The ITO, Ward-3(3), Surat V. Shri Karim K. Lakhani, Surat

ITA 220/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68036 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: SHAH
• Keywords: Unexplained cash credit; Third party statement
• Section: 143(3); 133(6); 131; 69

Judgement Text

ITA NO 220/A HD/2010 . A.Y. 200 6- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 220 /AHD/2010 (ASSESSMENT YE AR: 2006-07) INCOME TAX OFFICER WARD 3 (3), SURAT V/S SHRI KARIM K.LAKHANI, 51, KARIMABAD SOCIETY, GHOD- DOD ROAD, SURAT. (APPELLANT) (RESPONDENT) PAN: AAGPL7544Q APPELLANT BY : SHRI K.C. MATHEWS SR. D.R. RESPONDENT BY : SHRI M. R. SHAH A.R. ( )/ ORDER DATE OF HEARING : 28-11-201 3 DATE OF PRONOUNCEMENT : 13 -12-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-II, SURAT DATED 29.10.2009 FOR A.Y. 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER:- 3. ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F TRADING AND RESALE OF M.S. SCRAP UNDER THE NAME AND STYLE OF LAXMI STEEL . ASSESSEE FILED HIS RETURN OF INCOME FOR A.Y. 06-07 ON 31.12.2006 DECLA RING TOTAL INCOME OF RS. 5,52,827/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ITA NO 220/A HD/2010 . A.Y. 200 6- 07 2 ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 2 6.12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,22,08,930/-. A GGRIEVED BY THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 29.10.2009, PARTIALLY ALLOWED THE APPEAL OF T HE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. OF RS. 14,484 OUT OF VARIOUS EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. OF RS. 14,400/- ON AC COUNT OF COMMISSION EXPENSES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. OF RS. 2,59,940/- TO RS. 1,03,977 OUT OF KHARAJAT EXPENSES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O OF RS. 60,000/- ON ACC OUNT OF UNEXPLAINED CASH CREDIT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O OF RS.10 LAKH U/S. 68 OF THE ACT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O OF RS 16,50,000/- U/S. 69A OF THE ACT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O OF RS 83,19,857/- ON A CCOUNT OF UNEXPLAINED OUTSTANDING CREDITS. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O OF RS 4,02,177 ON ACCO UNT OF INTEREST CHARGEABLE ON THE INTEREST FREE ADVANCE MADE BY THE ASSESSEE OUT OF INTEREST B EARING FUNDS. 4. GROUND NO. 1 2 AND 3 WERE DISPOSED OFF TOGETHER BY CIT(A) AND THEREFORE CONSIDERED TOGETHER BY US. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAS DEBITED VARIOUS EXPENSES TO THE PROFIT AND LOSS ACCOUNT BUT WHICH WERE NOT FULLY SUPPORTED WITH RELEVANT BILLS OR VOU CHERS. HE WAS ALSO OF THE VIEW THAT UNDER THE HEAD OF THE VEHICLE EXPENS ES AND TELEPHONE EXPENSES THE ELEMENT OF PERSONAL USE CANNOT BE RUL ED OUT. HE WAS OF THE VIEW THAT 20% OF THE EXPENSES TO BE EXCESSIVE AND S PENT FOR NON BUSINESS PURPOSES. HE AFTER DISCUSSING THE DISALLOWANCE WITH THE REPRESENTATIVE OF ITA NO 220/A HD/2010 . A.Y. 200 6- 07 3 THE ASSESSEE, WHO AGREED FOR THE ADDITION, MADE AN ADDITION OF RS. 74,732/-. 6. A.O. ALSO NOTICED THAT ASSESSEE HAD DEBITED RS. 72, 000/- AS COMMISSION EXPENSES AND THE SAME WERE MADE IN CASH. THE ASSES SEE WAS ASKED TO JUSTIFY THE SAME. IN THE ABSENCE OF ANY JUSTIFICAT ION AND ANY OBJECTION FOR ADDITION, A.O. CONSIDERING THE EXPENSES PAID FOR SU PPRESSION OF PROFITS AND DISALLOWED 20% OF COMMISSION EXPENSES AMOUNTIN G TO RS. 14,400/- 7. A.O. ALSO NOTICED THAT ASSESSEE HAS CLAIMED RS. 10, 39,760/- AS KHARAJAT EXPENSES. HE ALSO NOTICED THAT MOST OF THE EXPENSES WAS INCURRED IN CASH AND FURTHER ASSESSEE HAD NOT PRODUCED ANY VERIFIABL E DOCUMENT EXCEPT FOR THE COPY OF THE LEDGER ACCOUNT AS PER HIS BOOKS OF ACCOUNTS. ASSESSEE WAS ALSO ASKED TO JUSTIFY THE EXPENSES. IN THE ABSE NCE OF ANY SATISFACTORY EXPLANATION, A.O. DISALLOWED 20% OF EXPENSES AMOUNT ING TO RS. 2,59,940/-. AGGRIEVED BY THE ORDER OF A.O., ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF BY HO LDING AS UNDER:- 6 I HAVE CAREFULLY CONSIDERED THE ACTION TAKEN BY THE AO AS ALSO THE WRITTEN SUBMISSION OF THE AR. T HE MISCELLANEOUS EXPENSES OF RS 72,422 WORKED OUT TO APPROX RS 6,000 PER MONTH. I AM OF THE CONSIDERED VIEW THAT SUCH EXPENSES ARE ALWAYS VERY PETTY IN NA TURE AND COMPRISE OF SMALL ITEMS INCURRED IN THE DAY-TO-DAY RUNNING OF ANY BUSINESS. THE PERSONS TO WHOM SUCH PAYMENTS ARE MADE DO NOT USUALLY HAVE ANY BANK ACCOUNT WHICH MEANS MOST OF SUCH EXPENSES HAVE TO BE INCURRED IN CASH. NOR DO THEY PROVIDE ANY BILL OR VOUCHER OR EVEN A CASH RECEIPT WHICH ME ANS THAT THE BUSINESSPERSON HAS TO PREPARE HIS OWN VOUCHERS AFTER CONSOLIDATION OF SUCH EXPENSES ON WE EKLY OR MONTHLY BASIS. THEREFORE, NO DISALLOWANCE CAN BE MADE OR SHOULD BE MADE OUT OF SUCH EXPENSES SIMPLY ON THE GROUND OF NON-VERIFIABILITY. IN ANY CASE, THERE CANNOT BE ANY PERSONAL ELEMENT IN SUCH EXPENSES. THE AO ON HIS PART HAS NOT BEEN ABLE TO SHOW OR PROVE ANY ITEM OF EXPENDITURE INCLUDED UNDE R THE SAID HEAD WHICH WAS EITHER NOT GENUINE OR NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE DISALLOWANCE MADE OUT OF MISCELLANEOUS EXPENSES, AMOUNTING TO RS.14,484 W ILL STAND DELETED. 6.2 COMING TO THE COMMISSION EXPENSES OF RS 72 ,000, I FIND THAT THE AO MADE THE DISALLOWANCE IN A VERY SUMMARY MANNER AND SIMPLY ON THE GROUND THAT S UCH PAYMENTS WERE MADE IN CASH. HE FAILED TO VERIFY THE EXPENSES AND SIMPLY ASSUMED THAT IT HAD BEEN CLAIMED TO REDUCE THE PROFIT. THE FACT AS INTIMATED BY THE AR WAS THAT, THE COMMISSION WAS PA ID @ RS 6,000 PER MONTH TO THE ASSESSEE'S FATHER FOR SUPERVISING AND MONITORING THE BUSINESS, UTILIS ING HIS YEARS OF EXPERIENCE OF THE SCRAP BUSINESS. THE GENUINENESS OF THE PAYMENTS WAS NOT DISPUTED. N OR WAS IT ESTABLISHED THAT SUCH EXPENSES HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS, THEREFORE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE. THE ADDITION OF RS 14,400 WI LL STAND DELETED. ITA NO 220/A HD/2010 . A.Y. 200 6- 07 4 AS REGARDS KHARAJAT EXPENSES OF RS 10,39,760, IT HA S BEEN CONTENDED THAT SUCH EXPENSES WERE INCURRED ON THE DRIVERS OF THE TRUCKS WHICH CARRIED THE SCRA P FROM THE PREMISES OF BIG CORPORATES LOCATED AT HAZIRA AND THAT NO INDIVIDUAL PAYMENT EXCEEDED RS 2 ,000. IT CANNOT BE DENIED THAT THE DRIVERS BEING ILLITERATE CANNOT PUT THEIR SIGNATURE, NOR DO THEY ACCEPT PAYMENT IN ANY MANNER OTHER THAN IN CASH AS THEY DO NOT OWN OR OPERATE ANY BANK ACCOUNT. THIS M EANT THAT THE ASSESSEE WOULD NECESSARILY HAVE HAD TO MAKE SUCH PAYMENTS IN CASH, THE RECORD OF W HICH WAS KEPT IN THE FORM OF VOUCHERS PREPARED BY THE ASSESSEE HIMSELF. THIS WAS A PAR T AND PARCEL OF THE ASSESSEE'S BUSINESS OF DE ALING IN SCRAP. BUT THE FACT REMAINS THAT IN SUCH A SCENARIO , THERE IS ALWAYS A SCOPE OF MANIPULATING THE EXPENSES SINCE, ON THE FACE OF IT SUCH EXPENSES ARE NOT VERIFIABLE. THE RECORD OF THE MOVEMENTS OF TRUCKS COULD NOT BE FULLY CROSS-VERIFIED EVEN THOUG H THE ASSESSEE PRODUCED SOME GATE PASSES OF THE COMPANIES FROM WHOSE PREMISES SCRAP WAS LIFTED. THI S MEANT THAT IT WAS ONLY THE RECORD MAINTAINED BY THE ASSESSEE WHICH WOULD HAVE TO BE RELIED UPON AND SINCE, SUCH RECORDS ARE NOT FULLY VERIFIABLE THERE WAS MERIT IN THE DISALLOWANCE MADE BY THE AO ESPECI ALLY WHEN THE TOTAL OF SUCH EXPENSES WAS QUITE SUBSTANTIAL. IT IS INTERESTING TO NOTE THAT THE ASS ESSING OFFICER PROPOSED TO DISALLOW 20% OF THE KHARAJAT EXPENSES BUT HAS ENDED UP DISALLOWING 25% OF THE SAID EXPENSES (RS 2,59,940 + 25% OF RS 10,39,760). HOWEVER, I AM OF THE VIEW THAT THE DISA LLOWANCE WAS ON THE HIGHER SIDE AND IT WOULD MEET THE ENDS OF JUSTICE AND FAIR PLAY IF THE DISALLOWAN CE IS REDUCED TO 10%. THIS WOULD MEAN THAT THE DISALLOWANCE WOULD BE RESTRICTED TO RS 1,03,977/- W HILE THE ASSESSEE WOULD GET A RELIEF OF RS 1,55,963/-. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. 9. BEFORE US, THE LD. D.R. POINTED TO THE ASSESSMENT O RDER WHEREIN A.O. HAS NOTED THAT THE ADDITION OF RS. 74,732/- ON ACCOUNT OF VEHICLE AND TELEPHONE EXPENSES, DISALLOWANCE OF RS. 14,400/- ON ACCOUNT OF COMMISSION EXPENSES WAS AGREED BY THE ASSESSEE BEFO RE A.O. AND THE ASSESSEE HAD NOT RAISED ANY OBJECTION. WITH RESPECT TO THE DISALLOWANCE OF KHARAJAT EXPENSES, HE SUBMITTED THAT MOST OF THE EXPENSES HAVE BEEN INCURRED IN CASH AND THE ASSESSEE HAD NOT PRODUCED ANY VERIFIABLE DOCUMENT IN SUPPORT OF THE EXPENDITURE. HE ALSO PO INTED OUT TO PAGE 30 TO 38 OF THE PAPER BOOK OF THE ASSESSEE AND FROM TH E AFORESAID LEDGER ACCOUNT, HE POINTED THAT MORE THAN 90% OF THE EXPEN SES INCURRED BY THE ASSESSEE ARE IN CASH. HE FURTHER SUBMITTED THAT BE FORE A.O. ASSESSEE HAD SUBMITTED SELF GENERATED VOUCHERS AND NOT ANY OTHER THIRD PARTY EVIDENCE. HE THEREFORE SUBMITTED THAT IN VIEW OF THE AFORESAI D FACTS THE A.O. WAS ITA NO 220/A HD/2010 . A.Y. 200 6- 07 5 JUSTIFIED IN MAKING THE ADDITIONS AND THEREFORE THE ADDITION MADE BY THE A.O. BE UPHELD. THE LD. A.R. ON THE OTHER HAND RELI ED ON THE ORDER OF CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE ASSESSMENT ORDER IT IS SEEN THAT WITH RESP ECT TO DISALLOWANCE OF RS. 74,732/- ON ACCOUNT OF TELEPHONE AND VEHICLE EX PENSES, A.O. HAS NOTED THAT THE REPRESENTATIVE OF THE ASSESSEE HAD A GREED FOR THE ADDITION. SIMILARLY, FOR THE DISALLOWANCE OF RS. 14,400/- OUT OF THE TOTAL COMMISSION EXPENSES, THE A.R. OF THE ASSESSEE HAD N OT RAISED ANY OBJECTION BEFORE A.O. IN VIEW OF THE AFORESAID F ACTS AND MORE SO WHEN THE ASSESSEE HAD AGREED FOR THE ADDITIONS BEFORE A. O., WE ARE OF THE VIEW THAT THE A.O. WAS JUSTIFIED IN MAKING THE ADDITION. FURTHER BEFORE US, THE LD. A.R. COULD NOT CONTROVERT THE FINDINGS OF A.O, NOR HAS HE BROUGHT ANY CONTRARY MATERIAL ON RECORD IN ITS SUPPORT. WITH RE SPECT TO KHARAJAT EXPENSES, FROM THE MATERIAL ON RECORD, WE FIND THAT SUBSTANTIAL EXPENSES INCURRED BY THE ASSESSEE WERE IN CASH AND A.O HAS A LSO NOTED IN HIS ORDER THAT NO THIRD PARTY EVIDENCE WAS SUBMITTED IN SUPPO RT OF THE EXPENSES. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT S INCE THE PAYMENTS ARE IN CASH, THERE WAS ALWAYS A SCOPE FOR MANIPULATING THE EXPENSES. HE THEREFORE CONSIDERED THE DISALLOWANCE MADE BY A.O @ 25% TO BE ON A HIGHER SIDE AND THEREFORE RESTRICTED THE DISALLOWAN CE TO 10%. WE ARE OF THE VIEW THAT CONSIDERING THE FACT THAT 90% OF EXPE NSES INCURRED BY ASSESSEE TO BE IN CASH, NON PRODUCTION OF THIRD PAR TY EVIDENCE BEFORE A.O. AND NATURE OF EXPENSES, ENDS OF JUSTICE SHALL BE MET IF DISALLOWANCE IS RESTRICTED TO 15% AS AGAINST 25% MADE BY A.O IN THE RESULT THESE GROUNDS OF REVENUE ARE PARTLY ALLOWED . ITA NO 220/A HD/2010 . A.Y. 200 6- 07 6 4 TH GROUND IS WITH RESPECT TO ON ACCOUNT OF UNEXPLAINE D CASH CREDIT OF RS. 60,000/-. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT IN THE BALANCE SHEET, ASSESSEE HAD SHOWN UNSECURED LOAN OF RS. 2,50,000/- IN THE NAME OF LAKHANI ENTERPRISES BUT ON VERIFYING TH E COPY OF THE LEDGER ACCOUNT AS APPEARING IN THE BOOKS OF LAKHANI ENTERP RISE, HE NOTICED THAT THE BALANCE WAS SHOWN AT RS. 3,10,000/- THUS RESULT ING INTO DIFFERENCE OF RS. 60,000/-THE ASSESSEE WAS ASKED AS TO WHY THE DI FFERENCE OF 60,000/- NOT BE ADDED TO THE TOTAL INCOME. IN THE ABSENCE O F ANY OBJECTION BY THE ASSESSEE, RS. 60,000/- WAS ADDED AS UNEXPLAINED CAS H CREDIT UNDER SECTION 68 OF THE ACT. AGGRIEVED BY THE ORDER OF A .O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITI ON BY HOLDING AS UNDER:- 9. I HAS BEEN EXPLAINED BY THE AR THAT M/S LAKHANI ENTERPRISES HAD GIVEN A DEMAND DRAFT DRAWN ON BANK OF BARODA OF A SUM OF RS. 60,000/- ON 10.03.20 06 AND HAD ACCOUNTED FOR THE SAME IN THE BOOKS IN THE A.Y. 2006-07. THE ASSESSEE HAD HOWEVER SHOWN TH E ENTRY IN THE A.Y. 2007-08 ON THE GROUND THAT THE SAME WAS RECEIVED IN THE SUBSEQUENT YEAR. THE COMPLETE ADDRESS AND A CONFIRMATION LETTER OF M/S LAKHANI ENTERPRISES SHOWING ITS PAN WAS FURNISHED B EFORE THE A.O WHO HAD FAILED TO APPRECIATE THE TRANSACTIONS AND THE RECONCILIATIONS PROVIDED. ACC ORDING TO THE AR, THE ASSESSEE HAD NOT ACCEPTED THE ADDITION AND IT WAS A FALSITY THAT NO OBJECTION WAS RAISED IN COURSE OF THE ASSESSMENT PROCEEDING AGAINST THE PROPOSED ADDITION. 10, I HAVE CAREFULLY CONSIDERED THE POSITION, I H AVE ALSO GONE THROUGH THE COPY OF THE LEDGER ACCOUN T OF THE ASSESSEE IN THE BOOKS OF M/S LAKHANI ENTERPR ISES WHICH CLEARLY SUPPORTS THE EXPLANATION FURNISHED BY THE A.R. M/S LAKHANI ENTERPRISES HAD M ADE THE ENTRY IN THEIR BOOK ON 10.03.2006 WHICH TOOK THE CLOSING BALANCE TO RS. 3,10,000/-. SINCE, THE DRAFT WAS RECEIVED BY THE ASSESSEE IN THE SUBSEQUENT YEAR, IT HAD RESULTED IN M/S LAKHANI ENT ERPRISES SHOWING THE LOAN IN EXCESS OF WHAT HAD BEEN ACCOUNTED FOR BY THE ASSESSEE. THE TRANSACTION S WERE VERY CLEAR. CONSEQUENTLY, THE ADDITION OF RS. 60,000 WILL STAND DELETED. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. 13. BEFORE US, THE LD. D.R. POINTED TO THE EXPLANATION OF THE ASSESSEE BEFORE CIT(A) WHEREIN IT WAS STATED THAT A SUM OF RS. 60,0 00/- WAS GIVEN AS A ITA NO 220/A HD/2010 . A.Y. 200 6- 07 7 BANK DRAFT ON 10.03.2006 BUT THE SAME WAS ACCOUNTED BY THE ASSESSEE IN A.Y. 07-08 AND WAS THEREFORE REFLECTED IN A.Y. 07-0 8. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT PLACED ON RECORD AN Y MATERIAL IN SUPPORT OF HIS CONTENTION TO DEMONSTRATE THAT A DEMAND DRAF T OF 10 TH MARCH, 2006 WAS DEPOSITED IN AUGUST 2006 AFTER HOLDING IT FOR A LMOST 5 MONTHS AND FOR WHICH NO EVIDENCE HAS BEEN PLACED ON RECORD NOR ANY REASON FOR HOLDING THE DRAFT FOR SUCH A LONG DURATION. HE THUS SUBMITTED THAT THE A.O. WAS FULLY JUSTIFIED IN MAKING THE ADDITION. TH E LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUPPORTED THE ORDER OF CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT BEFORE CIT(A), ASSESSEE HAD SUBMITTED THAT LAKHANI ENTERPRISES HAD GIVEN A DRAFT FOR 60,000/- ON 10.03 .2006 BUT THE ASSESSEE HAD ACCOUNTED THE SAME IN A.Y. 07-08 AS IT WAS RECE IVED IN SUBSEQUENT YEAR. FROM THE COPY OF THE LEDGER ACCOUNT OF ASSESS EE AS APPEARING IN THE BOOKS OF LAKHANI ENTERPRISE PLACED ON PAGE 41 OF TH E PAPER BOOK, IT IS SEEN THAT ASSESSEES ACCOUNT HAS BEEN DEBITED ON 10 .03.2006 ON ACCOUNT OF D.D. CHALTAN SUGAR FACTORY. FROM THE COPY OF L EDGER ACCOUNT LAKHANI ENTERPRISE AS PER THE BOOKS OF ASSESSEE A ND PLACED AT PAGE 40 OF THE PAPER BOOK, IT IS SEEN THAT THE ENTRY FOR RS . 