ACIT, Muzaffarnagar V. Shri Raj Kumar Arora, Muzaffarnagar

ITA 3404/DEL/2011

• Counselvise Citation: 340420114 RSA 2011
• Duration Of Justice: 3 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 19-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GUNJAN PRASHAD
• Keywords: Depreciation
• Section: 133(6); 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI N.K. SAINI AND SHRI I.C. SUDHIR ITA NO. 3404/DEL/2011 ASSESSMENT YEAR: 2007-08 ASSISTANT CIT, VS. SHRI RAJ KUMAR ARORA, CIRCLE-2, 476- GANDHI COLONY, MUZAFFARNAGAR MUZAFFARNAGAR. (PAN: ABMPA0483G) (APPELLANT) (RESPONDENT) CROSS OBJ. NO. 94/DEL/2013 (IN ITA NO.3404/DEL/2011) ASSESSMENT YEAR: 2007-08 SHRI RAJ KUMAR ARORA, VS. ASSISTANT CIT, 476- GANDHI COLONY, CIRCLE-2, MUZAFFARNAGAR. MUZAFFARNAGAR (PAN: ABMPA0483G) (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI ANKIT G UPTA, ADV. ASSESSEE BY: GUNJAN PRA SHAD, CIT(DR) DATE OF HEARING : 09 .04.2015 DATE OF PRONOUNCEMENT: 26 :05.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER ITA NO. 3404/DEL/2010 : THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN DELETING THE ADDIT ION OF RS.4,00,000 MADE BY THE ASSESSING OFFICER AS UNEXPLAINED LIABIL ITY WITHOUT 2 APPRECIATING THE FULL FACTS OF THE CASE, AS THE ASS ESSEE FAILED TO PROVE THE GENUINENESS OF THE LIABILITY AT THE TIME OF ASS ESSMENT AND DURING THE COURSE OF REMAND REPORT EXCEPT APART FROM FILIN G OF AN AFFIDAVIT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN DELETING THE DISAL LOWANCE OF RS.7,05,347 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF GENERATOR EXPENSES WITHOUT APPRECIATING THE FULL FACTS OF THE CASE AND AS THE BILLS IN THE NAME OF M/S. ARORA ENGINEERING CO. AND THE E XPENSES DO NOT PERTAIN TO THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN DELETING THE DISAL LOWANCE OF RS.37,607 OUT OF DISALLOWANCE OF RS.64,257 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VEHICLE RUNNING & DEPRECIATIO N, SALARY PAID TO DRIVER AND INTEREST ON CAR LOAN WITHOUT APPRECIATIN G THE FULL FACTS OF THE CASE AS THE ASSESSEE FAILED TO PRODUCE LOG BOOKS AN D OTHER EVIDENCES IN SUPPORT OF HIS CLAIM. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN DELETING THE DISAL LOWANCE OF RS.1,00,000 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF SALARY EXPENSES WITHOUT APPRECIATING THE FULL FACTS OF THE CASE AND THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNT TO VERIFY THE SAME AT THE TIME OF ASSESSMENT AND DURING THE COURSE OF REMAND REPORT. 3 2. THE ASSESSEE ON THE OTHER HAND OBJECTED THE FIR ST APPELLATE ORDER ON THE FOLLOWING BASIS: 1. THAT THE ORDER PASSED UNDER SEC. 144/143(3) I S ILLEGAL, BAD IN LAW, WITHOUT JURISDICTION AND AGAINST THE MA TERIAL AVAILABLE ON RECORD. 2. THAT THE ASSESSING OFFICER HAS ERRED, IN VIEW O F THE FACTS AND THE CIRCUMSTANCES, IN LAW AND ON FACTS IN REJEC TING THE BOOKS OF ACCOUNT BY INVOKING THE SEC. 145 OF THE AC T WITHOUT POINTING OUT ANY SPECIFIC DISCREPANCY IN THE BOOKS OF ACCOUNT. THE CIT(A) HAS ERRED IN UPHELD THE ACTION OF THE AS SESSING OFFICER. 