ASPHALT INDIA CORPORATION, MUMBAI V. ACIT, 25(3), MUMBAI

ITA 2707/MUM/2009

• Counselvise Citation: 270719914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Peak credit; Additional evidence; Bad and doubtful debts
• Section: 133(6)

Judgement Text

1 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT & SHRI R K PA NDA, AM ITA NO. 2707/MUM/2009 (ASST YEAR 2005-06) M/S ASPHALT INDIA CORPORATION, 42, FARID INDUSTRIAL ESTATE, AKURLI ROAD, KANDIVALI (EAST), MUMBAI 400 101 PAN AAAFA 3614L VS ACIT 25(3), PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI -20. (APPELLANT) (RESPONDENT) APPELLANT BY SH RI VIJAY MEHTA RESPONDENT BY SHRI RAJEEV AGARWAL PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 6.3.2009 OF THE CIT(A)- XXVI MUMBAI RELATING TO AS SESSMENT YEAR 2005-06. 2. IN GROUNDS OF APPEAL NO. 1 & 2, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF ` 3,40,86,484/- MADE BY THE A.O. ON ACCOUNT OF CLOSING WORK-IN-PROGRESS. 2.1 THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A P ARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF HOT MIX PLANT, ROAD CONSTRUCTION AND HIRING OF EQUIPMENTS & VEHICLES. THE A.O. NOTED FROM THE P&L ACCOUNT TH AT THE ASSESSEE HAS NOT SHOWN ANY CLOSING WORK IN PROGRESS AS ON 31.3.05. THE CLOSING STOCK IS SHOWN AT ` 121722/-. ON BEING QUESTIONED BY THE A.O., THE AS SESSEE FILED THE STATEMENT OF INVENTORY OF STOCK AND THE BREAK-U P OF CLOSING WORK-IN- PROGRESS AS ON 31.3.05; THE DETAILS OF WHICH ARE AS UNDER: CLOSING STOCK 2,71,304 2 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION ADD WORK-IN-PROGRESS 3,38,15,180 TOTAL WIP 3,40,86,484 THE ABOVE STATEMENT WAS DULY SIGNED BY THE PARTNER OF THE FIRM AND IT WAS CERTIFIED THAT QUANTITY OF STOCK OF UNUSED MATERIA LS LYING AT VARIOUS SITES HAS BEEN TAKEN BY PARTNER AND AVERAGE VALUE OF THE SAME IN THE OPINION OF PARTNER HAS BEEN TAKEN FOR VALUATION AS ON 31.3.05 . THE ASSESSEE ALSO FILED A TABLE TITLED EXPLANATION FOR LOSS IN ACCOUNT: A. Y. 2005-2006 WHICH IS AS UNDER:- PARTICULARS AMOUNT PARTI CULARS AMOUNT PROFIT AS ON 31.3.05 36,00,548 PROFITS AS PER RETURN FILED 44,33,929 ADD ADD EXPENSES OR PAYMENTS MADE 472,57,153 TO SUB-CONTRACTORS/CONTRACTORS DUE TO NON PAYMENT OF TDS BY US. STOCK I.E. WORK IN PROGRESS 3,40,86,496 W/0 WORK CONTRACT TAX NOT PAID 6,98,367 BAD DEBT S W/O 1,46,60,653 PROVISION FOR FIRM TAX 16,25,000 5,31,81,068 REVISED INCOME DUE TO ABOVE 5,31,81,068 5,31,81,068 THE A.O. NOTED THAT NO NARRATION/REASONS WERE FILED ALONG WITH THIS TABLE. ACCORDING TO THE A.O., THE ASSESSEE HAS ADDED THE A MOUNTS OF WIP AND BAD DEBTS WRITTEN OFF TO THE PROFIT AS PER THE COMPUTAT ION OF INCOME TO ARRIVE AT THE REVISED INCOME OF ` 5,31,81,068. FROM THIS AMOUNT THE ADJUSTMENTS MADE IN THE COMPUTATION OF INCOME I.E. DISALLOWANCE U/S 40(A)(IA), WORKS CONTRACT TAX NOT PAID AND PROVISION OF FIRM TAX ARE REDUCED TO ARRIVE AT THE PROFIT AS ON 31.3.05 AT ` 36,00,545/- WHICH MEANS THAT IF IN THE P&L A/C CLOSING WIP IS INCLUDED AND BAD DEBTS ARE REMOVED T HE BOOK PROFIT OF THE ASSESSEE WILL BECOME ` 36,00,545/-. HOWEVER, NO REASON FOR WRITING OFF TH E WORK IN PROGRESS OF ` 3,40,86,486/- OR THE DEBTS OF ` 14660653/- IN THE ACCOUNTS WAS MENTIONED BY THE ASSESSEE. 2.1 ON BEING QUESTIONED BY THE A.O. TO JUSTIFY THE CLAIM, IT WAS SUBMITTED THAT THE ASSESSEE HAS TAKEN OVERDRAFT FACILITY FROM ORIENTAL BANK OF COMMERCE, ANDHERI (W) BRANCH FOR ASSISTANCE TO WORK ING CAPITAL. THE BUSINESS OF THE ASSESSEE WAS SMOOTH UP TO 2001. HOW EVER, FROM 2002 3 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION ONWARDS THEY STARTED FACING ACUTE PROBLEM DUE TO LI QUIDITY CRUNCH. INSPITE OF THE BEST EFFORTS MADE BY THE ASSESSEE, THEY COULD N OT REALISE THE DUES IN RESPECT OF 3 TO 4 PROJECTS FOR WHICH IT INCURRED HE AVY LOSSES. IN ORDER TO MANAGE WITH NAME OF THE BANK, IT WAS CONSTRAINED TO MAINTAIN STOCKS IN THE BOOKS ALTHOUGH PRACTICALLY THERE WAS NO STOCK. IN VIEW OF THE BANKERS DECLARING THE ASSESSEE AS NPA, THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS SHOWN NIL CLOSING STOCK. 2.2 THE A.O. NOTED THAT THE PARTNER OF THE ASSESSEE FIRM HAS HIMSELF CERTIFIED THE EXISTENCE OF UNUSED MATERIAL, WIP AND ITS VALUATION BY ADOPTING THE AVERAGE RATES OF MATERIALS AS ON 31.3.05. HE AN ALYSED THE SUBMISSION OF THE ASSESSEE AND COMPARED THE PERFORMANCE OF THE AS SESSEE FIRM OVER THE LAST THREE YEARS WHICH ARE AS UNDER:- A.Y CLOSING STOCK CLOSING WIP TOTAL TURNOVER NET PROFIT PROFIT % 03-04 79,09,238 1,32,00,000 21109238 182662524 4999 380 2.73 04-05 1,54,06,990 96,15,000 25021990 193975614 5480 166 2.83 05-06 1,21,722 NIL NIL 111847574 (4352159 1) -- 2.3 THE A.O. NOTED THAT DURING A.Y. 2004-05, ASSESS EES TURNOVER, NET PROFIT, % OF PROFIT AND CLOSING WORK IN PROGRESS HA D INCREASED OVER A.Y. 03- 04. DURING THE IMPUGNED A.Y., THE TURNOVER HAS RED UCED TO ` 11.18 CRORES AS AGAINST ` 19.39 CRORES IN A.Y. 2004-05. THERE IS NOTHING ON RECORD TO SHOW THAT THE BUSINESS IS CLOSED DOWN AT THE END OF A.Y. 05-06. THE ASSESSEE HAS OUTSTANDING RETENTION MONEY, S.D., EMD ETC. IN THE BALANCE SHEET. HUGE AMOUNT OF CREDITORS SHOWN AS PAYABLE A ND DEBTORS AS RECEIVABLE ARE APPEARING IN THE BALANCE SHEET. THE ASSESSEE HAS OUTSTANDING/UNCOMPLETED CONTRACTS GOING ON. ALL THE SE FACTORS INDICATE THAT THERE IS CLOSING STOCK/WIP AT THE END OF YEAR. HE F URTHER NOTED FROM THE AUDITED ACCOUNTS FURNISHED BY THE ASSESSEE THAT DUR ING A.Y. 2002-03 AND 4 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION 2003-04 THE ASSESSEE HAS NOT DECLARED ANY LOSS. ON THE CONTRARY THEY SUGGEST IMPROVEMENT IN BUSINESS. AS REGARDS THE EXP LANATION OF THE ASSESSEE THAT THE BANK HAS DECLARED NPA, THE A.O. N OTED THAT JUST BECAUSE THE BANK HAS DECLARED THE ASSESSEE AS NPA, THE ASSE SSEE CANNOT SHOW THE BOOK STOCK AS NIL. ACCORDING TO THE A.O. TRUE AN D CORRECT PROFITS OF THE CONCERN CANNOT BE ARRIVED AT WITHOUT INCLUDING THE CLOSING STOCK/WIP IN THE CREDIT SIDE OF THE P&L ACCOUNT. SINCE THE ASSESSEE HAS WRITTEN OFF/EXCLUDED THE CLOSING WIP FROM P&L ACCOUNT WITHOUT ANY VALID REASON, THE A.O. ADOPTED THE AMOUNT OF ` 3,40,86,486/- AS VALUE OF CLOSING STOCK AND WIP AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE. 2.4 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E ASSESSEE WAS UNDER WORKING UNDER A NUMBER