60,000/- HAS BEEN PASSED ON 31.08.2006. THE REASON FOR DELAY IN ACCOU NTING AS EXPLAINED TO CIT(A) AND PLACED ON PAGE 3 OF THE PAPER BOOK WAS T HAT THE D/D. WAS CLEARED IN BANK ACCOUNT IN SUBSEQUENT YEAR. WE FIND THAT ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD IN SUPPORT OF HIS CONTENTION THAT THE DRAFT DATED 10.03.2006 WAS CLEARED IN SUBSEQUENT AS SESSMENT YEAR AND HOW IF AT ALL CLEARANCE WAS DELAYED AT THE BANKS E ND, IT WOULD EFFECT THE ITA NO 220/A HD/2010 . A.Y. 200 6- 07 8 ACCOUNT OF THE PARTIES INTER SE. IN VIEW OF THE A FORESAID FACTS, WE ARE OF THE VIEW THAT THE A.O. WAS FULLY JUSTIFIED IN MAKIN G THE ADDITION IN THE ABSENCE OF PROPER EXPLANATION. THUS THIS GROUND OF REVENUE IS ALLOWED. GROUND NO. 5 IS WITH RESPECT TO ADDITION OF RS. 10 LACS U/S 68 GROUND NO. 6 WITH RESPECT TO ADDITION OF RS. 16.50 LACS U/S 69 A ARE CONSIDERED TOGETHER SINCE THEY ARE INTERCONNECTED. 15. A.O. NOTICED THAT ASSESSEE HAD SHOWN IN HIS BALANCE SHEET, RECEIPT OF RS 10 LACS AS UNSECURED LOAN FROM 'MARKANDESHWAR SCRAP TRADERS'. ASSESSEE FURNISHED THE COPY OF THE LEDGER ACCOUNT S HOWING THE TRANSACTIONS BUT ACCORDING TO THE A.O, THE COPY WAS WITHOUT ADDRESS, IT PARTICULARS OF THE LENDER. TO ASCERTAIN THE GENUINE NESS OF THE LOAN, AO ISSUED NOTICE U/S 133(6) OF THE ACT BUT THERE WAS N O RESPONSE FROM THE LENDER TO THE NOTICE. THEREAFTER THE ASSESSEE WAS R EQUESTED TO PROVE THE GENUINENESS, CREDIT WORTHINESS AND CAPACITY OF THE LENDER TO WHICH THE ASSESSEE SUBMITTED THAT AO SHOULD ISSUE NOTICE U/S 131 OF THE ACT FOR VERIFICATION OF THE TRANSACTION. AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AS HE WAS OF THE VIEW THAT ONUS RESTS ON T HE ASSESSEE TO PROVE THE IDENTITY OF THE LENDER AND ALSO THE GENUINENESS OF THE TRANSACTION. HE WAS FURTHER OF THE VIEW THAT MERE FURNISHING OF ADD RESS AND PAN NUMBER DOES NOT PROVE THE GENUINENESS OF THE TRANSACTION. HE THUS CONCLUDED THAT ASSESSEE HAS FAILED TO SATISFY THE CONDITIONS REQUI RED U/S 68 AND THEREFORE TREATED THE AMOUNT OF LOAN OF RS 10 LACS AS UNEXPLA INED CASH CREDIT U/S 68. ITA NO 220/A HD/2010 . A.Y. 200 6- 07 9 16. FROM THE COPY OF THE LEDGER ACCOUNT OF ASSESSEE (BY THE NAME AND STYLE OF 'LAXMI STEEL') AS APPEARING IN THE BOOKS OF 'MAR KANDESHWAR SCRAP TRADERS, AO NOTICED THAT MARKANDESHWAR SCRAP TRADER S HAD DEBITED AN AMOUNT OF RS 16.50 LACS ON 10.6.2005 AND CREDITED THE SAME AMOUN T ON 22.8.2005 THEREBY NULLIFYING THE EFFECT OF THE TRAN SACTION. ASSESSEE WAS ASKED TO EXPLAIN THE TRANSACTION TO WHICH THE ASSES SEE SUBMITTED THAT IT HAD DONE NO SUCH TRANSACTION OF RS 16.50 LACS WITH MARKANDESHWAR SCRAP TRADERS AND HAD NO KNOWLEDGE OF THE AFORESAID ENTRI ES. AO THEREAFTER ISSUED NOTICE TO MARKANDESHWAR SCRAP TRADERS U/S 13 3(6) OF THE ACT WHEREBY HE WAS ASKED TO FURNISH THE INFORMATION REQ UIRED BY THE AO. MARKANDESHWAR SCRAP TRADERS DID NOT FURNISH THE COP Y OF THE IT PARTICULARS, COPY OF BANK ACCOUNT AND BALANCE SHEET BUT HOWEVER VIDE LETTER STATED THAT IT HAD SENT A DEMAND DRAFT (DD) TO GNFC FOR PURCHASE OF GOODS IN THE NAME OF 'LAXMI STEEL' BUT THE AMOUN T WAS RETURNED BY GNFC TO IT AND THEREFORE THE AMOUNT WAS CREDITED TO THE ACCOUNT OF ASSESSEE AND FURTHER SHRI KARIM LAKHANI HAD NOTHING TO DO WITH THE SAID AMOUNT. THE EXPLANATION FURNISHED BY MARKANDESHWAR SCRAP TRADERS WAS NOT FOUND CONVINCING BY THE AO. HE WAS OF THE VIEW THAT THE MONEY BELONGING TO ASSESSEE WHICH WAS LYING WITH MARKANDE SHWAR SCRAP TRADERS AND WHICH WAS NOT RECORDED IN THE BOOKS OF THE ASSESSEE WAS UNDISCLOSED INCOME OF THE ASSESSEE WHICH WAS UTILIZ ED BY MARKANDESHWAR SCRAP TRADERS. HE WAS FURTHER OF THE VIEW THAT SINCE THE ACCOUNTABILITY OF THE TRANSACTION WAS DENIED BY THE ASSESSEE, THE CONTENT OF STATEMENT FURNISHED BY BOTH THE PARTIES WERE NOT ACCEPTABLE AND THEREFORE THE GENUINENESS OF THE TRANSACTION WAS NO T ESTABLISHED. HE THEREFORE CONCLUDED THAT THE TRANSACTION WAS DONE I N THE NAME OF THE ASSESSEE AND THE MONEY RETURNED BY GNFC ON NON MATE RIALIZING OF THE ITA NO 220/A HD/2010 . A.Y. 200 6- 07 10 TRANSACTION WAS ALSO OF THE ASSESSEE AND THEREFORE THE CREDITS AND DEBITS APPEARING IN THE LEDGER OF ASSESSEE IN THE BOOKS OF MARKANDESHWAR SCRAP TRADERS WAS UNRECORDED AMOUNT OF ASSESSEE AND HE THEREFORE CONSIDERED RS 16.50 LACS AS UNEXPLAINED MONEY U/S 6 9 OF THE ACT AND ADDED TO THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) D ELETED THE ADDITION BY HOLDING AS UNDER:- 14. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I HAVE ALSO EXAMINED THE LETTER ADDRESSED BY M/S MARKANDESHWAR SCRAP TRADERS TO THE A.O. WHICH WAS R ECEIVED IN THE ASSESSING OFFICERS OFFICE ON 22.12.2008. THE LETTER IS ON THE LETTER-HEAD OF M/S MARKANDESHWAR SCRAP TRADERS WHERE THE OFFICE ADDRESS AT ANKLESHWAR, AS ALSO THE ADDRESS OF THE G ODOWN IS CLEARLY SHOWN, AS ALSO THEIR PHONE AND FAX NUMBERS. IT ALSO MENTIONS THE GST AND CST NOS ALLOT TED TO THE SAID PARTY. IT HAS BEEN STATED IN THE LETTER THAT THEY HAD SENT A DD TO GSFC ON BEHALF OF M/S LAXMI STEEL THE ASSESSEE'S PROPRIETARY CONCERN. THE SAID AMOUNT HAD BEEN RETURNED TO THEM AND CREDITED BACK TO THE ACCOUNT OF THE ASSESSEE. IT HAS BEEN CLEARLY STATED THAT THE ASSESSEE HAD NO TING TO DO WITH THE SAID AMOUNT. THE LEDGER ACCOUNT OF M/S LAXMI STEEL IN THE BOOKS OF M/S MARKANDESHWAR SCRAP TRADERS WHICH HAS BEEN SIGNED AND CONFIRMED BY THEM, SHOWS A DEBIT OF RS 16,50,000 ON 10-06-2005 AND A FURTHER DEBIT FOR RS 5,00,000 ON 25-07-2005. THERE IS A CREDIT TO ASSESSEE OF RS 16,50,000 ON 22-08-2005, A FURTHER DEBIT OF RS 7,00,000 ON THE SAME DAY, AND T WO CREDIT ENTRIES OF RS 1,00,000 EACH REC EIVED BY THE ASSESSEE BY CHEQUES ON 07-03-2006. THE CLOSING BALANCE AT THE END OF T HE YEAR IS SHOWN AT RS 10,00,000, THESE DOCUMENTS CLEA RLY SHOW THAT THE CLOSING BALANCE OF RS 10,00,00 0 SHOWN UNDER THE HEAD OF UNSECURED LOAN IN THE NAME OF M/S MARKANDESHWAR SCRAP TRADERS WAS ACTUALLY THE CULMINATION OF SEVERAL TRANSACTIONS B ETWEEN THE ASSESSEE AND THE SAID PARTY. THE PA N AND THE : ADDRESS OF M/S MARKANDESHWAR SCRAP TRADE RS WERE AVAILABLE TO THE AO, EVEN : THOUGH HE ERRONEOUSLY MENTIONED THAT THE ADDRESS WAS NOT PROV IDED. THIS MEANT THAT THE AO COULD HAVE EASILY CONDUCTED THE RELEVANT INQUIRIES WITH THE SAID PA RTY ESPECIALLY WHEN HE WAS NOT SATISFIE D WITH THE CONFIRMATION FURNISHED. BY FURNISHING SUCH D OCUMENTARY EVIDENCES, THE ASSESSEE HAD CLEAR LY DISCHARGED THE INITIAL BURDEN WHICH LAY ON HIM AND THE ONUS HAD SHIFTED ON TO THE AO TO DISPROVE THE ASSESSEE'S CLAIM BY MAKING THE REQUISITE INQUIR IES WHICH HOWEVER HE FAILED TO DO. THE IDENTITY OF M/S MARKANDESH WAR SCRAP TRADERS WAS THUS ESTABLISHED AS ALSO THE GENUINENESS OF THE TRANSACTIONS. REGARDING THEI R CREDITWORTHINESS, UNLESS THE AO HAD ATTEMPTED TO MAKE SOME INQUIRY OR THE OTHER FROM THE SAID PARTY, HE WAS NOT IN A POSITION TO TAKE THE VIEW THAT THE SAID PARTY LACKED THE REQUISITE CREDITWORTHINESS. G IVEN SUCH FACTS OF THE CASE, I HAVE NO OTHER OPTION BUT TO DIRECT THE AO TO DELETE THE ADDITION OF THE SUM RS 10 LAKHS 18. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. AS ALREADY OBSERVED WHILE DECIDING THE THIRD GROUN D OF APPEAL, THE LETTER OF M/S MARKANDESHWAR SCRAP TR ADERS DATED 22-12-2008 SHOWED THE COMPLETE OFFICE AND GODOWN ADDRESSES OF THE SAID FIRM, AND T HEREFORE, THERE WAS AMPLE SCOPE FOR THE A.O. TO MAKE THE NECESSARY INQUIRIES, ESPECIALLY WHEN HE WA S NOT WILLING TO ACCEPT AND BELIEVE THE EXHALATION FURNISHED BY THE ASSESSEE. THE A.O. PERHAPS DETECTE D THE ENTRIES WHEN HE CALLED FOR A CONFIRMATION OF THE CLOSING BALANCE OF THE UNSECURED LOAND OF RS. 1 0 LAKHS STANDING IN THE NAME OF SAID FIRM, WHICH WAS DULY FURNISHED. THE FACT REMAINS THAT THE ENTRY OF RS. 16,50,000 WAS NOT FOUND IN THE BOOKS OF THE ASSESSEE. FOR WHATEVER REASONS THE AMOUNT MAY HAVE BEEN PAID BY M/S MARKANDESHWAR SCRAP TRADERS TO GSFC, THE FACT THE LETTER DATED 22-12-20 08, THE PROPRIETOR OF M/S MARKANDESHWAR SCRAP TRADERS CLEARLY STATED THAT THE ASSESSEE HAD NOTHIN G TO DO WITH SUCH TRANSACTIONS. MOST IMPORTANTLY, I T WAS NOT ESTABLISHED THAT THE ASSESSEE WAS THE OWNER OF THE SAID SUM OF RS. 16,50,000 NOR WAS IT THE CASE THAT THE ASSESSEE HAD FAILED TO FURNISH ANY EX PLANATION IN THIS REGARD. THE A.O., EVEN AFTER REPRODUCING THE PROVISIONS OF SECTION 69A IN THE BO DY OF THE ASSESSMENT ORDER (PAGE-8) WRONGLY ITA NO 220/A HD/2010 . A.Y. 200 6- 07 11 APPLIED THE SAID SECTION WHILE MAKING THE ADDITION. HE IS THEREFORE DIRECTED TO DELETE THE ADDITION OF RS. 16,50,000/-. 17. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 18. BEFORE US, LD D.R. WITH RESPECT TO ADDITION OF RS 1 0 LACS SUBMITTED THAT THE PRIMARY ONUS OF IDENTIFYING THE LENDER, PROVING THE GENUINENESS OF THE TRANSACTION AND THE CREDITWORTHINESS OF THE PERSON WAS ON THE ASSESSEE. ONLY ON SATISFYING THE PRIMARY ONUS BY ASSESSEE, ON US IS SHIFTED ON THE REVENUE. IN THE PRESENT CASE, THE ASSESSEE HAD NOT DISCHARGED THE PRIMARY ONUS AND THEREFORE THE ONUS OF ISSUING SUMM ONS U/S 131 OF THE ACT COULD NOT BE SHIFTED ON THE REVENUE. HE THEREFO RE SUBMITTED THAT IN THE GIVEN FACTS OF THE CASE, THE AO WAS FULLY JUSTI FIED IN MAKING THE ADDITION U/S 68 AND THEREFORE THE ORDER OF THE AO B E UPHELD. 19. WITH RESPECT TO ADDITION OF RS 16.50 LACS MADE BY T HE AO, LD D.R. SUBMITTED THAT THE TRANSACTION OF RS 16.50 LACS DID NOT APPEAR IN THE BOOKS OF THE ASSESSEE AND ASSESSEE HAD STATED TO BE HAVING NO KNOWLEDGE OF ANY SUCH TRANSACTION. HE FURTHER SUBMITTED THAT MARKANDESHWAR SCRAP TRADERS AND THE ASSESSEE HAD FAILED TO PROVE THAT E ITHER IT WAS A WRONG ENTRY OR NO ACTUAL TRANSACTION OF SUCH AMOUNT HAS E VER TAKEN PLACE AMONGST THEM. FROM THE BANK STATEMENT OF MARKANDESH WAR SCRAP TRADERS PLACED AT PAGE 68 OF THE PAPER BOOK HE POIN TED OUT THAT IMMEDIATELY PRECEEDING THE ISSUE OF DRAFT, CASH WAS DEPOSITED IN THE BANK ACCOUNT. FROM THE BANK STATEMENT HE FURTHER POINTED OUT THAT THE DESCRIPTION OF RECEIPT OF DEMAND DRAFT ON 22.8.2005 WHICH STATES AS 'TR. DD' AND THUS IT WAS RECEIPT OF DD AND NOT THE CANCE LLATION OF DD AS SUBMITTED BY THE ASSESSEE. HE FURTHER POINTED TO TH E LETTER OF ITA NO 220/A HD/2010 . A.Y. 200 6- 07 12 MARKANDESHWAR SCRAP TRADERS PLACED AT PAGE 71 OF TH E PAPER BOOK WHICH MENTIONS ABOUT SENDING OF DD OF RS 16.50 LACS FOR P URCHASE OF GOODS FROM GSFC IN THE NAME OF LAXMI STEEL AND THE RETURN ING OF THE AMOUNT BY GSFC IS NOT SUPPORTED BY ANY EVIDENCE. HE THEREF ORE SUBMITTED THAT IN THE GIVEN FACTS THE AO WAS FULLY JUSTIFIED IN MA KING THE ADDITION AND THEREFORE THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF AO BE UPHELD. 20. THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMI SSIONS MADE BEFORE CIT(A) AND SUPPORTED HIS ORDER. HE FURTHER POINTED TO THE BANK STATEMENT OF MARKANDESHWAR SCRAP TRADERS PLACED AT PAGE 68 AN D 69 OF THE PAPER BOOK AND POINTED TO THE ENTRIES OF RS 16.50 LACS TO DEMONSTRATE THAT TAKING OF DRAFT OF RS 16,50 LACS ON 10.6,2005 AND I TS CANCELLATION ON 22.8.2005. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF ACIT VS LATA MANGESHKAR (1974) 97 ITR 696 (BOM). WITH RE SPECT TO THE ADDITION OF RS 10 LACS, HE POINTED TO THE CONFIRMAT ION OF MARKANDESHWAR SCRAP TRADERS PLACED AT PAGE 44 OF THE PB FROM WHIC H HE POINTED OUT THAT IT CONTAINED THE CONFIRMATION, ADDRESS AND PAN NUMB ER AND THEREFORE THE INITIAL BURDEN WAS DISCHARGED BY THE ASSESSEE. HE F URTHER SUBMITTED THAT ASSESSEE HAD REQUESTED THE AO TO ISSUE NOTICE U/S 1 31 OF THE ACT AND CALL FOR THE REQUIRED INFORMATION BUT THE AO HAD FAILED TO DO SO. IN SUCH CIRCUMSTANCES, SINCE THE ASSESSEE HAD DISCHARGED TH E INITIAL BURDEN NO ADDITION WAS REQUIRED TO BE MADE IN THE HANDS OF TH E ASSESSEE. HE FURTHER PLACED RELIANCE ON THE DECISION OF GUJARAT HIGH COU RT IN THE CASE OF DCIT VS ROHINI BUILDERS (2002) 256 ITR 360 (GUJ). H E THUS SUPPORTED THE ORDER OF CIT(A). ITA NO 220/A HD/2010 . A.Y. 200 6- 07 13 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE LEDGER ACCOUNT OF THE ASSESSEE (LAXMI STEEL) AS APPEARING IN THE BOOKS OF MARKANDESHWAR S CRAP TRADERS SHOWED ENTRY OF RS 16.50 LACS. THE ASSESSEE BEFORE THE AO HAD DENIED OF ANY TRANSACTION BEEN ENTERED BY IT WITH MARKANDESHWAR S CRAP TRADERS. MARKANDESHWAR SCRAP TRADER ON THE OTHER HAND BY A L ETTER DELIVERED AT THE OFFICE OF AO ON 22.12.2008 AND PLACED AT PB 71 HAS STATED OF SENDING A DD TO GSFC OF RS 16.50 LACS FOR PURCHASE OF GOODS IN THE NAME OF 'LAXMI STEEL' AND RETURNING OF THE AMOUNT BY GSFC. THE AFORESAID STATEMENT OF MARKANDESHWAR SCRAP TRADERS IS NOT SUP PORTED BY ANY TANGIBLE EVIDENCE OR ANY CONFIRMATION FROM GSFC TO THAT ACCOUNT. THUS IT CAN BE SEEN THAT THERE ARE CONTRADICTORY STATEME NTS BY THE ASSESSEE AND MARKANDESHWAR SCRAP TRADERS. FURTHER THERE IS NOTHI NG ON RECORD TO DEMONSTRATE AS TO HOW ON NON MATERIALIZING OF THE T RANSACTION, THE DD FROM GSFC WHICH WAS ALLEGED TO HAVE BEEN ENTERED ON BEHALF OF THE ASSESSEE WAS RECEIVED BY MARKANDESHWAR SCRAP TRADER S AND CREDITED IN ITS BANK ACCOUNT. FROM THE ENTRY OF 22.8.2005 AS RE FLECTED IN THE BANK PASS BOOK OF MARKANDESHWAR SCRAP TRADERS, THE NARRA TION IS STATED TO BE 'BY TRANSFER DD' AND NOT THE CANCELLATION OF DD. FU RTHER THE COPY OF ACCOUNT OF LAXMI STEEL AS APPEARING IN THE BOOKS OF MARKANDESHWAR SCRAP TRADER AND PLACED AT PACE 44 OF THE PAPER BOO K IT IS SEEN THAT THE SAME IS CONFIRMED BY 'RIDDHI ASSOCIATES' BUT THE RE LATIONSHIP OF 'RIDDHI ASSOCIATES' WITH THE ASSESSEE IS NOT ON RECORD. WE FURTHER FIND THAT THOUGH CIT(A) HAS NOTED THE SUBMISSION OF ASSESSEE AND MARKANDESHWAR SCRAP TRADERS BUT HAS NOT EXAMINED TH E SAME NOR HAS GIVEN HIS FINDING ON THE SAME BUT HAS SIMPLY ACCEPT ED IT. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THE ISSUE N EEDS TO BE EXAMINED ITA NO 220/A HD/2010 . A.Y. 200 6- 07 14 ONCE AGAIN AT THE END OF CIT(A). WE THEREFORE REMIT THE ISSUE TO THE FILE OF CIT(A) FOR FRESH EXAMINATION IN THE LIGHT OF OUR OBSERVATIONS. CIT(A) SHALL AFTER OBTAINING A REMAND REPORT FROM AO DECID E THE ISSUE BY WAY OF SPEAKING ORDER. NEEDLESS TO STATE THAT HE SHALL GRA NT A REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. IN THE RESULT THESE GROUNDS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES . GROUND NO. 7 IS WITH RESPECT TO ADDITION OF RS. 83, 19,857/- ON ACCOUNT OF UNEXPLAINED OUTSTANDING CREDITS. 22. ON PERUSING THE BALANCE SHEET OF THE ASSESSEE, A.O NOTICED THAT AMOUNT OF RS. 83,19,857/- WAS SHOWN AS CREDITORS. THE ASSE SSEE WAS ASKED TO FURNISH THE COPY OF CONTRA CONFIRMATIONS. A.O. ALSO NOTICED THAT THE NAME OF CREDITORS AS MENTIONED IN THE BALANCE SHEET WERE NOT FOUND IN THE LIST FURNISHED IN RESPECT OF PURCHASERS FROM WHOM THE PU RCHASE EXCEEDING RS. 1 LAC WAS MADE. ASSESSEE FURNISHED THE COPY OF CONFIRMATIONS FROM ITS BOOKS OF ACCOUNTS BY MERELY AFFIXING RUBBER STA MP OF THE CREDITOR INDICATING THE NAMES AND ADDRESS AND THE SIGNATURE BUT THE COPY OF THE BALANCE SHEET, I.T. ACKNOWLEDGEMENT ETC WAS NOT FUR NISHED. A.O. WAS THEREFORE OF THE VIEW THAT ASSESSEE HAS FAILED TO P ROVE THE GENUINENESS OF TRANSACTIONS. ACCORDING TO HIM THE ENTRIES IN THE B OOKS OF ACCOUNTS ACCOUNT CANNOT BE ACCEPTED AS PROOF FOR ESTABLISHIN G THE GENUINENESS OF TRANSACTION OR THE IDENTITY OF THE CREDITORS. HE W AS FURTHER OF THE VIEW THAT THE ASSESSEES PLEA OF ISSUING NOTICE UNDER SE CTION 131 FOR VERIFICATION OF THE ADVANCE WAS NOT ACCEPTABLE AS T HE ONUS SQUARELY RESTS ON THE ASSESSEE TO PROVE THE IDENTITY OF THE CREDIT ORS AND GENUINENESS OF THE TRANSACTION. THE A.O. WAS THUS OF THE VIEW THA T SINCE THE ASSESSEE ITA NO 220/A HD/2010 . A.Y. 200 6- 07 15 HAS FAILED TO PROVE THE GENUINENESS OF TRANSACTION, THE AMOUNT OF RS. 82,94,857/- RECEIVED AS TRADE ADVANCE WAS TO BE TAX ED UNDER SECTION 68 OF THE ACT, AND HE ACCORDINGLY MADE THE ADDITION. AGG RIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 22. I AGREE WITH THE CONTENTION OF THE AR THAT ONCE IT HAD BEEN ACCEPTED THAT THE SUMS SHOWN UNDE R THE HEAD OF SUNDRY CREDITORS REPRESENTED TRADE ADVA NCES, OR AMOUNTS RECEIVED AGAINST PURCHASES MADE, THEY COULD NOT BE BROUGHT UNDER THE PURVIEW O F SECTION 68 OF THE IT ACT. FROM THE COPIES OF ACCOUNT OF ALL THE PARTIES LISTED ABOVE IN THE BOOK S OF THE ASSESSEE, I FIND THAT THESE WERE ESSENTIAL LY IN THE NATURE OF CURRENT ACCOUNT TRANSACTIONS. THERE W ERE SUBSTANTIAL BROUGHT-FORWARD BALANCES FROM THE PRECEDING YEAR, WHICH WERE ACCEPTED IN ASSESSMENT P ROCEEDINGS FOR THE AY 2005-06. ON HIS PART, THE AO FAILED TO CONDUCT THE REQUISITE INQUIRIES WITH T HE SAID PARTIES. HE WAS NOT JUSTIFIED IN REJECTING THE ASSESSEE'S REQUEST FOR ISSUING SUMMONS U/S 131 OF T HE ACT TO THE SAID PARTIES. THE NAMES AND COMPLETE ADDRESSES WERE AVAILABLE WITH THE AO ALON G WITH THEIR PAN, EXCEPT IN ONE CASE. BY SUBMITTING ALL SUCH DETAILS AND COPIES OF LEDGER AC COUNTS, THE ASSESSEE HAD DISCHARGED HIS INITIAL BURDEN AND THE ONUS HAD SHIFTED ON TO THE AO TO DIS PROVE SUCH DOCUMENTARY EVIDENCE. THIS THE AO FAILED TO DO. SIMPLY BECAUSE THE ASSESSEE FAILED TO SUBMIT THE COPIES OF BALANCE-SHEETS OF THE CREDITO RS AS ALSO THE ACKNOWLEDGEMENTS INDICATING THE FILING OF IT RETURNS, THE AO WAS NOT JUSTIFIED IN TAKING T HE VIEW THAT THE CLOSING BALANCES OF SUNDRY CREDITORS REPRESENTED THE ASSESSEE'S OWN UNACCOUNTED MONEY INTRODUCED IN THE FORM OF TRADE ADVANCES OR WHATEVER. IN ANY CASE, WHERE THE REGULARITY OF THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE SAID CREDITORS WAS CLEARLY ESTABLISHED TO BE IN THE NATURE OF BUSINESS TRANSACTIONS AS INDICATED BY THE LEDGER ACCOUNTS, THE PROVISION OF SECTION 68 COULD NOT BE APPLIED. IN ORDER TO REJECT THE SUNDRY CREDI TORS, ONLY THE PROVISIONS OF SECTION 41(1) COULD BE APPLIED BUT IT WAS NOT THE CASE OF THE AO, THAT SUC H LIABILITIES HAS CEASED TO EXIST, WHICH MEANT THAT THE PROVISIONS OF SECTION 41(1) WAS NOT APPLICABLE. GIV EN SUCH FACTS AND CIRCUMSTANCES OF THE CASE, I AM O F THE FIRM VIEW THAT THERE WAS NO JUSTIFICATION ON TH E PART OF THE AO TO TREAT THE SUM OF RS 81,94,857 A S UNEXPLAINED CASH CREDITS. INCIDENTALLY, IN PARA-10, PAGE-8, THE AO MENTIONED THE TOTAL OF SUCH CREDITORS TO BE RS 83,19,857, BUT IN PARA-10.4 AND FINALLY IN THE COMPUTATION, THIS SUM WAS CHANGED TO RS 81,94,857. WHATEVER MAY HAVE BEEN THE CORRECT FI GURE, THE SAME WILL STAND DELETED. 23. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US ITA NO 220/A HD/2010 . A.Y. 200 6- 07 16 24. BEFORE US, THE LD. D.R. POINTED TO THE VARIOUS FIND INGS OF A.O. HE FURTHER SUBMITTED THAT ASSESSEE HAD NOT FILED THE COPY OF B ALANCE SHEET, COPY OF PROOF OF FILING OF I.T. RETURNS, COPY OF BANK STATE MENT, COPY CONFIRMATION LETTERS FROM THE CREDITORS TO PROVE THE GENUINENESS OF THE TRANSACTION. HE THEREFORE SUBMITTED THAT IN THE ABSENCE OF DISCHARG E OF PRIMARY ONUS BY THE ASSESSEE, THE A.O. WAS FULLY JUSTIFIED IN MAKIN G THE ADDITIONS. THE LD. A.R. ON THE OTHER HAND SUBMITTED A CHART SHOWING TH E BREAK UP OF CREDITORS. FROM THE CHART, HE POINTED OUT THAT THE TOTAL CLOSING BALANCE OF 83,19,657/-, ALSO INCLUDED THE CREDITORS WHERE THER E WERE OPENING BALANCES IN THE ACCOUNT AND THE AGGREGATE OF SUCH W AS RS. 67,64,374/-. HE FURTHER POINTED OUT TO THE COPY OF THE LETTER, A DDRESS TO CIT(A) WHEREIN IT WAS SUBMITTED THAT THE ASSESSEE HAS FILE D THE COPY OF THE CONFIRMATIONS WITH COMPLETE ADDRESS AND PAN NUMBERS OF THE CREDITORS. HE POINTED TO PAGE 8 OF THE PAPER BOOK IN SUPPORT O F THE SAME. HE ALSO PLACED ON RECORD, THE COPY OF THE LEDGER ACCOUNTS O F VARIOUS CREDITORS PLACED ON PAGE 72 TO 83 OF THE PAPER BOOK. HE THERE FORE SUBMITTED THAT THE ASSESSEE HAS DISCHARGED THE ONUS BY SUBMITTING THE COMPLETE ADDRESS, NAME, CONFIRMATIONS AND PAN NUMBERS OF MOST OF THE CREDITORS. HE FURTHER SUBMITTED THAT THE SALES AND PURCHASE MADE BY THE ASSESSEE HAS NOT BEEN DISPUTED BY THE A.O. HE FURTHER PLACED RE LIANCE ON THE DECISION IN THE CASE OF VASUDEV ELELCTRIC CORPORATION IN ITA NO. 2306/AHD/2010 AND HAS ALSO PLACED ON RECORD COPY OF THE SAME. HE THUS SUPPORTED THE ORDER OF CIT(A). 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE TRANSACTIONS ENTERED BY THE ASSESSEE WERE IN THE NA TURE OF CURRENT ACCOUNT ITA NO 220/A HD/2010 . A.Y. 200 6- 07 17 TRANSACTIONS, THERE WAS SUBSTANTIAL BROUGHT FORWARD BALANCES FROM PRECEDING YEAR AND WHICH WAS ACCEPTED IN THE ASSESS MENT PROCEEDINGS FOR A.Y. 2005-06. HE HAS FURTHER NOTED THAT THE NAMES A ND COMPLETE ADDRESSES WERE AVAILABLE WITH THE A.O. ALONG WITH P AN NUMBERS EXCEPT IN ONE CASE. HE HAS FURTHER NOTED THAT THE ASSESSEE HAD SUBMITTING ALL THE DETAILS AND COPIES OF THE LEDGER ACCOUNT AND THE AS SESSEE HAS DISCHARGED ITS INITIAL BURDEN AND THE ONUS WAS ON THE A.O. TO DISPROVE THE DOCUMENTARY EVIDENCE WHICH THE A.O. HAS FAILED TO D O. HE HAS FURTHER NOTED THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AN D THE CREDITORS ESTABLISH THE NATURE OF TRANSACTIONS AS BUSINESS TR ANSACTION. BEFORE US, THE D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN THE PRESENT CASE T HE PURCHASES MADE BY THE ASSESSEE HAS ALSO NOT BEEN DISPUTED BY REVENUE. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. GROUND NO. 8 IS WITH RESPECT TO DISALLOWANCE OF RS. 4,02,177/- ON ACCOUNT OF INTEREST . 26. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAS PAID INTEREST ON UNSECURED LOANS AND ON THE OTH ER HAND HAS GIVEN INTEREST FREE ADVANCES. THE SUBMISSION OF THE ASSES SEE OF THE LOANS BEING OLD WAS NOT FOUND ACCEPTABLE TO THE A.O. HE ACCORDI NGLY REJECTED THE ASSESSEES CONTENTIONS AND DISALLOWED THE INTEREST E XPENSE OF RS. 4,02,177/-. AGGRIEVED BY THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDI NG AS UNDER:- ITA NO 220/A HD/2010 . A.Y. 200 6- 07 18 26 . I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I FIND THAT THE A.O. MADE THE DISALLOWANCE IN A VER Y SUMMARY MANNER. HE DID NOT TAKE THE TROUBLE TO ESTA BLISH A NEXUS BETWEEN THE INTEREST-BEARING LOANS WITH THE GIVING OUT OF THE INTEREST-FREE ADVANCES, WHICH WOULD SUPPORT HIS CONCLUSION. HE SIMPLY REJECTED THE ASSESSEES EXPLANATION THAT THE INTERE ST WAS PAID ON OLD LOANS AND THE ADVANCES GIVEN WERE PURELY FOR COMMERCIAL AND BUSINESS PURPOSES, F ROM OUT OF THE ASSESSEES OWN FUNDS. TO MAKE THE DISALLOWANCE, IT WAS NECESSARY FOR THE A.O, AND THE ONUS WAS ON HIM, TO SHOW THAT THERE WAS A CLEAR NEXUS BETWEEN THE INTEREST BEARING LOANS AND THE IN TEREST FREE ADVANCES. THIS HE FAILED TO DO. THE A. O. IS THEREFORE DIRECTED TO DELETE THE ADDITION OF RS. 4,02,177/- . 27. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. 28. BEFORE US, THE LD. D.R. SUPPORTED THE ORDER OF A.O. AND RELIED ON THE DECISION IN THE CASE OF S.A. BUILDERS 288 ITR 01. T HE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE C IT(A) AND SUPPORTED THE ORDER OF CIT(A). HE FURTHER PLACED RELIANCE IN THE CASE OF CIT VS. RAGHUVIR SYNTHETICS LTD. HE ALSO PLACED ON RECORD, THE COPY OF THE AFORESAID DECISION OF HON. GUJARAT HIGH COURT IN TA X APPEAL NO. 829/AHD/2007. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE DISALLOWANCE WAS MADE BY THE A.O. IN A SUMMARY MANN ER AND HE HAS NOT ESTABLISHED THE NEXUS BETWEEN INTEREST BEARING LOAN S WITH THE ADVANCING INTEREST FREE ADVANCES. HE HAS FURTHER NOTED THAT THE ASSESSEE EXPLANATION WAS REJECTED WITHOUT ANY MATERIAL ON RE CORD. BEFORE US, THE D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A), N OR HAS HE BROUGHT ON RECORD ANY CONTRARY MATERIAL IN ITS SUPPORT. IN VI EW OF THE AFORESAID FACTS, ITA NO 220/A HD/2010 . A.Y. 200 6- 07 19 WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) ON THIS GROUND. THUS THIS GROUND OF REVENUE IS DISMISSED. 30. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 13 -12 - 2013. SD/- SD/- (D. K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD