE THROUGH BANKING CHANNEL BUT NO CONTRA CONFIRMATION OF THE ACCOUNT IS SUBMITTED. IT WAS AL SO SUBMITTED THAT RATE OF TWISTING CHARGES PAID TO THESE PARTIES ARE AT THE RATE OF RS.90/- WHEREAS AS PER THE MARKET RATE THE TWISTING CHARGES RANGE FROM RS.30/- TO RS.30/- PER KG. THE AO ACCORDINGLY NOTED THAT ITSELF PROVES THAT THE ASSESSEE INFLATED THE EXPENSES. SINCE THE AO NOTED SPECIFIC POINTS AGAINST THE ASSESSEE FOR MAKING THE ADDITION , THEREFORE, IT WAS INCUMBENT ON THE PART OF THE LEARNED CIT(A) TO HAVE GONE THROUGH THE SAME BEFORE DELETING THE ADDITION. THE LEARNED DR C ONTENDED THAT THE LEARNED CIT(A) PASSED UNREASONED ORDER ON THIS ISSUE, THEREFORE, THE MATTER REQUIRES RECONSIDERATION. WE AGREE WITH THE CONTENTION OF THE LEARNED DR BECAUSE THE LEARNED CIT(A) PASSED A NON-SPEAKING ORDER IGNORING THE FINDING OF FACT RECORDED BY THE AO IN THE ITA NOS. 1803/AHD/2008 ITO, W 9(3), SURAT VS SHRI RAJEEVKUMAR N. BODAWALA 22 ASSESSMENT ORDER ON THIS ISSUE. APART FROM FILING O F THE CONFIRMATION AND BANK STATEMENT, THE AO NOTED SEVERAL POINTS AGA INST THE ASSESSEE TO SHOW THAT THE EXPENSES HAVE BEEN INFLAT ED. THEREFORE, THE LEARNED CIT(A) SHOULD HAVE DECIDED THE ISSUE IN THE LIGHT OF THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER. WE ACCO RDINGLY, SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND R ESTORE THIS ISSUE TO HIS FILE WITH DIRECTION TO RE-DECIDE THIS GROUND OF APPEAL IN THE LIGHT OF THE FINDINGS OF THE AO BY GIVING REASONABLE SUFFICI ENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, THIS GR OUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 23. NO OTHER POINT IS ARGUED OR PRESSED 24. IN THE RESULT, THE DEPARTMENTAL APPEAL IS ALLOW ED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31-12-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 31-12-2010 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 DY. REGISTRAR, ITAT, AHMEDABAD