The ITO, Ward-2(3), Bhavnagar V. M/s. Swastik Engineering Stores, Bhavnagar

ITA 2319/AHD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0244 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 30-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Tangible material; Notional interest; Commercial expediency
• Section: 143(3); 145

Judgement Text

ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.2319/AHD/2009 (ASSESSMENT YEA R: 2006-07) THE INCOME TAX OFFICER, WARD 2(3), AAYAKAR BHAVAN, BHAVNAGAR. (APPELLANT) VS. M/S. SWASTIK ENGINEERING STORES, STATION ROAD, SIHOR DISTRICT BHAVNAGAR-364 240 (RESPONDENT) PAN: AAHFS 5005 J ON BEHALF OF REVENUE : MR.RAHULKUMAR, SR.D.R. ON BEHALF OF ASSESSE : MR.S.N.SOPARKAR,SR.ADV. ( )/ ORDER DATE OF HEARING : 2-1-2 013 DATE OF PRONOUNCEMENT : 15-2-2013 PER: SHRI ANIL CHATURVEDI, A.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF LD. CIT (A)- XX, AHMEDABAD DATED 9-6-2009 FOR THE ASSESSMENT YEA R 2006-07. 2. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS O F DIESEL ENGINES, GEAR BOX, SPARE PARTS OF DIESEL ENGINES AND STEEL O N WHOLESALE/RETAIL BASIS PARTICULARLY WITH THE MANUFACTURER OF THREE WHEELER S. THE ASSESSEE FILED ITS RETURN OF INCOME ON 26-12-2006 DECLARING TOTAL LOSS OF RS. 17,609/-.THE ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 2 CASE WAS SELECTED FOR SCRUTINY AND VIDE ORDER DATED 23-12-2008 ASSESSMENT WAS FRAMED U/S. 143(3) OF THE ACT AND TO TAL INCOME WAS DETERMINED AT RS.30,97,670/- BY MAKING VARIOUS ADDI TIONS/DISALLOWANCES. AGGRIEVED BY THE ORDER OF THE A.O. ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). 3. CIT (A) VIDE ITS ORDER DATED 9-6-2009 ALLOWED TH E APPEAL OF THE ASSESSEE. IT IS AGAINST THE AFORESAID ORDER OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 4. BEFORE US THE REVENUE HAS RAISED THE FOLLOWING G ROUNDS:- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DELETING THE ADDITION OF RS.30,92,616/- MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE A.O. 1.2. IN DOING SO, THE LD CIT(A)-XX, AHMEDABAD HAS E RRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE SAID EXCE SS STOCK APPEARING IN THE BANK STATEMENT FURNISHED BY THE ASSESSEE WAS ALSO PHYSICALLY VERIFIED BY THE BANK AND IN THE ADDITIONAL STATEMEN T SUBMITTED BY THE ASSESSEE TO THE BANK IN CONNECTION WITH THE PHYSICA L VERIFICATION OF STOCK BY THE BANK AUTHORITY, THE ASSESSEE HAD ALSO ADMITTED THE PHYSICAL POSSESSION OF THE SAID EXCESS STOCK SHOWN TO THE BANK. 1.3. IN DOING SO, THE LD. CIT (A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE RATIO OF THE F OLLOWING DECISIONS OF THE HONBLE HIGH COURTS: I) 207 ITR 909 (KERALA) II) 201 ITR 191 (GAUHATI) AND III) 125 ITR 33 (ALLAHABAD) ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 3 2. THE LD. CIT (A)-XX, AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DELETING THE ADDITION OF RS.22,660/- MADE BY THE A.O. BY DISALLOWING A PART OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 2.2. IN DOING SO, THE LD. CIT (A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT NO COMMERCIAL EXPEDIENCY WAS INVOLVED IN GIVING THE LOAN OF RS.1,51,067/- BY THE ASSESSEE FIRM TO THE SON OF A PARTNER WITHOUT CHARGING ANY INTEREST ON THE SAID LOAN. 5. GROUND NO.1 ADDITION ITS SUB GROUNDS ARE WITH RE SPECT TO ADDITION OF RS.30,92,616./- ON ACCOUNT OF UNEXPLAINED INVESTMEN T IN STOCK. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. OBSERVED THAT THE ASSESSEE HAS AVAILED SECURED LOAN BY HYPOTHECATING STOCK FROM SIHOR MERCANTILE CO-OPERATIVE BANK AND THE BALANCE OUTSTA NDING AS ON 31-3- 2006 WAS RS.14,36,506. THE A.O. ISSUED A NOTICE U/S .133 (6) TO THE BANK AND INTERALIA ASKED FOR DETAILS OF CREDIT FACILITIE S, STOCK STATEMENTS AND THE FACILITIES EXTENDED TO THE ASSESSEE. ON VERIFICATI ON OF THE STOCK STATEMENT THAT WAS SUBMITTED BY THE ASSESSEE TO BANK A.O. NOT ICED THAT PHYSICAL VERIFICATION OF STOCK WAS CARRIED OUT BY BANK ON 22 -3-2006 AND THE VALUE OF STOCK OF GODOWN AS ADMITTED BY THE PARTNER OF THE A SSESSEE FIRM ON THE DATE OF VERIFICATION WAS RS.34,03,218/-. A.O. FURTH ER OBSERVED THAT IN THE STATEMENT OF STOCK OF HYPOTHECATED GOODS AS ON 31-3 -2006, THE ASSESSEE HAS SHOWN THE VALUE OF STOCK AT RS.39,97,454/- BUT THE VALUE OF CLOSING STOCK SHOWN IN THE ASSESSEES BALANCE SHEET AS ON 31-3-2006 WAS ONLY RS.9,04,838/-. THE ASSESSEES EXPLANATION WITH RESP ECT TO THE DIFFERENCE IN STOCK BETWEEN THE BOOKS AND AS SHOWN TO THE BANK WA S THAT ON ACCOUNT OF ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 4 THE WEAK FINANCIAL POSITION OF THE FIRM AND IN ORDE R TO OBTAIN BANK FINANCE, EXCESS STOCK WAS SHOWN AND DECLARED TO THE BANK. TH E SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE A.O. HE T HUS, DETERMINED THE DIFFERENCE IN THE VALUE OF STOCK OF RS.30,92,616/- (RS.39,97,754 LESS RS. 9,04,838) WHICH ACCORDING TO THE A.O. WAS UNACCOUNT ED STOCK AS ON 31-3- 2006. HE ACCORDINGLY CONCLUDED THAT THE ASSESSEE WA S IN POSSESSION OF UNDISCLOSED STOCK OF RS.30,92,616/- AS ON 31-3-200 6 WHICH WAS SHOWN TO THE BANK BUT WAS NOT RECORDED IN THE BOOKS OF ACCOU NTS. HE ACCORDINGLY MADE THE ADDITION OF RS.30,92,616/- AS UNDISCLOSED INCOME REPRESENTING UNACCOUNTED STOCK. 7. AGGRIEVED BY THE ACTION OF A.O. THE ASSESSEE CAR RIED THE MATTER BEFORE THE CIT (A). 8. CIT (A) AFTER CONSIDERING THE SUBMISSIONS MADE B Y THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 3.1. I HAVE GONE THROUGH THE FACTS OF THE CASE AND ALSO THE CONTENTIONS RAISED BY THE A.R. IN HIS WRITTEN SUBMI SSION. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERV ED DIFFERENCE IN THE VALUE OF CLOSING STOCK AS PER APPELLANTS BOOKS AND THAT AS PER STOCK STATEMENTS SUBMITTED TO THE BANK AS ON 31-3-2 006.IT IS A KNOWN FACTOR THAT SUCH STATEMENTS HAVE TO BE MANDATORILY FURNISHED TO BANKS IN ORDER TO PROCURE OR ENHANCE CASH CREDIT FACILITI ES, WITHOUT WHICH THERE WILL BE A DEARTH IN THE WORKING CAPITAL FLOW. THEREFORE, IT IS VERY CLEAR THAT SUCH STATEMENTS ARE USUALLY EXAGGERATED TO PROCURE MAXIMUM BENEFITS FROM THE BANK. ON THE