ITO,Wd-2(1), Solapur V. Shri Yeshwant Tulsidas Jadhav, Pune

ITA 206/PUN/2002

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9976 (ITAT-PUNE)
• Duration Of Justice: 10 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-09-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 04-03-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Business income; Principle of natural justice; Wrong claim; Corroborative evidences
• Section: 40A(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI G.S.PANNU, ACCOUNTANT MEMBER. ITA.NO.206/PN/2006 (ASSTT. YEAR : 1997-98) ITO, WARD-2(1), SOLAPUR. .. APPELLANT VS. SHRI YESHWANT TULSIDAS JADHAV, 195/1, MITRA NAGAR, BUDHWAR PETH, SOLAPUR. .. RESPONDENT AND ITA.NO.252/PN/2002, 283/PN/2004 & 1251/PN/2004 (ASSTT. YEAR : 1997-98, 1998-99 & 1998-99) SHRI YESHWANT TULSIDAS JADHAV, 195/1, MITRA NAGAR, BUDHWAR PETH, SOLAPUR. .. APPELLANT VS. ITO, WARD-2(1), SOLAPUR. .. RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA DEPARTMENT BY : MS.ANN KAPTHUAMA DATE OF HEARING : 07.09.2012 DATE OF PRONOUNCEMENT : 28.09.2012 ORDER PER BENCH : ALL THESE APPEALS PERTAIN TO SAME ASSESSEE SO THEY ARE BEING DISPOSED BY A COMMON ORDER FOR THE SAKE OF CONVENIE NCE. 2 2. FIRST WE TAKE UP ITA.NO.206/PN/2002. THIS APPEAL HAS BEEN FILED BY THE REVENUE FOR A.Y. 1997-98 ON THE FOLLOW ING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT( A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO U /S.40A(3) OF RS.8,91,404/- ON ACCOUNT OF CASH PAYMENT IN EXCE SS OF RS.20,000/-, WHEN THE SAME WAS RIGHTLY DISALLOWED B Y THE AO. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT( A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSE E IS NOT MAINTAINING ANY BOOKS OF ACCOUNTS AND THAT THE EXPE NSES RS.44,57,024/- HAVE BEEN INCURRED BY MAKING CASH PA YMENT AND THEY HAVE BEEN INCURRED IN A SUM EXCEEDING RS.2 0,000/-. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE FIRST ISSUE IS WITH REGARD TO ADDITION OF RS .8,91,404/- U/S.40A(3). THE ASSESSING OFFICER MADE DISALLOWANC E OF RS.8,91,404/- U/S.40A(3). THE ASSESSEE HAS NOT MAI NTAINED ANY BOOKS OF ACCOUNTS NOR HAS MAINTAINED ANY DETAILS OR SUPPORTING EVIDENCE FOR THE EXPENSES CLAIMED. THE ASSESSING O FFICER ESTIMATED THE ASSESSEES EXPENDITURE ON TRANSPORTATION, PACKI NG, ETC., EXCLUDING THE HAMALI CHARGES FOR LOADING AND UNLOAD ING AT RS.44,57,024/- AS AGAINST RS.47,78,444/- CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT ALL THESE EXPENS ES WERE INCURRED BY MAKING CASH PAYMENT. SINCE THE EXPENSES WERE IN CURRED IN SUM EXCEEDING RS.20,000/-, 20% OF RS.44,57,024/- WAS DI SALLOWED U/S.40A(3) WHICH COMES TO RS.8,91,404/-. 3.1. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, CIT(A) DELETED THE DISALLOWANCE IN QUESTION. SAME HAS BEEN OPPOSED BEFORE US. LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIVE SUPPORTED THE ORDER OF THE CIT(A). 3.2. AFTER GOING THROUGH THE ABOVE SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT NO BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY THE ASSESSEE. THE EXTENT OF GROSS RECEIPTS HAVE BE EN OBTAINED FROM 3 AUTHORITIES. THE EXPENSES HAVE ALSO BEEN ESTIMATED . THE ASSESSING OFFICER HAS NOT COME ACROSS ANY SPECIFIC INSTANCE W HERE IT COULD BE SAID THAT PROVISIONS OF SECTION 40A(3) HAVE BEEN VI OLATED. THE ASSESSING OFFICER HAS MERELY ESTIMATED THAT THE EXP ENSE OF RS.44,57,024/- HAVE BEEN INCURRED BY MAKING A CASH PAYMENT AND THEY HAVE BEEN INCURRED IN A SUM EXCEEDING RS.20,00 0/-. THEREFORE 20% OF SUCH EXPENDITURE WAS DISALLOWED. THE STAND OF THE ASSESSEE HAS BEEN THAT THERE IS NO EVIDENCE WITH THE ASSESSI NG OFFICER TO JUSTIFY INVOKING PROVISIONS OF SECTION 40A(3) OF TH E ACT. HE HAD PRESUMED THAT EACH PAYMENT OUT OF RS.44,57,024/- EX CEEDED RS.20,000/-. THE OBJECT OF THE PROVISIONS OF SECTI ON 40A(3) IS TO CHECK EVASIONS OF TAXES SO THAT THE PAYMENT IS MADE FROM DISCLOSED SOURCES. THE ASSESSING OFFICER HAS ESTIMATED THE E XPENSES WHICH COULD BE ALLOWED AGAINST BUSINESS RECEIPTS. UNLESS THERE IS ANY SPECIFIC INSTANCE, IT CANNOT BE PRESUMED THAT PROVI SIONS OF SECTION 40A(3) WOULD AUTOMATICALLY APPLY WHERE NO BOOKS OF ACCOUNTS ARE MAINTAINED. SINCE THERE IS NO SPECIFIC INSTANCE HAV E BEEN BROUGHT OUT BY THE ASSESSING OFFICER THAT FOR ANY EXPENDITU RE THE ASSESSEE HAS MADE PAYMENT EXCEEDING RS.20,000/- IN CASH. IN SUCH CIRCUMSTANCES THE CIT(A) OBSERVED THAT THERE IS NO MERIT IN ADHOC DISALLOWANCE OF RS.8,91,404/- U/S.40A(3) OUT OF TOT AL EXPENSES OF RS.44,57,024/- ALLOWED AS EXPENDITURE FOR TRANSPORT ATION, PACKING AND DISTRIBUTION EXPENSES. THIS REASONED AND FACTU AL FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHO LD THE SAME. 3.3. AS A RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 4. NOW WE TAKE UP ASSESSEES APPEAL IN ITA.NO.252/P N/2002 FOR A.Y. 1997-98. THIS APPEAL HAS BEEN FILED BY THE AS SESSEE AGAINST THE ORDER OF THE CIT(A) ON FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD.C.I.T.(A) III PUNE WAS NOT JUSTIFIED IN SUSTAINI NG THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.64,284 /- OUT OF HAMALI-LABOUR CHARGES AND THE SAID ADDITION BE DELE TED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD.C.I.T.(A) III PUNE WAS NOT JUSTIFIED IN CONFIRMI NG THE 4 DISALLOWANCE OF RS.76,000/- OUT OF THE ESTABLISHED EXPENSES MADE BY THE A.O. AND THE SAID ADDITION BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE INCOME FROM SALE OF GUNNY BAGS WAS ARBITRARILY ESTIMATED BY THE ASSESSING OFFICER BEING IN STOCK OF THE FIGU RE OF 50,000 IN NUMBER AND ESTIMATING THE PRICE OF THE SAME AT R S.10/- EACH RESULTING INTO ADDITION OF RS.5,00,000/- WHICH WAS ALSO CONFIRMED BY LD.C.I.T.(A) III PUNE. THE LD. C.I.T. (A) III FAILED TO APPRECIATE THE MATTERS JUDICIOUSLY CONSIDERING THE REALITIES OF THE BUSINESS. IN VIEW OF THIS ADDITION SUSTAINED I S NOT JUSTIFIED AND IT BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEVY OF INTEREST UNDER SECTION 234-B AND ITS LI ABILITY TO PAY IS DENIED. THE LD. C.I.T.(A) III PUNE WAS NOT JUST IFIED IN CONFIRMING SUCH LEVY WITHOUT APPRECIATING THE LEGAL POSITION IN THE MATTER. THE SAME IS DELETED. 5. THE FIRST ISSUE IS WITH REGARD TO DISALLOWANCE O F RS.64,284/- OUT OF HAMALI LABOUR CHARGES. AS STATED ABOVE, THE ASSESSEE IS A TRANSPORT CONTRACTOR. NO BOOKS OF ACCOUNTS WERE MA INTAINED BY THE ASSESSEE. IN RESPECT OF THE HAMALI LABOUR CHARGES THE ASSESSEE HAD CLAIMED AT RS.200/- PER TON. HOWEVER, ON INQUI RY THE ASSESSING OFFICER FOUND THAT THE RATES PRESCRIBED B Y THE MATHADI KAMGAR MANDAL WAS ONLY RS.156/- PER TON. THE ASSES SEE COULD NOT FURNISH ANY PROOF FOR THE WAGES PAID BY HIM. CONSI DERING THE RATE PRESCRIBED BY MADHADI KAMGAR MANDAL, THE HAMALI CHA RGES WAS ESTIMATED AT RS.160/- PER TON. THE HAMALI WAS PAID AT THREE STAGES. THUS THE TOTAL HAMALI CHARGES WAS ESTIMATE D AT RS.160 X 3 = RS.480/- PER TON AGAINST RS.600/- CLAIMED BY THE ASSESSEE. THE ASSESSEE HAD TRANSPORTED 5357 TONS OF RICE. THE TO TAL HAMALI CHARGES WAS ESTIMATED AT RS.2,57,136/- AS AGAINST R S.3,21,420/- CLAIMED BY THE ASSESSEE, WHICH WAS CONFIRMED BY THE CIT(A). THIS REASONED AND FACTUAL FINDING OF CIT(A) NEEDS NO INT ERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 6. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF RS.76,000/- OUT OF THE ESTABLISHMENT EXPENSES AS UNDER: (I) BALE GODOWN RENT RS.1,12,000/- (II) WATCHMAN SALARY RS. 12,000/- 5 (III) TRAVELLING EXPENSES RS. 16,000/- (IV) SUPERVISOR SALARY RS. 12,000/- (V) STATIONERY EXPENSES RS. 25,000/- RS.1,76,000/- 6.1. THE ABOVE EXPENSES WERE NOT SUPPORTED BY VOUCH ERS. THE GODOWN RENT WAS STATED TO BE PAID TO DIFFERENT PERS ONS AND TO SARVODAY TRANSPORT, BALE FROM TIME TO TIME AS AND W HEN REQUIRED. THE ASSESSEE WAS ASKED TO FURNISH THE CONFIRMATIONS AS WELL AS THE ACCOUNT EXTRACTS. BUT THEY WERE NOT FURNISHED BY THE ASSESSEE. IN THE ABSENCE OF DOCUMENTARY EVIDENCE, THE GENUINENES S OF THE EXPENSES AND ITS REASONABILITY COULD NOT BE ASCERTA INED. THE ASSESSEE ALSO FAILED TO FURNISH THE DETAILS OF SALA RY TO WATCHMAN, SUPERVISOR, TRAVELLING EXPENSES AND THE STATIONERY EXPENSES. IN VIEW OF THE ABOVE FACTS, THE ASSESSING OFFICER DISA LLOWED RS.76,000/- OUT OF TOTAL EXPENSES CLAIMED AT RS.1,7 6,000/-, WHICH WAS CONFIRMED BY THE CIT(A). TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE RESTRICT THIS ESTIMATED DISA LLOWANCE TO RS.40,000/-. 7. THE NEXT ISSUE IS WITH REGARD TO ADDITION OF EST IMATED INCOME OF RS.5,00,000/- FROM SALE OF EMPTY GUNNY BAGS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FO UND THAT THE ASSESSEE COLLECTED THE RICE QUOTA FROM FCI GODOWN. THE RICE WAS TAKEN IN GUNNY BAGS AND WAS DISTRIBUTED IN Z.P. SCH OOLS AFTER PACKING IN POLYTHENE BAGS OF 3 KG. EACH. THE EMPTY GUNNY BAGS OF ONE QUINTAL SIZE WOULD FETCH IN MARKET RANGING BETW EEN RS.10/- AND RS.15/- AND THAT REMAINED WITH THE ASSESSEE. THE A SSESSEE EXPLAINED THE EMPTY GUNNY BAGS WERE BROUGHT INTO US E WHILE DELIVERING THE SMALL PACKS OF 3 KG. EACH TO DIFFERE NT SCHOOLS. SOME GUNNY BAGS WERE COLLECTED BACK AND WERE VERY FEW BE TWEEN 500 TO 700 IN NUMBERS. THEY WERE USED FOR LAYING IN THE TRUCKS TO PREVENT WASTAGE OF RICE. THE ASSESSEES CONTENTION WAS NOT ACCEPTED BY THE ASSESSING OFFICER BECAUSE A PRUDEN T BUSINESSMAN WOULD NOT LEAVE THE GUNNY BAGS WITHOUT SELLING THEM AT A PRICE. 6 THE ASSESSEE WAS IN POSSESSION OF 53570 EMPTY GUNNY BAGS. CONSIDERING THAT PART OF THE BAGS MIGHT HAVE BEEN U SED FOR LAYING IN THE TRUCKS, THE ASSESSING OFFICER ESTIMATED THAT TH E ASSESSEE SOLD ATLEAST 50,000 EMPTY BAGS IN THE MARKET AT THE RATE OF RS.10/- PER BAG, MADE INCOME OF RS.5,00,000/- OUT OF SALE OF EM PTY GUNNY BAGS. ACCORDINGLY, THE SAME WAS ADDED BACK TO THE INCOME OF THE ASSESSEE WHICH WAS CONFIRMED BY THE CIT(A). AFTER TAKING THE FACTS AND CIRCUMSTANCES INTO CONSIDER, THIS ESTIMATED ADD ITION IS RESTRICTED TO RS.2,50,000/-. 8. THE NEXT GROUND IS REGARDING INTEREST U/S.234B W HICH IS CONSEQUENTIAL. 9. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AS INDICATED ABOVE. 10. NOW WE TAKE UP ITA.NO.283/PN/2004 FOR A.Y. 1998 -99. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE O RDER OF THE CIT(A) ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) III, PUNE EXCEEDED HIS JURISDICTI ON IN DIRECTING THE ASSESSING OFFICER IN ENHANCING THE IN COME BASED ON NO EVIDENCE AGAINST THE PRINCIPLES OF LAW, AND AGAINST SETTLED LAW BY JUDICIAL VERDICTS AND ALSO V IOLATING ALL NORMS AND PRINCIPLES OF ACCOUNTING. THE DIRECTIONS BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) III, PUNE OUGHT TO HAVE CONSIDERE D THE EXTENT OF LOSS SUFFERED BY THE ASSESSEE FROM THE SA ME BUSINESS CARRIED OUT BY ASSESSEE AND SUCH LOSS HAVI NG THE SEAL OF APPROVAL FROM THE STATE GOVERNMENT FUNCTION ARIES AND HAVING CONSIDERED THE LOSS FIGURE SUSTAINED NO ENHANCEMENT COULD HAVE BEEN DIRECTED AND IT BE HELD ACCORDINGLY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) III, PUNE WAS UTMOST PREJUDICED A GAINST THE ASSESSEE WHICH FACT IS CRYSTAL CLEAR FROM THE APPEA L PROCEEDINGS. THE ASSESSEE IF CALLED IS PREPARED TO FILE HIS AFFIDAVIT IN SUPPORT OF THE SAME. THE DECISION TAK EN WITH PREJUDICED VIEW IS OPPOSED TO PRINCIPLES OF NATURA L JUSTICE AND DESERVES TO BE QUASHED AND IT BE QUASHED ACCORD INGLY. 7 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T.(A) III, PUNE WAS NOT JUSTIFIED IN CO NFIRMING THE ADDITION OF RS.19,500/- A CASH CREDIT FROM SHINDE N ARAYAN MARUTI MADE BY A.O. U/S.68 OF THE ACT AND THE SAME BE DELETED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) III, PUNE WAS NOT JUSTIFIED IN CO NFIRMING THE ADDITION OF RS.19,500/- CASH CREDIT FROM PRAKASH SA LUNKE MADE BY A.O. U/S.68 OF THE ACT AND THE SAME BE DELE TED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) III, PUNE IN DIRECTING THE ENHANC EMENT OF INCOME IS ERROR OF JURISDICTION AND ALSO ERROR OF L AW. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND AFTER PERUSING THE ENTIRE APPEAL ORDER PASSED B Y THE LD. C.I.T.(A) IT TRANSPIRES THAT THE ORAL ARGUMENTS AND WRITTEN SUBMISSIONS MADE BEFORE HIM HAVE NOT BEEN CONSIDERE D IN THEIR PROPER PERSPECTIVE AND TOUCH-STONES OF LAW. THIS POINT BE CONSIDERED IN THE INTEREST OF JUSTICE SINCE LAW ALSO BENDS BEFORE JUSTICE. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND ALTERNATIVELY THE PROPOSED ENHANCEMENT OF SALES O F RS.19,90,483/- AS SUCH CANNOT BE CONSIDERED AS INCO ME OF THE ASSESSEE VIOLATING ALL NORMS LAID DOWN BY JUDIC IAL VERDICTS AND WHAT SHOULD BE ASSESSED SHOULD BE THE INCOME COMPONENT AND NOT THE GROSS SALES. TO THAT EXTENT THE LD. C.I.T.(A) III HAS EXCEEDED IS JURISDICTION. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) WAS NOT JUSTIFIED IN SUSTAINING T HE ADDITION OF RS.5,15,000/- ON ACCOUNT OF SALE OF OLD GUNNY BA GS. THIS HAS BEEN DONE BY THE LD. C.I.T.(A) WITHOUT GOING IN TO REALITY OF THE CASE. THE ADDITION BE DELETED. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE DISALLOWANCE OF RS.80,000 AND RS.27,000/- WAS N OT JUSTIFIED. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE ASSESSEE DENIES HIS LIABILITY TO PAY INTEREST U/S.234A/234B/234C OF THE ACT. 11. THE FIRST ISSUE IS AGAINST ENHANCEMENT OF INCOM E BY THE CIT(A). THE CIT(A) DURING APPELLATE PROCEEDINGS OB SERVED THAT THE ASSESSEE HAS SHOWN LESSER INCOME FROM CONTRACT RECE IPTS. AS PER COPY OF THE AUDITED PROFIT & LOSS ACCOUNT WHICH WAS MADE U/S.44AB OF THE ACT, IT WAS NOTICED THAT THE ASSESS EE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE HAD SHOWN THE SALES ON ACCOUNT OF CONTRACT RECEIPTS RECEIVABLE AT RS.55,83,582/-. IT WAS ALSO SUBMITTED AT THE APPELLATE STAGE THAT T HE ASSESSEE WAS ENTITLED FOR RECEIPT OF RS.95/- PER QUINTAL FOR TRA NSPORTATION OF RICE 8 FROM THE GODOWN OF THE GOVERNMENT TO VARIOUS GOVERN MENT SCHOOLS, A PER THE CONTRACT. THIS ISSUE WAS ALSO NOTICED WH ILE DECIDING AS TO HOW MANY GUNNY BAGS WERE AVAILABLE WITH THE ASSESSE E DURING THE YEAR FOR SALE. THE QUANTUM OF GUNNY BAGS AVAILABLE TO THE ASSESSEE WHICH WERE TAKEN BY THE ASSESSING OFFICER AT 85591. BASING ON THE LETTER OF THE ADDITIONAL COLLECTOR DATED 13.1.1999, THE ASSESSING OFFICER HAS MADE ADDITION OF RS.1,34,815/-. THIS A DDITION WAS NOT CONTESTED BY THE ASSESSEE. FOR THE SAKE OF CONVENIE NCE THIS PORTION OF THE ASSESSMENT ORDER IS REPRODUCED AS UNDER: ON PERUSAL OF BALANCE SHEET, IT IS REVEALED THAT T HE ASSESSEE HAS SHOWN BILLS RECEIVABLE AT RS.26,65,610/- AND DE POSITS OF RS.1,50,000/-. HOWEVER, IT IS SEEN FROM THE ADDL. COLLECTOR SOLAPURS LETTER DATED 13.1.1999 THAT THE ADDL. COL LECTOR SOLAPUR HAS ADJUSTED PENDING BILLS PAYABLE TO THE A SSESSEE OF RS.29,50,485/- TOWARDS FRAUD OF RICE COMMITTED BY T HE ASSESSEE TO THE EXTENT OF 6371.62 QUINTALS WHICH IS VALUED AT RS.63,71,620/-. WHEN ASKED ABOUT THIS VARIATION THE ASSESSEE HAS FURNISHED HIS EXPLANATION BY LETTER DATED 26.2. 2003 STATING THEREIN THAT OUR TOTAL OUTSTANDING AMOUNT DUE FROM THE ADDL. COLLECTOR SOLAPUR AS ON 31.3.1998 TOWARDS BILLS RAISED PRIOR TO 1997-98, ARE AS FOLLOWS: 1) CONTRACT BILL RS.26,65,610/- 2) SECURITY DEPOSIT TILL 31.3.1998 RS. 1,50,000/- 3) SECURITY DEPOSITS PAID DURING 1998-99 RS. 1,10,00 0/- TOTAL RS.29,25,610/- (RS.TWENTY NINE LAKHS TWENTY FIVE THOUSAND SIX HUND RED TEN ONLY) THE ASSESSEES EXPLANATION REVEALS THAT SECURITY D EPOSITS PAID DURING 1998-99 ALSO HAS BEEN SHOWN AS RECEIVAB LE AS ON 3.3.1998 WHICH IS NOT CORRECT. IF RECEIVABLE TAKEN AS PER THE ADDL. COLLECTORS LETTER DATED 13.1.1999 OF RS.29,5 0,425/-, THE BALANCE SHEET IS REQUIRED TO BE RECONCILED. AFTER RECONCILIATION OF BALANCE SHEET SHOWING THE ASSESSEES RECEIVABLE OF RS.29,50,425/- AS PER ADDL. COLLECTORS LETTER, INS TEAD OF RS.28,15,610/- (RS.26,65,610/- + RS.1,50,000/- AS S HOWN IN BALANCE SHEET) RS.1,34,815/- IS REQUIRED TO BE ADDE D TO THE CAPITAL ACCOUNT OF THE ASSESSEE AS INCOME. ACCORDI NGLY, AN AMOUNT OF RS.1,34,815/- IS ADDED TO THE CAPITAL ACC OUNT OF THE ASSESSEE AS SHOWN IN THE BALANCE SHEET AND RECONCIL E THE BALANCE SHEET. THEREFORE, RS.1,34,815/- IS ADDED T O THE TOTAL INCOME OF THE ASSESSEE AS HIS INCOME. 11.1. IT WAS OBSERVED FROM THE LETTER OF THE ADDIT IONAL COLLECTOR, SOLAPUR DATED 13.1.1999 THAT DURING THE F.Y.L997-98 THE ASSESSEE 9 HAD SUPPLIED 79727 QUINTALS OF RICE TO THE SCHOOLS. IN VIEW OF THAT THE ASSESSEE WAS ENTITLED FOR RS.95/- PER QUINTAL O N 79727 QUINTALS OF RICE SUPPLIED TO THE SCHOOLS. AS PER THIS THE RE CEIVABLES FROM THE GOVERNMENT WAS AT LEAST RS.75,74,065/- (79,727 X RS .95/-) WHEREAS THE SALES SHOWN BY THE ASSESSEE WAS ONLY RS .55,83,582/- IN THE AUDITED PROFIT AND LOSS ACCOUNT. IN THIS REG ARD THE ASSESSEE WAS ASKED TO EXPLAIN THAT SINCE THE ASSESSEE WAS FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING WHY THE SALES HAD B EEN ONLY AT RS.55,83,582/- WHEREAS THE SALES SHOULD HAVE BEEN O N RECEIVABLE BASIS AT RS.75,74,065/- PARTICULARLY WHEN THE ASSES SEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. BASED ON THE DETAILS AVAILABLE ON RECORD AND THE ISSUES CONSIDERED BY TH E ASSESSING OFFICER WHICH WAS BASED ON THE RETURN AND THE AUDIT ED ACCOUNTS AND THE AUDIT REPORT U/S. 44AB, A SHOW CAUSE NOTICE FOR ENHANCEMENT OF THE INCOME WAS ISSUED TO THE ASSESSE E VIDE NO.PN/CIT(A)-III/JADHAV/03 DATED 25.9.2003 WHICH IS REPRODUCED AS UNDER:- 'DURING THE COURSE OF APPELLATE HEARING ON 22.9.200 3 & 25.09.2003 IT WAS CONTENDED BY YOU THAT THE NUMBER OF GUNNY BAGS AVAILABLE WITH THE APPELLANT WAS 58775 AND ONL Y THIS MANY QUINTALS OF RICE I.E. 58775 QUINTALS WERE TRAN SPORTED BY THE APPELLANT DURING THE YEAR ON WHICH THE INCOME W AS RECEIVABLE @ RS.95/- PER QUINTAL AND FOR WHICH THE SALES WAS SHOWN AT RS.55,83,583/-. THEREFORE, IT WAS CONTEND ED BY YOUR AUTHORISED REPRESENTATIVE THAT THE ORDER OF THE ASS ESSING OFFICER THAT THE APPELLANT HAD IN POSSESSION 85591 EMPTY GUNNY BAGS WAS INCORRECT. IN THIS REGARD, IT HAS BEEN OBSERVED FROM EXHIBIT-P WHICH IS THE SHOW CAUSE NOTICE OF THE OFFICE OF THE COLLE CTOR OF SOLAPUR SINGED BY THE ADDITIONAL COLLECTOR DATED 13 .1.1999, THAT DURING THE F.Y. 97-98 THE GOVERNMENT HAD SUPPL IED YOU 86018.99 QUINTALS OF RICE OUT OF WHICH 500 QUINTALS OF RICE WERE RETURNED BY YOU TO THE GOVERNMENT, LEAVING THE BALANCE OF 85598.99 QUINTALS OF RICE. AS PER THIS LETTER OF THE ADDITIONAL COLLECTOR, SOLAPUR, WHICH HAD BEEN FILED BY YOU BEF ORE THE ASSESSING OFFICER, YOU HAVE SUPPLIED 79727 QUINTALS OF RICE TO THE SCHOOLS DURING THE F. Y. 97-98. APPLYING THE R ATE OF RS.95 PER QUINTAL YOU SHOULD HAVE DECLARED THE SALE IN YO UR PROFIT AND LOSS ACCOUNT AT RS.75, 74,065/- WHEREAS YOU HAV E SHOWN SALES OF RS.55,83,582/-. IT IS ALSO EVIDENT FROM T HE ASSESSMENT ORDER AND FROM THE AUDIT REPORT U/S. 44A B THAT YOU ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, 10 YOU SHOULD HAVE SHOWN YOUR SALES AT LEAST AT RS.75, 74,065/- (79727 X 95). IN THAT CASE YOU HAVE SHOWN YOUR INCO ME LESS BY RS.19,90,483/- FOR THE A.Y. 98-99 (RS.75,74,065/- - RS.55,83,582/-). THEREFORE, CONSIDERING THESE FACTS AND THE METHOD OF ACCOUNTING FOLLOWED BY YOU, YOU ARE REQUE STED TO SHOW CAUSE WHY YOUR INCOME BE NOT ENHANCED BY RS.19,90,483/- FOR A.Y. 98-99. YOU ARE GIVEN OPPORT UNITY TO FURNISH YOUR EXPLANATION IN VIEW OF THE PROPOSED EN HANCEMENT WHICH MAY BE SUBMITTED ON 9.10.2003 AT 2.30 P.M.' 11.2. IN RESPONSE TO SHOW CAUSE NOTICE IT WAS SUBM ITTED THAT ACCOUNTS WERE MAINTAINED ON CASH BASIS. IT WAS CON TENDED THAT THE AMOUNT RECEIVED FROM THE GOVERNMENT WAS ACCOUNTED O N RECEIPT BASIS AND AT THE SAME TIME THE ASSESSEE CONCEDED FO R THE F.Y. 97- 98 I.E. FOR A.Y. 98-99 THE TOTAL SUPPLY OF RICE MAD E BY HIM WAS 79727 QUINTALS. ON SAMPLE VERIFICATION OF THE COMP UTERIZED ACCOUNTS FOR INSTANCES IN THE CASE OF PLASTIC BAGS PURCHASED THE ACCOUNTS WAS FOUND TO BE MADE ON MERCANTILE SYSTEM OF ACCOUNTING AS THERE WAS OUTSTANDING PAYABLE AT RS.16,52,400/- WHICH WAS APPEARING AS SUNDRY CREDITOR IN THE BALANCE SHEET. IT WAS ALSO FOUND FROM THE AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT U/S.44AB THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND AS CERTIFIED BY THE CHARTERED ACCOUNTANT WAS ME RCANTILE. THE SAME METHOD OF ACCOUNTING WAS ALSO MENTIONED IN THE RETURN OF INCOME WHICH WAS ALSO INCORPORATED BY THE ASSESSING OFFICER IN THE BODY OF THE ORDER. THE ASSESSEE WAS REQUESTED TO G IVE DETAILS WITH SUPPORTING BILLS RAISED BY HIM ON THE GOVERNMENT DU RING F.Y. 1997- 98 RELEVANT TO A.Y. 1998-99 WITH DATES AND WAS ALSO REQUIRED TO GIVE FURTHER SUBMISSION IN REGARD TO THE CONTENTION OF T HE CASH SYSTEM FOLLOWED. 11.3. VIDE LETTER DATED 27.10.2003 THE ASSESSEE OP POSED THE ENHANCEMENT. IN THE SAME SITUATION IN THE ASSESSME NT FOR A.Y. 1997-98 THE ASSESSING OFFICER HAD ESTIMATED THE INC OME ON THE BASIS OF ACTUAL AMOUNT RECEIVED FROM FOOD CORPORATI ON OF INDIA AND DEDUCTING THEREFROM THE ESTIMATED EXPENSES. THE AS SESSEE RAISED VARIOUS OTHER CONTENTIONS IN THIS REGARD AND THE CI T(A) HAVING CONSIDERED THE SAME WITH REGARD TO THE PROPOSED ENH ANCEMENT OBSERVED THAT THE ISSUE INVOLVED IS WHETHER THE ASS ESSEE HAS SHOWN 11 THE CORRECT SALES BASED ON THE MERCANTILE SYSTEM OF ACCOUNTING. THE SOURCE IS NOT NEW. THIS SOURCE OF INCOME HAS A LREADY BEEN DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME AN D WHICH IS A MATTER OF CONSIDERATION IN THE SCRUTINY ASSESSMENT AND THE ASSESSMENT ORDER. NO NEW SOURCE OF INCOME HAS BEEN FOUND. THE SOURCE IS THE SAME, I.E., THE AMOUNT RECEIVABLE BY THE ASSESSEE FROM THE GOVERNMENT ON THE BASIS OF CONTRACT OF TRANSPOR ATION OF BAGS OF RICE FROM THE GODOWN OF THE GOVERNMENT TO THE GOVER NMENT SCHOOLS. IN FACT THIS IS THE MAIN SOURCE OF INCOME OF THE AS SESSEE DECLARED IN THE RETURN. THE ISSUE INVOLVED IS NOT NEW SOURCE B UT THE CORRECT INCOME. THE CIT(A) OBSERVED THAT ENHANCEMENT IN TH E CASE OF THE ASSESSEE WAS WITHIN THE POWERS U/S.251(1)(A) OF THE ACT. HE OBSERVED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. WITH REGARD TO SALES RECEIVABLE FROM T HE GOVERNMENT OF MAHARASTHRA, THE ASSESSEE FOR ITS OWN BENEFIT WAS S HOWING ON RECEIPT BASIS. THEREBY HE WAS SHOWING LESSER INCOM E THAN WAS CHARGEABLE TO TAX UNDER MERCANTILE SYSTEM OF ACCOUN TING. THE ASSESSEE WAS WRONGLY AVAILING THE BENEFIT OF BOTH T HE MERCANTILE AND CASH SYSTEM OF ACCOUNTING AT THE SAME TIME. TH E BOOKS WERE MAINTAINED ON MERCANTILE SYSTEM OF ACCOUNTING. HOW EVER, THE RECEIPTS WERE WRONGLY SHOWN ON CASH BASIS. THE PRO FIT & LOSS ACCOUNT, BALANCE SHEET AND TAX AUDIT REPORT U/S.44A B, THE RETURN OF INCOME FILED ETC., CLEARLY SHOW THAT THE ASSESSE E WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. REGARDING BUSINE SS LOSS, THE CIT(A) OBSERVED THAT IT WAS NOT BUSINESS LOSS OF TH E YEAR BECAUSE IT WAS NEVER CLAIMED AS BUSINESS LOSS. MOREOVER, WHAT HAD BEEN ADJUSTED BY THE GOVERNMENT WAS IN REGARD TO CERTAIN BAGS OF RICE WHICH WERE NEVER ACCOUNTED FOR BY THE ASSESSEE TO T HE GOVERNMENT OF MAHARASHTRA. THE LETTER OF DISTRICT COLLECTOR, S OLAPUR, DATED 13.01.1999 REVEALED THAT DURING THE F.Y. 1997-98 TH E GOVERNMENT HAD SUPPLIED 86018.99 QUINTALS OF RICE TO THE ASSES SEE OUT OF WHICH 500 QUINTALS OF RICE WAS RETURNED BY THE ASSESSEE T O THE GOVERNMENT LEAVING BALANCE OF 85598.99. OUT OF THI S, THE ASSESSEE HAD SUPPLIED 79727 QUINTALS OF RICE TO SCHOOLS DURI NG F.Y. 1997-98. IT SHOWS THAT 5871.99 QUINTALS OF RICE WERE NOT ACC OUNTED BY THE 12 ASSESSEE TO THE GOVERNMENT. THEREFORE, AS PER THE GOVERNMENT THE ASSESSEE HAD NOT TRANSPORTED THESE NUMBER OF GUNNY BAGS TO THE SCHOOLS FOR WHICH THE ASSESSEE WAS NOT ENTITLED FOR ANY RECEIPT FROM THE GOVERNMENT AND AT THE SAME TIME THESE NUMBER OF RICE BAGS WERE NEITHER RETURNED TO THE GOVERNMENT NOR SUPPLIE D TO THE SCHOOLS. THE GOVERNMENT THEREFORE HAD PROPOSED TO TAKE ACTION FOR RECOVERY OF THE VALUE OF THE RICE BAGS NOT ACCOUNTE D BY THE ASSESSEE. THEREFORE, THE GOVERNMENT PROPOSED TO ADJUST OUT OF OUTSTANDING PAYABLE BY THE GOVERNMENT TO THE ASSESSEE. THE CI T(A) OBSERVED THAT THIS IS NOT A BUSINESS LOSS AS IT DOES NOT PER TAIN TO ANY BUSINESS INCOME. ON THE QUINTALS OF RICE WHICH WERE NOT ACCOUNTED THE ASSESSEE WAS NOT ENTITLED FOR THE RECEIPT OF TR ANSPORTATION OF RS.95 PER QUINTAL OF BAG. THE GOVERNMENT HAD PROPO SED TO ADJUST OUT OF THE AMOUNT RECEIVABLE BY THE ASSESSEE FROM T HE GOVERNMENT OF THE SUM OF THE QUINTALS OF RICE WHICH HAD NOT BE EN ACCOUNTED FOR BY THE ASSESSEE, I.E., NEITHER TRANSPORTED TO THE G OVERNMENT SCHOOLS NOR RETURNED TO THE GOVERNMENT. THE INCOME OUT OF THESE BAGS HAD NOT BEEN CONSIDERED BY THE ASSESSEE NOR BEING CONSI DERED IN THE PROPOSED ENHANCEMENT. THE SHOW CAUSE LETTER OF DIS TRICT COLLECTOR, SOLAPUR, IS DATED 13.01.1999 AND IN ANY CASE IT DOE S NOT PERTAIN TO THIS RELEVANT PREVIOUS YEAR. TO SUM UP IT IS NOT A BUSINESS LOSS OF THE ASSESSEE AND IN ANY CASE IT DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS GIVEN OPPORTUNITY TO SHOW THE BILLS RAISED ON THE GOVERNMENT DURING THE F.Y. 1997-98 AN D DESPITE SUFFICIENT OPPORTUNITY GIVEN THE ASSESSEE FAILED TO GIVE SUCH DETAILS ON THE GROUND THAT SAME WERE NOT AVAILABLE. AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THE ASSESSEE I S ENTITLED TO RECEIPT OF RS.95 PER QUINTAL BAGS OF SUPPLY OF RICE TO THE SCHOOLS IN REMOTE AREAS. AS PER THE MERCANTILE SYSTEM OF ACCO UNTING THE SALES RECEIVABLE WHEN THE BILLS ARE RAISED WHEN THE WORK IS DONE BY THE ASSESSEE AND BILLS ARE RECEIVABLE. THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN THIS REGARD. THEREFORE, THE CIT(A) OBSERVED THAT ONLY VALID AND RELIABLE DOCUMENT IN REGARD TO BILLS RECE IVABLE BY THE ASSESSEE FOR THE F.Y. 1997-98 IS THE SHOW CAUSE NOT ICE OF THE DISTRICT COLLECTOR, SOLAPUR, DATED 13.1.1999. ACCO RDING TO THIS 13 LETTER THE ASSESSEE HAD SUPPLIED 79727 QUINTALS OF RICE TO THE GOVERNMENT SCHOOLS DURING THE F.Y. 1997-98 AND AS P ER THE CONTRACT BETWEEN THE ASSESSEE AND THE GOVERNMENT AS SESSEE WAS ENTITLED TO RECEIVE RS.95 PER QUINTAL. THEREFORE, THE SALES BASED ON THE RECEIVABLES DURING THE YEAR SHOULD HAVE BEEN RS .75,74,065/- (79727 X RS.95) WHEREAS THE ASSESSEE HAD SHOWN THE SALES ONLY OF RS.53,83,582/- BASED ON ACTUAL RECEIPT. THIS WAS N OT FOUND BY THE CIT(A) AS PER LAW AND NOT BASED ON THE SYSTEM OF AC COUNTING I..E, MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE. THEREFORE, THE INCOME OF ASSESSEE WAS REQUIRED TO B E ENHANCED BASED ON FACTS AND LAW. AFTER CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE, ASSESSEES INCOME SHOULD HAVE BEEN RS.75,74,065/- AS AGAINST RS.55,83,582/- SHOWN BY T HE ASSESSEE. THEREFORE, THE INCOME OF THE ASSESSEE WAS RIGHTLY E NHANCED BY RS.19,90,483/-. THIS REASONED FACTUAL FINDING OF CI T(A) IS UPHELD. 12. THE NEXT ISSUE IS WITH REGARD TO ADDITION OF RS .19,500/- A CASH CREDIT FROM SHINDE NARAYAN MARUTI MADE BY THE ASSES SING OFFICER U/S.68 OF THE ACT. THE ASSESSING OFFICER MADE THE DISALLOWANCE U/S.68 OF THE ACT. ON VERIFICATION OF SCHEDULES OF BALANCE SHEET, IT WAS NOTIFIED THAT THE ASSESSEE RAISED UNSECURED LOA NS DURING THE YEAR UNDER CONSIDERATION FROM THE FOLLOWING PERSONS : 1) JADHAV JANARDHA 2) SHINDE NARAYAN 3) SALUNKE PRAKASH 12.1. CONFIRMATION LETTERS OF THESE PERSONS WERE F URNISHED BY THE ASSESSEE. ON GOING THROUGH THE CONFIRMATION LE TTERS THE ASSESSING OFFICER FELT NECESSARY TO EXAMINE THESE P ERSONS. ACCORDINGLY, THE ASSESSEE WAS ASKED TO PRODUCE THES E PERSONS FOR FURTHER VERIFICATION. ACCORDINGLY, THE ASSESSEE HA S PRODUCED TWO PERSONS ON 19.02.2003. THE STATEMENTS OF THESE TWO PERSONS WERE RECORDED. SHRI SHINDE NARAYAN MARUTI BY HIS CONFIR MATION LETTER DATED 14.02.2003 CONFIRMED THE TRANSACTION STATING THAT HE HAS ADVANCED RS.19,500/- OUT OF HIS AGRICULTURAL INCOME . DURING THE COURSE OF RECORDING OF STATEMENT SHRI SHINDE HAS ST ATED THAT HE HAD 14 GIVEN RS.19,500/- IN 1998 TO SHRI Y.T.JADHAV AND AF TER 7-8 MONTHS HE HAD RECEIVED BACK THE SAID AMOUNT FROM SHRI JADH AV. FURTHER, HE STATED THAT HE HAD GIVEN THE SAID AMOUNT TO SHRI JADHAV DURING AUGUST TO OCTOBER, 1998. FURTHER, HE HAS STATED TH AT THE SAID AMOUNT WAS GIVEN OUT OF SALE PROCEEDS OF SUGARCANE WHICH WAS RECEIVED FROM BHIMA SAHAKARI SAKHAR KARKHANA LTD. T HROUGH DISTRICT CENTRAL COOPERATIVE BANK LTD., ANKOLI. HE WAS ASKED TO PRODUCE THE DOCUMENTARY EVIDENCE REGARDING BIL OF S UGARCANE OF RS.25,000/- TO RS.30,000/- FROM THE SUGAR FACTORY O R DISTRICT CENTRAL COOPERATIVE BANK LTD. HE HAS STATED THAT W ITHIN 4-5 DAYS HE WILL PRODUCE THE DOCUMENTARY EVIDENCE. HOWEVER, HE HAS NOT FILED THE SAME. THE STATEMENT OF ASSESSEE WAS NOT FOUND ACCEPTABLE FOR THE FOLLOWING REASONS: (1) THE ASSESSEE HAS SHOWN UNSECURED LOAN OF RS.19,500/ - IS OUTSTANDING AS ON 31.3.1998 IN THE NAME OF SHRI SHI NDE. (2) SHRI SHINDE HAS STATED THAT THE LOAN WAS GIVEN TO S HRI Y.T.JADHAV IN 1998 I.E., BETWEEN AUGUST 1998 TO OCT . 1998. (3) SHRI SHINDE HAS STATED THAT HE WAS RECEIVED BACK TH E SAID AMOUNT FROM SHRI Y.T.JADHAV AFTER 7-8 MONTHS BUT NO T STATED THE DATE, MONTH OR YEAR OF THE RECEIPT OF SA ID AMOUNT. (4) HE HAS NOT PRODUCED THE DOCUMENTARY PROOF OF HAVING RECEIVED THE BILL OF SUGARCANE. 12.2. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER OBSERVED THAT GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF CREDITOR HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. HENCE, HE CONCLU DED THAT THE ASSESSEES OWN MONEY HAS BEEN DIVERTED TO OTHERS NA ME AND USED IN HIS BUSINESS. HENCE THIS UNEXPLAINED CASH CREDI T WAS ADDED BACK TO THE TOTAL INCOME U/S.68 OF THE ACT. THE SA ME WAS CONFIRMED BY THE CIT(A). THIS FACTUAL AND REASONED FINDING OF THE CIT(A) NEED NO INTERFERENCE FROM OUR SIDE SINCE THE ASSESSEE COULD NOT ESTABLISH THE CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. ACCORDINGLY, THE SAME IS CONFI RMED. 13. SIMILARLY, THE ADDITION WAS MADE WITH REGARD TO CASH CREDIT OF RS.19,500/- FROM SHRI SALUNKE PRAKASH RAMCHANDRA AN D SAME WAS CONFIRMED BY THE CIT(A) BECAUSE CREDITWORTHINES S OF THE CREDITOR AND GENUINENESS OF TRANSACTION COULD NOT B E ESTABLISHED. 15 THIS FACTUAL AND REASONED FINDING OF THE CIT(A) ALS O NEED NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 14. NEXT ISSUE IS REGARDING INTEREST U/S.234A/234B/ 234C OF THE ACT WHICH IS CONSEQUENTIAL TO ABOVE ISSUE. ASSESSI NG OFFICER IS DIRECTED ACCORDINGLY. 15. AS A RESULT, THIS APPEAL OF ASSESSEE IS DISMISS ED. 16. NOW WE TAKE UP ITA.NO.1251/PN/2004 FOR A.Y. 199 8-99. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE O RDER OF THE CIT(A) ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. C.I.T.(A) III, PUNE WAS NOT JUSTIFIED IN IM POSING THE PENALTY OF RS.5,97,145/- U/S.271(1)(C) OF THE ACT O N THE ENHANCEMENT OF INCOME MADE BY HIM WHICH ITSELF IS U NDER CHALLENGE BEFORE HON'BLE TRIBUNAL. THE PENALTY BE CANCELLED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE ENHANCEMENT OF INCOME OF RS. 19,90,483/- WAS NE ITHER ACCRUED TO THE ASSESSEE NOR THE APPELLANT HAD ESTAB LISHED ANY RIGHT OVER SUCH INCOME. THE ENHANCEMENT AND RESULTA NT LEVY OF PENALTY U/S. 271(L)(C) IS THEREFORE ILLEGAL BAD IN LAW AND THE APPELLANT HAS SUFFERED DUE TO ONE-SIDED VIEW OF THE DEPARTMENT. THE PENALTY BE CANCELLED, 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. C.I.T. (A) III PUNE FAILED TO APPLY HIS MIN D TO THE FACTS OF THE CASE IN ITS PROPER PERSPECTIVE. THE LD. C.I .T. (A) III PUNE WAS APPRAISED OF THE ARBITRATION PROCEEDINGS BEFORE THE HON'BLE BOMBAY HIGH COURT WHERE CONTENTION WAS SUCH INCOME WAS NEVER ACCRUED TO THE ASSESSEE. THE PENAL TY LEVIED OF RS.5,97,145/- IS REQUIRED TO BE CANCELLED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE PENALTY HAS BEEN LEVIED ON THE SAME SET OF FACT S FOUND AND DECIDED BY HIM IN HIS APPEAL ORDER. THE LD C.I.T. ( A) DID NOT SUPPORT HIS PENALTY ORDER U/S. 271(L)(C) ON ANY IND EPENDENT EVIDENCE APART FROM ANYTHING DECIDED IN THE APPEAL. BOTH THE ORDERS CLEARLY POINT OUT THE BIAS OF THE LD. C.I.T. (A) AGAINST THE ASSESSEE. WHEN ENHANCEMENT ITSELF WAS BASED ON INCORRECT FACTS AND ON NON-APPLICATION OF MIND TO THE CORRECT FACTS THE 'BIAS' OF THE C.I.T. (A) AGAINST ASSESSEE BECOMES C RYSTAL CLEAR. THE PENALTY BE CANCELLED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE PENALTY U/S. 271(L)(C) WAS LEVIED BY LD. C.I.T. (A) WITHOUT GIVING ANY PROPER OPPORTUNITY AS REQUIRED BY LAW TO THE ASSESSEE. THE PRINCIPLES OF NATURAL JUSTICE HAVE BE EN GROSSLY VIOLATED BY THE LD. C.I.T. (A). THE PENALTY BE CANC ELLED. 16 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE PENALTY LEVIED BY LD. C.I.T. (A) IS NOT IN CONS ONANCE WITH THE PROVISIONS OF THE LAW NEITHER IT IS IN ACCORDAN CE WITH THE SETTLED LAW LAID DOWN BY JUDICIAL VERDICTS. THE CAS E LAW RELIED UPON BY THE LD. C.I.T. (A) IS NOT AT ALL APPLICABLE TO THE FACTS OF THIS CASE. THE PENALTY BE CANCELLED. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE PENALTY HAS BEEN LEVIED BY THE LD. C.I.T. (A) W ITHOUT CONSIDERING PROPERLY THE TRUE IMPACT OF CL. (B) OF EXPLANATION 1 TO SECTION 271(L)(C) OF THE ACT. THE PENALTY BE CAN CELLED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE PENALTY U/S. 271(L)(C) HAS BEEN LEVIED WITHOUT RECORDING ANY 'SATISFACTION' FOR INITIATION OF SUCH PENALTY P ROCEEDINGS AS KNOWN TO LAW. THE PENALTY LEVIED THEREFORE IS INVA LID AND IT BE CANCELLED. 17. WE HAVE DISCUSSED IN ITA.NO.283/PN/2004 THAT TH E INCOME OF THE ASSESSEE WAS ENHANCED BY THE CIT(A) BY RS.19,90 ,483/-. AFTER CONSIDERING THE FACTS OF THE CASE, THE ASSESSING OF FICER HELD THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME IN RES PECT OF THE INCOME OF RS.19,90,483/- AND PENALTY IN QUESTION WA S LEVIED. THE SAID ENHANCEMENT HAS BEEN UPHELD BY US, VIDE PARA 1 1 OF THIS ORDER IN QUANTUM APPEAL FOR THE YEAR UNDER CONSIDERATION. ASSESSEE VIDE SUBMISSIONS DATED 18.06.2004, RAISED VARIOUS CONTEN TIONS ON THIS ISSUE. THE ASSESSING OFFICER HAVING GONE THROUGH T HE SUBMISSIONS INVOKED PROVISIONS OF SECTION 271(1)(C) AND LEVIED PENALTY IN QUESTION WHICH WAS CONFIRMED BY THE CIT(A). 17.1. THE STAND OF THE ASSESSEE BEFORE US HAS BEEN THAT THE ASSESSEE HAS FURNISHED EXPLANATION BUT SAME WAS NOT FOUND ACCEPTABLE BECAUSE SAME WAS NOT SUPPORTED BY ANY EV IDENCE. ACCORDING TO LD. AUTHORISED REPRESENTATIVE, THE CIT (A) WAS NOT JUSTIFIED IN IMPOSING THE PENALTY OF RS.5,97,145/- U/S.271(1)(C) OF THE ACT ON ENHANCEMENT INCOME MADE BY HIM. BASICAL LY THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND THE LD. DEPARTMENTAL REPR ESENTATIVE SUPPORTED THE ORDER OF THE CIT(A). 18. AFTER GOING THROUGH THE ABOVE SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE CIT(A) WHO HAS LEVIED THE PENALTY FOR ENHANCEMENT OF THE INCOME OF RS.19,90,483/-, WHICH HAS BEEN 17 UPHELD BY US VIDE PARA 11 OF THIS ORDER AS STATED A BOVE. ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT H AD SHOWN RECEIPT FORM GOVERNMENT ON CASH BASIS WHICH COULD N OT BE NOTICED BY THE ASSESSING OFFICER AT THE RELEVANT POINT OF T IME. THE ENHANCEMENT OF INCOME ON SAME ACCOUNT IS BASIS OF P ENALTY IN QUESTION. THE PENALTY PROCEEDINGS AND QUANTUM ADDIT ION ARE INDEPENDENT. PENALTY IS NOT AUTOMATIC ON THE BASIS OF QUANTUM ADDITION. THE BASIS OF ENHANCEMENT COULD NOT BE PO INTED OUT BY EVEN THE ASSESSING OFFICER. THIS IS THE REASON THA T ADDITION HAS BEEN MADE BY THE CIT(A) BY WAY OF ENHANCEMENT. ASS ESSEE HAS CLAIMED CERTAIN INCOME ON CASH BASIS WHILE HE WAS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THERE IS NOTHING ON RECORD TO SUGGEST THAT ASSESSEE HAS MADE WRONG CLAIM WITH MAL AFIDE INTENTION. ASSESSEE SHOULD NOT SUFFER FOR HIS BONA FIDE WRONG CLAIM AS FAR AS PENALTY IS CONCERNED UNLESS THERE IS OTHE RWISE CONTRARY ON RECORD. IN VIEW OF ABOVE, PENALTY IN QUESTION IS D ELETED. 19. AS A RESULT, THIS APPEAL IS ALLOWED. 20. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A ND THE ASSESSEE ARE DISPOSED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF SEPTEMBER, 2012. SD- SD/- ( G.S.PANNU ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 28 TH SEPTEMBER, 2012. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ITO, WARD-2(1), SOLAPUR. 3. THE CIT(A)-III, PUNE 4. THE CIT CONCERNED. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.