The Deputy Commissioner of Income tax, Phagwara V. M/s. G & G Phamaceuticals, Phagwara

ITA 312/ASR/2010

• Counselvise Citation: 31220914 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Income from undisclosed sources; Bad and doubtful debts; Assessment record
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.297(ASR)/2010 ASSESSMENT YEAR:2004-05 PAN :AAAFG7636A M/S. G & G PHARMACEUTICALS, VS. DY. COMMR. OF INCOM E TAX, CENTRAL TOWN, PHAGWARA. PHAGWARA CIRCLE, PHAGWARA . (APPELLANT) (RESPONDENT) I.T.A. NO.312(ASR)/2010 ASSESSMENT YEAR:2004-05 PAN :AAAFG7636A DY. COMMR. OF INCOME TAX, VS. M/S. G & G PHARMACEUT ICALS, PHAGWARA CIRCLE, PHAGWARA. CENTRAL TOWN, LUDHIANA. (APPELLANT) (RESPONDENT) ASSESSEE BY: SH. P.N.ARORA, ADVOCATE DEPARTMENT BY: SH. MAHAVIR SINGH, DR DATE OF HEARING: 31/10/2013 DATE OF PRONOUNCEMENT:20/11/2013 ORDER PER BENCH ; ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 2 THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENU E ARISE FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 18.03.2010 F OR THE ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL 1. THAT THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE LD. CIT(APPEALS) ARE BOTH AGAINST THE FACTS OF THE CA SE AND UN- TENABLE IN LAW. 2. THAT THE LD. CIT(A) SHOULD HAVE ACCEPTED THE RETUR NED INCOME AND SHOULD HAVE DELETED THE WHOLE ADDITION MADE BY THE A.O., WHICH WAS BASED ON CONJECTURES, SURMISES AND SUPPO SITION. 3. THAT THE LD. CIT(A) DID NOT APPRECIATE THAT THE AD DITIONS UNDER THE VARIOUS HEADS MADE BY THE A.O. WERE BASED ON CO NJECTURES, SURMISES & SUPPOSITION AND THE ADDITIONS MADE SHOUL D HAVE BEEN DELETED. 4. THAT THE LD. CIT(APPEALS) HAS GROSSLY ERRED IN CON FIRMING THE ADDITION OF RS.14,30,000/- OUT OF THE ADDITION OF R S.28,12,000/- MADE BY THE A.O. ON ACCOUNT OF PROFIT ON SALES OUTS IDE THE BOOKS OF ACCOUNTS. THE LD. CIT(A) HAS NOT BEEN ABL E TO PLACE ANY MATERIAL ON RECORD FOR CONFIRMING THE ADDITION OF RS.14,30,000/-. THE ADDITION SUSTAINED AT RS.14,30, 000/- OUT OF THE ADDITION OF RS.28,12,2000/- MADE BY THE A.O. MA Y BE DELETED. 5. THAT THE BOOKS OF ACCOUNTS AS MAINTAINED AND RESULT S SHOWN WERE CORRECT AND SHOULD HAVE BEEN ACCEPTED AND THER E WAS NO JUSTIFICATION IN REJECTING THE BOOKS OF ACCOUNTS WI THOUT PIN POINTING OUT ANY DEFECT. AS SUCH THE ADDITION OF RS .14,30,000/- CONFIRMED BY THE LD. CIT(A) MAY BE DELETED. ALTERNATIVELY, THE ADDITION MADE IS VERY HIGH & EX CESSIVE. 6. AGAIN, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRME D THE ADDITION OF RS.47,114/- ON ACCOUNT OF BAD DEBTS. T HE SAME SHOULD HAVE BEEN ALLOWED AS CLAIMED AND THE CIT(APP EALS) WAS ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 3 NOT JUSTIFIED IN CONFIRMING THE ADDITION AND THE AD DITION OF RS.47,114/- MAY BE DELETED. 7. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE FOLLOWING ADDITIONS: 1) OUT OF TELEPHONE EXPENSES RS.7026/- 2) OUT OF CAR EXPENSES RS.6392/- 3) OUT OF CAR DEPRECIATION RS. 504/- THE LD. CIT(APPEALS) DID NOT APPRECIATE THAT ALL T HESE EXPENSES RELATED TO BUSINESS AND SHOULD HAVE BEEN ALLOWED I N TOTO. 8. ANY OTHER GROUND OF APPEAL WHICH MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE AD DITION OF RS.14.30 LACS AS AGAINST ADDITION OF RS.28.12 LACS MADE IN THE TRADING ACCOUNT BY THE A.O. AFTER REJECTING THE BOO KS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT, WH ICH ACTION WAS UPHELD BY THE LD. CIT(A) IN THIS ORDER. 2. THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISAL LOWANCE OF RS.94,255/- MADE ON ACCOUNT OF PAYMENT IN THE SHAPE OF FINE PAID TO THE TAMILDNADU MEDICAL SERVICES. 3. THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISAL LOWANCE OF RS.9,98,000/- MADE ON ACCOUNT OF UNEXPLAINED CREDIT IN THE CAPITAL ACCOUNT OF SH. PAWAN GOYAL, PARTNER. 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T-ASIDE AND THAT OF THE A.O. RESTORED. 5. THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DI SPOSED OF. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 4 3. AS REGARDS GROUNDS NO. 1 TO 5 OF THE ASSESSEE AN D GROUND NO.1 OF THE REVENUE, THE BRIEF FACTS ARE THAT THE ASSESSEE FILE D ITS RETURN OF INCOME ON 31.10.2004 DECLARING TOTAL INCOME OF RS.8,36,338/-. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF MEDICINES. IT HAS DECLAR ED TURNOVER OF RS.3.40 CRORES ON A GP RATE OF 26.36% AS AGAINST GP RATE OF 27.80% ON TOTAL TURNOVER OF RS.1.66 CRORES DECLARED IN THE IMMEDIATELY PRECE DING YEAR. A SURVEY U/S 133A(1) WAS CONDUCTED ON 24.3.2004 IN THE CASE OF A SSESSEE PURSUANT TO WHICH THE ASSESSEE SURRENDERED AN ADDITIONAL INCOME OF RS.10 LACS IN THE FOLLOWING MANNER: I) RS.2 LACS ON ACCOUNT OF EXCESS CASH FOUND DURIN G SURVEY. II) RS.2 LACS ON ACCOUNT OF DIFFERENCE IN STOCK. THE ASSESSEE DISCLOSED INCOME OF RS. 2 LACS IN THE PROFITS AND LOSS ACCOUNT AS MISC. INCOME ON ACCOUNT OF EXCESS CASH, RS. 2 LACS IN THE TRADING ACCOUNT BY ENHANCED CLOSING STOCK AND RS.6 LACS IN THE P&L A/C BY REDUCING INDIRECT EXPENDITURE. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSEE ADMITTED THAT THE INVENTORY OF OPENING STOCK AND CL OSING STOCK WAS NOT AVAILABLE WITH IT. THE AO FOUND THAT TWO LIST OF WO RKERS WERE PREPARED AT THE TIME OF SURVEY. 11 WORKERS WERE FOUND TO BE WORKING IN THE OFFICE AS PER ONE LIST. AS PER OTHER LIST THERE WERE 53 WORKERS ENGAG ED IN THE MANUFACTURING PROCESS AND FOR PACKING. SEVERAL OF THESE WORKERS W ERE FOUND FOR WORKING ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 5 MORE THAN SIX MONTHS. THE AO ESTIMATED THE SALARY P AYABLE TO THESE WORKERS AT RS.1,30,400/- WHEREAS THE SALARY AND WAGES DEBIT ED FOR MARCH 2004 WAS RS.37,850/- ONLY. FURTHER, ONLY 12 PERSONS WERE CL AIMED TO ENGAGED BY THE ASSESSEE IN OFFICE OR FACTORY IN MARCH, 2004. THE A O ESTIMATED EXCESS WAGES PAID BY THE ASSESSEE OUTSIDE THE BOOKS AT RS. 92,550/- PER MONTH. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE VAL UED THE STOCK FOUND DURING THE SURVEY AT RS.63,28,637/-. THIS WAS FOUND TO BE SHORT BY RS.51,87,488/- WHEN COMPARED TO THE VALUE OF STOCK DRAWN ON 24.3.2004 DURING THE COURSE OF SURVEY. THE AO FURTHER NOTED T HAT THE BOOKS OF ACCOUNT INVENTORIED DURING THE SURVEY OPERATION INCLUDED DA ILY STOCK ACCOUNTS, PART - 1 & PART-II RAW MATERIAL REGISTERS FOR EXEMPTED GOO DS AND EXCISABLE GOODS, AND STOCK REGISTER. HOWEVER, THE ASSESSEE DID NOT P RODUCE ALL THESE STOCK REGISTERS WHEN ASKED TO DO SO DURING THE ASSESSMENT PROCEEDINGS. IT PRODUCED ONLY THE GOODS REGISTERS INWARD AND OUTWAR DS. IT ALSO FAILED TO RECONCILE THE DIFFERENT IN ACCOUNTS WITH M/S. MODER N INDS AND KHANNA ENTERPRISES OBTAINED U/S 133(6). THE DISCREPANCIES WERE POINTED OUT BY THE AO AND THE ASSESSEE WAS ASKED TO STATE AS TO WHY IT S BOOK RESULTS SHOULD NOT BE REJECTED. AFTER CONSIDERING THE ASSESSEES REPLY THE AO HELD THAT THE ASSESSEE HAD TRIED TO TAKE UNDUE ADVANTAGE OF THE P ARTNERS DELIBERATE ABSENCE FROM THE BUSINESS PREMISES DURING THE COURS E OF SURVEY AND THAT HE ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 6 WAS SHIFTING THE BURDEN OF NOT TAKING INTO ACCOUNT THE STOCK OF THE ALLEGED GODOWN AT DANA MANDI FOUND TO THE DEPARTMENT. THE A O NOTED THAT THE ASSESSEE HAD NOT FAILED TO SUBSTANTIATE ITS CONTENT ION ABOUT IRREGULARITY IN PREPARATION OF STOCK OF INVENTORY WITH ANY EVIDENCE NOR HAD HE EXPLAINED THE OTHER DISCREPANCIES FOUND DURING SURVEY. THE AO NOT ED THAT THERE WAS NO EVIDENCE TO ESTABLISH THAT THE DANA MANDI GODOWN WA S IN THE ASSESSEES POSSESSION DURING THE RELEVANT PERIOD AND HOW MUCH STOCK FOR STORAGE OF MEDICINE AT ANY GODOWN WHICH THE ASSESSEE HAD FAIL ED TO PRODUCE. THE AO REJECTED THE EXPLANATION OF THE ASSESSEE REGARDING MISTAKES IN PREPARATION OF INVENTORY. HE ALSO REJECTED THE CONTENTION THAT STO CK WAS MAINTAINED AT THE DANA MANDI GODOWN BY REJECTING THE CERTIFICATE FROM THE BANK OF INDIA ON THE GROUND THAT THIS GODOWN WAS NEVER VISITED BY BA NK AUTHORITY DURING THE RELEVANT PREVIOUS YEAR AND THAT THE VALUE OF STOCK REPORTED TO THE BANK WAS DIFFERENT FROM THE STOCK IN THE BOOKS AND THAT INVE NTORISED AS ON 31.3.2004. IN RESPECT OF DISCREPANCY IN NUMBER OF WORKERS, THE AO REJECTED THE SUBMISSIONS OF MANAGING PARTNER OF ASSESSEE FIRM AN D HELD THAT THE MANAGER COULD NOT EMPLOYEE MORE WORKERS WITHOUT CONSENT OF THE PARTNER. HE ALSO REJECTED THE SUBMISSION THAT THE EXTRA LABOUR WAS ENGAGED IN POP WORK AT HOUSE ON ACCOUNT OF THE CONTRADICTIONS, AND BECAUSE THE LIST OF WORKERS WAS SIGNED BY ALL THE WORKERS IN THE PRESENCE OF MANAGE R OF THE ASSESSEE FIRM. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 7 THE AO CAME TO THE CONCLUSION THAT BY EMPLOYING EXT RA WORKERS THE ASSESSEE WAS ENGAGED IN EXTRA PRODUCTION OUTSIDE TH E BOOKS OF ACCOUNT. THE SHORTAGE OF STOCK LED HIM TO CONCLUDE THAT THE SAME WAS BEING USED FOR UNACCOUNTED PRODUCTION AND SALES. THESE FACTS COUPL ED WITH ABSENCE OF THE DETAILS OF OPENING AND CLOSING STOCK AND NON PRODUC TION OF ALL THE STOCK REGISTERS LED THE AO TO CONCLUDE THAT THE FINAL AC COUNT OF THE ASSESSEE WERE NOT COMPLETE AND CORRECT. HE, THEREFORE, INVOKED TH E PROVISIONS OF SECTION 145(3) OF THE ACT AND REJECTED THE BOOK RESULTS OF THE ASSESSEE. THE AO NOTED THAT AS PER ASSESSEES ACCOUNTS, THE SALES WE RE APPROXIMATELY THREE TIMES THE AVERAGE OF THE ASSESSEES OPENING AND CLO SING STOCK. THE SHORTAGE IN STOCK OF RS.51,78,488/- WAS HELD TO BE USED FOR MANUFACTURING FINISHED GOODS WITH UNACCOUNTED WAGES/SALARY AND THE AO HELD THAT THE ASSESSEES UNACCOUNTED TURNOVER WOULD BE 1.56 CRORES. THE GP O N THE SAME WAS ESTIMATED AT RS.42,12,000/- @ 27%. THE AO ALLOWED D EDUCTION OF A SUM OF RS.10 LACS AGAINST THIS GP ON ACCOUNT OF WAGES AND ESTIMATED THE EXTRA GROSS PROFIT AT RS.31,12,000/-. SINCE THE ASSESSEE WAS FO UND TO HAVE DISCLOSED RS.2 LACS ON ACCOUNT OF EXCESS CASH AND RS. 2 LAC O N ACCOUNT OF CLOSING STOCK, SET OFF OF THE SAME WAS ALLOWED AGAINST THE EXTRA GROSS PROFIT. NO SET OFF OF THE SUM OF RS.6 LACS REDUCED FROM THE EXPEND ITURE WAS ALLOWED ON THE GROUND THAT DUE CREDIT OF UNRECORDED WAGES HAD BEEN ALLOWED. A NET ADDITION ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 8 OF RS.28,12,000/- WAS THUS MADE BY THE AO TO THE TR ADING INCOME OF THE ASSESSEE. 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ESTIMATED THE UNACCOUNTED SALES OF THE ASSESSEE TO BE 2.25 TIMES OF THE UNACCOUNTED STOCK WHICH IS THE AVERAGE OF THE RATIO OF 1.5 IN THE PRECEDING YEAR AND WERE IN THE CURRENT YEAR AND ACCORDINGLY WORKED OUT THE UNACCOUNTED SALES TO THE TUNE OF RS.90LACS AS AGAIN ST UNACCOUNTED SALES ESTIMATED BY THE A.O. AT RS.1.56 CRORES. THE GP ON THE UNACCOUNTED SALE AND THE G.P. RATE OF 27% WORKED OUT AT RS.24,30,00 0/-. ACCORDINGLY, BY ALLOWING BENEFIT OF RS.6 LACS AND RS. 2 LACS ON ACC OUNT OF CLOSING STOCK AND FURTHER RS.2 LACS ON ACCOUNT OF EXCESS CASH SURREND ERED BY THE ASSESSEE, THE LD. CIT(A) ESTIMATED THE UNACCOUNTED INCOME THROUG H UNACCOUNTED SALE OF RS.14.30 LACS AND REPLACED THE ADDITION MADE BY TH E AO FROM RS.28.12 LACS TO RS.14.30 LACS, THUS, GIVING A RELIEF OF RS.13.90 LACS. 5. THE LD. COUNSEL FOR THE ASSESSEE, MR. P.N.ARORA, ARGUED THAT THE STOCK TAKING AT THE TIME OF SURVEY WAS TAKEN IN THE ABSENCE OF THE PARTNERS OF THE FIRM. THE PARTNERS OF THE ASSESSEE FIRM WERE AT THE TEMPLE AT DOSANJH KALAN TO PERFORM RELIGIOUS FUNCTION AND THE SURREND ER WAS CONSENTED AT THE TEMPLE PREMISES ONLY WHICH WAS WITHOUT VERIFICATION OF WHATSOEVER. THE ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 9 SURRENDER WAS MADE UNDER PRESSURE OF THE DEPARTMENT AND TO BUY PEACE OF MIND. THE STOCK TAKING WAS DONE BY THE DEPARTMENT W ITHOUT MAKING ANY VALUATION IN THE ABSENCE OF THE OWNERS OF THE ASSES SEE FIRM, WHICH IS NOT AT ALL AUTHENTIC. ANY STOCK TAKING WITHOUT VALUATION I S BOUND TO BE INCOMPLETE. ALSO THE QUANTITY NOTED IN THE STOCK TAKING WAS WI THOUT VERIFICATION BY THE PARTNERS. AS CONFIRMED BY THE SR. MANAGER, MR. SUKH DEV SINGH OF THE BANK OF INDIA, THE AO DID NOT TAKE INTO ACCOUNT THE STOC K OF RS.12.6 LACS LYING AS A PACKING MATERIAL AT DANA MANDI. THE SAID SH. SUKHEV SINGH WAS EXAMINED BY THE AO WHOSE STATEMENT WAS RECORDED, IS NOT UNDE R DISPUTE. IN SUCH FACTS AND CIRCUMSTANCES, THE STOCK TAKEN BY THE DEPARTMEN T IS WITHOUT ANY AUTHENTICITY AND CANNOT BE RELIED UPON. THE ASSESSE E HAS MADE A SURRENDER ON ACCOUNT OF EXCESS WAGES, EXCESS CASH VOUCHERS AN D EXCESS STOCK AS A GOOD CITIZEN. THE GP RATE DECLARED DURING THE IMPU GNED YEAR IS 26.36% ON A TURNOVER OF RS.3.40 CRORES AND AS PER G.P. RATE O F 27.80% AT A TURNOVER OF RS.1.66 CRORES IN THE IMMEDIATE PRECEDING YEAR . TH E TURNOVER IN THE IMPUGNED YEAR IS ALMOST MORE THAN DOUBLE AS COMPARE D TO THE PRECEDING YEAR AND ACCORDINGLY A LITTLE FALLS OF GP RATE BY 1.44% WHICH HAS OCCURRED ONLY DUE TO INCREASE IN THE TURNOVER AND TO MEET CO MPETITION IN THE MARKET. THE LD. COUNSEL FOR THE ASSESSEE ACCORDINGLY PRAYED TO DELETE THE ADDITION SO ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 10 SUSTAINED BY THE LD. CIT(A) AND ALLOW THE GROUNDS O F ASSESSEE AND DISMISS THE GROUNDS RAISED BY THE REVENUE. 6. THE LD. DR, MR. MAHAVIR SINGH, ON THE OTHER HAND , ARGUED THAT THE VALUATION OF THE STOCK WAS NOT DONE SINCE NO RESPO NSE WAS AVAILABLE AT THE TIME OF SURVEY. THE LD. DR FURTHER ARGUED THAT THE GODOWN AT DANA MANDI WAS AVAILABLE WHILE THE SAME WAS NOT DISCLOSED AT THE TIME OF SURVEY AND BUT THE SAME WAS DISCLOSED AT THE TIME OF ASSESSMEN T ONLY. THE LD. CIT(A) IS NOT JUSTIFIED IN GIVING CREDIT OF STOCK AT DANA MANDI. THERE ARE NO BASIS OF THE ESTIMATION MADE BY THE LD. CIT(A). THE LD. DR A CCORDINGLY PRAYED TO SUSTAIN THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT IS NOT UNDER DISPUTE THAT THE SURVEY WAS MADE IN THE ABSENCE OF THE OWNERS/PARTNERS OF THE FIRM AND THE SIGNATURES OF T HE PARTNERS FOR THE SURRENDER OF RS.10 LACS AS MENTIONED HEREINABOVE WA S TAKEN WHEN THE PARTNER WAS IN THE MANDIR AND PERFORMING SOME POOJA . THEREFORE, IT IS EVIDENT THAT EVEN SURRENDER WAS TAKEN BY THE DEPART MENT FROM THE PARTNERS OF THE ASSESSEE FIRM WITHOUT HAVING KNOWLEDGE OF THE C ONTENTS I.E. STOCK TAKING ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 11 ETC. BY THE DEPARTMENT. IT APPEARS THAT THE ASSESSE E HAS MADE A SURRENDER TO STOP PROLONGED LITIGATION. 7.1. THOUGH THE ASSESSEE HAS NOT PRODUCED STOCK REG ISTER DURING THE ASSESSMENT PROCEEDINGS AND THEREFORE, IT IS NOT POS SIBLE FOR THE A.O. TO DEDUCE THE INCOME ACCURATELY AND ACCORDINGLY AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 7.2. ONCE THE BOOKS OF ACCOUNT ARE REJECTED THEN AO HAS TO ESTIMATE THE INCOME. WHILE ESTIMATING THE INCOME, FIRST OF ALL, CIRCUMSTANCES AND FACTS OF THE IMPUGNED YEAR ARE TO BE TAKEN INTO ACCOUNT AND THEREAFTER, THE AO HAS TO CONSIDER THE PAST YEARS RESULT WHICH HAS BEEN ACC EPTED BY THE INCOME TAX DEPARTMENT IN ASSESSEES OWN CASE. IT IS ONLY WHEN IT IS NOT POSSIBLE FOR THE A.O. TO DEDUCE INCOME ACCURATELY FROM ASSESSEES RE CORDS IN THE IMPUGNED YEAR OR IN THE PAST YEAR, THEN AO SHOULD GO FOR CO MPARABLE CASES. 7.3. IN THE PRESENT CASE, SURVEY HAS BEEN MADE WHER E STOCK TAKING IS NOT AUTHENTICATE BUT AT THE SAME TIME BOOKS HAVE BEEN F OUND TO BE INCORRECT, WHICH HAS RIGHTLY BEEN REJECTED BY THE LD. CIT(A), AS MENTIONED HEREINABOVE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HAVE TO SEE THE RESULTS OF THE IMPUGNED YEAR DECLARED BY THE ASSES SEE WHICH ARE AT 26.46% AS COMPARED TO 27.80% AT A TURNOVER OF RS.3.40 CROR ES AS COMPARED TO 27.80% AT A TURNOVER OF RS.1.66 CRORES IN THE IMME DIATE PRECEDING YEAR. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 12 THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS MORE THAN DOUBLED TURNOVER DURING THE IMPUGNED YEAR. THEREFORE, IT WI LL BE IN THE INTEREST OF JUSTICE AND WHICH WILL MEET BOTH ENDS OF JUSTICE AN D KEEPING INTO CONSIDERATION, THE FACTS AND CIRCUMSTANCES OF THE P RESENT YEAR, IF GP RATE OF 27% ON THE DECLARED TURNOVER BY THE ASSESSEE IS EST IMATED. THE AO IS DIRECTED TO APPLY G.P. RATE OF 27% ON THE DECLARED TURNOVER OF RS.3.40 CRORES AND SUSTAIN THE ADDITION ACCORDINGLY. HENCE, GROUN DS NO. 1 TO 5 OF THE ASSESSEE ARE PARTLY ALLOWED AND GROUND NO.1 OF THE DEPARTMENT IS DISMISSED. 8. AS REGARDS GROUND NO.6 OF THE REVENUE WITH REGAR D TO BAD DEBTS, THE BRIEF FACTS ARE THAT THE ASSESSEE HAS DEBITED ON A CCOUNT OF BAD DEBTS AMOUNTING TO RS.47,114/- WITH RESPECT TO THREE PART IES. THE AO OBSERVED THAT THE ASSESSEE DID NOT ESTABLISH WHETHER THESE HAVE BEEN CLAIMED AS INCOME IN THE EARLIER YEAR AND ACCORDINGLY DISALLOW ED THE SAME. 8.1. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASS ESSING OFFICER. 8.2. THE LD. COUNSEL FOR THE ASSESSEE, MR.P.N.ARORA , ADVOCATE ARGUED THAT THE SAID BAD DEBTS ARE THE PARTS OF THE SALES DEBI TED TO VARIOUS PARTIES, WHICH ARE DEBTORS IS NOT UNDER DISPUTE. THE SALES WERE AC COUNTED FOR IN THE SAID DEBTS WHICH WERE PART OF THE RECORD. 8.3. THE LD. DR, MR. MAHAVIR SINGH, ON THE OTHER HA ND RELIED UPON THE ORDERS OF BOTH THE AUTHORITIES BELOW. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 13 8.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. AS PER SECTION 36(1)(VII) OF THE ACT, ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR IS ALLOWED AS DEDUCTION. THE ASSESSEE HAS TO P ROVE FIRST OF ALL THAT IT IS A DEBT FOR WHICH HE HAS TO PROVE THAT THE SALES OR IN COME HAS BEEN CREDITED FOR WHICH DEBT IS RECOVERABLE IN THE IMPUGNED OR IN THE PRECEDING YEAR. NOTHING OF THAT SORT HAS BEEN BROUGHT ON RECORD EITHER BEFO RE THE AO OR CIT(A) OR EVEN BEFORE US. THEREFORE, IN THE FACTS AND CIRCUMS TANCES, UNLESS THE ASSESSEE ESTABLISHES THAT IT IS A DEBT, THE SAME CANNOT BE T REATED AS BAD U/S 36(1)(VII) OF THE ACT. ACCORDINGLY, WE FIND NO INFIRMITY IN TH E ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY CONFIRMED THE ACTION OF THE A.O. T HUS, GROUND NO.6 OF THE ASSESSEE IS DISMISSED. 9. AS REGARDS GROUND NO.7, THE ASSESSEE HAS AGITATE D THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) OUT OF TELEPHONE EXPENS ES AT RS.7026/-, OUT OF CAR EXPENSES AT RS.6392/- AND OUT OF CAR DEPRECIATI ON AT RS.504/-. THE SAME WAS NOT AGITATED DURING THE COURSE OF HEARING AND I N THE ABSENCE OF ANY ARGUMENTS OR PLEADINGS, THE SAME IS TREATED AS NOT PRESSED AND ACCORDINGLY GROUND NO.7 OF THE ASSESSEE IS DISMISSED. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 14 10. GROUND NO.8 OF THE ASSESSEE IS GENERAL IN NATUR E AND THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 11. AS REGARD GROUND NO. 2 OF THE REVENUE, THE AO D ISALLOWED AN EXPENDITURE OF RS.94,255/- FOR THE REASONS THAT THE SAME WAS PAID AS FINE TO THE TAMILNADU MEDICAL SERVICES CORPN. LTD. RELATIN G TO SOME MEDICINES SUPPLIED BY THE ASSESSEE AND AS PER A.O. FINE AND PENALTY EXPENDITURE ARE NOT ALLOWED UNDER THE INCOME TAX ACT. 11.1. THE LD. CIT(A) DELETED THE SAME AFTER CONSIDE RING THE EXPLANATION OF THE ASSESSEE. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A), WHO HAS VERIFIED THE VOUCHERS AND ASSESSMENT RECORD AND FOUND THAT TAMILNADU MEDI CAL SERVICES CORPN. LTD HAVE LEVIED FINE ON THE ASSESSEE FOR NOT SUPPLY ING CERTAIN GOODS I.E. FINE WAS LEVIED FOR NON-EXECUTION OF CONTRACT RATHER THA N FOR BREACH OF ANY LAW. IT IS A COMPENSATION FOR NON EXECUTION OF CONTRACT AND OTHER PAYMENTS WHICH ARE COMPENSATORY IN NATURE AND INCURRED DURING THE COURSE OF BUSINESS, ARE ALLOWABLE AS BUSINESS EXPENDITURE. THEREFORE, WE F IND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED TH E ADDITION SO MADE BY THE A.O. THUS, GROUND NO,2 OF THE REVENUE IS DISMISSED. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 15 13. AS REGARDS GROUND NO.3 OF THE REVENUE, THE BRIE F FACTS ARE THAT THE A.O. NOTED CERTAIN UNEXPLAINED CREDITS IN THE CAPIT AL ACCOUNT OF SH. PAWAN GOYAL, PARTNER TOTALING RS.9,98,000/-. THE ASSESSEE FAILED TO SUBMIT REPLY IN RESPECT TO THIS QUERY AND ALSO FAILED TO EXPLAIN TH E SOURCE OF THE DEPOSIT AND THE ASSESSEE DID NOT PRODUCE THE SAID CREDITOR. THE AO ALSO ASCERTAINED INDEPENDENTLY THAT THESE SUMS WERE DEPOSITED INITIA LLY IN CASH IN THE ACCOUNT OF SMT. KAILASHWATI GOYAL, A PARTNER OF ASSESSEE FI RM IDENTICALLY ON THE SAME DATES IN WHICH THE DEPOSITS WERE APPEARING IN THE C APITAL ACCOUNT OF SH. PAWAN GOYAL. THE CASH DEPOSITS WERE MADE INITIALLY IN SB A/C NO.9580 IN THE NAME OF MRS. KAILASHWATI GOYAL WHICH WERE TRANS FERRED BY BANK ENTRIES TO THE ACCOUNT OF PAWAN GOYAL (HUF) AND FROM THIS A CCOUNT TO THE ACCOUNT NO.5156 IN THE NAME OF SH. PAWAN GOYAL. THE BANK AC COUNTS OF ALL THE THREE PARTIES WERE IN BANK OF INDIA, PHAGWARA BRANCH WHER E THE BANK ACCOUNT OF ASSESSEE FIRM WAS ALSO MAINTAINED. EVENTUALLY, THE ASSESSEE REPLIED THAT THE ENTRIES APPEARING IN THE CAPITAL ACCOUNT OF SH. PAW AN GOYAL ALREADY EXISTED AT THE TIME OF SURVEY AND THEREFORE WAS ALSO CON SIDERED. THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. HE NOTED TH AT CERTAIN CASH DEPOSITS OUT OF THE TOTAL AMOUNT WERE MADE EVEN AFTER THE DA TE OF SURVEY. HE ALSO NOTED THAT NO SURRENDER HAD BEEN MADE OF ADDITIONAL INCOME ON ACCOUNT OF ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 16 THESE DEPOSITS AND THAT THE ADDITIONAL INCOME OFFER ED BY THE ASSESSEE RELATED TO EXCESS CASH, STOCK AND EXPENSES FOR WHICH SEPARA TELY ENTRIES HAVE BEEN PASSED IN THE BOOKS OF ACCOUNTS. THE AO NOTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO PROVE THE SOURCE OF CASH DEPOSIT IN TH E ACCOUNT OF SMT. KAILASHWATI GOYAL, A PARTNER AND THAT SHE WAS NOT P RODUCED FOR EXAMINATION. HE ALSO HELD THE ASSESSEES CONTENTION THAT THE AMO UNT WAS CONSIDERED AT THE TIME OF SURVEY IMPLIED THAT THE DEPOSITS WERE UNEXP LAINED. THE AO ADDED THE SUM OF RS.9,98,000/- TO THE ASSESSEES INCOME A S UNEXPLAINED CREDITS U/S 68 OF THE ACT. 14. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED T HE EXPLANATION WHICH WAS FORWARDED TO THE A.O. FOR COMMENTS AND AFTER C ONSIDERING THE REPORT OF THE AO AND COMMENTS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE A.O. VIDE PARA 5.5 OF HIS ORDER. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A) THA T THE SUM OF RS.9,98,000/- WAS INTRODUCED IN ASSESSEES BOOKS OF ACCOUNT FROM THE BANK ACCOUNT OF SH. PAWAN GOYAL, PARTNER. IT IS ALSO CLEAR THAT INITIAL LY A SUM OF RS.9,98,000/- WAS INTRODUCED AS CASH DEPOSIT IN THE BANK ACCOUNT OF SMT. KAILASH WATI GOYAL, ANOTHER PARTNER IN THE ASSESSEE FIRM FROM WH ERE IT TRAVELED TO THE BANK ACCOUNT OF SH. PAWAN GOYAL. THESE FACTS HAVE N OT BEEN DENIED BY THE ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 17 ASSESSEE DURING THE ASSESSMENT PROCEEDINGS OR IN TH E WRITTEN SUBMISSIONS. IN THE CASE OF CIT VS. METAL AND METALS OF INDIA 208 C TR (P&H) 457, THE HONBLE JURISDICTIONAL HIGH COURT HAVE HELD THAT ON CE THE PARTNER HAD ADMITTED TO HAVE MADE DEPOSIT WITH THE FIRM AS FAR AS THE FIRM WAS CONCERNED, EVEN IF THE SOURCE OF THE MONEY CLAIM TO HAVE BEEN RECEIVED BY THE PARTNER AND INTRODUCED IN THE FIRM WAS REJECTED , IT IS THE PARTNER WHO MAY BE LIABLE TO BE TAXED IF THE EXPLANATION REGARD ING THE SOURCE WAS REJECTED, BUT THE FIRM COULD NOT BE SUBJECTED TO TA X ON THAT GROUND. THIS DECISION WAS FOLLOWED BY JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RAMESHWAR DASS SURESH PAL CHEEKA 208 CTRS (P&H) 459 IN WHICH IT WAS HELD THAT NO ADDITION TO THE INCOME OF FIRM COULD B E MADE U/S 68 EVEN IF DEPOSITS MADE WITH THE FIRM BY THE PARTNERS WERE UN EXPLAINED INCOME OF THE PARTNERS. IN THE PRESENT CASE, AS NOTED EARLIER, T HE CREDIT IN THE BOOKS OF THE FIRM IN THE NAME OF PARTNER SH. PAWAN GOYAL HAS CO ME THROUGH CASH DEPOSIT IN THE ACCOUNT OF SMT. KAILASH WATI GOYAL WHICH WAS ROUTED THROUGH THE BANK ACCOUNT OF PAWAN GOYAL. HENCE, IN THE LIGHT OF THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF C IT VS. METAL & METALS INDIA (SUPRA) AND CIT VS. RAMESHWAR DASS SURESH PAL CHEEKA (SUPRA), IT IS HELD THAT ADDITION OF RS.9,98,000/- COULD NOT BE MA DE IN THE HANDS OF THE ASSESSEE FIRM. THE ADDITION OF RS.9,98,000/- WAS TH EREFORE, RIGHTLY DELETED. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 18 15.1. FURTHER, THE ASSESSEE DID NOT EXPLAIN THE SOU RCE OF CASH DEPOSITS IN THE ACCOUNT OF SMT. KAILASHWATI GOYAL NOR WAS SHE PRODU CED BEFORE THE AO FOR EXAMINATIONS. THE ASSESSEES CONTENTION DURING THE ASSESSMENT PROCEEDINGS THAT THESE DEPOSITS WERE COVERED BY THE SURRENDER O F RS.10 LACS IS NOT ACCEPTABLE FOR THE REASON THAT THE SURRENDER HAS BE EN MADE ON ENTIRELY DIFFERENT ACCOUNTS AND WHICH HAVE BEEN SEPARATELY A CCOUNTED FOR IN THE BOOKS OF THE ASSESSEE FIRM. THE SOURCE OF THE CASH DEPOSITS OF RS.9,98,000/- IN THE ACCOUNT OF SMT. KAILASH WATI GOYAL, THUS, RE MAINS UNEXPLAINED. IN THIS CONNECTION, A LETTER DATED 13.11.2009 WAS ADDR ESSED TO SMT. KAILASH WATI GOYAL INFORMING HER THAT IN VIEW OF THE FACTS OF THIS CASE, THE SUM OF RS.9,98,000/- ADDED IN THE CASE OF ASSESSEE FIRM RE PRESENTED HER INCOME. SHE WAS ASKED TO SHOW CAUSE AS TO WHY THE AMOUNT SHOULD NOT BE ADDED IN HER HANDS. THIS NOTICE COULD NOT SERVED UPON SMT. KAILA SH WATI GOYAL AS THE NOTICE SERVER INFORMED THAT SHE HAS GONE OUT FOR A BOUT TEN DAYS. ANOTHER NOTICE TO THE SAME EFFECT ISSUED ON 20.11.2009 SEN T THROUGH SPEED POST CAME BACK UNSERVED BY THE POSTAL AUTHORITIES WITH THE RE MARKS REFUSED. THEREAFTER, A LETTER WAS ISSUED TO HER ON 1.2.2010 WHICH WAS SENT THROUGH BOTH REGISTERED POST AND TO BE SERVED THROUGH THE A O. ONE SMT. GOURI GOYAL, DAUGHTER IN LAW OF SMT. KAILASH WATI GOYAL H AS RECEIVED BOTH THE COPIES OF NOTICES SENT THROUGH POST AND THROUGH THE AO. SHE HAS SENT A ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 19 TELEGRAM STATING THAT DUE TO HER OLD AGE AND NOT FI NDING IT COMFORTABLE AT PHAGWARA, KAILASH WATI GOYAL HAD GONE TO DELHI FOR CERTAIN TREATMENT AND REQUESTED TO BEAR WITH THEM. THERE HAS BEEN NO FU RTHER RESPONSE AND ANOTHER NOTICE ISSUED ON 26.2.2010 THROUGH REGISTER ED AD TO SMT. KAILASH WATI GOYAL HAS COME BACK UNSERVED WITH THE POSTAL R EMARKS REFUSED. THE LD. CIT(A) WAS THEREFORE, RIGHTLY CONVINCED THAT SM T. KAILASHWATI GOYAL IN SPITE OF SERVICE OF NOTICE AND IN THE KNOWLEDGE OF NOTICE, HAS CHOSEN NOT TO REPLY TO THE SHOW CAUSE NOTICE. THE FACTS RELATING TO THE CASH DEPOSIT OF RS.9,98,000/- IN THE BANK ACCOUNT OF KAILASH WATI G OYAL DURING THE RELEVANT PREVIOUS YEAR AND THE ASSESSEES AS WELL AS SMT. KA ILASH WATI GOYALIS INABILITY TO EXPLAIN THE SOURCE OF THESE DEPOSIT, I NDICATE THAT THE DEPOSIT OF RS.9,98,000/- REPRESENT HER UNACCOUNTED INCOME. THE AO WAS THEREFORE, RIGHTLY DIRECTED TO TAKE NECESSARY ACTION, AFTER AF FORDING ADEQUATE OPPORTUNITY TO SMT. KAILASH WATI GOYAL, TO EXAMINE THE SOURCE OF HER INCOME, IF HER EXPLANATION IS NOT SATISFACTORY AS P ER THE PROVISIONS OF LAW. ACCORDINGLY, GROUND NO.3 OF THE REVENUE IS DISMISSE D. 16. AS REGARDS GROUNDS NO. 4 & 5 OF THE REVENUE, TH E SAME ARE GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ANY ADJUDICATI ON. ITA NO.297(ASR)/2010 ITA NO.312(ASR)/2010 20 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.297(ASR)/2010 IS PARTLY ALLOWED AND THAT OF THE REVENUE IN ITA NO.31 2(ASR)/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH NOVEMBER., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20TH NOVEMBER, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S. G & G PHARMACEUTICALS, PHAGWARA. 2. THE DCIT, PHAGWARA CIRCLE, PHAGWARA. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.