Late Shri Mohan Raj Chhajed (Through Legal jeor Shantilal Chhajed), Mumbai V. ITO,Ward-2, Pali

ITA 193/JODH/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2492 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Presumptive income; Diversion of income; Question of law; Set aside
• Section: 144; 44AD; 143(3); 44AB; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 193/JODH/2019 Assessment Year: 2012-13 Late Shri Mohan Raj Chhajed (Through Legal heir Shantilal Chhajed), 601, Shilpa Apartments, C.D. Barfiwala Marg, Juhu Lane, Andheri (W), Mumbai-400058. Vs. Income Tax Officer, Ward-2, Pali Rajasthan-306-401. PAN No. AAIPC 6614 N Appellant Respondent Assessee by : Mr. Piyush Chhajed & Mr. Sumit Mantri, ARs Revenue by : Mr. Ajeya Kumar Ojha, Sr. DR Date of Hearing : 29/06/2022 Date of pronouncement : 27/07/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee through the legal heir, has been preferred against the order dated 03/04/2019 passed by the Ld. Commissioner of Income CIT(A)’] for assessment year 2012 1. On the facts and circumstances of the case, the lea Commissioner of Income Tax (Appeal) erred in confirming the order of Ld. Assessing Officer without appreciating that the Assessing Officer erred in rejecting the books of accounts U/s.145(3) without pinpointing out any discrepancies in Audited Books of Accounts U/s.44AD, moreover, when the complete books of accounts were produced during the course of assessment. 2. 2. On the facts and circumstances of the case and law, the learned Commissioner of order passed by Income Tax Act after rejection of books U/s.145(3) appreciating that as required U/s.145(3) the Assessment Order can only be law and needs to be s 3. 3. On the facts and circumstances of the case, the learned Commissioner of Income Tax turnover being less than Rs.60,00,000/ any had to be restricted to 8% of the Net Profit U/s.44AD. 4. 4. On the facts and circumstances of the case, the learned Commissioner of Income Tax once the addition is made on the rejection of books estimating gross profit, there could be no further addition but he proceeded with making further additions on other aspects. 5. On the facts and circumstances of the case, the learned Commissioner of Income Tax Late Shri Mohan Raj Chhajed of Income-tax (Appeals)-1, Jodhpur [in short ] for assessment year 2012-13, raising following grounds: On the facts and circumstances of the case, the lea Commissioner of Income Tax (Appeal) erred in confirming the order of Ld. Assessing Officer without appreciating that the Assessing Officer erred in rejecting the books of accounts U/s.145(3) without pinpointing out any discrepancies in Audited f Accounts U/s.44AD, moreover, when the complete books of accounts were produced during the course of assessment. 2. On the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeal) erred in confirming the order passed by the learned Assessing Officer Us.143(3) of the Income Tax Act after rejection of books U/s.145(3) appreciating that as required U/s.145(3) the Assessment Order can only be passed U/s.144 and therefore the assessment is bad in law and needs to be set aside. 3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the turnover being less than Rs.60,00,000/-, the maximum addition if any had to be restricted to 8% of the Net Profit U/s.44AD. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) failed to appreciate that once the addition is made on the rejection of books estimating gross profit, there could be no further addition but he proceeded with making further additions on other aspects. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 2 1, Jodhpur [in short ‘the Ld. 13, raising following grounds: On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the order of Ld. Assessing Officer without appreciating that the Assessing Officer erred in rejecting the books of accounts U/s.145(3) without pinpointing out any discrepancies in Audited f Accounts U/s.44AD, moreover, when the complete books of accounts were produced during the course of assessment. 2. On the facts and circumstances of the case and law, the learned Income Tax (Appeal) erred in confirming the Officer Us.143(3) of the Income Tax Act after rejection of books U/s.145(3) without appreciating that as required U/s.145(3) the Assessment Order passed U/s.144 and therefore the assessment is bad in 3. On the facts and circumstances of the case, the learned (Appeal) erred in confirming the maximum addition if any had to be restricted to 8% of the Net Profit U/s.44AD. On the facts and circumstances of the case, the learned (Appeal) failed to appreciate that of accounts estimating gross profit, there could be no further addition but he proceeded with making further additions on other aspects. On the facts and circumstances of the case, the learned (Appeal) erred in confirming the addition of Rs.6,21,102/ commodity without appreci as shortage 6. 6. On the facts and circumstances of the case, the learned Commissioner of Income Tax addition of Rs.18,791/ around 876 kgs. When the same were already recorded in the books of accounts and the profit thereof was included in the trading results. 7. 7. On the facts and circumstances of the case, the learned Commissioner of Income Tax addition of Rs.3,75,000/ Thok-khata basis without appreciating that same were business hedge transactions entered to safe guard the interest of Appellant's the Gwar commodity rather 8. 8. On the facts and circumstances of the case, the learned Commissioner of Income Tax disallowance of Rs.1,68,262/ advance, without appreciating that the Appellant was having sufficient interest free funds from which the said advances were made and therefore 2. Briefly stated facts of the case are that assessee was trading of grain, oilseeds, ‘Gwar’, ‘Chana’ and other pulses under his proprietary firm namely The assessee also shown purchases of agriculture produces from the Late Shri Mohan Raj Chhajed addition of Rs.6,21,102/- on account of shortage commodity without appreciating that the said stock was booked as shortage in the current year as the same was received short. 6. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.18,791/- on account of excess stock of Chana of around 876 kgs. When the same were already recorded in the accounts and the profit thereof was included in the trading results. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.3,75,000/- on account of transactions entered on khata basis without appreciating that same were business hedge transactions entered to safe guard the interest of Appellant's business from undue price fluctuations prevalent in the Gwar commodity rather than transfer of profits. 8. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the disallowance of Rs.1,68,262/- on account of certain interes advance, without appreciating that the Appellant was having sufficient interest free funds from which the said advances were made and therefore did not require any disallowance... stated facts of the case are that assessee was ading of grain, oilseeds, ‘Gwar’, ‘Chana’ and other pulses under his proprietary firm namely ‘M/s Mohanraj Chajjer’, Pali The assessee also shown purchases of agriculture produces from the Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 3 on account of shortage of Gwar ating that the said stock was booked in the current year as the same was received short. 6. On the facts and circumstances of the case, the learned (Appeal) erred in confirming the of Chana of around 876 kgs. When the same were already recorded in the accounts and the profit thereof was included in the On the facts and circumstances of the case, the learned l) erred in confirming the transactions entered on khata basis without appreciating that same were regular business hedge transactions entered to safe guard the interest of fluctuations prevalent in 8. On the facts and circumstances of the case, the learned (Appeal) erred in confirming the certain interest free advance, without appreciating that the Appellant was having sufficient interest free funds from which the said advances were did not require any disallowance... stated facts of the case are that assessee was engaged in ading of grain, oilseeds, ‘Gwar’, ‘Chana’ and other pulses under his , Pali (Rajasthan). The assessee also shown purchases of agriculture produces from the farmers/dealers and then sold in the open market and also earned commission income from sale of agriculture produces. For the year under consideration, the assessee filed return of income on 22/09/2012 declaring total income of income when filed by the statutory notices under the Income were issued and complied with. During assessment proceeding the Assessing Officer observed various defects/discrepancie books of accounts maintained by the assessee and therefore invoking section 145(3) of the assessee and applied gross which was declared in the immediately preceding asse on the sales during the year u gross profit accordingly at ₹5,91,785/- declared by the assessee on gross turnover of ₹54,10,425/-. The Assessing Officer Late Shri Mohan Raj Chhajed farmers/dealers and then sold in the open market and also earned commission income from sale of agriculture produces. For the year under consideration, the assessee filed return of income on 22/09/2012 declaring total income of ₹2,43,160/- filed by the assessee was selected for the scrutiny tutory notices under the Income-tax Act, 1961 (in short were issued and complied with. During assessment proceeding the observed various defects/discrepancie books of accounts maintained by the assessee and therefore invoking section 145(3) of the Act, rejected books of accounts of the assessee and applied gross profit at the rate of 22.19% ( was declared in the immediately preceding asse on the sales during the year under consideration and computed gross profit accordingly at ₹16,41,583/- as against gross profit of declared by the assessee on gross turnover of Assessing Officer also made addition Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 4 farmers/dealers and then sold in the open market and also earned commission income from sale of agriculture produces. For the year under consideration, the assessee filed return of income on -. The return of assessee was selected for the scrutiny any , 1961 (in short ‘the Act’) were issued and complied with. During assessment proceeding the observed various defects/discrepancies in the books of accounts maintained by the assessee and therefore , rejected books of accounts of the profit at the rate of 22.19% (the rate was declared in the immediately preceding assessment year) nder consideration and computed as against gross profit of declared by the assessee on gross turnover of addition for shortage of Gwar (₹9876/- kgs) which was valued at Assessing Officer also made addi Kgs) during the year under consideration amounting to The income of ₹3,75,000/ (wholesale account), which has been found by the AO as actual delivery and without any documentary evidence in the form of purchase/sale bills or any monetary transactions, Assessing Officer held the amount of income to sister concern and therefore accordingly made addition. The Assessing Officer ₹1,68,262/- out of the interest expenditure of interest-free advances to relatives. In this manner Officer after allowing income at ₹24,76,120 Ld. CIT(A) and therefore, he is the grounds as reproduced above. Late Shri Mohan Raj Chhajed kgs) which was valued at ₹6,21, also made addition for excess ‘Chana’, sold ( Kgs) during the year under consideration amounting to 3,75,000/- shown by the assessee from thok , which has been found by the AO as actual delivery and without any documentary evidence in the form of purchase/sale bills or any monetary transactions, held the amount of ₹3,75,000/- income to sister concern and therefore accordingly made addition. Assessing Officer also disallowed interest amounting to out of the interest expenditure of ₹ free advances to relatives. In this manner after allowing deduction under Chapter VI-A, 120/-. The assessee could not succeed before the therefore, he is before the Tribunal by way of raising reproduced above. Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 5 6,21,102/-. The tion for excess ‘Chana’, sold (₹876/- Kgs) during the year under consideration amounting to ₹18,791/-. from thok-khata , which has been found by the AO as without actual delivery and without any documentary evidence in the form of purchase/sale bills or any monetary transactions, thus, the as diversion of income to sister concern and therefore accordingly made addition. also disallowed interest amounting to ₹5,99,818/- for free advances to relatives. In this manner, the Assessing A, assessed total . The assessee could not succeed before the by way of raising 3. Before us a paper book containing pages 1 to 92. 4. The ground No. 1 to 4 are in respect of addition for gross profit made by the Assessing Officer 5. In ground No. 1 of accounts. According to the assessee no discrepancies have been pointed out in the audited books of accounts. The supported the ground and submitted that except few bonafide errors, no discrepancies have been pointed out by the Officer and therefore he is not justified in rejecting books of accounts of the assessee DR on the other hand submitted that the pointed out defects/discrepancies in quantitative tally of various agriculture products in the audit report accounts. Late Shri Mohan Raj Chhajed Before us a paper book has been filed on behalf of the assessee containing pages 1 to 92. The ground No. 1 to 4 are in respect of addition for gross profit Assessing Officer. 1 the assessee has challenged rejection of boo of accounts. According to the assessee no discrepancies have been pointed out in the audited books of accounts. The supported the ground and submitted that except few bonafide no discrepancies have been pointed out by the and therefore he is not justified in rejecting books of accounts of the assessee, invoking section 145(3) of the on the other hand submitted that the Assessing Officer pointed out defects/discrepancies in quantitative tally of various agriculture products in the audit report vis-à-vis regular books of Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 6 been filed on behalf of the assessee The ground No. 1 to 4 are in respect of addition for gross profit rejection of books of accounts. According to the assessee no discrepancies have been pointed out in the audited books of accounts. The Ld. counsel supported the ground and submitted that except few bonafide no discrepancies have been pointed out by the Assessing and therefore he is not justified in rejecting books of invoking section 145(3) of the Act. The Ld. Assessing Officer has duly pointed out defects/discrepancies in quantitative tally of various regular books of 6. We have heard rival submission of the parties and perused relevant material on record 4.1 of the assessment order has listed the discrepancy of quantitative tally in the audit report vis accounts. For ready reference relevant para of the assessment order is reproduced as under: 4.1 Further, during the examination of books of accounts, various discrepancies were found which has been discussed as under: i. Difference in Quantitative details of Agri Produce i.e Gwar and Chana in Audit Report and Regular books of account. ii. Discrepancy found in S iii. Various Agricultural produced has been purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e. name and addresses of the suppliers, rate of the produces, etc., were maintained so that genuinen of the agricultural produce purchased, could be verified. iv. The assessee has sold Gwar on Thok Khata basis. Here it is pertinent to mention that multiple transaction of the Gwar (purchase and sale) of same quanity was made but in the entire process there was no movement of stock was noticed. The stock was still lying in the godawn of the assessee. No purchase and sell bill were raised, not a single monetary transaction has been Late Shri Mohan Raj Chhajed We have heard rival submission of the parties and perused relevant material on record. We find that Assessing Officer 4.1 of the assessment order has listed the discrepancy of quantitative tally in the audit report vis-à-vis regular books of For ready reference relevant para of the assessment order is reproduced as under: her, during the examination of books of accounts, various discrepancies were found which has been discussed as under: Difference in Quantitative details of Agri Produce i.e Gwar and Chana in Audit Report and Regular books of account. Discrepancy found in Sales of Gwar. Various Agricultural produced has been purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e. name and addresses of the suppliers, rate of the produces, etc., were maintained so that genuineness of quantity of the agricultural produce purchased, could be verified. The assessee has sold Gwar on Thok Khata basis. Here it is pertinent to mention that multiple transaction of the Gwar (purchase and sale) of same quanity was made but in the entire rocess there was no movement of stock was noticed. The stock was still lying in the godawn of the assessee. No purchase and sell bill were raised, not a single monetary transaction has been Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 7 We have heard rival submission of the parties and perused the Assessing Officer in para 4.1 of the assessment order has listed the discrepancy of vis regular books of For ready reference relevant para of the assessment order her, during the examination of books of accounts, various discrepancies were found which has been discussed as under: Difference in Quantitative details of Agri Produce i.e Gwar and Chana in Audit Report and Regular books of account. Various Agricultural produced has been purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e. name and addresses of the suppliers, rate of the ess of quantity of the agricultural produce purchased, could be verified. The assessee has sold Gwar on Thok Khata basis. Here it is pertinent to mention that multiple transaction of the Gwar (purchase and sale) of same quanity was made but in the entire rocess there was no movement of stock was noticed. The stock was still lying in the godawn of the assessee. No purchase and sell bill were raised, not a single monetary transaction has been occurred. In absence of any monetary transactions, purchase bill, sale bills, genuinity of these transaction could not be established. 6.1 Further, we find that discrepancy in purchase Assessing Officer has reproduced the quantities as per the aud report and as per the ledger account of sales. For ready reference, said table is reproduced as under: 6.2 We find that during assessment proceeding, the assessee himself accepted that 40,000 KG Gwar was sold in preceding assessment year, whereas same computer and books of accounts, which are the basis of the audit report. The assessee admitted this mistake of wrong quantitative tally in audit report. Similarly Late Shri Mohan Raj Chhajed occurred. In absence of any monetary transactions, purchase bill, sale bills, genuinity of these transaction could not be established. we find that Assessing Officer has pointed discrepancy in purchase/sales and closing stock of Gwar. The has reproduced the quantities as per the aud the ledger account of sales. For ready reference, said table is reproduced as under: find that during assessment proceeding, the assessee himself accepted that 40,000 KG Gwar was sold in preceding assessment year, whereas same could not be recorded in the computer and books of accounts, which are the basis of the audit report. The assessee admitted this mistake of wrong quantitative tally in audit report. Similarly, the assessee explained discrepancy in Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 8 occurred. In absence of any monetary transactions, purchase bill, sale bills, genuinity of these transaction could not be established. has pointed out the /sales and closing stock of Gwar. The has reproduced the quantities as per the audit the ledger account of sales. For ready reference, find that during assessment proceeding, the assessee himself accepted that 40,000 KG Gwar was sold in preceding could not be recorded in the computer and books of accounts, which are the basis of the audit report. The assessee admitted this mistake of wrong quantitative the assessee explained discrepancy in of closing stock as due due to hot weather. No satisfactory explanation in respect of the shortage was provided. Similarly, excess sale of Chana was found by the Assessing Officer increase in weight due to moisture. provide few purchase bills/sales bills and identity of the suppliers in case of purchase of agriculture produces. 6.3 We find that Ld. CIT(A) upheld the rejection of the books of accounts observing as under: “4.2 I have gone through the facts of the case, assessment order/remand report, the appellant’s submissions and rejoinder on the AO’s report. I find that the appellant had not provided purchase bills and sale bills, identity of the supplier, rate of purchase in produces. In the instant case, the AO had pointed out specific discrepancies as difference in quantitative details of agri produce in audit report and regular books of account. Therefore, in absence of the same the tradi activities could not reflect true and correct position of business and hence the trading results shown by the assessee is not reliable. The AR contended that the AO himself had confirmed that the proper books were submitted and the Purchase Invoices and had submitted the Audited Accounts along with Audit Report and therefore Late Shri Mohan Raj Chhajed closing stock as due to shortage of Gwar because weather. No satisfactory explanation in respect of the shortage was provided. Similarly, excess sale of Chana was found by Assessing Officer, which the assessee attempted to explain as ight due to moisture. The assessee also did not provide few purchase bills/sales bills and identity of the suppliers in case of purchase of agriculture produces. We find that Ld. CIT(A) upheld the rejection of the books of accounts observing as under: I have gone through the facts of the case, assessment order/remand report, the appellant’s submissions and rejoinder on the AO’s report. I find that the appellant had not provided purchase bills and sale bills, identity of the supplier, rate of purchase in respect of purchasing agricultural produces. In the instant case, the AO had pointed out specific discrepancies as difference in quantitative details of agri produce in audit report and regular books of account. Therefore, in absence of the same the tradi activities could not reflect true and correct position of business and hence the trading results shown by the assessee is not reliable. The AR contended that the AO himself had confirmed that the proper books were submitted and the Purchase Invoices and confirmations thereof. since the Appellant had submitted the Audited Accounts along with Audit Report and therefore Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 9 to shortage of Gwar because same dried up weather. No satisfactory explanation in respect of the shortage was provided. Similarly, excess sale of Chana was found by attempted to explain as The assessee also did not provide few purchase bills/sales bills and identity of the suppliers in We find that Ld. CIT(A) upheld the rejection of the books of I have gone through the facts of the case, assessment order/remand report, the appellant’s submissions and rejoinder on the AO’s report. I find that the appellant had not provided purchase bills and sale bills, identity of respect of purchasing agricultural produces. In the instant