M/s. Rakhodia Enterprise, Surat V. The Income tax Officer,Ward-9(3), Surat

ITA 3110/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6293 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Assessee Lawyers: J P SHAH
• Keywords: Bogus purchase; Unexplained cash credit; Opportunity of being heard; Set aside
• Section: 271(1)(c); 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.3110/AHD/2008 [ASSTT. YEAR : 2005-2006] M/S.RAKHODIA ENTERPRISE 2, SWAMINARAYAN NAGAR-1 OPP: PANI NI TANKI VARACHHA ROAD, SURAT. PAN : AAGFR 9872 B VS. ITO, WARD-9(3) SURAT. ITA NO.3429/AHD/2008 [ASSTT. YEAR : 2005-2006] ITO, WARD-9(3) SURAT. VS. M/S.RAKHODIA ENTERPRISE 2, SWAMINARAYAN NAGAR-1 OPP: PANI NI TANKI VARACHHA ROAD, SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J. P. SHAH REVENUE BY : SHRI ALBINUS TIRKEY O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE ARE CROSS APPEALS AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME -TAX (APPEALS)-V, SURAT DATED 10.07.2008 FOR A.Y.2005-2006 ARISING OU T OF THE ORDER OF THE AO UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 . 2. THE GROUND NO.1 OF THE REVENUES APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED, IN DELETING THE ADDITION O F RS.4,56,786/- MADE BY THE AO N ACCOUNT OF BOGUS PURCHASES, WITHOU T APPRECIATING THE FACTS OF THE CASE. ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -2- 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ON VERIFICATION OF THE PURCHASES FOUND THAT TWO PURCHA SES WORTH RS.4,56,786/- WERE RECORDED ON 23-1-2005 AGAINST BI LL NOS.455 AND 2652 RESPECTIVELY. THE ASSESSEE COULD NOT PRODUCE THE B ILL NO.2652, THEREFORE, THE AO WITH THE FOLLOWING FINDINGS IN THE ASSESSMEN T ORDER DISALLOWED THE SUM OF RS.4,56,786/- AS INFLATED PURCHASES. 4.2. DURING THE COURSE OF HEARING, VERIFICATION OF THE BOOKS OF ACCOUNT REVEALS THAT YOU HAVE MADE PURCHASES FROM M /S. BHUMI STEEL CORPORATION. THE ASSESSEE HAS SHOWN PURCHASES WORTH RS. 4,56,786/- AND RS.4,56,786/-ON 23.01.2005 AGAINST B ILL NOS. 455 & 2652 RESPECTIVELY. HOWEVER, BILL NO. 2652 WAS NOT A VAILABLE. DESPITE REPEATED REQUEST THE ASSESSEE HAS NOT FURNI SHED CONFIRMATION FROM M/S. BHUMI STEEL CORPN. HOWEVER, THE ASSESSEE FURNISHED COPY OF LEDGER ACCOUNT FROM THE BOOKS OF ASSESSEE. IT IS WORTHWHILE TO MENTION HERE THAT THERE IS A DISCREPA NCY NOTICED IN AS MUCH AS ON 23.01.05 THE SERIES OF THE BILL WAS 4 55 HENCE IT IS NEXT TO IMPOSSIBLE TO ISSUE A BILL HAVING SERIAL NO . 2652 ON THE SAME DAY WITH SAME AMOUNT. MOREOVER, THE PAYMENT AG AINST BILL NO. 2652 IS NOT APPEARED TO HAVE BEEN MADE. ALL THE SE CIRCUMSTANTIAL EVIDENCES SHOW THAT THE ASSESSEE HAS INFLATED HIS PURCHASES BY SIMPLY DEBITING BOGUS ENTRIES. IN REPL Y TO SHOW CAUSE, THE CONTENTION OF THE ASSESSEE THAT THEY HAVE ALREA DY PRODUCED THE SAME IS FAR FROM TRUTH AND HENCE NOT ACCEPTED. I TH EREFORE, DISALLOW RS.4,56,786/- TREATING THE SAME AS INFLATED PURCHAS ES. PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME-TAX ACT IS INITIATED SEPARATELY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALMENT OF INCOME. THE CIT(A) DELETED THE ADDITION WITH THE FOLLOWING FINDING: BEFORE ME ORIGINAL BILL AND THE CORRESPONDING DELI VERY CHALLANS HAVE BEEN PRODUCED. I HAVE EXAMINED IT AND OBTAINED COPY OF THE SAME. SINCE IT WAS ISSUED ON 23.01.2005, PAYMENT FO R THE SAME WAS MADE IN THE MONTH OF APRIL 2005, WHICH HAS BEEN ENC ASHED ON 03.05.2005 AS PER BANK STATEMENT. IT HAS BEEN ARGUE D THAT THE ASSESSING OFFICER SHOULD HAVE ALLOWED THE SAME AS 3 MONTHS CREDIT ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -3- CYCLE IS THE NORM IN THE MARKET. IT IS ALSO ARGUED THAT MORE THAN ONE BILL BOOK HAS BEEN USED AND HENCE THE DIFFERENT SERIES. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVAN T FACTS INCLUDING THE DATES OF ISSUE OF BILL AS WELL AS PAYMENT, AND FEEL THAT THERE DOES NOT SEEM TO BE ANY JUSTIFICATION FOR THE SAID ADDITION. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. 4. FROM THE PERUSAL OF THE FINDINGS OF THE AO AS WE LL AS THE CIT(A), WE FIND THE ASSESSEE FAILED TO PRODUCE BILL NO.2652 BEFORE THE AO, BUT THE SAME WAS PRODUCED BEFORE THE CIT(A) ALONG WITH CORR ESPONDING DELIVERY CHALLANS. ADMITTEDLY, IT WAS A FRESH EVIDENCE AND THE CIT(A) OUGHT TO HAVE ALLOWED OPPORTUNITY TO THE AO AS PER THE RULE 46A WHICH HAS NOT BEEN DONE BY CIT(A). IN VIEW OF THE ABOVE, WE DEEM IT PROPER TO SET ASIDE THE ORDERS OF BOTH THE AUTHORITIES ON THIS IS SUE AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO. WE DIRECT THE ASSESSEE TO PRODUCE THE ORIGINAL BILL, CORRESPONDING CHALLANS AS WELL AS ANY OTHER E VIDENCE IN SUPPORT OF GENUINENESS OF PURCHASE. WE ALSO DIRECT THE AO TO ALLOW ADEQUATE OPPORTUNITY TO THE ASSESSEE FOR PRODUCING THESE DET AILS. THEREAFTER, THE AO WILL RE-ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. 5. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.10,87,858/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED CASH PURCH ASES, WITHOUT APPRECIATING THE FACTS OF THE CASE. GROUND NO.1 OF THE ASSESSEES APPEAL WHICH IS ALSO RELATING TO DISALLOWANCE OUT OF PURCHASES READS AS UNDER: 1. THE CIT(A) ERRED IN MAKING AD HOC ADDITION OF R S.4 LACS ON PURCHASES MADE FOR CARRYING ON BUSINESS. ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -4- 6. FACTS OF THE CASE ARE THAT ON VERIFICATION OF TH E PURCHASE REGISTER, THE AO NOTICED THAT THERE WERE CASH PURCHASES WORTH RS.14,87,585/- FROM VARIOUS PARTIES. IN RESPECT OF SUCH PURCHASES NO B ILLS OR RECEIPTS WERE PRODUCED BY THE ASSESSEE EXCEPT CASH VOUCHERS. THE AO DISBELIEVED THE GENUINENESS OF SUCH PURCHASES AND THEREFORE DISALLO WED ENTIRE PURCHASE OF RS.14,87,858/-. ON APPEAL, THE CIT(A) SUSTAINED THE DISALLOWANCE AT RS.4.00 LAKHS WITH THE FOLLOWING FINDINGS: THE A.R. HAS ARGUED THAT ALTHOUGH THESE ARE CASH P URCHASES BUT NEVERTHELESS VOUCHED. THEREFORE ASSESSING OFFICER'S REMARK THAT BILLS, CONFIRMATION ETC. WERE NOT PRODUCED ARE IRRE LEVANT. THESE PURCHASES RELATE TO BRICKS, SAND AND OTHER PETTY BU ILDING MATERIAL WHICH WERE OBTAINED FROM UNREGISTERED SUNDRY PARTIE S WHO DO NOT ISSUE BILLS. I HAVE ALSO CALLED FOR THESE CASH VOUCHERS NUMBERIN G 89. THESE INDEED RELATE TO SMALL AND SUNDRY ITEMS LIKE BRICKE S, SAND ETC. SECONDLY ALL OF THESE ARE BELOW RS.20,000/- AND THI RDLY THEY RELATE TO WHOLE YEAR AS THE NUMBER OF SUCH VOUCHERS AND DA TES MENTIONED THEREIN SUGGEST. IT IS NOT DISPUTED THAT THESE MATE RIALS PURCHASED HAVE BEEN USED FOR CONSTRUCTION. MY CAREFUL VERIFIC ATION OF THESE VOUCHERS APPARENTLY DOES NOT SUGGEST THESE VOUCHERS HAVING BEEN MADE AT ONE TIME, NOR DO THE SIGNATURES OF RECIPIEN TS CREATE ANY OTHER DOUBT. I AM THEREFORE OF THE VIEW THAT MOST O F IT SEEMS TO BE GENUINE. HOWEVER, I FEEL THAT THERE IS STILL A SCOP E FOR AN AD HOC ADDITION OF RS.4,00,000/- TO COVER THE POSSIBLE INF LATION AS IDENTITIES/AND ADDRESSES OF SUCH RECIPIENTS ARE NOT ESTABLISHED. HENCE, THE APPELLANT GETS A RELIEF OF THE BALANCE A MOUNT OF RS.10,87,858/- (RS.14,87,858/- - RS.4,00,000/-). 7. BOTH THE PARTIES AGGRIEVED WITH THE ORDER OF THE CIT(A) ARE IN APPEAL BEFORE US. THE REVENUE IS AGGRIEVED WITH TH E RELIEF OF RS.10,87,585/- AND THE ASSESSEE IS AGGRIEVED WITH T HE AD HOC ADDITION OF RS.4 LAKHS SUSTAINED BY THE CIT(A). ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -5- 8. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THE ASSESSEE DERIVES INCOME FROM CONSTRUCTION OF RESIDENTIAL UNITS. THAT THE ABOVE CASH PAYMENT OF RS.14,87,858/- WAS M ADE FOR THE PURCHASE OF PETTY ITEMS LIKE BRICKS, SAND AND OTHER BUILDING MATERIAL. THAT SUPPLIERS OF THESE ITEMS ARE UNREGISTERED SMAL L PARTIES WHO DO NOT ISSUE ANY FORMAL BILL. BUT AT THE SAME TIME RECEIP T OF THE GOODS AND ITS UTILISATION FOR THE PURPOSE OF BUSINESS CANNOT BE D OUBTED. THE BUILDING CANNOT BE CONSTRUCTED WITHOUT BRICKS, SAND OR OTHER BUILDING MATERIAL. HE ALSO STATED THAT THE ENTIRE PAYMENT IS FULLY VOUCHE D AND IN THE VOUCHERS NAMES AND SIGNATURES OF THE RECIPIENTS AND THE DETA ILS OF THE MATERIAL SUPPLIED BY THEM IS DULY MENTIONED. HE THEREFORE S UBMITTED THAT NO DISALLOWANCE IS CALLED FOR AND IN ANY CASE, THE DIS ALLOWANCE SUSTAINED BY THE CIT(A) IS EXCESSIVE. 9. THE LEARNED DR, ON THE OTHER HAND, STATED THAT B EFORE THE AO THE ASSESSEE DID NOT GIVE ANY SATISFACTORY EXPLANATION WITH REGARD TO ALLEGED PURCHASES. THE ASSESSEE HAS NOT PRODUCED BEFORE TH E AO ANY EVIDENCE WITH REGARD TO RECEIPT OF THESE GOODS AND THEIR UTI LISATION FOR THE PURPOSE BUSINESS. IN VIEW OF THE ABOVE, THE LEARNED DR HAS STATED THAT THE ENTIRE DISALLOWANCE MADE BY THE AO SHOULD BE SUSTAINED OR THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR RE-EXAMINAT ION OF THE ASSESSEES CONTENTION THAT THE CASH PAYMENT WERE MADE AGAINST THE PURCHASES OF BRICKS, SAND AND OTHER PETTY BUILDING MATERIAL. 10. WE HAVE CONSIDERED ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IN OUR OPINION, MERELY BECAUSE THE PAYMENTS HAVE BEEN MADE IN CASH WOULD BE NO GROUND FOR DISAL LOWING THE ENTIRE ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -6- EXPENDITURE. THERE IS NO FINDING BY THE AO THAT TH E PAYMENT WAS IN VIOLATION OF SECTION 40(A)(3). SIMILARLY, IF NO BI LLS ARE ISSUED BY THE SELLER WOULD ALSO NOT BE SUFFICIENT TO DISALLOW THE EXPENDITURE. THE AO OUGHT TO HAVE CONSIDERED THE GENUINENESS OF THE EXP ENDITURE CONSIDERING THE NATURE OF EVIDENCES PRODUCED AND ALSO THE ASSES SEES EXPLANATION. THE CIT(A) HAS ALSO WITHOUT PROPERLY APPRECIATING THE F ACTS AND EVIDENCE, SUSTAINED THE AD HOC DISALLOWANCE OF RS.4.00 LAKHS OUT OF THE TOTAL PURCHASE OF RS.14,87,858/-. IN OUR OPINION, IT WOU LD MEET ENDS OF JUSTICE, IF THE ISSUE IS SET ASIDE TO THE FILE OF THE AO FOR RE-ADJUDICATION. WE ORDER ACCORDINGLY AND DIRECT THE AO TO RE-ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW, AFTER CONSIDERING ALL THE MATERIAL AVAILA BLE ON RECORD AND FURTHER EVIDENCE AND EXPLANATION, IF ANY, THAT MAY BE PRODU CED BY THE ASSESSEE IN THE SET ASIDE PROCEEDINGS. WE ALSO DIRECT HIM TO A LLOW ADEQUATE OPPORTUNITY TO THE ASSESSEE TO PRODUCE ANY FURTHER EVIDENCE/EXPLANATION IN THE MATTER. 11. GROUND NO.3 OF THE REVENUES APPEAL READS AS UN DER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,58,330/- MADE BY THE AO ON ACCOUNT OF UNVERIFIABLE PURCHASES, WIT HOUT APPRECIATING THE FACTS OF THE CASE. WHILE GROUND NO.2 OF THE ASSESSEES WHICH IS ALSO CONNECTED WITH THE UNVERIFIABLE PURCHASES READS AS UNDER: 2. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.14,500/- BEING PAYMENT MADE TO LAXMI ELECTRIC. ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -7- 12. THE FACTS OF THE CASE ARE THAT THE AO NOTICED T HAT THE ASSESSEE WAS UNABLE TO PRODUCE BILLS AND CONFIRMATION FOR THE FO LLOWING PURCHASES: 1. FREM CARTING : RS.75,000/- 2. LAXMI ELECTRIC : RS.14,500/- 3. SHIV SHAKTI CEMENT : RS.10,01,820 TOTAL : RS.10,91,320/- HE HOWEVER NOTICED THAT THE PAYMENT AGAINST THESE P URCHASES WERE MADE BY THE CHEQUES, BUT IN THE ABSENCE OF BILLS AND CON FIRMATION, HE TREATED THE PURCHASES AS UNVERIFIABLE PURCHASES AND DISALLO WED 25% OF PURCHASES FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF V IJAY PROTEINS VS. CIT, 55 TTJ 76. ON APPEAL, THE CIT(A) SUSTAINED THE D ISALLOWANCE OF RS.14,500/- BEING THE PURCHASES FROM M/S.LAXMI ELEC TRIC. THE RELEVANT FINDINGS OF THE CIT(A) READS AS UNDER: I HAVE UNDERSTOOD THE ISSUE AND APPLIED MY MIND TO THE RIVAL CONTENTIONS. THE STRONGEST FACTOR TO ESTABLISH THE GENUINENESS OF PURCHASES IS PAYMENT THROUGH BANK ALONGWITH NAMES A ND ADDRESSES WHICH IN THIS CASE HAS BEEN DONE IN RESPE CT OF TWO PARTIES I.E. FREM CARTING AND SHIV SHAKTI CEMENT. S O PURCHASES FROM THEM ARE HELD TO BE GENUINE. HOWEVER, ADMITTED LY CASH OF RS.14,500/- HAS BEEN PAID TO LAXMI ELECTRIC, WITH N O CONFIRMATION FROM THE PARTY, SAME DESERVES TO BE UP HELD AS ADDITION. NEEDLESS TO MENTION THAT PAYMENT MADE TO OTHER TWO PARTIES ARE DIRECTED TO BE ALLOWED. 13. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY THE LEARNED COUNSEL THAT THE ASSESSEE HAD MADE THE PURCHASES OF CEMENT FROM SHIV SHAKTI CEMENT, AND IT WAS HAVING BILL AS WELL AS THE CONFI RMATION OF THE PARTY. HE ALSO STATED THAT THE ORIGINAL BILLS WERE PRODUCE D BEFORE THE AO AND IN SOME CONFUSION THE AO HAS WRITTEN THAT NO BILLS WER E PRODUCED. HE ALSO STATED THAT THE BILLS IN RESPECT OF THE PAYMENT TO FREM CARTING WAS ALSO ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -8- PRODUCED BEFORE THE AO AS WELL AS THE CIT(A). WITH REGARD TO THE PAYMENT TO LAXMI ELECTRIC, IT IS STATED BY THE LEAR NED COUNSEL THAT WHEN THE AO HIMSELF DISALLOWED 25% OF THE PURCHASES, THE CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE SAME TO 100% I.E. RS.14, 500/-. 14. THE LEARNED DR, ON THE OTHER HAND, STATED THAT THE ASSESSEE DID NOT PRODUCE THE BILLS AND CONFIRMATION BEFORE THE AO BU T THE SAME WERE PRODUCED BEFORE THE CIT(A) WHO OUGHT TO HAVE ALLOWE D OPPORTUNITY TO THE AO TO EXAMINE SUCH EVIDENCE. 15. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS EVIDE NT THAT THE ASSESSEE PRODUCED BILLS AND CONFIRMATION BEFORE THE CIT(A). HOWEVER, WHETHER SUCH BILLS AND EVIDENCES WERE PRODUCED BEFORE THE A O IS IN DISPUTE. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE CONTEND ED THAT SUCH BILLS WERE PRODUCED BEFORE THE AO, HOWEVER, THE FINDINGS IN THE ASSESSMENT ORDER IS OTHER WAY ROUND I.E. THE AO HAS RECORDED T HE FINDING THAT NO SUCH BILLS WERE PRODUCED BEFORE THE AO. IN THE ABOVE CI RCUMSTANCES, IN OUR OPINION, IT WOULD MEET ENDS OF JUSTICE, IF THE ORDE RS OF THE AUTHORITIES BELOW ON THIS POINT IS SET ASIDE AND THE MATTER IS RESTORED BACK TO THE FILE OF THE AO. WE ORDER ACCORDINGLY AND DIRECT THE AO TO ALLOW ADEQUATE OPPORTUNITY TO THE ASSESSEE TO PRODUCE ALL THE BILL S, CONFIRMATION AND ANY OTHER EVIDENCE IN SUPPORT OF THE ABOVE PURCHASE. W E ALSO DIRECT THE ASSESSEE TO PRODUCE ALL THE BILLS, VOUCHERS AND ANY OTHER EVIDENCE/ EXPLANATION IN SUPPORT OF THE PURCHASES. THEREAFTE R, THE AO WILL RE- ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -9- 16. GROUND NO.4 OF THE REVENUES APPEAL AS WELL AS GROUND NO.3 OF THE ASSESSEES APPEAL READ AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.20,00,000/- BY HOLDING THAT BOOKS WERE NOT REJECTED BY AO., WIT HOUT APPRECIATING THE FACTS OF THE CASE. 3. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.5,98,825/- ON THE ALLEGED UNDERVALUATION OF CLOSING STOCK. 17. THE FACTS RELATING TO THESE GROUNDS ARE THAT TH E AO MADE ADDITION OF RS.25,98,825/- FOR UNDER VALUATION OF THE CLOSIN G WITH THE FOLLOWING FINDINGS: 4.5 ON VERIFICATION OF THE SALE ACCOUNT IT IS NOTI CED THAT THE ASSESSEE HAS SOLD OUT 44 FLATS OUT OF TOTAL 250 FLA TS CONSTRUCTED BY THE ASSESSEE. IN THE RETURN OF INCOME THE ASSESSEE HAS SHOWN WORK IN PROGRESS AS ON 31.03.2005 AT RS. 85,45,275/-. VI DE ABOVE REFERRED SHOW CAUSE, THE ASSESSEE WAS ASKED TO FURN ISH THE DETAILS OF WORK-IN-PROGRESS ON THE LAST DAY OF THE FINANCIA L YEAR. IN RESPONSE TO THE SHOW CAUSE, THE ASSESSEE SUBMITTED DETAILS OF WORK- IN-PROGRESS. AS PER THE DETAILED WORKING GIVEN BY T HE ASSESSEE THEY HAVE CONSTRUCTED 94 UNITS, THE TOTAL AREA OF WHICH COMES TO 45105 SQ.FT. THE TOTAL COST OF CONSTRUCTION IS SHOWN BY T HE ASSESSEE AT RS. 2,18,10,994/-. THUS, THE AVERAGE RATE PER SQ. FT WO RKED OUT TO RS. 484/-. OUT OF THE TOTAL CONSTRUCTED AREA OF 45105 S Q. FTS., DURING THE YEAR THE ASSESSEE HAS SOLD 46 UNITS ADMEASURING 22080 SQ. FTS. LEAVING A BALANCE OF 23025 SQ. FTS. (48 UNITS) THE ASSESSEE HAS SHOWN THE WORK-IN-PROGRESS AT RS.85,45,275/-. IT IS NOTICED THAT THERE IS AN UNDER VALUATION OF CLOSING STOCK (WIP) AS ON 31.03.2005. AS PER THE FACTS AND FIGURES FURNISHED BY THE ASSESSEE THE ACTUAL VALUE OF CLOSING STOCK (WIP) COMES TO RS .1,11,44,100/- TAKING THE RATE SHOWN BY THE ASSESSEE @RS.484/- PER SQ.FT. THEREFORE THE DIFFERENCE OF RS.25,98,825/- IS STATE D AS UNDER VALUATION OF CLOSING STOCK (WIP) AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME-TAX ACT IS INITIATED SEPARATELY FOR FURNISHING OF INACC URATE PARTICULARS ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -10- OF INCOME AND THEREBY CONCEALMENT OF INCOME. 18. ON APPEAL, THE CIT(A) SUSTAINED THE UNDERVALUAT ION TO THE EXTENT OF RS.5,98,825/-. THE RELEVANT FINDINGS OF THE CIT(A) READS AS UNDER: I HAVE CONSIDERED THE ISSUE. I FAIL TO SEE MERIT IN ESTIMATING THE COST OF WIP WHEN THE FACTS AND FIGURES ARE AVAILABL E IN BOOKS OF ACCOUNT AND WHICH HAVE NOT BEEN REJECTED. SECOND C OST PRICE OF COMPLETED CONSTRUCTION IS BOUND TO BE MORE THAN WOR K IN PROGRESS. THE AOS ACTION CANNOT BE UPHELD IN TOTO. AT THE S AME TIME THERE IS SURELY A POSSIBILITY OF SUPPRESSION OF COST BECA USE EXACT EXTENT OF CONSTRUCTION IS DIFFERENT FOR EVERY UNIT AND THE AR HAS NOT GIVEN ANY WORKING FOR THE SAME. THEREFORE, IT IS HELD TH AT AN ADDITION OF RS.5,98,825/- DESERVES TO BE CONFIRMED AND BALANCE OF RS.20,00,000/- IS DELETED (RS.25,98,825/- - 5,98,82 5/-). 19. AT THE TIME OF HEARING BEFORE US, IT WAS STATED BY THE LEARNED COUNSEL THAT THE AO ESTIMATED THE WORK-IN-PROGRESS ON THE PRESUMPTION THAT ALL THE RESIDENTIAL UNITS WHICH WERE UNDER CON STRUCTION WERE FULLY CONSTRUCTED AS ON 31-3-2005. HE HAS STATED THAT TH E ABOVE PRESUMPTION OF THE AO WAS FACTUALLY INCORRECT BECAUSE SOME UNITS W ERE AT A FINAL STAGE OF CONSTRUCTION, SOME UNITS WERE AT SLAB LEVEL AND SOM E UNITS WERE EVEN AT PLINTH LEVEL. HE PRODUCED BEFORE US, CERTIFICATE F ROM SHRI DILIP S. SINDHAV, CONSULTING ENGINEERS WITH REGARD TO VALUAT ION OF 48 ROW-HOUSES WHICH WERE IN PROGRESS. HOWEVER, WHEN A QUESTION W AS ASKED FROM THE LEARNED COUNSEL WHETHER THE ABOVE CERTIFICATE WAS P RODUCED BEFORE THE AO, HE WAS UNABLE TO GIVE ANY DEFINITE REPLY. HE HA S STATED THAT CERTIFICATE IS DATED 1-4-2005 AND THEREFORE IT OUGH T TO HAVE BEEN PRODUCED BEFORE THE AO. THE LEARNED DR, ON THE OTHER HAND, STATED THAT FROM THE ASSESSMENT ORDER, IT IS EVIDENT THAT NO SUCH CERTIF ICATE WAS PRODUCED ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -11- BEFORE THE AO, OTHERWISE, THE AO MUST HAVE DISCUSSE D THE SAME IN THE ASSESSMENT ORDER. 20. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES A ND THE ARGUMENTS OF BOTH THE SIDES, IN OUR OPINION, THE CERTIFICATE OF THE CONSULTING ENGINEERS WITH REGARD TO THE VALUATION OF THE ROW-HOUSES UNDE R CONSTRUCTION IS A MATERIAL PIECE OF EVIDENCE WHICH WOULD BE RELEVANT FOR DETERMINING THE VALUE OF THE WORK-IN-PROGRESS. IT APPEARS THAT THE SAME WAS NOT PRODUCED BEFORE THE AO. IN THE CIRCUMSTANCES, WE DEEM IT PR OPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND RE STORE THE MATTER BACK TO THE FILE OF THE AO. WE DIRECT HIM TO ALLOW ADEQUAT E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ALSO DIRECT THE ASSESSEE TO PRODUCE THE CERTIFICATE OF CONSULTING ENGINEERS AND ANY OTHER E VIDENCE IN SUPPORT OF CORRECTNESS OF VALUE OF WORK-IN-PROGRESS BEFORE THE AO. THEREAFTER, THE AO WILL RE-ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. 21. GROUND NO.5 OF THE REVENUES APPEAL READS AS UN DER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 8,70,000/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED SUNDRY ADVANCES RECEIVED BY THE ASSESSEE, WITHOUT APPRECIATING THE FACTS OF THE CASE. 22. THE FACTS OF THE CASE ARE THAT THE AO MADE ADDI TION OF RS.8,70,000/- BEING SUNDRY ADVANCES RECEIVED BY THE ASSESSEE. ON APPEAL, THE CIT(A) DELETED THE ADDITION WITH THE FI NDING THAT THE ENTIRE ADVANCE OF RS.8,70,000/- WAS RECEIVED FROM THE CUST OMERS TO WHOM THE ASSESSEE ULTIMATELY SOLD THE RESIDENTIAL UNITS. HE THEREFORE DELETED THE ADDITION. ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -12- 23. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE CIT(A). IT IS NOT DISPUTED BY THE REVENUE THAT THE ABOVE ADVANCE WAS AGAINST THE SALE PROCEEDS OF THE HOUSE AND WAS ULTI MATELY DISCLOSED IN THE ASSESSEES INCOME AS SALE. THE ABOVE ADVANCES WERE ULTIMATELY ADJUSTED AGAINST THE SALE CONSIDERATION OF THE FLAT. IN VIE W OF THE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS POINT AND REJECT GR OUND NO.5 OF THE REVENUES APPEAL. 24. GROUND NO.6 OF THE REVENUES APPEAL READS AS UN DER: 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.7,14,000/- MADE BY THE AO BEING NEW UNEXPLAINED CAPITAL INTROD UCED BY THE PARTNERS, WITHOUT APPRECIATING THE FACTS OF THE CAS E. 25. THE AO MADE THE ADDITION OF RS.7,14,000/- ON TH E GROUND OF UNEXPLAINED CREDIT IN THE PARTNERS ACCOUNT. THE C IT(A) DELETED THE ADDITION WITH THE FOLLOWING FINDINGS. LAST GROUND RELATES TO UNEXPLAINED CAPITAL INTRODU CTION BY PARTNERS WHERE THE AO HAS OBSERVED THAT THE PARTNER S HAD TAKEN UNSECURED LOANS IN CASH BELOW RS.20,000/- BEFORE IS SUING THE CHEQUES. THE IDENTITIES AND CREDITWORTHINESS OF TH E LENDING PARTIES WERE SOUGHT AND SINCE THESE WERE NOT GIVEN THE ENTI RE AMOUNT WAS ADDED. THE AR HAS ARGUED THAT ALL THE RELEVANT INC OME TAX DETAILS OF ALL THE PARTIES HAVE BEEN GIVEN. IF AT ALL ANYT HING IS TO BE DISALLOWED OR ADDED IT SHOULD HAVE BEEN DONE IN PAR TNERS INDIVIDUAL CASES AND SURELY CANNOT BE JUSTIFIED IN THE HANDS OF THE FIRM. I AGREE WITH THE AR AS TO WHEN ALL THE PARTNERS ARE INCOME-TAX ASSESSEES, SOURCE OF THEIR FUNDS SHOULD BE EXAMINED IN THE RESPECTIVE HANDS ONLY. THE FIRM CANNOT BE FASTENED WITH THE ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -13- TAXABILTY OF SUCH FUNDS, BECAUSE THESE AMOUNT DO NO T EVEN REMOTELY REPRESENT FIRMS INCOME AS HELD BY VARIOUS JUDICIAL FORUMS INCLUDING SUPREME COURT IN DAULTARAM RAWAT MAL VS. CIT, CTR 411 (1993) 87. 26. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SID ES AND FACTS OF THE CSE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF INCOME TAX REFERENCE NO. 241 OF 1993 DATED 6/7/2005 IN THE CASE OF CIT VS. PANKAJ DYESTUFF INDUSTRIES. THE RELEVANT EXTRACT O F THE ABOVE JUDGMENT READS AS UNDER: 13. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHED THE DETAILS WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE PARTNERS OF THE ASSESSEE FIRM ARE FICTITIOUS. THE INCOME TAX OFFICER HAS NOT DISPUTED THAT THE CREDITS IN TH E ACCOUNTS OF THE PARTNERS WERE NOT DEPOSITS FROM THE PARTNERS. MOREO VER, IT IS AN ADMITTED POSITION THAT THIS WAS THE SECOND YEAR OF THE FIRM, AND THAT IT WAS RUNNING IN LOSS. IT IS TRUE THAT THE INCOME TAX OFFICER DID NOT ACCEPT THE EXPLANATION GIVEN ON BEHALF OF THE ASSESSEE IN RESPECT OF THE NEW DEPOSITS OR CASH CREDITS IN THE ACCOUNTS OF THE PAR TNERS. THE MERE NON- ACCEPTANCE OF THAT EXPLANATION DOES NOT, HOWEVER, P ROVIDE MATERIAL FOR FINDING THAT THE SAID SUM REPRESENTED INCOME OF THE ASSESSEE FIRM. AS HELD BY THE ALLAHABAD HIGH COURT IN CASE OF COMMISS IONER OF INCOME TAX, ALLAHABAD V. JAISWAL MOTOR FINANCE (SUPRA), IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT THERE WERE PROFITS OF THE FIRM, THE AMOUNT CREDITED TO THE PARTNERS' ACCOUNTS COULD NOT BE ASS ESSED IN THE HANDS OF THE FIRM. ONCE THE PARTNERS HAVE OWNED THAT THE MON IES DEPOSITED IN THEIR ACCOUNTS ARE THEIR OWN, THE INCOME TAX OFFICE R IS ENTITLED TO AND MAY PROCEED AGAINST THE PARTNERS AND ASSESS THE SAM E IN THEIR HANDS, IF THEIR EXPLANATION IS NOT FOUND SATISFACTORY. 14. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, BOTH THE DEPUTY CIT (APPEALS) AND THE TRIBUNAL HAVE FOUND THAT THE ASSE SSEE HAD DISCHARGED THE PRIMARY ONUS WHICH WAS ON IT BY OFFERING EXPLANATIO N, WHICH HAS NOT BEEN FOUND TO BE INCORRECT OR FALSE IN ANY MANNER. THE I NTEREST OF THE REVENUE IS ALSO SAFEGUARDED AS THE INCOME TAX OFFICER HAS BEEN GIVEN THE LIBERTY TO CONSIDER THE SAID CREDITS IN THE HANDS OF THE PARTN ERS IF HE IS NOT SATISFIED WITH ITA NO.3110/AHD/2008 AND ITA NO.3429/AHD/2008 -14- THE SOURCES OF INVESTMENT OF CASH CREDITS IN THE AC COUNTS OF THE PARTNERS. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO FIND THA T THE ORDER OF THE TRIBUNAL SUFFERS FROM ANY INFIRMITY WHICH WOULD REQUIRE INTE RFERENCE AT THE HANDS OF THIS COURT. ACCORDINGLY, IT IS HELD THAT THE TRIBUN AL WAS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.87,250/- BEIN G DEPOSITS IN THE ACCOUNTS OF THE PARTNERS. THE QUESTION REFERRED TO THIS COURT I S, ACCORDINGLY, ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE JU RISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS IS SUE AND REJECT THE GROUND OF THE REVENUE. 27. IN THE RESULT, THE REVENUES APPEAL IS DEEMED T O BE PARTLY ALLOWED FOR STATISTICAL PURPOSE WHILE ASSESSEES APPEAL IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 30 TH JUNE, 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 30-06-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD