ITO, Ward - 36(2), Kolkata, Kolkata V. M/S. S.H. Mumtazuddin, Kolkata

ITA 352/KOL/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4377 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 01-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 19-02-2010
• Court: TRIBUNAL
• Department Lawyers: MD G HYAS UDDIN
• Assessee Lawyers: MANISH TIWARI
• Keywords: Unexplained investment; Depreciation; Search and seizure; Source of fund; Fair market value; Corroborative evidences
• Section: 133A; 133(6); 68; 144

Judgement Text

1 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI K. NARASIMHA CHARY, JM] I.T.A NO. 352/KOL/2010 ASSESSMENT YEAR: 2003-04 INCOME-TAX OFFICER, WD-36(2), KOLKATA. VS. M/S. S. H. MUMTAZUDDIN (PAN: AANFS0982J) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 11.08.2016 DATE OF PRONOUNCEMENT: 05.10.2016 FOR THE APPELLANT: MD. GHYAS UDDIN, JCIT, SR. DR FOR THE RESPONDENT: SHRI MANISH TIWARI, FCA ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XX, KOLKATA VIDE APPEAL NO. 173/CIT(A)XX/WD-36(2)/07-08/KOL DATED 01.12.200 9. ASSESSMENT WAS FRAMED BY ITO, WARD-36(2), KOLKATA U/S. 144 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2003-04 VIDE HIS ORDER DATED 27.0 3.2006. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CIT(A) IS JUSTIFIED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF UNEXPL AINED PURCHASES AMOUNTING TO RS. 23,59,261/- AND RS. 5,12,471/- ON ACCOUNT OF UNDISC LOSED PROFIT ON PURCHASES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS A FIRM ENGAGED IN THE BUSINESS OF WATCHES, CLOCKS, TIME PIECES, IMITATION JEWELLERY, READYMADE GARMENTS, CROCKERY ITEMS, PERFUMES, COSMETICS, LEATHER ITEMS AND SUN GLASSES HAVING ITS SHOW ROOMS AT BEHALA, CAMAC STREET AND B.B.D.BAG. THE OFFICE CUM SHOWROOM WAS ALSO AT NO.4, RADHA BAZAR STREET, KOLKATA 700001. A SURVEY U/S 133A OF THE ACT WA S CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 20.1.2003 AND INCRIMINATING DOCU MENTS AND EVIDENCES WERE FOUND AND IMPOUNDED BY THE SURVEY TEAM. A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT BY THE CENTRAL EXCISE AUTHORITIES ON 18.2.2000 AND IT WAS FOUND BY THEM THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SELLING OF WATCHES IN LARGE SCALE WITHOUT OBTAINING PROPER 2 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 LICENSE AND WITHOUT DISCLOSING AND PAYING DUTIES TH EREON. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASST YEAR 2003-04 ON 27.11.2003 DECL ARING LOSS OF RS. 1,89,627/-. THE BOOKS OF ACCOUNTS WERE CALLED FOR BY THE LD AO FOR WHICH THE ASSESSEE REPLIED THAT THEIR BOOKS OF ACCOUNTS WERE WASHED OUT AND THEY NEED SOM E TIME TO REBUILD THE ACCOUNTS. IT WAS CONTENDED IN THE LETTER FILED BEFORE THE LD AO THA T THE ACCOUNTANT OF THE ASSESSEE LEFT ON 31.1.2004 AFTER DESTROYING THE ACCOUNTS OF THE ASSE SSEE. THE LD AO OBSERVED THAT THIS WAS NOTHING BUT A COOKED UP STORY BY THE ASSESSEE TO AV OID PRODUCTION OF BOOKS BEFORE THE DEPARTMENT. 2.2. THE LD AO OBSERVED THAT DURING THE COURSE OF SURVEY ON 20.1.2003, THE ASSESSEE WAS ENGAGED IN THE PRACTICE OF MAKING UNACCOUNTED PURCH ASES AND SALES OUTSIDE THE BOOKS OF ACCOUNTS. IT WAS ALSO FOUND THAT PURCHASE REGISTE R WAS UPDATED UPTO 19.1.2003 BUT SOME PURCHASES MADE IN THE MONTHS OF APRIL, MAY, AUGUST, SEPT , OCT , NOV AND DEC 2002 AMOUNTING TO RS. 23,59,261/- WERE NOT ENTERED IN TH E PURCHASE REGISTER. SALES OF OVER RS 13 LACS APPROXIMATELY WERE ALSO NOT ENTERED IN THE SAL ES REGISTER. DURING THE COURSE OF SURVEY, A STATEMENT OF SHRI TAPAN DAS, ACCOUNTANT OF ASSESSEE , WAS RECORDED AND HE ADMITTED THAT THE SALES AMOUNTING TO RS 15 LACS APPROXIMATELY AND STO CK OF RS 10 LACS WERE NOT ENTERED IN THE BOOKS OF ACCOUNTS. ANOTHER STATEMENT WAS RECORDED FROM SHRI NITESH DOSHI, MANAGER CUM CASHIER OF THE SHOP AT B.B.D.BAG, WHO STATED THAT T HE ASSESSEE ISSUED CASH MEMO OF SAME NUMBER TO DIFFERENT CUSTOMERS ON THE SAME DAY AND T HE SAID PRACTICE WAS GOING ON FOR LONG. IT WAS ALSO STATED THAT THE STOCK REGISTER / STOCK CARD WAS NOT MAINTAINED IN THE BEHALA SHOP AND SALES WERE FOUND NOT ENTERED IN THE SALES REGIS TER IN THE CAMAC STREET SHOP. THE LD AO OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSEE WAS DIRECTED TO PRODUCE THE BOOKS OF ACCOUNTS WITH SUPPORTING BILLS AND VOUCHERS WHICH WERE NOT PRODUCED BY THE ASSESSEE. HE OBSERVED THAT THE SUBMISSION OF THE ASSESSEE, THAT THE BOOKS OF ACCOUNTS WERE WASHED OUT DUE TO THE ACTION OF THE ACCOUNTANT WHO LEFT ON 31.1.2004 AFTER DESTROYING THE ACCOUNTS, COULD NOT BE BELIEVED AS IT WAS FOUN D THAT THE SALES TAX RETURN FOR THE YEAR ENDING 31.3.2004 WAS FILED ON 28.5.2004 AND THE INC OME TAX RETURN FOR THE ASST YEAR 2004- 05 WAS FILED WITHIN DUE DATE AFTER GETTING THE SAME AUDITED. HE ACCORDINGLY CONCLUDED THAT THE ACCOUNTS WERE EITHER NOT DESTROYED AS CLAIMED B Y THE ASSESSEE OR WAS REBUILT WITHIN THE SAID TIME AND THE ASSESSEE DID NOT PRODUCE THE BOOK S OF ACCOUNTS DESPITE PASSAGE OF MORE THAN TWO YEARS FROM THE ALLEGED DATE OF DESTRUCTION OF ACCOUNTS. HE FURTHER OBSERVED THAT THE INABILITY OF THE ASSESSEE TO PRODUCE BOOKS OF ACCOU NTS AND SUPPORTING EVIDENCES WERE ALSO 3 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 FOUND UNSATISFACTORY BECAUSE THE ACCOUNTANT OF THE ASSESSEE HAD RECEIVED BACK NOT ONLY THE COMPUTER FROM THE LD AO BUT HAD TAKEN OUT ALL THE P RINT OUTS OF THE ACCOUNTS ON 13.2.2003. IT WAS ALSO FURTHER OBSERVED THAT THE ASSESSEE WAS GETTING THE SERVICES OF THE ACCOUNTANT TILL 15 TH AUGUST 2005. 2.3. THE LD AO MADE ADDITION OF RS. 23,59,261/- ON ACCOUNT OF UNDISCLOSED INVESTMENT IN THE UNDISCLOSED PURCHASE ON THE GROUND THAT THERE W AS UNACCOUNTED PURCHASES FOUND DURING THE COURSE OF SURVEY AND THE SOURCE OF FUND UTILIZE D FOR MAKING SUCH UNDISCLOSED PURCHASE WAS NOT ACCOUNTED FOR. HE ALSO MADE ADDITION OF RS . 5,12,471/- ON ACCOUNT OF PROFIT ON THE UNDISCLOSED PURCHASE OF RS. 23,59,261/- SINCE THE P URCHASES WERE OUTSIDE THE BOOKS OF ACCOUNTS AND SO THE SALES WERE ALSO OUTSIDE THE BOO KS OF ACCOUNTS. THEREFORE, PROFIT OF RS. 5,12,471/- WAS ADDED BY APPLYING THE DISCLOSED GROS S PROFIT RATE. 2.4. THE LD CITA AFTER OBTAINING REMAND REPORT FR OM THE LD AO , GRANTED RELIEF TO THE EXTENT OF RS. 3,37,104/- STATING THAT THE BALANCE S HOWN BY THE SUNDRY CREDIT PARTIES TALLIED WITH THE BALANCE SHOWN BY THE ASSESSEE IN ITS BALAN CE SHEET AGAINST THEIR NAMES AND HENCE THE UNRECORDED PURCHASES WERE SUBSEQUENTLY ACCOUNTE D IN THE BOOKS AFTER THE SURVEY NEEDS TO BE ACCEPTED AS STATED BY THE ASSESSEE. IN RESPEC T OF PURCHASES TO THE TUNE OF RS. 12,46,221/-, THE LD CITA FOUND THAT THE ASSESSEE HA D DULY PAID THE DUES TO THE CONCERNED SUNDRY CREDITORS BEFORE THE END OF THE PREVIOUS YEA R ITSELF AND THERE WAS NO BALANCE OUTSTANDING AS ON 31.3.2003 IN THEIR NAMES AND HENC E THE EXPLANATION THAT THE UNRECORDED PURCHASES ON THE DATE OF SURVEY HAVE BEEN SUBSEQUEN TLY ACCOUNTED BY THE ASSESSEE IN ITS BOOKS NEEDS TO BE ACCEPTED AND THE SAME IS ALSO CRO SS VERIFIED FROM THE CONCERNED PARTIES. IN RESPECT OF THE BALANCE SUM OF RS. 7,75,936/- ( 23,59,261- 3,37,104-12,46,221), THE LD CITA SUSTAINED THE DISALLOWANCE TO 10% OF RS. 7,75, 936/- AS UNDISCLOSED INVESTMENT IN PURCHASES AND UNDISCLOSED PROFIT @ 22.49% TO THE E XTENT OF RS. 1,74,508/- AS AGAINST RS. 5,13,271/- MADE BY THE LD AO. AGGRIEVED, THE REV ENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING RELIEF OF RS.22,81,667/- OUT OF ADDITION RS.23,59,2 61/- ON ACCOUNT OF UNEXPLAINED PURCHASE AND TREATING THE SAME AS INVESTMENT OUT OF UNDISCLOSED SOURCES. 2. THAT THE LD. CIT(A) IS ALSO NOT JUSTIFIED IN AL LOWING RELIEF RS.3,37,963/- OUT OF ADDITION RS.5,12,471/- ON ACCOUNT OF UNDISCLOSED PROFIT FROM CORRESPONDING SALES. 4 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 2.5. THE LD DR FILED A DETAILED WRITTEN SUBMISSION IN SUPPORT OF HIS ARGUMENTS AND VEHEMENTLY SUPPORTED THE ORDER OF THE LD AO. HE FU RTHER ARGUED THAT NONE OF THE ARGUMENTS ADVANCED BY THE ASSESSEE BEFORE THE LD CITA HOLDS G OOD IN VIEW OF THE BASIC ONUS NOT DISCHARGED BY THE ASSESSEE BY PRODUCTION OF BOOKS O F ACCOUNTS TO SUPPORT ITS CONTENTIONS. 2.6. IN RESPONSE TO THIS, THE LD AR ARGUED THAT TH E REASON FOR NON PRODUCTION OF BOOKS OF ACCOUNTS WAS DUE TO COMPUTERIZED BOOKS OF ACCOUNTS WERE WASHED AWAY BY TWO EMPLOYEES AND THE ASSESSEE HAD ALSO LODGED A FIR IN THIS REGA RD WITH HARE STREET POLICE STATION. MOREOVER, MOST OF THE BILLS / VOUCHERS WERE IMPOUND ED IN SURVEY AND WERE LYING VACANT IN THE CUSTODY OF THE IT DEPARTMENT. THE LD AO WAS NO T SATISFIED WITH THIS EXPLANATION AND EVENTUALLY COMPLETED THE ASSESSMENT U/S 144 OF THE ACT. THE UNRECORDED PURCHASES FOUND IN SURVEY WERE SUBSEQUENTLY RECORDED IN THE BOOKS OF A CCOUNTS. HOWEVER, THE LD AO DID NOT ACCEPT IT ON THE GROUND THAT THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BEFORE HIM. HE ARGUED THAT THE TOTAL PURCHASES AS PER AUDITED ACCO UNTS EXCEED THE AVERAGE PURCHASES (CONSIDERED ON MONTHLY BASIS) BY THE AMOUNT OF UNRE CORDED PURCHASES. HE ARGUED THAT THE PURCHASE REGISTER WAS MAINTAINED UPTO 19.1.2003 I.E A DAY PRIOR TO THE DATE OF SURVEY WHICH REFLECTED TOTAL PURCHASE OF RS. 232.51 LACS MEANING THEREBY THAT THE AVERAGE MONTHLY PURCHASE WAS RS. 23.51 LACS. HENCE THE TOTAL PURCH ASE DURING THE YEAR BASED ON SAID MONTHLY AVERAGE WORKS OUT TO RS. 282.12 LACS, WHERE AS THE AUDITED ACCOUNTS SHOW AGGREGATE PURCHASES OF RS. 305.35 LACS I.E AN INCREASE OF RS. 23.23 LACS, WHICH ALMOST MATCHES WITH THE UNRECORDED PURCHASES FOUND IN THE COURSE OF SUR VEY. HENCE IT WAS ARGUED THAT THIS GOES TO PROVE THAT THE UNRECORDED PURCHASES FOUND DURING SURVEY WERE SUBSEQUENTLY RECORDED IN THE BOOKS OF ACCOUNTS AND THERE IS NO CASE FOR MAKI NG ANY ADDITION THEREON. THE SUNDRY CREDIT BALANCES IN THE BOOKS OF VARIOUS PARTIES TAL LY WITH THE ASSESSEES BALANCES. THE PAYMENTS OF UNRECORDED PURCHASES WERE MADE BY ACCO UNT PAYEE CHEQUES AND ARE VERIFIABLE FROM THE LEDGER EXTRACTS AND EVIDENCES PRODUCED BY THE ASSESSEE. IT WAS ARGUED THAT THE LD AO IN HIS REMAND REPORT DATED 6.8.2007 ADMITTED THA T THE BALANCES AS APPEARING IN THE BOOKS OF CERTAIN PARTIES TALLY WITH THE BALANCES SHOWN BY THE ASSESSEE. IN A CASE WHERE THE SUNDRY CREDIT BALANCES RECORDED IN THE BOOKS OF ASSESSEE T ALLY WITH THE BALANCES CONFIRMED BY THE RESPECTIVE PARTIES, THERE CAN BE NO DOUBT THAT UNRE CORDED PURCHASES IN RESPECT OF SUCH PARTIES WERE SUBSEQUENTLY ACCOUNTED FOR IN THE BOOKS OF ACC OUNTS. THE EXPLANATION FOR ADVERSE COMMENTS MADE BY THE LD AO IN RESPECT OF 12 SUNDRY CREDITOR PARTIES HAVE BEEN PROVIDED. NO ADVERSE INFERENCES SHOULD BE DRAWN IN RESPECT OF THE PARTIES NOT COVERED BY THE REMAND 5 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 REPORT. MOREOVER, IT WAS ARGUED THAT IN RESPECT O F PARTIES SHOWING LESS BALANCE THAN THAT OF ASSESSEE, NO ADVERSE INFERENCE NEED TO BE DRAWN AS THE ALLEGATION OF UNRECORDED PURCHASES WOULD NOT APPLY TO THE SAME. HE FURTHER ARGUED THA T NO DOCUMENTS WERE FOUND IN SURVEY WHICH COULD SUGGEST THAT THE ASSESSEE HAD SURPLUS F UND WHICH WAS UTILIZED FOR UNACCOUNTED PURCHASES AND SALES. 2.7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HAD LODGED A COMPLIANT BEFORE THE OFFICER IN CHARGES, HARE STREE T POLICE STATION REGARDING THE DESTROYING OF RECORDS AND COMPUTERIZED BOOKS OF ACCOUNTS INCL UDING LOSS OF AUDITED PRINT BACK UP BY THE ACCOUNTANT. THIS COMPLAINT WAS SPECIFICALLY MA DE AGAINST THE ACCOUNTANT OF THE ASSESSEE. WE FIND THAT THE LD AO SOUGHT TO VERIFY THE VERACITY OF THIS CLAIM OF THE ASSESSEE BY MAKING VERIFICATION WITH THE POLICE DEPARTMENT I N TERMS OF SECTION 133(6) OF THE ACT FOR ASCERTAINING THE ACTION TAKEN BY THE POLICE ON THE COMPLIANT LODGED, WHETHER ANY ARREST HAS BEEN MADE OR IMPRISONMENT ETC OF THE ACCOUNTANT OR ANY OTHER PERSON IN CONNIVANCE AND INSPECTOR OF INCOME TAX WAS ALSO DEPUTED TO THE POL ICE STATION FROM TIME TO TIME TO KNOW THE DEVELOPMENT IN THIS REGARD. THESE FACTS ARE STATED BY THE LD AO IN HIS REMAND REPORT DATED 6.8.2007 WHICH IS PART OF OUR RECORDS. IN THESE C IRCUMSTANCES, THE ASSESSEES INABILITY TO PRODUCE THE BOOKS OF ACCOUNTS NEEDS TO BE BELIEVED AND ACCORDINGLY HE COULD NOT DISCHARGE HIS ONUS OF PROVIDING THE BOOKS BEFORE THE LD AO. MOREOVER, THE ASSESSEE HAD CLAIMED THAT THE ACCOUNTANT LEFT HIM ON 31.1.2004 AND ALSO HAD D ESTROYED THE ACCOUNTS OF THE ASSESSEE. IT IS NOT MENTIONED IN THE SAID COMPLIANT FOR WHAT PER IOD, THE ACCOUNTS WERE DESTROYED. JUST BECAUSE THE ASSESSEE HAD FILED THE SALES TAX RETURN AND INCOME TAX RETURN FOR THE ASST YEAR 2004-05 IN TIME, HIS ACTION OF LODGING A COMPLIANT AND EXPRESSION OF INABILITY TO PRODUCE BOOKS OF ACCOUNTS DUE TO ITS DESTRUCTION CANNOT BE DOUBTED WITH OR FAULTED WITH. IT IS NOT THE CASE OF THE REVENUE THAT PROPER BACK UP WAS NOT TAK EN BY THE ASSESSEE IN RESPECT OF THE BOOKS OF ACCOUNTS FOR THE ASST YEAR 2004-05 WHICH WOULD H AVE ENABLED IT TO FILE THE RETURNS IN TIME. MOREOVER, THE LD AO HAD NOT DOUBTED THE FACT OF ASSESSEE LODGING COMPLIANT BEFORE THE POLICE AUTHORITIES AGAINST THE DESTRUCTION OF B OOKS BY THE ACCOUNTANT. THIS FACT IS FURTHER SANCTIFIED BY THE LD AO ACCEPTING IN HIS REMAND REP ORT THAT INSPECTOR OF INCOME TAX HAS BEEN DEPUTED FROM TIME TO TIME TO POLICE STATION TO KNOW THE DEVELOPMENTS IN THE SAID CASE. IF THERE IS NO COMPLIANT LODGED BY THE ASSESSEE IN THI S REGARD, THE SAID FACT COULD BE BROUGHT TO THE NOTICE OF THE INSPECTOR OF INCOME TAX AT THE FI RST INSTANCE ITSELF BY THE POLICE AUTHORITIES 6 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 AND THERE WOULD BE NO NEED FOR THE INSPECTOR OF INC OME TAX TO VISIT THE POLICE STATION FROM TIME TO TIME TO KNOW THE DEVELOPMENTS OF THE COMPLI ANT. 2.7.1. WE FIND THAT THE RETURN FOR THE ASST YEAR 2 003-04 WAS FILED ALONG WITH THE AUDITED ACCOUNTS AND THE LIST OF SUNDRY CREDITORS TOGETHER WITH THEIR NAMES AND ADDRESSES WERE DULY GIVEN BY THE ASSESSEE BEFORE THE LD AO WHICH ONLY M ADE THE LD AO TO MAKE VERIFICATION OF THE SUNDRY CREDITORS IN THE ASSESSMENT AS WELL AS R EMAND PROCEEDINGS. WE FIND THAT THE LD CITA HAD DELETED THE ADDITION ON ACCOUNT OF UNRECOR DED PURCHASES TO THE TUNE OF RS. 15,83,325/- BASED ON THE REMAND REPORT OF THE LD AO WHEREIN THE RELEVANT SUNDRY CREDITORS PARTIES BALANCES WERE CROSS VERIFIED AND TALLIED / SETTLED BY ACCOUNT PAYEE CHEQUES IN THE SAME YEAR ITSELF AND ACCORDINGLY HELD THAT THE ASSE SSEE HAD DULY RECORDED THE PURCHASES AFTER THE SURVEY IN ITS BOOKS OF ACCOUNTS. WE FIND WHEN THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BY THE ASSESSEE, BUT THE LIST OF CREDITORS TOGETHER WITH THEIR NAMES AND ADDRESSES WERE AVAILABLE WITH THE LD AO, WHICH WERE ALSO SUBJECTED TO VERIFICATION, THEN , IN OUR CONSIDERED OPINION, THERE IS NOTHING WRONG IN LD CITA TRYING T O UNDERSTAND THE VERACITY OF THE CLAIM OF THE ASSESSEE TOWARDS PURCHASES BY CROSS VERIFYING W ITH THE CONCERNED PARTY BALANCES VIS A VIS THE BALANCES SHOWN BY THE ASSESSEE. ADMITTEDL Y, THE CREDITORS CONFIRMING THEIR PARTY BALANCES WERE PURELY EXTERNAL EVIDENCES AND WERE DO NE DIRECTLY TO THE DEPARTMENT BEHIND THE BACK OF THE ASSESSEE. WHEN SUCH KIND OF VERIFI CATION RESULTS IN NO SUSPICION IN THE MINDS OF THE LD CITA , THERE IS NOTHING WRONG IN LD CITA BELIEVING THE SAME AND GRANTING RELIEF IN RESPECT OF THE SAID PARTIES. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA IN THIS REGARD. 2.7.2. WITH REGARD TO THE REMAINING SUM OF RS. 7,7 5,936/- (23,59,261-15,83,325) , THE LD CITA HAD MADE AN ESTIMATED DISALLOWANCE OF 10% TOWA RDS UNRECORDED PURCHASES. WE FIND THAT THIS ACTION OF THE LD CITA IS WITHOUT ANY BASI S. HOWEVER, WE FIND LOT OF FORCE IN THE ARGUMENT ADVANCED BY THE LD AR OF THE ASSESSEE THAT THE TOTAL PURCHASES AS PER AUDITED ACCOUNTS EXCEED THE AVERAGE PURCHASES (CONSIDERED O N MONTHLY BASIS). IT IS NOT IN DISPUTE BEFORE US THAT THE PURCHASE REGISTER HAS BEEN UPDAT ED UPTO 19.1.2003 WHICH REFLECTED TOTAL PURCHASE OF RS. 232.51 LACS WHICH GIVES A AVERAGE M ONTHLY PURCHASE OF RS. 23.51 LACS. HENCE THE TOTAL PURCHASE DURING THE YEAR BASED ON S AID MONTHLY AVERAGE WORKS OUT TO RS. 282.12 LACS, WHEREAS THE AUDITED ACCOUNTS SHOW AGGR EGATE PURCHASES OF RS. 305.35 LACS I.E AN INCREASE OF RS. 23.23 LACS, WHICH ALMOST MATCHES WITH THE UNRECORDED PURCHASES FOUND IN 7 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 THE COURSE OF SURVEY. WE FIND THAT THE ASSESSEE HA D SUBMITTED THE AUDITED BALANCE SHEET ALONG WITH THE RETURN. THE ENTIRE PURCHASES REFLEC TED THEREON WERE EITHER SETTLED IN CASH / CHEQUE OR REFLECTED AS SUNDRY CREDITORS. THE LD AR ALSO ARGUED THAT THESE SUNDRY CREDITORS WERE FULLY SETTLED BY THE ASSESSEE BY ACCOUNT PAYEE CHEQUES EITHER IN THE SAME YEAR OR IN THE SUBSEQUENT YEAR , WHICH FACT HAS NOT BEEN CONTROVER TED BY THE REVENUE BEFORE US. THE LD CITA HAD GIVEN A CATEGORICAL FINDING THAT THE LD AO HAD NOT PROVED THE INVESTMENT MADE BY THE ASSESSEE FOR THESE ALLEGED UNRECORDED PURCHASES . WE FIND THAT THE LD DR HAD MERELY STATED IN HIS WRITTEN SUBMISSION THAT MERE SETTLEME NT OF DUES TO THE SAID PARTIES DOES NOT SANCTIFY THE PURCHASE TRANSACTIONS AS GENUINE. THI S GOES TO PROVE THAT THERE IS NO CASE FOR MAKING ANY ADDITION TOWARDS UNRECORDED PURCHASES AN D IT COULD ONLY HAVE TO BE CONCLUDED THAT THE UNRECORDED PURCHASES FOUND DURING SURVEY W ERE SUBSEQUENTLY RECORDED IN THE BOOKS OF ACCOUNTS. CONSEQUENTIALLY THERE IS NO QUESTION OF MAKING ANY ADDITION ON ACCOUNT OF GROSS PROFIT ON THE SAME. BUT WE FIND THAT THE AD DITIONS SUSTAINED BY THE LD CITA TOWARDS UNRECORDED PURCHASES TO THE TUNE OF RS. 77,594/- AN D UNDISCLOSED GROSS PROFIT OF RS. 1,74,508/- HAS NOT BEEN CONTESTED BY THE ASSESSEE B EFORE US. HENCE IN THESE CIRCUMSTANCES, WE FEEL THAT NO INTERFERENCE NEED TO BE MADE TO THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY, THE GROUNDS 1 & 2 RAISED BY THE REVENU E ARE DISMISSED. 3. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE IN THE SUM OF RS. 78,000/- U/S 40A(2)(B) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE FIRM PAID SERVICE CHARGES TO THE TUNE OF RS. 78,000/- TO PERS ONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT AND DISALLOWED THE SAME IN THE ABSENCE OF ANY D ETAILS AND EVIDENCES ABOUT NATURE OF WORK DONE / SERVICES RENDERED TO THE ASSESSEE. BEF ORE THE LD CITA, THE ASSESSEE SUBMITTED THAT IT HAD PAID SERVICE CHARGES OF RS. 30,000/- AN D RS. 48,000/- TO SHRI MUDDASIR FIROZ AND SHRI IMRAN FIROZ RESPECTIVELY FOR LOOKING AFTER THE SALES AT DIFFERENT SHOWROOMS. BOTH THESE PARTIES ARE SONS OF THE PARTNER OF THE FIRM. THES E SUBMISSIONS WERE SUBJECTED TO REMAND PROCEEDINGS BEFORE THE LD AO WHO MENTIONED THAT THE PAYMENTS WITH MODE THEREON COULD NOT BE VERIFIED FOR WANT OF BOOKS OF ACCOUNT. THE LD CITA OBSERVED THAT THE LD AO HAD NOT DISPUTED THE SUBMISSION OF THE ASSESSEE THAT THESE SERVICE CHARGES WERE PAID TO THOSE TWO PARTIES FOR LOOKING AFTER THE SALES AT DIFFERENT SH OWROOMS AND ALSO HELD THAT THE SERVICE 8 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 CHARGES SO PAID WAS NOT EXCESSIVE OR UNREASONABLE S O AS TO WARRANT THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. ACCORDINGLY, HE DELETED THE DISALLOWANCE IN THAT REGARD. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED TO DELETE THE ADDITION RS.78,000/- U/S. 40A(2)(B) WHOLLY SINCE THE ASSESSEE PAID SERVICE CHARGES RS.30,000/- AND RS.48,000/- TO TWO SONS OF A PARTNER WHICH IS DIFFERENT IN RATES FOR THE SAME TYPE OF JO B AND DID NOT PRODUCE BOOKS OF ACCOUNTS/EVIDENCE. 3.2. THE LD DR ARGUED THAT QUANTUM OF EXPENDITURE DOES NOT JUSTIFY ITS ALLOWABILITY WHEN THE SAME HAS NOT BEEN PROVED BY THE ASSESSEE AS WHO LLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND THE NATURE OF SERVICES REND ERED BY THE PARTIES TO THE ASSESSEE. IN RESPONSE TO THIS, THE LD AR ARGUED THAT THE GENUINE NESS OF THE SAID EXPENDITURE WAS NOT DOUBTED BY THE LD AO IN THE REMAND REPORT AS IT COU LD BE EVIDENT THAT NO ADVERSE COMMENTS WERE GIVEN IN THAT REGARD IN HIS REMAND REPORT. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND FROM THE REMAND REPORT THAT THE LD AO HAD MERELY STATED THAT SINCE THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BY THE ASSESSEE , THE PAYMENTS MADE TO THESE TWO PERSONS COULD NOT BE VER IFIED. FROM THE PERUSAL OF THE REMAND REPORT, WE FIND AS RIGHTLY POINTED OUT BY THE LD AR , THAT THE LD AO HAD NOT DOUBTED THE GENUINENESS OF THE EXPENDITURE INCURRED AND THE SER VICES RENDERED BY THESE TWO PARTIES TO THE ASSESSEE. WE ALSO AGREE WITH THE CONTENTION OF THE LD DR THAT THE SAID AMOUNT REMAINED OUTSTANDING AS ON 31.3.2003 AND HENCE THERE IS NO Q UESTION OF VERIFICATION OF MODE OF PAYMENT OF THESE AMOUNTS IN FINANCIAL YEAR 2002-03 AS STATED IN THE REMAND REPORT OF THE LD AO. WE ALSO FIND THAT THE LD CITA HAD GIVEN A FIND ING THAT THE AMOUNT OF RS. 2,500/- PER MONTH AND RS. 4,000/- PER MONTH GIVEN TO THESE TWO PERSONS CANNOT BE TERMED AS EXCESSIVE OR UNREASONABLE TO INVOKE THE PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT. THIS FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US. WE ALS O FIND THAT THE LD AO HAD NOT BROUGHT ANY COMPARABLE CASES FOR FAIR MARKET VALUE TO PROVE THAT THE PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE EVEN IN THE REMAND PRO CEEDINGS. WITHOUT BRINGING THE SAME, SIMPLY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WOULD BE HIGHLY IMPROPER. WE ALSO FIND THAT THE NATURE OF SERVICES RENDERED B Y THESE TWO PARTIES WERE ALSO NOT DENIED OR DOUBTED BY THE LD AO IN THE REMAND REPORT. HENC E WE HOLD THAT THE LD CITA HAD RIGHTLY GRANTED RELIEF TO THE ASSESSEE IN THIS REGARD. ACCO RDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 9 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 4. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE ADDITION OF RS. 54,09,993/- ON ACCO UNT OF UNEXPLAINED INVESTMENT IN FIXED ASSETS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT NO DETAILS IN SUPPORT OF SOURCE FOR ADDITIONS TO FIXED ASSETS WERE PRODUCED BY THE ASSESSEE. HE ALSO OBSERVED THAT AS PER TAX AUDIT REPORT, THERE WAS AN INVESTMENT OF RS . 54,09,953/- AND ACCORDINGLY FOUND THAT THE SAID DISCREPANCIES WERE NOT SORTED OUT BY THE A SSESSEE. ACCORDINGLY HE MADE AN ADDITION TOWARDS UNEXPLAINED INVESTMENT IN THE SUM OF RS. 54 ,09,993/-. BEFORE THE LD CITA, IT WAS SUBMITTED THAT THE INVESTMENT IN FIXED ASSETS CANNO T BE TREATED AS UNEXPLAINED SINCE THE SAME IS REFLECTED IN THE BALANCE SHEET OF THE ASSES SEE TOGETHER WITH ITS PROPER SOURCES AND THE BALANCE SHEET HAS TALLIED. IT WAS ALSO SUBMITTED T HAT THERE IS NO DISCREPANCY IN THE AGGREGATE VALUE OF THE ASSETS, THOUGH THE FIGURES FOR WRITTEN DOWN VALUE (WDV) AND THOSE FOR THE ADDITIONS WERE INTER CHANGED IN SOME CASES. THE S OURCE OF RS. 3,30,000/- IS COVERED BY CAR LOAN FROM HDFC BANK, RS. 35,00,000/- LOAN FROM CIT I BANK AND BALANCE BY WAY OF CASH CREDIT LIMIT ALLOWED BY CENTURION BANK. THESE LOA NS WERE ALSO DULY REFLECTED IN THE BALANCE SHEET FILED BEFORE THE LD AO. THE RELEVANT LOAN S ANCTION LETTERS TOGETHER WITH THE LOAN STATEMENTS WERE SUBMITTED BEFORE THE LD CITA WHICH WERE SUBJECTED TO REMAND PROCEEDINGS. THE LD AO IN HIS REMAND REPORT MENTIONED THAT COPY OF AUTO LOAN SANCTION LETTER FROM HDFC BANK WAS FILED BEFORE HIM. FURTHER LOAN OF RS. 35, 00,000/- WAS TAKEN FROM CITI BANK AGAINST HYPOTHECATION OF SHOW ROOM AND THE BANK STA TEMENT IN THIS REGARD WAS ALSO FILED. IN CASE OF CASH CREDIT LIMIT ALLOWED BY CENTURION BANK , THE LD AO MENTIONED THAT IT COULD NOT BE VERIFIED FOR NON-PRODUCTION OF BOOKS OF ACCOUNTS AND BILLS. HOWEVER, THE BILLS AND VOUCHERS IN RESPECT OF SEVERAL ADDITIONS WERE FURNI SHED AND THE SAME WERE VERIFIED TO THE EXTENT OF RS. 11,82,180/-. IT WAS ALSO SUBMITTED THAT THE CLAIM OF DEPRECIATION OF RS. 5,95,877/- OF THE ASSESSEE HAS BEEN FULLY ALLOWED B Y THE LD AO IN THE ASSESSMENT WHICH ADMITTEDLY INCLUDES DEPRECIATION ON ADDITIONS TO FI XED ASSETS. IT WAS SUBMITTED THAT THE BILLS IN RESPECT OF ADDITION OF RS. 3,77,105/- ON ACCOUNT OF MOTOR CAR, THAT OF RS. 6,91,940/- ON ACCOUNT OF SHOWROOM AND THAT OF RS. 1,13,135/- ON A CCOUNT OF FURNITURE AND FIXTURE WERE VERIFIED BY THE LD AO IN THE REMAND PROCEEDINGS. T HE BALANCE BILLS WERE NOT AVAILABLE WITH THE ASSESSEE AS THE SAME WERE IMPOUNDED IN THE COUR SE OF SURVEY AND WERE STILL LYING WITH THE CUSTODY OF THE INCOME TAX DEPARTMENT. THE LD C ITA APPRECIATING ALL THESE CONTENTIONS 10 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) IS NOT JUSTIFIED TO DELETE THE ENTIRE ADDITION OF RS.54,09,993/- ON ACCOUNT OF UNE XPLAINED INVESTMENT IN ASSETS. 4.2. THE LD DR ARGUED THAT SINCE BOOKS OF ACCOUNT S WERE NOT PRODUCED BY THE ASSESSEE, THE OBSERVATION OF THE LD CITA THAT FIXED ASSETS WE RE REPRESENTED BY CORRESPONDING LIABILITIES IN THE LIABILITY SIDE OF THE BALANCE SH EET. HE ARGUED THAT THE SANCTION LETTER OF HDFC BANK STATED THE EMI WOULD START FROM APRIL 200 3 ONWARDS WHICH FALLS IN NEXT ASSESSMENT YEAR. HENCE, HE ARGUED THAT FIXED ASSET S ACQUIRED OUT OF BANK LOAN IS NOT PROVED BY THE ASSESSEE. HE FURTHER ARGUED THAT MERE ALLO WANCE OF DEPRECIATION DOES NOT JUSTIFY THE SOURCE OF ACQUISITION OF ASSETS. IN RESPONSE TO T HIS, THE LD AR ARGUED THAT THE LOAN WAS OBTAINED FROM HDFC BANK AT THE FAG END OF THE FINAN CIAL YEAR I.E IN MARCH 2003 AND THE FIRST INSTALMENT (EMI) STARTED FROM APRIL 2003 AND THAT IS WHAT IS DULY MENTIONED IN THE LOAN SANCTION LETTER. THE ASSESSEE HAD DULY BROUGHT TH E LOAN DISBURSED BY THE BANK AS ITS LOAN LIABILITY IN ITS BALANCE SHEET. HE ARGUED THAT TH E TALLIED BALANCE SHEET HAD BEEN FILED ALONG WITH THE RETURN OF INCOME WHEREIN THE ENTIRE FIXED ASSETS ACQUIRED TOGETHER WITH THE SOURCES IN THE FORM OF BANK LOANS WERE DULY REFLECTED. TH E DOUBLE ENTRY SYSTEM PREVAILS THAT AN ENTRY MENTIONED IN THE DEBIT SIDE SHOULD CORRESPOND INGLY BE MET OUT OF OWN FUNDS OR LOAN FUNDS OF THE ASSESSEE . THE ASSESSEE HAD ALREADY E XPRESSED ITS INABILITY TO PRODUCE THE BOOKS OF ACCOUNTS WITH SUFFICIENT PROOF AND HENCE THE LD CITA HAD RIGHTLY RELIED ON THE TALLIED BALANCE SHEET AND THE LOAN SANCTION LETTERS WHICH W ERE ADMITTEDLY USED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, AMONG OTHERS. HENCE, HE AR GUED THAT THERE IS NO CASE MADE OUT BY THE LD AO FOR MAKING AN ADDITION TOWARDS UNEXPLAINE D INVESTMENT IN FIXED ASSETS. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE FIXED ASSETS HAVE BEEN DULY REFLECTED IN THE AUDITED BALANCE SHEET FILED BY THE ASSESSEE WHICH REPRESENTS ASSETS AND LIABILITIES. THE LIABILITIES REFLECTED THEREIN CLE ARLY REFLECT THE BANK LOANS AVAILED BY THE ASSESSEE SUCH AS AUTO LOAN FROM HDFC BANK, LOAN FRO M CITI BANK AGAINST HYPOTHECATION OF SHOWROOM, CASH CREDIT LIMIT FROM CENTURION BANK AGA INST THE HYPOTHECATION OF STOCKS OF BUSINESS OF THE ASSESSEE. THE LIABILITIES REFLECTE D IN THE LIABILITY SIDE IN THE FORM OF BANK LOANS WERE TREATED AS EXPLAINED BY THE LD AO. HENC E, IT COULD BE SAFELY CONCLUDED THAT THE ASSETS APPEARING IN THE BALANCE SHEET WOULD BE TREA TED AS EXPLAINED ONCE THE CORRESPONDING ENTRIES ON THE LIABILITY SIDE ARE EXPLAINED. THERE IS NO CASE MADE OUT FOR FRAMING AN ADDITION 11 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 TOWARDS UNEXPLAINED INVESTMENT IN FIXED ASSETS. IT IS NOT IN DISPUTE THAT THE FIXED ASSETS HAVE BEEN DULY REFLECTED IN THE BALANCE SHEET. WE ALSO FIND THAT THE DEPRECIATION ON ENTIRE FIXED ASSETS INCLUDING THE ADDITION TO FIXED ASSETS HAVE BEEN ALLOWED BY THE LD AO. IN THE FACTS OF THE CASE, WE FIND THAT THE INVESTMENT IN F IXED ASSETS HAVE BEEN DULY EXPLAINED FROM THE BALANCE SHEET OF THE ASSESSEE WHICH IS A TALLIE D BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME. HENCE THE LD CITA HAD RIGHTLY GRANTED R ELIEF TO THE ASSESSEE IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENU E IS DISMISSED. 5. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE ADDITION COULD BE MADE TOWARDS SUNDRY CREDITORS AS BOGUS IN THE SUM O F RS. 1,15,92,543/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THE GENUINENESS OF SUNDRY CREDITORS IN AS MUCH AS CONFIRMATION FROM THE CONCERNED PARTIES REGARDING T HE AMOUNT DUE TO THEM WERE ALSO NOT PRODUCED BEFORE THE AUDITORS AS IS EVIDENT FROM THE NOTES ON ACCOUNTS AND SUBSEQUENT RATIFICATION BY THE AUDITORS IN THIS OFFICE ON 13.3 .2006. ACCORDINGLY, HE CONCLUDED THAT THE SUNDRY CREDITORS REFLECTED IN THE BALANCE SHEET ARE BOGUS AND BROUGHT THE SAME TO TAX AS UNEXPLAINED LIABILITIES AND ADDED A SUM OF RS. 1,15 ,92,543/- IN THE ASSESSMENT. BEFORE THE LD CITA, THE BREAK UP OF OUTSTANDING LIABILITIES, C OMPRISING CREDITORS FOR EXPENSES OF RS. 33,88,194/- AND CREDITORS FOR GOODS OF RS. 82,04,34 9/- WERE FURNISHED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE THEORY OF CONFIRMATION OF BA LANCES IS NOT APPLICABLE IN RESPECT OF CREDITORS FOR EXPENSES. THE LIST OF CREDITORS FOR EXPENSES AND LEDGER EXTRACTS SHOWING DISCHARGE OF LIABILITY IN THE SUBSEQUENT YEAR WAS F ILED. SIMILARLY, THE LIST OF CREDITORS FOR GOODS AND CONFIRMATION CERTIFICATES OR LEDGER EXTRA CTS SHOWING DISCHARGE OF LIABILITY IN THE SUBSEQUENT YEAR WAS ALSO FILED. ALL THESE DETAILS WERE SENT TO LD AO FOR VERIFICATION AND COMMENTS IN REMAND PROCEEDINGS. THE LD CITA OBSER VED THAT IN RESPECT OF 6 SUNDRY CREDITORS PARTIES, WHERE THE BALANCE TALLIED FROM T HE BALANCES IN THE BOOKS OF THOSE CREDITORS AMOUNTING TO RS. 5,00,402/-, THERE IS NO CASE FOR A NY ADDITION AS THERE WAS NO DISCREPANCY. WITH REGARD TO OTHER THREE CREDITORS IN THE SUM OF RS. 14,02,504/-, THE LD CITA OBSERVED THAT THESE CREDITORS WERE DULY DISCHARGED BY THE ASSESSE E IN THE SUBSEQUENT YEARS. HE OBSERVED THAT A SUM OF RS. 2,27,762/- REPRESENTED OPENING BA LANCE OF CREDITORS WHICH COULD NOT IN ANY CASE BE ADDED AS INCOME IN THE YEAR UNDER APPEAL. HE OBSERVED THAT OUT OF OUTSTANDING 12 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 LIABILITY OF RS. 33,88,194/- , TWO SEPARATE ADDITIO NS WERE MADE BY THE LD AO IN THE SUM OF RS. 73,700/- TOWARDS SALES TAX LIABILITY AND RS. 78 ,000/- TOWARDS SERVICE CHARGES PAYABLE, THERE IS NO NEED TO ADD THE SAME AGAIN TREATING THE M AS BOGUS LIABILITY. FOR THE REMAINING LIABILITY, HE OBSERVED THAT THE FULL PARTICULARS W ERE MADE AVAILABLE BEFORE THE LD AO IN THE REMAND PROCEEDINGS , WHO HAD NOT MADE EFFORTS TO VE RIFY THEM AND CONCLUDED THAT THE LD AO HAD NOT BROUGHT ANY POSITIVE MATERIAL ON RECORD TO SHOW THAT THE LIABILITIES ARE INGENUINE. HE FURTHER OBSERVED THAT ALL THESE LIABILITIES WERE DULY DISCHARGED IN THE SUBSEQUENT YEAR BY ACCOUNT PAYEE CHEQUES WHICH IS QUITE EVIDENT FROM T HE LEDGER EXTRACTS AND THE BANK STATEMENTS. 5.2. WITH REGARD TO SUNDRY CREDITORS FOR GOODS CO MPRISING OF 47 PARTIES, THE ASSESSEE FURNISHED THE NAMES AND ADDRESSES OF THOSE CREDITOR S WHICH WERE SUBJECTED TO VERIFICATION IN THE REMAND PROCEEDINGS. THE LD CITA OBSERVED THAT FROM THE LEDGER COPIES OF THESE CREDITORS, THE ASSESSEE HAD PAYMENTS TO THEM BY ACC OUNT PAYEE CHEQUES IN THE SUBSEQUENT YEAR AND CONFIRMATION FROM CREDITORS WERE ALSO FILE D IN SOME CASES. HE OBSERVED THAT THE REMAND REPORT OF THE LD AO COVER ONLY 16 CREDITORS THOUGH FULL PARTICULARS OF 47 CREDITORS WERE AVAILABLE BEFORE THE LD AO. THE LD CITA OBSE RVED THAT IN THE REMAND REPORT DATED 6.8.2007, THE LD AO HAD GIVEN FAVOURABLE COMMENTS I N RESPECT OF 6 CREDITORS TO THE TUNE OF RS. 31,47,480/-. IN RESPECT OF 5 CREDITORS, THE L D CITA FOUND THAT THE PAYMENTS MADE TO THESE PARTIES IN THE SUBSEQUENT YEARS WERE CROSS CH ECKED WITH THE RELEVANT BANK STATEMENTS WITH SOME DIFFERENCES IN THE CLOSING BALANCES BETWE EN TWO PARTIES WHICH WERE RECONCILED IN THE FORM OF DEBIT NOTES ISSUED BY CREDITORS IN THE SUBSEQUENT YEARS ; TIMING DIFFERENCE OF CHEQUE ISSUED ON 31.3.2003 WHICH GOT CLEARED IN APR IL 2003 AND UNRECORDED PURCHASES FOR WHICH ADDITION HAS ALREADY BEEN MADE. ACCORDINGLY , HE CONCLUDED THAT THE ADDITION OF RS. 19,23,836/- IS NOT SUSTAINABLE. 5.3. IN RESPECT OF 5 CREDITORS, WHERE NOTICE U/S 13 3(6) OF THE ACT WERE SERVED BUT NO COMPLIANCE WAS MADE BY THE CREDITORS , THE ASSESSEE ARGUED THAT IDENTITY AND GENUINENESS OF CREDITORS IS ESTABLISHED AS THE PARTIES HAVE ACKNOW LEDGED THE NOTICE. THE LD CITA NOT CONVINCED WITH THE ARGUMENT, CONFIRMED THE ADDITION OF RS. 2,77,398/- MADE BY THE LD AO. AGAINST THIS, THE ASSESSEE HAD NOT PREFERRED APPEAL BEFORE US. 13 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 5.4. THE LD CITA OBSERVED THAT OUT OF TOTAL 47 CRE DITORS FOR WHICH THE ENTIRE DETAILS WERE MADE AVAILABLE BEFORE THE LD AO IN THE REMAND PROCE EDINGS, THE LD AO SOUGHT TO GIVE HIS COMMENTS IN REMAND REPORT ONLY IN RESPECT OF 16 CRE DITORS FOR GOODS. ACCORDINGLY, THE LD CITA CONCLUDED THAT THE LD AO DID NOT HAVE ANY ADVE RSE REMARK TO STATE ABOUT THE REMAINING 37 CREDITORS AND DELETED THE ADDITION TOW ARDS THOSE SUNDRY CREDITORS IN THE SUM OF RS. 28,47,586/-. HE ALSO OBSERVED THAT THESE CRED ITORS WERE DULY SETTLED IN THE SUBSEQUENT YEARS BY ACCOUNT PAYEE CHEQUES WHICH WERE REFLECTED IN THE CORRESPONDING BANK STATEMENTS AND THE LEDGER EXTRACTS OF SUBSEQUENT YEAR. ULTI MATELY HE SUSTAINED THE ADDITION OF RS. 2,77,398/- TOWARDS SUNDRY CREDITORS. AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 5. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWI NG RELIEF TO SUCH A GREAT EXTENT OF RS.1,13,07,096/- OUT OF ADDITION RS.1,15,92,543/- O N ACCOUNT OF UNEXPLAINED SUNDRY CREDITORS WHERE IDENTITY, GENUINENESS AND CREDIT WORTHINESS O F SOME CREDITORS ARE NOT ESTABLISHED. 5.5. THE LD DR ARGUED THAT THE LD CITA HAD MERELY GRANTED RELIEF BASED ON SUBSEQUENT PAYMENTS MADE BY THE ASSESSEE TO THOSE SUNDRY CREDI TORS AND REITERATED THE FINDINGS OF THE LD AO. IN RESPONSE TO THIS, THE LD AR ARGUED THAT THE MAIN PREMISE OF THE LD AO TO MAKE THE ADDITION IS PLACING RELIANCE ON THE LETTER DATED 13 .3.2006 OF THE AUDITORS WHEREIN THEY HAD STATED THAT THE BALANCE OF CREDITORS ARE NOT CONFIR MED BEFORE THE AUDITORS. IN THIS REGARD, HE ARGUED THAT IT IS THE USUAL PRACTICE THAT THE AUDIT ORS RESORT TO OBTAINING DIRECT CONFIRMATION FROM THE CREDITORS OF THE ASSESSEE ON TEST CHECK BA SIS AND SINCE ALL THE PARTIES COULD NOT BE PRACTICALLY VERIFIED BY THE AUDITORS IN THE GIVEN T IME , HENCE IT IS QUITE USUAL TO MENTION THAT THE BALANCES OF CREDITORS AND DEBTORS ARE SUBJECT T O CONFIRMATION. THIS DOES NOT AUTOMATICALLY MEAN THAT THE CREDITORS SHOWN IN THE BALANCE SHEET ARE BOGUS. HE ARGUED THAT THE LD AO HAD MADE EXTENSIVE VERIFICATION IN RESPEC T OF 16 SUNDRY CREDITORS FOR GOODS IN THE REMAND PROCEEDINGS AND HAD NOT GIVEN ANY ADVERSE CO MMENTS REGARDING 11 CREDITORS THEREON. ACCORDINGLY, THE LD CITA HAD TAKEN COGNIZ ANCE OF THE SAME AND GRANTED RELIEF TO THE ASSESSEE AND IN RESPECT OF 5 CREDITORS, SINCE T HE PARTIES DID NOT RESPOND TO NOTICE U/S 133(6) OF THE ACT, BALANCE OF CREDITORS TO THE TUNE OF RS. 2,77,398/- WAS SUSTAINED BY LD CITA. HENCE HE ARGUED THAT EXTENSIVE VERIFICATION HAS BEEN CARRIED OUT BY THE LOWER AUTHORITIES AND PRAYED FOR NON-INTERFERENCE IN THE ORDER OF THE LD CITA IN THIS REGARD. 5.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ENTIRE DETAILS OF SUNDRY CREDITORS FOR EXPENSES AND FOR GOODS WERE PROVIDED BY THE ASSESSEE BEFORE THE LD AO IN THE 14 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 REMAND PROCEEDINGS. WITH REGARD TO SUNDRY CREDITOR S FOR EXPENSES, THEY ARE ONLY EXPENSES PROVIDED ON ACCRUAL BASIS AT THE END OF THE YEAR WH ICH WOULD GET IMMEDIATELY DISCHARGED IN THE SUBSEQUENT YEAR AND THE LD CITA ON FACTUAL VERI FICATION OF THE SAME GRANTED RELIEF TO THE ASSESSEE. WE DO NOT DEEM FIT TO INTERFERE WITH THE SAID FINDINGS OF THE LD CITA. WITH REGARD TO CREDITORS FOR GOODS, THE LD AO DID NOT GI VE ANY COMMENTS WITH REGARD TO 31 CREDITORS OUT OF TOTAL 47 CREDITORS. IN THE ABSENC E OF ANY ADVERSE REMARKS WITH REGARD TO 31 CREDITORS, IT WOULD BE JUST AND FAIR TO CONCLUDE TH AT THE LD AO HAD ACCEPTED THOSE CREDITORS TO BE GENUINE. HENCE WE HOLD THAT THE LD CITA HAD RIG HTLY GRANTED RELIEF FOR THE SAME. WITH REGARD TO 16 SUNDRY CREDITORS VERIFIED BY THE LD AO , WE FIND THAT THOSE CREDITORS WERE DULY SETTLED IN THE SUBSEQUENT YEAR BY ACCOUNT PAYEE CHE QUES WHICH WERE ALSO REFLECTED IN THE LEDGER ACCOUNT OF THE ASSESSEE FOR THE ASST YEAR 20 04-05 AND DULY CROSS VERIFIED WITH THE BOOKS OF CREDITORS. HENCE THE LD CITA RIGHTLY CONC LUDED THAT NO ADVERSE INFERENCE COULD BE DRAWN ON THE SAME. WITH REGARD TO 5 CREDITORS TOTA LING TO RS. 2,77,398/-, THE PARTIES DID NOT RESPOND TO NOTICE U/S 133(6) OF THE ACT AND LD CITA CONCLUDED THE SAME TO BE BOGUS, AGAINST WHICH, THE ASSESSEE IS NOT IN APPEAL BEFORE US. HENCE WE DO NOT DEEM FIT TO INTERFERE WITH THE SAME. HENCE WE HOLD THAT THE LD CITA HAD PASSED A DETAILED AND ELABORATE ORDER BY PROPER FINDING WHICH DOES NOT CALL FOR ANY INTERFER ENCE. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE REVENUE IS DISMISSED. 6. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE ADDITION OF RS. 1,96,445/- TOWARDS UNE XPLAINED CASH CREDIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT ASSESSEE OBTAINED FRESH LOANS DURING THE YEAR TO THE TUNE OF RS. 4,99,470/- FOR WHICH CONFIRMATION FROM PARTIES WERE NOT FURNISHED . HE OBSERVED THAT EVEN COMPLETE PO STAL ADDRESS, PAN OF PARTIES WERE NOT FURNISHED AND GENUINENESS OF SUCH LOANS WERE NOT PR OVED. ACCORDINGLY HE PROCEEDED TO MAKE ADDITION U/S 68 OF THE ACT. THE LD CITA CONFI RMED THE ADDITION OF RS. 2,03,025/- IN RESPECT OF RASH BEHARI AGARWAL AND ALLOWED RELIEF T O THE EXTENT OF RS. 2,96,445/- BEING LOAN OF RS. 1,00,000/- FROM BINITA KEDIA AND RS. 1,96,44 5/- FROM AMERICAN EXPRESS BANK. THE LOAN OF RS. 1,00,000/- FROM BINITA KEDIA WAS ALLOWE D ON THE GROUND THAT THE SAME WAS VERIFIED BY THE LD AO IN THE REMAND PROCEEDINGS. R EGARDING THE LOAN FROM AMERICAN EXPRESS BANK, THE LD CITA OBSERVED THAT THE REMAND REPORT WAS SILENT ON THIS LOAN 15 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 TRANSACTION FROM BANK AND CONCLUDED THAT THE BANK L OAN COULD NOT BE TREATED AS UNEXPLAINED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUND :- 6. THAT OUT OF ADDITION OF RS.4,99,470/- AS UNEXP LAINED CASH CREDIT, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING RS.1,96,445/- BEING LOAN TRAN SACTION FROM AMERICAN EXPRESS BANK SINCE IT REMAINS UNVERIFIED IN THE ABSENCE OF EVIDENCE/CONFI RMATIONS. 6.2. THE LD DR VEHEMENTLY RELIED ON HIS WRITTEN SU BMISSIONS THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE FOR LOAN TAKEN FROM AMERICAN EXPRESS BANK AND HENCE THE BELIEF ENTERTAINED BY THE LD CITA THAT THE SAID LOAN IS GE NUINE IS TO BE DISMISSED. IN RESPONSE TO THIS, THE LD AR RELIED ON THE ORDER OF THE LD CITA. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HAD STATED THAT THE FRESH LOAN WAS AVAILED FROM AMERICAN EXPRESS BANK I N THE SUM OF RS. 1,96,445/- DURING THE YEAR UNDER APPEAL WHICH IS ALSO REFLECTED IN THE AU DITED BALANCE SHEET FILED ALONG WITH THE RETURN AS A SEPARATE ITEM UNDER UNSECURED LOANS. HENCE THE BELIEF ENTERTAINED BY THE LD CITA THAT THE SAID BANK LOAN CANNOT BE TREATED AS U NEXPLAINED CASH CREDIT CANNOT BE FAULTED WITH. ACCORDINGLY, THE GROUND NO. 6 RAISED BY THE R EVENUE IS DISMISSED. 7. ` THE LAST ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE DISALLOWANCE OF VARIOUS EXPENSES IN TH E SUM OF RS. 1,52,387/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 7.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO DISALLOWED THE EXPENSES OF RS. 1,52,387/- BEING 10% OF EXPENSES DEBITED UNDER THE HEAD GENERAL CHARGES, TRAVELLING & CONVEYANCE , SALES PROMOTION AND ADVERTISEMENT IN THE ABSENCE OF ANY DETAILS AND EVIDENCES AND BOOKS OF ACCOUNTS. THE LD CITA ALLOW ED RELIEF ON THE GROUND THAT THE LD AO HAD FAILED TO POINT OUT EVEN A SINGLE INSTANCE OF E XPENDITURE WHICH IS NOT GENUINE OR IS NOT RELATED TO BUSINESS. HENCE HE DELETED THE DISALLOW ANCE STATING THAT THE SAME IS ARBITRARY AND IS NOT BACKED BY ANY MATERIAL ON RECORD. AGGRIEVE D, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 7. THAT THE LD. CIT(A) IS ALSO DELETING THE WHOLE ADDITION RS.1,52,387/- BY WAY OF DISALLOWANCES OF VARIOUS EXPENSES FOR WANT OF BILLS , VOUCHERS AND DETAILS OR FOR NOT PRODUCING BOOKS OF ACCOUNTS. 16 ITA NO. 352/KOL/2010 S.H.MUMTAZUDDIN, AY 2003-04 7.2. THE LD DR ARGUED THAT THE BOOKS OF ACCOUNTS W ERE NEVER PRODUCED BY THE ASSESSEE BEFORE THE LD AO DESPITE SEVERAL OPPORTUNITIES GIVE N. HENCE THERE IS NO QUESTION OR OPPORTUNITY TO FIND OUT INGENUINE OR EXPENSES NOT R ELATED TO BUSINESS. HE ARGUED THAT THE ESTIMATE MADE BY THE LD AO @ 10% OF EXPENSES IS REA SONABLE. IN RESPONSE TO THIS , THE LD AR ARGUED THAT THE BOOKS OF ACCOUNTS WERE DULY AUDI TED BY THE AUDITOR AND NO QUALIFICATIONS WERE MADE IN THE AUDIT REPORT WITH REGARD TO INGENU INITY OF EXPENSES. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE EXPENDITURE HAS BEEN DISALLOWED ON AN ARBITRARY BASIS WITHOUT ANY MATERI AL ON RECORD. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA IN THIS REGAR D. ACCORDINGLY, THE GROUND NO. 7 RAISED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.10.2016 SD/- SD/- (K. NARASIMHA CHARY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 5 TH OCTOBER,, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WARD-36(2), KOLKATA 2 RESPONDENT M/S. S. H. MUMTAZUDDIN, 4, RADHABAZAR S TREET, KOL- 700001. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .