NITCO LTD, MUMBAI V. DCIT CEN CIR 46, MUMBAI

ITA 2528/MUM/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9552 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 15-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJORE SATISHCHANDRA; R MANJUNATHA SWAMI
• Keywords: Bogus purchase; Unexplained cash credit; Business expenditure; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Wrong claim; Benefit of exemption
• Section: 143(3); 133A; 14A; 115JB; 80IB; 133(6); 205; 131; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 2528/MUM/2014 ( ASSESSMENT YEAR : 2004 - 05 ) ITA NO. 2529/MUM/2014 ( ASSESSMENT YEAR : 2005 - 06 ) ITA NO. 2530/MUM/2014 ( ASSESSMENT YEAR : 20 06 - 07 ) ITA NO. 2531/MUM/2014 ( ASSESSMENT YEAR : 2007 - 08 ) ITA NO. 2856/MUM/2014 ( ASSESSMENT YEAR : 2008 - 09 ) ITA NO. 2857/MUM/2014 ( ASSESSMENT YEAR : 2009 - 10 ) ITA NO. 2858/MUM/2014 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. NITCO LTD., RECONDO ESTATE INSIDE MUNICIPAL ASPHALT COMPOUND, S.K. AHIRE MARG WORLI, MUMBAI - 400030 VS. DCIT CENTRAL CIRCLE 46, AAYAKAR BHAVAN 6 TH FLOOR, QUEENS ROAD, MUMBAI - 400002 PAN/GIR NO. AAACN1674N ( APPELLANT ) .. ( RESPONDENT ) ITA NO. 2815/MUM/2014 ( ASSESSMENT YEAR : 2004 - 05 ) ITA NO. 2816/MUM/20 14 ( ASSESSMENT YEAR : 2005 - 06 ) ITA NO. 2817/MUM/2014 ( ASSESSMENT YEAR : 2006 - 07 ) ITA NO. 2818/MUM/2014 ( ASSESSMENT YEAR : 2007 - 08 ) ITA NO. 4078/MUM/2014 ( ASSESSMENT YEAR : 2008 - 09 ) ITA NO. 4079/MUM/2014 ( ASSESSMENT YEAR : 2009 - 10 ) ITA NO. 4080/MUM/2014 ( ASSESSMENT Y EAR : 2010 - 11 ) ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 2 ACIT CENTRAL CIRCLE 46, ROOM NO.659 AAYAKAR BHAVAN 6 TH FLOOR, M.K.ROAD, MUMBAI - 400020 VS. M/S. NITCO LTD., RECONDO ESTATE INSIDE MUNICIPAL ASPHALT COMPOUND, S.K. AHIRE MARG WORLI, MUMBAI - 400030 PAN/GIR NO. AAACN1674N ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI VIMAL PUNMIYA REVENUE BY SHRI R. MANJUNATHA SWAMI AND SHRI RAJORE SATISH CHANDRA DATE OF HEARING 26 / 10 /201 8 DATE OF PRONOUNCEMENT 18 / 12 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 38, MUMBAI DATED 31/01/2014 FOR A.Y.2004 - 05 TO 2007 - 08 DATED 28/02/2014 FOR THE A.Y.2008 - 09 TO 2010 - 11 IN THE MATTER OF ORDER P ASSED U/S.153A R.W.S. 143(3) OF THE IT ACT. 2. COMMON GROUNDS HAVE BEEN TAKEN BY ASSESSEE AND REVENUE IN ALL THE YEARS UNDER CONSIDERATION, THEREFORE, ALL THE APPEALS WERE HEARD TOGETHER AND ARE NOW DECIDED BY THIS CONSOLIDATED ORDER. 3. FACTS IN BRIEF ARE THAT A SEARCH & SEIZURE ACTION WAS CARRIED OUT U/S 132(1) ON NITCO GROUP OF COMPANIES ON 3 RD AUGUST 2009 AND SUBSEQUENT DATES. THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 28.12.2011 AND VARIOUS ADDITIONS WERE MADE. AGAINST THE ADDITIONS / DISALLOWANCES , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 3 ALLOWED THE APPEAL OF THE ASSESSEE. 'AGAINST THE ORDER OF LD. CIT(A) ASSESSEE & DEPARTMENT PREFER APPEAL BEFORE US. 4. COMMON GRIEVANCE OF REVENUE IN THE A.Y. 2004 - 05, 2005 - 06, 2006 - 07 AND 2007 - 08 RELATE S TO ADDITION DELETED BY CIT(A) IN RESPECT OF SALE RATE DIFFERENCE BETWEEN INSTITUTIONAL AND NON - IN STITUTIONAL CLIENTS. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A MANUFACTURER OF TILES AND SELLS THE SAME TO INSTITUTIONAL AS WEL L AS NON - INSTITUTIONAL CUSTOMERS AT DIFFERENT RATES. THE RATES FOR INSTITUTIONAL CUSTOMERS ARE HIGHER AS COMPARED TO NON - INSTITUTIONAL CUSTOMERS. THE AO HAS ADDED NOTIONAL SALES FOR THE DIFFERENCE IN TWO RATES HOLDING THEM TO BE SUPPRESSED SALES SINCE SALE S HAVE BEEN MADE AT A LOWER RATE TO N O N - INSTITUTIONAL CUSTOMERS . 5. BY THE IMPUGNED ORDER CIT(A) DELETED ADDITIONS AFTER HAVING DETAILED FINDING. 6. AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE AND ORDER OF HONBL E BOMBAY HIGH COURT IN ASSESSEES OWN CASE WHEREIN HONBLE HIGH COURT HAS DISMISSED REVENUES APPEAL AGAINST THE ORDER OF TRIBUNAL DELETING SIMILAR ADDITIONS. FROM THE RECORD WE FOUND THAT O N SIMIL AR FACTS AND CIRCUMSTANCES, INCOME TAX APPELLATE TRIBUNAL D ELETED THE ADDITION FOR A.Y. 1997 - 98, 1998 - 1999, 1999 - 2000, 2000 - 2001, 2001 - 2002, 2002 - 03, 2003 - 2004, 200 4 - 2005, 2005 - 2006 AND 2006 - 07 A ND THE HONORABLE HIGH COURT HAS DECIDED THE MATTER IN THE FAVOUR OF THE ASSESSEE FOR A.Y. 2000 - 01, 2001 - 02, 2002 - 0 3, 2003 - 04 AND 2004 - 05. THE CONTENTION OF LEARNED DR THAT REVIEW PETITION ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 4 IS PENDING BEFORE THE HONBLE HIGH COURT , T HEREFORE, THE DECISION OF HIGH COURT CANNOT BE FOLLOWED WERE ALSO RULED OUT AS THE REVIEW PETITION WERE ALSO DISMISSED BY THE HONBLE BOMBA Y HIGH COURT VIDE ORDER DATED 14/11/2014 IN ITA NO.1532 OF 2012. HENCE, THE DEPARTMENT APPEAL REQUIRED TO BE DISMISSED. 7. WE ALSO OBSERVE THAT EVEN THE REVIEW APPLICATION FILED BEFORE THE HONBLE BOMBAY HIGH COURT WAS REJECTED VIDE ORDER DATED 14/11/2014 IN ITA NO.1532 OF 2012. RESPECTFULLY FOLLOWING THE SERIES OF DECISION S OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE DECISION OF BOMBAY HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ALLEGED ADDITION. 8. IN THE AS SESSEES APPEAL FOR THE A.Y.2004 - 05, ASSESSEE IS AGGRIEVED FOR ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES MADE FROM AKIK HEAVY METAL ENGINEERING LTD. CONTENTION OF AO WAS THAT PURCHASE FROM THE AKIK HEAVY METALS ENGINEERING LTD. (AHMEL) IS BOGUS IN NATUR E AS THE PARTIES ARE NOT LOCATED AT THE ADDRESS. 9. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ASSESSEE M / S NITCO LTD. HAS PURCHASED VITRIFIED TILES (3,40,832/ - SQ. FT.) FROM AHMEL DURING FY 03 - 04 (AY 04 - 05) AMOUNTING TO RS.9.46 CRORES ON 'DELIVERY - FREE AT SITE'. WHOLE PURCHASE (3,40,832/ - SQ. FT.) WAS SOLD TO SELEC TION ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 5 MERCANTILE CO. PVT. LTD. (SMCPL) FOR RS. 15,82,46,530/ - . AS GOODS PURCHASED FROM AHMEL WERE ON 'DELIVERY - FREE AT SITE' BASIS, THE GOODS WERE DIR ECTLY DELIVERED AT SMCPL SITE. 'DURING THE SEARCH PROCEEDINGS IT WAS ALLEGED THAT PURCHASES FROM AHMEL ARE BOGUS. DURING THE SEARCH AS WELL AS ASSESSMENT PROCEEDINGS ASSESSEE SUBMITTED ALL THE DETAILS REQUIRED FOR TRANSACTION. A SSESSEE SUBMITTED FOLLOWING DETAILS OF BOTH THE PARTIES AHMEL & SMCPL: - SUPPORTI NG DOCUMENTS AHMEL SMCPL A. CERTIFICATE OF INCO RPORATION 78 B| LEDGER ACCOUNT CONFIRMATION DULY SIGNED 27 - 36 205 - 216 C) AUDITED FINANCIAL STATEMENT FILED IN ROC 37 - 59 217 - 229 D) BANK A/C ADVICE EXTRACT FROM PUNJAB NATIONAL BANK 60 - 77 230 - 251 E) BILLS ISSUED BY PARTIES 79 - 204 252 - 38 7 11. HOWEVER, THE AO WITHOUT FINDING ANY DISCREPANCY, REJECTED THE EVIDENCES SUBMITTED BY THE ASSESSEE AND MADE AN ADDITION OF RS.9,46,00,000/ - . 12. FROM THE MATERIAL PLACED ON RECORD WE FOUND THAT THE ASSESSEE HAS DISCHARGED ITS ONUS BY PROVING TH E EXISTENCE AND GENUINENESS OF TRANSACTIONS. THE ASSESSEE HAS PROVIDED FINANCIAL STATEMENT OF PARTIES, BANK STATEMENT, LEDGER ACCOUNT, CERTIFICATE OF INCORPORATION AND ROC RETURN, COPIES OF DELIVERY CHALLANS AS WELL AS LORRY RECEIPTS FOR PURCHASES ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 6 MADE. TH E ASSESSEE HAS ALSO PROVIDED THE NAME OF THE CUSTOMER I.E. SELECTION MERCANTILE CO. PVT. LTD. (SMCPL) TO WHOM THE SALES HAVE BEEN MADE FROM THESE PURCHASES. ONCE THE ASSESSEE HAS DISCHARGED THE INITIAL ONUS, IT THEN SHIFTS TO THE REVENUE TO PROVE THAT THE PURCHASES ARE BOGUS. FURTHERMORE THE REVENUE HAS NO COGENT MATERIAL TO CONCLUDE TH A T T HE PURCHASES ARE BOGUS. THE CONCLUSION CANNOT BE BASED PURELY ON CIRCUMSTANTIAL EVIDENCE AND ON ASSUMPTIONS. THE CIT(A) HAS ONLY STATED THAT THE ASSESSEE HAS NOT BEEN ABL E TO PROVE GENUINENESS OF THE PURCHASES BUT HAS NOT GIVEN ANY BASIS FOR ARRIVING AT SUCH CONCLUSION. THE ASSESSEE HAS FURNISHED THE DOCUMENTS TO THE BEST OF ITS ABILITY. THE REVENUE ON THE OTHER HAND HAS NO EVIDENCE TO THE CONTRARY AND HAS MAINLY RELIED ON THE STATEMENT MADE BY SHRI VIVEK TALWAR WHERE ALSO THE NOWHERE IT IS MENTION THAT PURCHASES ARE BOGUS. 13. LEARNED AR HAS RELIED ON THE FO LLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF CONTENTION THAT NO ADDITION CAN BE MADE BY AO IN THE ABSENCE OF ANY MAT ERIAL ON RECORD. S.N. CASE LAW HELD 1. M/S MOREWELL IMPEX PVT. LTD. V/S ITO ITA NO. 6992/MUM/2010. THE ASSESSING OFFICER DID NOT BRING ANY MATERIAL ON RECORD TO SUBSTANTIATE THE AV ERMENTS MADE DURING THE COURSE O F SURVEY OPERATIONS. 2. CIT V. BHU VANENDRA 303 ITR 235 (MAD.) INCOME ASSESSED BY REVENUE WITHOUT SUPPORTING MATERIAL IS NOT JUSTIFIED 3. VINOD SOLANKI VS. UOI (233) ELT 157 (S.C.) - DO - 4. CIT V. KASHIRAM TEXTILE MILLS (P) LTD [20061284 ITR 61 - DO - ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 7 (GUJ) 5. SARASWATHI OIL TRADERS V. CIT [2000] 254 ITR 259 (SC) - DO - 6. MEGHRAJ JAIN V. UOI (BOMBAY HIGH COURT) INCOME CANNOT BE ASSESSED ON MERE RETRACTED STATEMENT IF THERE IS NO MATERIAL TO PROVE THE SAME 7. KAILASHBEN MANHARLAL CHOKSHI V. CIT [200 8] 174 TAXMAN466 (GUJ.) - DO - 8. M. NARAYANAN & BROS. V. ASSTT. CIT [2011] 201 TAXMAN 207 (MAG.) - DO - 9. BANSAL HIGH CARBONS (P)LTD. 2009) 223 CTR 179 (DEL). - DO - 10. SANJEEV KUMAR JAIN (2009) 310 ITR 178 (P&H) - DO - 11. CIT VS. K. BHUVANENDR A AND OTHERS (2008) 303 ITR 235 (MAD.) - DO - 12. ABID MALIK VS UOI, (2009TIOL272HC DEL - FEMA) - DO - 13. CIT VS. UTTAMCHAND JAIN 320 ITR 554 (BOM), - DO - 14. SRINIVAS NAIK (2009)117 ITD 201 (BANG) - DO - 15. DCIT VS. M/S PREMSONS (ITA NO 4698/MUM/2006) EVEN CONFESSED UNDISCLOSED INCOME CANNOT BE ASSESSED IF NO SUPPORTING MATERIAL TO PROVE 16. CIT V/S P.BALASUBRAMANIAN [20 13] 33 TAXMANN.COM 130 (MADRAS HC) WHETHER, THEREFORE , ANY STATEMENT RECORDED UNDER SECTION 133A WOULD HAVE AN EVIDENTIARY VALUE ONLY IF IT IS SUPPORTED BY RELEVANT MATERIAL TO SUBSTANTIATE SAME - HELD, YES ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 8 17. MAHESH OHRI V/S ACIT [2013] 35 TAXMANN.COM 301 (DELHI - TRIB.): WHERE APART FROM S TATEMENT UNDER SECTION 133A(3)(III), REVENUE HAD NOT BROUGHT ANYTHING ON RECORD IN SUPPORT OF ITS CONCLUSION THAT ASSESSEE HAD UNDISCLOSED INCOME, ADDITION MADE BY ASSESSING OFFICER COULD NOT BE SUSTAINED 18. THE CBDT VIDE HIS GUID ANCE F. NO. 286/2/2003 - IT (INV) ADDITION HAS TO BE MADE ON EVIDENCE NOT ON JUST STATEMENT 19. CIT V. ROMAN & CO., (1968) : 67 ITR 1 1 (SC) THERE MUST BE SOME MATERIAL ON RECORD AS EVIDENCE FOR ADDITION. ADDITION MADE ON THE BASIS OF PRESUMPTION CANNOT BE SUSTAINED IN LAW. 20. CIT V. CALCUTTA DISCOUNT CO, LTD. (1973) 91 ITR 8 (SC) 21. OMAR SALAY MOHARNED SAIT / CIT 1959 37 ITR 151 (SC) 22. DHIRAJLAL GIRDHARILAL V/S CIT (26 ITR 734) (SC) 23. DR. ANITA SAHAI V/S DIT (266 ITR 597) (ALL) 24. MODI CREATIONS PVT. LTD., V/S. ITO (2011) 13 TAXMANN.COM 114(DELHI) IT WILL HAVE TO BE KEPT IN MIND THAT SECTION 68 ONLY SETS UP A PRESUMPTION AGAINST THE ASSESSEE WHENEVER UNEXPLAINED CREDITS ARE FOUND IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE. IT CANNOT BUT BE GAINSAID THAT THE PRESUMPTION IS REBUTTABLE. IN REFUTING THE PRESUMPTION RAISED, THE INITIAL BURDEN IS ON THE ASSESSEE. THIS BURDEN, WHICH IS PLACED ON THE ASSESSEE, SHIFTS AS SOON AS THE ASSESSEE ESTABL ISHES THE AUTHENTICITY OF TRANSACTIONS AS EXECUTED BETWEEN THE ASSESSEE AND ITS CREDITORS. 14. IT WAS ALSO ARGUED BY LEARNED AR THAT SALES WITHOUT PURCHASES IMPLY 100% GROSS MARGIN WHICH IS ABSURD. WE FOUND THAT PURCHASES FROM AHMEL AMOUNT RS.9.46 CR WER E SOLD TO SMCPL FOR RS. 15.82 CR. WHEN THE REVENUE HAS ACCEPTED THE SALES OF THE ASSESSEE, TO CONCLUDE THAT PURCHASES ARE BOGUS WOULD MEAN THAT THE THERE IS 100% MARGIN WHICH IS ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 9 NOT PRACTICAL. IF THERE ARE SALES, THERE HAVE TO BE CORRESPONDING PURCHASES. THE REVENUE CANNOT ACCEPT SALES AND REJECT PURCHASES BY SAYING THEY ARE BOGUS. THE ASSESSEE HAS EARNED A GROSS PROFIT OF 40.22% ON THE SALES MADE AGAINST THE PURCHASES FROM AHMEL. CORRESPONDING SALES IN RESPECT OF THE PURCHASES HAVE ALREADY BEEN DISCLOSED IN THE PROFIT AND LOSS ACCOUNT AND ACCEPTED BY THE AO. FURTHERMORE, THE ASSESSEE HAS PURCHASED VITRIFIED TILES MEASURING 3,40,832/ - SQ. FT. AND HAS SOLD THE SAME QUANTITY OF 3,40,832/ - SQ.FT. TO SMCPL. WHEN THE ASSES S EE HAS PROVIDED THE EXACT DETAILS OF QU ANTITY PURCHASED AND SOLD AND THEY TALLY WHICH IS ALSO ACCEPTED BY THE LD. CIT(A), THERE IS NO JUSTIFICATION FOR CONSTRUING THE PURCHASES AS BOGUS. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE ADDITION SO MADE. 15. IT WAS ALSO CONTENTION OF LEARNED AR THAT MERELY NON - PRODUCTION OF PARTIES CANNOT BE BASIS FOR ADDITION. ASSESSEE HAS PRODUCED ALL THE DETAILS REGARDING PURCHASES. THUS, ADDITION CANNOT BE MADE MERE ON GROUND THAT PURCHASE PARTY WAS NOT PRODUCED. IN SUPPORT OF THIS PROPOSITION RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. S.N OBSERVATION CITATION 1. NON - PRODUCTION OF CREDITOR CANNOT BE A REASON FOR MAKING ADDITION UNDER SECTION 68 ANIL KUMAR MIDHA (HUF) V/S ITO [2006] 153 TAXMAN 65 (JODH.) (MAG.) 2. ASSESSING OFFICER HARBOUR S DOUBTS OF LEGITIMACY OF ANY SUBSCRIPTION HE IS EMPOWERED, NAY DUTY - BOUND, TO CARRY OUT THOROUGH INVESTIGATIONS, BUT IF ASSESSING OFFICER FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT OBDURATELY ADHERE TO HIS SUSPICIONS AND TREAT SUBSCRIBED CIT V/S DIVINE LEASING ETC 299 ITR 268 (DEL HQ SIP WAS ALSO DISMISSED BY HON'BLE SUPREME COURT. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 10 C APITAL AS UNDISCLOSED INCOME OF ASSESSEE. 3. THE ASSESSEE DISCHARGED ITS PRIMARY ONUS AND ESTABLISHED THE IDENTITIES OF THE SAID TWO COMMISSION AGENTS AND NO EVIDENCE HAD BEEN BROUGHT ON RECORD BY THE REVENUE TO REBUT THE CASE OF THE ASSESSEE. HENCE, THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE PAYMENTS TO THE SAID TWO COMMISSION AGENTS WERE NOT GENUINE. MATHER & PLATT (INDIA) LTD. V/S CIT (1987) 168 IT R 493 (CAL HC) 4. MERELY BECAUSE SUMMONS ISSUED TO SOME OF CREDITORS COULD NOT BE SERVED OR THEY FAILED TO APPEAR BEFORE ASSESSING OFFICER, COULD NOT BE GROUND TO TREAT THOSE CREDITS AS NON - GENUINE DY CIT V/S ROHINI BUILDERS 12002] 256 ITR 360 (GUJ). SL P WAS ALSO DISMISSED BY THE HON'BLE SUPREME .COURT. 5. ASSESSING OFFICER ISSUED SUMMONS TO TEN TRADERS UNDER SECTION 131(1) - IN RESPONSE TO SAME, JIVE TRADERS APPEARED AND GAVE EVIDENCE IN FAVOUR OF ASSESSEE THAT TRANSACTIONS WITH THEM WERE CONDUCTED BY ASSESSEE ON COMMISSION BASIS - HOWEVER, REMAINING FIVE TRADERS DID NOT APPEAR BECAUSE THEY COULD NOT BE SERVED WITH SUMMONS AS THEY WERE RESIDING OUTSIDE STATE - CONSEQUENTLY, ASSESSING OFFICER ASSESSED TOTAL INCOME TREATING TRANSACTION WITH ABSENTEE TRADER S AS HAVING BEEN DONE BY ASSESSEE IN CAPACITY OF 'TRADER' AND NOT AS 'COMMISSION AGENT' - WHETHER ASSESSING OFFICER WAS JUSTIFIED - HELD, NO ANIS AHMED V/S OT (2008) 297 ITR 441 (SC) 6. CERTAIN LOAN TRANSACTIONS FOUND IN ASSESSEE'S ACCOUNTS, IN WAS EXPLA INED THAT THESE WERE GENUINE TRANSACTIONS OF BORROWINGS ON HUNDIS FROM VARIOUS PARTIES ABOUT WHOM COMPLETE DETAILS WERE FURNISHED. THE ITO SUMMONED ALL THE BANKERS. HOWEVER, THEY DID NOT PERSONALLY APPEAR BEFORE HIM BUT INSTEAD EACH ONE OF THEM SENT A LETT ER CONFIRMING THE LOAN ADVANCED BV, THEM TO THE ASSESSEE. THE ITO WAS NOT SATISFIED AND HELD THAT HE WAS ONLY OBLIGING THE ASSESSEE BY ISSUING SUMMONS TO THE THIRD PARTY CONCERNED, WHILE IN CASE OF THE PARTLY NOT TURNING UP, IT WAS FOR THE ASSESSEE TO PROD UCE THE PARTY SO THAT HE COULD EXAMINE AND SATISFY HIMSELF THAT THE PARTLY WAS IN A POSITION TO GIVE THE LOANS TAKEN FROM HIM. ON APPEAL, THE AAC WHILE APPRECIATING THE ASSESSEE'S SUBMISSION THAT FOR ENFORCING THE ATTENDANCE OF THE HUNDI WORKER S THE ASSESSEE HAD NO POWERS; ON THE CONTRARY, THE ITO HAD THE NECESSARY POWERS, HELD THAT THE ITO HAD NOT MADE PROPER ENQUIRIES. HIGH HELD THAT LOANS WERE GENUINE TRANSACTIONS AND COULD NOT BE ADDED BACK TO ASSESSEE'S INCOME CIT V/S U K SHAH (1973) 90 396 (BOM. HC) 7. ASSESSEE HAVING FILED CONFIRMATORY LETTER SHOWING ADD. CIT V/ S HANU ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 11 ADDRESS AND GIR NO OF CREDITOR, HAD PROPERLY DISCHARGED PRIMARY ONUS THAT WAS ON IT AND THAT ONUS HAD THEREAFTER SHIFTED TO THE DEPARTMENT MAN AGARWAL (1984) 151 ITR 15 0 (PATNA HC) 8. NON - PRODUCTION OF THE CREDITOR CANNOT BE A REASON FOR MAKING ADDITION. JHAVER BHAI BIHARI LAL & CO. V. CIT [1985] 154 ITR 591/ 21 TAXMAN 238 9. WITHOUT MAKING INQUIRY, THE ITO DISBELIEVED THE EVIDENCES OF THE ASSESSEE. HC HELD THAT TRIBUN AL WAS JUSTIFIED IN DELETING THE ADDITION. CIT VS. SAHIBGANJ ELECTRIC CABLES (P) LTD. [1978 115 ITR 408 16. LEARNED AR FURTHER CONTENDED THAT SHRI RAMESH JAIN, MANAGING DIRECTOR, OF M/S AKIK. HEAVY METAL ENGINEERING LIMITED, HAS ALSO FILED AN AFFIDAVIT AND REITERATED THAT THEY SOLD IMPORTED VITRIFIED TILES (340832/ - SQ FT.) TO NITCO LIMITED FOR RS. 9.46 CRORE. HE ALSO CONFIRMED THAT THEY RECEIVED AMOUNT BY ACCOUNT PAYEE CHEQUES. 1 7 . AS PER LEARNED AR, THE AO HAS RELIED ON STATEMENT MADE BY THE SHRI VIVE K TALWAR. HOWEVER, THIS STATEMENT HAS NOT BEEN SUPPLIED TO THE ASSESSEE AND HENCE THIS IS IN VIOLATION OF FUNDAMENTAL RULES OF JUSTICE. 1 8 . AS PER LEARNED AR ONE WHO APPROBATES CANNOT REPROBATE. THE HONBLE SUPREME COURT DECIDED THE MAXIM OF 'QUI APPROB AT NON REPROBAT' ('ONE WHO APPROBATES CANNOT REPROBATE.') IN CASE OF TELESERVICES LTD V/S UOI (2010)10SCC165. 19 . RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF R.N.GOSWAIN AIR 1993 SC 352 WHEREIN HONBLE APEX COUR T HELD 'LAW DOES NOT PERMIT A PERSON TO BOTH APPROBATE AND REPROBATE. THIS PRINCIPLE IS BASED ON THE DOCTRINE OF ELECTION WHICH POSTULATES THAT NO PARTY CAN ACCEPT AND REJECT THE SAME INSTRUMENT AND THAT 'A PERSON CANNOT SAY AT ONE TIME THAT A TRANSACTION IS VALID AND ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 12 THEREBY OBTAIN SOME ADVANTAGE, TO WHICH HE COULD ONLY BE ENTITLED ON THE FOOTING THAT IT IS VALID, AND THEN TURN ROUND AND SAY IT IS VOID FOR THE PURPOSE OF SECURING SOME OTHER ADVANTAGE'. 20. WE HAVE DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LEARNED AR AS QUOTED ABOVE WITH REFERENCE TO THE FACTUAL MATRIX OF THE CASE AND FOUND THAT ADDITION SO MADE IS NOT JUSTIFIABLE IN SO FAR AS ASSESSEE HAS SOLD THE MATERIAL PURCHASED AT RS.9.46 CRORES AT RS.15.82 CRORES THEREBY EARNED PROFIT OF RS.6.36 CRORES THEREON. 21 . GROUND NO.2 FOR THE A.Y.2004 - 05 AND 2005 - 06 AND GROUND NO.1 FOR THE A.Y.2006 - 07 AND 2007 - 08 WHICH PERTAIN TO ALLOCATION OF EXPENSES OF 80 IB UNIT WAS NOT PRESSED BY LEARNED AR, THE SAME ARE THEREFORE, DISMISSED IN LIMINI AS NOT PRESSED. 22 . GROUND NO.2 FOR THE A.Y.2006 - 07 PERTAINS TO NON - DEDUCTION OF FBT FROM BOOK PROFIT U/S.115JB. 23 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE MADE A PROVISION FBT FOR RS.60,00,000 IN ITS BOOKS. HOWEVER, DUE TO AN INADVERTENT M ISTAKE THE ASSESSEE DID NOT REDUCED THE SAME WHILE COMPUTING PROFITS UNDER THE PROVISION OF MAT. THE ASSESSEE CLAIMED THE DEDUCTION DURING ASSESSMENT PROCEEDINGS BUT THE AO DISALLOWED THE SAME. AS PER LD. AR FBT IS AN ALLOWABLE EXPENDITURE FROM BOOK PROFIT IS ALSO CLARIFIED BY THE CBDT VIDE Q.103 OF CIRCULAR NO. 8/2005 DATED 29.08. 2005: 'WHETHER FBT WOULD BE ALLOWABLE DEDUCTION WHILE COMPUTING 'BOOK PROFIT' UNDER SECTION 115JB? ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 13 103. FBT IS A LIABLE QUA EMPLOYER. IT IS AN EXPENDITURE LAID OUT OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE EMPLOYER. HOWEVER, SUB - CLAUSE (IC) OF CLAUSE (A) OF SECTION 40 OF THE INCOME TAX ACT EXPRESSLY PROHIBITS THE DEDUCTION OF THE AMOUNT OF FBT PAID FOR THE PURPOSE OF COMPUTING THE INCOME UN DER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THIS PROHIBITION DOES NOT APPLY TO THE COMPUTATION OF'BOOK PROFIT' FOR THE PURPOSE OF SECTION 115JB. ACCORDINGLY, THE FBT IS AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF'BOOK PROFIT'UNDER SECTION 115JB OF THE INCOME TAX ACT.' 2 4 . IT WAS CONTENTION OF LD. AR THAT THE FBT AMOUNT REQUIRED TO BE REDUCED FROM THE BOOK PROFIT. FBT IS AN ASCERTAINED LIABILITY. THEREFORE, AS PER THE PROVISION OF 115JB IT IS REQUIRED TO BE ALLOWED. PROVISION OF FBT IS NO T COVERED BY THE ANY CLAUSE OF THE 115JB. HENCE, IT REQUIRED TO BE ALLOWED. AND FURTHER IN ASSESSEE SISTER CONCERN THE CLAIM WAS ENTERTAINED BY THE TRIBUNAL . 2 5 . AS PER LEARNED AR, T HE ISSUE IS ALSO COVERED BY THE DECISION OF BOMBAY HIGH COURT IN CASE OF E CHJAY FORGINGS (P) LTD., 116 TAXMAN 322 WHEREIN COURT HELD THAT W HETHER SINCE ONLY INCOME - TAX PAYMENT IS CONTEMPLATED UNDER CLAUSE (A) OF EXPLANATION TO SECTION 115J(1A), ADDITION OF WEALTH - TAX PAID TO NET PROFIT WHILE WORKING OUT BOOK PROFIT UNDER SECTION 115J IS IMPERMISSIBLE - HELD, YES . 2 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT SIMILAR CLAIM OF ASSESSEES SISTER CONCERN NAMELY NITCO PAINTS P. LTD., FOR A.Y.2006 - 07 WAS RESTORED BACK TO AO BY ITAT. AS THE FACTS AND CIRCUMSTANCES ARE SAME, RE SPECTFULLY FOLLOWING THE ORDER OF ITAT, WE RESTORE THE ISSUE BACK TO FILE OF AO FOR DECIDING AFRESH IN TERMS OF DIRECTION OF ITAT IN THE CASE OF NITCO PAINTS IN A.Y.2006 - 07 (SUPRA). ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 14 27 . ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF TRANSPORT EXPENSES IN THE A.Y.2005 - 06 AMOUNTING TO RS.2,08,57,799/ - . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT AO HAS DISALLOWED THE TRANSPORT EXPENSES ON THE PLEA THAT M/S UNIVERSAL ROADLINES WAS NOT FOUND AT THE PREMISES. KAILASH FIN AND INV CORPORATION SUBMITTED BILLS IN WHICH SOME BILLS ARE NOT PERTAIN TO ASSESSEE FACTORY PREMISES. 2 8 . BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF AO AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 29 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT THE ASSESSEE HAD PURCHASED FELDSPAR (SAND) WHICH IS A RAW MATERIAL FOR BUSINESS OF THE ASSESSEE FROM RAJASTHAN AND THE SAME WA S DELIVERED TO THE ALIBAUG PLANT OF THE ASSESSEE IN MAHARASHTRA. (RECEIPT ALS O BEAR STAMP OF RAJASTHAN CHECK POST AND MAHARASHTRA CHECK POST. THUS CANNOT BE BOGUS. 30 . IN SUPPORT OF THE TRANSACTION ASSESSEE HAVE PROVIDED FOLLOWING DETAILS: - SUPPORTING UNIVERSAL KILASH FIN INV PAN CARD 67 RETURN OF INCOME 18 - 19 68 - 69 C OMPUTATION OF INCOME 20 - 21 CONFIRMATION OF ACCOUNT 22 - 30 75 - 78 FINANCIAL STATEMENT 31 70 - 74 BANK PAYMENT ADVICE EXTRACT 32 - 36 79 - 83 ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 15 BILLS 37 - 52 84 - 107 TDS CERTIFICATE 53 - 66 108 - 119 3 1 . FROM THE RECORD WE FOUND THAT IN THE CASE OF M/S. KAILAS FIN AND INV CORPORATION, MR. DAGA, THE PR OPRIETOR HIMSELF HAS APPEARED IN RESPONS E TO NOTICE UNDER SECTION 133(6). STATEMENT WAS ALSO RECORDED AND VIDE ( QUESTION NO. 13 PAGE NO.3 OF ASSESSMENT ORDER) PARTY ACCEPTED THAT THEY HAD TRANSACTION WIT H ASSESSEE AS WELL AS OTHER PARTY . FOR NITCO GOODS WAS DELIVERED AT ALIBAUGH AND FOR OTHER AT TALOJA. FOR PROVING GENUINENESS OF BUSINESS OF M/S KAILASH FIN. AND INV CORP, MR. DAGA PRODUCED BALANCE SHEET, P & L ACCOUNT, FEW LORRY RECEIPT OF NITCO & OTHER PARTY DELIVERY. BUT THE LD. AO HAS TAKE N A VIEW THAT ASSESSEE CLAIMED TRANSPORT CHARGES OF ALIBAUGH AS WELL AS TALOJA DELIVERY . ACCORDINGLY DISALLOWED 50% EXPENSES. ONCE THE PARTY HI MSELF HAS APPEARED BEFORE THE R E VENUE AUTHORITIES AND CONFIRMED THE GENUIN ENESS OF TRANSACTIONS, THERE IS NO REASON TO HOLD TRANSPORTATION EXPENSES AS BOGUS. 3 2 . M/S KAILASH FIN & INV HAS CLIENT M/S ASAHI INDIA GLASS LTD. & OWENS CORNING INDIA LTD. BOTH PARTIES HAVING FACTORIES AT TALOJA. INFACT M/S ASAHI INDIA GLASS LTD. IS A L ISTED COMPANY AND HAVING FACTORY AT TALOJA. IN RESPONSE TO QUESTION NO. 23 (PAGE NO. 3 OF A.O. ORDER) WHERE HE CLEARLY MENTION ED THAT HE HAS SUBMITTED SAMPLE TRANSPORT BILL. IT IS NOWHERE MENTION THAT ALL TRANSPORT BILLS PERTAIN TO ASSESSEE. EVEN VIDE QUES TION NO. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 16 21 PARTY CONFIRM ED THE ENTIRE TRANSACTION, LD. AO ASSUME THAT TRANSPORTER HAVE CLIENT AT TALOJA & TRANSPORT BILL ALSO FOR TALOJA. HENCE, ASSESSEE ALSO BOOKED THESE BILLS. HENCE, 50% CHARGES WERE HELD BY AO AS BOGUS, BUT, THE LD. AO F AILED TO CONSI DER THAT THE ASSESSEE NEVER BOOKED THOSE CHARGES. FURTHER, THE LD. CIT(A) HAD CONFIRM ED THE DISALLOWANCE ON GROUND THAT ASSESSEE NOT CONTESTED THAT THESE TALOJA BILLS INFACT FOR ALIBUAG. BUT, THE LD. CIT(A) FAILED TO CONSIDER THAT WHEN BILLS ARE NOT PERT AIN TO ASSESSEE, HOW CAN ASSESSEE COULD HAVE CLAIMED THE SAME. HENCE, THE DISALLOWANCE WAS MADE BY THE LD. AO ON ASSUMPTION BASIS AND REQUIRED TO BE DELETE D . 33 . MR. MADHUSUDAN DAGA, (BEING KARTA OF MADHUSUDAN L. DAGA (HUF) PROPRIETOR OF 'KAILASH FINANCE & INVESTMENT CORPORATION', APPEARED BEFORE THE ASSESSING OFFICER AND RECORDED HIS STATEMENT ON OATH IN COMPLIANCE TO SUMMON U/S 131. IN HIS STATEMENT HE STATED THAT HE HAS PROVIDED TRANSPORTATION SERVICES OF RS. 2,13,50,174 TO M/S NITCO LIMITED DURING THE P ERIOD 2004 - 05. 3 4 . HE FILED AN AFFIDAVIT AND REITERATED THAT HIS PROPRIETORSHIP FIRM HAS PROVIDED TRANSPORTATION SERVICES OF RS. 2,13,50,174/ - TO NITCO LIMITED FOR TRANSPORTATION OF FELDSPAR FROM BEAWAR TO THE FACTORY OF ASSESSEE LOCATED AT POYNAD, ALIBAU G IN MAHARASHTRA. HE FURTHER CLARIFIED IN THE AFFIDAVIT AS FOLLOWS: '8. I SAY THAT I GOT SURPRISED WHEN NITCO S REPRESENTATIVE SHOWED ME THE RELEVANT PARA AT PAGE 4 OF THE ASSESSMENT ORDER FOR A.Y, 2005 - 06 DATED 28/12/2011, WHERE THE ASSESSING OFFICER HAS DRAWN A CONCLUSION BASED ON ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 17 MY STATEMENT THAT 'BILLS OF TRANSPORATER WHOSE VEHICLES HE HAS HIRED IT IS CLEAR THE MATERIAL WAS DELIVERED TO SOME OTHER CLIENTS' 9. I SAY THAT I WAS PROVIDING TRANSPORTATION SERVICES TO VARIOUS OTHER CLIENTS LIKE OWENS CORNI NG LTD. & ASAHI INDIA GLOSS LTD LOCATED AT TALOJA MI DC. I FURTHER STATE THAT I U>AS USING TRANSPORTATION SERVICES MAINLY FROM FOLLOWING SENDERS (TRANSPORTERS) (I) KRISHNA ENTERPRISE (BEAWAR), (II) MEHTA TRASNPORT CO. (BEAWAR) ( II I) MAMTA TRANSPORT (BEAWAR ) ETC.' 10. I SAY THAT MY VENDORS (TRAN S PORTERS) ARE COMMON FOR ALL MY CLIENTS. HENCE THEIR BILLING TO ME INCLUDE LORRY RECEIPTS FOR TRANSPORTATION PROVIDED TO ALL MY CLIENTS. 11.1 SAY THAT I WAS ASKED TO PRODUCE BILLS OF MY VENDORS (TRANSPORTER) TO SUBS TANTIATE MY CLAIMS . I SUBMITTED SAMPLE BILLS OF MY VENDORS (TRANSPORTERS) WHICH CONTAINS LORRY RECEIPT IN RELATION TO MY OTHER CLIENT AS WELL. FURTHER, I WAS ALSO ASKED TO SUBMIT SAMPLE LORRY RECEIPTS IN RELATION TO TRANSPORTATION SERVICES PROVIDED TO OTHE R CLIENTS. 12.1 SAY THAT I HAVE NEVER PROVIDED TRANSPORT SERVICES TO NITCO TILES LIMITED AT TALOJA . I FURTHER STATE THAT THE LR WHICH WAS SUBMITTED BY ME FOR TALOJA BELONGS TO MY OTHER CLIENT NAMED OWENS CORNING LTD. AND ASAHI INDIA GLASS LTD. NITCO TILE S LIMITED HAS NO RELATION WITH THE LORRY RECEIPTS SHOWING DELIVERY AT TALOJA. 35 . IN VIEW OF ABOVE STATEMENT OF MR. MADHUSUDAN LAL DAGA, IT IS CLEAR THAT AO HAS DRAWN WRONG CONCLUSION AND NEVER TRIED TO CONFIRM THE SAME WITH ASSESSEE . THUS, ALLEGATION THA T 50% OF TRANSPORTATION EXPENSES ARE NOT GENUINE IS PROVED TO BE WRONG. 3 6 . IT WAS ALSO CONTENTION OF LD. AR THAT IN CASE OF M/S UNIVERSAL ROADLINES: - LNSPECTOR OF INCOME TAX VISITED THE PARTY OFFICE AND FOUND THEIR OFFICE OF MR. N.K. GUPTA WHO IS PROPRIETO R OF M/S UNIVERSAL ROADLINES SO THE QUESTION OF EXISTENCE OF M/S. UNIVERSAL ROADLINES CANNOT BE QUESTIONED. AS TRANSACTIONS ARE GENUINE AND SUPPORTED BY EVIDENCE (COMPUTATION ON PAGE NO,20 CLEARLY MENTION THE ADDRESS & INCOME OF ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 18 N.K. GUPTA FOR HIS CA FIR M AS WELL AS TRANSPORT BUSINESS AND ALSO FIND TRUE IN DEPARTMENT ENQUIRY, EVEN THAN AO MADE ADDITION ON BASIS OF HIS ASSUMPTION WHICH IS BAD - IN - LAW. HOWEVER, THE AO RELIED ON ENQUIR Y CONDUCTED WITH THE LADY CLERK & PANWALA NEAR THE OFFICE IN 2009 CLEARLY S HOWING THAT THE ENQUIRY WAS CARRIED OUT IN A SHODDY MANNER. IF THE ENQUIRY TAKEN PLACE WITH N K GUPTA ITSELF PRESENT IN SAME OFFICE ALL THE TRUTH COME OUT. LADY C LERK AND PANWALA MAY BE NOT AWARE ABOUT THE CONCERN AS THE TRANSACTION PERTAIN F.Y. 2004 - 05 AN D INQUIRY CONDUCTED IN 2009 - 10. 37 . MR. NARE NDRA KURNAR GUP TA , PROPRIETOR OF M/S UNIVERSAL ROAD LINES . HE HAD ALSO FILED AN AFFIDAVIT AND REITERATED THAT HIS PROPRIETORSHIP FIRM HAS PROVIDED TRANSPORTATION SERVICES TO NITCO LIMITED FOR TRANSPORTATION OF CL AY TO THE FACTORY OF ASSESSEE LOCATED AT POYNAD, ALIBAUG IN MAHARASHTRA. HE FURTHER CLARIFIED IN THE AFFIDAVIT AS FOLLOWS: 1. I HEREBY STATE THAT I AM A B.COM GRADUATE AND PRACTICING AS CONSULTANT, PROVIDING CONSULTANCY OF INCOME TAX, SALES TAX, REAL ESTAT E AND ALSO RUNNING BUSINESS OF TRANSPORT UNDER THE NAME OF PROPRIETORSHIP FIRM UNIVERSAL ROADLINES. 2. I SAY THAT MY PLACE OF BUSINESS WAS LOCATED AT OFFICE NO. 108 AND 110, SATYAM COMPLEX, PLOT NO. 16, SECTOR 19C, VASHI, NAVI MUMBAI - 400705, I WAS RUNNING TRANSPORTATION BUSINESS IN THE NAME OF UNIVERSAL ROADLINES TILL 2013 AND NOW DOING ONLY CONSULTANCY. 3. OFFICE NO. 108 & 110 IS OWNED BY MY WIFE AND GIVEN TO ME FOR CARRYING OUT MY BUSINESS. SINCE I HAVE STOPPED TRANSPORTION BUSINESS WE HAVE RENTED THE PRE MISES TO TENANTS. 4. I SAY THAT I AM FILING REGULAR RETURN OF INCOME SHOWING INCOME FROM TRANSPORT BUSINESS, REAL ESTATE CONSULTANCY AND PROFESSIONAL INCOME AS TAX PRACTITIONER SINCE 1982 TO 2007 - 08 (APPROX) UNDER THE ERSTWHILE PAN NO. AEJPG0584L WHICH I H AVE SURRENDERED IN A.Y. 2008 - 09 AND FILING MY RETURNS UNDER NEW PAN NO. AALPG1383R SINCE THEN. COPY OF MY INCOME TAX RETURN AND AUDITED FINANCIAL ACCOUNTS FOR THE ASSESSMENT YEAR 2005 - ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 19 06 AND COPY OF ORDER DATED 24/03/201O PASSED UNDER SEC 143(3) FOR A.Y. 2 008 - 09 IS_ENCLOSED. 5. I HEREBY STATE THAT DURING THE FINANCIAL YEAR 2004 - 05, I HAVE PROVIDED TRANSPORT FACILITY AMOUNTING TO RS. 1,01, 82,711/ - TO NITCO LTD. FOR TRANSPORTATION OF CLAY FROM VARIOUS PLACES TO THEIR FACTORY LOCATED AT POYNAD, MAHARASTHRA. 6. I HEREBY STATE THAT I HAVE RECEIVED PAYMENT OF RS. 99,53 T 213/ - BY CHEQUES (AS PER LEDGER ACCOUNT ATTACHED WITH THIS STATEMENT) AFTER DEDUCTION OF TDS OF RS. 2,29,499/ - . 7. I SAY THAT I WAS SURPRISED WHEN I GAINED THE KNOWLEDGE THAT INSPECTOR FROM INCOME TAX DEPARTMENT HAD VISITED MY OFFICE AND MET WITH MY STAFF AND A PAAN SHOP IN OUR AREA AND HE HAS DERIVED THE KNOWLEDGE THAT NO TRANSPORT BUSINESS IS CONDUCTED FROM THE SAID PREMISES. 8. I STATE THAT THE AREA (SECTOR 19 VASHI) WHERE MY BUILDING IS SITUATED IS NEAR TO APMC MARKET, VASHI AND THE ENTIRE NEARBY AREA IS ALSO KNOWN AS TRANSPORT HUB. FURTHER, MY BUILDING SATYAM COMPLEX (WHERE MY OFFICE IS LOCATED ON FIRST FLOOR) ITSELF IS HAVING MORE THAN 10 TRANSPORTER EVEN TODAY AND THOUSANDS OF THE TRANSPORTER ARE HAVING THEIR OFFICES IN SECTOR 19 ITSELF. FOR YOUR READY REFERENCE I AM ENCLOSING THE PHOTOGRAPH OF SATYAM COMPLEX (WHERE MY OFFICE IS LOCATED) ALSO ATTACHING A BUSINESS CARD AVAILABLE WITH ME FOR THE SOME OF TRANSPORTERS WORKING FROM THE SAID BUILDING . 9. I STATE THAT NITCO S REPRESENTATIVE SHOWN ME THE RELEVANT PARA AT PAGE 4 OF THE ASSESSMENT ORDER FOR A.Y. 2005 - 06 DATED 28/12/2011, WHERE REPORT SUBMITTED BY THE INSPECTOR WAS REPRODUCED. I STATE THAT 1. MY OFFICE WAS LOCATED AT OFFICE NO. 108 & 110 W HEREAS INSPECTOR HAS MENTIONED THAT HE VISITED ONLY ROOM NO. 108. 2. MY CONSULTANCY BUSINESS WAS IN THE NAME OF N.K. GUPTA AND ASSOCIATES BUT I AM NOT A CHARTERED ACCOUNTANT. 3. THE CARPET AREA OF BOTH OFFICES IS APPROX 200 SQ FT INSTEAD OF 5OO SQ FT. 10 . 1 HEREBY STATE THAT I HAVE NOT RECEIVED ANY NOTICE UNDER SEC 131 OR 133(6) OF THE INCOME TAX ACT 1961 IN RELATION TO NITCO LIMITED, FROM INCOME TAX DEPARTMENT. 38 . IN VIEW OF ABOVE STATEMENT OF MR. NARENDRA GUPTA, IT IS CLEAR THAT AO HAS DRAWN WRONG CONC LUSION AND HAS NOT CONDUCTED ANY ENQUIRY ABOUT THE EXISTENCE OF THE PARTY. THUS, ALLEGATION THAT TRANSPORTATION EXPENSES ARE NOT GENUINE IS PROVED WRONG. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 20 3 9 . WE FOUND THAT INSPITE OF PRESENCE OF ONE OF THE PARTIES, THE LD.AO HAS PROCEEDED TO MAKE THE ADDIT ION ON PRESUMPTION BASIS. THE LD.AO HAD NO COGENT MATERIAL TO CONCLUDE THAT THE TRANSPORTATION EXPENSES ARE BOGUS. IT HAS BEEN HELD BY VARIOUS COURTS THAT ADDITIONS MADE ON PRESUMPTIONS AND WITHOUT ANY EVIDENCE ARE NOT SUSTAINABLE. THEREFORE, THE ADDITION IN THIS CASE NEEDS TO BE DELETED. IN CASE OF M/S UNIVERSAL ROADLINES, AO ACCEPTED THAT HE HAS MADE ADDITION ON PRESUMPTION BASIS. IT CAN BE OBSERVED FROM LAST PARA ON PAGE NO.4 OF A O ORDER WHICH STATE THAT 'IT IS PRESUMED THAT M/S UNIVERSAL ROADLINES IS N ONEXISTENT AND ACCORDINGLY THE TRANSACTION AMOUNTING RS.1,01,82,712/ - IS TREATED AS BOGUS CLAIM OF EXPENDITURE BY THE ASSESSEE COMPANY. IT IS FUNDAMENTAL RULE THAT ADDITION CANNOT BE MADE ON PRESUMPTION BASIS. 40 . AS PER LEARNED AR, T HERE MUST BE SOME MA TERIAL ON RECORD AS EVIDENCE FOR ADDITION. ADDITION MADE ON THE OF PRESUMPTION CANNOT BE SUSTAINED IN LAW , FOR THIS PURPOSE RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. A) CIT V. ROMAN & CO., (2 968) : 67 ITR 11 (SC) B) CIT V. CALCUTTA DIS COUNT CO. LTD. (1973) 91 ITR 8 (SC) C) OMAR SALAY MOHAMED SAIT V/S CIT 1959 37 ITR 151 (SC) D) DHIRAJLAL GIRDHARILAL V/S CIT (26 ITR 734) (SC) E) DR. ANITA SAHAI V/S DIT (266 ITR 597) (ALL) 41 . LD. AR RELIED ON FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF PROPOSITION THAT A DDITION MADE ON AD - HOC BASIS IS NOT SUSTAINABLE IN LAW. A) SIDDHO MAL & SONS V/S CIT 122 ITR 839,844(DEL) B} AMRITLAL & CO PR. LTD V/S CIT 108 ITR 719,729(BOM) C) SASSOON J. DAVID & CO. P. LTD V/S CIT 118 ITR 261,275 - 6(SC): ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 21 D) AM ARPALI INTERNATIONAL VS. ACIT (ITAT DELHI) E) BALKRISHNA PAPER MILLS LTD, VS ASSESSEE ON 10 OCTOBER, 2012 F) RAM KISHAN VERMA VS DEPT. OF INCOME TAX ON 31 OCT, 2011 G) SONIC BIOCHEM EXTRACTIONS (P.) LTD V/S JTO 12013] 35 TAXMANN.COM 463 (MUMBAI - TRI B.HLF ASSESSING OFFICER IS NOT SATISFIED EITHER ABOUT MAINTENANCE OF VOUCHERS OR VERIFIABLE NATURE OF VOUCHERS, HE SHOULD IDENTIFY THEM AND DISALLOW ENTIRE AMOUNT UNDER SECTION 37(1), RATHER THAN RESORTINQ TO AD HOC DISALLOWANCE. H) MODI CREATIONS PVT. LT D. V/S ITO 12011] 13 TAXMANN.COM 114 (DELHI) - IT WILL HAVE TO BE KEPT IN MIND THAT SECTION 68 ONLY SETS UP A PRESUMPTION AGAINST THE ASSESSEE WHENEVER UNEXPLAINED CREDITS ARE FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IT CANNOT BUT BE GAINSAID THAT THE PRESUMPTION IS REBUTTABLE. IN REFUTING THE PRESUMPTION RAISED, THE INITIAL BURDEN IS ON THE ASSESSEE. THIS BURDEN, WHICH IS PLACED ON THE ASSESSEE, SHIFTS AS SOON AS THE ASSESSEE ESTABLISHES THE AUTHENTICITY OF TRANSACTIONS AS EXECUTED BETWEEN THE ASSESSEE AND ITS CREDITORS. I) VIEW TAKEN IN MODI CREATION PVT. LTD. IS ALSO TAKEN IN FOLLOWING DECISION. F) CIT V/S DIVINE LEASING & FINANCE LTD. 158 TAXMANN 440 (DELHI) (2007). G) NEMICHAND KOTHARI V/S CIT (136 TAXMAN 216) (GAU.) (2004). H) CIT V/S VALU E CAPITAL SERVICES ?(P) LTD. 307 ITR 334 (DELHI)(2008). 42 . AS PER LEARNED AR TDS WAS ALSO DEDUCTED AND DEPOSITED WITH THE GOVERNMENT AND THAT S TATEMENT OF MR.DAGA HAS NOT BEEN PROVIDED TO THE ASSESSEE. IT IS WELL SETTLED LAW THAT IF ADDITION IS MADE ON T HE BASIS OF STATEMENT OR EVIDENCE AND THE SAME IS NOT PROVIDED TO THE ASSESSEE, THEN THE ADDITION WOULD BE BAD IN LAW. AND FURTHER OPPORTUNITY OF BEING HEARD ON INSPECTOR REPORT IS ALSO NOT PROVIDED. THEREFORE, ADDITION IS REQUIRED TO BE DELETED. FOR THIS PROPOSITION R ELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. SN CASE CITATION OBSERVATION/ HELD 1. LALCHAND BHAGAT AMBICA DAV V/S CIT (37 ITR 28)(SC) ASSESSMENT MADE WITHOUT DISCLOSING TO THE ASSESSEE THE INFORMATICS SUPPLIED BY THE DEPARTMENT AND WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE TO REBATE THE INFORMATION IS VIOLATION OF FUNDAMENTAL RULES OF JUSTICE. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 22 2. DCIT V. M/S. PREMSONS (ITAT MUMBAI) [2009] WHILE CONDUCTING SURVEY U/S 133A THE DEPARTME NT HAD NO POWER TO EXAMINE ANY PERSON ON OATH. CONSEQUENTLY, SUCH A STATEMENT HAS NO EVIDENTIARY VALUE AND NO ADDITION CAN BE MADE SOLELY ON THE BASIS OF SUCH STATEMENT 3. DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 777 AN ASSESSMENT SO MADE W ITHOUT DISCLOSING TO THE ASSESSEE THE INFORMATION SUPPLIED BY THE DEPARTMENTAL REPRESENTATIVE AND WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE TO REBUT THE INFORMATION SO SUPPLIED AND DECLINING TO TAKE INTO CONSIDERATION ALL MATERIALS WHICH THE ASSE SSEE WANTED TO PRODUCE IN SUPPORT OF CASE CONSTITUTED A VIOLATION OF THE FUNDAMENTAL RULES OF JUSTICE AND CALLED FOR INTERFERENCE ON OUR PART. 4, SETH GURUMUKH SINGH V. CIT [1 944] 12 ITR 393 THE TRIBUNAL VIOLATED CERTAIN FUNDAMENTAL RULES OF JUST ICE IN REACHING ITS CONCLUSIONS. FIRSTLY, IT DID NOT DISCLOSE TO THE ASSESSEE WHAT INFORMATION HAD BEEN SUPPLIED TO IT BY THE DEPARTMENTAL REPRESENTATIVE. NEXT, IT DID NOT GIVE ANY OPPORTUNITY TO THE ASSESSEE TO REBUT THE MA TERIAL FURNISHED TO IT BY HIM, AND LASTLY, IT DECLINED TO TAKE ALL THE MATERIAL THAT THE ASSESSEE WANTED TO PRODUCE IN SUPPORT OF ITS CASE. THE RESULT WAS THAT THE ASSESSEE HAD NOT HAD A FAIR HEARING. THE ESTIMATE OF THE GROSS RATE OF PROFIT ON SALES, BOTH BY THE ITO AND THE TRIBUNAL, WAS BASED ON SURMISES, SUSPICIONS AND CONJECTURES 4 3 . CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND APPLYING THE JUDICIAL PRONOUNCEMENTS REFERRED IN ABOVE DECISIONS OF HONBLE HIGH COURT / SUPREME COUR T, WE DO NOT FIND ANY MERIT FOR THE 50% DISALLOWANCE MADE ON ACCOUNT OF EXPENDITURE INCURRED BY ASSESSEE ON ACCOUNT OF TRANSPORTATION. ACCORDINGLY AO IS DIRECTED TO RESTRICT THE SAME TO 10% . A.Y.2008 - 09 TO 2010 - 11: ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 23 4 4 . SIMILAR GROUNDS HAVE BEEN TAKEN IN T HESE YEARS BY ASSESSEE AND REVENUE AS DISCUSSED ABOVE IN THE A.Y.2004 - 05 TO 2007 - 08 . IN THESE YEARS ALSO REVENUE IS AGGRIEVE FOR DELETING ADDITION MADE ON ACCOUNT OF SALE RATE DIFFERENCE BETWEEN INSTITUTIONAL AND NON - INSTITUTIONAL CLIENTS. AS DISCUSSED HER EINABOVE IN THE A.Y.2004 - 05 TO 2007 - 08, FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN SALES RATE BETWEEN INSTITUTIONAL AND NON - INSTITUTIONAL CLIENTS . 45 . GRIEVANCE OF REVENUE IN THE A.Y.2010 - 11 PERTAINS TO DELETION OF ADDITION OF RS.11,3 1 ,98,298/ - ON THE BASIS OF SHOW - CAUSE NOTICE BY CUSTOMS DEPARTMENT. 4 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE COURSE OF ASSESSMENT, AO OBSE RVED THAT A S PER SHOW CAUSE NOTICE OF CUSTOMS DEPARTMENT , ASSESSEE UNDERVALUED THE PRICE OF IMPORT & FREIGHT. THEREFORE, AO ASSUME D THAT ASSESSEE HAD PAID AMOUNT IN CASH THROUGH HAWALA. THEREFORE, MADE ADDITION . 47 . BY THE IMPUGNED ORDER, CIT(A) DE LETED THE ADDITION AFTER OBSERVING AS UNDER: - '23.1 IN THE ASSESSMENT ORDER, THERE IS NO DETAILS AS TO HOW THE FIGURE OF RS. 11,31,98,298/ - IS ARRIVED. NO EVIDENCE BROUGHT ON RECORD TO SUBSTANTIATE THE ALLEGATION OF EITHER UNDER INVOICING OR PAYMENT THROUG H HAWALA OPERATOR. NO FINDING OF CUSTOM'S DEPARTMENT IS ALSO BOUGHT ON RECORD. THE APPELLANT HAD SHOWN THAT THE MATERIALS WERE IMPORTED ON CNF (COST NET FREIGHT) BASIS WHEREIN THE SUPPLIER HAD BORNE THE FREIGHT CHARGES AND THERE IS NO LIABILITY IN THE HAND S OF THE IMPORTER I.E. THE APPELLANT AND IN SUPPORT OF ITS CLAIM, HAD ALSO SUBMITTED CERTAIN INVOICES. CONSIDERING THE FACT THAT THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 24 THE APPELLANT COMPANY PAID CASH THROUGH HAWALA OPERATORS ON ACCOUNT OF UNDERVAL UATION, NO ADDITION CAN BE MADE ON SUSPICION AND GUESS WORK, THEREFORE I HEREBY DELETE THE ADDITION OF RS.11,31,98,298/ - MADE U/S 69COF THE ACT' 48 . REVENUE IS IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT DU RING THE YEAR UNDER CONSIDERATION, THE DEPARTMENT OF REVENUE INTELLIGENCE (DRI) CARRIED OUT SEARCH ACTION AT VARIOUS PREMISES OF ASSESSEE COMPANY AND ALLEGED THAT THE COMPANY HAD MADE SHORT PAYMENT OF CUSTOMS DUTY AMOUNTING TO RS.3,22,04,916/ - . IT WAS ALLE GED THAT THE ASSESSEE HAD TAKEN SERVICES OF HAWALA OPERATOR TO MAKE PAYMENT IN CASH. THE LD.AO ALSO CONCLUDED THAT CLOSING STOCK WAS UNDERVALUED BY THE ASSESSEE AND THUS MADE AN ADDITION OF RS. 11,31,98,298/ - . 4 9 . THE MAIN ALLEGATION IS REGARDING THE MIS - D ECLARATION OF FREIGHT EXPENSES PAID ON IMPORT. HOWEVER, IN THE ASSESSEE'S CASE, THE IMPORTS ARE ON CNF (COST NET FREIGHT) BASIS I.E. THE LIABILITY TO PAY FREIGHT IS ON THE SUPPLIER OF GOODS AND THEREFORE THE ASSESSEE HAS NO LIABILITY TO PAY FREIGHT. IN LIG HT OF THIS, THE ALLEGATION OF MIS - DECLARATION OF FREIGHT IS ILL FOUNDED AND UNSUSTAINABLE. BY VIRTUE OF NOTIFICATION NO. 82/2008 - CUSTOMS DTD. 27/06/2008 ISSUED BY DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA CERTAIN EXPORTER AS MENTIONED IN THE SAID NOTIFICATION ARE NOT DUMPING THE GOODS IN INDIA THEREFORE IMPORT FROM THESE EXPORTER DOES NOT ATTRACT ANTI DUMPING DUTY. AS PER THE NOTIFICATION IF ANY COMPANY IN INDIA BUYS GOODS FROM P RESTIGE GENERAL TRADING FZE OR ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 25 E NTERPRISE TRADING FZE AND IN TURN THESE TWO COMPANIES BUYS VITRIFIED TILES FROM F OSHAN CHANCHLNG OULIA CONSTRUCTION CERAMICS CO. LTD., AND HEYUAN WANFENG CERAMICS CO. LTD., D OES NOT TANTAMOUNT TO DUMPING IN INDIA AND IMPORTER IS NOT REQUIRED TO PAY ANTI DUMPING DUTY ON IMPORT MAD E FROM THESE PARTIES. SINCE ASSESSEE WAS ABLE TO PROCURE MATERIAL FROM THE ABOVE REFERRED PARTIES, ASSESSEE WAS EXEMPT FROM PAYMENT OF ANTI DUMPING DUTY ON IMPORT OF VITRIFIED TILES. DUE TO THE AFORESAID EXEMPTION BENEFIT ASSESSEE'S CASE WAS UNDER SCRUTI NY BY THE DEPARTMENT OF REVENUE INTELLIGENCE. ON INVESTIGATION DEPARTMENT OF REVENUE INTELLIGENCE ALLEGED T HAT ASSESSEE IS PROCURING MATERIAL FROM VARIOUS COMPANIES LOCATED AT CHINA AND CLAIMING THE BENEFIT OF EXEMPTION NOTIFICATION THOUGH THOSE COMPANIES ARE NOT ENTITLED. FURTHER, DURING SEARCH PROCEDURE UNDERTAKEN BY INCOME TAX DEPARTMENT U/S 132 NO INCREMENTING PAPERS WERE FOUND BY THE INCOME TAX DEPARTMENT TO PROVE THAT THE TRANSACTIONS ARE NOT GENUINE. 50 . MOREOVER, THE AO MADE ADDITION WITHOUT ANY EV IDENCE AND ONLY ON THE BASIS OF A SHOW CAUSE NOTICE ISSUED BY THE DEPARTMENT OF REVENUE INTELLIGENCE (DRI) WITHOUT ANY EVIDENCE OF SUPPORTING DOCUMENTS. IT IS LAW OF LAND THAT ADDITIONS MADE WITHOUT ANY EVIDENCE ARE UNSUSTAINABLE. ACCORDINGLY, WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE IMPUGNED ADDITION. 5 1 . IN THE A.Y.2008 - 09, 2009 - 10 AND 2010 - 11, ASSESSEE IS AGGRIEVED FOR ADHOC DISALLOWANCE OF BUSINESS EXPENDITURE AS UNDER: - ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 26 PARTICULARS 2008 - 09 2009 - 10 2010 - 11 COMMISSION 6, 94,794 29,71,035 15,71,726 INTEREST 24,31,049 1,09,52,326 60,57,295 SALARY & WAGES 1,07,02,080 3,59,30,566 2,19,76,733 POSTAGE & TELEPHONE 24,11,797 16,56,166 PRINTING & STATIONERY 6,52,366 3,29,600 MISC. EXP. 16,38,442 8,54,7 86 5 2 . WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. ALLEGATION OF THE AO WAS THAT ASSESSEE HAD ENTERED INTO CIRCULAR TRANSACTION AS DELIVERY OF GOODS OR PURCHASES NOT FIGURING ANYWHERE IN NOTEBOOK MAINTAINED AT SECURITY OR DISPATCH REGISTER. SA LES AND PURCHASE ARE REPORTED BY ALL THE PARTIES. HENCE, THE PURCHASES AND SALES CANNOT BE DISALLOWED. OTHER PARTIES GIVEN STATEMENT THAT THEY RECEIVED COMMISSION INCOME IN FORM OF DIFFERENCE OF SALES AND PURCHASE PRICE. 5 3 . BY THE IMPUGNED ORDER CIT(A) CO NFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5 4 . IT WAS ARGUED BY LEARNED AR THAT INCOME ASSESSED WITHOUT EVIDENCE IS BAD - IN - LAW. INCOME ASSESSED BY REVENUE WITHOUT SUPPORTING MATERIAL IS NOT JUSTIFIED. FOR THIS PROP OSITION R ELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. CIT V. BHUVANENDRA 303 ITR 235 (MAD.) VINOD SOLANKI VS. UOI (233) ELT 157 (S.C.) CIT V. KASHIRAM TEXTILE MILLS (P) LTD [2006]284 ITR 61 (GUJ) - SARASWATHI OIL TRADERS V. CIT [2000] 254 I TR 259 (SC) ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 27 5 5 . LD. AR FURTHER CONTENDED THAT I NCOME CANNOT BE ASSESSED ON MERE STATEMENT BASIS. FOR ASSESSMENT THERE HAS TO BE SOME EVIDENCE. INCOME CANNOT BE ASSESSED ON MERE RETRACTED STATEMENT IF THERE IS NO MATERIAL TO PROVE THE SAME. FOR THIS PROPOSI TION, R ELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. A. MEGHRAJJAIN V. UOI (BOMBAY HIGH COURT) B. KAILASHBENMANHARLALCHOKSHIV. C/T[2008] 174 TAXMAN 466 (GUJ.) C. M. NARAYANAN & BROS, V. ASSTT. C/T [2011] 201 TAXMAN 207 (MAG.) D. BANSAL HIGH CARBONS (P)LTD. 2009) 223 CTR 179 (DEL). E. SANJEEV KUMAR JAIN (2009) 310 ITR 178 (P&H) F. CIT VS. K. BHUVANENDRA AND OTHERS (2008) 303 ITR 235 (MAD.) G. ABID MALIK VS UOI, (2009TIOL272HC DEL - FEMA) H. CIT VS. UTTAMCHAND JAIN 320 ITR 554 (BOM). I. SRINIVAS NAIK (2009)117 ITD 201 (BANG) 5 6 . LD. AR ALSO VEHEMENTLY ARGUED THAT A DDITION CANNOT BE MADE ON ASSUMPTION BASIS. THERE MUST BE SOME MATERIAL ON RECORD AS EVIDENCE FOR ADDITION. ADDITION MADE ON THE BASIS OF PRESUMPTION CANNOT BE SUSTAINED IN LAW. RELI ANCE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. I) CIT V. ROMAN & CO., (1968) : 67 ITR 11 (SC) J) CIT V. CALCUTTA DISCOUNT CO. LTD. (1973) 91 ITR 8 (SC) K) OMAR SALAY MOHAMED SAIT V/S CIT 1959 37ITR 151 (SC) L) DHIRAJLALGIRDHARILAL V/S CIT (26 ITR 734) (SC) M) DR. ANITA SAHAI V/S DIT (266 ITR 597) (ALL) N) MODI CREATIONS PUT. LTD. V/S ITO 12011} 13 TAXMANN.COM 114 (DELHI) - IT WILL HAVE TO BE KEPT IN MIND THAT SECTION 68 ON/.Y SETS UP A PRESUMPTION AQAINST THE ASSESSEE WHENEVER UNEXPLAINED CRE DITS ARE FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IT CANNOT BUT BE GAINSAID THAT THE PRESUMPTION IS REBUTTABLE. IN REFUTING THE PRESUMPTION RAISED, THE INITIAL BURDEN IS ON THE ASSESSEE. THIS BURDEN, WHICH IS PLACED ON THE ASSESSEE, SHIFTS AS SOON AS THE ASSESSEE ESTABLISHES THE AUTHENTICITY OF TRANSACTIONS AS EXECUTED BETWEEN THE ASSESSEE AND ITS CREDITORS. ' 5 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS. FROM THE RECORD WE FOUND TH AT THE AO AND SUBSEQUENTLY THE LD.CIT(A) HAVE CONCLUDED THAT THE ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 28 ASSESSEE HAS INDULGED IN CIRCULAR TRADING DUE TO THE FACT THAT ENTRIES HAVE NOT BEEN MADE IN THE DISPATCH REGISTER. THE REVENUE AUTHORITIES HAVE REFUSED TO ACKNOWLEDGE THE FACT THAT THE GOODS HAVE BEEN TRANSFERRED DIRECTLY FROM SELLER TO BUYER OUTSIDE MUMBAI AND H ENCE THERE IS NO ENTRY IN THE DISPATCH REGISTER. ALSO, WHETHER ALL TRANSACTIONS ARE CORRECTLY ENTERED IN THE INWARD AND DISPATCH REGISTERS IS A MATTER OF INTERNAL CONTROL OF THE ASSESSEE. ANY LAPSE BY THE STAFF / EMPLOYEES IN MAINTAINING UP - TO - DATE REGISTE RS DOES NOT AUTOMATICALLY MEAN THAT GOODS HAVE NOT BEEN RECEIVED OR DISPATCHED. WHAT IS IMPORTANT IS THAT THE TRANSACTIONS HAVE BEEN CORRECTLY ENTERED IN THE BOOKS OF ACCOUNTS TO REFLECT A TRUE FINANCIAL PICTURE. IN PRESENT CASE THE AO AND AS WELL AS CIT( A) ACCEPTED THAT SALES AND PURCHASE TAKEN PLACE AND ALL PARTIES RECORDED IN THEIR BOOKS OF ACCOUNT. HENCE, FOUNDATION OF ADDITION ITSELF IS WRONG . MOREOVER, THE AO HAS ONLY RELIED ON THE STATEMENTS MADE BY THE PEOPLE WHOSE STATEMENTS WERE RECORDED. APART F ROM THESE, NO OTHER EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO PROVE THAT THE PURCHASES AND SALES HAVE BEEN INFLATED. THESE PURCHASES ARE ACTUAL PURCHASES AND THEREFORE THE CONTENTION OF THE REVENUE THAT THESE HAD BEEN INFLATED IS BAD IN LAW AS THE SAME IS NOT SUPPORTED BY ANY EVIDENCE. INFECT ON INQUIRY DEPARTMENT FIND THAT ALL PARTIES RECORDED TRANSACTION IS IN THEIR BOOKS OF ACCOUNT. HENCE, NO REASON FOR DISBELIEVING ASSESSEE S CONTENTION THAT THOSE TRANSACTIONS ARE GENUINE. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 29 5 8 . IN THE INSTANT CASE, THE AO HAS RELIED ON STATEMENT MADE BY SHRI VIVEK TALWAR AND OTHER PARTIES. HOWEVER, THIS STATEMENT HAS NOT BEEN SUPPLIED TO THE ASSESSEE AND HENCE THIS IS IN VIOLATION OF FUNDAMENTAL RULES OF JUSTICE. FROM THE RECORD WE FOUND THAT ASSESSEE IS MAINT AINING QUANTITY DETAILS WHICH CLEARLY ESTABLISHED THAT ASSESSEE HAD PURCHASE D GOODS FROM THE PARTIES AND SOLD TO OTHER PARTIES AND RESULTED PROFIT WERE ALSO OFFERED FOR TAX. HENCE QUANTITY TALLIED AND FURTHER AO DID NOT FIND ANY DISCREPANCY IN BOOKS OF ACC OUNT IN FACT THE ASSESSING OFFICER ACCEPTED THE SALES & PURCHASE . AS WHEN A SSESSING O FFICER ACCEPTING THE GENUINENESS OF SALES & PURCHASE, THEN NO REQUIREMENT OF DISALLOWANCE OF CORRESPONDING EXPENDITURE. 5 9 . EVEN IF WE GO THROUGH THE THEORY OF THE LD. AO THEN ALSO COMMISSION EXPENSES CANNOT BE DISALLOWED, BECAUSE AS PER AO CONTENTION PARTIES BENEFITED BY THE COMMISSION WHICH WILL BE PAID IN FORM OF DIFFERENCE OF THE PURCHASE AND SALE PRICE. THUS, WHEN THE COMMISSION ADJUSTED AGAINST SALE PRICE , T HEN, NO NE ED TO DISALLOW COMMISSION EXPENSES SEPARATELY. COMMISSION EXPENSES DEBITED IN THE BOOKS OF ACCOUNTS ARE RELATED TO THE PARTIES AS MENTIONED IN THE AUDITED BOOKS AND HAVE NO RELEVANCE WITH THESE TRANSACTIONS . 60 . FROM THE RECORD WE FOUND THAT ASSESSEE DEALS IN CERAMIC TILES, VITRIFIED TILES AND MARBLE. ACROSS THE INDIA NITCO LTD. HAS OPENED MORE THAN 50 EXCLUSIVE RETAIL STORES I.E. LE STUDIO AND LE STUDIO EXPRESS FOR DISPLAY OF THEIR PRODUCT. APART FROM THAT THE COMPANY IS HAVING A NETWORK ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 30 OF MORE THAN 500 D EALERS WHERE IT DISPLAYS A LARGE VARIETY OF PRODUCT TO CATER THE DEMAND OF THE COMPANY'S PRODUCT AND FOR PUBLICITY OF THE PRODUCTS WHICH IN TURN RESULTING IN SALE. THE COMPANY IS EXPLORING THE WAYS TO BOOST THE REVENUE THROUGH RETAIL SALES, IN ORDER TO ATT RACT RETAIL SALES; THE COMPANY REQUIRES LARGE SPACE AND GENERAL PUBLIC FOOTFALL FOR AWARENESS OF ITS PRODUCTS. SINCE OWN STORES REQUIRE MORE RESOURCES AND CAPITAL, THE COMPANY DECIDED TO ATTRACT MAJOR RETAIL CHAINS HAVING LARGE FOOTFALL, BRAND NAME AND SPA CES SO IT CAN USE THEIR EXPERTISE IN THE RETAIL SECTOR AND READILY AVAILABLE MARKET SO IN LEAST COST IT CAN ATTRACT MORE CONSUMERS. SINCE ITS PRODUCTS ARE FRAGILE AND HEAVY IN NATURE AND REQUIRE MORE SPACE AND PROPER HANDLING IT IS DIFFICULT TO ATTRACT EST ABLISHED CHAINS OF RETAILER TO DISPLAY ITS PRODUCTS. TO ATTRACT THEM, IT NEEDS TO GIVE THEM THE COMFORT THAT ITS PRODUCTS CAN BE SOLD TO RETAILER AS WELL AS INSTITUTION. THE COMPANY DID TRANSACTIONS WITH FEW WELL KNOWN INSTITUTIONS. TO OPTIMIZE RESOURCES A ND UTILIZATION OF RESOURCES, THE COMPANY ENTERED INTO TRANSACTION OF PURCHASE AND SALES WITH PANTALOONS RETAIL (I) LTD., AND HOME SOLUTIONS (I) LTD., AND OTHER INSTITUTIONS. 6 1 . FURTHERMORE, NITCO LTD. IS WELL KNOWN NAME IN THE IMPORTED MARBLE BUSINESS WH ICH HAS ITS OWN ADVANTAGES OR DISADVANTAGES. NOW A DAY'S ALMOST MORE THAN 100 MARBLE DEALERS ARE DOING BUSINESS OF IMPORTED MARBLE AND COMPETITION HAS INCREASED. IN ORDER TO COMPETE IN THE MARKET, THE COMPANY HAS STARTED TRANSACTION WITH LOW PROFILE COMPA NIES, SO THAT INCASE IF ITS PROPOSAL IS NOT ACCEPTABLE TO THE CUSTOMERS AND IT CAN'T ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 31 REDUCE ITS SALE PRICE TO GET THE ORDER, IT CAN USE THESE ENTITIES TO TAKE THE ORDER. IN BIDDING FOR INSTITUTIONAL CLIENTS IT COMPETES WITH LOT OF MARBLE DEALERS AND THROUG H THESE ENTITIES IT PUT OUR BID WHICH IN TURN HELPS IT IN NEGOTIATION WITH THE INSTITUTIONAL CLIENTS. THUS, THE ALLEGATION OF DEPARTMENT THAT THE ASSESSEE IS INVOLVED IN CIRCULAR TRANSACTION IS WITHOUT ANY SUBSTANCE. 62 . SALARY & WAGES ARE FIXED EXPENDITUR E IT WILL NOT BE AFFECT ED BY WHETHER ANY BUSINESS ACTIVITY CARRIED OUT OF NOT. THEY HAVE NO RELEVANCE WITH ANY NUMBER OF TRANSACTION S . THUS, THE SALARY & WAGES INCURRED BY THE ASSESSEE HAVE NO RELEVANCE WITH THESE TRANSACTIONS. EMPLOYEE HAS TO BE PAID FOR PERIOD TIME. HENCE, DI SALLOWANCE OF SALARY & WAGES CANNOT BE UPHELD . 63 . KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 5% O F THE EXPENDITURE. 64 . GRIEVANCE REGARDING ALLOCA TION OF EXPENDITURE ON 80IB UNIT RAISED AS PER GROUND NO.2 FOR A.Y.2008 - 09, 2009 - 10 AND 2011 - 12 WERE NOT PRESSED BY LEARNED AR SO, SAME ARE DISMISSED IN LIMINI AS NOT PRESSED. 65 . IN THE A.Y.2008 - 09 AND 2009 - 10, ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE MADE U/S.14A R.W.R. 8D. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT A SSESSEE EARNS DIVIDEND INCOME OF RS. 22,25,466/ - IN A.Y. 2008 - 09 & RS.1,26,587/ - IN A.Y. 2009 - 10. HENCE, THE DISALLOWANCE U/S 14A REQUIRED FOR GENERAL EXPENSES EVEN IF ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 32 THERE IS NO DIRECT EXPENSES OR INTEREST COST. BECAUSE, INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE AND REQUIRES MANAGEMENT INVOLVEMENT. ACCORDINGLY, AO MADE THE DISALLOWANCE U/S.14A R.W.R. 8D(2)(III) AMOUNT ING TO RS.5,03,138/ - FOR A.Y.2008 - 09 & RS.5 ,05,638/ - FOR A.Y.2009 - 10. 66 . AS PER LD. AR W HEN AN ASSESSEE MADE AN INVESTMENT IN MUTUAL FUND ALL THE INVESTMENT DECISION ARE DIRECTLY TAKEN BY MUTUAL FUND AND DIRECTORS ARE NOT INVOLVED. IN CONSIDERATION OF THEIR SERVICES OF IN VESTMENT FUND HOUSES LEVY FUND ADMINISTRATION FEES. ADMINISTRATION FEE VARIES FOR EACH SCHEME AND MUTUAL FUNDS AS DECIDED BY MUTUAL FUND HOUSE IN ACCORDANCE WITH GUIDELINES LAID DOWN BY SEBI OR ANY OTHER REGULATORY BODY FOR MUTUAL FUNDS. THESE ADMINISTRATION FEES ARE DEDUCTED FROM THE EARNINGS DONE BY MUTUAL FUND AND NET OF FEES IS DISTRIBUTED AMONG THE INVESTOR, THEREFORE INVESTOR GETS INCOME FROM MUTUAL FUND WHICH IS NET OF ALL EXPENSES. ASSESSEE HAS PAID ADMINISTRATION FEES @ . 15% OF FUND INVESTED WITH RELIANCE LIQUID PLUS FUND. D ISALLOWANCE OF 2% FEES WILL LEAD TO DOUBLE DISALLOWANCE ON ACCOUNT OF ADMINISTRATION EXPENSES WHICH HAS NOT BEEN CLAIMED BY ASSESSEE. 6 7 . RELYING ON THE ORDER OF AO, IT WAS ALSO CONTENTION OF LEARNED AR THAT THE AO HAS NOT MENTIONED ANY REASONS WHICH APPLY TO ASSESSEE FOR STATING AS TO WHY DISALLOWANCE UNDER RULE 8D IS TO BE MADE, A PART FROM ASSUMPTION THAT EXPENSES MIGHT BE INCURRED. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 33 6 8 . IT WAS ALSO ARGUMENT OF LEARNED AR THAT THE REVENUE HAS NEITHER POINTED OUT ANY DEFECT IN THE ACCOUNTS OF THE ASSESSEE N OR HAVE THEY MADE ANY ADDITIONAL ENQUIRY FOR THE PURPOSE OF ASCERTAINING THE ACTUAL EXPENSES INCURRED AGAINST EXEMPT INCOME. ADDITION MADE ONLY ON ASSUMPTION OR ON HUMAN PROBABILITIES WITHOUT ANY COGENT REASONS CANNOT BE SUSTAINED. 6 9 . WE HAVE CONSIDERED R IVAL CONTENTIONS. FROM THE RECORD WE FOUND THAT A SSESSEE HAS EARNED DIVIDEND OF RS.1,26,587/ - IN A.Y. 2009 - 10. HOWEVER LD AO HAVE DISALLOWED RS.5,05,638/ - WHICH IS BEYOND INCOME EARNED. FOLLOWING THE JUDICIAL PRONOUNCEMENTS IN THE CASE OF JOINT INVESTMENT PVT. LTD., 59 TAXMAN.COM 295 (DELHI HIGH COURT), WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. 70 . KEEPING IN VIEW THE NATURE OF INVESTMENT MADE BY THE ASSESSEE I.E., RELIANCE LIQUID PLUS FUND IS CATEGORIZED AS DEBT FUND, I NCOME DISTRIBUTED IN RESPECT OF MONEY MARKET MUTUAL FUND OR LIQUID FUNDS ARE CHARGEABLE TO TAX @25% + E.CESS + SURCHARGE W.E.F APRIL 2007 U/S 115R. KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT DISALLOWANCE U/S.14A TO THE EXTENT OF 1% OF EXEMPT INCOME DURING THE A.YRS. 2008 - 09 AND 2010 - 11. WE DIRECT ACCORDINGLY. 7 1 . IN THE A.Y.2010 - 11, ASSESSEE IS AGGRIEVED FOR ADDITION OF RS.1,95,60,250/ - ON ACCOUNT OF DISCREPANCY IN THE STOCK. ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 34 72 . FROM THE RECORD WE FOUND THAT DURING SURVEY UNACCOUNTED STOCK DIFFERENCE OF RS. 59,51,000/ - AT THE BHIWANDI FACTORY WAS FOUND AND SAME IS CONFIRM BY EMPLOYEE AS WELL AS MD. SIMILARLY UNACCOUNTED EXCESS STOCK OF 54,037 SQ. FT. @250/ - I.E. RS. 1,35,09,205/ - WAS FOUND AT SILVASA FACT ORY . 7 3 . IT WAS ARGUED BY LEARNED AR THAT W ITHOUT PROVIDING STATEMENT OF DISCREPANCY IN STOCK, ASSESSEE COULD NOT BE ABLE T O RECONCILE THE DISCREPANCY. HENCE, THE ADDITION WAS MADE IN VIOLATING 'PRINCIPAL OF NATURAL JUSTICE. 74 . LEARNED AR FURTHER CONTEN DED THAT T HERE WAS NO DISCREPANCY IN THE STOCK RECORDS MAINTAINED BY THE ASSESSEE AS THE SAME HA D BEEN PROPERLY SHOWN IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY. FURTHER THE SAID STATEMENT SHOWING DISCREPANCY IN THE STOCK WORKOUT BY THE AO ON THE BAS IS OF WHICH ADDITION WAS MADE HAD NOT BEEN FURNISHED TO THE ASSESSEE. AS PER LD. AR G OODS IN WHICH THE ASSESSEE DEALS IS VERY FRAGILE AND DELICATE. THE MARBLES ARE KEPT IN A GODOWN AND DURING THE PROCESS OF HANDLING THE MARBLE SLABS THERE IS EVERY POSSIBIL ITY THAT THE EDGES OF THE STOCK GET BREAK OFF DUE TO WHICH AN SUBSTANTIAL PART OF THE MARBLE SLAB IS REQUIRED TO BE CUTOFF AND MANY TIMES SCRATCHES APPEAR WHICH A T THE END MAKES THE MARBLE AS A WASTE AND NON - SALEABLE. THUS SUCH A LOSS WHICH OCCURS THEY ARE IN THE NORMAL NORMS OF THE BUSINESS SAID AS NORMAL LOSSES. HENCE THE NORMAL LOSS IN THE BUSINESS OF THE ASSESSEE COMPANY IS AROUND 2%. THIS FACT WAS BOUGHT TO THE NOTICE OF THE LD.CIT(A) DURING ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 35 THE APPEAL PROCEEDINGS BUT THE SAME WAS IGNORED. IT NEEDS TO BE ACKNOWLEDGED THAT ONE CANNOT BE IN A POSITION TO KNOW THE REASONS FOR DISCREPANCY AND RECONCILE THE SAME AT THE TIME OF SEARCH. IF THE ASSESSEE HAS BEEN ABLE TO RECONCILE THE DIFFERENCE SUBSEQUENTLY AND WHEN ADDITION HAS BEEN MADE ONLY ON THE BASIS OF STATEMENTS MADE AT THE TIME OF SEARCH, THE RECONCILIATION NEEDS TO BE CONSIDERED IN ORDER TO MAKE A FAIR ASSESSMENT. LD. AR FURTHER SUBMITTED THAT I F THERE IS ANY DISCREPANCY IN RELATION TO THE SILVASA GODOWN REGARDING STOCK THERE CAN BE POSSIBILITY THAT DEPARTMENT HAS TRIED TO RECONCILE THE STOCK LYING IN THE GODOWN WITH THE STOCK AVAILABLE IN THE BOOKS AND THEY MIGHT HAVE NOT CONSIDERED THE STOCK LYING WITH THE JOB WORKER. DUE TO THAT REASON THERE CAN BE A DIFFERENCE IN THE QUANTITY AS LYING IN THE SILVA SA FACTORY AND AS PER THE BOOKS. IN REFERENCE TO DISCREPANCY IN RELATION TO THE BHIWANDI GODOWN REGARDING STOCK, THERE CAN BE A POSSIBILITY THAT DUE TO MONTH END ON 31.07.2009 AND 1/08/2009 BEING A SUNDAY, THERE CAN BE DISPATCHES PENDING TO THE PARTIES WHI CH MIGHT HAVE BEEN BILLED FROM THE SYSTEM ON LAST DAYS OF THE MONTH BUT PENDING FOR DISPATCH DUE TO NON AVAILABILITY OF VEHICLES. BECAUSE OF DELAY IN DISPATCHES THERE ARE ALWAYS CHANCES THAT PHYSICAL STOCK LYING IN THE GODOWN IS MORE THAN THE BOOK STOCK. W HILE VALUING STOCK, INCOME TAX OFFICERS MATCHED PHYSICAL STOCK LYING AT WAREHOUSE WITH STOCK SHOWN IN BOOKS OF ACCOUNTS, BUT AO MIGHT NOT HAVE CONSIDERED THAT STOCK WHICH HAS ALREADY BEEN BILLED AND EARMARKED FOR DISPATCH WILL NOT REFLECT IN THE STOCK BOOK . SINCE DELIVERY OF THE BILLED ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 36 STOCK IS PENDING STOCK IS LYING IN WAREHOUSE THEREFORE, STOCK WA S EXCESS IN PHYSICAL VERIFICATION . THOUGH, NO DETAILS OR STATEMENT SHOWING DISCREPANCY HAS BEEN PROVIDED TO ASSESSEE, ASSESSEE HAD FILED BEFORE US THE RECONCILIA TION OF STOCK ON THE BASIS OF STATEMENT RELIED BY THE DEPARTMENT AT THE TIME OF SEARCH OPERATION I.E. 3.8.2009. MOREOVER, THEY MIGHT NOT HAVE CONSIDERED THE STOCK WHICH WAS RECEIVED IN WAREHOUSE, BUT PENDING FOR CHECKING. THERE IS ALSO POSSIBILITY THAT THE Y HAVE NOT CONSIDERED MATERIAL RECEIVED IN WAREHOUSE BUT NOT ACCOUNTED IN THE BOOKS DUE TO PENDING VERIFICATIONS. 7 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT AO NEITHER PROVIDE ANY DETAILS, EVIDENCE, SUPPORTING ON THE BASIS OF WHICH ADDITION ON ACCOUNT OF DISCREPANCY IN STOCK WAS MADE NOR AO PASSED SPEAKING ORDER FROM WHICH ASSESSEE CAN FIND THE BASIS ON WHICH ADDITION WAS MADE. T HE LD. AO HAD NOT PROVIDE D ANY KIND OF INFORMATION WHICH IS AGAINST THE PRINCIPAL OF NATURAL JUSTICE. THEREFORE, ASSE SSEE NOT BEEN ABLE TO RECONCILE THE DIFFERENCE IN BOOKS AND STATEMENT PREPARED BY DEPARTMENT. IT IS LAW OF LAND THAT WITHOUT PROVIDING DETAILS ON WHICH AO RELIED ADDITION CANNOT BE MADE. 7 6 . FROM THE RECORD WE ALSO FOUND THAT ADDITION SO MADE BY THE AO ON THE ADMISSION MADE BY EMPLOYEE WHO WERE NOT MAINTAINING BOOKS OF ACCOUNTS. IT HAS BEEN STATED IN THE ASSESSMENT ORDER THAT ADDITION WAS MADE ON THE BASIS OF STATEMENT GIVEN BY SHRI PRAKASH PARADKAR ( EMPLOYEE OF C&F AGENT) AND SHRI AMIT AGGARWAL WHO ADMITT ED THAT ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 37 THERE WAS DISCREPANCY IN THE BOOKS OF ACCOUNTS. WHAT IS IMPORTANT TO NOTE IS THAT MR. SHRI PRAKASH PARADKAR IS NOT EMPLOYEE OF THE ASSESSEE WHEREAS HE IS EMPLOYEE OF C&F AGENT, THEREFORE, STATEMENT OF HIS CANNOT BE RELIED WITHOUT VERIFICATION. FURT HER, SHRI AMIT AGGARWAL IS JUNIOR EMPLOYEES AND ARE ONLY AWARE OF THE STOCK POSITION IN THE FACTORY. THEY ARE NOT AWARE OF THE ACTUAL POSITION AS PER THE BOOKS OF ACCOUNTS SINCE THEY ARE HANDLED BY THE ACCOUNTANTS. WHEN THEY WERE CONFRONTED WITH THE DISCRE PANCY, WITHOUT CROSS CHECKING THE FACTS, THEY ACCEPTED THE SAME AND CONSEQUENTLY THE ADDITION WAS MADE. WHEN THE BOOKS AND THE STOCK WERE RECONCILED, IT APPEARS THAT DISCREPANCY WAS ONLY ON ACCOUNT OF ENTRIES PENDING TO BE PASSED IN BOOKS AND SHORTAGE DUE TO MARBLE SLABS BEING CHIPPED. 77 . IN VIEW OF THE ABOVE DISCUSSION AND KEEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH KEEPING IN VIEW OUR ABOVE OBSERVATION. 78 . IN THE R ESULT, APPEALS OF THE ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE WHEREAS APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 12 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 12 /201 8 KARUNA SR. PS ITA NO.2852/MUM/2014 AND OTHER APPEALS M/S. NITCO LTD., 38 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//