SONALI A. SHAH, MUMBAI V. ITO 14(3)(3), MUMBAI

ITA 2944/MUM/2013

• Counselvise Citation: 294419914 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: RAHUL SARDA
• Keywords: Bogus purchase; Gross profit estimation; Rejection of books of accounts; Depreciation
• Section: 143(3); 133A; 234B; 133(6)

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN,JUDICIAL MEMBER & RAJ ENDRA,ACCOUNTANT MEMBER /. ITA NO.2944/MUM/2013, / ASSESSMENT YEAR - 2008 - 09 MRS. SONALI A. SHAH RAJ PARASHAR,3 RD FLOOR,FLAT NO. 301, - 2 - 3,95/F, INDRANARAYAN ROAD, SANTACRUZ(W),MUMBAI - 400 054. PAN: ADGPS 6844 D VS INCOME TAX OFFICER - 14(3)(3) EARNEST HOUSE, NARIMAN POINT MUMBAI - 400 021. ( / APPELLANT ) ( / RESPONDENT ) /. ITA NO.3671/MUM/2013, / ASSESSMENT YEAR - 2008 - 09 INCOME TAX OFFICER - 21(2)(4) ROO M NO.503, 5 TH FLOOR, C - 10 PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI - 400 051. VS MRS. SONALI A. SHAH MUMBAI - 400 054. PAN: ADGPS 6844 D ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI RAHUL SARDA - AR / REVENUE BY : SHRI S.S. RANA - DR / DATE OF HEARING : 28 - 07 - 2015 / DATE OF PRONOUNCEMENT : 05 - 0 8 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGIN G THE ORDER DATED 28 .0 2.2013 OF THE CIT - 28 ,MUMBAI,THE ASSESSING OFFICER(AO) AND THE ASSESSEE HAVE FILED CROSS APPEALS FOR THE YEAR UNDER CONSIDERATION. ITA NO.3 6 71/MUM/2013: THE AO HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE L D. CIT(A) HAS ERRED IN NOT FOLLOWING THE APPELLATE ORDER FOR A. Y. 2007 - 08, PASSED IN THE CASE OF THE ASSESSEE, WHEREIN THE CIT(A) - 25, MUMBAI, VIDE ORDER DATED 18.02.2011 HAS CONFIRMED THE ADOPTION OF G.P. @ 10% FOR IRON & STEEL BUSINESS AND 20% FOR TEXTILE BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONSIDERING THE G.P. @ 3% IN RESPECT OF IRON & STEEL BUSINESS AND 15.20% IN RESPECT OF TEXTILE BUSINESS, INSTEAD OF 10% FOR IRON & STEEL BUSINESS AND 20% FOR TEXTILE BUSINESS AS ADOPTED BY ASSESSING OFFICER. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE ID. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 2 4. THE APPELLANT CRAVES LEAVE TO AMEND OR TO ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. ITA NO.2944/MUM/2013: GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1.THE LD. CIT(A) ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUN T BASED ON CONJUNCTURES AND SURMISES, BY RELYING ON THE OBSERVATIONS OF THE A.O.WHICH ARE NOT RELEVANT TO THE ISSUES UNDER CONSIDERATION, AND WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS. 2.THE LD. CIT(A) ERRED IN CONFIRMING THE ES TIMATION OF THE G.P. AT 3 % I.E. RS.51,32,520/ - FROM IRON & STEEL BUSINESS W ITHOUT APPRECIATING THE FACT THAT ALL THE PARTIES HAD DIRECTLY RESPONDED TO THE NOTICES ISSUED TO THEM,AND WITHOUT APPRECIATING THE FACT THAT ANY TRADER HARDLY EARNS G.P. FROM THE RANGE OF 1 % TO 2 % ONLY. 3.THE LD.CIT (A) ERRED IN CONFIRMING THE ESTIMATION OF G.P. AT 15.20% I.E. RS.72, 39,554/ - FROM TEXTILE BUSINESS WITHOUT APPRECIATING THE FACT THAT SOME PARTIES HAD DIRECTLY RESPONDED TO THE NOTICES ISSUED AND FOR THE REST THE CONFIRMATIONS WERE FILED BY THE ASSESSEE. THE CIT (A) FAILED TO APPRECIATE THE FACT THAT ANY TRADER HARDLY EARNS G.P. FROM THE RANGE OF 1 % TO 2 % ONLY. 4. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,17,31,574/ - U/S 41 (1) WITHOUT APPRECIATING THE FACT THAT THE BALANCE AMOUNTS OF THE CREDITORS WERE CLEARED OFF IN THE SUBSEQUENT YEARS, THROUGH ACCOUNT PAYEE CHEQUES, AND HENCE ADDITION MADE U/ S 41 (1) MAY BE DELETED. 5.WITHOUT PREJUDICE TO ABOVE, THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.2, 17, 31,574/ - U/S 41(1) AND ALSO COMPUTING THE INCOME BY ESTIMATING THE G.P. BY REJECTING THE BOOKS, AND HENCE SAME WOULD LEAD TO DOUBLE ADDITION. 6.THE LD. CIT(A) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE @ 20 % O F RS.1,20,526/ - ON ACCOUNT OF MOTOR CAR EXPENSES, MOTOR CAR INSURANCE, DEPRECIATION ON CAR, TELEPHONE EXPENSES, STAFF WELFARE EXPENSES, ETC. 7.THE LD. CIT (A) ERRED IN CON FUMING THE VARIOUS DISALLOWANCES AND ALSO SEPARATELY ESTIMATING THE G.P. 8.ON MERITS THE APPELLANT DENIES ITS LIABILITY TO THE LEVY OF PENAL INTEREST U/ S. 234A, 234B AND 234C. 9.THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ASSESSEE,AN INDIVIDUAL, IS PROPRIETOR OF MANNAT E NTERPRISE AND IS ENGAGED IN THE TRADING OF TEXTILE AND IRON & STEEL ITEMS .SHE FILED H ER RETURN ON 13 . 0 9 .200 8 ,DECLARING INCOME OF RS. 1. 9 3 LAKHS .THE AO COMPLETED THE ASSESSMENT ON 30 .12.20 1 0 ,U/S. 143(3) OF THE ACT,DETERMINING HE R INCOME AT RS. 4 . 70 CRORES . IT A NO. 36 71/MUM/2013: 2. EFFECTIVE GROUND OF APPEAL IS ABOUT RATE OF GROSS PROFIT(GP)IN RESPECT OF TEXTILE BUSINESS AND IRON & STE EL BUSINESS CARRIED OUT BY THE ASSESSEE . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO GATHERED THAT IN THE AY 2007 - 08, THE ASSESSEE HAD INFLATED THE PURCHASES BY OBTAINING BOGUS PURCHASE BILLS AND TRANSACTIONS ROUTED THROUGH BANKS BY ILLEGAL MEANS.IN THAT YEAR,THE AO ISSUED NOTICES U/S.133(6) OF THE ACT TO VARIOUS PARTIES WITH WHOM THE ASSESSEE HAD DEALT, BUT SUCH TRANSACTIO NS COULD NOT BE PROVED.THE AO REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE G.P. FROM STEEL BUSINESS @ 10% AND 20% FROM TEXTILE BUSINESS.FOLLOWING THE SAME METHODOLOGY IN THE CURRENT YEAR,HE ISSUED NOTICE U/S.133(6) OF THE ACT TO VARIOUS PARTIES A ND THEREAFTER FOUND THAT SEVERAL PARTIES FAILED TO CONFIRM THE TRANSACTIONS.HE AO TRIED TO VERIFY THE PURCHASES FROM OTHER PARTIES AND FOUND THAT THE PURCHASES IN RESPECT OF 13 PARTIES AS PER THE ASSESSMENT ORDER WERE NOT VERIFIABLE.ACCORDINGLY,HE REJE CTED THE BOOKS OF ACCOUNT AND ADOPTED THE G.P. RATE @20% IN RESPECT OF TEXTILE BUSINESS ON TOTAL TURNOVER OF RS.4,76,28,648/ - , AND G.P. RATE OF 10% IN RESPECT ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 3 OF IRON AND STEEL ON TURNOVER OF RS.17,10,84,032/ - AND WORKED OUT THE GP AT RS.2,66,34,132/ - A ND MADE THE ADDITION ACCORDINGLY. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) ,WHO REDUCED THE GP TO 15.20 % IN CASE OF TEXTILE BUSINESS AND @ 3 % FOR IRON AND STEEL BUSINESS. 2.2. IT WAS BR OUGHT TO OUR NOTICE THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE AY.2007 - 08(ITA/6931/MUM/2011 - DTD.03.04.2013).WE FIND THAT THE TRIBUNAL HAS DEALT AND DECIDED THE ISSUE OF GP RATE IN THE EARLIER AY.IN FOLLOWING MANNER: 8.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF DEALING IN IRON AND STEEL PRODUCTS AND TEXTILE PRODUCTS AND ON THE TOTAL TURNOVER OF THE SAID BUSINESS AMOUNTING TO RS. 20.56 CRORES, GROSS PROFIT OF RS. 20.61 LACS WAS DISCLOSED BY THE ASSESSEE GIVING A VERY LOW GP RATE OF ABOUT 1%. A SURVEY U/S 133A WAS CARRIED OUT IN THE CASE OF THE ASSESSEE WHEREIN THE ASSESSEE WAS FOUND TO BE INDULGED IN A PRACTICE OF ROUTING THE UNACCOUNTED MONEY THROUGH ILLEGAL WAYS AND CHANNELIZING THEM TO BE LOOKED LIKE GENUINE TRANSACTIONS. SHE WAS ALSO FOUND TO BE IN POSSESSION OF SOME CHEQUE BOOKS WHICH WERE SIGNED BY VARIOUS PARTIES WITHOUT MENTIONING ANY DATE AND AMOUNT. KEEPING IN VIEW THESE FINDINGS OF THE SURVEY AS WELL AS THE LOW GROSS PROFIT DISCLOSED BY THE ASSESSEE, THE A.O. PROCEEDED TO VERIFY THE GENUINENESS OF THE TRANSACTIONS OF PURCHASES AND SALES SHOWN BY THE ASSESSEE. IN THIS REGARD, HE ISSUED NOTICE S U/S 133(6) OF THE ACT TO VARIOUS PARTIES OUT OF WHICH MANY NOTICES WERE RETURNED BY THE POSTAL AUTHORITY CITING VARIOUS REASONS SUCH AS WRONG ADDRESS, INCOMPLETE ADDRESS, LEFT ETC. THE ASSESSEE THEREFORE WAS CALLED UPON BY THE A.O. TO PRODUCE THE S AID PARTIES ALONG WITH THEIR BOOKS OF ACCOUNT FOR VERIFICATION WHICH THE ASSESSEE FAILED TO DO. ALTHOUGH THE ASSESSEE FILED CONFIRMATIONS OF SOME PARTIES, THE A.O. FOUND THE SAME TO BE UNRELIABLE FOR THE VARIOUS DISCREPANCIES SPECIFICALLY POINTED OUT BY HI M WHICH THE ASSESSEE AGAIN FAILED TO EXPLAIN. BEFORE THE A.O., THE ASSESSEE PRODUCED COMPUTER GENERATED BANK BOOK WHICH CONTAINED NUMBER OF ENTRIES OF WITHDRAWALS AND DEPOSITS WHICH WERE WITHOUT ANY NARRATION. WHEN THIS POSITION WAS CONFRONTED BY THE A.O. TO THE ASSESSEE, THE LATER FAILED TO OFFER ANY SATISFACTORY EXPLANATION. HAVING REGARD TO ALL THESE SPECIFIC AND MATERIAL DEFECTS POINTED OUT BY THE A.O., WE ARE OF THE VIEW THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT RELIABLE AND THE SAM E WERE RIGHTLY REJECTED BY THE AUTHORITIES BELOW AFTER HAVING SATISFIED THAT THEY ARE NOT CORRECT. 9. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT NONE OF THE NOTICES RETURNED BACK TO THE A.O. BY THE POSTAL AUTHORI TY WAS PERTAINING TO THE IRON AND STEEL BUSINESS OF THE ASSESSEE AND THEREFORE THE BOOK RESULTS OF THE SAID BUSINESS SHOULD NOT BE DISTURBED. HOWEVER, AS SPECIFICALLY NOTED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER, THE CONFIRMATIONS FILED BY THE ASSESSEE OF THE PARTIES PERTAINING TO THE IRON AND STEEL BUSINESS WERE ALSO FOUND TO BE UNRELIABLE BY THE A.O. FOR THE SPECIFIC DISCREPANCIES POINTED OUT THEREIN WHICH THE ASSESSEE FAILED TO EXPLAIN. MOREOVER, BOTH THE IRON AND STEEL BUSINESS AND TEXTILE BUSINESS WER E CARRIED ON BY THE ASSESSEE UNDER THE NAME AND STYLE OF HIS PROPRIETARY CONCERN M/S MANNAT ENTERPRISES AND THE COPY OF BALANCE SHEET AND P&L ACCOUNT OF THE SAID PROPRIETARY CONCERN PLACED AT PAGE 1 TO 25 OF THE ASSESSEES PAPER BOOK SHOWS THAT ONLY ONE SE T OF BOOKS OF ACCOUNT WAS MAINTAINED BY THE ASSESSEE FOR BOTH IRON AND STEEL BUSINESS AND TEXTILE BUSINESS. IT IS THEREFORE NOT POSSIBLE TO ACCEPT THE BOOKS OF ACCOUNT OF THE ASSESSEE IN RESPECT OF IRON ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 4 AND STEEL BUSINESS AND REJECT THE SAME IN RESPECT OF TEXTILE BUSINESS AS SOUGHT TO BE CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE. EVEN OTHERWISE, SOME OF THE MATERIAL DEFECTS POINTED OUT BY THE A.O. AS WELL AS ADVERSE FINDINGS OF THE SURVEY WERE RELATED TO THE OVERALL BUSINESS ACTIVITIES OF THE ASSESSEE W HICH FULLY JUSTIFIED THE REJECTION OF COMBINED BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE FOR IRON AND STEEL AND TEXTILE BUSINESS. 10. HAVING HELD THAT THE REJECTION OF THE BOOKS OF ACCOUNT OF THE ASSESSEE BY THE AUTHORITIES BELOW IS FULLY JUSTIFIED IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE NEXT ISSUE THAT ARISES FOR OUR CONSIDERATION IS RELATING TO THE ESTIMATION OF INCOME OF THE ASSESSEE FROM HER BUSINESS OF IRON AND STEEL AND TEXTILE PRODUCTS. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE GP RATE OF 20% APPLIED BY THE AUTHORITIES BELOW TO ESTIMATE THE INCOME OF THE ASSESSEE FROM TEXTILE BUSINESS IS ON THE HIGHER SIDE KEEPING IN VIEW THAT THE OVERALL GP RATE IN THE RANGE OF 1 TO 1.5% DECLARED BY THE ASSESSEE IN THE EARLIER YEARS WAS ACCEPTED BY THE A.O. IT IS HOWEVER OBSERVED THAT THE ASSESSMENT ONLY FOR THE A.Y. 2006 - 07 WAS COMPLETED BY THE A.O. U/S 143(3) OF THE ACT AND A PERUSAL OF COPY OF THE RELEVANT ORDER PLACED AT PAGE 347 & 348 OF THE PAPER BOOK SHOWS THAT THE ISSUE RELATING TO TRADING RESULTS WAS NOT AT ALL DISCUSSED BY THE A.O. IN THE SAID ORDER. EVEN THE BASIC DETAILS RELATING TO THE TRADING RESULTS SHOWN BY THE ASSESSEE SUCH AS QUANTUM OF PURCHASES AND SALES ETC. WERE NOT GIVEN IN THE SAID ORDER. IN THE ABSENCE O F SUCH DETAILS OR ANY DISCUSSION WHATSOEVER MADE BY THE A.O. IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT FOR A.Y. 2006 - 07, WE ARE OF THE VIEW THAT THE ASSESSMENT ORDER FOR A.Y. 2006 - 07 CANNOT BE TAKEN AS BASIS TO ESTIMATE THE INCOME OF THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION. 11. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF THE TRIBUNAL PASSED IN THE CASE OF ARYA TEXTURISERS AND TWISTERS (SUPRA) WHEREIN THE GP RATE OF 3.2% WAS ACCEPTED BY THE TRIBUNAL AS FAIR AND REASONABLE. IT IS HOWEVER OBSERVED THAT NEITHER THE SAID CASE NOR ANY OTHER COMPARABLE CASE WAS CITED BY THE ASSESSEE BEFORE THE A.O. SO THAT THE RELEVANT ASPECTS COULD BE CONSIDERED AND VERIFED BY HIM. MOREOVER, THE A.O. HAS RELIED ON CERTAIN COMPARABLE CASES OF TEXTILE BUSINESS FROM HIS OWN JURISDICTION WHERE THE GP RATE DECLARED WAS IN THE RANGE OF 10.62 % AND 18.31%. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE APPLICATION OF HIGHEST GP RATE OF 20% IS NOT J USTIFIED KEEPING IN VIEW THIS RANGE GIVEN BY THE A.O. WE FIND MERIT IN THIS CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. IN OUR OPINION, THE GP RATE OF 20% APPLIED BY THE A.O. IN RESPECT OF TEXTILE BUSINESS IS ON THE HIGHER SIDE KEEPING IN VIEW T HE COMPARATIVE GP RATES POINTED OUT BY HIMSELF WHICH WERE IN THE RANGE OF 10.62 % AND 18.31% AND IT WOULD BE FAIR AND REASONABLE TO ADOPT THE AVERAGE GP RATE TO ESTIMATE THE INCOME FROM TEXTILE BUSINESS WHICH MAY BE TAKEN AT ROUND FIGURE OF 15%. 12. AS REG ARDS THE GP RATE TO BE APPLIED IN RESPECT OF IRON AND STEEL TRADING BUSINESS, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INEL TRADING COMPANY (SUPRA) SUBMITTING THAT THE LOW GP RATE OF 1.82% WAS APPLIED IN THAT CASE IN RESPECT OF IRON AND STEEL BUSINESS. IT IS HOWEVER OBSERVED THAT ALTHOUGH A GP RATE OF 1.82% WAS MENTIONED IN THE SAID ORDER IN RESPECT OF BUSINESS OF TRADING IN IRON AND STEEL BUSINESS, THE INCOME OF THE ASSESSEE IN THAT CASE WAS FINALLY ESTIMATED BY THE TRIBUNAL BY APPLYING CERTAIN NET PROFIT RATE. MOREOVER, AS ALREADY NOTED BY US, THE FACTS INVOLVED IN THE PRESENT CASE ARE PECULIAR INASMUCH AS THE ASSESSEE WAS FOUND TO BE INDULGED IN A PRACTICE OF ROUTING THE UNACCOUNTED MONEY THROUGH ILLEGAL WAYS AND CHANNELIZING THEM TO BE LOOKED LIKE A GENUINE TRANSACTIONS. IT IS OBSERVED THAT WHILE APPLYING GP RATE OF 10% IN RESPECT OF BUSINESS OF DEALING IN IRON AND STEEL, THE RELIANCE WAS PLACED BY ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 5 THE A.O. ON THE COMPARATIVE GP RAT ES SHOWN IN THE RANGE OF 5 TO 10%. HOWEVER, AS ADMITTED BY THE A.O. IN THE REMAND REPORT FORWARDED TO THE LD. CIT(A), THERE WERE NO SPECIFIC COMPARABLE CASES AVAILABLE ON RECORD TO SHOW SUCH GP RATES AND THE RANGE OF 5 TO 10% WAS STATED TO BE GATHERED BY H IM FROM THE INFORMATION COLLECTED FROM THE MARKET. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE TO ADOPT A GP RATE OF 5% IN RESPECT OF BUSINESS OF THE ASSESSEE OF TRADING IN IRON AND STEEL PRODUCTS. WE THEREFORE MODIFY THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RECOMPUTE THE INCOME OF THE ASSESSEE BY APPLYING GP RATE OF 15 & 5 % IN RESPECT OF TEXTILE BUSINESS AND IRON AND STEEL BUSINESS RESPECTIVELY. THE RELEVANT GROUNDS OF THE ASSESSEE ARE THUS PARTLY ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DIRECT THE AO TO COMPUTE THE INCOME OF THE ASSESSEE BY ADOPTING GP RATE OF 15% AND 5% RESPECTIVELY FOR THE TEXTILE BUSINESS AND FOR THE IRON AND STEEL BUSINESS. EFFECTIVE G ROUND OF APPEAL,FILED BY THE AO,IS PARTLY ALLOWED IN HIS FAVOUR. ITA NO.2944/MUM/2013: 3 . FIRST EFFECTIVE GROUND OF APPEAL(GOA - 2&3)FILED BY THE ASSESSEE ALSO PERTAIN TO GP RATE OF BOTH T HE BUSINESSES.AS STATED EARLIER, THE FAA HAD ESTIMATED THE GP RATES OF TEXTILE BUSINESS AND IRON & STEEL BUSINESS AT 15.20% AND 3% RESPECTIVELY . 3.1. RESPECTFULLY,FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE AY.2007 - 08,WE PARTLY ALLOW THE GROUNDS NO.2 AND 3 IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO FOLLOW THE DIRECTION AS MENTIONED IN PARA 2.2 OF OUR ORDER. 4. NEXT EFFECTIVE GROUND OF APPEAL(GOA 4 - 5)IS ABOUT ADDITION MADE U/S.41(1)OF THE ACT, AMOUNT - ING TO RS.2.17 CRORES.DURING THE ASSESSMENT PROCEEDINGS,THE AO HAD ISSUE NOTICES U/S.133(6)OF THE ACT TO SUNDRY CREDITORS.OUT OF SEVEN CASES IN FOUR CASES NOTICES WERE NOT SERVED OR THE CREDITORS WERE FOUND TO BE NOT TRACEABLE.AS PER THE BOOKS OF ACCOUNTS THE ASSESSEE HAD TO PAY RS. 2.17 CRORES TO THOSE SEVEN CREDITORS.AS PER THE AO,THE ASSESSEE COULD NOT PRODUCE THE PARTIES FOR CROSS VERIFICATION.HE HELD THAT THE SINCE THE CREDITORS HAD NOT BEEN PROVED THE LIABILITY SHOWN BY THE ASSESSEE TO THE TUNE OF RS.2,17,31,574/ - WAS TO BE TREATED AS CEASED U/S.41(1)OF THE ACT. 4.1. BEFORE THE FAA THE ASSESSEE ARGUED THAT THE CREDITORS WERE PAID IN SUBSEQUENT YEARS,THAT ALL THE OUTSTANDING BALANCES WERE SQUARED UP IN LATER YEARS,THAT THE LIABILITY HAD NOT CEASED.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER ,THE FAA HELD THAT THE CREDITORS WERE NOT TRACABLE,THAT TH E AO HAD DEPUTED ONE INSPECTOR TO ENQUIRE ABOUT THOSE PARTIES AND THE PARTIES WERE NOT AVAILABLE ON THE GIVEN ADDRESSES,THAT THE CREDITORS APPEARED TO BE NON GENUINE,THAT THE ASSESSEE HAD NOT PRODUCED THE EVIDENCE THAT PAYMENTS WERE MADE TO THE PARTIES IN SUBSEQUENT YEARS.HE REFERRED TO THE REMAND REPORT FILED BY THE AO IN THAT REGARD AND HELD THAT THE AO WAS JUSTIFIED IN MAKING ADDITIONS. 4.2. BEFORE US,T HE AUTHORISED REPRESENTATIVE(AR)CONTENDED THAT EVIDENCE OF PAYMENT TO VARIOUS CREDITORS THROUGH BANKI NG CHANNELS WAS PRODUCED BEFORE THE FAA,THAT NO INSPECTOR WAS DEPUTED BY THE AO,THAT THE REMAND REPORT IS SILENT ABOUT THE VISIT BY THE INSPECTOR, THAT THE AO HAD NOT ALSO NOT DOUBTED THE PAYMENT MADE TO THE CREDITORS IN THE SUBSEQUENT YEARS.HE RELIED UPON THE JUDGMENT OF BHOGILAL RAMJIBHAI ATARA OF HONBLE GUJARAT HIGH COURT.(TAX APPEAL NO.588 OF 2013 DATED 04.02.2013).HE REFERRED TO THE PAGE NO.33 - 44, 117 AND 119 - 120 OF THE PAPER BOOK. DEPARTMENTAL REPRESENTATIVE(D R) SUPPORTED THE ORDER OF THE FAA. ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 6 4.3 . WE HA VE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ADDITION WAS MADE BY THE AO U/S.41(1)OF THE ACT, THAT THE AO HAD HELD THAT THE CREDITORS WERE NOT AVAILABLE ON GIVEN ADDRESSES,THAT THE FAA HAD CALLED FOR A REMAND REPORT FRO M THE AO WITH REGARD TO THE CLAIM MADE BY THE ASSESSEE ABOUT PAYMENT MADE TO THE CREDITORS IN SUBSEQUENT YEARS,THAT IN THE REMAND REPORT THE AO HAD NOT MENTIONED ANYTHING ABOUT ON THE SPOT INQUIRY BY THE INSPECTOR,THAT THERE WAS CHANGE IN OFFICE OF THE FAA ,THAT THE NEW FAA PASSED THE ORDER WHERE HE MENTIONED ABOUT THE INQUIRY CONDUCTED BY THE INSPECTOR,THAT THE LEDGER ACCOUNTS OF THE PARTIES SHOW THAT THE ASSESSEE HAD PAID THE MONEY TO THE CREDITORS IN SUBSEQUENT YEARS.ONCE THE PAYMENT TO THE CREDITORS IS P ROVED BY NECESSARY DOCUMENTARY EVIDENCES THERE IS NO JUSTIFICATION FOR SUSTAINING THE ORDER OF THE FAA.THEREFORE,REVERSING HIS ORDER,WE DECIDE GROUNDS NO.4 - 5 IN FAVOUR OF THE ASSESSEE . 5. NEXT GROUND OF APPEAL IS ABOUT AD - HOC DISALLOWANCE OF RS.1.20 LAKHS.D URING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS. 6. LAKHS UNDER VARIOUS HEADS INCLUDING MOTOR CAR EXPENSES,TELEPHONE EXPENSES ETC.AS PER THE AO THE ASSESSEE HAD NOT MAINTAINED PROPER VOUCHERS.HE HELD THAT PERSO NAL USE OF CAR AND TELEPHONE COULD NOT BE DENIED. HE DISALLOWED 1/5 OF THE TOTAL EXPENDITURE. 5.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.THE ASSESSEE PRODUCED COPIES OF THE LEDGER WITH REGARD TO THE EXPENSES CLAIME D.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE AO,HE UPHELD THE ORDER OF THE AO,AS HE WAS ALSO OF THE OPINION THERE WAS POSSIBILITY OF PERSONAL USE OF PHONE AND CAR.FOR OTHER EXPENSES HE HELD THAT VOUCHERS WERE NOT PRODUCED BY THE ASSESSEE . 5.2. BEFORE US,THE AR CONTENDED THAT LEDGER ACCOUNT WERE PRODUCED BEFORE THE AO AND THE FAA EVIDENCING INCURRING OF EXPENSES,THAT THERE COULD NOT BE ANY PERSONAL ELEMENT IN EXPENSES RELATED TO STAFF WELFARE EXPENSES.DR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT THE AO HAD MADE A DISALLOWANCE OF 20%OF THE EXPENSES INCURRED UNDER FIVE HEADS.OUT OF THE FIVE HEADS FOUR ARE RELATED WITH MOTOR CAR AND TELEPHONE.WE AGREE THAT ELEMENT OF PERSONAL USE OF CAR AND TELEP HONE CANNOT BE RULED OUT. HOWEVER,TO MEET THE END OF JUSTICE DISALLOWANCE IS RESTRICTED TO 10% FOR THE FOUR ITEMS I.E. EXCEPT THE WELFARE EXPENSES.LAST GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT,APPEAL S FILED BY THE AO AND THE ASSE SSEE STAND PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST ,2015. 5 TH , 2015 SD/ - S D/ - ( . . /A. D. JAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 05 . 08 . 2015 . . . JV . SR.PS. ITA/ 3671&2944 /M/1 3 ,AY. 0 8 - 0 9 - SAS 7 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT (A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST . REGISTRAR , / ITAT, MUMBAI.