M/s. G.N. Flour Mills, Surat V. The Income tax Officer,Ward-6(2), Surat

ITA 3318/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0327 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 18-11-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Initiation of penalty proceedings; Ignorance of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 25/08/09 DRAFTED ON: 30/09/ 2009 ITA NO.3318/AHD/2004 ASSESSMENT YEAR : 2001-02 M/S.G.N.FLOUR MILLS C/20/7, SACHIN UDHYOG NAGAR SACHIN, SURAT VS. THE INCOME TAX OFFICER WARD-6(2) SURAT PAN/GIR NO. : AACFG 2277 M (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N. SOPARKAR, AR RESPONDENT BY : SHRI C.K.MISHRA, D.R. O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-IV, SURAT DATED 28/09/2004 FOR ASSESSMENT YEAR 2001-02, BY RAISING FOLLOWING GROUNDS:- 1.0 THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER, 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) [HEREINAFTER REFERRED TO AS 'CIT(A)'] ERRED ON FACTS AS ALSO IN LAW IN DISMISSING APPELLANT'S GROUND OF APPEAL RELATED TO ADDITION OF RS.7,15,240/- MADE ON ACCOUNT OF ALLEGED EXCESS STO CK FOUND DURING THE COURSE OF SURVEY. THE ADDITION MADE BY T HE AO AND SUSTAINED BY THE CIT(A) BEING UNJUSTIFIED ON FACTS AS ALSO IN LAW MAY KINDLY BE DELETED. ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 2 - 3.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO I N LAW IN DISMISSING APPELLANT'S GROUND OF APPEAL RELATED TO ADDITION OF RS.3,00,000/- ON ACCOUNT OF ALLEGED UNEXPLAINED CREDITS IN PARTNE RS ACCOUNTS. THE ADDITION MADE BY THE AO AND SUSTAINED BY THE CI T(A) BEING UNJUSTIFIED ON FACTS AS ALSO IN LAW, MAY KINDLY BE DIRECTED TO BE DELETED. 4.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO I N LAW IN DISMISSING APPELLANT'S GROUND OF APPEAL RELATED TO DISALLOWANC E OF RS.6,44,483/- OUT OF REBATE AND DISCOUNT EXPENSES W HICH WAS MADE ON ALLEGED GROUND THAT THE SAME PERTAINED TO E ARLIER YEAR. THE DISALLOWANCE OF RS.6,44,483/- MADE BY THE AO AN D UPHELD BY THE LEARNED CIT(A) BEING UNJUSTIFIED ON FACTS AS AL SO IN LAW MAY KINDLY BE DIRECTED TO BE DELETED. 5.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LAW, IN DISMISSING APPELLANT'S GROUND OF APPEAL RELATED TO DISALLOWANC E OF RS.1,680/- OUT OF PACKING EXPENSES. THE DISALLOWANC E BEING UNJUSTIFIED ON FACTS AS ALSO IN LAW, MAY KINDLY BE DIRECTED TO BE DELETED. 6.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO I N LAW IN DISMISSING APPELLANT'S GROUND OF APPEAL RELATED TO DISALLOWANC E OF RS.24,357/- OUT OF BROKERAGE EXPENSES. THE DISALLOW ANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(A) IS AG AINST FACTS AND EVIDENCES PLACED ON RECORD AND IS TOTALLY UNJUS TIFIED. THE DISALLOWANCE BEING UNJUSTIFIED, MAY KINDLY BE DIREC TED TO BE DELETED. 7.0 THE LEARNED CIT(A) ERRED ON FACTS AS ALSO I N LAW IN REDUCING DISALLOWANCE (OUT OF DISALLOWANCE OF RS.47,500) OUT OF ADVERTISEMENT EXPENSES TO 50% ONLY DISREGARDING EVI DENCES ON RECORD. THE DISALLOWANCE BEING TOTALLY UNJUSTIFIED, MAY BE DIRECTED TO BE DELETED TOTALLY. 8.0 THE LEARNED CIT(A) ERRED IN OBSERVING THAT 'IT IS OBSERVED THAT INTEREST HAS BEEN CHARGED IN THE NOTICE OF DEMAND U /S. 156 OF THE ACT WHICH IS INTEGRAL PART OF THE ASSESSMENT OR DER AND ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 3 - THEREFORE THERE IS NO INFIRMITY IN THE SAME.' THERE BEING NO ORDER OR DIRECTION TO CHARGE INTEREST IN ASSESSMENT ORDER AND THEREFORE CHARGING OF INTEREST IS ILLEGAL AND INVAL ID. THE DEMAND OF INTEREST MAY KINDLY BE DIRECTED TO BE CAN CELLED. 9.0 YOUR HONOURS' APPELLANT CRAVES LEAVE TO ADD, TO AMEND, ALTER, OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL ON OR BEF ORE THE HEARING OF APPEAL. 2. GROUND NO.1 IS GENERAL IN NATURE, HENCE DOES NOT REQUIRE ANY INDEPENDENT ADJUDICATION BY US. 3. GROUND NO.2 :- THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND SALE OF WHEAT FLOUR. SURVEY U/S.133A OF THE I.T. ACT, 196 1 WAS CONDUCTED AT THE FACTORY PREMISES OF THE ASSESSEE BY THE ERSTWHI LE ITO WARD-2(9) SURAT ON 21/09/2000. ON PHYSICAL VERIFICATION OF T HE STOCK AN EXCESS STOCK VALUING RS.7,15,240/- WAS FOUND. STATEMENTS, U/S.133A OF THE I.T. ACT, 1961, OF S/SHRI LALAITBHAI GOKALBHAI KANS AGARA AND PURSHOTTAMBHAI GOKALBHAI KANSAGARA, THE PARTNERS OF THE FIRM, WERE RECORDED. BOTH OF THEM DECLARED EXCESS STOCK OF RS .7,15,240/- AS PART OF THE CONCEALED INCOME, BUT WHEN THE FIRM FILED TH E RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02, IT DID NOT DISCLOS E THE ABOVE SUM FOR TAXATION. THE ASSESSING OFFICER CARRIED OUT E NQUIRIES DURING THE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 4 - COURSE OF ASSESSMENT PROCEEDINGS. DURING THAT PERI OD, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED LET TER DATED 12/02/2004 OFFERING THE STOCK DIFFERENCE OF RS.7,15 ,240/- FOR TAXATION, AS UNDER:- BEFORE ASSESSMENT PROCEEDINGS ARE GOING ON FOR THE ASSESSMENT YEAR. YOUR GOODSELF WANTS TO VERIFY TH E STOCK WHICH WAS DECLARED DURING THE COURSE OF SURVEY. SO FAR AS THE STOCK IS CONCERNED, THE STOCK SHOWN I N TRADING ACCOUNT IS CORRECT, BUT WE DO NOT WANT ANY LITIGATI ON WITH THE DEPARTMENT IN THIS RESPECT. WE OFFER TO MAKE ADDI TION OF DIFFERENCE OF STOCK RS.7,15,240/- MADE DECLRATION D URING THE SURVEY. WE ARE SURRENDER BEFORE YOUR HONOUR BEFORE START AS SESSMENT PROCEEDINGS, THERE IS NO SUO MOTO OR MENSARIA ON OU R SIDE. CONSIDERING THE ABOVE, WE ARE OFFERING THE ABOVE ON E AMOUNTS ON THE FOLLOWING GROUNDS: I) WE DO NOT WANT ANY LITIGATION WITH THE DEPARTMENT. II) WE WANT TO HAVE PEACE OF MIND, SO THAT WE CAN RUN O UR BUSINESS SUCCESSFUL. III) WE ARE OFFERING THE ABOVE ADDITIONS WITH CLEAR UNDERSTANDING THAT NO PENALTY U/S.271(1)(C) WILL BE INITIATED. 4. THE ASSESSING OFFICER, HOWEVER, NOT ONLY ADDED THE SUM OF RS.7,15,240/- BEING THE AMOUNT OF EXCESS STOCK FOUN D DURING THE COURSE OF SURVEY AND NOT OFFERED FOR TAXATION BY TH E ASSESSEE, IN THE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 5 - RETURN OF INCOME, BUT ALSO INITIATED PENALTY PROCEE DINGS U/S.271(1)(C) OF THE I.T. ACT, 1961 SEPARATELY FOR CONCEALMENT OF INCOME. 5. IN APPEAL, THE ASSESSEE CONTENTED BEFORE THE LEA RNED CIT(APPEALS) THAT : (I) NO ADDITION COULD BE MADE ON THE BASIS OF VALU E ADOPTED BY THE SURVEY PARTY IN RESPECT OF THE DIFFE RENCE IN QUANTITATIVE STOCK AS INVENTORISED BY THE SURVEY TEAM AND AS PER STOCK REGISTER/BOOKS OF THE ASSESSEE. (II) THE VALUE OF THE STOCK IN THE BOOKS IS RELEVANT ONL Y AT THE END OF THE YEAR AND NOT DURING THE YEAR, I.E. EVEN ON THE DATE OF SURVEY, IT HAS NO RELEVANCE. (III) ADMISSION DURING THE COURSE OF SURVEY WAS MADE UNDE R IGNORANCE OF LAW BY THE PARTNERS. (IV) VALUE OF WHEAT HAS BEEN ADOPTED AT RS.751/- PER 100KGS., WHILE VALUE OF RAW-WHEAT IS ONLY RS.675/- PER 100KGS. (V) STATEMENT RECORDED DURING THE COURSE OF SURVEY HAS NO EVIDENTIARY VALUE. 6. THE LEARNED CIT(APPEALS), HOWEVER, CONFIRMED THE ADDITION ON THE GROUND THAT : ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 6 - (I) NOT ONLY AT THE TIME OF SURVEY BUT ALSO AT THE TIME OF ASSESSMENT IN APPELLATE STAGE, THE ASSESSEE HAS GIV EN IN WRITING THAT HE HAS AGREED TO THE ADDITION. (II) HE HAD ALSO AGREED THAT THERE WAS DIFFERENCE IN STO CK. (III) THE REASONS GIVEN BY THE ASSESSEE ARE NOT WORTHY OF CONSIDERATION, AND (IV) ASSESSEE HAS RETRACTED ONLY TO AVOID PENALTY PROCEEDINGS. 7. THE LEARNED CIT(APPEALS) HAS RELIED ON FOLLOWING JUDGEMENTS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. PULLANGODE RUBBER PRODUCE CO.LTD. 91 ITR 18 (SC) 2. DR.S.C. GUPTA VS. CIT 170 CTR 421 (ALL.) 3. SMT.VASANTI SETH 43 ITR 447 (DELHI TRIBUNAL) 8. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT: (I) THE QUANTITATIVE STOCK TALLIED. THEREFORE, T HERE IS NO CASE FOR MAKING ANY ADDITION. ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 7 - (II) THE DEPARTMENT BREACHED THE AGREEMENT BY INITI ATING PENALTY PROCEEDINGS. THEREFORE, ASSESSEE IS NOT BO UND BY ITS SURRENDER. (III) THERE IS NO MATERIAL FOUND DURING THE COURSE OF SURVEY, SHOWING ANY STOCK OUTSIDE THE BOOKS. THE VALUATION DONE BY THE OFFICERS IS INCORRECT. IT HAS BEEN T AKEN AT MARKET VALUE, WHEREAS ASSESSEE IS VALUING ITS STOCK AT COST. 9. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE RELIED ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF PAUL MATHEWS & SONS VS. CIT (2003) 263 ITR 101 (KER.) AN D OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S.KHADER KHAN SON (2008) 300 ITR 157 (MAD.) FOR THE PROPOSITION THAT STATEME NTS RECORDED DURING THE COURSE OF SURVEY HAVE NO EVIDENTIARY VAL UE AND WHATEVER IS STATED THEREIN IS NOT CONCLUSIVE AND IT IS OPEN TO THE PERSON WHO WAS MADE THE ADMISSION TO SHOW THAT SUCH ADMISSION IS I NCORRECT. 10. FURTHER, THE LD.AR DREW OUR ATTENTION TO PAGE N O.21 OF THE PAPER-BOOK WHICH IS STATEMENT OF ACCOUNT PREPARED B Y THE ASSESSEE AND SEEMS TO HAVE BEEN SUBMITTED TO THE ASSESSING O FFICER WITH THE FOLLOWING NOTE:- ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 8 - NOTE : - 1. THERE IS NO ANY CHANGE IN QUANTITATIV E OF STOCKS WITH PHYSICAL STOCK TAKEN BY THE OFFICER DURING THE SURVEY PROCEEDING. 2. OFFICER HAS TAKEN THE VALUE OF ABOVE STOCK AT T HE TIME OF SURVEY PROCEEDING. AND THE DIFFERENCE OF VALUE IS ADDED AS UNDISCLOSED INCOME DURING THE COURSE OF SURVEY. 11. AGAINST THIS, THE LD.DR SUBMITTED THAT IT IS IN CORRECT ON THE PART OF THE ASSESSEE TO SAY THAT THERE WAS NO DIFFERENCE IN QUANTITY. PAGE NO.21 OF THE PAPER-BOOK IS ONLY A SELF SERVING STA TEMENT AND THERE IS NO COMPARISON OF QUANTITIES IN THIS STATEMENT WITH THE INVENTORY OF THE STOCK PREPARED BY THE OFFICERS. 12. THE LD.DR DREW OUR ATTENTION TO PAGE NO.4 OF TH E ASSESSEES PAPER-BOOK SHOWING THE DIFFERENCE IN QUANTITY AS UN DER:- ITEM AS PER INVENTORY KG/NO. AS PER STOCK REGISTER KG/NO. DIFFERENCE KG./NO. WHEAT 350050 348250 (-)1800 ATTA (WHEAT FLOUR 12480 13500 (+)1020 EMPTY BAGS (NEW) 1500 1600 (+)100 13. SO FAR AS VALUATION OF STOCK IS CONCERNED, IT W AS VALUED AS PER DATA FURNISHED BY THE ASSESSEE AND THE ASSESSEE HAS AGREED WITH THE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 9 - DIFFERENCE SO WORKED OUT AT RS.7,15,240/-. THE ONL Y GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS INITIATE D PENALTY PROCEEDINGS IN RESPECT OF THIS ADDITION. OTHERWIS E, HE HAD TWICE DISCLOSED THIS AMOUNT. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN OUR CONSIDERED VIEW, THE ORDER OF THE LEARNED CIT(APPEA LS) IS REQUIRED TO BE CONFIRMED ON THIS ACCOUNT. THE REASONS ARE THAT THERE IS A DIFFERENCE IN QUANTITIES THOUGH MARGINAL. THE DIFF ERENCE IS IN QUANTITIES OF THE STOCK FOUND AT THE TIME OF SURVEY AND RECODED IN THE BOOKS. THEREFORE, WE ARE NOT IMPRESSED WITH THE AR GUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE T HAT THERE IS NO DIFFERENCE IN QUANTITY. SECONDLY, IT IS NOT POINT ED OUT AS TO HOW THE VALUATION MADE BY THE ASSESSING OFFICER IS INCORREC T. NO DOCUMENTARY EVIDENCE IS SUBMITTED SHOWING THAT VALU ATION DONE BY THE ASSESSING OFFICER IS ARBITRARY OR MORE THAN THE COST OR MARKET VALUE. THE PARTNERS OF THE ASSESSEE WHO ARE THE WO RKING PARTNERS HAD BOTH AGREED TO DISCLOSE THE DIFFERENCE AS UNDISCLOS ED INCOME NOT ONLY ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 10 - DURING THE COURSE OF SURVEY BUT ALSO THROUGH THE LE TTER FILED BY THEIR REPRESENTATIVE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THIRDLY, AS PER THE DECISI ON OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S.KHADER K HAN SON(SUPRA) REFERRED TO BY THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE, THE STATEMENT RECORDED DURING THE COURSE OF SURVEY CAN BE RETRACTED IF IT CAN BE SHOWN BY THE PARTNERS THAT WHAT WAS STATE D DURING THE COURSE OF SURVEY WAS INCORRECT. IF IT WAS INCORRECT, THEN THERE WAS NO NEED FOR FURTHER DISCLOSURE OF THE SAME AMOUNT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS. THE ONLY GRIEVANCE OF THE ASSESSEE IN DISPUTING THE ADDITION IS THAT THE ASSESSING OFFICE R HAS INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T. ACT, 1961 THOUGH, DISCLOSURE MADE BY HIM WAS CONDITIONAL I.E. ON THE CONDITION THAT NO PENALTY PROCEEDINGS SHOULD BE INITIATED. IN OUR CO NSIDERED VIEW, SUCH CONDITIONS PUT BY THE ASSESSEE CANNOT OPERATE A BAR ON THE ASSESSING OFFICER IN EXERCISING HIS STATUTORY DUTIES. IT IS NOT A CASE THAT THE ASSESSING OFFICER SHOULD EXERCISE HIS THE DISCRET ION IN FAVOUR OF THE ASSESSEE, BUT IT IS A CASE OF PERFORMING A STATUTOR Y DUTY OF INITIATING PENALTY PROCEEDINGS, AS THE ASSESSEE HAS FAILED TO DISCLOSE THIS AMOUNT ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 11 - IN THE RETURN OF INCOME, EVENTHOUGH, DIFFERENCE IN STOCK WAS FOUND DURING THE COURSE OF SURVEY AND THE TWO PARTNERS OF FERED THE SUM FOR TREATING THE SAME AS CONCEALED INCOME. HOWEVER, T HIS CONDITION PUT FORWARD BY THE ASSESSEE IS LIKELY TO COME HIS HELP, DURING THE PENALTY PROCEEDINGS, BUT NOT PRIOR TO INITIATION OF PENALTY PROCEEDINGS. AN AGREEMENT IN CONTRAVENTION OF LAW IS VOID AND CANN OT BE ENFORCED ON THE ASSESSING OFFICER. SUCH CONDITION PUT IN BY TH E ASSESSEE THOUGH NOT VALID, CANNOT TAKE AWAY THE TAXABLE CHARACTER OF SUM OF RS.7,151,240/-. THERE IS NO DISPUTE WITH THE PROP OSITION THAT STATEMENTS RECORDED DURING THE COURSE OF SURVEY HAV E NO EVIDENTIARY VALUE AS THEY ARE NOT RECORDED ON OATH. BUT IT IS ALSO INCORRECT TO SAY THAT THEY ARE NULL AND VOID AND SHOULD BE TREATED A S EFFACED FROM THE RECORD. A STATEMENT RECORDED U/S.133A OF THE I.T. ACT, 1961 CAN ALWAYS BE CONSIDERED IN CONNECTION WITH AND AS SUP PLEMENT TO OTHER FACTS AND CIRCUMSTANCES OF THE CASE. IF THE ASSES SING OFFICER SIMPLY RELIES ON WHAT IS STATED IN THE STATEMENT U/S.133A OF THE I.T. ACT, 1961 WITHOUT ANY MATERIAL ON RECORD, THEN ADDITION ON TH E BASIS OF SUCH STATEMENT ALONE MAY NOT SURVIVE. BUT THE SITUATIO N WOULD BE DIFFERENT IF THERE WAS A STOCK DIFFERENCE AND NOT O NLY ONE BUT TWO ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 12 - PARTNERS OFFERED THE SUM AS THE DISCLOSED INCOME OF THE FIRM AND ALSO SUBMITTED A LETTER THROUGH THEIR AUTHORISED R EPRESENTATIVE AFFIRMING THE SUM AS THE INCOME OF THE FIRM THOUGH ON CERTAIN CONDITIONS. IN OUR CONSIDERED VIEW, SUCH STATEMENT S CAN BE USED IN FRAMING THE ASSESSMENT AFFIRMED SUBSEQUENTLY THOUG H ON CONDITION. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CI T(APPEALS) AND REJECT THE GROUND RAISED BY THE ASSESSEE. 15. GROUND NO.3 RELATES TO ADDITION OF RS.3 LACS AS UNEXPLAINED CREDIT IN THE ACCOUNTS OF THE PARTNERS. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT FOLLOWING THREE PARTNERS INTRODUCED RS.1 LAC EACH. THE DETAI LS ARE AS UNDER:- SL.NO(S) NAME OF THE PERSON(S) AMOUNT (RS.) 1. SHRI LALITBHAI G.KANSAGARA 1,00,000/- 2. SHRI RAKESHBHAI S. DALSANIA 1,00,000/- 3. SHRI YOGESHBHAI P.JAVIA 1,00,000/- 16. THE ASSESSING OFFICER REQUIRED THE FIRM TO EXPL AIN THE SOURCE OF THESE DEPOSITS BUT NO SATISFACTORY EXPLANATION W AS GIVEN BY THE FIRM. ONLY EXPLANATION FURNISHED WAS THAT THE ABO VE DEPOSITS WERE OBTAINED FROM FRIENDS AND RELATIVES BUT IT IS NOT P OSSIBLE FOR THE FIRM ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 13 - TO PROVE THEM. THE ASSESSING OFFICER ACCORDINGLY MADE THE ADDITION HOLDING THAT DEPOSITS ARE NOT SATISFACTORILY EXPLAI NED. 17. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE S UBMITTED COPIES OF ACKNOWLEDGMENT OF THREE PARTNERS STATING THAT THEY ARE ASSESSED TO TAX AND HAVE PANS. THE ASSESSEE ALSO R ELIED ON THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN TH E CASE OF CIT VS. MITACHEM INDUSTRIES (2000) 245 ITR 160 (M.P.) WHEREIN IT HAS HELD THAT ONCE IT IS ESTABLISHED THAT AMOUNT IS INV ESTED BY A PARTICULAR PERSON, THEN RESPONSIBILITY OF THE FIRM IS OVER. I T WAS ALSO STATED THAT ALL THE THREE PARTNERS HAVE GIVEN COPIES OF CONFIRM ATIONS AND THE PROOF TO SHOW THAT THESE PERSONS ARE ASSESSED TO TA X. THE LEARNED CIT(APPEALS) CONFIRMED THE ADDITION BY OBSERVING TH AT THE ASSESSEE DID NOT FURNISH THESE DETAILS AT THE TIME OF ASSESS MENT, DID NOT OFFER TO PRODUCE THE PARTIES, CASH WAS RECEIVED AND CASH WAS REPAID AND, THUS, THERE WAS NO THIRD PARTY EVIDENCE OF THE TRANSACT ION. THE ASSESSEE HAD ALSO AGREED TO THE ADDITION AS IS CLEAR FROM TH E RECORD. ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 14 - 18. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE PARTNERS HAVE CONFIRMED THAT TH EY HAVE INVESTED THE MONEY IN THE FIRM, THEN NO ADDITION IS CALLED F OR IN THE CASE OF FIRM. HE RELIED ON THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF MITACHEM INDUSTRIES (SUPRA). HE ALSO DREW OUR ATTENTION TO PAGE NOS.29 TO 49 OF THE PAPER-BOOK SH OWING COPIES OF THE ACCOUNT, ACKNOWLEDGEMENT OF THE RETURN OF THE P ARTNERS, THE SOURCE FROM WHERE THE PARTNERS HAVE TAKEN MONEY. 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT DEPOSITS IN THE ACCOUNTS OF THE FIRM ARE APPARENTLY NOT GENUINE BECAUSE THE PARTNERS HAVE TAKEN THE MONEY F ROM THE SAME SET OF PERSONS. HE REFERRED TO PAGE NO.31 OF THE PAPE R-BOOK AS SUPPORT OF THE DEPOSIT IN THE CASE OF LALITBHAI G. KANSAGAR A, TO PAGE NO.48 OF THE PAPER-BOOK IN THE CASE OF SHRI RAKESHKUMAR SHAN TILAL DALSANIA AND TO PAGE NO.65 OF THE PAPER-BOOK IN THE CASE OF YOGESHKUMAR POPATBHAI JAVIA. HE SUBMITTED THAT ALL THESE PARTN ERS HAVE SHOWN TO HAVE TAKEN THE MONEY IN CASH FROM THE SAME SET OF P ERSONS; NAMELY VANITABEN Y. JAVIA, P.G. KANSAGARA, SHARDABEN P.KAN SAGARA, URMILABEN L.BHESDADIA & OTHERS. IT IS SURPRISING AS TO WHY THESE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 15 - PERSONS HAVE NOT GIVEN MONEY DIRECTLY TO THE FIRM A ND DISTRIBUTED TO PARTNERS ENROUTE TO FIRM. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO SU BMITTED THAT THERE IS NO DIRECT CONFIRMATION OF THE PARTNERS THA T THEY HAVE INVESTED MONEY IN THE FIRM. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN OUR CONSIDERED VIEW, OUR ATTENTION IS NOT DRAWN TO ANY DOCUMENT SHOWING CONFIRMATION OF THE MONEY HAVING BEEN PAID BY THE P ARTNERS TO THE FIRM. THE AUTHORITIES OF HON'BLE MADHYA PRADESH HI GH COURT IN THE CASE OF MITACHEM INDUSTRIES (SUPRA) WOULD BE APPLIC ABLE ONLY WHEN PARTNERS HAVE UNEQUIVOCALLY CONFIRMED TO HAVE PAID MONEY TO THE FIRM. SINCE THERE ARE OTHER DOCUMENTS FILED BY T HE ASSESSEE RELATING TO RECEIPT OF MONEY BY THE PARTNERS AND PAYMENT TO THE FIRM, AND MONEY IS DEPOSITED IN THE ACCOUNT OF THE PARTNERS I N THE BOOKS OF THE FIRM, THE CLAIM OF THE ASSESSEE CANNOT BE DISMISSED IN LIMINE . WE ACCORDINGLY RESTORE THE MATTER TO THE FILE OF THE A SSESSING OFFICER TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE PARTNERS AND FIND ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 16 - OUT WHETHER THEY CONFIRM TO HAVE PAID THE MONEY TO THE FIRM. IF IT IS SO, NO ADDITION CAN BE MADE IN THE CASE OF THE FIRM . FOR THIS, WE DRIVE SUPPORT FROM THE DECISION OF ITAT AHMEDABAD BENCH D IN THE CASE OF M/S.HERITAGAE REALITY VS. ITO IN ITA NOS.56 1 & 562/AHD/2004 FOR ASSESSMENT YEARS 1996-97 & 1997-98 RESPECTIVELY VIDE ORDER DATED 12/06/2009 FROM WHICH WE QUOTE AS UNDER:- 3. HEARD BOTH THE PARTIES AND CAREFULLY GONE THROU GH THE MATERIAL AVAILABLE ON RECORD. IN THE ASSESSMENT YEA R 1996-97, ADDITION OF RS.73,000 HAS BEEN MADE IN RESPECT OF C ASH CREDIT INTRODUCED BY THE PARTNER SMT. SHANTABEN ANTARIA. S IMILARLY IN THE ASSESSMENT YEAR 1997-98, THE ADDITION OF RS.1,2 4,000 HAS BEEN MADE IN RESPECT OF CASH CREDIT INTRODUCED BY P ARTNERS SMT. SHANTABEN ANDHARIA AND SHRI ALAP ANDHARIA. THE SE CREDITS WERE EXAMINED BY THE ASSESSING OFFICER AND HE DISCARDED THE CONTENTION OF THE ASSESSEE THAT SUCH CREDITS WERE INTRODUCED BY THE ABOVE PARTNERS OUT OF SALES PROCE EDS OF AGRICULTURAL PRODUCES ON THE GROUND THAT NO DETAIL EVIDENCE REGARDING SALE OF AGRICULTURAL PRODUCE, SALES BILLS AND BANK ACCOUNTS WERE SUBMITTED. HOWEVER, OWNING OF AGRICUL TURAL LAND BY THEM WAS NOT DISPUTED. THUS, THERE IS NO DI SPUTE OF THE FACT THAT THE CREDITS IN QUESTION WERE THE AMOUNT I NTRODUCED BY THE PARTNERS. THE QUESTION, THEREFORE, ARISES FOR O UR CONSIDERATION AS TO WHETHER THE SAID AMOUNT CAN BE ADDED IN THE HANDS OF THE FIRM WHEN THE SOURCE IN THE HANDS OF THE PARTNERS DISCLOSED IS NOT ACCEPTED. HON'BLE ALLAHAB AD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTORS FINANCE 141 ITR 706 AND OBSERVED THAT IF AO HAD ANY DOUBT WITH REGA RD TO SOURCE OF DEPOSITS HI PARTNERS' ACCOUNT, HE MAY TAK E SUITABLE ACTION IN THE CASE OF PARTNERS, IF HE HAPPENS TO BE THEIR AO OR HE MAY REFER THE MATTER TO THE CONCERNED AO AS PART NERS ARE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 17 - I.T. ASSESSEES. TRIBUNAL IN THE CASE OF DHORAJIA CO NSTRUCTION CO. VS. ITO 42 ITD 450 (AHD) IN WHICH DECISION THIS TRIBUNAL RELYING ON AFOREMENTIONED DECISION OF ALLAHABAD HIG H COURT IN THE CASE OF CIT VS. JAISWAL MOTORS FINANCE (SUPR A) HAS GIVEN SIMILAR RELIEF TO THE ASSESSEE. IN VIEW OF TH E ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ADDITI ONS MADE U/S.68 OF THE ACT IN THE HANDS OF THE ASSESSEE-FIRM IN BOTH THE AYS UNDER CONSIDERATION IS NOT PROPER. THE SAID ADD ITIONS ARE, THEREFORE, DELETED. 22. WE, ACCORDINGLY ALLOW THIS GROUND OF THE ASSESS EE BUT FOR STATISTICAL PURPOSES. 23. GROUND NO.4 RELATES TO ADDITION OF RS.6,44,483/ - OUT OF REBATE AND DISCOUNT AND CONFIRMATION OF THE SAME BY THE LE ARNED CIT(APPEALS). DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER VERIFIED REBATE AND DISCOUNT ACCO UNT AND NOTICED THAT CERTAIN DISCOUNT GIVEN BY THE ASSESSEE-FIRM PE RTAINED TO THE EARLIER YEAR BUT THE SAME WERE DEBITED BY THE FIRM IN THE CURRENT YEARS DISCOUNT AND REBATE ACCOUNT. THE ASSESSEE SUBMITTED THAT SAID ACCOUNT RUN TO MORE THAN 90 PAGES AND CONTAINED NUM EROUS ENTRIES. IT WAS ALSO EXPLAINED THAT AS THE ASSESSEE IS FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE HAS SETTLED THIS CLAIM DURING THIS YEAR. THE ASSESSING OFFICER DID NOT AGREE AND MAD E THE ADDITION. ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 18 - 24. IT WAS EXPLAINED TO THE LEARNED CIT(APPEALS) TH AT SUFFICIENT TIME WAS NOT ALLOWED. THE ASSESSEE HAS KEPT SEPARA TE SALE REGISTER OF WHEAT AND ATTA AND THERE IS ENTRY AGAINST EACH BILL MENTIONING ITS NUMBER AND DATE ALONGWITH SALE AMOUNT. THE LEARNE D CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS AGREED TO THE ENTIRE DISALLOWANCE. THE ASSESSING OFFICER HAD ALLOWED REPEATED OPPORTUNITY AND SUCH OPPORTUNITIES WERE ALLOWED DURING APPEAL PROCEEDING S ALSO. FIVE NOTICES WERE ISSUED FROM HIS OFFICE, CASE WAS ADJOU RNED FOUR TIMES, BUT NO EXPLANATION WAS FURNISHED. ACCORDINGLY SHE CONFIRMED THE ADDITION. 25. AGAINST THIS, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ASSESSEE MAINTAINING RUNNIN G ACCOUNTS OF THE CLIENTS. SMALL AND PETTY BALANCES WERE WRITTEN OFF . THE DETAILS ARE PROVIDED BY THE ASSESSEE IN PAPER-BOOK NO.2 AT PAGE NOS.32 TO 36. IT IS SUBMITTED BY HIM THAT ACCOUNTS ARE SETTLED THIS YEAR. THEREFORE, LIABILITY ACCRUED THIS YEAR AND, ACCORDINGLY, IT HA S CLAIMED THIS YEAR. 26. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE HAS DRAWN OUR ATTENTION TO FOLLOWING JUDGEMENTS:- ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 19 - (I) DECISION OF BOMBAY HIGH COURT IN THE CASE OF BALMUKUND ACHARYA VS. DY.CIT (2009) 221 CTR (BOM) 440. (II) DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES LTD. VS. C IT 213 ITR 523 (GUJ.) (III) DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF S.R. KOSHTI VS. CIT 276 ITR 165 (GUJ.) 27. AGAINST THIS, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT THERE IS NO PROOF FOR SETTLEMENT OF ACCOUNT. LIABILITY ADMITTEDLY PERTAINED TO EARLIER YEARS. THE ASSESS EE HAS AGREED FOR THIS ADDITION AND, THEREFORE, THERE IS NO CASE FOR ANY RELIEF. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN OUR CONSIDERED VIEW, MATERIAL PRESENTED BEFORE US IS R EQUIRED TO BE CONSIDERED BY THE ASSESSING OFFICER. THE ASSESSE E HAS DRAWN OUR ATTENTION TO VARIOUS RECEIPTS ISSUED BY THE ASSESSE E TO THE CUSTOMERS WHEREIN IT HAS SHOWN RECEIPT OF CASH AND DISCOUNT. THIS IS ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 20 - APPARENTLY AN INDICATION OF SETTLEMENT OF ACCOUNT W ITH THE PARTIES. LET THE ASSESSEE PRODUCE THESE RECEIPTS TO THE ASS ESSING OFFICER. TO THE EXTENT SUCH DISCOUNTS ARE MENTIONED IN THOSE RE CEIPTS, THE ASSESSING OFFICER WILL TREAT THEIR ACCOUNT AS SETTL ED AND, THEREFORE, ALLOW THE CLAIM IN THE CURRENT YEAR. IN RESPECT OF OTHERS, WHERE THERE IS NO EVIDENCE OF SETTLEMENT OF ACCOUNT THIS YEAR, NO RELIEF WILL BE ALLOWED. ASSESSING OFFICER MAY MAKE THE ADDITION A CCORDINGLY. 29. AS A RESULT, THIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 30. GROUND NO.5 IS NOT PRESSED BY THE LEARNED AUTHO RISED REPRESENTATIVE OF THE ASSESSEE AND, THEREFORE, THE SAME IS REJECTED AS SUCH. 31. GROUND NO.6 RELATES TO DISALLOWANCE OF RS.24,35 7/- OUT OF BROKERAGE EXPENSES. 32. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED BROKERAGE OF RS.39,221/- TO BE PAID TO M/S.R.CHUNILAL & CO. THAT PARTY FURNISHED BILL ONLY FOR RS.22,026/- . FURTHER, THE ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 21 - ASSESSING OFFICER FOUND THAT ASSESSEE HAS DEBITED T HE ACCOUNT OF THAT PARTY BY A SUM OF RS.14,864/- ONLY. EVENTHOUGH TH E ASSESSEE HAS CREDITED THE ACCOUNT OF M/S.R.CHUNILAL & CO. BY FUR THER THREE BILLS BUT THE SAME WERE NOT CONFIRMED BY M/S.R.CHUNILAL & CO. THE ASSESSING OFFICER ACCORDINGLY MADE THE ADDITION OF DIFFERENCE BETWEEN 39,221/- AND RS.14,864/- BEING RS.24,357/-. BEFORE THE LEARNED CIT(APPEALS), IT WAS SUBMITTED THAT ACCOUNT ANT HAS COMMITTED THE MISTAKE. HOWEVER, THE LEARNED CIT(AP PEALS) DID NOT ACCEPT THE EXPLANATION AND UPHELD THE ADDITION. 33. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE DREW OUT ATTENTION TO PAGE NOS.277 OF ITS PAPER-BOOK WHICH IS ACCOUNT OF M/S.R.CHUNILAL & CO. IT SHOWED THAT THE ASSESSEE HAS DEBITED THAT PARTY WITH A SUM OF RS.54,400/-. THER EFORE, IT IS INCORRECT TO SAY THAT PARTY IS DEBITED ONLY WITH A SUM OF RS.14,864/- 34. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 35. AFTER HEARING BOTH THE PARTIES, WE RESTORE THE MATTER TO THE FILE OF LEARNED CIT(APPEALS) TO VERIFY THE ACCOUNT OF M/ S.R.CHUNILAL & CO.AS SUBMITTED BY THE ASSESSEE BEFORE US AND IF PA YMENT HAS ACTUALLY ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 22 - GONE TO THAT PARTY, THE CLAIM SHOULD BE ALLOWED. T HE ASSESSEE WILL PRODUCE THE SAME SET OFF DOCUMENTS WHICH IS PRODUCE D BEFORE US FOR THE VERIFICATION BY THE ASSESSING OFFICER. 36. AS A RESULT, THIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 37. GROUND NO.7 RELATES TO SUM OF RS.47,500/- BEING DISALLOWANCE AT 50% OF THE CLAIM. 38. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER FOUND THAT NO BILLS WERE FILED FROM THE THI RD PARTY AND CLAIM WAS MADE ONLY ON THE BASIS OF SELF MADE VOUCHERS. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM. 39. THE LEARNED CIT(APPEALS) AFTER VERIFYING THAT CLAIMS ARE NOT SUPPORTED BY THIRD PARTY BILLS, RESTRICTED THE SAME TO 50%. 40. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE V IEW THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO 25% OF THE CLA IM. 41. AS A RESULT, THIS GROUND IS PARTLY ALLOWED. 42. GROUND NO.8 RELATES TO INTEREST CHARGED THROUGH DEMAND NOTICE WITHOUT GIVING ANY SPECIFIC DIRECTION IN THE ASSESS MENT ORDER. ITA NO.3318/AHD/2004 M/S.G.N.FLOUR MILLS VS. ITO ASST.YEAR - 2001-02 - 23 - 43. THIS GROUND WAS NOT PREFERRED BY THE LEARNED AU THORISED REPRESENTATIVE OF THE ASSESSEE AND, THEREFORE, IT I S TREATED AS REJECTED. 44. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY AL LOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 09/10/2009. SD/- SD/- ( MAHAVIR SINGH ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 09 / 10 /2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD