Shailendra Aggarwal, New Delhi V. ITO, New Delhi

ITA 2058/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4211 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 17-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 15-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: C S AGGARWAL
• Keywords: Depreciation; Speculation loss; Onus to prove
• Section: 143(3); 68; 28; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL I.T.A. NO. 2058(DEL)/2009 ASSESSMENT YEAR: 2003-04 SHRI SHAILENDRA AGGARWAL, INCOME-TAX OFFICER, PROP. M/S ART MAKERS, WARD 22(4), C/O MISHRA SAHU JAIN & VS. N EW DELHI. ASSOCIATES, 1103, NARRANG HOUSE, 21, K.G.MARG, NEW DELHI. PAN-AAJPA1440K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.S. AGGARWAL, ADVO CATE RESPONDENT BY : SHRI KIS HORE B., SR. DR ORDER PER K.G. BANSAL : AM IN THIS APPEAL, THE ASSESSEE HAS TAKEN UP FOUR GROUNDS IN RESPECT OF (I) LOSS OF RS. 16,52,186/- HELD TO BE SPECULAT ION LOSS FROM SHARE BUSINESS; (II) ADDITION OF RS. 11,37,432/- MADE O N ACCOUNT OF DIFFERENCE IN THE ACCOUNT OF M/S AZAR INDUSTRIES; AND (III) DISALLOWANCES FROM TELEPHONE AND CAR EXPENSES. 2. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE FI LED HIS RETURN ON 28.11.2003 DECLARING TOTAL INCOME OF RS. 2,58,130/ -. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 ( THE ACT), ON ITA NO. 2058(DEL)/2009 2 17.12.2003. THEREAFTER, STATUTORY NOTICES WERE ISSUED FOR SCRUTINIZING THE RETURN. THE ASSESSMENT WAS COMPLETED ON 21.3.20 06, UNDER THE PROVISIONS OF SECTION 143(3) AT TOTAL INCOME OF R S. 34,93,440/-. IT WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT(APPEALS)- XXV, WHO DISPOSED IF OFF ON 31.3.2009 IN APPEAL NO. 222/06-07, IN WHIC H THE ASSESSMENT WAS ENHANCED. 3. GROUND NO. 1 IS THAT THE LD. CIT(APPEALS) ON FACTS AND IN LAW IN HOLDING THE LOSS OF RS. 16,52,186/- IN SALE AND P URCHASE OF SHARES TO BE SPECULATION LOSS, THEREBY NOT ADJUSTING THE SAME AGAINST THE SHORT-TERM CAPITAL GAIN. 3.1 IN THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE ASSESSEE CLAIMED LOSS OF RS. 16,52,186/- ON ACCOUNT OF PURCHASE AN D SALE OF SHARES. THIS LOSS HAD BEEN ADJUSTED AGAINST THE BUSINESS IN COME. THE TRANSACTIONS OF CORRESPONDING PURCHASE AND SALE HAVE BEEN RECORD ED IN THE BOOKS OF ACCOUNT, HOWEVER, SEPARATE ACCOUNTS ARE NOT MAIN TAINED FOR THIS BUSINESS. IN ORDER TO SUPPORT THE LOSS, THE BILL FROM M/S S INO SECURITIES HAS BEEN FILED, WHICH IS IN THE NATURE OF THE DIFFERENCE PAYABLE BY THE ASSESSEE ON VARIOUS TRANSACTIONS. THIS SOURCE OF INCOME HA S BEEN SHOWN FOR THE FIRST ITA NO. 2058(DEL)/2009 3 TIME. THE DETAILS SHOW THAT SEVEN TRANSACTIONS WERE UNDERTAKEN. NO PHYSICAL DELIVERY OF THE SHARES HAS BEEN TAKEN. N O PAYMENT HAS BEEN MADE FOR PURCHASES NOR RECEIPTS SHOWN FOR SALES. I T HAS BEEN HELD THAT THE ASSESSEE HAS CARRIED OUT SPECULATIVE BUSINESS, WH ICH IS DISTINCT AND SEPARATE FROM OTHER BUSINESSES AND FOR THIS PURPOS E THE PROVISION CONTAINED IN EXPLANATION-2 TO SECTION 28 HAS BEEN INVOKED . THE LOSS FROM THIS BUSINESS HAS BEEN DISALLOWED IN COMPUTING THE INCO ME. 3.2 BEFORE THE LD. CIT(APPEALS), IT HAS INTER-ALIA BEEN SUBMITTED THAT THE TRANSACTIONS WERE UNDERTAKEN TO EARN PROFIT AND TO TAKE ADVANTAGE OF BOOM IN THE SHARE MARKET. THEREFORE, THEY ARE NOT IN THE NATURE OF SPECULATION BUSINESS. THE AO COMPUTED THE LOSS UNDER A WRONG HEAD AND THEREBY DID NOT ALLOW THE SET OFF OF THE LOSS AGAINST SHORT-TE RM CAPITAL GAINS. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE HER. AFTER CONSIDERING VARIOUS CASES REGARDING THE DISTINCTION BETWEEN SPECULATION TRANSACTIONS AND HEDGING TRAN SACTIONS, IT HAS BEEN HELD THAT THE LOSS IS IN THE NATURE OF SPECULATION LO SS. ACCORDINGLY, IT HAS NOT BEEN ALLOWED TO BE SET OFF. ITA NO. 2058(DEL)/2009 4 3.3 BEFORE US, THE LD. COUNSEL REFERRED TO THE FA CTS OF THE CASE THAT THE TRANSACTIONS IN SHARES HAVE BEEN SETTLED BY PAY ING THE DIFFERENCE AND WITHOUT TAKING DELIVERY. THIS BUSINESS IS ONE OF THE BUSINESSES CARRIED ON BY THE ASSESSEE. THE DETAILS OF THE TRANSACTIO NS HAVE BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 44 TO 46, WHICH SHOW THA T IN ALL THERE WERE 50 TRANSACTIONS BETWEEN 02.01.2003 AND 24.03.2003, LEADING TO LOSS OF RS. 16,52,186/-. AT THE END OF THE DETAILS, ON PAG E 46, IT WAS DESIGNATED AS SHORT-TERM LOSS. THE ONLY CASE MADE OUT B Y THE LD. COUNSEL IS THAT THIS BUSINESS IS A SEPARATE AND DISTINCT BUSINESS IN TERMS OF THE PROVISION CONTAINED IN EXPLANATION 2 TO SECTION 28, WHICH S TATES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESS EE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS (HEREIN AFTER REFERRED TO AS SPECULATION BUSINESS) SHALL BE DEEMED TO BE DI STINCT AND SEPARATE FROM ANY OTHER BUSINESS. ACCORDINGLY, IT IS PRAYED TH AT THE ASSESSEE IS ENTITLED TO DETERMINATION OF THE LOSS AS A SEPARATE AND DI STINCT LOSS, TO BE CARRIED FORWARD AND SET OFF IN SUBSEQUENT YEARS AS PER LA W. THE LD. DR DID NOT MAKE ANY SUBMISSION IN REGARD TO DETERMINATION AND CARRY FORWARD, BUT VEHEMENTLY ARGUED THAT THE TRANSACTIONS ARE IN THE NATURE OF SPECULATION TRANSACTIONS AND, THEREFORE, THE LOSS IS SPECULATI VE LOSS. ITA NO. 2058(DEL)/2009 5 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THERE IS NO DISPUTE BETWEEN THE CONTEN DING PARTIES REGARDING THE FACT THAT THE TRANSACTIONS HAVE BEEN SETTLED WITHOUT TAKING DELIVERY BY PAYING THE DIFFERENCE. THESE ARE NOT HEDGIN G TRANSACTIONS TO SAFEGUARD OTHER INVESTMENTS IN SHARES. THEREFORE, IT IS CLEAR THAT THE TRANSACTIONS ARE SPECULATIVE IN NATURE. HOWEVER , THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE US IN PARAGRAPH NO. 4.4, RE ADS AS UNDER:- 4.4 IT IS SUBMITTED THE LD. ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THERE IS A DISTINCTION BETWEEN S PECULATIVE TRANSACTION AND SPECULATIVE BUSINESS. IT IS SUB MITTED THAT IT IS ONLY WHERE THE SPECULATIVE TRANSACTIONS CARRIED O N BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE BUSINESS THAT, EXPLANATION 2 TO SECTION 28 GETS ATTRACTED AND SUCH BUSINESS, WHICH IS REFERRED TO AS SPECULATIVE BUSINESS, I S DEEMED TO BE DISTINCT AND SEPARATE FROM OTHER BUSINESS AND SE CTION 73 OF THE ACT BECOMES APPLICABLE TO THE SET OFF AND CARR Y FORWARD OF LOSS FROM SUCH BUSINESS, WHICH IS NOT THE CASE O F THE ASSESSEE APPELLANT. 3.5 ON PERUSAL OF THE DETAILS, IT IS SEEN THAT T HE TRANSACTIONS HAVE BEEN UNDERTAKEN ON 7 DAYS AND ON EACH DAY THERE AR E MORE THAN ONE TRANSACTIONS. FURTHER, ON EACH DAY THERE ARE TR ANSACTIONS IN SHARES OF MORE THAN ONE COMPANIES. THERE HAS BEEN LOSS ON EACH DAY, WHICH HAS BEEN AGGREGATED TO RS. 16,52,186/- ON 24.3.2003. AS SUCH 51 TRANSACTIONS HAVE BEEN TAKEN ON THESE SEVEN DAYS. ACCORDI NG TO US, A REGULAR AND ITA NO. 2058(DEL)/2009 6 SYSTEMATIC ACTIVITY HAS BEEN UNDERTAKEN SO AS TO CONSTITUTE IT AS A SPECULATION BUSINESS. THUS, THE LOSS IS HELD TO BE THE SPECULATION LOSS INCURRED IN THIS YEAR AND TREAT IT ACCORDINGLY. THE AO IS DIRECTED TO COMPUTE THE LOSS UNDER THIS HEAD AND TREAT THE SAME AS PER LAW. 3.6 THUS, THIS GROUND IS PARTLY ALLOWED AS DIS CUSSED ABOVE. 4. GROUND NOS. 2 AND 3 ARE AGAINST ADDITION OF RS. 11,37,432/- MADE BY THE AO AND FURTHER ENHANCEMENT OF RS. 16.00 LA KH MADE BY THE LD. CIT(APPEALS) IN RESPECT OF TRANSACTIONS WITH M /S AZAR INDUSTRIES. IT IS MENTIONED THAT THE ASSESSEE DISCHARGED THE BURDE N BY FILING CONFIRMED ACCOUNT FROM THIS CONCERN SHOWING THE CREDITS TO BE IN RESPECT OF SALES MADE TO THE ASSESSEE. IT IS FURTHER MENTIONED T HAT THE UNSECURED LOAN APPEARING IN THE NAME OF THE AFORESAID CONCERN OF R S. 16.00 LAKH IS OUT OF CREDIT BALANCES OF RS. 18,96,086/-. IT IS ALSO M ENTIONED THAT THE SAME AMOUNT CANNOT BE TAXED TWICE, ONCE ON ACCOUNT OF D IFFERENCE IN CLOSING BALANCE AND SECOND TIME AS UNSECURED LOAN. 4.1 IN THIS CONNECTION, IT IS MENTIONED IN THE AS SESSMENT ORDER THAT THE BALANCE-SHEET SHOWED TWO SUMS OF RS. 2,96,087/- AND RS. 16.00 LAKH ITA NO. 2058(DEL)/2009 7 PAYABLE TO M/S AZAR INDUSTRIES AS SUNDRY CREDIT A ND UNSECURED LOAN RESPECTIVELY. THE ASSESSEE WAS REQUIRED TO PROV E THE GENUINENESS OF THE CREDIT, BUT FAILED TO FILE THE CONFIRMED ACCOUNT IN SPITE OF REPEATED OPPORTUNITIES. THEREFORE, THE CASE RECORD OF THE CONCERN WAS EXAMINED WHICH REVEALED THAT IT SHOWED RECEIVABLE OF RS. 5 ,28,973/- FROM THE ASSESSEE. SUMMONS WERE ALSO ISSUED TO THIS CON CERN, IN RESPECT OF WHICH THE AUTHORIZED REPRESENTATIVE, SHRI MANU NARANG, A PPEARED AND SUBMITTED CONFIRMED ACCOUNT SHOWING PAYABLE OF RS. 5,28,97 3/- ONLY. THE ACCOUNT SO SUBMITTED SHOWED OPENING CREDIT BALANCE OF RS . 2,26,680/-, SALES OF RS. 18,93,085/-, PAYMENTS OF RS. 11,31,432/- AND DEBIT BALANCE OF RS. 5,28,973/-. THIS ACCOUNT HAS BEEN REPRODUCED ON PAGE NO. 3 OF THE ASSESSMENT ORDER. THIS WAS BROUGHT TO THE NOTI CE OF THE ASSESSEE FOR THE PURPOSE OF RECONCILIATION AND EXPLANATION. IT W AS SUBMITTED THAT THE DIFFERENCE IS ON ACCOUNT OF VARIOUS REASONS SU CH AS DISPUTE WITH RESPECT TO AMOUNT OF BILLS RAISED AND SYSTEMATIC PAYMEN T MADE AND RECEIVED AND METHOD OF ACCOUNTING. HOWEVER, THERE IS NO DIFF ERENCE IN THE TWO ACCOUNTS AS ON 31.3.2004 I.E., AT THE END OF IMMEDIATELY SUCCEEDING YEAR. AFTER FURTHER QUESTIONING, THE DIFFERENCE WAS STATED TO BE ON ACCOUNT OF (I) DIFFERENCE IN OPENING BALANCE; (II) NON-ACCOUNTING OF INVOICES; AND (III) PAYMENT ACCOUNTED BY OTHER ENTRIES AND NO CORR ESPONDING ENTRY IN THE ITA NO. 2058(DEL)/2009 8 BOOKS OF THE ASSESSEE. HOWEVER, IT WAS CLAIMED THAT THE ASSESSEE DISCHARGED ITS BURDEN STIPULATED U/S 68 BY EXPL AINING THE CREDIT ENTRY AND BY FILING THE CONFIRMED ACCOUNT BY THE SAID CON CERN. IT WAS ALSO FOUND BY THE AO THAT OUT OF TOTAL CREDIT BALANCE OF R S. 18,96,086/- IN RESPECT OF PURCHASES, A SUM OF RS. 16.00 LAKH WAS TRANSFERR ED TO LOAN ACCOUNT AND THE BALANCE AMOUNT OF RS. 2,96,086/- REMAINED IN THE SUNDRY CREDIT ACCOUNT. IT WAS NOTED THAT THE CONCERN HAS SHOWN PAYMENT S TO THIS CONCERN AGAINST PURCHASES OF RS. 18,96,086/-, BUT NONE OF THE PAYMENTS HAS BEEN RECORDED IN THE BOOKS OF THE ASSESSEE. THERE WE RE ALSO MINOR DIFFERENCES OF RS. 3,000/- AND RS. 200/- ON ACCOUNT OF AMOUNT S ENTERED IN THE RESPECTIVE BOOKS FOR PURCHASE AND SALE RESPECTIVE LY. ON THE BASIS OF AFORESAID FACTS, THE AO CAME TO THE CONCLUSION TH AT THE ASSESSEE HAS MADE PAYMENTS TO M/S AZAR INDUSTRIES, WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. THEREFORE, ON THE DATES OF PAYMENT, THE ASSESSEE WAS IN POSSESSION OF UNACCOUNTED CASH TO THE EXTENT OF P AYMENTS. ACCORDINGLY, THE ADDITION OF RS. 11,37,492/- HAS BEEN MADE ON T HIS ACCOUNT. 4.2 THE MATTER WAS AGITATED IN APPEAL BEFORE THE LD. CIT(APPEALS). THE STAND OF THE ASSESSEE BEFORE HER WAS MORE OR LESS THE SAME AS BEFORE THE AO. IT WAS SUBMITTED THAT THE ENTRIES IN THE BOOKS OF ACCOUNT OF M/S ITA NO. 2058(DEL)/2009 9 AZAR INDUSTRIES ARE NOT CORRECT AS CASH PAYMENT S ARE NOT REFLECTED IN THE AUDITED BOOKS OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE UNSECURED LOAN OF RS. 16.00 LAKH IS ON ACCOUNT OF TRANSFER OF THE AMOUNT FROM SUNDRY CREDIT ACCOUNT TO THE LOAN CREDIT ACC OUNT OF M/S AZAR INDUSTRIES. SHE NOTED FOUR FACTS FROM THE ASS ESSMENT ORDER IN RESPECT OF THESE TRANSACTIONS WHICH ARE AS UNDER:- THAT RS. 16,00,000/- WAS TRANSFERRED TO LOAN ACCO UNT IN THE BOOKS OF THE APPELLANT, BUT IN THE BOOKS OF AZAR INDUSTRIE S; THAT RS. 2,26,620/- WAS THE OPENING BALANCE IN THE BOOKS OF AZAR INDUSTRIES WHICH DID NOT APPEAR IN THE BOOKS OF THE APPELLANT; THAT THE CASH OF RS. 11,37,492/- WAS RECEIVED BY AZAR INDUSTRIES, BUT NOT ACCOUNTED BY THE APPELLANT; THAT THE DIFFERENCE BETWEEN THE PURCHASE FIGURE OF RS. 18,96,086/- APPEARING IN THE BOOKS OF THE APPELLANT, AND THE SALES FIGURE OF RS. 18,93,085/- APPEARING IN THE BOOKS OF AZAR INDUST RIES, AMOUNTING TO RS. 3,001 WAS ON ACCOUNT OF BILL NO. 267, 257, 254, 275 AND 282 BOOKED BY AZAR INDUSTRIES FOR LESSER AMOUNT. 4.3 IT WAS HELD THAT THE ASSESSEE HAS RELIED ON THE BOOKS OF ACCOUNT OF M/S AZAR INDUSTRIES FOR ALL OTHER ENTRIES EXCEP T ONE SET OF ENTRIES WHERE THERE ARE DIFFERENCES. THESE ARE PRIMARILY IN RESPECT OF CASH PAYMENT OF RS. 11,31,432/-. THE ASSESSEE CANNOT ADMIT A PA RT OF THE EVIDENCE AND ITA NO. 2058(DEL)/2009 10 REPUDIATE OF THE OTHER AT THE SAME TIME. THER EFORE, THE ADDITION OF RS. 11,37,492/- HAS BEEN CONFIRMED. 4.4 SHE ALSO ENHANCED THE INCOME BY AN AMOUNT OF RS. 16.00 LAKH DESCRIBED AS LOAN FROM M/S AZAR INDUSTRIES BY MENTIONING THAT THE EXPLANATION THAT IT IS A PART OF CREDIT BALANCES IS NOT SUPPORTED BY ANY CONFIRMATION OR EVIDENCE FROM THE CONCERN. 4.5 BEFORE US, THE CASE OF THE LD. COUNSEL IS T HAT HERE THE QUESTION IS ONE OF DETERMINING WHETHER THE BOOKS OF THE ASSE SSEE CAN BE RELIED UPON OR THE BOOKS OF ACCOUNT OF THE CONCERN. THE AS SESSEE HAD MADE PURCHASES FOR WHICH PAYMENTS WERE MADE IN THE SUBSEQUENT YEAR, BUT THE SELLER SHOWED RECEIPT OF SOME PAYMENTS IN THIS YEAR BY WAY OF CASH. THE ASSESSEE HAD NOT PAID ANY AMOUNT TO HIM, BUT THE PAYMENTS WERE MADE IN THE NEXT YEAR. LOOKING TO OVERALL FACTS, NO FAU LT CAN BE FOUND WITH THE ASSESSEE PARTICULARLY WHEN HIS REQUEST FOR SUM MONING THE RESPONSIBLE PERSON FROM THE CONCERN WAS NOT ACTED UPON BY THE AO. ON THE OTHER HAND, THE LD. DR RELIED ON THE FINDINGS OF THE LD. CIT(APPEALS). THESE FINDINGS HAVE ALREADY BEEN SUMMARIZED BY US. HOW EVER, FOR THE SAKE OF READY REFERENCE, THE FINDINGS ARE REPRODUCED OVERL EAF:- ITA NO. 2058(DEL)/2009 11 4.3.2. THE APPELLANT HAS OBJECTED TO THE ADDIT ION OF RS. 11,31,432/- ON THE GROUND THAT IT APPEARS AS CASH PAYMENT ONLY IN THE BOOKS OF AZAR INDUSTRIES AND DOES NOT APPE AR IN ITS OWN AUDITED BOOKS. IT IS CLAIMED THAT ITS ACCOUNT IN THE BOOKS OF AZAR INDUSTRIES DOES NOT REFLECT THE CORRECT POSI TION. BUT THIS CLAIM IS FALLACIOUS AND DISCORDANT AS THE APPE LLANT HAS RELIED UPON THE VERY SAME ACCOUNT APPEARING IN THE BOO KS OF AZAR INDUSTRIES, TO EXPLAIN ITS PURCHASES OF RS. 18,96,0 86/-. HAVING ACCEPTED ONE SET OF ENTRY (SALE BY AZAR INDUST RIES), THE APPELLANT CAN HARDLY VENTURE ON A CHERRY PICK ING TRIP AND CLAIM THAT WHILE THE ENTRY RELATING TO SALE IS RE LIABLE, THE OTHER ENTRY RELATING TO CASH PAYMENT OF RS. 11,31,432/- IS NOT. THE APPELLANTS RELIANCE ON PART CONFIRMATION OF AZ AR INDUSTRIES (ONLY TO THE EXTENT OF CREDIT PURCHASES AND NOT IN RESPECT OF CASH PAYMENTS) IS SHAKY AND UNRELIABLE. IN THE A BSENCE OF SUFFICIENT CASH IN THE BOOKS OF THE APPELLANT, THE CASH OF RS. 11,31,432/-, CLAIMED TO BE RECEIVED FROM THE APPE LLANT BY AZAR INDUSTRIES, COULD NOT HAVE BEEN RECORDED IN THE BOOKS OF THE APPELLANT. WHEN THE APPELLANT WAS CONFRONTED WITH THE CASH PAYMENT ENTRY OF RS. 11,31,432/-, APPEARI NG IN THE BOOKS OF AZAR INDUSTRIES, THE ONUS SHIFTED ON TH E APPELLANT TO DEMONSTRATE WITH EVIDENCE WHY IT WAS NOT SO AND NOT MERELY MAKE AN ASSERTION OF DENIAL. FURTHER, THE SO-CA LLED RECONCILIATION STATEMENT, WHICH WAS NOT CONFIRMED BY AZAR INDUSTRIES, BUT WHICH WAS REPORTED AND CONFIRMED BY THE APPELLANT, TAKES INTO ACCOUNT THE CASH PAYMENT O F RS. 11,31,342/-, REFLECTED IN THE BOOKS OF AZAR IN DUSTRIES AND GOES ON TO ADMIT THAT THE SUM OF RS. 11,37,492/- WAS NOT ACCOUNTED BY ART MAKERS DURING THE YEAR. 4.3.3 UNDER THE CIRCUMSTANCES, AND IN THE ABSE NCE OF THE APPELLANT DISCHARGING ITS BURDEN TO EXPLAIN WHY THE CASH PAYMENT OF RS. 11,37,492/- WAS NOT ATTRIBUTABLE T O IT, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE AD DITION. THIS ADDITION IS JUSTIFIED U/S 69/69C OF THE INCOME-T AX ACT. CONSEQUENTLY, GROUNDS 3 AND 4 OF THE APPEAL ARE DISMISSED. ITA NO. 2058(DEL)/2009 12 4.6 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE WA S REQUIRED TO FURNISH EVIDENCE IN RESPECT OF CREDIT STANDING IN ITS B OOKS IN THE NAME OF M/S AZAR INDUSTRIES. NO EVIDENCE EXCEPT THE LEDGER A CCOUNT FROM OWN BOOKS WAS FILED IN SPITE OF REPEATED OPPORTUNITIES GI VEN IN THIS BEHALF. THE AO OBTAINED INFORMATION FROM THE INCOME-TAX RETURN OF M/S AZAR INDUSTRIES AND FOUND THAT THERE WERE DIFFERENCES IN THE TWO ACCOUNTS. SUBSEQUENTLY, THIS CONCERN ALSO FILED THE LEDGER ACCOUNT OF T HE ASSESSEE IN ITS BOOKS AFTER DULY SIGNING IT. THE AO NOTICED THAT WHILE DETAILS IN RESPECT OF PURCHASES MADE BY THE ASSESSEE ARE MORE OR LESS C ORRECT, THE PAYMENTS RECEIVED BY THE CONCERN FROM THE ASSESSEE IN CASH WERE NOT FOUND RECORDED IN THE BOOKS OF THE ASSESSEE. THE CAS E OF THE LD. COUNSEL BEFORE US IS THAT IN ABSENCE OF CORROBORATION OF EVIDENCE FROM M/S AZAR INDUSTRIES, ITS BOOKS OF ACCOUNT SHOULD BE ACCEP TED. ON THE OTHER HAND, THE FINDINGS OF LOWER AUTHORITIES ARE THAT THE ONUS TO PROVE GENUINENESS OF THE CREDIT IS ON THE ASSESSEE IN RESPECT OF WH ICH NO INDEPENDENT EVIDENCE HAS BEEN FILED. THEREFORE, THE ASSESSEE CANNOT PICK AND CHOOSE A PART OF THE EVIDENCE WHICH SUITS HIM FOR CLAIMING TH E DEDUCTION OF PURCHASES AND DISPUTE THE OTHER PART REGARDING PAYMENTS WHI CH GOES AGAINST HIM. ITA NO. 2058(DEL)/2009 13 THUS, THE QUESTION IS-WHETHER, THE LOWER AUTHORIT IES WERE RIGHT IN MAKING THE ADDITION OF RS. 11,37,492/- ON ACCOUNT OF T HE DISCREPANCIES? 4.7 IN THE CASE OF CHIRANJI LAL STEEL ROLLING MI LLS VS. CIT, (1972) 84 ITR 222, RELIED UPON BY THE LD. COUNSEL, THE FACT S ARE THAT EVIDENCE WAS COLLECTED BY THE AO FROM THE SALES-TAX AUTHORITIES REGARDING THE TRANSACTIONS OF THE ASSESSEE WITH M/S GOEL IRON STORES. THE EVIDENCE IN POSSESSION OF THE SALES-TAX DEPARTMENT CAME FROM ENQUIRIES MADE IN THE CASE OF M/S GOEL IRON STORES FROM THIRD PARTIES. THE AO FOUND THAT THERE WERE DISCREPANCIES IN THE EVIDENCE FILED BY THE ASSESSEE REGARDING M/S GOEL IRON STORES AND THE EVIDENCE COLLECTED BY THE SALES-TAX DEPARTMENT IN RESPECT OF THIS CONCERN. ON THE BASIS OF DI SCREPANCIES, AN ADDITION OF RS. 13,955/- WAS MADE. THE AAC DELETED THE AD DITION, BUT THE TRIBUNAL RESTORED THE ADDITION. THEREAFTER, ON THE DIRECT IONS OF THE HONBLE COURT THE FOLLOWING QUESTION WAS REFERRED FOR ITS OPINI ON:- WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE, THERE WAS LEGAL AND ADMISSIBLE EVIDENCE TO SUPPO RT THE FINDING OF DELHI BENCH B OF THE INCOME-TAX APPELLATE TR IBUNAL CONTAINED IN ITS ORDER DATED AUGUST 30, 1962, IN RESPECT OF THE ASSESSMENT OF INCOME-TAX ON THE ASSESSEE FOR THE ASSESSMENT YEAR 1956-57 RESTORING THE ADDITION OF RS. 13,955 /- AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCES? ITA NO. 2058(DEL)/2009 14 4.8 IT MAY BE MENTIONED THAT THE STATEMENT OF SHRI SAGAR MAL WAS RECORDED, WHO INTER-ALIA DEPOSED THAT THE UCHANTI BOOK WAS NEITHER IN OUR POSSESSION NOR BEFORE THIS. THE DECISION OF TH E COURT IS THAT UNDER THE CIRCUMSTANCES THE GREATER RESPONSIBILITY LAY ON T HE INCOME-TAX OFFICER TO SATISFY HIMSELF ABOUT THE ENTRIES ENUMERATED IN THE COPY SUPPLIED TO HIM, MORE PARTICULARLY BECAUSE SHRI SAGAR MAL, WHO W AS PRODUCED AS WITNESS BEFORE HIM, CATEGORICALLY DENIED THAT UCHANTI BOOK WAS RECOVERED FROM HIS FIRM OR BELONGED TO HIS FIRM. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED B ELOW:- UNDER THE CIRCUMSTANCES, GREATER RESPONSIBILITY LAY ON THE INCOME-TAX OFFICER TO SATISFY HIMSELF ABOUT THE ENTRIES ENUMERATED IN THE COPY SUPPLIED TO HIM, MORE P ARTICULARLY BECAUSE SHRI SAGAR MAL, WHO WAS PRODUCED AS A WITNESS BEFORE HIM, CATEGORICALLY DENIED THAT THAT UC HANTI BAHI WAS RECOVERED FROM HIS FIRM OR BELONGED TO HIS FIRM . HE ALSO DENIED THE ENTRIES MENTIONED IN THE COPY. THE APPELLATE ASSISTANT COMMISSIONER OF INCOME-TAX RIGHTLY RE JECTED THAT DOCUMENT BY GIVING COGENT REASONS IN SUPPORT OF HIS CONCLUSION AND THAT IS WHY WE HAVE GIVEN AN EX TENSIVE QUOTATION FROM HIS ORDER BEARING ON THIS POINT IN STEAD OF REPEATING THOSE REASONS. IN VIEW OF THE DENIAL BY SHRI SAGAR MAL ABOUT THE UCHANTI BAHI, IT HAD TO BE PROVED BY INDEPENDENT EVIDENCE THAT THE ENTRIES SHOWN IN TH E COPY SUPPLIED TO THE INCOME-TAX OFFICER BY THE SALES TAX DEPARTMENT IN FACT RELATED TO TRANSACTIONS BETWE EN THE TWO FIRMS WHICH FACT WAS NEVER PROVED BY ANY EVIDE NCE WHATSOEVER. IF THE UCHANTI BAHI WAS CONSIDERE D TO BE A GENUINE DOCUMENT, IT MUST HAVE CONTAINED ENTRI ES WITH REGARD TO THE DEALINGS OF M/S GOEL IRON STORES WITH OTHER ITA NO. 2058(DEL)/2009 15 PARTIES SO THAT THE RELIABILITY OR UNRELIABILITY OF THE BAHI COULD BE ASCERTAINED BY REFERENCE TO THE OTHER PARTIES. BUT THIS WAY OF PROVING THE RELIABILITY OR UNRELIABI LITY OF THAT BAHI WAS SHUT OUT BY THE SECRETING AWAY OF THAT BO OK FROM THE SALES TAX DEPARTMENT. THE SALES TAX DEPARTMENT A LSO DID NOT NOTIFY TO THE INCOME-TAX OFFICER THAT ON THE BASI S OF THAT BAHI THEY HAD MADE ENQUIRIES FROM OTHER PARTIES WITH WHOM M/S GOEL IRON STORES HAD DEALINGS AND WHICH WERE MENTIONED IN THAT BAHI. IF ONLY THE TRANSACTIONS RELATIN G TO THE ASSESSEE WERE MENTIONED IN THAT BAHI, THEN ON THE FACE OF ITITWAS UNRELIABLE. THE INCOME-TAX OFFICER GRAVELY ERRE D IN RELYING ON THE ENTRIES FROM THE UCHANTI BAHI WITHOUT AS CERTAINING THEIR CORRECTNESS FROM ANY OTHER SOURCE AND AC TED ON A MERE SUSPICION WHICH WAS NOT JUSTIFIED. FOR THESE REA SONS WE HOLD THAT THE COPY OF ENTRIES FROM THE UCHANTI BAHI S UPPLIED TO THE INCOME-TAX OFFICER BY THE SALES TAX DEPARTMENT WAS NOT LEGAL AND ADMISSIBLE EVIDENCE ON WHICH THE INCOME -TAX OFFICER COULD ACT FOR IMPOSING EXTRA BURDEN O F INCOME-TAX ON THE ASSESSEE. WE ARE FURTHER OF THE OPINIO N THAT THE APPELLATE ASSISTANT COMMISSIONER TOOK THE CORRECT VIEW OF THE MATTER AND RIGHTLY DELETED THE ADDITION OF RS. 13,955/- WHICH HAD BEEN MADE BY THE INCOME-TAX OFFICER TO THE I NCOME OF THE ASSESSEE. 4.9 HAVING CONSIDERED THE FACTS OF THE CASE, IT IS CLEAR THAT THE RESPONSIBILITY OF PROVING TRANSACTIONS WITH M/S AZAR INDUSTRIES WAS ON THE ASSESSEE BECAUSE DEDUCTION OF RS. 18,93,085/- WA S CLAIMED BY IT IN COMPUTING THE TOTAL INCOME. THE ASSESSEE WAS GR ANTED REPEATED OPPORTUNITIES TO PROVE THE CREDIT APPEARING IN ITS BOOKS OF ACCOUNT ARISING ON ACCOUNT OF TRANSACTIONS WITH THIS CONCERN. TH E ASSESSEE COMPLETELY FAILED TO FURNISH ANY EVIDENCE. BUT THE CONCERN FILED THE EVIDENCE WHICH SHOWED THAT GOODS WERE SOLD TO THE ASSESSEE. HOWEVER, IT ALSO SHOWED ITA NO. 2058(DEL)/2009 16 RECEIPT OF CERTAIN AMOUNTS. THIS FACT HAS BEEN DISPUTED BY THE ASSESSEE. THIS EVIDENCE HAD BEEN FILED BY THE CONCERN UND ER A VERIFICATION. PRIMA FACIE, THIS EVIDENCE COULD BE TAKEN TO BE CORRE CT. IT SO HAPPED THAT THE AO ALSO ISSUED SUMMONS TO THE CONCERN FOR VERIF ICATION OF THE TRANSACTIONS. IN RESPONSE TO THE SUMMONS, A CON FIRMED LEDGER ACCOUNT WAS FILED, WHICH IS THE SAME AS SHOWN IN THE R ETURN OF INCOME. AS THE ASSESSEE HAS RELIED PARTLY ON THE EVIDENCE FOR CLAIMING THE DEDUCTION OF EXPENDITURE, IT CANNOT BE SAID THAT THE CONCERN IS THE WITNESS OF THE REVENUE AND CROSS-EXAMINATION WAS NECESSARILY R EQUIRED TO BE FURNISHED TO THE ASSESSEE FOR ESTABLISHING THE TRUTHFULNESS OF THE DETAILS FILED BY THE CONCERN. THE AO GRANTED DEDUCTION TO THE EXTENT THE TRANSACTIONS TALLIED BUT SINCE THE PAYMENTS MADE BY THE ASSESSEE TO M/A AZAR INDUSTRIES WERE NOT ACCOUNTED FOR, THE AO TRIED TO RECONCILE THE ACCOUNT AND MADE ADDITION OF A LESSER AMOUNT OF RS. 11,37,492/- . THE FACTS OF THE CASE OF CHIRANJI LAL STEAL ROLLING MILLS (SUPRA) ARE DI STINGUISHABLE BECAUSE IN THAT CASE THE EXISTENCE OF UCHANTI BOOK WAS DENIED. IN OTHER WORDS, THE EVIDENCE FROM THE COUNTER PARTY WAS NOT AVAILAB LE. IT MAY BE MENTIONED THAT SHRI SAGAR MAL WAS PRODUCED BY THE ASSESSE E BEFORE THE AO TO PROVE THAT EVIDENCE COLLECTED FROM SALES-TAX DEPARTMEN T WAS NOT RELIABLE. NOTHING OF THIS KIND HAS BEEN DONE IN THIS CASE . THE ASSESSEE HAS NOT ITA NO. 2058(DEL)/2009 17 PRODUCED ANY EVIDENCE WHATSOEVER REGARDING GENUIN ENESS OF THE LEDGER ACCOUNT FILED BY IT FROM ITS BOOKS OF ACCOUNT IN TH E COURSE OF ASSESSMENT. IN THESE CIRCUMSTANCES, NON-RECORDING OF STATEMENT DOES NOT VITIATE THE ASSESSMENT ORDER. THE EVIDENCE LED TO ADDITI ON OF SMALLER AMOUNT THAN WHAT WAS WARRANTED ON THE BASIS OF THE LEDGER ACC OUNT FILED BY THE ASSESSEE. IT MAY BE MENTIONED THAT THE PAYMENTS, NOT RECORDED IN THE BOOKS OF ACCOUNT, ARE OF RS. 11,31,432/-. THE BALANCE AMOUNT IS IN RESPECT OF SOME RECONCILIATION DIFFERENCE. THE DISCREPANCY NOTED IS A SPECIFIC DISCREPANCY, WHICH DOES NOT REQUIRE COMPLETE RE JECTION OF BOOKS OF ACCOUNT. THE AO HAD NOT FOUND ANY OTHER DISCREPA NCY IN THE BOOKS. THEREFORE, THE ARGUMENT THAT BOOKS WERE NOT REJE CTED IS NOT MATERIAL. MERE FACT THAT THE BOOKS OF THE ASSESSEE WERE AUDITE D ALSO DOES NOT SUPPORT THE CASE OF THE ASSESSEE BECAUSE THE AO IS NOT BOUND TO ACCEPT AUDITED ACCOUNTS TO BE TRUE AND CORRECT AND CONCLUSIVE OF THE INCOME OF THE ASSESSEE. HE IS ENTITLED TO MAKE ENQUIRY AND CO MPLETE ASSESSMENT ON THE BASIS OF THE RESULTS OF SUCH ENQUIRY. HOWEVER, SI NCE THE MATTER IS NOT FREE FROM DOUBT, WE THINK IT FIT TO RESTORE THE MA TTER TO THE FILE OF THE AO FOR RE-ADJUDICATION OF THE MATTER. IN THESE PROCEED INGS, THE AO MAY GRANT ONE MORE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE RESPONSIBLE PERSON ITA NO. 2058(DEL)/2009 18 FROM M/S AZAR INDUSTRIES FOR EXAMINATION ON TH E PAYMENTS RECEIVED BY IT AND, THEREAFTER, HE MAY DECIDE THE ISSUE AS PER LAW. 4.10 COMING TO THE ISSUE OF ENHANCEMENT OF INCOME BY AN AMOUNT OF RS. 16.00 LAKH, IT IS SEEN THAT THE ASSESSEE SPL IT UP ONE ACCOUNT OF M/S AZAR INDUSTRIES INTO TWO ACCOUNTS, ONE DESIGN ATED AS SUNDRY-CREDIT ACCOUNT AND THE OTHER AS LOAN-CREDIT ACCOUNT. F ROM ONE CONSOLIDATED ACCOUNT, A SUM OF RS. 16.00 LAKH WAS TRANSFERRE D TO THE LOAN-CREDIT ACCOUNT. FROM SUCH A BOOK ENTRY, WHICH HAS NO R EPERCUSSION ON THE OVERALL TRANSACTIONS WITH THIS CONCERN, NO INFE RENCE OF UNDISCLOSED INCOME CAN BE DRAWN. THEREFORE, THE ENHANCEMENT MADE BY THE LD. CIT(APPEALS) IS DELETED. 4.11 THE RESULT OF THE DISCUSSION IS THAT GROUND N O.2 IS TREATED AS ALLOWED AND GROUND NO. 3 IS ALLOWED. 5. IN REGARD TO DISALLOWANCES, IT IS SEEN THAT TH E FINDING OF THE AO IS THAT THE ELEMENT OF PERSONAL USE OF TELEPHONE AND CAR CANNOT BE RULED OUT AND, THEREFORE, 1/10 TH OF THE EXPENSES HAVE BEEN DISALLOWED. THE LD. CIT(APPEALS) MENTIONED THAT THE ASSESSEE DID NOT MAINTAIN LOG BOOK ITA NO. 2058(DEL)/2009 19 RECORD FOR THE EXPENSES. THEREFORE, WHILE SHE UPHELD THE DISALLOWANCE OF THE EXPENDITURE, THE DEPRECIATION ON MOTOR CAR WAS ALLOWED IN FULL. THE ONLY CASE MADE OUT BY THE LD. COUNSEL IS THAT TH E ADDITION IS AD-HOC IN NATURE. THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. HAVING CONSIDERED THE RIVAL SUBMISSIONS, IT IS A MATTER OF FACT THAT THERE IS SOME GAP IN THE DETAILS MAINTAINED BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE. THEREFORE, THE CASE DID CALL FOR SOME DISALLOWANCE. IN ABSENCE OF COMPLETE DETAILS, DISALLOWANCE OF 1/1 0 TH OF THE EXPENDITURE IS HELD TO BE JUSTIFIED, AS ESTIMATE HAS TO BE RESORTED TO IN ABSENCE OF COMPLETE EVIDENCE. THUS, GROUND NO. 4 IS DISM ISSED. 6. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21 APRIL, 2011. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21ST APRIL, 2011. SP SATIA ITA NO. 2058(DEL)/2009 20 COPY OF THE ORDER FORWARDED TO: SHRI SHAILENDRA AGGARWAL, NEW DELHI. ITO, WARD 22(4), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.