case, the AO had pointed out specific discrepancies as difference in quantitative details of agri produce in audit report and regular books of account. Therefore, in absence of the same the trading activities could not reflect true and correct position of business and hence the trading results shown by the assessee is not reliable. The AR contended that the AO himself had confirmed that the proper books were submitted confirmations thereof. since the Appellant had submitted the Audited Accounts along with Audit Report and therefore without pinpointing out the mistake as to completeness of books or non compliance with the Accounting Standard as required U/s. 145(3), the rejection of the books is invalid and also the trading addition made on the basis of rejection of the books applying the gross profit rate of the previous AY is invalid. Here, I refer to the decision of Hon'ble Rajasthan High Court in the case of Narendra Kumar Chaturvedi vs. CIT (2014] 41 taxmann.com 238 (Rajasthan) wherein it was held that where Tribunal having considered entire material on record, confirmed a part of addition made to assessee's taxable income, no substantial question of law arose from Tribunal. The Hon'ble ITAT Rajkot Bench 'E' in the case of ITO vs. Smt. Jayaben K. Ghelani (2017] 79 taxmann.com 249 (Rajkot assessee failed to produce relevant books of account in scrutiny assessment, Assessing Offi addition on estimation basis under section 145(3). The relevant findings of Hon'ble ITAT are reproduced as under: 10. In the light of the above, if we examine facts of the present case, then it would section 145(3) could not be applied in this case, because, AO could not examine records as these accounts were not produced before him. In our opinion section 145(3) contemplates that the AO can resort to estimate the income, if he is unable to deduce true result from the accounts or other details. Strictly, books were not produced before the AO, and it was not rejection of books as such, but impliedly it is estimation of income as per section 145(3) of Act. The ld.CIT(A) has not considered any of these aspects, viz. why Late Shri Mohan Raj Chhajed without pinpointing out the mistake as to completeness of books or non compliance with the Accounting Standard as required U/s. 145(3), the rejection of the books is invalid and also the trading addition made on the basis of rejection of the books applying the gross profit rate of the previous Here, I refer to the decision of Hon'ble Rajasthan High Court in the case of a Kumar Chaturvedi vs. CIT (2014] 41 taxmann.com 238 (Rajasthan) wherein it was held that where Tribunal having considered entire material on record, confirmed a part of addition made to assessee's taxable income, no substantial question of law arose from The Hon'ble ITAT Rajkot Bench 'E' in the case of ITO vs. Smt. Jayaben K. Ghelani (2017] 79 taxmann.com 249 (Rajkot - Trib.) held that where assessee failed to produce relevant books of account in scrutiny assessment, Assessing Officer was justified in rejecting book results and making addition on estimation basis under section 145(3). The relevant findings of Hon'ble ITAT are reproduced as under:- 10. In the light of the above, if we examine facts of the present case, then it would reveal that the ld.CIT(A) has erred in observing that section 145(3) could not be applied in this case, because, AO could not examine records as these accounts were not produced before him. In our opinion section 145(3) contemplates that the AO can to estimate the income, if he is unable to deduce true result from the accounts or other details. Strictly, books were not produced before the AO, and it was not rejection of books as such, but impliedly it is estimation of income as per section 145(3) of Act. The ld.CIT(A) has not considered any of these aspects, viz. why Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 10 without pinpointing out the mistake as to completeness of books or non- compliance with the Accounting Standard as required U/s. 145(3), the rejection of the books is invalid and also the trading addition made on the basis of rejection of the books applying the gross profit rate of the previous Here, I refer to the decision of Hon'ble Rajasthan High Court in the case of a Kumar Chaturvedi vs. CIT (2014] 41 taxmann.com 238 (Rajasthan) wherein it was held that where Tribunal having considered entire material on record, confirmed a part of addition made to assessee's taxable income, no substantial question of law arose from said order of The Hon'ble ITAT Rajkot Bench 'E' in the case of ITO vs. Smt. Jayaben K. Trib.) held that where assessee failed to produce relevant books of account in scrutiny assessment, cer was justified in rejecting book results and making addition on estimation basis under section 145(3). The relevant findings of 10. In the light of the above, if we examine facts of the present case, reveal that the ld.CIT(A) has erred in observing that section 145(3) could not be applied in this case, because, AO could not examine records as these accounts were not produced before him. In our opinion section 145(3) contemplates that the AO can to estimate the income, if he is unable to deduce true result from the accounts or other details. Strictly, books were not produced before the AO, and it was not rejection of books as such, but impliedly it is estimation of income as per section 145(3) of the Act. The ld.CIT(A) has not considered any of these aspects, viz. why there is a decline in GP, why assessee does not want to scrutinise its books of accounts from the AO. Therefore, considering all these aspects, we are of the view that the order of th sustainable. Total addition cannot be deleted. As observed in the foregoing paragraphs that income even after rejection of books can be estimated on some guess work. It is to be estimated keeping in view surrounding facts and circumstances. assessee herself has shown GP at 4.21% in the immediately preceding year. Therefore, the AO ought to have adopted GP nearby this figure and not at 20%. The assessee in her submission before the ld.CIT(A) has expressed the rate of consideration written submissions filed by the assessee before the ld.CIT(A) and other material, we deem it appropriate that ends of justice would be met, if the gross profit is being calculated at the rate of 5.5% (five point f above observation, order of the ld.CIT(A) is set aside and the AO is directed to recalculate the addition by applying GP at 5.5% (five point five percent) of the total turnover. The appeal of the Revenue is partly allowed for statistical purpose. In the instant case, the AO had pointed out specific defects in the books of accounts such as there was difference in quantitative details of agri Produce i.e. Gwar and Chana in Audit Report and Regular books of account. Besides that, various Agricultural produced were purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e name and addresses of the suppliers, rate of the produces, etc., had been maintained by the appellant In my view, the above grounds as also the various facts, as mentioned in the assessment order, were sufficient enough to invoke the provisions of section Late Shri Mohan Raj Chhajed there is a decline in GP, why assessee does not want to scrutinise its books of accounts from the AO. Therefore, considering all these aspects, we are of the view that the order of th sustainable. Total addition cannot be deleted. As observed in the foregoing paragraphs that income even after rejection of books can be estimated on some guess work. It is to be estimated keeping in view surrounding facts and circumstances. In the present case, the assessee herself has shown GP at 4.21% in the immediately preceding year. Therefore, the AO ought to have adopted GP nearby this figure and not at 20%. The assessee in her submission before the ld.CIT(A) has expressed the rate of at 4.25%. Thus, taking into consideration written submissions filed by the assessee before the ld.CIT(A) and other material, we deem it appropriate that ends of justice would be met, if the gross profit is being calculated at the rate of 5.5% (five point five percent) of the total turnover. With the above observation, order of the ld.CIT(A) is set aside and the AO is directed to recalculate the addition by applying GP at 5.5% (five point five percent) of the total turnover. The appeal of the Revenue ly allowed for statistical purpose. In the instant case, the AO had pointed out specific defects in the books of accounts such as there was difference in quantitative details of agri Produce i.e. Gwar and Chana in Audit Report and Regular books of account. Besides that, various Agricultural produced were purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e name and addresses of the suppliers, rate of the produces, etc., had been maintained by the appellant. In my view, the above grounds as also the various facts, as mentioned in the assessment order, were sufficient enough to invoke the provisions of section Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 11 there is a decline in GP, why assessee does not want to scrutinise its books of accounts from the AO. Therefore, considering all these aspects, we are of the view that the order of the CIT(A) is not sustainable. Total addition cannot be deleted. As observed in the foregoing paragraphs that income even after rejection of books can be estimated on some guess work. It is to be estimated keeping in In the present case, the assessee herself has shown GP at 4.21% in the immediately preceding year. Therefore, the AO ought to have adopted GP nearby this figure and not at 20%. The assessee in her submission before at 4.25%. Thus, taking into consideration written submissions filed by the assessee before the ld.CIT(A) and other material, we deem it appropriate that ends of justice would be met, if the gross profit is being calculated at the ive percent) of the total turnover. With the above observation, order of the ld.CIT(A) is set aside and the AO is directed to recalculate the addition by applying GP at 5.5% (five point five percent) of the total turnover. The appeal of the Revenue In the instant case, the AO had pointed out specific defects in the books of accounts such as there was difference in quantitative details of agri Produce i.e. Gwar and Chana in Audit Report and Regular books of account. Besides that, various Agricultural produced were purchased directly from the Agriculturist but No documentary evidences i.e. purchase bills, Identity i.e name and addresses of the suppliers, rate of the produces, etc., had been In my view, the above grounds as also the various facts, as mentioned in the assessment order, were sufficient enough to invoke the provisions of section 145(3) of the Act. I, therefore, conclude and hold that the AO was well justified, both on facts and 145(3) of the Act. The ground nos. 1 to 4 of this appeal are dismissed. 6.4 In view of the defect/deficiencies pointed out by the Officer, which have been partly accepted by the assessee also, we do not find any error in the order of the Ld. CIT(A) in sustaining the rejection of books of accounts in the case of the assessee. T ground No. one of the appeal is 7. In ground No. 2 section 145(3) has been invoked, the assessment could have been only passed under section 144 of the Officer has passed assessment under section 143(3) of the therefore assessment is bad in law. 8. We have heard rival submis dispute and perused the relevant medical record the assessee has claimed that in view of section 145(3) of the assessment should have been passed Late Shri Mohan Raj Chhajed 145(3) of the Act. I, therefore, conclude and hold that the AO was well justified, both on facts and in law, in applying the provisions of section 145(3) of the Act. The ground nos. 1 to 4 of this appeal are dismissed. In view of the defect/deficiencies pointed out by the , which have been partly accepted by the assessee also, we do not find any error in the order of the Ld. CIT(A) in sustaining the rejection of books of accounts in the case of the assessee. T ground No. one of the appeal is accordingly dismissed. 2, the assessee has raised the issue that once ion 145(3) has been invoked, the assessment could have been only passed under section 144 of the Act, whereas the has passed assessment under section 143(3) of the therefore assessment is bad in law. We have heard rival submission of the parties on the issue in sed the relevant medical record. The the assessee has claimed that in view of section 145(3) of the assessment should have been passed under the section 144 of the Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 12 145(3) of the Act. I, therefore, conclude and hold that the AO was well in law, in applying the provisions of section 145(3) of the Act. The ground nos. 1 to 4 of this appeal are dismissed.” In view of the defect/deficiencies pointed out by the Assessing , which have been partly accepted by the assessee also, we do not find any error in the order of the Ld. CIT(A) in sustaining the rejection of books of accounts in the case of the assessee. The accordingly dismissed. , the assessee has raised the issue that once ion 145(3) has been invoked, the assessment could have been , whereas the Assessing has passed assessment under section 143(3) of the Act and sion of the parties on the issue in . The Ld. counsel of the assessee has claimed that in view of section 145(3) of the Act, the section 144 of the Act rather than unde provisions of section 145(3) are reproduced as under: “145(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub the assessee, or income has not been computed in accordance with the standards notified under an assessment in the manner 9. On perusal of the above provisions, it is evident section 145(3) is invoked, the making assessment in the manner provided under section 144 of the Act. The section 145(3) does not specify that scrutiny post invoking section 145(3) but it only mention for assessment of income provided in section 144 of the taking into account all relevant material on record assessment of total income or loss by the best of his judgement and then determine the sum payable by the Late Shri Mohan Raj Chhajed under section 143(3) of the Act section 145(3) are reproduced as under: Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of provided in sub-section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the Assessing Officer may make an assessment in the manner provided in section 144]. perusal of the above provisions, it is evident section 145(3) is invoked, the word “may” has been mentioned for making assessment in the manner provided under section 144 of the The section 145(3) does not specify that scrutiny post invoking section 145(3) should be passed under section 144, but it only mention for assessment of income provided in section 144 of the Act. The section 144 prescribe taking into account all relevant material on record assessment of total income or loss by the Assessing Officer best of his judgement and then determine the sum payable by the Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 13 Act. The relevant section 145(3) are reproduced as under: Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the section (2)], the Assessing Officer may make perusal of the above provisions, it is evident that when word “may” has been mentioned for making assessment in the manner provided under section 144 of the The section 145(3) does not specify that scrutiny assessment should be passed under section 144, but it only mention for assessment of income in the manner . The section 144 prescribe for taking into account all relevant material on record for making Assessing Officer to the best of his judgement and then determine the sum payable by the assessee on the basis of such assessment. section that assessment post invoking of section 145(3) the manner of assessment u/s 144 of the Act. the ground of the appeal of the assessee that order should have been passed under section 144 of the accordingly dismissed. 10. In ground No. 3 should have been restricted section 44AD of the Act 11. The Ld. counsel assessee being less than presumptive tax under section 44 A.D. of the of 8% of the net profit for estimating profit. The the assessee net profit should be restricted to addition should be made. The Late Shri Mohan Raj Chhajed assessee on the basis of such assessment. Thus mandate of the section that assessment post invoking of section 145(3) the manner of assessment u/s 144 of the Act. In view of the above, the ground of the appeal of the assessee that order should have been passed under section 144 of the Act, is without any basis and accordingly dismissed. 3 the assessee has raised the issue that addition should have been restricted at the rate of 8% on sales Act. Ld. counsel of the assessee submitted that turnover of the assessee being less than ₹60 lakh, which is prescribed for opting tax under section 44 A.D. of the Act, the of 8% of the net profit should be applied on the sales of the assessee . The Ld. counsel submitted that in the case of see net profit should be restricted to 8% addition should be made. The Ld. DR on the other hand opposed Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 14 Thus mandate of the section that assessment post invoking of section 145(3) should be in In view of the above, the ground of the appeal of the assessee that order should have been , is without any basis and he assessee has raised the issue that addition on sales in terms of of the assessee submitted that turnover of the 60 lakh, which is prescribed for opting the maximum rate should be applied on the sales of the assessee submitted that in the case of 8% and no other on the other hand opposed those arguments and submitted that assessee himself return of income under presump and therefore no benefit of the said provision can be allowed to the assessee. 12. We have heard submission of the both side and perused the paperbook filed by the assessee. In the paperbook assessee has file audit report in Form No. 3CD required under section 44 Act. A copy of said For paperbook. In clause 10 information has been reported as account include any profit and gains assessa basis i.e. 44AD. In answer to the said information, mentioned. Thus it is clear that, the assessee has not availed benefit of presumptive taxation scheme under section 44AD of the circumstances, the request of the assessee for assessing the in in terms of section 44AD Late Shri Mohan Raj Chhajed and submitted that assessee himself return of income under presumptive tax in terms of section 44AD fore no benefit of the said provision can be allowed to the We have heard submission of the both side and perused the paperbook filed by the assessee. In the paperbook assessee has file audit report in Form No. 3CD required under section 44 Form No. 3CD is available on page 4 to 14 of the paperbook. In clause 10 of the form (page 4 paperbook) as been reported as to whether the profit and loss account include any profit and gains assessable on basis i.e. 44AD. In answer to the said information, mentioned. Thus it is clear that, the assessee has not availed benefit of presumptive taxation scheme under section 44AD of the request of the assessee for assessing the in in terms of section 44AD of the Act cannot be accepted. Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 15 and submitted that assessee himself has not filed tive tax in terms of section 44AD fore no benefit of the said provision can be allowed to the We have heard submission of the both side and perused the paperbook filed by the assessee. In the paperbook assessee has filed audit report in Form No. 3CD required under section 44AB of the No. 3CD is available on page 4 to 14 of the of the form (page 4 paperbook), a specific to whether the profit and loss ble on presumptive basis i.e. 44AD. In answer to the said information, “No” has been mentioned. Thus it is clear that, the assessee has not availed benefit of presumptive taxation scheme under section 44AD of the Act. In request of the assessee for assessing the income cannot be accepted. While making addition, the gross profit rate declared by the assessee in preceding assessment year has been applied on the turnover of the assessee during the year under consideration, which is one of the best estimate that could have been made in the case of the assessee. Therefore, we do not find any error in the order of the authorities in sustaining the disallowance appeal of the assessee 13. In ground No. 4 addition has been made estimating gross profit is required to be made. 14. We have heard rival submission of the dispute. The Ld. counsel shortage of Gwar or excess of Chana should have been made specifically. In our opinion, the discrepancy in quantitative tally is the reasons on the basis of which books of acc rejected and trading results Late Shri Mohan Raj Chhajed making addition, the gross profit rate declared by the assessee in preceding assessment year has been applied on the turnover of the ring the year under consideration, which is one of the ould have been made in the case of the assessee. we do not find any error in the order of the in sustaining the disallowance. The ground No. peal of the assessee is accordingly dismissed. 4, the assessee has raised the issue that once addition has been made estimating gross profit, no further addition made. We have heard rival submission of the parties o Ld. counsel submitted that no addition in respect of shortage of Gwar or excess of Chana should have been made specifically. In our opinion, the discrepancy in quantitative tally is the reasons on the basis of which books of account have been rejected and trading results of current year have been estimated in Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 16 making addition, the gross profit rate declared by the assessee in preceding assessment year has been applied on the turnover of the ring the year under consideration, which is one of the ould have been made in the case of the assessee. we do not find any error in the order of the lower ground No. 3 of the , the assessee has raised the issue that once , no further addition parties on the issue in submitted that no addition in respect of shortage of Gwar or excess of Chana should have been made specifically. In our opinion, the discrepancy in quantitative tally is ount have been have been estimated in view of trading results circumstances, making separate addition for shortage or excess of any particular item of trading is not required when books of accounts have been rejected We accordingly set aside the finding of the Ld. CIT(A) the addition of ₹6,21,102/ addition of ₹18,791/ commodity. The ground No. accordingly allowed. 15. The ground No. view of our finding in ground 16. The ground No. ₹3,75,000/- on account of transactions entered into a thok basis. Late Shri Mohan Raj Chhajed view of trading results of preceding assessment year circumstances, making separate addition for shortage or excess of any particular item of trading is not required when books of accounts have been rejected and gross profit has been estimated. We accordingly set aside the finding of the Ld. CIT(A) 6,21,102/- for shortage of ‘Gwar’ 18,791/- on account of access stock of . The ground No. 4 of the appeal the assessee accordingly allowed. The ground No. 5 and 6 of the appeal also stands allowed in view of our finding in ground No. 4 of the appeal. The ground No. 7 is in respect of confirming addition of on account of transactions entered into a thok Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 17 preceding assessment year. In such circumstances, making separate addition for shortage or excess of any particular item of trading is not required when books of gross profit has been estimated. We accordingly set aside the finding of the Ld. CIT(A) of sustaining commodity and cess stock of ‘Chana’ of the appeal the assessee is peal also stands allowed in ct of confirming addition of on account of transactions entered into a thok-khata 17. The Assessing Officer to related parties without actual delivery or even issuing purchase/sales bills. The Ld. CIT(A) has summarised the finding of the Assessing Officer “6. The ground no. 7 is regarding addition of Rs. of sales of Gwar on Thok Khata basis. The AO noted that the assessee has sold 25000 kg. to Mohan Lal Chajer HUF at Rs. 10.00.000/ Basis. Further, Mohan Lal Chajer HUF sold the same to Pankaj Lodha HUF at ₹11,75,000/ gwar to the assessee again. It was noted by the AO that in the entire transaction, the assessee has earned profit of Rs. 3,75,000/ 2,00,000). He has also noted that the stock of Gwar was no single time and also not a single transaction was occurred during the three stages of sale and purchase. The assessee had not provided any documentary evidence i.e. purchase or sale bills, detail of monetary transactions. Accordingly, the AO the total income of the assessee. 18. After considering the submission of the assessee Ld. CIT(A) rejected the contention of the assessee and upheld the addition observing as under: “6.2. I have considered the assess documents on record. I find that the AO made addition of Rs. 3,75,000/ Late Shri Mohan Raj Chhajed Assessing Officer noted that assessee sold certain quantity to related parties without actual delivery or even issuing purchase/sales bills. The Ld. CIT(A) has summarised the finding of as under: The ground no. 7 is regarding addition of Rs. 3,75,000/ of sales of Gwar on Thok Khata basis. The AO noted that the assessee has sold 25000 kg. to Mohan Lal Chajer HUF at Rs. 10.00.000/ Basis. Further, Mohan Lal Chajer HUF sold the same to Pankaj Lodha HUF ₹11,75,000/-. Thereafter, Pankaj Lodha HUF sold the same quantity of gwar to the assessee again. It was noted by the AO that in the entire transaction, the assessee has earned profit of Rs. 3,75,000/ 2,00,000). He has also noted that the stock of Gwar was no single time and also not a single transaction was occurred during the three stages of sale and purchase. The assessee had not provided any documentary evidence i.e. purchase or sale bills, detail of monetary transactions. Accordingly, the AO has made addition of Rs. 3,75,000/ the total income of the assessee.” considering the submission of the assessee Ld. CIT(A) rejected the contention of the assessee and upheld the addition 6.2. I have considered the assessment order, appellant's submissions and documents on record. I find that the AO made addition of Rs. 3,75,000/ Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 18 noted that assessee sold certain quantity to related parties without actual delivery or even issuing purchase/sales bills. The Ld. CIT(A) has summarised the finding of 3,75,000/- on account of sales of Gwar on Thok Khata basis. The AO noted that the assessee has sold 25000 kg. to Mohan Lal Chajer HUF at Rs. 10.00.000/- on Thok Khata Basis. Further, Mohan Lal Chajer HUF sold the same to Pankaj Lodha HUF hereafter, Pankaj Lodha HUF sold the same quantity of gwar to the assessee again. It was noted by the AO that in the entire transaction, the assessee has earned profit of Rs. 3,75,000/- (1,75,000 + 2,00,000). He has also noted that the stock of Gwar was not moved for a single time and also not a single transaction was occurred during the three stages of sale and purchase. The assessee had not provided any documentary evidence i.e. purchase or sale bills, detail of monetary has made addition of Rs. 3,75,000/- in considering the submission of the assessee Ld. CIT(A) rejected the contention of the assessee and upheld the addition ment order, appellant's submissions and documents on record. I find that the AO made addition of Rs. 3,75,000/- by observing that the assessee had sold gwar of 25,000 Kg. to non firms. In the all three transaction of the same quantity, there was movement of stock and no purchase and sale bills were raised in genuineness of the entire transaction. The appellant submitted before me that the Gwar is daily basis therefore he had hedged the parties and this were generated for during the period of hedge of therefore, the appellant had to shell out parties being difference in the rate on the date date of reversal and the payments made on such known as Thok Khata basis is nothing but the cos interest of appellant due to undue price fluctuations. I am not the contention of appellant as he had made multiple transactions earned profit of Rs. 3,75,000/ stock was lying in the godown of assessee. During the process of hedge of prices, no entries were made in the books of accounts and no any bills or documents were raised by him. The burden lies upon the appellant to justify his claim but he has failed as no documenta and sales bills were produced to establish genuineness of entire transaction. Thus, it is diversion of income of Rs. concern. I find the shortage of Gwar and excess stock of ground. The ground no. 7 is dismissed. Late Shri Mohan Raj Chhajed observing that the assessee had sold gwar of 25,000 Kg. to non firms. In the all three transaction of the same quantity, there was movement of stock and no purchase and sale bills were raised in of the entire transaction. The appellant submitted before me that the Gwar is speculative item and its market price goes up and down on therefore he had hedged the stock lying with him to the other parties and this transaction did not amount to sale or purchase so no bills were generated for these transactions. The appellant submitted that during the period of hedge of price, the prices were moved upward, the appellant had to shell out the differential price to the third parties being difference in the rate on the date of hedge and rate on the date of reversal and the payments made on such hedged transactions known as Thok Khata basis is nothing but the cost of safe guarding the interest of appellant due to undue price fluctuations. I am not the contention of appellant as he had made multiple transactions earned profit of Rs. 3,75,000/- but even after the entire transaction, the ying in the godown of assessee. During the process of hedge of prices, no entries were made in the books of accounts and no any bills or documents were raised by him. The burden lies upon the appellant to his claim but he has failed as no documentary evidence or purchase bills were produced to establish genuineness of entire transaction. Thus, it is clear that these transactions were nothing but a diversion of income of Rs. 3,75,000/- of the appellant to another sister concern. I find the AO was right in making addition of Rs. 3,75,000/ shortage of Gwar and excess stock of Chana. The appellant fails on this ground. The ground no. 7 is dismissed.” Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 19 observing that the assessee had sold gwar of 25,000 Kg. to non-registered firms. In the all three transaction of the same quantity, there was no movement of stock and no purchase and sale bills were raised in of the entire transaction. The appellant submitted before me speculative item and its market price goes up and down on stock lying with him to the other transaction did not amount to sale or purchase so no bills these transactions. The appellant submitted that price, the prices were moved upward, the differential price to the third of hedge and rate on the hedged transactions safe guarding the interest of appellant due to undue price fluctuations. I am not inclined with the contention of appellant as he had made multiple transactions and but even after the entire transaction, the ying in the godown of assessee. During the process of hedge of prices, no entries were made in the books of accounts and no any bills or documents were raised by him. The burden lies upon the appellant to ry evidence or purchase bills were produced to establish genuineness of entire clear that these transactions were nothing but a of the appellant to another sister making addition of Rs. 3,75,000/- for Chana. The appellant fails on this 19. We have heard rival submission of the parties on the issue in dispute and perused the also no documentary evidence in support of the transactions carried out by the assessee have been filed. In such circumstances, we do not have any alternative other than confirming the finding of the Ld. CIT(A) on the issue in dispute. The ground of the appeal of the assessee is accordingly dismissed. 20. The ground No. interest amounting to The Assessing Officer ₹5,99,818/- at the rate of 9% per annum to related parties, whereas not charged interest on the advances made to related parties. The Ld. Assessing Officer to Sh Rajendra Chhajer and shown under the head 21. Before the Ld. CIT(A) the assessee submitted that advances to related parties have been made out of interest free funds available Late Shri Mohan Raj Chhajed have heard rival submission of the parties on the issue in dispute and perused the order of the lower authorities. also no documentary evidence in support of the transactions carried out by the assessee have been filed. In such circumstances, we do not have any alternative other than confirming the finding of the Ld. the issue in dispute. The ground of the appeal of the accordingly dismissed. The ground No. 8 is regarding addition of disallowance of interest amounting to ₹1,68,262/- on account of sundry Assessing Officer noted that assessee paid interest of at the rate of 9% per annum to related parties, whereas interest on the advances made to related parties. The has noted that one of such advance was made ajer and shown under the head ‘sundry debtors Before the Ld. CIT(A) the assessee submitted that advances to related parties have been made out of interest free funds available Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 20 have heard rival submission of the parties on the issue in authorities. Before us also no documentary evidence in support of the transactions carried out by the assessee have been filed. In such circumstances, we do not have any alternative other than confirming the finding of the Ld. the issue in dispute. The ground of the appeal of the is regarding addition of disallowance of sundry advances. noted that assessee paid interest of at the rate of 9% per annum to related parties, whereas interest on the advances made to related parties. The has noted that one of such advance was made sundry debtors’. Before the Ld. CIT(A) the assessee submitted that advances to related parties have been made out of interest free funds available with assessee and not advanced out of the borrowed funds. Ld. CIT(A) forwarded the submission of the assessee to the Assessing Officer for his comment. After taking into consideration the comments of the assessee, the Ld. CIT(A) rejected the claim of the assessee as under: “Facts of the case, relied upon by the appellant are different from the facts of the case of the appellant. The appellant is paying interest @ 9% on the unsecured loans taken by him and on other side he gave interest free advance. This advance had been g sundry trade debtors. It is seen that the appellant has diverted interest bearing funds in giving interest free advances. On overall perusal of the case, I find that the appellant could not prove that the advance was giv from non-interest bearing funds. Since, the appellant is paying interest mostly @9% on the unsecured loans so he should have charged interest at the same rate from debtors also. Thus it is held that the AO rightly disallowed deemed interest of Rs. out of interest expenses of Rs. 5,99,818 @ 9%. on advance given by him. The addition made by the AO is hereby sustained. The appellant fails on this issue and this ground is treated as dismissed. Late Shri Mohan Raj Chhajed with assessee and not advanced out of the borrowed funds. Ld. arded the submission of the assessee to the for his comment. After taking into consideration the comments of the Assessing Officer and the rejoinder of the assessee, the Ld. CIT(A) rejected the claim of the assessee Facts of the case, relied upon by the appellant are different from the facts of the case of the appellant. The appellant is paying interest @ 9% on the unsecured loans taken by him and on other side he gave interest free advance. This advance had been given against the fund received from sundry trade debtors. It is seen that the appellant has diverted interest bearing funds in giving interest free advances. On overall perusal of the case, I find that the appellant could not prove that the advance was giv interest bearing funds. Since, the appellant is paying interest mostly @9% on the unsecured loans so he should have charged interest at the same rate from debtors also. Thus it is held that the AO rightly disallowed deemed interest of Rs. out of interest expenses of Rs. 5,99,818 @ 9%. on advance given by him. The addition made by the AO is hereby sustained. The appellant fails on this issue and this ground is treated as dismissed.” Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 21 with assessee and not advanced out of the borrowed funds. Ld. arded the submission of the assessee to the Ld. for his comment. After taking into consideration the rejoinder of the assessee, the Ld. CIT(A) rejected the claim of the assessee observing Facts of the case, relied upon by the appellant are different from the facts of the case of the appellant. The appellant is paying interest @ 9% on the unsecured loans taken by him and on other side he gave interest free iven against the fund received from sundry trade debtors. It is seen that the appellant has diverted interest bearing funds in giving interest free advances. On overall perusal of the case, I find that the appellant could not prove that the advance was given Since, the appellant is paying interest mostly @9% on the unsecured loans so he should have charged interest at the same rate from debtors also. Thus it is held that the AO rightly disallowed deemed interest of Rs. 1,68,262/- out of interest expenses of Rs. 5,99,818 @ 9%. on advance given by him. The addition made by the AO is hereby sustained. The appellant fails on 22. We find that assessee failed to explain befo that interest free funds were available with assessee for extending interest-free advances to the related parties. In absence of any such evidences submitted order of the Ld. CIT(A) on the uphold the same. The ground accordingly dismissed. 23. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 27/07/2022 Rahul Sharma, Sr. P.S. Late Shri Mohan Raj Chhajed find that assessee failed to explain before the Ld. CIT(A) that interest free funds were available with assessee for extending free advances to the related parties. In absence of any such evidences submitted by the assessee, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. The ground No. 8 of the appeal of the assessee accordingly dismissed. In the result, the appeal of the assessee is partly allowed. ounced in the Court on 27/07/2022. Sd/- SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 22 re the Ld. CIT(A) that interest free funds were available with assessee for extending free advances to the related parties. In absence of any such assessee, we do not find any error in the issue in dispute and accordingly we of the appeal of the assessee is In the result, the appeal of the assessee is partly allowed. OM PRAKASH KANT) MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Late Shri Mohan Raj Chhajed Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai Late Shri Mohan Raj Chhajed ITA No. 193/Jodh/2019 23 Sr. Private Secretary) ITAT, Mumbai