3. THAT THE ASSESSING OFFICER HAS ERRED INH LAW AND ON FACTS IN ESTIMATING THE GP @ 14% AS SAME 12.17% DECLARED BY THE APPELLANT AND MADE THE ADDITION OF RS.1,37,147. THE CIT(A) ERRED IN UPHELD THE SAME. 4. THAT THE CIT(A) HAS ERRED, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN LAW AND ON FACTS IN U PHOLDING THE ADDITION OF RS.3,07,418 ON ACCOUNT OF THE UNSECURED LOAN AT RS.3,00,000 AND INTEREST PAID RS.7,418. THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS DEDUCTED THE TDS O N THE INTEREST PAID. 5. THAT THE CIT(A) HAS ERRED, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN LAW AND ON FACTS IN U PHOLDING THE ADDITION OF RS.2,50,000 MADE BY THE ASSESSING OFFIC ER ON ACCOUNTS OF PAYMENT MADE TO M/S. KUMMINS ENGINE SER VICES PVT. LTD. 4 6. THAT THE A.O. HAS ERRED IN LAW AND ON FACTS OF THE CASE IN MAKING THE AD HOC DISALLOWANCE AT 20% OF TOTAL EXPE NSES AT RS.3,21,385 ON ACCOUNT OF VEHICLE RUNNING, DEPRECIA TION ON CAR AND TELEPHONE EXPENSES. THE CIT(A) ERRED IN UPHOLDI NG THE AD HOC DISALLOWANCE AT 15% OF THE TOTAL EXPENSE WITHOU T ANY BASIS. 7. THAT THE VARIOUS OBSERVATIONS MADE BY THE A.O. AND CIT(A) AGAINST THE APPELLANT ARE ILLEGAL, BAD IN LA W AND CONTRARY TO FACTS, EVIDENCE AND MATERIAL ON RECORD. 8. THAT THE EVIDENCE AND EXPLANATION GIVEN BY THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED AND JUDICIOUSLY INTERPRETED. 9. THAT THE ADDITIONS HAVE BEEN MADE ON BASIS OF ME RE SURMISES AND CONJECTURES AND GUESSWORK AND CONTRARY TO FACTS AND EVIDENCE ON RECORD AND CANNOT BE JUSTIFIED BY ANY M ATERIAL ON RECORD. 3. GROUND NO.1 (REVENUE) : IN SUPPORT OF THE GROUND, THE LEARNED CIT(DR) HAS PLACED RELIANCE ON THE ASSESSMENT ORDER . THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY FIRST APPELLATE ORD ER WITH THE SUBMISSION THAT SUFFICIENT EVIDENCE WAS PRODUCED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. 4. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUI RED THE ASSESSEE TO FURNISH CONFIRMED COPIES OF ACCOUNTS OF SUNDRY CRED ITORS/DEBTORS HAVING 5 BALANCE EXCEEDING RS.3 LACS AS ON 31.3.2007. IN COM PLIANCE, THE ASSESSEE FURNISHED COPIES OF ACCOUNTS AS APPEARING IN ITS BO OKS ALONG WITH THEIR ADDRESSES. THE ASSESSING OFFICER NOTED THAT THE ASS ESSEE HAS SHOWN LIABILITY OF RS.4 LACS IN THE CASE OF M/S. LAKHANI STEEL TRAD ERS. THE ASSESSING OFFICER SOUGHT INFORMATION UNDER SEC. 133(6) OF THE ACT FRO M THE AFORESAID CONCERN BUT NO COMPLIANCE WAS RECEIVED. THE ASSESSEE ALSO D ID NOT RESPOND THE ASSESSING OFFICER TO ESTABLISH THE GENUINENESS OF T HE TRANSACTION. THE ASSESSING OFFICER ON THE PERUSAL OF THE ACCOUNTS OF THE SAID CONCERN, GATHERED THAT THE ASSESSEE HAD MADE PAYMENT OF RS.3 ,28,000 DURING THE YEAR IN CASH OF VARYING AMOUNTS RANGING FROM RS.15,000 T O RS.20,000. SINCE THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE LIA BILITY AS IT COULD NOT FURNISH CONFIRMED COPY OF ACCOUNTS OF THE SAID CONC ERN, THE ASSESSING OFFICER HELD THE LIABILITY OF RS.4 LACS AS NOT GENU INE AND ADDED IT TO THE INCOME OF THE ASSESSEE. 5. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE CO NTENDED THAT AS ON 01.04.2006, THE CREDIT BALANCE OF M/S. LAKHANI TRAD ERS WAS AT RS.7,28,000 OUT OF WHICH THE AMOUNT OF RS.3,28,000 WAS PAID DUR ING THE YEAR AND THE BALANCE SUM OF RS.4 LACS WAS PAID IN THE NEXT FINAN CIAL YEAR. IT WAS SUBMITTED FURTHER THAT THE FIRM HAD CLOSED DOWN ITS BUSINESS AND, THEREFORE, 6 NO INFORMATION WAS SENT BY IT TO THE ASSESSING OFFI CER. THE LEARNED CIT(APPEALS) CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER WHICH WAS FURNISHED ON 04.01.2011 AND 24.02.2011. THE LEA RNED CIT(APPEALS) SOUGHT REJOINDER OF THE ASSESSEE TO THOSE REPORTS W HICH WAS ALSO FILED. THE LEARNED CIT(APPEALS) HAS DELETED THE ADDITION OF RS .4 LACS WITH THIS FINDING THAT THE ASSESSEE HAD FURNISHED COPY OF INVOICE ISS UED BY THE FIRM M/S. LAKHANI STEELS TRADERS DATED 15.04.2005 AS PER WHIC H IT HAD PURCHASED GENERATOR SET AT RS.7,28,000. THE AMOUNT OF RS.3,28 ,000 WAS PAID DURING THE YEAR AND BALANCE AMOUNT OF RS.4 LACS WAS SHOWN AS L IABILITY. THE LEARNED CIT(APPEALS) NOTED FURTHER THAT THE AFORESAID FIRM HAD CLOSED DOWN ITS BUSINESS AND THAT WAS THE REASON FOR NON-COMPLIANCE OF NOTICES ISSUED BY THE ASSESSING OFFICER. THE LEARNED CIT(APPEALS) HAS OBS ERVED FROM THE DOCUMENTS FILED BY THE ASSESSEE THAT THE AMOUNT OF RS.4 LACS REPRESENTED LIABILITIES AGAINST PURCHASE OF GENERATOR SETS, THU S, THE ASSESSEE HAS BEEN ABLE TO SHOW GENUINE LIABILITY AT RS.4 LACS. UNDER THIS BACKGROUND OF THE MATERIAL FACTS, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPE ALS) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.4 LACS. THE SAME IS UPHELD. GROUND NO.1 IS ACCORDINGLY REJECTED. 7 6. GROUND NO.2 (REVENUE) : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE NOTED THAT THE ASSESSEE H AS SHOWN CREDIT BALANCE OF RS.12,61,815 IN THE NAME OF FEDERAL MOGUL AUTOMOTIV E PRODUCTS (INDIA) PVT. LTD. BUT THE SAID PARTY INFORMED THAT THERE WA S NO TRANSACTION IN THE ACCOUNT OF ASSESSEE PROPRIETARY CONCERN AS PER THEI R BOOKS. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT GOODS WERE PURCHASED BY HIM THROUGH FORM NO. 31 ISSUED BY TRADE TAX BUT THE BILLS WERE WRONGLY MADE IN THE NAME OF AND ON BEHAL F OF THE FIRM M/S. ARORA ENGINEERING CO., WHOSE PROPRIETOR WAS ASSESSE ES FATHER. THE ASSESSING OFFICER NOTED THAT THE FEDERAL MOGUL AUTO MOTIVE PRODUCTS (INDIA) PVT. LTD. MAINTAINED THE ACCOUNTS OF M/S. ARORA ENG INEERING CO. AND NOT THAT OF M/S. ARORA TRADING CO. IN SUPPORT, THE ASSE SSEE ALSO ENCLOSED COPY OF ACCOUNTS BUT THE ASSESSING OFFICER DID NOT AGREE WI TH THE EXPLANTION OF THE ASSESSEE AND HELD THAT THE AMOUNT OF RS.7,05,347 IN RESPECT OF THE BILLS RECEIVED FROM FEDERAL MOGUL AUTOMOTIVE PRODUCTS (IN DIA) PVT. LTD. DID NOT PERTAIN TO THE ASSESSEE. THE AMOUNT WAS THUS DISALL OWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE LEARNED CIT(APPEALS) HA S, HOWEVER, DELETED THE DISALLOWANCE. 7. IN SUPPORT OF THE GROUNDS, THE LEARNED DR PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST 8 APPELLATE ORDER WITH THE SUBMISSION THAT SUFFICIENT EVIDENCE WAS PRODUCED IN SUPPORT OF THE CLAIMED EXPENSES. 8. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT THE LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE OF THE CL AIMED EXPENSES OF RS.7,05,347 IN RESPECT OF THE BILLS RECEIVED FROM F EDERAL MOGUL AUTOMOTIVE PRODUCTS (I) LTD. WITH THIS FINDING THAT SUFFICIENT EVIDENCE WERE PRODUCED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. WE ALSO FIND THAT THE ASSESSEE HAS FILED AFFIDAVIT OF HIS FATHER IN SUPPORT OF HIS CONTENTIO NS THAT M/S. FEDERAL MOGUL AUTOMOTIVE PRODUCTS (INDIA) PVT. LTD. THROUGH TAX T RADE FORM NO. 31 IN THE NAME OF ASSESSEES PROPRIETARY CONCERN AGAINST THE GOODS PURCHASED BY THE ASSESSEE FROM THEM AND THE ASSESSEE HAD ALSO MADE P AYMENTS AGAINST BILLS RAISED BY THE AFORESAID CONCERN BUT SOME OF THE INV OICES WERE WRONGLY ISSUED IN THE NAME OF M/S. ARORA ENGINEERING CO., T HE PROPRIETORSHIP CONCERN OF THE ASSESSEES FATHER. THE ASSESSING OF FICER HAS ALSO ADMITTED THIS FACT IN HIS REMAND REPORT DATED 22.2.2011. UND ER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS R IGHTLY DELETED THE ADDITION OF RS.7,05,347 MADE BY THE ASSESSING OFFIC ER. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 9 9. GROUND NO. 3 (REVENUE) & OBJECTION NO.6 (ASSESSE E) : THE ASSESSING OFFICER MADE ADDITION OF RS.64,257 BEING DISALLOWAN CE OF EXPENSES DEBITED UNDER THE HEADS VEHICLE RUNNING (RS.38,348), DEPREC IATION ON CAR (RS.1,39,316), SALARY TO DRIVER (RS.53,000), INTERE ST ON CAR LOAN (RS.79,813) @ 20% AMOUNTING TO RS.64,257 OUT OF THE TOTAL EXPEN SES CLAIMED AT RS.3,21,285. BEFORE THE LEARNED CIT(APPEALS), THE A SSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS EXCESSIVELY DISALLOWED SU CH EXPENSES DEBITED UNDER THE AFORESAID HEADS. THE LEARNED CIT(APPEALS) CALLED FOR THE REMAND REPORT AND THE ASSESSING OFFICER REPORTED THAT THE ABOVE STATED EXPENSES WERE SUCH THAT PERSONAL ELEMENT OF USE COULD NOT BE DENIED. THE LEARNED CIT(APPEALS) UPHELD THE DISALLOWANCE ON ACCOUNT OF PERSONAL USER TOWARDS VEHICLE RUNNING AND DEPRECIATION OF CAR IN PRINCIPL E BUT RESTRICTED IT TO 15% OF THE EXPENSES OF RS.1,79,664 CLAIMED UNDER THAT H EAD RESULTING INTO DISALLOWANCE OF RS.26,650 AS AGAINST RS.35,908 MADE BY THE ASSESSING OFFICER. 10. REGARDING SALARY PAID TO DRIVER AT RS,53,000 AN D INTEREST ON CAR LOAN AT RS.79,813 TOTALING TO RS.1,32,813, THE LEARNED CIT( APPEALS) HELD THAT THE DISALLOWANCE MADE ON ACCOUNT OF PERSONAL USE WAS UN TENABLE AND THE SAME WAS DELETED. THE REVENUE HAS QUESTIONED DISALLOWANC E OF RS.37,607. THE 10 ASSESSEE ON THE OTHER HAND OBJECTED THE SUSTENANCE OF DISALLOWANCE OUT OF THE VEHICLE RUNNING EXPENSES AND DEPRECIATION ON CA R AT 15% BY THE LEARNED CIT(APPEALS). 11. PARTIES HAVE ADVANCED THEIR RESPECTIVE ARGUMENT S IN SUPPORT OF THEIR CASES. 12. CONSIDERING THE ABOVE SUBMISSION, WE ARE OF THE VIEW THAT LOOKING INTO THE TURNOVER OF THE ASSESSEE, THE EXPENSES CLA IMED ON RUNNING OF VEHICLE AND DEPRECIATION ON CAR WAS NOT EXCESSIVE BUT AT TH E SAME TIME IN ABSENCE OF MAINTENANCE OF LOG BOOK, THE PERSONAL USER OF THE V EHICLE/CAR CANNOT BE TOTALLY RULED OUT. WE THUS FIND IT REASONABLE TO RE STRICT THE DISALLOWANCE AT 10% OF THE TOTAL EXPENSES CLAIMED AT RS.1,79,664 UN DER THE HEAD. SO FAR AS DISALLOWANCE MADE OUT OF SALARY PAID TO DRIVER AT R S.53,000 AND PAYMENT OF INTEREST ON CAR LOAN AT 79,813 TOTALING TO RS.1,32, 813 IS CONCERNED, WE DO NOT FIND INFIRMITY IN THE FIRST APPELLATE ORDER WHEREBY THE LEARNED CIT(APPEALS) HAS RIGHTLY DELETED THE SAME AS THE DI SALLOWANCE WAS MADE WITHOUT ANY CONVINCING REASONS. THE GROUND NO.3 (RE VENUE) IS DISMISSED AND OBJECTION NO. 6 (ASSESSEE) IS PARTLY ALLOWED. 11 13. GROUND NO. 4 (REVENUE) : DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE HAD DEBITED AN AMOUNT OF RS.10,51,400 UNDER THE HEAD SALARY. HOW EVER, IN ABSENCE OF BOOKS OF ACCOUNT, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.1,00,000. THE LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE OF RS.1,00,000 WITH THIS FINDING THAT THE PAYMENT OF R S.10,51,400 DURING THE YEAR HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE HAD ALSO FURNISHED COPY OF ACCOUNT GIVING DETAILS OF SALARY PAID. THE LEARNED CIT(APPEALS) HAD ALSO CALLED FOR REMAND REPORT OF T HE ASSESSING OFFICER AFTER VERIFICATION OF BOOKS OF ACCOUNT AND IN THE R EMAND REPORT DATED 22.2.2011, THE ASSESSING OFFICER HAD NOT COMMENTED ON THE VERACITY OF BOOKS OF ACCOUNT. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY DELETED THE ADDITI ON OF RS.1,00,000 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE FROM THE PAYMENT OF CLAIMED SALARY AT RS.10,51,400 BY THE ASSESSEE TO I TS STAFF. THE GROUND NO. 4 IS ACCORDINGLY REJECTED. 14. DURING THE COURSE OF HEARING, THE LEARNED AR DI D NOT PRESS OBJECTION NOS. 1 AND 2 OF THE CROSS OBJECTION. THESE OBJECTIO NS ARE ACCORDINGLY REJECTED. 12 15. OBJECTION NO.3 : IT IS AGAINST THE TRADING ADDITION OF RS.1,31,147 AS A RESULT OF APPLICATION OF G.P. RATE AT 14% ON THE DE CLARED SALES OF RS.71,75,996. THE LEARNED CIT(APPEALS) HAS UPHELD T HE SAME. 16. IN SUPPORT OF THE OBJECTION, THE LEARNED AR SUB MITTED THAT THE ASSESSEE HAD SHOWN BETTER RESULTS AT 12.17% OF G.P. RATE ON THE TURNOVER OF RS.71,75,996 RESULTING INTO THE GROSS PROFIT OF RS. 8,73,492.33 AND N.P. RATE OF 9.47% IN COMPARISON TO THE G.P. OF RS.6,72,241 A T THE G.P. RATE OF 12.25% ON THE TURNOVER OF RS.54,89,054 DURING THE LAST YEA R. HE POINTED OUT FURTHER THAT IN THE ASSESSMENT YEAR 2005-06, THE ASSESSING OFFICER HAD ACCEPTED THE NET PROFIT DECLARED AT THE RATE OF 5.46% AS REASONA BLE AGAINST WHICH THIS YEAR THE NET PROFIT SHOWN AT THE RATE OF 9.47% WAS BETTE R. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNT WHICH WERE IN POSSESSION OF THE ACCOUNTANT WHOSE FEES WER E NOT PAID BY THE ASSESSEE DUE TO HEAVY LOSS IN BUSINESS. AS SUCH, BO OKS OF ACCOUNT COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER AT THE TIM E OF ASSESSMENT PROCEEDINGS. THE ASSESSEE HAD, HOWEVER, PLEADED THA T COMPUTERIZED BOOKS OF ACCOUNT WERE AVAILABLE WITH HIM WHICH WAS READIL Y AVAILABLE TO PRESENT FOR VERIFICATION. THE LEARNED CIT(APPEALS) HAS UPHE LD THE TRADING ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS THAT COM PLETE BOOKS OF ACCOUNT, 13 DOCUMENTS ETC. WERE NOT PRODUCED BEFORE THE ASSESSI NG OFFICER DESPITE SUFFICIENT OPPORTUNITY AND IN THE REMAND REPORT, TH E ASSESSING OFFICER AFTER EXAMINING THE BOOKS OF ACCOUNT, DOCUMENTS ETC. WHIC H WERE DIRECTED TO BE PRODUCED BEFORE THE ASSESSING OFFICER, THE ASSESSIN G OFFICER HAD REPORTED TO THE LEARNED CIT(APPEALS) THAT THE GROSS PROFIT RATE HAS NOT BEEN APPLIED ON HIGHER SIDE TO ESTIMATE THE INCOME IN COMPARISON TO THE EARLIER YEARS. THE ASSESSING OFFICER REPORTED THAT IN THE ASSESSMENT Y EAR 2004-05 THE ASSESSEE HAD SHOWN G.P. RATE OF 14.83% AND IN THE ASSESSMENT YEAR 2005-06, IT WAS SHOWN AT 14.33%. 17. THE LEARNED AR SUBMITTED FURTHER THAT THE ASSES SEE HAD SHOWN 31.% INCREASE IN TURNOVER IN COMPARISON TO THE PRECEDING YEAR AND ONLY LESS SHOWN G.P. RATE BY 0.08% WAS THERE IN COMPARISON TO THE LAST YEAR. THE LEARNED DR ON THE OTHER HAND TRIED TO JUSTIFY THE F IRST APPELLATE ORDER ON THE ISSUE. 18. CONSIDERING THE ABOVE SUBMISSION IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE LEARNED CIT(APP EALS) HAS UPHELD THE TRADING ADDITION ON THE BASIS THAT CERTAIN DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNT. THESE DEFECTS WERE THAT CREDIT BALANCE AS PER COPY OF ACCOUNTS OF 14 KUMMINS ENGINE SERVICE PVT. LTD., NOIDA APPEARING I N THE BOOKS OF ASSESSEE WAS RS.13,02,250 WHEREAS COPY OF ACCOUNTS FURNISHED BY THE AFORESAID COMPANY, THERE WAS DEBIT BALANCE OF RS.10 ,48,250. THE ASSESSING OFFICER ADDED THE DIFFERENCE OF THE AMOUNT AT RS.2, 54,000, WHICH THE ASSESSEE DID NOT OBJECT BEFORE THE LEARNED CIT(APPE ALS). THE LEARNED CIT(APPEALS) HAS ALSO NOTED THE DEFECT ABOUT THE CL AIMED PURCHASES MADE FROM FEDERAL MUGUL AUTOMOTIVE PRODUCTS (INDIA) PVT. LTD. BUT THE INVOICES WERE ISSUED IN THE NAME OF PROPRIETARY CONCERN OF T HE FATHER OF THE ASSESSEE. WE HAVE ALREADY DEALT WITH THE DEFECT NO.2 WHILE DI SPOSING OF THE GROUND NO. 2 OF THE REVENUE IN THIS REGARD AND WHEN THE LE ARNED CIT(APPEALS) HIMSELF HAS DELETED THE ADDITION MADE OUT OF THE C LAIMED EXPENSES AGAINST THE INVOICES ISSUED BY FEDERAL MUGUL AUTOMOTIVE PRO DUCTS (INDIA) PVT. LTD., HE WAS NOT JUSTIFIED IN NOTING THE SAID DEFECTS WHI LE CONSIDERING THE REASONABLENESS OF THE ESTIMATION OF PROFITS MADE BY THE ASSESSING OFFICER BY APPLYING G.P. RATE OF 14% ON THE TURNOVER. CERTAINL Y, THE ASSESSEE HAS SHOWN BETTER TURNOVER AND N.P. RATE DURING THE YEAR BUT A T THE SAME TIME THE ASSESSEE HAS ALSO ADMITTED THE DEFECTS IN THE BOOKS OF ACCOUNT BY NOT OBJECTING THE ADDITION OF RS.2,54,000 MADE BY THE A SSESSING OFFICER AS DISCUSSED ABOVE. WE ARE THUS OF THE VIEW THAT APPLI CATION OF G.P. RATE AT 13% WILL SERVE THE PURPOSE TO REDUCE THE LEAKAGES, IF A NY, DUE TO DEFECTS IN THE 15 ACCOUNTS. THE ASSESSING OFFICER IS ACCORDINGLY DIRE CTED TO COMPUTE THE PROFIT BY APPLYINJG G.P. RATE AT 13% ON THE TURNOVE R SHOWN DURING THE YEAR. THE OBJECTION NO.3 IS ACCORDINGLY PARTLY ALLOWED. 19. OBJECTION NO.4 : THE ASSESSING OFFICER MADE ADDITION OF RS.6,15,00 0 ON ACCOUNT OF UNEXPLAINED FRESH UNSECURED LOANS AND INTEREST OF RS.32,301 PAID THEREUPON UNDER SEC. 68 OF THE ACT. THE LEARNE D CIT(APPEALS) HAS RESTRICTED THE ADDITION TO RS.3 LACS AND INTEREST P AID AT RS.7,418 ON THE BASIS THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENE SS OF UNSECURED LOANS CLAIMED TO HAVE BEEN TAKEN FROM SHRI YOGESH DIWAN ( RS. 1LAC), SMT. SHANTI DEVI (RS. 60,000) AND SHRI T.P. SINGH (RS.1, 40,000 ) AND INTEREST PAID TO THEM AT RS.7,418. 20. IN SUPPORT OF THE OBJECTION, THE LEARNED AR SUB MITTED THAT THE ASSESSEE HAD FURNISHED ALL THE NECESSARY DETAILS AN D EVIDENCE IN SUPPORT OF THE CLAIMED UNSECURED LOAN FROM THE PARTIES. IN THI S REGARD, HE REFERRED PAGE NOS. 50 TO 56 OF THE PAPER BOOK I.E. COPIES OF LEDG ER ACCOUNT, BANK ACCOUNT AND INCOME-TAX RETURN OF SHRI YOGESH DIWAN AND LEDG ER ACCOUNTS OF SHRI T.P. SINGH, SMT. UMA KALRA, SMT. SHANTI DEVI AND SM T. SHAKUNTLA BHUSHAN. HE ALSO REFERRED PAGE NOS. 57 TO 59 OF THE PAPER BO OK I.E. DETAILS OF INTEREST 16 PAID. THE LEARNED AR ALSO REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW. HE CONTENDED FURTHER THAT ONLY B ECAUSE SMT. SHANTI DEVI, SHRI T.P. SINGH AND YOGESH DIWAN WERE NOT FOUND ON THE GIVEN ADDRESS AFTER A LAPSE OF SUFFICIENT TIME, IT DOES NOT MEAN THAT THE CLAIM WAS NOT GENUINE SPECIALLY WHEN ALL THE TRANSACTIONS HAVE BE EN MADE THROUGH BANKING CHANNEL. HE REFERRED PAGE NO. 50 OF THE PAPER BOOK WITH THIS CONTENTION THAT SHRI YOGESH DIWAN HAD CONFIRMED THE DEPOSIT OF RS.1 LAC AS ON 14.3.2007 AS IT IS EVIDENT FROM PAGE NO. 50 WHEREIN ALONG WITH H IS LEDGER ACCOUNT, HIS PAN HAS ALSO BEEN GIVEN. 21. THE LEARNED DR ON THE OTHER HAND PLACED RELIANC E ON THE ORDERS OF THE AUTHORITIES BELOW. 22. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT DURING THE YEAR THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM FIVE PERSON S I.E. SHRI YOGESH DIWAN (RS. 1 LAC + INTEREST PAID AT RS.616 ), SMT. SHANTI DEVI (RS.66,000 + INTEREST PAID AT RS.2,400), SHRI T.P. SINGH (RS.1,4 0,000 + INTEREST PAID RS.4,400), SMT. UMA KALRA (RS.2,15,000 + INTEREST P AID AT RS.18,770) AND SMT. SHANKUNTALA BHUSHAN (RS.1 LAC + INTEREST PAID AT RS. 6,115). THE ASSESSING OFFICER DOUBTED THE CLAIM AND ADDED THE A MOUNT OF RS.6,15,000 + 17 INTEREST PAID AT RS.32,301 UNDER SEC. 68 OF THE ACT . THE ASSESSING OFFICER ALLEGED THAT THE ASSESSEE COULD NOT FURNISH ANY INF ORMATION IN RESPECT OF T.P. SINGH, SMT. UMA KALRA AND SMT. SHAKUNTALA BHUSHAN. THE ASSESSEE THOUGH HAD FILED COPY ACCOUNT OF SHRI YOGESH DIWAN. THE AS SESSING OFFICER SOUGHT INFORMATION UNDER SEC. 133(6) OF THE ACT FROM SHRI YOGESH DIWAN, HOWEVER, NO COMPLIANCE WAS MADE. THE ASSESSING OFFICER NOTED FURTHER THAT THE ASSESSEE COULD NOT EXPLAIN THE SOURCE OF AFORESAID DEPOSIT AND HAD MERELY FILED THE COPIES OF ACCOUNT OF THE AFORESAID DEPOSI TORS AS APPEARING IN HIS BOOKS OF ACCOUNT. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT HE HAD RECEIVED SUCH DEPOSITS THROUGH CHEQUES AND PAID INTEREST THEREON AFTER DEDUCTING TDS AMOUNT AND DEPOSITED IN BANK. T HE LEARNED CIT(APPEALS) CALLED FOR REMAND REPORT FROM THE ASSE SSING OFFICER TWICE. IN THE REMAND REPORT, THE ASSESSING OFFICER ACCEPTED T HE CLAIMED UNSECURED LOAN AND PAYMENT OF INTEREST THEREUPON TO THEM BY T HE ASSESSEE IN THE CASES OF SMT. SHAKUNTALA BHUSHAN AND SMT. UMA KALRA BUT D ENIED THE REMAINING CLAIM RELATING TO SMT. SHANTI DEVI, SHRI T.P. SINGH AND SHRI YOGESH KUMAR DIWAN AND ON THE BASIS THAT NOTICES ISSUED UNDER SE C. 133(6) OF THE ACT TO THEM RECEIVED BACK UNSERVED WITH THE POSTAL REMARKS WRONG ADDRESS. THE LEARNED CIT(APPEALS) HAS UPHELD THE ADDITION RELATI NG TO THEM AT RS.3 LACS AND INTEREST PAID TO THEM AT RS.7,418 IN QUESTION. WE FIND THAT THOUGH THEY 18 WERE NOT FOUND ON THEIR GIVEN ADDRESS AFTER A LAPSE OF SUFFICIENT TIME IN BETWEEN BUT THE TRANSACTIONS WITH THEM HAVE BEEN M ADE THROUGH BANKING CHANNEL. THE ASSESSEE HAD TAKEN LOAN FROM THEM THRO UGH CHEQUES AND HAD PAID INTEREST BY CHEQUES, COPIES OF THEIR ACCOUNTS WERE ALSO ENCLOSED. IN CASE OF SHRI YOGESH DIWAN, THE ASSESSEE HAD ALSO FURNISH ED COPY OF HIS INCOME- TAX RETURN ABOUT WHICH THE ASSESSING OFFICER OBSERV ED THAT HE HAD DECLARED TOTAL INCOME OF RS.95,640 ONLY AND JUST A DAY BEFOR E TRANSFERRING MONEY TO THE ASSESSEE, CASH WAS DEPOSITED IN HIS BANK ACCOUN T. WE THUS FIND THAT THOUGH THEY WERE NOT FOUND ON THEIR GIVEN ADDRESS B Y THE POSTAL AUTHORITY BUT ALL THE OTHER NECESSARY EVIDENCE IN SUPPORT WERE FI LED BY THE ASSESSEE IN SUPPORT OF THE GENUINENESS OF THE UNSECURED LOAN PR OCURED FROM THEM. WE THUS FIND THAT THERE WERE SUFFICIENT MATERIAL WITH THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE CLAIMED UNSECURED LOANS FROM THE SE THREE PERSONS AND VERACITY OF THOSE MATERIALS HAS NOT BEEN EXAMINED B EFORE DENYING THE CLAIM MERELY ON THE BASIS THAT THOSE PERSONS WERE NOT FOU ND ON THE GIVEN ADDRESS. THE ADDITION SUSTAINED BY THE LEARNED CIT(APPEALS) AT RS. 3,07,418 IS ACCORDINGLY DELETED. THE OBJECTION NO. 4 IS ACCORDI NGLY ALLOWED. 23. OBJECTION NO. 5 : THE AUTHORITIES BELOW HAVE MADE AND UPHELD THE ADDITION OF RS.2,54,000 I.E. AMOUNT IN DIFFERENCE F OUND IN THE ACCOUNT OF CUMMINS ENGINE SERVICES (P) LTD. AND CREDIT BALANCE IN THE BOOKS OF 19 ASSESSEE WHICH WAS ACTUALLY REVEALED AS DEBIT BALAN CE IN THE ACCOUNT OF AFORESAID CONCERN. THE ASSESSING OFFICER NOTED FROM THE ACCOUNT OF THE AFORESAID CONCERN THAT THERE WAS DEBIT BALANCE OF R S.10,48,250 WHEREAS A CREDIT BALANCE OF RS.13,02,250 WAS SHOWN IN THE BOO KS OF ASSESSEE. THE ASSESSING OFFICER THUS INFERRED THAT ASSESSEE HAD S HOWN EXCESS LIABILITY OF RS.2,54,000 BY DEBITING THE HIRE/LEASE CHARGE OF RS .1,28,500 VIDE BILL NO. 121 DATED 15.1.2007 AND RS.1,25,500 VIDE BILL NO. 1 39 DATED 05.02.2007. THE ASSESSING OFFICER WAS THUS OF THE VIEW THAT ASS ESSEE HAD SHOWN FICTITIOUS LIABILITY OF RS.2,54,000. BEFORE THE FIR ST APPELLATE AUTHORITY, THE ASSESSEE DID NOT PRESS THIS GROUND AND THE LEARNED CIT(APPEALS) HAS UPHELD THE SAME. 24. BEFORE THE ITAT, THE LEARNED AR TRIED TO SUBMIT THAT IT WAS SUNDRY CREDITOR AND THE MATTER SHOULD BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN VIEW OF THE DOCU MENTS FILED. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 25. WE DO NOT FIND SUBSTANCE IN THE ABOVE CONTENTIO N OF THE LEARNED AR ESPECIALLY WHEN THE ISSUE RAISED IN THE GROUND WAS NOT AGITATED BEFORE THE LEARNED CIT(APPEALS) NOR THE ASSESSEE HAS BEEN ABLE TO IMPROVE ITS CASE 20 EVEN BEFORE THE ITAT. IT HAS ALSO BEEN REMAINED ONE OF THE MAJOR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE ON THE BASIS O F WHICH BOOKS WERE REJECTED AND PROFIT WAS ESTIMATED BY APPLYING A DIF FERENT G.P. RATE. THE OBJECTION NO. 5 IS ACCORDINGLY REJECTED. 26. IN RESULT, THE APPEAL PREFERRED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 26 .05.20 15 SD/- SD/- ( N.K. SAINI ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26 /05/2015 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR 21 DATE DRAFT DICTATED ON COMPUTER 25 .05.2015 DRAFT PLACED BEFORE AUTHOR 25 .05.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 26.05.2015 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 27.05.2015 KEPT FOR PRONOUNCEMENT ON 26.05.2015 FILE SENT TO THE BENCH CLERK 27.05.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.