OTHER HAND, THERE IS NOTHING ON RECORD NOR HAS THE A.O. HIGHLIGHTED ANY INSTANCE S TO PROVE THAT THE APPELLANT HAD MADE UNEXPLAINED INVESTMENT IN STOCK. THE A.O. HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT WHICH COULD PROVE THAT THE BOOKS OF ACCOUNTS AND ENTRIES THEREIN ARE NOT RELIABLE. THE A.O. HAS MADE THE ADDITION U/S. 69B OF THE ACT AS U NEXPLAINED ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 5 INVESTMENT. THE BASIC CONDITION TO BE SATISFIED UND ER THIS SECTION IS THAT THE A.O. SHOULD FIND THAT THE AMOUNT EXPENDED ON MAKING SUCH INVESTMENT EXCEEDS THE AMOUNT RECORDED IN THIS BEHA LF IN THE BOOKS OF ACCOUNT. IT IS THEREFORE NECESSARY TO PROVE THAT THE APPELLANT MADE THE PAYMENTS FOR SUCH INVESTMENTS OVER AND ABOVE TH OSE REFLECTED IN THE BOOKS OF ACCOUNT. IN THE PRESENT CASE THE A.O. HAS NOWHERE ESTABLISHED THAT THE APPELLANT MADE EXCESS PAYMENTS FOR PURCHASING THE STOCK. THE ONLY THING THAT HAS BEEN DISCOVERED BY THE A./O. IS THAT THE QUANTITY OF STOCK REFLECTED IN THE STOCK STATEM ENT GIVE TO BANK IS MORE THAN THE STOCK POSITION IN THE BOOKS OF ACCOUN T. THIS DIFFERENCE ITSELF DOES NOT AUTOMATICALLY ATTRACT THE DEEMING P ROVISIONS OF SEC.69B OF THE ACT. AS A MATTER OF FACT, THERE IS S UBSTANTIVE FORCE IN THE APPELLANTS ARGUMENT THAT SINCE ITS LIMIT FACIL ITY HAD EXHAUSTED AND IF IT FAILED TO OFFER STOCK FOR HYPOTHECATION, THE WORKING CAPITAL WOULD BE AFFECTED WHICH WOULD EVEN RESULT IN CLOSURE OF B USINESS. 3.2. THUS CONSIDERING THE FACT THAT THE APPELLANT H AS BEEN MAINTAINING BOOKS OF ACCOUNT ACCORDING TO RECOGNIZE D ACCOUNTING PRINCIPLE IN THE ORDINARY COURSE OF ITS BUSINESS. T HUS, ENTRIES SO MADE CARRY WITH THEM PRESUMPTION OF TRUTH UNLESS PROVED OTHERWISE. IF IT CAME TO THE NOTICE OF A.O. THAT EXCESS STOCK HAS BE EN SHOWN TO THE BANK EVEN IN TERMS OF QUANTITY, THEN IPSO FACTO ADD ITION SHOULD NOT BE THE RESULT. IT IS ALSO FACT THAT THE APPELLANTS ST OCK WAS HYPOTHECATED AND NOT PLEDGED. IN THE CASE OF PLEDGE, STOCK REMAI NS UNDER THE LOCK AND KEY OF THE BANK AUTHORITIES; WHEREAS IN THE CAS E OF HYPOTHECATION, SUCH GOODS REMAIN IN THE CUSTODY OF THE ASSESSEE. THE HONBLE ITAT AHMEDABAD BENCH IN THE CASE OF ITO VS. MAPIN PUBLISHING (P) LTD. 96 TTJ (AHD) 990 SUPPORTS THE A BOVE FINDING. THEREFORE, THIS MAKE SHIFT ARRANGEMENT IS NOTHING B UT A BUSINESS EXIGENCY AND CANNOT BE TERMED AS AN OFFENCE, PARTIC ULARLY WHEN THE BENEFIT OF SUCH AN ARRANGEMENT IS QUITE KNOWN AND V ERY LIMITED. HENCE, IN THE ABSENCE OF ANY EVIDENCE REVEALING APP ELLANTS INVOLVEMENT IN MAKING UNEXPLAINED PURCHASES IN INVE STMENT, THE ADDITION MADE MERELY ON THE BASIS OF A BANK STATEME NT CANNOT BE UPHELD. AS SUCH, THE ADDITION IS DIRECTED TO BE DEL ETED. 9. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE I S NOW IN APPEAL BEFORE US. ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 6 10. BEFORE US, THE LD. D.R SUBMITTED THAT THE STOCK POSITION OF GODOWN OF THE ASSESSEE WAS PHYSICALLY CHECKED BY BANK ON 22- 3-2006 AND THE PARTNER OF THE ASSESSEE FIRM IN HIS STATEMENT SUBM ITTED TO THE BANK ADMITTED THE VALUE OF STOCK TO BE OF RS.34,02,218/ -. HE FURTHER SUBMITTED THAT THE ASSESSEES STOCK STATEMENT WAS RECEIVED BY A.O. FROM BANK IN PURSUANCE OF THE NOTICE U/S. 133 (6). THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE OF STOCK BY BRINGING ANY TANGIBLE MATERIAL ON RECORD. HE FURTHER SUBMITTED T HAT CIT (A) WHILE DELETING THE ADDITION HAS GIVEN A GENERAL STATEMENT WITHOUT BRINGING ANY MATERIAL ON RECORD IN SUPPORT OF HIS OBSERVATION THAT THE STOCK STATEMENTS SUBMITTED TO BANKS ARE GENERALLY EXAGGERATED. THUS, D.R. SUPPORT ED THE ORDER OF A.O AND ALSO RELIED ON THE DECISION OF THE HONBLE GAUH ATI HIGH COURT IN THE CASE OF DHANSIRAM AGARWALLA VS. CIT (1993) 201 ITR 192 (GAU.),WHEREIN HONBLE HIGH COURT HAD CONCLUDED THAT WHEN ASSESSEE HAS NOT PUT-FORWARD ANY EXPLANATION AS REGARDS THE DISCREPANCY IN THE V ALUE OF STOCK AS DISCLOSED TO THE BANK AND SHOWN IN THE BALANCE SHEE T ADDITION U/S. 60B WAS JUSTIFIED. 11. HE FURTHER RELIED ON THE DECISION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF B. T. STEELS LTD. VS. CIT (2010) 328 IT R 471 (P& H) WHERE THE ASSESSEE NEITHER DENIED THE STATEMENT MADE TO BANK NOR FURNISHED ANY VALID EXPLANATION ABOUT THE DISCREPANCY AND ON VERI FICATION FROM BANK SHOWED THAT THE ASSESSEE HAD EXCESS STOCK ADDITION MADE BY THE REVENUE WAS CONFIRMED. HE THUS RELIED ON THE AFORESAID DECI SIONS AND URGED THAT THE ACTION OF THE A.O. BE CONFIRMED. ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 7 12. LD. A.R. ON THE OTHER HAND SUBMITTED THAT THE B OOKS OF ACCOUNTS OF ASSESSEE ARE AUDITED AND THE A.O. HAS NOT FOUND ANY ERROR IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND NO DEFECTS HAVE BEEN O BSERVED IN THE BOOKS OF ACCOUNTS AND THE A.O. HAS ALSO NOT INVOKED THE P ROVISIONS OF SEC. 145 (3). HE FURTHER POINTED OUT THAT THE ASSESSEES GRO SS PROFIT DURING THE YEAR WAS 3.87% AS COMPARED TO 4.38% IN THE IMMEDIATELY P RECEDING YEAR. IF THE IMPUGNED ADDITION OF RS.30.93 LACS IS MADE, G.P. WI LL WORK OUT TO 10% WHICH IS HIGHLY IMPROBABLE IN THE LINE OF BUSINESS OF THE ASSESSEE. BEFORE US THE LD. A.R. FURTHER SUBMITTED THAT THE STOCK ST ATEMENT GIVEN TO THE BANK CANNOT BE COMPARED WITH THE STOCK AS ON THE BALANCE SHEET DATE FOR THE REASON THAT IN THE STOCK STATEMENT SUBMITTED TO THE BANK, ASSESSEE HAS DISCLOSED THE STOCK IN KILOGRAMS WHEREAS IN THE CLO SING STOCK STATEMENT WHICH WAS PART OF TAX AUDIT REPORT AND COPY OF WHIC H WAS PLACED AT PAGE 17 OF PAPER BOOK, THE QUANTITY WAS IN NUMBERS. HE FURT HER PLACED RELIANCE ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF C IT VS. ARROW EXIM (P) LTD., (2010) 230 CTR 293 (GUJ.),CIT VS. N. SWAMY (2 000) 241 ITR 363 (MAD.) AND THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RELAXO FOOTWEAR 259 ITR 744 (RAJ.). HE THUS, SUPPOR TED THE ORDER OF CIT (A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT PHYSICAL VERI FICATION OF STOCK WAS CARRIED OUT BY THE BANK ON 22-3-2006 AND FURTHER AS ADMITTE D BY THE PARTNER OF THE FIRM THE VALUE OF THE STOCK ON THE DATE OF VERIFICA TION WAS RS.34,03,218/-. AS PER THE STATEMENT OF HYPOTHECATED STOCK AS ON 31 -3-2006 THAT WAS ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 8 SUBMITTED TO BANK, THE VALUE OF STOCK WAS STATED T O BE RS. 39,97,454/- BUT THE VALUE OF STOCK AS PER BALANCE SHEET WAS STATED TO BE RS.9,04,838/-. BEFORE US THE LD. A.R. SUBMITTED THAT IN THE STOCK STATEMENT OF HYPOTHECATED GOODS SUBMITTED TO THE BANK, THE QUANT ITY OF STOCK IS SHOWN IN KILOGRAMS WHEREAS IN THE TAX AUDIT REPORT PLACED AT PAGE-17 OF PAPER BOOK THE QUANTITY OF STOCK IT IS SHOWN IN NUMBERS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEES IS ENGAGED IN THE BUSINESS OF DI ESEL ENGINES, GEAR BOX AND SPARE PARTS OF DIESEL ENGINE AND THE SALE OF G OODS ARE IN NUMBERS AND NOT ON THE BASIS OF WEIGHT. IT DOES NOT SELL THE DI ESEL ENGINE SPARES ON THE BASIS OF WEIGHT. THE ASSESSEE HAS NOT PRODUCED A SI NGLE INVOICE BEFORE US TO DEMONSTRATE THAT THE SALES ARE MADE ON THE BASIS OF WEIGHT AND NOT ON THE BASIS OF NUMBERS. EVEN IN THE STOCK STATEMENT WHICH FORMS PART OF TAX AUDIT REPORT, THE ASSESSEE HAS SHOWN THE QUANTITATI VE STOCK IN NUMBERS AND NOT IN KILOS. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE ITS STAND THAT THOUGH THE UNIT OF MEAS UREMENT OF ITS SALE/PURCHASE IS NUMBER BUT FOR THE PURPOSE OF SUBM ISSION OF STOCK STATEMENT TO BANK THE QUANTITY IS REPORTED IN KILOG RAMS. THE EXPLANATION OF THE ASSESSEE ALSO SEEMS IMPROBABLE IN VIEW OF THE F ACT THAT A TRADER IS REQUIRED TO DISCLOSE THE QUANTITATIVE DETAILS OF ST OCK BY USING THE SAME UNIT OF MEASUREMENT IN WHICH IT GENERALLY DEALS. BEFORE US THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY COPIES OF THE PURCHASE OR SALES BILLS OR THE STOCK STATEMENT SUBMITTED TO BANK FOR THE EARLIER PERIOD WHERE THE UNIT OF MEASUREMENT USED FOR SUBMISSION OF QUANTITATIVE INF ORMATION WAS KILOS AND NOT NUMBERS. WE FURTHER FIND THAT THOUGH IN PARAGRA PH 6.1 OF THE ASSESSMENT ORDER THE A.O. HAS STATED THAT THE REPLY OF THE BANK DATED 29- 9-2008 AND HYPOTHECATED STOCK MEMO FOR THE MONTH OF MARCH, 2006 ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 9 FORMING PART OF THE ASSESSMENT ORDER IS ENCLOSED AS ANNEXURE-A, BUT THE SAME ARE NOT AVAILABLE BEFORE US IN THE DOCUMENTS F ILED BY BOTH THE PARTIES. WE FURTHER FIND THAT CIT (A) WHILE DELETING THE ADD ITION HAS HELD THAT DECLARATION OF HIGHER STOCK TO BANK IS NOTHING BUT BUSINESS EXPEDIENCY AND CANNOT BE TERMED AS AN OFFENCE PARTICULARLY WHEN TH E BENEFIT OF SUCH ARRANGEMENT IS QUITE KNOWN AND VERY LIMITED. CIT (A ) HAS FURTHER ACCEPTED THE ASSESSEES ARGUMENT THAT SINCE ITS LIMIT FACILI TY HAD EXHAUSTED AND IF THE ASSESSEE FAILED TO OFFER STOCK FOR HYPOTHECATION, T HE WORKING CAPITAL WOULD HAVE AFFECTED WHICH WOULD HAVE RESULTED IN CLOSURE OF BUSINESS. WE CANNOT UPHOLD THE VIEW OF LD. CIT (A), AS SAME IS AGAINST THE SETTLED POSITION OF LAW. THE ASSESSEE IS REQUIRED TO EXPLAIN ITS STOCK POSITION, HOWEVER, THERE MAY BE DIFFERENCE IN VALUATION BUT HERE THE CONTENT ION OF THE ASSESSEE IS THAT BEFORE BANK VALUATION OF STOCK WAS BASED ON TH E WEIGHT IS INCORRECT. NO MATERIAL HAS BEEN BROUGHT ON RECORD BEFORE US TO SUBSTANTIATE THAT THE LIMIT GRANTED BY BANK TO ASSESSEE WERE FULLY EXHAUS TED. FURTHER THE OBSERVATION OF THE CIT (A) THAT THE DECLARATION OF HIGHER STOCK TO BANK IS OUT OF BUSINESS EXPEDIENCY AND NOT AN OFFENCE IS NOT SU PPORTED BY ANY MATERIAL ON RECORD. IN VIEW OF THESE FACTS, IN THE PRESENT C ASE, WE THEREFORE, FEEL THAT TO MEET THE ENDS OF JUSTICE THE MATTER SHOULD ONCE AGAIN BE EXAMINED BY THE A.O. AND HE SHOULD BRING ON RECORD THE CORRECT FACTUAL POSITION THAT WHETHER THE SALES MADE BY ASSESSEE IS ON THE BASIS OF WEIGHT OR NUMBERS, WHETHER THE STOCK SUBMITTED TO THE BANK WAS IN KGS. OR IN NUMBERS AND WHETHER THE ASSESSEE HAS BEEN SUBMITTING HIGHER STO CK FIGURES AS COMPARED TO ITS BOOK STOCK TO BANK IN THE PAST AND FOR EARLIER MONTHS IN THE YEAR UNDER APPEAL. WE THEREFORE, REMIT THE ISSUE TO THE FILE OF A.O. WITH A DIRECTION TO HIM TO DECIDE THE MATTER AFRESH AFTER CONSIDERING THE RELEVANT ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 10 MATERIAL AND AFORESAID FACTS AND AFTER GIVING A REA SONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF THE RE VENUE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.2 IS WITH RESPECT TO THE ADDITION OF RS.2 2,660/- ON ACCOUNT OF INTEREST EXPENSES. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . OBSERVED THAT ASSESSEE HAS GRANTED LOAN TO SHRI JAYANTIBHAI MANIA R OF RS.1,51,067/- OUT OF INTEREST BEARING FUNDS OF THE FIRM. IN REPLY TO THE SHOW CAUSE NOTICE OF THE A.O. THE ASSESSEE SUBMITTED THAT THE BORROWER IS A SON OF ANOTHER PARTNER AND IS ALSO MANAGER OF THE FIRM. THE AMOUNT WAS BOR ROWED FOR THE PURPOSE OF BUSINESS. A.O. WAS OF THE VIEW THAT WHEN ASSESSE E ACCEPTS LOAN ON INTEREST FROM OUTSIDE PARTIES AND ALSO GIVES INTERE ST ON THE CAPITAL TO THE FIRM, INTEREST MUST BE CHARGED FROM PARTNERS SON. HE ACCORDINGLY CALCULATED THE INTEREST @ 15% OF RS.1,51,067/- AND ADDED RS.22,660/- AS THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). 15. CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 4.1. I HAVE GONE THROUGH THE FACTS OF THE MATTER, AS NARRATED BY THE A.O. IN THE ASSESSMENT ORDER AND AS ARGUED BY THE A .R. OF THE APPELLANT. IT IS SEEN THAT, THOUGH SHRI JAYANTIBHAI MANIAR WAS SON OF ONE OF THE PARTNER, IT CAN ALSO NOT BE RULED OUT TH AT HE WAS ALSO AN EMPLOYEE OF THE FIRM, FUNCTIONING IN MANAGERIAL CAP ACITY. IT IS NOT A CASE WHERE SUCH LOAN HAS NOT BEEN ADVANCED OR BENAM I ADVANCE HAS BEEN MADE. IT IS ONLY THAT THE A.O. WAS OF THE VIEW THAT THE APPELLANT BEING A GOOD BUSINESS CONCERN, OUGHT NOT TO HAVE ADVANCED LOAN WITHOUT CHARGING ANY INTEREST. THE BE NEFICIARY OF THE ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 11 LOAN IS ONE OF THE KEY EMPLOYEES OF THE APPELLANT F IRM. THE APPELLANT KNOWS THE PRUDENCE OF HELPING ITS EMPLOYEES IN THEI R CRISIS, FOR WHICH A LONG BONDING RELATIONSHIP AMONGST THEM IS DEVELOP ED. THE A.O. CANNOT DENY SUCH AN UNSEEN BENEFIT DERIVED BY THE A PPELLANT IN STANDING BESIDE HIS KEY PERSON DURING HIS DIFFICULT TIMES. IN CASES WHERE NOTIONAL INTERESTS ARE PROPOSED TO BE TAXED, THE CIRCUMSTANTIAL EVIDENCES ARE ALSO REQUIRED TO BE CONSIDERED. THE A .O. CANNOT MERELY BRUSH ASIDE THE APPELLANTS CONTENTION IN TH IS REGARD. THEREFORE, THE ADDITION OF NOTIONAL INTEREST IS DIR ECTED TO BE DELETED. 16. AGGRIEVED BY THE ACTION OF CIT (A), REVENUE IS NOW IN APPEAL BEFORE US. 17. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF T HE A.O. AND ALSO PLACED RELIANCE ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES VS. CIT 324 ITR 396, THE LD. A.R. ON THE OTHER HAND SUBMITTED THAT THE FUNDS WERE GIVE FOR THE PURPOSE OF BUSINESS AS SHRI JAYANTIBHAI MANIAR WAS ALSO AN EMPLOYEE OF THE FIRM AND FUNCTIONING AS A MANAGER. HE THUS SUPPORTED THE ORDER OF CIT (A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT (A) WHILE DELETING THE A DDITION HAS GIVEN FINDING THAT SHRI JAYANTIBHAI MANIAR WAS THE SON OF ANOTHER PARTNER AND WAS ALSO AN EMPLOYEE OF THE FIRM. THE A.O. HAS MADE AN ADDIT ION AS THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN OUT OF THE INTEREST BEARING FUNDS. THE ADVANCE GIVEN BY THE FIRM WAS FOR THE BUSINESS EXPE DIENCY. THESE FACTS COULD NOT BE CONTROVERTED BY THE REVENUE BY BRINGIN G ANY MATERIAL ON RECORD. IN THE CASE OF PUNJAB STAINLESS STEEL INDUS TRIES (SUPRA) THE FACTS WERE THAT THE ASSESSEE DID NOT CLAIM BEFORE THE A. O., THAT THE ADVANCES WERE ACTUATED BY WAY OF COMMERCIAL EXPEDIENCY. THE PLEA OF COMMERCIAL ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 12 EXPEDIENCY WAS NOT SET UP BEFORE THE COMMISSIONER ( APPEALS) AS WELL. THE PLEA OF COMMERCIAL EXPEDIENCY IN ADVANCING THE LOAN WAS SET UP FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE ASSESSEE, HOWEV ER, FAILED TO MAKE OUT A CASE OF COMMERCIAL EXPEDIENCY BEFORE THE TRIBUNAL. THE ASSESSEE WAS REQUIRED NOT ONLY TO CLAIM COMMERCIAL EXPEDIENCY BU T ALSO TO ESTABLISH IT FROM THE MATERIAL AVAILABLE TO THE A.O. IT HAD NOT EVEN MADE SUCH AN ATTEMPT. THUS THE FACTS OF THE CASE RELIED BY LD. D.R. ARE DISTINGUISHABLE AND CANNOT BE APPLIED TO THE FACTS OF THE PRESENT C ASE. 19. IN VIEW OF THESE FACTS WE FIND NO REASON TO I NTERFERE WITH THE ORDER OF CIT (A) AND THUS UPHOLD HIS ORDER. THUS THIS GROUND OF THE REVENUE IS DISMISSED 20. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 15-2 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) XX, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR, ITAT,AHMED ABAD. ITA NO 2319 /AHD/2009. . ASSESSMENT Y EAR 2006-07 . 13 1.DATE OF DICTATION 2 - 1 -2013 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 4 / 1/ 2013 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 11 - 1 -2013. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2013 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2013 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2013. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER