M/s Agricultral Tractor Corporation, Karnal V. ITO, Karnal

ITA 3647/DEL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52855 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-10-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: VIRENDER RAJPAL PARTNER
• Keywords: Rejection of books of accounts; Income from undisclosed sources
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI I.P. BANSAL, JM & SHRI A.N. PAHUJ A, AM ITA NO. 3647/DEL/2009 ASSESSMENT YEAR: 2006-07 AGRICULTURAL TRACTOR CORPORATION KUNJPURA ROAD, KARNAL. V/S ITO WARD-2,KARNAL PAN: AAHFA3061E [APPELLANT] [RESPONDENT] ITA NO. 3681/DEL/2009 ASSESSMENT YEAR: 2006-07 ITO WARD-2,KARNAL V/S AGRICULTURAL TRACTOR CORPORATION KUNJPURA ROAD, KARNAL. [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI VIRENDER RAJPAL, PARTNER REVENUE BY:- MRS. ANUSHA KHURANA, DR DATE OF HEARING:- 10-10-2011 DATE OF PRONOUNCEMENT:- 14-10-2011 O R D E R A N PAHUJA: THESE CROSS APPEALS-ONE FILED BY THE ASSESSEE ON 26.8.2009 AND THE OTHER BY THE REVENUE ON 28.8.2 009 AGAINST AN ORDER DATED 17-06-2009 OF THE LD. CIT(AP PEALS)- KARNAL FOR THE ASSESSMENT YEAR 2006-07, RAISE THE F OLLOWING GROUNDS:- ITA NO. 3647/DEL/2009[ASSESSEE] 1. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)S, KARNAL HAS ERRED ON LAW & FACTS BY CONFIR MING THE ADDITION OF ` 154766/- OUT OF TOTAL DISALLOWANCE OF INTEREST U/S 36(I)(III) OF ` 290040/- DISALLOWED BY AO WITHOUT CONSIDERING THE FACTS OF THE CASE. THE ASSESSEE CRAVES TO ADD, AMEND & ALTER THE GROUN DS OF APPEAL AT THE TIME OF HEARING & BEFORE DISPOSAL OF APPEAL. 2 ITA NOS. 3647 & 3681/D/2009 ITA NO. 3681/DEL/2009[REVENUE] 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING T HE ADDITION OF ` 7,45,673/- ON ACCOUNT OF DIFFERENCE IN STOCK STATEMENT GIVEN TO THE BANK AND ACTUAL PHYSIC AL INVENTORY AS PER BOOKS OF ACCOUNT AS ON 31.03.06. 2. THAT THE APPELLANT CRAVES FOR PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL, BEFORE OR AT THE TI ME OF HEARING OF APPEAL. 2. ADVERTING FIRST TO GROUND NO. 1 IN THE APPEAL OF THE REVENUE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DE CLARING INCOME OF ` 1,18,090/- FILED ON 18.10.06 BY THE ASSESSEE, AFTER BEING PROCESSED ON 22.02.07 U/S 143(1) OF THE I.T. ACT, 1961 (HEREINAF TER REFERRED TO AS THE ACT), WAS TAKEN UP FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT, ISSUED ON 19.09.07.DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO IN SHORT) NO TICED THAT THE ASSESSEE REFLECTED VALUE OF ITS CLOSING STOCK AS ON 31.03.06 AT ` 60,11,077/- IN THEIR BOOKS OF ACCOUNTS WHILE IN THE STOCK STATEMENT SUBMITTED TO PNB, VALUATION OF SUCH STOCK WAS SHOWN AT ` 67,56,750/-. TO A QUERY BY THE AO, THE ASSESSEE REPLIED THAT VAL UATION OF STOCK SUBMITTED TO THE BANK WAS ON PROVISIONAL BASIS WHIL E IN ITS BOOKS OF ACCOUNTS STOCK WAS VALUED ON THE BASIS OF COST OR MARKET VALUE, WHICHEVER IS LOWER. HOWEVER, THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AND ADDED AN AMOUNT OF ` 7,45,673/- TO STOCK WHILE RELYING ON DECISION OF THE HONBLE MADRAS HIGH COU RT IN COIMBTORE SPINNING & WEAVING CO. LIMITED VS. CIT, 95 ITR 375 (MAD.). 3. ON AN APPEAL, THE LD. CIT(A) DELETED THE ADDITIO N HOLDING AS UNDER: - 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE. THE ISSUE INVOLVES FACTS, PROCEDURE AND LAW AND THEREFORE, ALL THE THREE ASPECTS HAVE BEEN CONSIDERED BY ME. THE ASSESSEE HAS CLAIMED THAT THE CLOSING STOCK IN CLUDED IN THE BALANCE SHEET HAS BEEN AUDITED BY A CHARTERED ACCOU NTANT AND THIS STOCK IS AS PER BOOKS OF ACCOUNTS AND THE SAME HAS BEEN ACCEPTED BY THE SALES TAX/VAT AUTHORITIES ALSO AND THESE FACTS HAVE NOT BEEN DISPUTED BY THE AO. NO DEFECT IN THE BOOKS OF ACCO UNTS OR ANY OTHER 3 ITA NOS. 3647 & 3681/D/2009 DETAIL OF THE ASSESSEE OR FINANCIAL RECORDS HAVE BE EN FOUND BY THE AO. THERE IS NO EVIDENCE THAT THERE WAS ANY UNACCOUNTED STOCK OR UNACCOUNTED PURCHASE. THEREFORE, THE CLAIM OF THE ASSESSEE THAT THE STOCK SUBMITTED TO THE AO IS CORRECT, HAS MERIT. O N THE OTHER HAND, THE STOCK GIVEN TO THE BANK IS ON THE BASIS OF ESTIMATE D MARKET PRICE. WHEREAS, AS CLAIMED THERE IS NO DIFFERENCE IN THE Q UANTITY OF STOCK AS PER THE STOCK SUBMITTED TO THE BANK AND THE STOCK FILED WITH THE RETURN OF INCOME AND NO SUCH DIFFERENCE IS FOUND BY THE AO AL SO. THE STOCK SUBMITTED TO THE BANK HAS NOT BEEN SOLEMNLY AFFIRME D BECAUSE IT HAS BEEN SUBMITTED TO A NATIONALIZED BANK AND NOT TO AN Y GOVT. AUTHORITY OR THE COURT AND THESE FACTS HAVE ALSO BEEN NOT DISPUT ED BY THE AO, THEREFORE, THE ISSUE IS WHETHER STOCK AUDITED BY A CHARTERED ACCOUNTANT GIVING ALL DETAILS, CONFIRMED BY THE ASSESSEE AND A CCEPTED BY THE OTHER GOVT. DEPARTMENTS SHOULD BE ACCEPTED OR THE STOCK V ALUE ON ESTIMATE BASIS WITHOUT ANY DETAIL GIVEN TO A NATIONALIZED BA NK SHOULD BE TAKEN AS CORRECT STOCK. DEFINITELY THE WEIGHT OF ARGUMENT A ND EVIDENCE IS IN FAVOUR OF THE ASSESSEE THAT THE STOCK AUDITED BY A CHARTERED ACCOUNTANT AND ACCEPTED BY OTHER GOVT. DEPARTMENTS SHOULD BE C ONSIDERED AS THE CORRECT STOCK. THE ASSESSEE HAS ALSO CLAIMED THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS, WHEREAS, REJECTION OF BOOKS OF A CCOUNTS IS NECESSARY FOR DISTURBING THE TRADING RESULT. THEREFORE, THE ADDITION ON ACCOUNT OF CLOSING STOCK IS NOT CALLED FOR. THE ASSESSEE ALSO GETS SUPPORT FROM THE FOLLOWING CASES BECAUSE THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED. IN THE CASE OF ITO VS. VINOD & CO., ITA NO. 3545/D EL./2002, HONBLE ITAT, DELHI HAS HELD AS FOLLOWS AS SUBMITTE D BY THE ASSESSEE: IN THIS CASE THE BOOKS OF ACCOUNTS WERE ACCEPTED B Y THE AO AS THERE WAS NO SPECIFIC FINDING TO THIS EFFECT OR APPLICATION OF S EC. 145 OF THE I.T. ACT, 1961 IN THE ASSESSMENT ORDER. THEREFORE, TRADING RESULTS C ANNOT BE DISTURBED WITHOUT THERE BEING A CLEAR APPLICATION OF PROVISIONS OF SE C. 145 AS WAS HELD BY HONBLE PATNA HIGH COURT IN THE CASE OF CIT VS. MOHD. UMER, 101 ITR 525. SIMILARLY, IN THE CASE OF CIT VS. MD. UMER, 101 IT R 525, HONBLE PATNA HIGH COURT HAS HELD AS FOLLOWS: - IN THE ABSENCE OF ANY SPECIFIC FINDING REJECTING T HE BOOKS OF ACCOUNTS OF THE ASSESSEE OR INVOKING THE PROVISIONS OF SEC. 145 OF THE I.T. ACT, 1961, IT WAS NOT PERMISSIBLE FOR THE AO TO MAKE ANY TRADING ADDITION BY APPLYING A HIGHER GP RATE AS HELD BY HONBLE PATNA HIGH COURT IN THE CAS E CIT VS. MOHD. UMER, 101 ITR 525. SIMILARLY, IN THE CASE OF CHHATAR EXTRACTIONS (P) LTD. VS. ITO, 85 TTJ 405 (ASR) (TM), HONBLE ITAT AMRITSAR BENCH, 3 RD MEMBER DECISION, IT WAS HELD AS FOLLOWS: - INCOME FROM UNDISCLOSED SOURCES ADDITION SHORT AGE OF RICE BRAN EXTRACTION AO DID NOT ACCEPT THE EXPLANATION FOR SUCH SHORTA GE AND MADE ADDITION TREATING THE SHORTAGE AS UNACCOUNTED SALES NOT JU STIFIED ASSESSEE 4 ITA NOS. 3647 & 3681/D/2009 MAINTAINED COMPLETE QUANTITATIVE DETAILS ON THE BAS IS OF WHICH THE QUANTITY OF RICE BRAN PRODUCED, SOLD AND LYING IN STOCK AND ALS O THE QUANTITATIVE DETAILS OF SHORTAGE, WERE FURNISHED CORRECTNESS AND COMPLETE NESS OF THE BOOKS OF ACCOUNT HAVE NOT BEEN DOUBTED BY THE DEPARTMENT AUT HORITIES ASSESSEE GAVE CERTAIN EXPLANATION FOR THE SHORTAGE SO SUFFERED IN THE PROCESS OF MANUFACTURING AND AT VARIOUS OTHER STAGES CORRECT NESS OF THE DECLARED TRADING RESULTS IS ALSO SUPPORTED BY VARIOUS OTHER RECORDS REQUIRED TO BE MAINTAINED BY SUCH INDUSTRIES ADDITION DELETED. ASSESSEE DEFINITELY GETS SUPPORT IN ITS CASE ON THE BASIS OF ABOVE MENTIONED DECISIONS THAT TRADING RESULTS HAVE BEEN WRONGLY DISTURBED WITHOUT REJECTING OF BOOKS OF ACCOUNTS. THE ASSESSEE HAS ALSO CLAIMED THAT NO ADDITION CAN BE MADE ON THE BASIS OF DIFFERENCE BETWEEN THE VALUE OF STOCK REPORTED TO THE BANK AND THAT SHOWN IN THE ACCOUNTS WITHOUT BRINGING ANY EVIDENCE TO SHOW THAT ASSESSEE IN FACT POSSESSED A LARGER QUANTITY O F STOCK THAN DECLARED IN THE BOOKS OF ACCOUNTS, WHEREAS, IN THE CASE OF T HE ASSESSEE THE AO HAS NOT BROUGHT ON RECORD ANY OTHER MATERIAL OR EVI DENCE WHICH SHOWS THAT THE STOCK WAS IN FACT HIGHER THAN WHAT IS DECL ARED AS ON 31.03.2006 AS PER BOOKS OF ACCOUNTS. THE ASSESSEE HAS RELIED ON MANY CASE LAWS IN THIS REGARD AND AO HAS ALSO SUPPORTED HIS DECISI ON BY A CASE LAW WHICH HAS BEEN DISCUSSED BELOW: THE FEW RELEVANT CASES AS CITED BY THE ASSESSEE WI TH THEIR DECISIONS IN BRIEF AS REPORTED ARE AS FOLLOWS: I) BEEKAY APPLIANCES (P) LTD. VS. DCIT, RANGE-1, FARIDABAD, 158 TAXMAN 67, DELHI TRIBUNAL (CASE DIGEST PART) : SECTION 143 OF THE I.T. ACT, 1961 ASSESSMENT ADDITIONS TO INCOME A.Y. 1995-96 NOTICING DIFFERENCE BETWEEN STOCK SHOWN IN ASSESSEES BALANC E SHEET AND STOCK TO BANK FROM WHOM ASSESSEE WAS ENJOYING CREDIT FACI LITIES AGAINST HYPOTHECATION OF STOCK, AO TOOK STOCK AS SHOWN TO B ANK TO BE TRUE STOCK WITH ASSESSEE AND ADDED DIFFERENCE TO INCOME OF ASS ESSEE ON ACCOUNT OF UNACCOUNTED STOCK ASSESSEES CASE WAS THAT STO CK SHOWN TO BANK WAS INFLATED TO GET MAXIMUM CREDIT FACILITY AO, A PART FROM RELYING ON STOCK STATEMENT GIVEN TO BANK, HAD BROUGHT NO OTHER EVIDENCE ON RECORD TO SHOW THAT ASSESSEE IN FACT POSSESSED A LARGER QU ANTITY OF STOCK WHETHER, ON FACTS, ADDITION MADE BY AO COULD BE SUS TAINED HELD, NO SEC. 145 OF THE I.T. ACT, 1961 METHOD OF ACCOUNTI NG REJECTION OF ACCOUNTS A.Y. 1995-96 WHETHER BOOKS RESULTS CAN NOT BE REJECTED SIMPLY FOR REASON THAT THERE IS DIFFERENCE BETWEEN STOCK SHOWN BY ASSESSEE IN BALANCE SHEET AND STOCK SHOWN TO BANK HELD, YES. II)CIT VS. APCOM COMPUTERS (P) LTD., 292 ITR 630 (M AD): INCOME FROM UNDISCLOSED SOURCES ADDITION DIFFERENCE BE TWEEN VALUE OF STOCK REPORTED TO BANK AND THAT SHOWN IN ACCOUNTS AO MA DE ADDITION OF THE DIFFERENCE NOT JUSTIFIED ANY ADDITION ON ACCOUN T OF DIFFERENCE IN STOCK CAN BE MADE ONLY ON THE BASIS OF ADEQUATE MATERIALS AND NOT ARBITRARILY ASSESSEE WAS MAINTAINING ACCOUNTS OF DAY-TO-DAY PRO DUCTION IT HAS TAKEN THE ACTUAL PHYSICAL STOCK FOR THE PURPOSE OF DECLARING CLOSING STOCK TO IT AUTHORITIES AND THE SAME IS SUPPORTED BY BOOK S OF ACCOUNT ADMITTEDLY, THE STATEMENT GIVEN TO THE BANK WAS ON ESTIMATE BASIS 5 ITA NOS. 3647 & 3681/D/2009 WITHOUT ANY PHYSICAL VERIFICATION THERE WAS NO PH YSICAL VERIFICATION EVEN BY THE BANK THEREFORE, THERE IS NO BASIS TO TREAT THE DIFFERENCE IN VALUE AS UNDERVALUATION OF STOCK OR UNDISCLOSED INC OME. III) CIT VS. KHAN & SIROHI STEEL ROLLING MILLS, 2 00 CTR 595 (ALL) : INCOME FROM UNDISCLOSED SOURCES ADDITION DISCRE PANCY IN STOCK DIFFERENCE BETWEEN STOCK SHOWN TO BANK AND STOCK SH OWN IN THE BOOKS STOCK WAS HYPOTHECATED TO THE BANK AND NOT PLEDGED TRIBUNAL FOUND THAT THE STATEMENT SUBMITTED BY THE ASSESSEE TO THE BANK WAS NOT VERIFIED BY THE BANK OFFICIALS HAVING REGARD TO T HE PREVAILING PRACTICE, IT ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THE V ALUE OF STOCK WAS INFLATED TO AVAIL OF MORE OVERDRAFT FACILITIES AND DELETED THE ADDITION MADE BY THE ITO JUSTIFIED. IV) CIT VS. SIDDHU RICE & GENERAL MILLS, 192 CTR 349 (P&H) : IN THIS CASE CREDIT FACILITY EXTENDED BY THE BANK WAS AGAIN ST HYPOTHECATION OF STOCK AND NOT AGAINST THE PLEDGED AND IT WAS FOUND THAT AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT ASSESSE E IN FACT POSSESSED LARGER QUANTITY OF STOCK, HENCE THE FINDING OF CIT( A) AND TRIBUNAL FOR DELETING THE ADDITION WERE CONFIRMED AND NOT INTERF ERED BY HONBLE HIGH COURT. THE SAME IS THE CASE OF THE ASSESSEE THAT T HE STOCK IS ONLY HYPOTHECATED AND NOT PLEDGED AND AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT ASSESSEE IN FACT POSSESSED LA RGER QUANTITY OF STOCK, HENCE IT IS DIRECTLY COVERED BY THE DECISION OF THIS CASE, SIDDHU RICE & GENERAL MILLS, DECIDED BY THE HONBLE JURISD ICTIONAL HIGH COURT. V) CIT VS. ACROW INDIA LTD., 298 ITR 447 (BOM) : IT WAS HELD IN THIS CASE THAT WHERE THE VALUE OF STOCK IS NOT ACCEPTED THE BURDEN IS ON THE REVENUE TO SHOW THAT THE VALUE IS INCORRECT AND IT CANNOT BE DISCHARGED BY MERELY REFERRING TO A STATEMENT OF THE ASSESSEE TO A THIRD PARTY. HELD, THAT THE TRIBUNAL HAD CLEARLY HELD THAT THE VALUATI ON OF THE STOCK DECLARED TO THE BANK WAS IN FACT INFLATED AND THAT THE CORRE CT VALUATION OF THE STOCK WAS NOT SUPPRESSED FROM THE REVENUE. THE VALUATION BY THE ASSESSEE COULD NOT BE REJECTED. THE ASSESSEES CASE IS CLEARLY COVERED BY THE ABOVE MENTIONED FIVE DECISIONS BECAUSE THE AO HAS NOT BROUGHT ON RE CORD ANY OTHER EVIDENCE TO SHOW THAT ASSESSEE HAD IN FACT POSSESSE D THE HIGHER QUANTITY OF STOCK AS ON 31.03.2006 AND MERELY BE CO MPARISON TO THE STOCK DECLARED TO THE BANK, THE ADDITION CANNOT BE MADE. THE CASE LAW RELIED BY THE AO IN THE ASSESSMENT ORD ER IS DISCUSSED AS FOLLOWS: (I) COIMBATORE SPNG. & WVG. CO. LTD. VS. CIT, 95 ITR 37 5 (MAD.) : IN THE SAID CASE, AO HAD REJECTED BOOKS OF ACCOUNTS FO R VARIOUS REASONS AND HONBLE HIGH COURT HAS HELD THAT HEAVY BURDEN L IES ON THE ASSESSEE TO PROVE THAT THE BOOKS OF ACCOUNTS ALONE GIVE A CO RRECT PICTURE. IN THE CASE OF THE ASSESSEE, AO HAS NEITHER FOUND ANY PATE NT DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE NOR REJECTED THE BOOKS OF ACCOUNTS HAS BEEN UPHELD, WHEREAS, ASSESSEE HAS CLAIMED THAT STOCK DECLARED TO THE IT AUTHORITIES IS AS PER THE BOOKS OF ACCOUNTS, AUDITED BY A CHARTERED ACCOUNTANT. THEREFORE, THE ASSESSEE HAS DISCHARGED THE BURDEN TO 6 ITA NOS. 3647 & 3681/D/2009 PROVE THAT THE STOCK GIVEN TO THE IT AUTHORITIES IS AS PER THE BOOKS OF ACCOUNTS AND GIVES THE CORRECT PICTURE, THEREFORE, THIS CASE LAW IS NOT APPLICABLE TO FACTS OF THE CASE OF THE ASSESSEE. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AND ON T HE BASIS OF THE CASE LAWS, IT IS CLEAR THAT THE ADDITION ON ACCOUNT OF D IFFERENCE IN STOCK GIVEN TO THE BANK AND AS PER BOOKS MAY BE MADE WHEN IT IS CL EAR ON THE BASIS OF THE FACTS OF THE CASE THAT THE QUANTITY OF THE STOC K GIVEN TO THE BANK WAS HIGHER THAN THE QUANTITY AS PER THE BOOKS AND THE S TOCK WAS EITHER PLEDGED OR COUNTED AND VERIFIED BY THE BANK OFFICIA LS BUT IN A CASE WHERE DIFFERENCE IN THE QUANTITY OF STOCK DOES NOT EXIST AND THE STOCK IS NEITHER PLEDGED NOR VERIFIED BY THE BANK OFFICIALS THEN NO ADDITION CAN BE MADE. IN THE CASE OF THE ASSESSEE, THE STOCK IS NOT PLEDG ED BUT IT WAS MERELY HYPOTHECATED AND QUANTITATIVE DETAILS GIVEN TO THE BANK TALLIES WITH THE DETAILS FILED BEFORE THE INCOME TAX AUTHORITIES AND THE STOCK WAS NOT VERIFIED BY THE BANK OFFICIALS. AT THE SAME TIME, AO HAS NOT BEEN ABLE TO BROUGHT ON RECORD ANY EVIDENCE OR FACT TO SHOW THAT THERE WAS A DIFFERENCE IN THE QUANTITY OF THE STOCK GIVEN TO TH E BANK AND SHOWN IN THE BOOKS OF ACCOUNTS OR THE ASSESSEE POSSESSED A LARGE R QUANTITY OF STOCK THAN DECLARED TO THE INCOME TAX AUTHORITIES, THEREF ORE, THE ADDITIONS DESERVE TO BE DELETED ON THE BASIS OF FACTS AS WELL AS LAW, HENCE IT IS DELETED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF LD. CIT(A). THE LD. DR SUPPORTED THE F INDINGS OF AO WHILE THE LD. PARTNER OF THE ASSESSEE FIRM CONTENDED THAT TH ERE WAS NO DIFFERENCE IN QUANTITY OF STOCK SUBMITTED TO THE BANK VIS-A-VI S REFLECTED IN THE BOOKS OF ACCOUNT AND VALUATION OF THE STOCK SUBMITTED TO THE BANK WAS ESTIMATED .WHILE REFERRING TO THE DECISIONS RELIED ON BY THE LD. CIT(A) AS ALSO DECISIONS IN CIT VS. GENERAL METAL WORKS,172 I TR 172(ALL) & CIT VS. LAXMI ENGG. INDUSTRIES (2009) 308 ITR 279 (RAJ) , THE LD. PARTNER OF THE ASSESSEE FIRM SUPPORTED THE FINDINGS OF LD. CIT (A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE VALUED ITS STOCK IN THE BOOKS OF ACCOUNTS ON THE BASIS OF COST OR MARKET VALUE, WHIC HEVER IS LOWER AND THERE WAS NO DIFFERENCE IN THE QUANTITY OF STOCK SU BMITTED TO THE BANK VIS- A-VIS REFLECTED IN THE BOOKS OF ACCOUNT. AS POINTED OUT BY THE LD. CIT(A), THE ASSESSEE AVAILED CREDIT FACILITIES ON HYPOTHEC ATION OF ITS STOCK AND THE STOCK WAS NOT VERIFIED BY THE BANK OFFICIALS. T HE INCOME OF THE ASSESSEE IS TO BE ASSESSED BY THE AO ON THE BASIS O F THE MATERIAL 7 ITA NOS. 3647 & 3681/D/2009 REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF ASSESS MENT AND ORDINARILY, NOT ON THE BASIS OF THE STATEMENT WHICH THE ASSESSE E MAY HAVE GIVEN TO A THIRD PARTY, UNLESS THERE IS MATERIAL TO CORROBOR ATE THE SAID STATEMENT GIVEN TO A THIRD PARTY, BE IT A BANK. THE MERE FA CT THAT THE ASSESSEE HAD GIVEN SUCH A STATEMENT BY ITSELF CANNOT BE TREATED AS HAVING RESULTED IN AN IRREBUTTABLE PRESUMPTION AGAINST THE ASSESSEE. T HE BURDEN OF SHOWING THAT THE ASSESSEE HAD UNDISCLOSED INCOME IS ON THE REVENUE. THAT BURDEN CANNOT BE SAID TO BE DISCHARGED BY MERE LY REFERRING TO A STATEMENT GIVEN TO A THIRD PARTY AND MAKING THAT TH E SOLE FOUNDATION FOR A FINDING THAT THE ASSESSEE HAD DELIBERATELY SUPPRESS ED ITS INCOME. THE BURDEN IS ON THE REVENUE TO PROVE THAT THE INCOME S OUGHT TO BE TAXED IS WITHIN THE TAXING PROVISIONS AND THERE WAS IN FACT INCOME[ PARIMISETTI SEETHARAMAMMA V. CIT [1965] 57 ITR 532 (SC)] . THE QUESTION IS AS TO WHETHER THE LARGER STOCK DISCLOSED AND HYPOTHECATE D TO THE BANK, IS SUPPORTED BY ANY MATERIAL ON RECORD. IN THE INSTANT CASE, ADMITTEDLY THE STOCK STATEMENT SUBMITTED TO THE BANK WAS ON ESTIMA TE BASIS FOR AVAILING CASH CREDIT FACILITY EXTENDED BY THE BANK AGAINST H YPOTHECATION OF STOCK . THERE IS NO DIFFERENCE IN QUANTITY OF STOCK. IN THE SE CIRCUMSTANCES, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CI T(A) NOR ANY CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE, IN THE LIG HT OF VIEW TAKEN IN THE AFORESAID DECISION IN SIDDHU RICE & GENERAL MILLS(S UPRA) BY THE HONBLE JURISDICTIONAL HIGH COURT, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF LD. CIT(A). A SIMILAR VIEW WAS TAKEN BY THE HON BLE RAJASTHAN HIGH COURT IN THEIR DECISION IN LAXMI ENGG. INDUSTRIES(S UPRA). CONSEQUENTLY, GROUND NO. 1 IN THE APPEAL OF THE REVENUE IS DISMIS SED. 6. COMING NOW TO GROUND NO. 1 IN THE APPEAL OF THE ASSESSEE, THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THAT THE ASSESSEE ADVANCED AN AMOUNT OF ` 24.17 LAKH TO ITS PARTNER SHRI J.K. RAJPAL WITHOUT CHARGING ANY INTEREST. TO A QUERY B Y THE AO, THE ASSESSEE SUBMITTED THAT CAPITAL WAS INTRODUCED BY T HE PARTNERS ON INTEREST FREE BASIS. SINCE IN TERMS OF AGREEMENT WI TH THEIR SUPPLIERS, THEY HAVE TO MAKE PAYMENT AGAINST PURCHASES WITHIN 15 DA YS, ACCORDINGLY 8 ITA NOS. 3647 & 3681/D/2009 FUNDS WERE WITHDRAWN BY SH. J.K. RAJPAL FOR INVESTM ENT TO PROMOTE SISTER CONCERN OF THE ASSESSEE FIRM I.E. M/S AGRICULTURAL DISCS CORPORATION. WHILE RELYING UPON THE DECISION OF THE HONBLE APEX COURT IN S.A. BUILDERS LTD. VS. CIT, 288 ITR 1, THE ASSESSEE CONT ENDED THAT NO DISALLOWANCE SHOULD BE MADE ON ACCOUNT OF ADVANCE O N INTEREST FREE BASIS, AMOUNT HAVING BEEN ADVANCED FOR COMMERCIAL E XPEDIENCY OF THEIR SISTER CONCERN. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED INTEREST @ 12% AMOUNTING T O ` 2,90,040/- IN THE LIGHT OF THE DECISION OF THE HONBLE PUNJAB & H ARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES. 7. ON AN APPEAL, THE LD. CIT(A) REDUCED THE DISALLO WANCE TO RS. 1,54.766/- AS UNDER: - 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE. AS ON THE DATE OF 09.07.2004 BEFO RE PAYMENT TO THE PARTNER, ASSESSEE HAD ITS OWN DEPOSIT AND DEBIT BALANCE TO THE EXTENT OF RS. 11,60,284/- IN THE BANK ACCOUNT AND T HERE WAS NO OTHER LOAN AND AFTER PAYMENT OF RS. 24,50,000/- ON 09.07.2004, THE ASSESSEE OVERDREW TO THE EXTENT OF RS. 12,89,716/- ONLY FROM THE BANK. THEREFORE, IT IS CLEAR THAT ASSESSEE HAS MAD E INTEREST FREE ADVANCE TO THE EXTENT OF RS. 11,60,284/- FROM ITS O WN FUNDS AND TO THAT EXTENT THERE WAS NO LOAN EXISTING AND THEREFOR E, THE SAME IS NOT TO BE CONSIDERED FOR DISALLOWANCE OUT OF INTERE ST PAID. WHEREAS, THE BALANCE RS. 12,89,716/- HAVE BEEN CLEA RLY PAID OUT OF THE LOAN OVERDRAWN FROM THE BANK AND THEREFORE, PRO PORTIONATE INTEREST IS DISALLOWABLE OUT OF THE INTEREST PAID B Y THE ASSESSEE ON ACCOUNT OF INTEREST FREE ADVANCE OF RS. 12,89,716/- IN VIEW OF THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES VS. CIT, 286 ITR 1 (P&H) AND AC CORDINGLY, THE DISALLOWANCE TO THE EXTENT OF RS. 1,54,766/- IS CON FIRMED AND THE BALANCE IS DELETED. IN RESULT, THE GROUND OF APPEA L OF THE ASSESSEE IS PARTLY ALLOWED. 8. THE ASSESSEE IN NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LD. CIT(A). THE PARTNER OF THE ASSESSE E FIRM WHILE REFERRING TO THEIR WRITTEN SUBMISSIONS SUBMITTED THAT THE FIRM PAID AN AMOUNT OF ` 24,50,000/- TO THE PARTNER ON 09.07.04 AND THE SAID AMOUNT WAS RECEIVED ON TRANSFER FROM M/S KARNAL AGRICULTURAL I NDUSTRIES LTD. AS UNDER: - 1. CHEQUE NO. 506915 DATED 6.7.2004 AMOUNT ` 1000000/-. 9 ITA NOS. 3647 & 3681/D/2009 2. CHEQUE NO. 506916 DATED 8.7.2004 AMOUNT ` 1000000/-. 3. BALANCE OUT OF CAPITAL OF SH. JATINDER RAJPAL AN D INTEREST FREE FUNDS ARRANGED BY SH. JATINDER RAJPAL AMOUNTIN G ` 450000/-. 8.1 THE FIRM DID NOT PAY ANY INTEREST EXCEPT ON BORROWINGS IN TERMS OF CC LIMITS SANCTIONED BY PNB .SINCE THE DEBIT BALANC E AS ON 09.07.04 WAS REDUCED TO ` 12,89,716/- I.E. BELOW THE LIMIT OF RS. 15 LAKH SANCTIONED BY THE BANK., THE LD. CIT(A) WAS NOT JUS TIFIED IN UPHOLDING THE DISALLOWANCE TO THE EXTENT OF ` 154766/-, THE LD. PARTNER ADDED. 9. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FIN DINGS OF LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. A MERE GLANCE AT THE FINDINGS OF THE LD. CIT (A) AND COPY OF THE BANK STATEMENT PLACED ON PAGE 64 & 65 OF THE PAPER BOOK ,REVEALS THAT ON PAYMENT OF ` 24,50,000/- TO THE PARTNER SH. J.K. RAJPAL ON 09.0 7.04, THE BALANCE IN THE CC ACCOUNT REDUCED TO ` 12,89,716.21 (DEBIT) AS AGAINST CREDIT BALANCE OF ` 11,60,283.79 IMMEDIATELY BEFORE THE PAYMENT. INDISPUTABLY, THE ASSESSEE PAID INTEREST ON THE DEBIT BALANCE IN THE CC ACCOUNT. NOT A WHISPER HAS BEEN MADE BEFO RE US AS TO HOW THE FUNDS ADVANCED TO THE AFORESAID PARTNER SH. J.K . RAJPAL ON 09.07.04 FOR INVESTMENT IN M/S AGRICULTURAL DISCS CORPORATI ON, AS ALLEGED BEFORE THE AO, BENEFITTED THE ASSESSEE. IN THESE CIRCUMSTA NCES ,WHEN INTEREST FREE ADVANCE TO THE EXTENT OF ` 12,89,716.21 (24,50,000 - 11,60,283.79) WAS GIVEN TO THE PARTNER OUT OF BORROWINGS FROM TH E BANK AND DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE ADVANCE IS EVIDENT AND NOT EVEN A WHISPER HAS BEEN MADE BEFORE US AS TO HOW THE ADVANCE TO THE SAID PARTNER WAS COMMERCIALLY EXPED IENT FOR THE BUSINESS OF THE ASSESSEE FIRM WHILE THE ASSESSEE DI D NOT PLACE BEFORE US ANY MATERIAL , CONTROVERTING THE AFORESAID FINDING S OF FACTS RECORDED BY THE LD. CIT(A), WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO. 1 IN THE APPEAL OF THE ASSESSEE IS DISMISSED. 10 ITA NOS. 3647 & 3681/D/2009 11. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 2 IN THE APPEAL OF THE REVENUE AND RESIDUARY GROUND IN THE APPEAL OF THE ASSESSEE, ACCORDINGLY , THESE GROUNDS ARE DISMISSED. NO OTHER SUBMISSION OR PLEA WAS MADE BEF ORE US. 12. IN THE RESULT, BOTH THESE APPEALS ARE DISMISSED . ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (I.P. BANSAL) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: *KAVITA COPY FORWARDED TO: - 1. M/SAGRICULTURAL TRACTOR CORPORATION,KUNJPURA R OAD,KARNAL. 2. ITO WARD-2,KARNAL 3. CIT CONCERNED 4. CIT(A)-KARNAL 5. DR, ITATA BENCH, NEW DELHI 6. GUARD FILE. TRUE COPY BY ORDER, DEPUTY/ASSISTANT REGISTRAR, ITAT,NEW DELHI