OF GOVERNMENT DEPARTMENTS. W HILE CARRYING OUT WORK AT DIFFERENT PROJECTS, THE ASSESSEE IS REQUIRE D TO CARRY OUT CERTAIN WORK AS PER THE ORDERS AND INSTRUCTIONS FROM THE DIFFERE NT OFFICIALS WORKING AT SITES WHICH IS IN THE NATURE OF EXTRA WORK. HOWEVE R, WHEN THE BILLS WERE PUT UP FOR SUCH EXTRA WORK, THE SAME WERE NOT CONSIDERE D BY THE OFFICIALS WHO MAY NOT BE AWARE OF IT BECAUSE SOMETIMES THE PERSON WHO HAD INSTRUCTED TO DO THE WORK IS TRANSFERRED AND NEW INCUMBENT TAKES OVER THE CHARGE. IT WAS SUBMITTED THAT DURING THE YEAR, MAJOR WORK WAS CARR IED ON AT NATIONAL HIGH WAY NO. 3 AT NASHIK. DUE TO KUMBHAMELA AT NASHIK O CCURRED DURING THE YEAR, THE ASSESSEE WAS AWARDED THE WORK TO CONSTRUC T THE ROAD. ALTHOUGH, NO WORK IS CARRIED DURING THE MONSOON SEASON, THE A SSESSEE WAS REQUESTED BY THE GOVERNMENT OFFICIALS TO CARRY OUT CERTAIN WO RK DUE TO VISIT OF CERTAIN DIGNITARIES. ALTHOUGH, THE WORK WAS CARRIED OUT BU T NO BILLING COULD BE MADE IN RESPECT OF THE SAME BECAUSE WORK WAS NOT CO NSIDERED FOR THE PURPOSE OF MEASUREMENT. IT WAS FURTHER SUBMITTED TH AT THE ASSESSEE HAS SIX CALL CENTRES AND DUE TO DEBITING OF EXPENDITURE ON ACCOUNT OF BAD DEBT, INTEREST AND DEPRECIATION ETC. ESPECIFICALLY AT KAN DIVALI PLANT THE PROFIT HAS GONE DOWN. THE ASSESSEE FURTHER SUBMITTED THAT ON A LL THE SITES IE. R & MNH- III SITE, SEEPZ ROAD, MIDC, D.N. NAGAR MIDC, S HIL MAHAPE ROAD MIDC AND FOB BOISER VATANSINGH, ALTHOUGH MAJOR WORK WAS COMPLETED BUT 5 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION BILLING COULD NOT BE DONE FOR THE WORK COMPLETED. THE BANK DECLARING THE ASSESSEE AS NPA WAS ALSO BROUGHT TO THE NOTICE OF T HE LD. CIT(A). IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION MADE BY THE A.O. ON ACCOUNT OF CLOSING STOCK OF MATERIAL, WIP SHOULD BE DELETED. 2.5 HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND UPHELD THE A DDITION MADE BY THE A.O. WHILE DOING SO, HE NOTED THAT THE SUBMISSIONS MADE BY THE ASSESSEE ARE SELF SERVING AND PURELY GENERAL IN NATURE. HE R EJECTED THE SUBMISSION OF THE ASSESSEE WHICH INCLUDES CONSTRUCTION OF ROAD OF 20 FEET WIDTH AT PARTICULAR PLACE WHICH WAS FINALLY COMPLETED FOR 25 FEET WIDTH ON THE INSTRUCTION OF THE SITE ENGINEERS AND FOR WHICH THE ASSESSEE DID NOT RAISE ANY BILL. HE ALSO REJECTED THE SUBMISSION THAT THE WORK AT KUMBHAMELA WAS DONE WITHOUT RAISING ANY BILL. HE NOTED THAT THE AS SESSEE IN ITS WRITTEN SUBMISSION HAS MENTIONED THAT IT HAS UNDERTAKEN WOR K VALUED AT ` 45,78,092 AT R & MNH III SITE. ALTHOUGH, THE WORK WAS DONE BUT THE SAME WAS NOT CONSIDERED FOR THE PURPOSE OF MEASUREMENT. SIMILARLY, IN THE CASE OF SEEPZ ROAD MIDC, ALTHOUGH, WORK WAS DONE TO THE EXTENT OF ` 2,02,36,803/-, BUT BILLING COULD BE DONE ONLY TO TH E EXTENT OF ` 1,53,05,637/- AND THE BALANCE AMOUNT TO THE TUNE OF ` 49,31,166/- COULD NOT BE BILLED. SIMILARLY IN THE CASE OF D.N. NAGAR MIDC, ALTHOUGH WORK WAS DONE TO THE TUNE OF ` 16,99,845/- BUT THE ASSESSEE HAS BILLED TO THE TUN E OF ` 7,93,442/-AND THE BALANCE AMOUNT TO THE TUNE OF ` 9,06,403/- WAS NOT BILLED. IN THE CASE OF SHIL MAHAPE ROAD MIDC, THE WORK WAS DONE TO THE TUNE OF ` 78,46,658/- BUT THE ASSESSEE HAS BILLED TO THE TUN E OF ` 53,41,357/-AND THE BALANCE AMOUNT TO THE TUNE OF ` 25,03,301/- COULD NOT BE BILLED. THE ASSESSEE HAS ALSO NOT BILLED TO THE TUNE OF ` 40,27,892/-FOR FOB BOISAR VATANSINGH. ACCORDING TO THE LD. CIT(A) THE SUBMISSION REGARDING NPA OF THE ASSESSEE WITH THE BANK DOES NO T PROVE IN ANY WAY THAT THERE WAS NO CLOSING STOCK AND WORK-IN-PROGRESS AT THE END OF THE YEAR. HE, ACCORDINGLY, UPHELD THE ACTION OF THE A.O. 6 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION 2.5 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE A.O. AND LD. CIT(A). REFERRING TO THE PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE, THE LD. COUNSEL FOR THE ASS ESSEE REFERRED TO THE COPY OF LETTER TO THE EXECUTIVE ENGINEER, MIDC REQUESTIN G EXTENSION OF TIME FOR COMPLETION OF WORK DTD. 12.11.2004 AND 20.6.2005, L ETTER OF MIDC DATED 29.10.2003 AWARDING THE WORK, LETTER FROM ORIENTAL BANK OF COMMERCE DATED 25.5.2005 INFORMING THAT MIDC HAS INVOKED TH E BANK GUARANTEES AND LETTERS FROM NATIONAL HIGHWAY DEPARTMENT, THANE INFORMING THE DEFECTS REQUIRED TO BE CORRECTED ETC. HE SUBMITTED THAT TH E ADDITIONAL EVIDENCES SHOULD BE ADMITTED TO ARRIVE AT PROPER CONCLUSION. HE SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE WERE PREPARED IN A WRONG M ANNER. IN THE KANDIVALI PROJECT, THE ASSESSEE HAS INCURRED HUGE LOSS TO THE TUNE OF ` 1,68,66,326/- DUE TO BAD DEBTS TO THE TUNE OF ` 1.41 CRORES AND PROVISION FOR FIRM TAX TO THE TUNE OF ` 16.25 LAKHS. HE SUBMITTED THAT THERE IS NO WIP AT KANDIVALI PROJECT. FOR OTHER PROJECTS, IT IS TRUE THAT THERE ARE CERTAIN EXPENSES INCURRED BUT AN OVERALL VIEW HAS TO BE TAKEN AND NO ADDITION ON THIS ACCOUNT SHOULD BE MADE. 4. THE LD. D.R., ON THE OTHER HAND, AT THE VERY OUT SET, OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE. HE SUBMITTED THA T THERE IS NO REASON AS TO WHY THESE DOCUMENTS WERE NOT PRODUCED BEFORE THE A. O. OR THE LD. CIT(A). SO FAR AS THE ADDITION IS CONCERNED, THE LD. D.R. S TRONGLY RELIED ON THE ORDER OF THE LD. CIT(A). HE SUBMITTED THAT THE PARTNER H AS DULY SIGNED THE WIP AND FURNISHED THE SAME TO THE A.O. DURING THE COURS E OF ASSESSMENT PROCEEDINGS. THE STATEMENT WAS NEVER WITHDRAWN. THE RE IS NO EVIDENCE ON RECORD THAT ANY ACTION HAS BEEN TAKEN AGAINST THE P ARTNER WHO HAS SIGNED THE STATEMENT AND FURNISHED THE SAME BEFORE THE A.O . THE EXPENSES INCURRED BY THE ASSESSEE HAS BEEN FURNISHED BY THE PARTNER OF THE ASSESSEE. THEREFORE, THE SAME CANNOT BE DISREGARDED. FURTHER, THE ASSESSEE IS 7 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION CHANGING HIS STAND SINCE ONE STORY WAS TOLD TO THE A.O. AND ANOTHER STORY WAS TOLD TO THE CIT(A). HE SUBMITTED THAT THIS IS N EITHER THE LAST YEAR OF THE BUSINESS OF THE ASSESSEE NOR THE ASSESSEE HAS CLOSE D DOWN THE BUSINESS. SINCE THE ASSESSEE IS NOT FORTHCOMING WITH FULL DET AILS AND CHANGING ITS STAND, THEREFORE, THE ORDER OF THE LD. CIT(A) SHOUL D BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. 5.1 SO FAR AS THE ADMISSION OF ADDITIONAL EVIDENCE IS CONCERNED, WE FIND FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT THE PAPERS SOUGHT TO BE FILED AS ADDITIONAL EVIDENCE WERE AVAILABLE DURING THE CO URSE OF ASSESSMENT PROCEEDINGS AS WELL AS APPEAL PROCEEDINGS. NO REAS ON WHATSOEVER HAS BEEN GIVEN BY THE ASSESSEE AS TO WHY AND HOW THESE PAPER S WERE NOT SUBMITTED BEFORE THE AUTHORITIES BELOW OR WHAT PREVENTED THE ASSESSEE FROM SUBMITTING THESE EVIDENCES. WE, THEREFORE, DO NOT FIND ANY SOU ND REASON TO ADMIT THESE EVIDENCES. ACCORDINGLY, THE REQUEST FOR ADMISSION O F ADDITIONAL EVIDENCE IS REJECTED. 5.2 SO FAR AS THE MERIT OF THE CASE IS CONCERNED WE FIND THE ASSESSEE IN ITS AUDITED ACCOUNT HAS SHOWN CLOSING STOCK OF ` 1,21,722/-. HOWEVER, ON BEING QUESTIONED BY THE A.O., THE PARTNER OF THE ASSESSEE FIRM SUBMITTED THE STATEMENT OF INVENTORY OF STOCK AND TOTAL WIP AT ` 3,40,86,484/- WHICH WAS DULY SIGNED BY HIM. WE FIND THE A.O. MADE THIS ADD ITION TO THE TOTAL INCOME OF THE ASSESSEE TO DETERMINE THE TRUE INCOME WHICH HAS BEEN UPHELD BY THE LD. CIT(A). IN OUR OPINION, THE ORDER OF THE LD. C IT(A) ON THIS ISSUE IS JUST AND PROPER. ADMITTEDLY, THE ASSESSEE HAS SHOWN CLO SING STOCK OF MATERIAL AND CLOSING WIP AT ` 2,11,09,238/- AS ON 31.3.2003 AND ` 2,50,21,990/- AS ON 31.3.2004 ON A TURNOVER OF ` 18,26,62,524/- FOR A.Y. 2003-04 AND ` 19,39,75,614/- FOR A.Y. 2004-05. HOWEVER, DURING TH E IMPUGNED A.Y. 8 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION ALTHOUGH THE TURNOVER OF THE ASSESSEE IS SHOWN AT ` 11,18,47,574/-, WE FIND THE ASSESSEE HAS SHOWN CLOSING STOCK OF ONLY ` 1,21,722 AND THERE IS NO CLOSING WIP. WE FIND FROM THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE LD. CIT(A) WHICH HAS BEEN INCORPORATED A T PAGE 5 TO 10 OF HIS ORDER THAT ALTHOUGH THE ASSESSEE HAS CARRIED OUT SU BSTANTIAL AMOUNT OF WORK AT VARIOUS SITES THE ASSESSEE HAS NOT BILLED T HE FULL AMOUNT AND HAS BILLED ONLY A PART OF THE AMOUNT. FOR EXAMPLE, THE WORK EXECUTED TO THE TUNE OF ` 45,78,092/- FOR R & MNH III HIGH WAY WAS NOT CONS IDERED FOR THE PURPOSE MEASUREMENT AND NO BILLING WAS MADE. SIMILA RLY, IN THE CASE OF SEEPZ ROAD MIDC, ALTHOUGH, WORK WAS DONE TO THE EXT ENT OF ` 2,02,36,803/- , BUT BILLING COULD BE DONE ONLY TO THE EXTENT OF ` 1,53,05,637/- AND THE BALANCE AMOUNT TO THE TUNE OF ` 49,31,166/- WAS NOT BILLED. SIMILARLY IN THE CASE OF D.N. NAGAR MIDC, ALTHOUGH WORK WAS DONE TO THE TUNE OF ` 16,99,845/- THE ASSESSEE HAS BILLED TO THE TUNE OF ` 7,93,442/- ONLY AND THE BALANCE AMOUNT TO THE TUNE OF ` 9,06,403/- WAS NOT BILLED. IN THE CASE OF SHIL MAHAPE ROAD MIDC, THE WORK WAS DONE TO THE TUN E OF ` 78,46,658/- BUT THE ASSESSEE HAS BILLED TO THE TUNE OF ` 53,41,357/- ONLY AND THE BALANCE AMOUNT TO THE TUNE OF ` 25,03,301/- WAS NOT BILLED. THE ASSESSEE HAS ALSO NOT BILLED TO THE TUNE OF ` 40,27,892/-FOR FOB BOISAR VATANSINGH. IN ABSENCE OF ANY COGENT EVIDENCE, WE DO NOT FIND A NY FORCE IN THE SUBMISSION OF THE LD. COUNSEL THAT THE ASSESSEE HAD DONE SOME EXTRA WORK AT THE INSTRUCTION OF THE SITE OFFICIALS FOR WHICH NO BILLS WERE RAISED. ADMITTEDLY, THE ASSESSEE HAS EXECUTED WORK AND THE VARIOUS EXPENSES HAVE ALREADY BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. HOWEVER, FULL AMOUNT OF THE SAME HAS NOT BEEN BILLED, AND THE UNBILLED PORT ION HAS NEITHER BEEN SHOWN UNDER THE HEAD CLOSING STOCK NOR UNDER CLOSIN G WIP. SINCE PARTNER OF THE ASSESSEE FIRM DURING THE COURSE OF ASSESSMENT P ROCEEDING HAD HIMSELF ADMITTED THE VALUE OF CLOSING STOCK AND WIP AT ` 3,40,86,484/- AND SINCE THE SAME HAS NOT BEEN RETRACTED, THEREFORE, THE SAM E HAS TO BE ACCEPTED AS THE CLOSING STOCK AND WIP. THE ASSESSEE FOLLOWS MER CANTILE SYSTEM OF ACCOUNTING WHICH IS EVIDENT FROM THE COPY OF ASSESS MENT ORDERS FOR VARIOUS YEARS. UNLESS THE CLOSING STOCK & WIP IS TAKEN THE CREDIT SIDE OF THE PROFIT & 9 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION LOSS ACCOUNT, THE MATCHING CONCEPT OF ACCOUNTANCY W ILL BE DEFEATED SINCE THE ASSESSEE HAS ALREADY INCURRED THE EXPENDITURE A ND DEBITED TO THE P&L ACCOUNT. THEREFORE, THE TRUE PROFIT OF THE FIRM CAN NOT BE DETERMINED. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A) UPHOLDING THE ADDITION MADE BY THE A.O. ON THIS ACC OUNT. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. GROUNDS OF APPEAL NO. 1 & 2 ARE ACCORDINGLY DISMISSED. 6. IN GROUND NO. 3 & 4, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF BAD DEBTS WRIT TEN OFF /DISCOUNT ALLOWED AMOUNTING TO ` 1,24,10,954/- OUT OF 1,46,60,653/- MADE BY THE A.O . 6.1 FACTS OF THE CASE IN BRIEF ARE THAT ASSESSEE HA S DEBITED AN AMOUNT OF ` 1,46,60,653/- UNDER THE HEAD BAD DEBTS AND DISCOUNT . THE A.O. ASKED THE ASSESSEE TO FURNISH THE DETAILS OF THE SAME AND TO FURNISH REASONS AS TO WHY THESE AMOUNTS ARE TREATED AS BAD DEBTS ESPECIALLY W HEN THE ASSESSEE WAS HAVING TRANSACTIONS WITH SOME OF THE PARTIES DURING THE YEAR. HE ALSO ASKED THE ASSESSEE TO FURNISH A NOTE ON THE ALLOWABILITY OF THE BAD DEBTS. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE A.O. NOTED T HAT NO REASONS WERE GIVEN BY THE ASSESSEE AS TO WHY THESE AMOUNTS WERE TREATE D AS BAD. THE A.O. SENT NOTICE U/S 133(6) TO SOME OF THE PARTIES WHOSE ACCO UNTS WERE TREATED AS BAD DEBTS. AFTER RECEIVING THE REPLY FROM SOME OF THE PARTIES, THE A.O. NOTED THAT THE ASSESSEE IS STILL CARRYING ON BUSINESS WITH SOM E OF THE PARTIES. FURTHER, IN SOME CASES, THE ASSESSEE HAS TREATED THE ENTIRE PAYMENT DUE FOR JOB WORK DONE DURING THE YEAR AS BAD DEBTS OR DISCOUNTS. HE NOTED THAT IN SOME CASES, THE NOTICES SENT TO THE PARTIES WERE RETURNE D UN-SERVED AND IN SOME CASES, NO REPLY WAS RECEIVED FROM THE PARTIES. THE A.O. ALSO OBSERVED THAT THE ASSESSEE IS PROMPTLY WRITING OFF DUES RECEIVABL E FROM SOME PARTIES EVEN DURING THE YEAR WHEREAS THE ASSESSEE IS NOT PROMPT IN WRITING OFF HIS SUNDRY CREDITORS. IN VIEW OF THE ABOVE, THE A.O. MADE ADD ITION OF ` 1,46,60,653/- TO THE TOTAL INCOME OF THE ASSESSEE. 10 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION 6.2 THE LD. CIT(A), AFTER ANALYSING THE COMPLETE LI ST OF PARTIES WITH AMOUNT AND THE EXPLANATION GIVEN BY THE ASSESSEE, GAVE PAR T RELIEF AND SUSTAINED AN AMOUNT OF ` 1,24,10,954/-. WHILE DOING SO, HE NOTED THAT IN M OST OF THE CASES, ASSESSEE HAS BEEN UNILATERALLY, CONVENIENTLY AND SUO MOTTO CLAIMED BAD DEBTS AND DISCOUNT WITHOUT ASSIGNING ANY REASON AND FILING ANY EVIDENCE, CORRESPONDENCE, DEBIT/CREDIT NOTE TO SHOW THAT THE DEBTOR HAS INCAPACITATED AND DENIED TO PAY THE AMOUNT TO THE A SSESSEE. IN SOME CASES THE DEBTOR IS CORRESPONDINGLY SHOWING BALANCES OF E QUAL AMOUNT AS PAYABLE TO THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT SUO MOTTO ENTRY OF WRITING OFF OF AMOUNT/BALANCE IN THE ACCOUNT BY THE ASSESSE E AS BAD DEBTS OR DISCOUNT PROVES THE CASE OF THE ASSESSEE AS GENUINE BAD DEBTS OR DISCOUNT CLAIM. 6.3 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 7. AFTER HEARING BOTH THE SIDES, WE ARE OF THE CONS IDERED OPINION THAT THE MATTER REQUIRES FRESH ADJUDICATION AT THE LEVEL OF THE A.O. SINCE THE ASSESSEE IN HIS EXPLANATION FOR REASONS FOR DISCOUNT HAS NOT FURNISHED ANY EVIDENCE TO JUSTIFY THAT THE SAME IS DUE TO RATE AND QUALITY DIFFERENCE, A FINDING GIVEN BY THE LD. CIT(A) AND WHICH COULD NOT BE CONTROVERT ED BY THE LD. COUNSEL FOR THE ASSESSEE. WE, THEREFORE, RESTORE THE ISSUE REL ATING TO BAD DEBT AND DISCOUNT TO THE FILE OF THE A.O. FOR FRESH ADJUDICA TION. WHILE DOING SO THE A.O. SHALL KEEP IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (323 ITR 397) AND THE DECI SION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF STAR CHEMICALS (31 3 ITR 126) SO FAR AS BAD DEBTS ARE CONCERNED. NEEDLESS TO SAY THAT THE A.O. SHALL GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECI DE THE ISSUE AS PER LAW. WE HOLD AND DIRECT ACCORDINGLY. THE ABOVE GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION 8. IN GROUNDS OF APPEAL NO. 5 & 6, THE ASSESSEE HA S CHALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE LOAN OF ` 20,62,300/-. 8.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. AS KED THE ASSESSEE TO FURNISH LOAN CONFIRMATION IN RESPECT OF ALL NEW AND ADDITIONAL AS WELL AS SQUARED OFF LOANS. FROM THE VARIOUS DETAILS FURNISH ED BY THE ASSESSEE, THE A.O. NOTED THAT THE ASSESSEE COULD NOT FURNISH THE LOAN CONFIRMATION IN RESPECT OF THE FOLLOWING PERSONS: KALPANA DESAI ` 20,62,300 KIRTHRAJA ` 1,92,926 PRAKASH ENGG ` 5,00,000 ` 27,55,226 8.2 IN ABSENCE OF ANY LOAN CONFIRMATIONS IN RESPECT OF THESE PERSONS, THE A.O. MADE ADDITION OF ` 27,55,226/-. 8.3 BEFORE THE LD. CIT(A), THE ASSESSEE FURNISHED L OAN CONFIRMATION OF KALPA DESAI, WHO IS THE DAUGHTER OF THE PARTNER. I T WAS SUBMITTED THAT THE CONFIRMATION COULD NOT BE FILED SINCE SHE WAS NOT A VAILABLE DURING THE PERIOD. AS FAR AS THE CONFIRMATION OF KRITARTH RAJ A, IT WAS SUBMITTED THAT THIS AMOUNT WAS PAYABLE TO ONE OF THE CREDITOR WHO BY MISTAKE WAS SHOWN UNDER THE HEAD UNSECURED LOAN. IT WAS SUBMITTED T HAT THE EXPENDITURE IN RESPECT OF THE SAID PARTY HAS BEEN ACCEPTED BY THE A.O. THE ASSESSEE ALSO FILED CONFIRMATION LETTER IN THE CASE OF PRAKASH EN GINEERING. IT WAS SUBMITTED THAT IT IS AN ADVANCE RECEIVED FROM THE P ARTY IN RESPECT OF THE SUPPLY TO BE MADE AND THAT THIS IS NOT A LOAN. ON THE BASIS OF THE VARIOUS SUBMISSIONS ADVANCED BEFORE HIM ALONG WITH CONFIRMA TION LETTERS, THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM THE A.O. A ND CONFRONTED THE SAME 12 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION TO THE ASSESSEE. THEREAFTER, THE LD. CIT(A) CONFIRM ED THE ADDITION MADE BY THE A.O. 8.4 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US ONLY ON ACCOUNT OF ADDITION SUSTAINED IN THE CASE OF KALPANA DESAI FOR ` 20,62,300/-. 8.5 THE LD. COUNSEL FOR THE ASSESSEE REQUESTED THAT INSTEAD OF ADDITION OF THE AMOUNT OF ` 20,62,300/-, ONLY THE PEAK CREDIT FROM THE SAID PA RTY SHOULD BE ADDED. 8.6 THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE THEORY OF PEAK CREDIT HAS ALREADY BEEN DISCUSSED BY THE LD. CIT(A) WHEREIN HE HAS OBSERVED THAT COMPLETE COPY OF THE ACCOUNT ALONG WITH COPY O F THE BANK STATEMENT WAS NOT PROVIDED. SINCE THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTION, THE ADDITI ON SHOULD BE UPHELD. 9. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF A.O. AND THE CIT(A) AND THE PAPER BOO K FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT DUE TO NON-FURNISHING OF LOAN CONFIRMATION LETTERS, THE A.O. MADE ADDITION OF ` 27,55,226/- BEING UNSECURED LOAN TAKEN FROM THREE PARTIES. WE FIND T HE LD. CIT(A) CONFIRMED THE ADDITION ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS AND CREDITWORTHINESS OF THE PARTIES. THE ASSESSEE H AS NOT CHALLENGED THE ORDER OF LD. CIT(A) IN CONFIRMING THE AMOUNT OF LOA N TAKEN FROM KIRTHRAJA AMOUNTING TO ` 1,92,926/- AND PRAKASH ENGG AMOUNTING TO ` 5,00,000/-. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASS ESSEE THAT ONLY ADDITION OF PEAK AMOUNT OF THE CREDIT DURING THE YEAR TO THE TU NE OF ` 12,24,300/- SHOULD BE ADDED AS AGAINST THE ADDITION OF ` 20,62,300/- BEING LOAN TAKEN FROM KALPA DESAI. WE FIND THE LD. CIT(A) REJECTED THIS ALTERNATE CONTENTION OF THE ASSESSEE REGARDING PEAK CREDIT ON THE GROUND TH AT COMPLETE COPY OF 13 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION ACCOUNT ALONG WITH COPY OF THE BANK ACCOUNT OF THE CREDITOR WAS NOT FURNISHED. WE FIND FROM THE PAPER BOOK PAGE 120 TH AT THE ASSESSEE HAS FILED COPY OF ACCOUNT OF THE KALPANA DESAI ALONG WITH HER PAN WHICH CONTAINS BOTH DEBITS AND CREDITS ON VARIOUS DATES. WE, THER EFORE, FIND SOME FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT INSTED OF ADDITION OF FULL AMOUNT OF ` 20,62,300/- ONLY PEAK CREDIT OF ` 12,24,300/-SHOULD BE ALLOWED. HOWEVER, SINCE THE ASSESSEE HAD NOT FURNI SHED THE BANK ACCOUNT OF THE CREDITOR, THEREFORE WE DEEM IT PROPER TO RESTOR E THE ISSUE TO THE FILE OF THE A.O. TO VERIFY THE BANK STATEMENT ALONG WITH THE AC COUNT CONFIRMATION AND IF THE SAME IS FOUND CORRECT THEN TO ADD ONLY THE PEAK CREDIT TO THE TUNE OF ` 12,24,300/- AS AGAINST ADDITION OF ` 20,62,300/-. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED FOR STATIST ICAL PURPOSE. 10. GROUNDS OF APPEAL NO. 7 & 8 WERE NOT PRESSED FO R WHICH THE LD. D.R. HAS NO OBJECTION. ACCORDINGLY THE SAME ARE DISMISS ED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 30.6.2011 SD/- SD/- ( R.V. EASWAR ) PRESIDENT ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 30.6.2011 RK 14 ITA NO.2707/MUM/2009 M/S ASPHALT INDIA CORPORATION COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, 25, MUMBAI 4 CIT(A) -XXVI MUMBAI 5 DR BENCH A 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI