DCIT, CHENNAI V. M/s. Rafique International Enterprise P. Ltd., CHENNAI

ITA 2097/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1160 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Additional evidence
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) ..... I.T.A. NO. 2097 / MDS/2010 ASSESSMENT YEAR : 2006-07 THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI - 600 034. (APPELLANT) V. M/S RAFIQUE INTERNATIONAL ENTERPRISES P. LTD., 111A, 2 ND FLOOR, BLOCK A, MOUNT VIEW, ANNA SALAI, GUINDY, CHENNAI - 600 032. PAN : AACCB2393L (RESPONDENT) APPELLANT BY : SHRI P.B. SEKARAN RESPONDENT BY : SHRI R. VIJAYARAGHAVAN SHRI V. VIKRAM VIJAYARAGHAVAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, IT HAS TAKEN SEVEN GROUNDS IN TOTO OUT OF WHICH GROUND NOS.1 AND 7 ARE GENERAL IN NATURE NEEDING NO ADJUDICATION. GROUND NO.2 IS REPRODUCED HEREUND ER:- 2.1 THE LEARNED CIT(A) HAS ERRED IN ALLOWING DEPRECIATION AT 30% IN RESPECT OF THE JCBS, FORKLIFTS, TRACTOR AND TRAILER LET OUT ON HIRE BY T HE ASSESSEE. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ENTRY III(3)(II) OF PART A OF APPENDIX I OF THE I.T. RULE S HAD SPECIFICALLY MENTIONED ONLY MOTOR CARS, MOTOR I.T.A. NO. 2097/MDS/10 2 LORRIES AND MOTOR TAXIS AND ITEMS SUCH AS JCB, FORKLIFT, TRACTOR AND TRAILER ETC., ARE NOT MENTION ED AT ALL, THEREIN. THE RELEVANT FINDING OF CIT(APPEALS) IS REPRODUCED HEREUNDER:- AS THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF LETTING VEHICLES ON HIRE LIKE FORKLIFTS, JCB AND TR ACTORS TO THE CLIENT, DEPRECIATION AT 30% IS ENTITLED AS PER SEC.32 AND APPENDIX 1 BLOCK OF ASSETS (TANGIBLE ASSET) III , PLANT AND MACHINERY, ITEM NO.3(II). THE ASSESSEE HAS SUB MITTED COPIES OF THE CONTRACT DATED 18.8.2003 AND RENEWAL LETTER DATED 30.05.2005 WITH CHEMPLAST SANMAR LIMITED FOR HIRING OF 2 JCBS, 2 FORKLIFTS AND 1 TRACTOR AND TRA ILER. IT WAS EXPLAINED THAT BY THIS, HIRE CHARGES OF RS.42,2 8,719 HAS BEEN EARNED BY THE ASSESSEE AND HAS BEEN REFLEC TED IN THE P&L ACCOUNT. HENCE IT WAS REQUEST THAT THE DEPRECIATION AT 30% IS ALLOWED AS CLAIMED. 4.1.3 THE DETAILS PROVIDED BY THE A.R. HAVE CAREFULLY BEEN EXAMINED VIS--VIS THE CONTENTION RA ISED BY THE A.O. IN THE ASSESSMENT ORDER. THE CONTENTION O F THE A.O. THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINE SS OF RUNNING VEHICLES ON HIRE IS NOT CORRECT. THE ASSES SEE IS ENGAGED IN THE BUSINESS OF NOT ONLY TRADING OF COAL , CHEMICALS, RAW LIMESTONE BUT ALSO IN LETTING OF MAC HINERY ON HIRE. THIS HAS BEEN SUBSTANTIATED BY THE COPY OF T HE CONTRACT SUBSMITTED BY THE ASSESSEE. 4.1.4 CONSIDERING THE ABOVE FACTS, THE ELIGIBILITY FOR THE DEPRECIATION @ 30% AS PER I.T. ACT, 1961 APPEND IX 1 PART A BLOCK III(3)(II) IS MET WITH AND HENCE THE DISALLOWANCE OF DEPRECIATION OF RS.4,90,989 BY THE A.O. CANNOT BE SUSTAINED. HENCE, THE FULL DEPRECIATION AS CLAIMED BY THE ASSESSEE RS.9,81,979 IS ALLOWED. 2. GROUND NO.3 RAISED BY THE REVENUE RUNS AS UNDER: - 3.1 THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,48,619/- ON ACCOUNT OF DIFFERENCE IN SALES BETWEEN P&L ACCOUNT AND SALES TAX ASSESSMENT ORDER. I.T.A. NO. 2097/MDS/10 3 3.2 ON THE BASIS OF EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME WITHOUT GIVING TH E ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE SAME EVIDENCE THE APPEAL ON THIS POINT HAS BEEN ALL OWED. 3.3 HAVING REGARD TO THE PROVISIONS OF RULE 46A OF I.T. RULES, THE LEARNED CIT(A) OUGHT TO HAVE GIVEN THE ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A). RELEVANT FINDING OF CIT(APPEALS) APPEARING AT PAGE 4 OF HIS ORDER IS REPRODUCED AS UNDER:- 5.1.2 WITH REGARD TO THE DIFFERENCE IN SALES ADDED BY THE A.O. AS UNDISCLOSED INCOME, THE APPELLATE PROCEEDINGS THE A.R. HAS SUBMITTED THAT THERE HAVE BEEN SALES RETURNS TO THE EXTENT OF RS.1,48,619 WHICH HA VE BEEN ACCOUNTED. THE SALES IN P&L ACCOUNT ARE NOT MATCHI NG WITH SALES TAX RETURNS AS THE CREDIT NOTES WERE ISSUED T O VARIOUS PARTIES FOR SALES RETURNS OF COAL SOLD TO T HEM. THE COPIES OF THE CREDIT NOTES ISSUED HAVE BEEN SUBMITT ED. THESE CREDIT NOTES FOR SALES RETURNS COULD NOT BE C LAIMED IN THE SALES TAX RETURN AS THE STIPULATED TIME LIMI T WAS OVER. ON THIS BASIS, THE AMOUNT OF RS.1,48,619 WHI CH IS THE VALUE OF SALES RETURNS CANNOT BE ADDED BACK AS UNDI SCLOSED INCOME. 5.1.3 THE COPIES OF CREDIT NOTES ISSUED TO CUSTOMERS WHICH HAVE BEEN PROVIDED BY THE ASSESSEE HAVE BEEN EXAMINED. AS THE REASONS FOR THE DIFFERENCE I N SALES AS ACCOUNTED IN THE P&L ACCOUNT AND AS PER THE SALE S TAX RETURN HAVE BEEN EXPLAINED AND CONSIDERING THE CIRCUMSTANCES OF THE CASE, THE AMOUNT OF RS.1,48,61 9 CANNOT BE ADDED BACK AS UNDISCLOSED INCOME. 5.1.4 HENCE THE ADD BACK OF THE DIFFERENCE IN SALE S OF RS.1,48,619 BY THE A.O. IS DELETED. 3. GROUND NO.4 RAISED BY THE REVENUE RUNS AS UNDER: - I.T.A. NO. 2097/MDS/10 4 4.1.1 THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.29.39 LAKHS WHICH WERE ADDED BY THE A.O. AS DIFFERENCE BETWEEN RECEIPTS AS PER TDS CERTIFICATES AND P&L ACCOUNT. 4.2 ON THE BASIS OF EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME WITHOUT GIVING TH E ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE SAME EVIDENCE THE APPEAL ON THE POINT HAS BEEN ALLO WED. 4.3 HAVING REGARD TO THE PROVISIONS OF RULE 46A OF I.T. RULES, THE LEARNED CIT(A) OUGHT TO HAVE GIV EN THE ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A). RELEVANT FINDING OF CIT(APPEALS) APPEARING AT PAGE 5 OF HIS ORDER IS REPRODUCED AS UNDER:- TOTAL AMOUNT OF INCOME IS 70,27,627/- FOR WHICH TDS AMOUNT IS RS.1,65,819/- AS PER DETAILS SUBMITTED AL ONG WITH THE RETURN. THE ASSESSEE HAS ALSO SUBMITTED THE DE TAILS THAT BESIDES SHOWING THE SERVICE INCOME OF RS.42,28 ,719 THE BALANCE INCOME HAVE BEEN ACCOUNTED AS CREDIT IN THE COST OF GOODS SOLD (PURCHASES/ TRANSPORT COST ACCOU NT) AND ALSO AS CREDITS IN INTEREST AND PROFESSIONAL CHARGE S ACCOUNTS AS GIVEN BELOW: RS TOTAL VALUE OF CREDITS AS PER TDS STATEMENT SUBMITTED 70,27,627 ACCOUNTED IN SERVICE INCOME (AS SHOWN IN P&L ACCOUNT) 42,28,719/- LESS COST OF DIESEL FOR WHICH TDS NOT APPLICABLE (SANMARG RS.31,35,751/- AND CABOT RS.85,023) 9,97,945/- 32,30,774 BALANCE AMOUNT ACCOUNTED AS UNDER: 37,96,853 A) CREDITED IN PROFESSIONAL CHARGES ACCOUNT 51,240 I.T.A. NO. 2097/MDS/10 5 (GROSS EXP RS.5,92,235 LESS RS.51,240/- CREDITED = NET DEBIT IN P & L RS.5,40,995/-) B) CREDITED IN INTEREST 30,117 C) CREDITED IN TRANSPORT CHARGES (GROSS EXP RS.48,29,617/- LESS RS.46,63,745/- CREDITS = NET EXPENSES RS.1,65,871/- IN PURCHASE A/C IN P&L 37,15,496 37,96,853 IT WAS EXPLAINED BY AR THAT AS GIVEN ABOVE, NO RECE IPT HAS BEEN OMITTED BY THE ASSESSEE TO BE ACCOUNTED IN THE P&L ACCOUNT. THE AR HENCE REQUESTED NOT TO ADD BACK RS.29,39,138 AS UNDISCLOSED INCOME. 6.1.3 THE DETAILS OF THE ACCOUNTING OF THE TOTAL VALUE OF CREDITS AMOUNTING TO RS.70,27,627, PARTLY UNDER SERVICE INCOME TO THE EXTENT OF RS.32,30,774 AND PA RTLY AS CREDIT IN THE COST OF SALES RS.37,15,496 AND EXPENS ES RS.81,357 AS FURNISHED BY THE ASSESSEE IN THE GROUN DS OF APPEAL HAS BEEN PERUSED. AS THE DIFFERENCE RAISED BY THE A.O. HAS BEEN EXPLAINED AS ABOVE THAT THE ENTIRE IN COME HAS BEEN ACCOUNTED, THE ADD BACK BY A.O. AS UNDISCL OSED INCOME IS NOT CORRECT. 6.1.4 IN THE ABOVE CIRCUMSTANCES, THE ADD BACK OF RS.29,39,138 BY A.O. CANNOT BE SUSTAINED AND HENCE DELETED. 4. GROUND NO.5 RAISED BY THE REVENUE RUNS AS UNDER: - 5.1 THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF 10% ON EQUIPMENT CHANGES AND ADMINISTRATIVE EXPENSES OF RS.6.92 LAKHS FOR NON PRODUCTION OF VOUCHERS. 5.2 ON THE BASIS OF EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME WITHOUT GIVING TH E I.T.A. NO. 2097/MDS/10 6 ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE SAME EVIDENCE THE APPEAL ON THE POINT HAS BEEN ALLO WED. 5.3 HAVING REGARD TO THE PROVISIONS OF RULE 46A OF I.T. RULES, THE LEARNED CIT(A) OUGHT TO HAVE GIVEN THE ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A). RELEVANT FINDING OF CIT(APPEALS) APPEARING AT PAGE 6 OF HIS ORDER IS REPRODUCED AS UNDER:- 7.1.1 THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDING CALLED FOR BILLS AND VOUCHERS AS PER LET TER DATED 1.8.08 WHICH HAVE NOT BEEN FURNISHED BY THE ASSESSE E. AS THE ASSESSEE FAILED TO FURNISH THE BILLS AND VOUCHE RS, 10% OF EQUIPMENT CHARGES RS.19,45,917/- AND ADMINISTRAT IVE EXPENSES OF RS.49,76,718/- IS ADDED BACK ON ESTIMAT ED BASIS. AN AMOUNT OF RS.6,92,280/- IS DISALLOWED BE ING 10% OF THE ABOVE EXPENDITURE. 7.1.2 THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE EXPENDITURE OF EQUIPMENT CHARGES AND ADMINISTRATION EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY AS BUSINESS EXPENDITURE TO EARN THE INCOME. THE COMPA NY HAS MAINTAINED VOUCHERS AND LEDGERS WHICH HAVE BEEN AUD ITED STATUTORILY. THE ENTIRE DETAILS OF THE EXPENDITURE AND LEDGER SHEETS HAVE BEEN SUBMITTED, AND THE ASSESSEE HAS REQUESTED THAT THE SAME HAVE TO BE ALLOWED IN FULL WITHOUT ANY DISALLOWANCE. 7.1.3 THE DETAILS FURNISHED IN RESPECT OF THE EQUIPMENT CHARGES AND ADMINISTRATIVE EXPENSES HAVE BEEN EXAMINED. IT IS FOUND THAT THE EXPENSES RELATE TO THE BUSINESS AND ARE REQUIRED TO EARN THE INCOME OF THE ASSESSEE. 7.1.4 IN VIEW OF THE ABOVE, THE PRESUMPTIVE DISALLOWANCE OF 10% OF EXPENSES AMOUNTING TO RS.6,9 2,260 BY A.O. CANNOT BE SUSTAINED AND THE SAME IS ALLOWED IN FULL. I.T.A. NO. 2097/MDS/10 7 5. GROUND NO.6 RAISED BY THE REVENUE RUNS AS UNDER: - 6.1 THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.30,22,531/- AS UNEXPLAINED CREDI TS. 6.2 ON THE BASIS OF EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME WITHOUT GIVING TH E ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE SAME EVIDENCE THE APPEAL ON THE POINT HAS BEEN ALLO WED. 6.3 HAVING REGARD TO THE PROVISIONS OF RULE 46A OF I.T. RULES, THE LEARNED CIT(A) OUGHT TO HAVE GIVEN THE ASSESSING OFFICER A REASONABLE OPPORTUNITY TO EXAMI NE THE EVIDENCE PRODUCED BEFORE THE LEARNED CIT(A). RELEVANT FINDING OF CIT(APPEALS) APPEARING AT PAGES 6 & 7 OF HIS ORDER IS REPRODUCED AS UNDER:- 8.1.1 DURING THE COURSE OF ASSESSMENT, THE A.O. ON PERUSAL OF THE RETURNS AND DETAILS FILED, HAS NOTED THAT THE ASSESSEE HAD TAKEN UNSECURED LOAN OF RS.30,22,531 F OR WHICH THE ASSESSEE HAS NOT FILED THE DETAILS TO PRO VE THE IDENTITY OF THE CREDITORS AND GENUINENESS. ON THE BASIS, THE A.O. HAS TREATED THIS AS UNEXPLAINED CASH CREDI T U/S 68 OF THE ACT AND ADDED AS INCOME. 8.1.2 THE ASSESSEE HAS EXPLAINED THAT THE AMOUNT HAS BEEN BROUGHT IN BY THE PROMOTER DURING THE YEAR FOR MEETING THE BUSINESS REQUIREMENTS. THE LEDGER ACCO UNT OF LOANS FROM DIRECTORS SHOWN AS UNSECURED LOAN IN THE BALANCE SHEET OF THE COMPANY AND THE BALANCE CONFIRMATION LETTER FROM THE PROMOTERS TO THIS EFFE CT DATED 8.12.08 HAVE ALSO BEEN SUBMITTED BY THE AR. DURING THE PREVIOUS YEAR, 2005-06 CORRESPONDING TO THE ASSESSMENT YEAR 2006-07, THE AMOUNT OF LOANS PROVID ED BY THE PROMOTERS IS RS.25,49,369/- AND NOT RS.30,22,53 1/- AS MENTIONED IN THE ASSESSMENT ORDER. IT WAS ALSO EXP LAINED BY THE AR THAT AS PER THE INDIVIDUAL INCOME TAX RET URNS OF THE DIRECTORS OF THE COMPANY, A GROSS RENTAL INCOME OF I.T.A. NO. 2097/MDS/10 8 RS.26,81,527/- AND AGRICULTURAL INCOME OF RS.20,00, 000/- HAS BEEN RETURNED AND THESE HAVE BEEN THE SOURCES F OR PROVIDING THE UNSECURED LOAN TO THE COMPANY. HENCE , THE AR SUBMITTED THAT THE ADDING BACK OF THIS AMOUNT AS UNEXPLAINED CASH CREDIT IS NOT JUSTIFIABLE AND HAS TO BE REMOVED. 8.1.3 THE DETAILS OF THE LEDGER ACCOUNT OF LOAN FR OM DIRECTORS AND THE PERSONAL INCOME-TAX RETURNS OF TH E DIRECTORS FURNISHED BY THE AR HAVE BEEN EXAMINED AN D SATISFACTORILY PROVING THE FUNDING BROUGHT IN BY PR OMOTERS FOR BUSINESS PURPOSES. HENCE, THE ADD BACK OF THIS AS UNEXPLAINED CASH CREDIT IS NOT SUSTAINABLE. 8.1.4 IN THE CIRCUMSTANCES AND BASED ON THE DETAIL S PROVIDED, THE AMOUNT CANNOT BE TREATED AS UNEXPLAIN ED CASH CREDIT AND HENCE CANNOT BE INCLUDED AS INCOME FROM OTHER SOURCES. 6. THE GROUNDS RAISED BY THE REVENUE CONTAINS A COM MON GRIEVANCE THAT THERE WAS A VIOLATION OF PROVISIONS OF RULE 46A OF INCOME-TAX RULES, 1962 SINCE ADDITIONAL EVIDENCE PR ODUCED BY THE ASSESSEE BEFORE THE CIT(APPEALS) WAS CONSIDERED BY HIM WITHOUT GIVING ASSESSING OFFICER A REASONABLE OPPORTUNITY T O EXAMINE SUCH EVIDENCE. WE FIND THAT ON THE ISSUE RAISED AT GROU ND NO.2, CIT(APPEALS) HAD EXAMINED COPIES OF CONTRACT AND RE NEWAL LETTERS WHILE DECIDING THAT ASSESSEE WAS ENGAGED IN THE BUS INESS OF RUNNING VEHICLES ON HIRE. ON THE ISSUE RAISED AT GROUND NO .3, CIT(APPEALS) HAD EXAMINED CREDIT NOTES FILED BY THE ASSESSEE FOR SALES RETURNS, WHILE DELETING THE ADDITION MADE BY THE A.O. ON TH E ISSUE RAISED AT GROUND NO.4, CIT(APPEALS) HAD EXAMINED THE DETAILS FURNISHED BY THE I.T.A. NO. 2097/MDS/10 9 ASSESSEE WITH REGARD TO ACCOUNTING OF COST OF GOODS AND SERVICE INCOME, BASED ON WHICH HE DELETED THE ADDITION. ON THE ISSUE RAISED AT GROUND NO.5, CIT(APPEALS) HAD CONSIDERED THE LED GER SHEET AND DETAILS OF EXPENDITURE WITH REGARD TO ASSESSEES CL AIM FOR EQUIPMENT CHARGES AND ADMINISTRATIVE EXPENSES WHILE DELETING THE DISALLOWANCE. ON THE ISSUE RAISED AT GROUND NO.6, CIT(APPEALS) HA D CONSIDERED LEDGER ACCOUNT OF THE LOANS AND PERSONAL INCOME-TAX RETURNS OF THE PROMOTERS WHILE DELETING THE ADDITION OF UNEXPLAINE D CASH CREDIT. THUS, THE COMMON ELEMENT PERMEATING THROUGH THE ORD ER OF THE CIT(APPEALS) IS CONSIDERATION OF ADDITIONAL EVIDENC E AND DETAILS FILED BY THE ASSESSEE AND WE FIND THAT LD. CIT(APPEALS) N EVER SOUGHT THE OPINION OF THE A.O. IN THIS REGARD. IN OUR OPINION , THERE HAS BEEN VIOLATION OF RULE 46A OF I.T. RULES SINCE ASSESSING OFFICER WAS NOT GIVEN REASONABLE OPPORTUNITY FOR EXAMINING THE EVID ENCE PRODUCED BY THE ASSESSEE. WE ARE OF THE OPINION THAT THE MATTE R THEREFORE REQUIRES TO BE CONSIDERED BY THE A.O. AFRESH WITH R EGARD TO EACH ISSUE MENTIONED ABOVE. WE SET ASIDE THE ORDERS OF THE CIT(APPEALS) AND A.O. AND REMIT THE MATTER BACK TO THE FILE OF T HE A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW TAKING INTO ACCOUNT THE EVIDENCE FURNISHED BY THE ASSESSEE. ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY FOR EXPLAINING ITS CASE. I.T.A. NO. 2097/MDS/10 10 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE FIRST DAY OF FEBRUARY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAH AM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 1 ST FEBRUARY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE