DCIT, Chandigarh V. M/s Loil Health Foods Ltd., Chandigarh

ITA 370/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95552 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK NADIA
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Unexplained cash credit; Business expenditure; Valuation report; Notional interest
• Section: 68; 145; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 370/CHD/2013 ASSESSMENT YEAR: 2006-07 DCIT, V M/S LOIL HEALTH FOODS LTD., CENTRAL CIRCLE-I, SCO 18-19, CHANDIGARH. SECTOR 9-D, CHANDIGARH. PAN: AAACL8432C & ITA NO. 373/CHD/2013 ASSESSMENT YEAR: 2005-06 M/S LOIL HEALTH FOODS LTD., V THE ITO, SCO 18-19, WARD 4(4), SECTOR 9-D, NEW DELHI. CHANDIGARH. PAN: AAACL8432C (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI VIVEK NADIA ASSESSEE BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 02.09.2015 DATE OF PRONOUNCEMENT : 16.09.2015 O R D E R PER BHAVNESH SAINI,JM BOTH THE CROSS APPEALS BY DEPARTMENT AND ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS) CENTRAL, GURGAON DATED 23.01.2013 FOR ASSESSMENT YEAR 2006-0 7 AND 2005-06. 2 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL ON RECORD. BOTH THE APPEA LS ARE DECIDED AS UNDER. DEPARTMENTAL APPEAL : (ASSTT. YEAR 2006-07) 3. IN THE DEPARTMENTAL APPEAL, ON GROUND NOS. 1 & 2 , REVENUE CHALLENGED THE DELETION OF ADDITION OF INTE REST EXPENSES OF RS. 37,79,639/- AND STORAGE CHARGES OF RS. 14,59,436/- 4. THE LD. CIT(APPEALS) NOTED IN THE IMPUGNED ORDER THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 47,35,034/- AND STORAGE CHARGES OF RS. 18,30,566/- DURING THE YEAR. THE ASSESSEE FILED DETAILED WORKI NG OF INTEREST AND STORAGE CHARGES AND IT WAS NOTED THAT THE ASSESSEE HAD BEEN AWARDED A TENDER BY PSWC ( PUNJAB STATE WAREHOUSING CORPORATION) FOR SALE OF PADDY ON 29.04.2004. THE ASSESSEE WAS REQUIRED TO PAY THE S ALE AMOUNT AND LIFT PADDY FAILING WHICH IT HAD TO PAY S TORAGE CHARGES AND INTEREST CHARGES TO PSWC. THE ASSESSEE WAS GIVEN WAIVER OF STORAGE CHARGES TILL 28.06.2004 AND WAIVER OF INTEREST TILL 13.06.2004. LATER THE ASSESSEE MA DE THE PAYMENTS AND LIFTED THE COMMODITY. IT STARTED MAKI NG PAYMENTS AND LIFTING THE PADDY IN OCTOBER,2004 AND CONTINUED TILL AUGUST,2005. IT WAS NOTED THAT THE PADDY LOT NO. 12 TO 15 COMPRISING OF TOTAL 9250.90 QTLS. WERE PAID FOR, AS WELL AS LIFTED IN FINANCIAL YEAR 2004- 05. PAYMENT FOR THESE LOTS OF PADDY AMOUNTING TO RS. 2. 08 3 CRORES WAS ALSO MADE IN FINANCIAL YEAR 2004-05. HO WEVER, THE INTEREST FOR LATE PAYMENT AND STORAGE CHARGES F OR THESE LOTS WERE PAID IN CURRENT YEAR AND HAS BEEN CHARGED TO PROFIT & LOSS ACCOUNT OF THE CURRENT YEAR I.E. FINA NCIAL YEAR 2005-06. IT WAS, THEREFORE, NOTED THAT THESE EXPENSES PERTAIN TO LAST YEAR AND SHOULD NOT BE ALL OWED THIS YEAR. ON THE ISSUE OF PRIOR PERIOD EXPENSES, THE ASSESSING OFFICER MADE DETAILED WORKING OF THE INTE REST FOR LATE PAYMENT AND STORAGE CHARGES ACCORDING TO NUMBE R OF DAYS OF DELAY IN PAYMENT AND FOR LIFTING OF THE PAD DY. AS PER THIS WORKING, INTEREST ON DAYS OF DELAY IN FINA NCIAL YEAR 2005-06 I.E. FOR THE PERIOD 01.04.2005 TO THE DATE OF PAYMENT AMOUNTS TO RS.10,55,394/- AND SIMILARLY STO RAGE CHARGES PAID FOR NUMBER OF DAYS PERTAINING TO FINAN CIAL YEAR 2005-06 AMOUNTS TO ONLY RS. 4,01,130/-. HENCE , AMOUNT OF RS.14,29,436/- WAS DISALLOWED OUT OF STOR AGE CHARGES CLAIMED BY THE ASSESSEE. SIMILARLY, INTERE ST AMOUNTING TO RS. 36,79,639/- PERTAINING TO LAST YEA R WAS DISALLOWED AS PRIOR PERIOD EXPENSES. 5. THE ADDITIONS WERE CHALLENGED BEFORE LD. CIT(APPEALS). THE SUBMISSIONS OF THE ASSESSEE WERE REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSE SSEE BRIEFLY EXPLAINED THAT THE ASSESSEE COMPANY HAD PARTICIPATED IN A TENDER FLOATED BY PSWC FOR PURCHA SE OF ABOUT 2 LACS QUINTALS OF PADDY. THE ENTIRE PADDY W AS TO BE LIFTED AFTER COMPLYING THE TERMS OF THE PAYMENT AS LAID DOWN IN THE TENDER. THE PURCHASE OF PADDY FINALLY 4 COMPLETED ON 06.08.2005 WHEN THE FINAL AND REMAININ G QUANTITY OF PADDY WAS LIFTED IN STAGES AFTER MAKING PAYMENTS. THE AMOUNTS IN QUESTION TOWARDS STORAGE CHARGES AND INTEREST WERE DETERMINED PAYABLE BY THE ASSESSEE COMPANY DURING FINANCIAL YEAR UNDER CONSIDERATION. A CERTIFICATE ISSUED IN THIS REGARD BY PSWC WAS FILED BEFORE ASSESSING OFFICER. APART THIS CER TIFICATE, WORKING OF INTEREST AND STORAGE CHARGES WAS ALSO FI LED BEFORE ASSESSING OFFICER. SINCE THE LIABILITY DETE RMINED IN ASSESSMENT YEAR UNDER APPEAL BUT THE ASSESSING OFFI CER HAS GIVEN HIS OWN WORKING IN THE ASSESSMENT ORDER O N THE BASIS OF PADDY LOTS LIFTED DURING FINANCIAL YEAR 20 04-05. SINCE LIFTING OF PADDY LOTS WERE COMPLETED ON 06.08 .2005 AND ACCOUNTS WERE SETTLED IN FINANCIAL YEAR 2005-06 I.E. ASSESSMENT YEAR UNDER APPEAL 2006-07, THEREFORE, ASSESSEE RIGHTLY CLAIMED THE SAME AS EXPENDITURE. THE LIABILITY FOR AMOUNT WAS CRYSTALLIZED DURING ASSESS MENT YEAR 2006-07 WHICH WAS EVIDENT FROM THE FOLLOWING : I) THE ASSESSEE COMPANY WAS CONTINUOUSLY REQUESTING PSWC REGARDING WAIVER OF INTEREST AND STORAGE CHARGES AND WAS HOPEFUL FOR GETTING THE SIMILAR WAIVER WHICH WAS ALREADY GRANTED ON 01.07.2004 FOR THE SAME PADDY CROP IN THE YEAR 2000-01. COPY OF LETTER WAS FILED. II) FURTHER, PSWC ALSO REDUCED THE RATE OF INTEREST FROM 21% TO 12% AND STORAGE CHARGES FROM 0.09 PAISE 5 PER DAY/PER STANDARD BAG TO 0.03 PAISE VIDE LETTER DATED 18.02.2005 FOR THE PADDY CROP YEAR 2000-01. III) THE LIABILITY CRYSTALLIZED ONLY WHEN THE FINA L AGREEMENT REACHED WITH PSWC IN FINANCIAL YEAR 2005- 06. THE LAST RO WAS RELEASED ON DATED 30.11.2005. VI) DETAILS WERE FILED FOR THE PERIOD/DATE TO LIFT THE PADDY WAS EXTENDED BY PSWC 7 TIMES. THE FINAL EXTENSION BEING 25.07.2005. V) ACCOUNTS WERE SETTLED ON 15.07.2005 WHEN THE LIABILITY TOWARDS INTEREST AND STORAGE CHARGES WERE DETERMINED BY PSWC, THEREFORE, ENTIRE LIABILITY WAS ALLOWABLE IN ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE RELIED UPON DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF ASHOK IRON & STEEL ROLLING MIL LS 199 ITR 815 AND DECISION OF GUJRAT HIGH COURT IN TH E CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES 213 ITR 525. IT WAS ALSO SUBMITTED THAT CLAIMING O F THIS EXPENDITURE IN EARLIER YEAR ALSO WOULD NOT HAV E AFFECTED THE PROFITABILITY IN ANY WAY. HAD THIS AMOUNT BEEN DEBITED TO THE TRADING ACCOUNT OF EARLI ER YEAR, SAME WOULD HAVE BEEN ADDED TO THE CLOSING STOCK OF PADDY OF THE EARLIER YEAR AND THEREBY THE CORRESPONDING INCREASE IN THE VALUATION OF THE PADD Y OF THE CURRENT FINANCIAL YEAR, IT WOULD AMOUNT TO DOUBLE TAXATION. THE LD. CIT(APPEALS) CONSIDERING 6 MATERIAL ON RECORD, DELETED THE ADDITION. HIS FINDINGS IN PARA 5.3 ARE REPRODUCED AS UNDER : 5.3. I HAVE CAREFULLY CONSIDERED THE ASSESSEE'S SUB MISSIONS AND THE IMPUGNED ORDER. IT: IS THE ASSESSEE'S CASE THAT THE LIABILITY HAD NOT CRYSTALLISED EARLIER AND AS EVIDE NCE GAVE A CERTIFICATE FROM PUNJAB STATE WAREHOUSING CORPORATI ON (PSWC) ALONGWITH WORKING OF THE INTEREST AND STORAGE CHARG ES. ON THE OTHER HAND, THE AO HAS BIFURCATED THESE EXPENDITURE TO AY 2005-06 AND AY 2006-07. SO THE ISSUE IS WHEN CAN IT BE SAID THAT THE LIABILITIES HAVE CRYSTALLISED. IT IS NOT I N DISPUTE THAT THE FINAL LIFTING OF THE PADDY WAS COMPLETED DURING THE RELEVANT AY AND THE ACCOUNT ALSO GOT SETTLED THEN AFTER SEVE RAL CORRESPONDENCES BETWEEN THE ASSESSEE AND PSWC WHERE BY SOME WAIVERS WERE GRANTED TO THE ASSESSEE. A CERTIF ICATE OF RECEIPT OF RS. 47,35,034/- TOWARDS INTEREST AND RS. 18,30,566/- TOWARDS STORAGE CHARGES DURING FY 2005-06 ISSUED BY PWSC HAS BEEN PLACED AT PB 4.1. THE AUTHENTICITY OF THIS CERTIFICATE HAS NOT BEEN CHALLENGED. NO DOUBT AS EVIDENT FROM T HE WORKING OF THE INTEREST AND STORAGE CHARGES, THE IN CURRING OF THE LIABILITIES HAVE BEEN DETERMINED WITH REASONABLE CE RTAINTY, BUT IT CANNOT BE SAID THAT THE ACTUALS HAVE BEEN QUANTI FIED CORRECTLY AS EXTENSION OF INTEREST AS WELL AS STORA GE WAIVERS HAVE BEEN GIVEN BY THE PSWC. IN OTHER WORDS, IT CAN BE SAFELY SAID THAT THE LIABILITY GOT CRYSTALLISED DURING AY 2006-07 WHEN THE DUES HAVE BEEN SQUARED UP. THUS, I FIND THE CON TENTION OF THE ASSESSEE AS PUT FORTH DESERVES TO BE ACCEPTED. CONSEQUENTLY, THE ASSESSEE SUCCEEDS ON THIS GROUND OF APPEAL. 5. WE HAVE HEARD BOTH PARTIES. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVE NUE. ALL THE CORRESPONDENCE AND LETTERS ADDRESSED BY THE ASS ESSEE TO PSWC AND LETTERS ISSUED BY PSWC ARE FILED IN THE PAPER BOOK (PB-54 TO 71). THIS WOULD STRENGTHEN THE FINDI NGS OF 7 THE LD. CIT(APPEALS) THAT LIABILITY HAS BEEN CRYSTA LLIZED IN ASSESSMENT YEAR UNDER APPEAL. IT WAS FOUND THAT TH ERE WAS NO DISPUTE THAT THE FINAL LIFTING OF THE PADDY WAS COMPLETED DURING ASSESSMENT YEAR UNDER APPEAL AND WAIVER WAS ALSO GRANTED TO THE ASSESSEE. THE AUTHE NTICITY OF THE CERTIFICATE ISSUED BY PSWC IS NOT IN DISPUTE . SINCE THE LIABILITY HAS BEEN DETERMINED IN ASSESSMENT YEA R UNDER APPEAL, THEREFORE, LD. CIT(APPEALS) WAS JUSTI FIED IN DELETING THE ADDITIONS. THE HON'BLE DELHI HIGH COU RT IN THE CASE OF CIT VS KUNDAN SUGAR MILLS CO. LTD. 170 CTR 532 HELD THAT, LIABILITY RELATING TO EARLIER YEARS LIABILITY SETTLED AFTER A DISPUTE AS PER ORDERS OF THE STATE GOVERNMENT PASSED AFTER DISSOLUTION OF THE ASSESSEE FIRM- DEDUCTION ALLOWABLE. 7. THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES LTD. VS CI T 213 ITR 523 HELD, BUSINESS EXPENDITURE YEAR OF ALLOWABILITY MERCANTILE SYSTEM OF ACCOUNTING LI ABILITIES ALLOWABLE ONLY IN THE YEAR IN WHICH IT WAS CRYSTALL IZED AND DETERMINED. IT CANNOT BE DISALLOWED MERELY BECAUSE IT RELATED TO EARLIER PREVIOUS YEAR. 8. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE IN THE LIGHT OF THE MATERIAL ON RECORD, WE DO NOT F IND ANY ERROR IN THE ORDER OF THE LD. CIT(APPEALS) IN DELET ING BOTH THE ADDITIONS. WE, THEREFORE, DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 8 9. ON GROUND NO. 3, REVENUE CHALLENGED THE ORDER OF LD. CIT(APPEALS) IN DELETING THE ADDITION IN INTEREST E XPENSES OF RS. 7,63,187/-. IT IS NOTED IN THE IMPUGNED ORD ER THAT ASSESSING OFFICER HELD THAT INTEREST EXPENSES WAS N OT INCURRED FOR BUSINESS. IT WAS NOTED FROM THE DETAI LS FURNISHED BY THE ASSESSEE THAT DEBIT BALANCE OF RS. 1,81,35,619/- WAS OUTSTANDING IN THE NAME OF M/S LO IL CONTINENTAL FOODS LTD. AS ON 31.03.2005 AS WELL AS ON 31.03.2006 IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THERE HAS BEEN NO TRANSACTION IN THIS ACCOUNT DURING THE FINANCIAL YEAR 2005-06. IT WAS, THEREFORE, NOTED TH AT THIS AMOUNT WAS RECEIVABLE FROM THE GROUP COMPANY. A DELIBERATE INTEREST FREE ADVANCE, WHEREAS, ASSESSEE WAS TO PAY SUBSTANTIAL RATE OF INTEREST @ 12% TO PSWC BECA USE OF LATE PAYMENT OF DUES FOR PURCHASE OF PADDY. THE AS SESSEE HAD OUTSTANDING RECOVERABLE OF RS. 1.81 CR FROM ITS GROUP COMPANY ON ACCOUNT OF SALES MADE IN EARLIER YEARS. NO EFFORTS HAVE BEEN MADE TO COLLECT THIS AMOUNT. IT WAS, THUS, HELD THAT ASSESSEE DID NOT INCUR ANY INTEREST EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. INTEREST CALCULATED ON INTEREST FREE ADV ANCE AMOUNT OF RS.1.81 CR FOR THE PERIOD 01.04.2005 TO 06.08.2005 I.E. DATE OF PAYMENT OUTSTANDING DUES TO PSWC @ 12% P.A. AMOUNTS TO AT RS. 7,63,187/- WHICH WAS DISALLOWED. 10. THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRO DUCED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFL Y 9 EXPLAINED THAT DEBIT BALANCE AROSE ON ACCOUNT OF SA LES MADE TO THE SAID COMPANY IN EARLIER YEARS AND THIS BEING BUSINESS ADVANCE, NO DISALLOWANCE OF INTEREST IS CA LLED FOR. THE FINDINGS OF THE ASSESSING OFFICER ARE BAS ED ON MERE SURMISES AND CONJECTURES. THE INTEREST WAS PA ID TO PSWC ON ACCOUNT OF DELAY IN LIFTING THE PADDY LOTS AND FOR USING THE WAREHOUSING FACILITIES. THIS INTEREST PA YMENT HAS NOTHING TO DO WITH THE DEBIT BALANCE OUTSTANDIN G IN THE ACCOUNT OF M/S LOIL CONTINENTAL FOODS LTD. WHIC H AROSE ON ACCOUNT OF SALES MADE TO THIS COMPANY IN E ARLIER YEARS. THE ENTIRE AMOUNT HAS BEEN RECEIVED IN MARC H, 2007. THE INTEREST AND STORAGE CHARGES PAID TO PSW C WERE NOT FOR THE REASONS OF NON AVAILABILITY OR PRO PER STORAGE SPACE WITH THE COMPANY. IF THE ASSESSEE HA D LIFTED THE STOCKS FROM THE GODOWNS OF PSWC, THE SAM E WERE REQUIRED TO STORE AT SOME OTHER PLACE AND ALS O THE STORAGE CHARGES WERE REQUIRED TO BE PAID. FURTHER, ADDITIONAL COST ON ACCOUNT OF TRANSPORTATION, LOADI NG AND UNLOADING WOULD HAVE ALSO BURDEN THE ASSESSEE. IT WOULD HAVE RESULTED LOSS TO THE ASSESSEE. IT WAS, THEREF ORE, ESTABLISHED THAT PAYMENT OF INTEREST TO PSWC WAS FO R COMMERCIAL AND BUSINESS PURPOSES. THE ASSESSEE COMPANY DID NOT HAVE ANY CASH CREDIT FACILITY OR TE RM LOAN FACILITY FROM ANY BANK OR INSTITUTION AND HAS NOT C LAIMED INTEREST AS EXPENDITURE. IT WAS, THEREFORE, SUBMIT TED THAT ADDITION WAS UNJUSTIFIED. THE ASSESSEE HAS SUFFICI ENT FUNDS INTEREST FREE. THEREFORE, ADDITION MAY BE DE LETED. 10 11. THE LD. CIT(APPEALS) CONSIDERING SUBMISSIONS OF THE ASSESSEE, FOUND THAT THE AMOUNT FROM SISTER CONCERN WAS RECEIVABLE ON ACCOUNT OF SALE TRANSACTIONS. ON THE OTHER HAND, THE AMOUNT PAID TO PSWC PERTAIN TO LIFTING OF THE PADDY LOTS AND USING WAREHOUSING FACILITIES. THERE FORE, BOTH THE AMOUNTS PERTAIN TO BUSINESS EXIGENCIES. THEREFORE, ADDITION ON ACCOUNT OF NOTIONAL INTEREST WOULD NOT STAND. THE LD. CIT(APPEALS), ACCORDINGLY DELET ED THE ADDITION. 12. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVE NUE. THE ASSESSEE WAS TO RECOVER THE AMOUNT FROM SISTER CONCERN ON ACCOUNT OF SALES MADE TO THIS PARTY WHIC H HAS NO CONNECTION WHAT-SO-EVER WITH THE INTEREST AND ST ORAGE PAID TO PSWC FOR LIFTING OF THE PADDY. SINCE FOR L IFTING OF THE PADDY, ASSESSEE USED STORAGE FACILITY OF PSWC, THEREFORE, AMOUNT WAS SPENT FOR THE PURPOSE OF BUSI NESS ONLY. FURTHER, ASSESSEE HAS NOT CLAIMED ANY INTERE ST EXPENDITURE IN ASSESSMENT YEAR UNDER APPEAL. THERE FORE, ADDITION MADE BY THE ASSESSING OFFICER WAS WHOLLY UNJUSTIFIED. THE LD. CIT(APPEALS), ON PROPER APPRE CIATION OF THE FACTS AND MATERIAL ON RECORD CORRECTLY DELET ED THE ADDITION AND THIS GROUND OF APPEAL OF THE REVENUE I S ACCORDINGLY, DISMISSED. 13. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . ASSESSEE'S APPEAL : (ASSTT. YEAR 2005-06) 11 14. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS. 1, 4 & 5 OF THE APPEAL OF THE ASSESSEE. THE S AME ARE ACCORDINGLY, DISMISSED AS NOT PRESSED. 15. GROUND NOS. 6 AND 7 ARE GENERAL AND NEED NO ADJUDICATION. 16. ON GROUND NO.2, ASSESSEE CHALLENGED THE ADDITIO N OF RS. 55,21,394/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE ASSESSING OFFICER DISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER. FROM THE QUANTITATIVE DETAILS OF CLOSING STOCK AS FILED IN THE TAX AUDIT REPORT, IT WAS SEEN THAT NO SALE IN RESPECT OF TWO COMMODITIES I.E. COTTON SEED OIL AND MUSTERED SEED OIL WAS DONE DURING THE PREVIOUS YEAR . THE ASSESSEE FURNISHED COMPLETE QUANTITATIVE AND AMOUNT -WISE DETAILS OF TRANSACTION WITH GROUP COMPANIES, FROM W HERE IT WAS SEEN THAT THE PURCHASE OF COTTON SEED AND MUSTE RED SEED OIL WAS SHOWN FROM M/S LAXMI OVERSEAS INDUSTRI ES LTD., A GROUP COMPANY. THE DETAILS OF PURCHASES FI LED BY THE ASSESSEE SEEN IN CONJUNCTION WITH THE DATA GIVE N IN THE TAX AUDIT REPORT INDICATING THAT THE ASSESSEE H AD PURCHASED COTTON SEED OIL AT THE AVERAGE PRICE OF R S. 24,000/- PER MT AND MUSTERED SEED OIL AT AVERAGE PR ICE OF RS. 23,500/- PER TON. BUT WHILE VALUING CLOSING ST OCK, THE ASSESSEE HAD VALUED COTTON SEED OIL @ RS. 8000/- PE R MT AND MUSTERED SEED OIL @ RS. 9000/- PER MT. IN OTHE R WORDS, THE VALUATION OF THE CLOSING STOCK WAS APPROXIMATELY 1/3 RD OF THE PURCHASE PRICE. THESE TWO COMMODITIES PURCHASED FOR RS. 88.3 LACS DURING THE 12 PREVIOUS YEAR HAS BEEN VALUED IN THE CLOSING STOCK AT RS. 33.09 LACS. THE ASSESSEE WAS ASKED TO GIVE BASIS O F VALUATION IN THE CLOSING STOCK ALONGWITH EVIDENCE O F BILLS ETC. THE ASSESSING OFFICER DID NOT ACCEPT EXPLANAT ION OF THE ASSESSEE BECAUSE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF THE CLAIM THAT THE STOCK OF THE GOODS HAD INDEED DETERIORATED/SPOILED, NO TECHNICAL REASON EXPLAINED BY ASSESSEE, ABNORMAL FALL IN VALU ATION STOCK NOT DISCLOSED IN THE BALANCE SHEET AND ASSESS EE HAS NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF THE CLAIM. THE ASSESSING OFFICER, ACCORDINGLY, MADE ADDITION OF RS . 55,21,392/-. 17. THE ASSESSEE CHALLENGED THE ADDITION BEFORE L D. CIT(APPEALS) AND WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSE SSEE BRIEFLY EXPLAINED THAT DUE TO DETERIORATION IN THE QUALITY, THESE TWO COMMODITIES COULD NOT BE SOLD AND SAME W ERE VALUED AT THE NET REALIZABLE VALUE AS ON 31.03.2005 . THE NET REALIZABLE VALUE CONDUCTED BY ASSESSEE WAS REJE CTED BY ASSESSING OFFICER WITHOUT REASONS. THESE TWO COMMO DITIES WERE STATED TO HAVE BEEN ORIGINALLY PURCHASED FOR U SING AS EDIBLE OIL BUT AT THE TIME OF VALUATION OF THE CLOS ING STOCK ON 31.03.2005. THEY BECAME NON-EDIBLE WHICH RESULT ED IN THEIR VALUATION AT THE MARKET PRICE OF NON-EDIBLE O IL. THE CLOSING STOCK OF COTTON SEED OIL AND MUSTERED SEED OIL WERE SOLD IN MARCH,2007 I.E. ASSESSMENT YEAR 2007-08 AND AN AMOUNT OF RS. 36,67,562/- WAS REALIZED WHICH WAS DU LY 13 ACCOUNTED FOR IN THE BALANCE SHEET FOR ASSESSMENT Y EAR 2007-08. THE VALUATION WAS BASED ON THE VALUATION REPORT OF AN INDEPENDENT EXPORT OF PUBLIC LIMITED COMPANY MR. HARBHAJAN ARRIVED AT ON A SCIENTIFIC BASIS. IT WAS SUBMITTED TO THE ASSESSING OFFICER THAT THERE ARE T ECHNICAL REASONS FOR REDUCING THE VALUATION OF THE CLOSING S TOCK BECAUSE WHEN THE COMMODITY COULD NOT BE SOLD FOR AB OUT A YEAR, IT WAS NOT AN ABNORMAL FACT AS TO REPORT IN T HE BALANCE SHEET AS PER ACCOUNTING STANDARDS AND THAT SUCH PHENOMENON WAS ROUTINE IN SUCH LINE OF BUSINESS. T HE REJECTION OF THE CLOSING STOCK WAS REFLECTED IN THE BALANCE SHEET FILED FOR ASSESSMENT YEAR UNDER APPEAL. THE BILLS AS ASKED FOR WERE PRODUCED BEFORE ASSESSING OFFICER. SALES OF THESE MATERIALS WERE NOT MADE TO SISTER CONCERNS . THE METHOD OF VALUATION REGULARLY FOLLOWED WAS COST FOR RAW MATERIALS AND COST OR NET REALIZABLE VALUE FOR FINI SHED GOODS AND ASSESSEE RELIED UPON CERTAIN DECISIONS IN SUPPORT OF THE SAME. 18. THE LD. CIT(APPEALS), AFTER CONSIDERING THE SUBMISSION OF ASSESSEE DID NOT ACCEPT CONTENTION OF THE ASSESSEE BECAUSE NO DOCUMENTARY EVIDENCE WAS FILED IN SUPPORT OF THE CONTENTION AND THAT REPORT OF THE EX PERT WAS NOT ACCEPTED BECAUSE IT WAS HAND WRITTEN WITHOU T ANY REFERENCE TO PARTICULARS OR STAMP OR SEAL OR ACKNOWLEDGEMENT. THEREFORE, NO CREDENCE WAS GIVEN TO SUCH REPORT. NO BILLS OF THE SALES WERE FURNISHED BEFORE 14 ASSESSING OFFICER. THE LD. CIT(APPEALS), ACCORDING LY, DISMISSED THE APPEAL OF THE ASSESSEE. 19. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THAT THE SAID PURCHASES WERE MADE IN JANUARY,2005 AND THE SAME ARE PERISHABLE ITEMS. TH ESE ITEMS GET DAMAGED SOON IF THEY ARE KEPT IN OPEN AIR OR THERE IS SOME LEAKAGE IN THE CONTAINER OR IF THE CO NTAINER IS NOT PROPERLY SEALED AND DUE TO THE OXYGEN RANCI DITY GOES HIGH DUE TO WHICH IT LOOSES SMELL/ODOUR AND BE COME UNFIT FOR HUMAN CONSUMPTION AND CAN BE SOLD ONLY F OR MAKING SOAP, WAX ETC. COPY OF COMMODITY STORAGE MA NUAL PUBLISHED BY WORLD FOOD LOGISTICS ORGANIZATION HAS BEEN FILED AT PAGES 63 TO 71 OF THE PAPER BOOK WHICH EXP LAINED THE NATURE OF RANCIDITY OF COOKING OILS. HE HAS SUB MITTED THAT SAME QUANTITATIVE STOCK AS PURCHASED WAS REFLE CTED IN THE CLOSING STOCK AND WAS PART OF THE BALANCE SH EET. COPY OF THE SAME IS ALSO FILED IN THE PAPER BOOK WH ICH WAS NOT SOLD DURING THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE HAS BEEN FOLLOWING CONSISTENT METHOD OF ACCOUNTING FOR THE PURPOSE OF VALUATION OF THE STOC K AND THERE HAS BEEN NO CHANGE IN THE SYSTEM OF VALUATION . COPY OF THE TAX AUDIT REPORT IS FILED AT PAGE 4 OF THE PAPER BOOK IN WHICH METHOD OF VALUATION OF CLOSING STOCK IN RESPECT OF FINISHED GOODS IS AT COST OR NET REA LIZABLE VALUE THE SAME METHOD WAS FOLLOWED IN ASSESSMENT YEAR UNDER APPEAL AS WELL. THERE IS NO DISPUTE THAT ASS ESSEE IS 15 MAINTAINING QUANTITATIVE TALLY (PB-11) IN WHICH NO DEFECTS HAVE BEEN POINTED OUT BY THE ASSESSING OFFICER. AL L THE PURCHASE AND SALES ARE VOUCHED AND NO DEFECTS IN TH E SAME BOOKS OF ACCOUNT HAVE BEEN POINTED OUT. THE B OOKS OF ACCOUNT HAVE NOT BEEN REJECTED UNDER SECTION 145 (3). 19(I) THE ASSESSEE SUBMITTED LAB REPORT WHICH I S DULY CERTIFIED BY THE QUALIFIED TECHNICIAN FROM WHICH IT IS CLEAR THAT SINCE RANCIDITY HAD GONE VERY HIGH, THEREFORE, THE COMMODITY BECOME UNFIT FOR HUMAN CONSUMPTION (PB 24 - 25) EVERYTHING WAS DISCLOSED IN THE TAX AUDIT REPOR T. SINCE IT WAS PERISHABLE ITEM, THEREFORE, THE NATURE OF COMMODITY SHOULD BE CONSIDERED BY THE AUTHORITIES B ELOW. THERE IS NOTHING AFTER THOUGHT BECAUSE VALUE OF THE STOCK WAS PREPARED AS ON 31.03.2005. THE DISTRESS SALE O F THE COMMODITY WAS MADE IN MARCH, 2007 AFTER PERSISTENT EFFORTS AS PER SAMPLE COPIES OF THE BILLS FILED AT PAGES 19 TO 23 OF THE PAPER BOOK ON WHICH NO QUERIES HAVE BE EN RAISED BY THE ASSESSING OFFICER. THE FINDINGS OF T HE ASSESSING OFFICER ARE INCORRECT THAT SALES WERE MAD E TO ASSIST CONCERN AND NO EVIDENCE OF SALE OF DAMAGED S TOCKS WAS FILED. THE COPIES OF THE BILLS SHOW THAT NO SA LES HAVE BEEN MADE TO THE SISTER CONCERN. QUANTITATIVE TALL Y OF STOCK HAVE ALSO BEEN FILED. THE CONTENTION OF THE ASSESSEE IS SUPPORTED BY LAB REPORT AND SALES MADE IN SUBSEQ UENT YEAR WHICH IS SHOWN IN THE BOOKS OF ACCOUNT AND ACC EPTED BY ASSESSING OFFICER IN ASSESSMENT YEAR 2007-08 IN ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 16 COPY OF THE ORDER IS FILED AT PAGE 72 OF THE PAPER BOOK. HE HAS FURTHER SUBMITTED THAT ALTERNATIVELY, NO ADDITI ON WAS LIABLE TO BE MADE SINCE DESPITE MAKING THE HUGE ADD ITION ON ACCOUNT OF VALUATION OF THE STOCK AS ON 31.03.20 05, NO BENEFIT OF CORRESPONDING INCREASE IN THE COST HAS B EEN GIVEN IN THE SUCCEEDING ASSESSMENT YEAR. HE HAS RE LIED UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF CIT V FAZILKA COOPERATIVE SUG AR MILLS LTD. 255 ITR 411 IN WHICH IT WAS HELD AS UNDE R : A PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL SHOW S THAT THE ASSESSEE HAD FOLLOWED A CONSISTENT PRACTICE OF FIXING THE VA LUE OF THE STOCK ON THE BASIS OF THE AVERAGE PRICE FOR THE ASSESSMENT YEAR. THIS PRACTICE HAD BEEN ACCEPTED BY THE REVENUE. IT HAS BEEN FURTHER FOUND THAT DESPITE HAVING MADE AN ADDITION OF MORE THAN RS. 7,00,000 IN THE V ALUE OF THE STOCK IN HAND, NO CORRESPONDING BENEFIT WAS GIVEN BY THE REV ENUE TO THE ASSESSEE FOR THE ASST. YR. 1992-93. THIS FACTUAL POSITION HA S NOT BEEN DISPUTED. HOWEVER, IT HAS BEEN CONTENDED THAT THE ASSESSEE HA VING NOT CLAIMED THE BENEFIT, IT WAS NOT ENTITLED TO MAKE A GRIEVANCE ON THAT ACCOUNT. THE PLEA IS UNTENABLE. IF THE ASSESSEE HAD CLAIMED THE BENEFIT, THE REVENUE WOULD HAVE CONTENDED BEFORE THE TRIBUNAL THAT THE ASSESSEE HAS ACCEPTED THE ADDITION. OTHERWISE, THE REVENUE DOES NOT GIVE THE BENEFIT. S O, IT WANTS THE BEST OF BOTH THE SIDES. STILL FURTHER, IT APPEARS THAT THE REVENUE IS ONLY TRYING TO FIDDLE WITH THE FIGURES. IN FACT, THE ADDITION TO T HE VALUE OF THE STOCK IN HAND HAS NOT RESULTED IN ANY LOSS TO THE REVENUE. T HE VALUE WHICH HAS BEEN SHOWN BY THE ASSESSEE HAS BEEN CARRIED FORWARD TO T HE NEXT YEAR. THUS, THERE IS NO LOSS OF TAX SO FAR AS THE REVENUE IS CO NCERNED. IN ANY CASE, THE ULTIMATE POSITION IS THAT THE ASSESSEE HAS SUFFERED LOSS. THE ASSESSEE COULD HAVE CLAIMED THE VALUATION OF THE STOCK ON THE BASI S OF ITS COST. IT HAS NOT BEEN SHOWN THAT THE VALUATION SHOWN BY THE ASSESSEE IS LESS THAN THE COST PRICE. THAT BEING SO, THERE IS NO INFIRMITY IN THE VIEW TAKEN BY THE TRIBUNAL. IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUES TION OF LAW ARISES FOR THE CONSIDERATION OF THE COURT IN THIS APPEAL. IT IS, A CCORDINGLY, DISMISSED IN LIMINE. 17 19(II) DECISION IN THE CASE OF CIT V SATISH ESTATE PVT. LTD. 361 ITR 451 IN WHICH IT WAS HELD AS UNDER : CIVIL SUIT WAS FILED BY M/S AMRITSAR ROYON AND SILK MILL PVT, LIMITED IN WHICH ASSESSEE WAS IMPLEADED AS RESPONDENT NO.4. TH ERE WAS AN INTERIM ORDER PASSED BY TRIAL COURT WHICH WAS AFFIRMED BY T HIS COURT AS WELL. IN CIRCUMSTANCES, ASSESSEE WAS JUSTIFIED IN REDUCING V ALUATION OF CLOSING STOCK, ASSESSEE HAD REDUCED CLOSING STOCK AND SAME WAS TAKEN AS OPENING STOCK FOR ASSESSMENT YEAR 2007-08 WHICH WAS ACCEPTED BY AO WHILE FRAMING ASSESSMENT U/S 143(3). THUS, NO LOSS TO REVENUE HAD BEEN CAUSED. APPEAL DISMISSED. 20. HE HAS SUBMITTED THAT SINCE THE CASE OF THE ASS ESSEE WAS NOT CONSIDERED IN PROPER PERSPECTIVE, THEREFORE , ADDITION IS LIABLE TO BE DELETED. 21. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT REPORT OF LAB ASSISTANT WAS NOT BEFORE AUTHORITIES BELOW. ITEMS WERE PURCHASED FROM THE SISTER CONCERN AND NO EVIDENCE W AS FILED REGARDING MARKET VALUE OF THE STOCK. THEREFO RE, ADDITION WAS JUSTIFIED. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE PURCHASED TWO COMMODITIES I.E. COTTON SEED OIL AND MUSTERED SEED OIL DURING ASSESSMENT YEAR UNDER APPEAL. THE QUANTITATIVE DETAILS OF THE SAME WERE SHOWN IN THE ACCOUNTS. THE PURCHASE OF THE SAME IS NOT I N DISPUTE. THE ASSESSEE EXPLAINED THAT WHEN THE SAME ARE PURCHASED ORIGINALLY, THE SAME WERE FOR USE AS EDIB LE OIL 18 BUT AT THE TIME OF VALUATION OF THE COMMODITY ON 31.03.2005, IT BECAME NON EDIBLE WHICH RESULTED IN THEIR VALUATION AT MARKET PRICE OF NON EDIBLE OIL. THE N ATURE OF THE COMMODITY ITSELF SHOWS THAT THEY ARE PERISHABLE ITEMS IN NATURE. THESE ITEMS COULD DAMAGE IF THE SAME AR E KEPT IN OPEN OR THERE IS SOME LEAKAGE. THE REPORT OF CH EMICAL LAB WAS NOT ACCEPTED BY THE LD. CIT(APPEALS) BECAUS E BOTH THE REPORTS WERE ON PLAIN SHEET WITHOUT ANY REFEREN CE OR SEAL OR STAMP. THE COPIES OF THE REPORTS ARE FILED AT PAGE 24-25 OF THE PAPER BOOK. BOTH THE REPORTS HAVE DAT ES AND REFERENCE TO THE ITEMS OF THE ASSESSEE AND AFTER EXAMINATION, BOTH THE ITEMS WERE NOT FOUND FIT FOR HUMAN CONSUMPTION DUE TO HIGH RANCIDITY. THE ASSESSEE HA S ALSO FILED COPY OF COMMODITY STORAGE MANUAL PUBLISHED BY WORLD FOOD LOGISTICS ORGANIZATION WITH REGARD TO NA TURE OF RANCIDITY OF COOKING OILS. IT SUPPORTS THE EXPLANA TION OF THE ASSESSEE THAT THESE ARE PERISHABLE IN NATURE. THESE REPORTS WERE GIVEN ON 27.03.2005 I.E. AT THE TIME O F CLOSING OF THE FINANCIAL YEAR RELEVANT TO THE ASSES SMENT YEAR UNDER APPEAL. IF THE LD. CIT(APPEALS) WAS NOT SATISFIED WITH THESE REPORTS, HE COULD HAVE SUMMON SHRI HARBHAJAN SINGH, LAB INCHARGE FOR HIS EXAMINATION A ND IN RESPECT OF THE INVESTIGATION CARRIED OUT BY HIM WIT H REGARD TO THESE TWO COMMODITIES POSSESSED BY THE ASSESSEE. HOWEVER, NO EFFORTS HAVE BEEN MADE TO EXAMINE HIM W ITH REGARD TO GENUINENESS OF THE REPORT GIVEN BY HIM. THEREFORE, THERE WERE NO JUSTIFIABLE REASONS FOR LD . CIT(APPEALS) IN NOT GIVING CREDENCE TO THE SAID REP ORT. 19 THE ASSESSEE HAS GIVEN SAME QUANTITY OF STOCK AS PURCHASED IN THE AUDITED ACCOUNTS AND IT IS ALSO CL EAR FROM THE FACTS OF THIS CASE THAT WHEN SALE COULD NO T BE MADE OF THIS COMMODITY IN ASSESSMENT YEAR UNDER APP EAL AND SALES HAVE BEEN MADE IN MARCH 2007, WOULD SUPPO RT THE CONTENTION OF ASSESSEE THAT THE QUALITY OF THE COMMODITY SO PURCHASED BY ASSESSEE HAS DETERIORATED , THEREFORE IT COULD NOT BE SOLD AT THE SAME PRICE. THE ASSESSEE HAS ALSO, ADMITTEDLY FOLLOWING THE CONSIST ENT METHOD OF ACCOUNTING TO VALUE THE CLOSING STOCK AND WITH REGARD TO FINISHED GOODS, ASSESSEE HAS BEEN ADOPTIN G METHOD OF VALUATION AS AT COST OR NOT REALIZABLE V ALUE. THE METHOD OF VALUATION ADOPTED BY ASSESSEE HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. ALL THE SALES A ND PURCHASES OF THE ASSESSEE ARE VOUCHED AND ENTERED I NTO THE BOOKS OF ACCOUNT IN WHICH NO DEFECTS HAVE BEEN POINTED OUT. 22(I) THE ASSESSING OFFICER HAS ALSO NOT REJECTE D THE BOOK RESULTS OF THE ASSESSEE UNDER SECTION 145(3) O F THE ACT. THE SALES MADE BY ASSESSEE OF THE SAME COMMOD ITY IN MARCH,2007 AFTER IT DETERIORATED IN ITS QUALITY, HAS NOT BEEN DISPUTED BY THE REVENUE DEPARTMENT BECAUSE THE SAME SALES HAVE BEEN ENTERED INTO THE BOOKS OF ACCO UNT IN ASSESSMENT YEAR 2007-08 AND THE ASSESSING OFFICER ACCEPTED THE SAME IN SCRUTINY ASSESSMENT UNDER SECT ION 143(3) OF THE ACT, COPY OF THE ASSESSMENT ORDER IS FILED AT PAGE 72 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO F ILED 20 COPIES OF THE SALE BILLS IN PAPER BOOK FROM PAGES 1 9 TO 23. IT WOULD SHOW THAT THE SALES HAVE NOT BEEN MADE TO THE SISTER CONCERN. IT MAY ALSO BE NOTED HERE THAT DES PITE ASSESSING OFFICER MADE THE ADDITION TO THE CLOSING STOCK IN ASSESSMENT YEAR UNDER APPEAL, BUT NO CORRESPONDING BENEFITS HAVE BEEN GIVEN IN INCREASE IN THE OPENING STOCK OF THE SUBSEQUENT YEAR. THEREFORE, NO ADDITION COU LD BE SUSTAINED. OUR VIEW GETS SUPPORT FROM THE JUDGEMEN T OF THE HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH CO URT IN THE CASES OF FAZILKA COOPERATIVE SUGAR MILLS LTD. A ND SATISH ESTATES PVT. LTD. (SUPRA). 23. CONSIDERING THE FACTS AND CIRCUMSTANCES AND ABO VE DISCUSSION, IT IS CLEAR THAT ASSESSEE HAS BEEN ABLE TO PROVE REDUCTION IN THE VALUATION OF THE CLOSING STOCK BEC AUSE THESE COMMODITIES GET DETERIORATED AND EXPLANATION OF THE ASSESSEE IS SUPPORTED BY MATERIAL ON RECORD, THEREF ORE, AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING AND CONFIRMING THE ADDITION ON ACCOUNT OF UNDER VALUATI ON OF CLOSING STOCK. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS. 55,21,394/-. THE GROUND NO. 2 OF APPEAL OF ASSESSE E IS ALLOWED. 24. ON GROUND NO.3, ASSESSEE CHALLENGED THE ADDITIO N OF RS. 85 LACS MADE BY ASSESSING OFFICER UNDER SECTION 68 OF THE INCOME TAX ACT AS UNEXPLAINED CREDIT. THE ASSE SSING OFFICER ASKED THE ASSESSEE TO GIVE NAMES, ADDRESSES AND PAN NUMBERS AND COPIES OF THE LATEST RETURN FILED B Y THE 21 LOAN CREDITORS. THE ASSESSEE SUBMITTED CONFIRMATION S FROM FOUR LOAN CREDITOR COMPANIES. IT WAS NOTED THAT AMO NGST THESE CONFIRMATIONS, THERE WAS AN UNDATED CONFIRMAT ION FROM M/S LOIL IMPEX LTD. SHOWING THE ADDRESS AT 412 8, NAYA BAZAR, DELHI WHICH IS THE SAME ADDRESS AS GIVE N BY ASSESSEE IN THE RETURN OF INCOME. THE ASSESSEE WAS ALSO INTIMATED THAT M/S LOIL IMPEX LTD. HAD NOT SENT ITS RESPONSE TO THE NOTICE ISSUED BY THE ASSESSING OFFI CER THEREFORE, ASSESSEE WAS ASKED TO PRODUCE THIS PARTY , ITS BALANCE SHEET SHOWING THE SAID LOAN TO THE ASSESSEE , COPY OF THE BANK STATEMENT EXPLAINING THE SOURCE OF THE FUNDS FOR GIVING LOAN TO THE ASSESSEE. THE ASSESSEE SUBM ITTED PHOTO COPY OF THE BANK ACCOUNT OF M/S LOIL IMPEX LT D. WITH ORIENTAL BANK OF COMMERCE, HOWEVER NEITHER THE NAME OF THE ACCOUNT HOLDER, ACCOUNT NUMBER, NOR TRANSACTIONS WERE CLEARLY VISIBLE. THE ASSESSEE DI D NOT PRODUCE THE LOAN CREDITOR AND ITS PAN NUMBER OR COP Y OF THE RETURN. THEREFORE, ASSESSING OFFICER NOTED THA T ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF GIVING LOAN OF RS. 85 LACS TO THE ASSESSEE. THE ASSESSING OFFICER ON EXAMINING THE BOOKS OF ACCOUNT OF ASSESSEE FOUND TH AT ASSESSEE HAS SHOWN RECEIPTS OF RS. 20 LACS EACH ON 07.05.2004, 31.05.2004, 15.06.2004 AND RS.25 LACS O N 27.07.2004. ALL THESE AMOUNTS ARE STATED TO HAVE B EEN RECEIVED IN ASSESSEE'S CURRENT ACCOUNT NO. 2118026 IN PUNJAB NATIONAL BANK, MOHALI BRANCH. EXCEPT THESE FOUR CREDIT ENTRIES, THERE IS NO OTHER ENTRY IN THE ACCO UNT OF M/S LOIL IMPEX LTD. MAINTAINED IN THE BOOKS OF ACCO UNT OF 22 THE ASSESSEE. THERE WAS NO OPENING BALANCE AND CRE DIT CLOSING BALANCE WAS RS. 85 LACS ON 31.03.2005. THE ASSESSING OFFICER, THEREFORE, NOTED THAT EXCEPT FIL ING COPY OF UNDATED CONFIRMATION HAVING THE ADDRESS OF THE S AME PERSON AND ILLEGIBLE COPY OF THE BANK ACCOUNT OF TH E CREDITOR, ASSESSEE HAS NOT FURNISHED ANY OTHER EVID ENCE TO PROVE EXISTENCE, GENUINENESS OR CREDIT WORTHINESS O F THE CREDITOR AND ACCORDINGLY MADE THE ADDITION UNDER SE CTION 68 OF THE ACT. 25. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND IT WAS SUBMITTED THAT THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2005 SHOWS THAT AN AMOUN T OF RS. 3.45 CR WAS SHOWN AS OUTSTANDING IN THE NAMES O F FOUR COMPANIES. THE ASSESSING OFFICER HAS ACCEPTED THE LOANS TAKEN FROM THREE COMPANIES. HOWEVER, LOAN OF RS. 85 LACS TAKEN FROM M/S LOIL IMPEX LTD. HAS NOT BEEN ACCEPTED. IT WAS SUBMITTED THAT LOAN OF RS. 85 LACS WAS RECEIVED THROUGH FOUR CHEQUES WHICH WERE DEPOSITED IN ASSESSEE'S BANK ACCOUNT WITH PUNJAB NATIONAL BANK, MOHALI. COPY OF THE CONFIRMATION FROM M/S LOIL IMP EX LTD. ALONGWITH ITS STATEMENT OF THE BANK ACCOUNT WI TH ORIENTAL BANK OF COMMERCE WAS FILED BEFORE ASSESSIN G OFFICER. M/S LOIL IMPEX LTD. IS A LIMITED COMPANY AND REGISTERED WITH REGISTRAR OF COMPANIES VIDE REGISTR ATION CERTIFICATE AND IS IN EXISTENCE SINCE LONG. THEREF ORE, IDENTITY OF THE COMPANY STANDS PROVED. FURTHER, CR EDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION OF LO AN IS 23 ALSO PROVED FROM THE BANK STATEMENT OF THE CREDITOR . THE STATEMENT OF THE CREDITOR ALSO REFLECTS THAT ALL TH E DEPOSITS IN THE BANK ACCOUNT OF THE CREDITOR WERE THROUGH BA NKING CHANNELS ONLY AND THERE IS NO SINGLE CASH DEPOSIT I N THEIR BANK ACCOUNT. THE CONFIRMATION REGARDING SOURCE OF THE CREDITOR WERE ALSO FILED FROM M/S NAV BHARAT & M/S LAXMI ENERGY & FOODS LTD. 26. THE LD. CIT(APPEALS) CONSIDERED THE SUBMISSION OF THE ASSESSEE AND DID NOT ACCEPT THE SAME. THE LD. CIT(APPEALS) NOTED THAT THOUGH THE UNDATED CONFIRMA TION WAS FILED BUT IT HAS NO INCOME TAX PARTICULARS AS W ELL AS PAN NUMBER. THE ENTRIES IN ACCOUNT ARE NOT LEGIBLE AS PER FINDING OF THE ASSESSING OFFICER. THE CREDITOR DID NOT RESPOND TO THE LETTER ISSUED BY ASSESSING OFFICER U NDER SECTION 133(6) OF THE ACT. MERELY BECAUSE LOANS HA VE BEEN TAKEN THROUGH BANKING CHANNEL, WOULD NOT PROVE THE GENUINENESS OF THE TRANSACTION IN THE MATTER AND ACCORDINGLY, DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 27. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES. THE LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT ASSESSEE HAS TAKEN LOAN OF RS. 85 LACS FROM ON E OF THE GROUP COMPANY M/S LOIL IMPEX LTD. WHICH WAS NOT ASSESSED TO TAX, HOWEVER, ALL TRANSACTIONS WERE MAD E THROUGH ACCOUNT PAYEE CHEQUES AND SOURCE OF THE SOU RCE IN THEIR CASE WAS ALSO EXPLAINED. COPY OF ACCOUNT O F 24 CREDITOR IN THE BOOKS OF THE ASSESSEE IS FILED AT P AGE 40 OF THE PAPER BOOK. COPY OF THE ACCOUNT OF ASSESSEE CO MPANY IN THE BOOKS OF THE CREDITOR IS FILED AT PAGE 41 OF THE PAPER BOOK. CONFIRMATION OF THE LOAN OF THE CREDITOR IS FILED AT PAGE 37 OF THE PAPER BOOK AND COPY OF THE BANK STAT EMENT OF ASSESSEE COMPANY WHERE SUCH CREDIT OF RS. 85 LAC S HAS BEEN APPEARING IS FILED AT PAGE 30 OF THE PAPER BOO K. COPY OF THE BANK STATEMENT OF THE CREDITOR IS SUBMI TTED BEFORE ASSESSING OFFICER ALONGWITH LETTER IS FILED AT PAGE 42 OF THE PAPER BOOK ALONGWITH COPY OF THE BANK STATEMENT PB-43. THE SOURCE OF THE CREDIT IN THE B ANK ACCOUNT OF THE CREDITOR WITH COPY OF THE BANK ACCOU NT OF M/S LAXMI OVERSEAS INDUSTRIES ARE FILED AT PAGE 45 AND 46 OF THE PAPER BOOK. THE CONFIRMATION FROM M/S NAV B HARAT INTERNATIONAL, WHO HAS GIVEN RS. 90 LACS TO THE CRE DITOR ALONGWITH CONFIRMATION ARE FILED AT PAGE 47-49 OF T HE PAPER BOOK. HE HAS SUBMITTED THAT ALL ENTRIES IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE ARE EXPLAINED THRO UGH BANK ENTRIES. HE HAS ALSO CLARIFIED THAT IN THE BA NK ACCOUNT OF THE ASSESSEE PB-30, THE CHEQUES ISSUED B Y THE CREDITOR HAVE BEEN CLEARED THROUGH DISCOUNTING BY T HE BANK AND INTEREST WAS DEBITED IN THE BANK ACCOUNT O F THE ASSESSEE WHICH WOULD CLARIFY THE LOAN AMOUNT GIVEN BY THE CREDITOR TO THE ASSESSEE. THE AUTHORITIES BELOW HA VE FAILED TO APPRECIATE THAT EVEN THE SOURCE OF THE SO URCE HAS BEEN EXPLAINED IN THE CASE OF THE CREDITOR. THE EXP LANATION OF THE ASSESSEE WAS REJECTED BECAUSE THE BANK ACCOU NT OF THE CREDITOR WAS NOT LEGIBLE AND THAT THE SAID PART Y IS NOT 25 ASSESSED TO TAX WHICH IS NOT REQUIREMENT UNDER THE LAW UNDER SECTION 68 OF THE ACT. THE LD. COUNSEL FOR TH E ASSESSEE ALSO FILED COPY OF THE CERTIFICATE OF INCO RPORATION OF THE CREDITOR ON 04.10.1999 ISSUED BY DY. REGISTR AR OF COMPANIES, NCP OF DELHI AND HARYANA. HE HAS, THERE FORE, SUBMITTED THAT ASSESSEE PROVED EXISTENCE OF THE CRE DITOR, ITS CREDIT WORTHINESS AND GENUINENESS OF THE TRANSA CTION IN THE MATTER. ON THE OTHER HAND, LD. DR RELIED ON ORDERS OF AUTHORITIES BELOW. 28. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATER IAL ON RECORD. IN THE CASE OF ADDITION TO BE MADE UNDE R SECTION 68 OF THE ACT, BURDEN WOULD BE UPON ASSESSE E TO PROVE THE IDENTITY/EXISTENCE OF THE CREDITOR, ITS C REDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION IN TH E MATTER. IN CASE ASSESSEE IS ABLE TO EXPLAIN ALL TH E ABOVE ITEMS SATISFACTORILY, THEN BURDEN WOULD BE SHIFTED ON ASSESSING OFFICER TO PROVE THAT ASSESSEE FAILED TO EXPLAIN THE ENTRIES UNDER SECTION 68 OF THE ACT. HON'BLE M ADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS METACHEM INDUSTRIES 245 ITR 60 HELD AS UNDER : ACCORDING TO SECTION 68 OF THE INCOME-TAX ACT, 1961, THE FIRST BURDEN IS ON THE ASSESSEE TO SATISFACTORILY EXPLAIN THE CREDIT ENTRY IN THE BOOKS OF ACCOUNT OF THE PREVIOUS YEAR. IF THE EXPLANATION GIVEN BY THE ASSESSEE IS SATISFACTORY T HEN THAT ENTRY WILL NOT BE CHARGED ALONG WITH THE INCOME OF THE PREVIOUS YEAR OF THE ASSESSEE. IN CASE THE EXPLANATION OFFERE D BY THE ASSESSEE IS NOT SATISFACTORY OR THE SOURCE OFFERED BY THE ASSESSEE-FIRM IS NOT SATISFACTORY, THEN IN THAT CAS E, THE AMOUNT SHOULD BE TAKEN TO BE THE INCOME OF THE ASSESSEE. ONCE IT IS ESTABLISHED THAT THE AMOUNT HAS BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIVIDUAL, THEN THE RESPONSIBILITY OF THE ASSESSEE I S OVER. WHETHER THAT PERSON IS AN INCOME-TAX PAYER OR NOT A ND WHERE 26 HE HAD BROUGHT THIS MONEY FROM, IS NOT THE RESPONSI BILITY OF THE FIRM. THE MOMENT THE FIRM GIVES A SATISFACTORY EXPLANATION AND PRODUCES THE PERSON WHO HAS DEPOSIT ED THE AMOUNT, THEN THE BURDEN OF THE FIRM IS DISCHARGED AN D IN THAT CASE THAT CREDIT ENTRY CANNOT BE TREATED TO BE THE INCOME OF THEN THE PURPOSES OF INCOME-TAX. ON A REFERENCE WHETHER THE APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT WHEN THERE WAS CREDIT IN THE CAPITAL ACCOUNT OF THE PARTNER IN THE BOOKS OF THE FIRM, TH E ADDITION THEREFORE COULD NOT BE MADE IN THE CASE OF THE FIRM UN DER SECTION 68 OF THE ACT BUT THE SAME HAD TO BE CONSIDERED IN THE CASE OF THE PARTNER : HELD, ON THE FACTS, THAT THERE WAS CONCURRENT FINDING OF BOTH THE COMMISSIONER OF INCOME-TAX (APPEALS) AS W ELL AS THE TRIBUNAL THAT THE FIRM HAD SATISFACTORILY EXPLAIN ED THE THREE CREDIT ENTRIES IN THE BOOKS OF THE FIRM. THE ADDITI ON THEREFORE COULD NOT BE MADE IN THE HANDS OF THE FIRM. 28(I) HON'BLE GAUHATI HIGH COURT IN THE CASE OF P.K.SETHI V CIT 286 ITR 319 HELD AS UNDER : HELD, THAT OUT OF THE THREE REQUIREMENTS, THE FIRST TWO, NAMELY, THE IDENTITY OF THE CREDITORS AND THEIR CREDITWORTH INESS HAD BEEN ESTABLISHED. IN RESPECT OF THE GENUINENESS OF THE TR ANSACTIONS, AS FAR AS THE ASSESSEE WAS CONCERNED HE HAD PROVED THA T THE ENTIRE AMOUNT INVOLVED WAS RECEIVED BY WAY OF ACCOUN T PAYEE CHEQUES . THE ASSESSING OFFICER HAD ACCEPTED THEM AS GENUINE ON THE PART OF THE CREDITORS, BUT IN THE CASE OF TH E ASSESSEE HE HELD THEM NOT GENUINE. THERE WERE AS MANY AS TWELVE CREDITORS AND THE ALLEGATIONS AS REGARDS OPENING OF THE BANK ACCOUNTS WITHIN A PARTICULAR PERIOD WAS IN THE CASE OF FIVE C REDITORS ONLY. NO INFERENCE COULD HAVE BEEN DRAWN THAT THESE WERE FAKE TRANSACTIONS. ADMITTEDLY THERE WAS NO OTHER EVIDENCE OR MATERIAL IN SUPPORT OF THE FINDING OF THE TRIBUNAL THAT THE CASH CREDITS WERE NOT GENUINE. THE ORDER OF THE TRIBUNAL WAS NOT JUST IFIED. 29. THE ASSESSEE EXPLAINED THAT THE CREDITOR M/S LO IL IMPEX LTD. IS A LIMITED COMPANY AND IS REGISTERED W ITH THE REGISTRAR OF COMPANIES VIDE CERTIFICATE OF INCORPOR ATION DATED 04.10.1999. THE ASSESSEE HAS FILED COPY OF T HE CERTIFICATE OF INCORPORATION ON RECORD IN SUPPORT O F THE CONTENTION WHICH PROVED THAT THE CREDITOR IS A LIMI TED COMPANY REGISTERED WITH THE REGISTRAR OF COMPANIES. IT IS 27 WELL SETTLED LAW THAT REGISTERED COMPANY IS A LEGAL ENTITY HENCE NO FURTHER IDENTITY SHOULD BE PROVED OF THE C OMPANY SINCE REGISTERED COMPANY IS A LEGAL ENTITY, THAT IT SELF PROVED THE IDENTITY AND EXISTENCE OF THE CREDITOR. THEREFORE, ASSESSEE IS ABLE TO PROVE THE IDENTITY A ND EXISTENCE OF THE CREDITOR COMPANY. SINCE CREDITOR IS A REGISTERED COMPANY UNDER THE COMPANIES ACT AND BEIN G A LEGAL ENTITY, ASSESSING OFFICER WAS NOT JUSTIFIED I N ASKING THE ASSESSEE TO PRODUCE THE CREDITOR COMPANY BEFORE HIM. THE UNDATED CONFIRMATION ALONE IS NOT A CRITERIA TO REJECT EXPLANATION OF THE ASSESSEE. THE ASSESSEE FURTHER EXPLAINED THAT IT HAS TAKEN LOAN OF RS. 85 LACS FRO M THE CREDITOR THROUGH BANKING CHANNEL ON FOUR DATES I.E. RS. 20 LACS EACH ON THREE OCCASIONS AND RS. 25 LACS ON 27.07.2004. THE ASSESSEE FILED CONFIRMATION OF THE CREDITOR BEFORE ASSESSING OFFICER. HOWEVER, AS PER AUTHORITIES BELOW, THE SAME WAS UNDATED. THE ASSES SEE ALSO FILED COPY OF THE BANK ACCOUNT OF THE CREDITOR WITH ORIENTAL BANK OF COMMERCE, COPY OF WHICH IS FILED A T PAGE 43 OF THE PAPER BOOK WHICH SUPPORTS THE EXPLANATION OF THE ASSESSEE THAT THE LOAN ON FOUR DATES HAVE BEEN GIVEN BY THE CREDITOR TO THE ASSESSEE THROUGH BANKING CHA NNEL AND THAT IN THE BANK ACCOUNT OF THE CREDITOR, THERE WERE OTHER ENTRIES APPEARING ON PRIOR DATES WHICH WERE T HROUGH CLEARING ONLY. THERE IS NO CASH DEPOSIT IN THE ACC OUNT OF THE CREDITOR. THE TRANSFER ENTRIES IN THE BANK ACC OUNT OF THE CREDITOR ARE STATED TO BE FROM M/S LAXMI OVERSE AS INDUSTRIES AND M/S NAV BHARAT INTERNATIONAL LTD. (S UPRA). 28 COPIES OF THEIR CONFIRMATION AND THEIR BANK ACCOUNT S ARE FILED ON RECORD. IT WOULD, THEREFORE, PROVE THAT E VEN THE SOURCE OF THE SOURCE HAVE BEEN EXPLAINED BY THE ASS ESSEE IN THIS CASE WHICH IS, HOWEVER, NOT THE REQUIREMENT IN LAW TO BE PROVED BY THE ASSESSEE. THE COPY OF THE BANK ACCOUNT OF THE ASSESSEE IS FILED AT PAGE 30 OF THE PAPER BOOK WHICH PERTAINS TO PUNJAB NATIONAL BANK, MOHALI BRANCH IN WHICH THE ASSESSEE RECEIVED THE LOAN AMO UNT IN FOUR INSTALMENTS. ALL THE LOAN ENTRIES ARE APPEARI NG IN THE BANK ACCOUNT OF ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE, DURING THE COURSE OF ARGUMENTS EXPLAINED THAT ALL THESE FOUR CHEQUES ISSUED BY THE CREDITORS WERE DISCOUNTED BY THE ASSESSEE FROM THE BANK ON WHICH INTEREST HAS BEEN PAID. ALL THESE ENTRIES ARE APPE ARING IN THE BANK STATEMENT OF THE ASSESSEE WHICH MATCH WITH THE ENTRIES MADE IN THE BANK ACCOUNT OF THE CREDITOR. T HE ASSESSEE HAS ALSO FILED COPY OF THE STATEMENT OF AC COUNT OF THE CREDITOR IN THE BOOKS OF ACCOUNT OF THE ASSESSE E AND COPY OF THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE CREDITOR. THESE EVIDENCES ON RECORD CLEARLY PROVED THAT ASSESSEE HAS RECEIVED GENUINE LOANS IN FOUR INSTALM ENTS FROM THE CREDITORS THROUGH BANKING CHANNEL. THE AUTHORITIES BELOW, HOWEVER, HAVE REJECTED THE EXPLA NATION OF THE ASSESSEE BECAUSE THE CREDITOR WAS NOT ASSESS ED TO TAX AND NO PAN NUMBERS HAVE BEEN GIVEN. 29(I) THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS METACHEM INDUSTRIES (SUPRA) HAS HELD , WHETHER THAT PERSON IS AN INCOME TAX PAYER OR AND W HERE 29 HE HAD BROUGHT THIS MONEY FROM IS NOT THE RESPONSIB ILITY OF THE FIRM. IN THE CASE OF THE ASSESSEE, SINCE ASSESSEE HAS TAKEN LOAN THROUGH BANKING CHANNEL FROM THE CRE DITOR AND HAS FILED COPY OF THE CONFIRMATION OF THE CREDI TOR ALONGWITH COPY OF THE BANK ACCOUNT OF THE CREDITOR WITH ACCOUNT STATEMENT IN THEIR BOOKS OF ACCOUNT, THEREF ORE, IT WAS NOT THE RESPONSIBILITY OF THE ASSESSEE TO SEE W HETHER CREDITOR WAS ASSESSED TO TAX OR NOT. THIS DECISION SUPPORTS THE CASE OF THE ASSESSEE. 30. ON THE BASIS OF THESE CLINCHING EVIDENCES ON RE CORD, ASSESSEE HAS BEEN ABLE TO PROVE CREDIT WORTHINESS O F THE CREDITOR AND ALL THESE EVIDENCES ON RECORD ALSO PRO VE THAT ASSESSEE ENTERED INTO GENUINE LOAN TRANSACTION WITH THE CREDITOR. THEREFORE, THE INITIAL BURDEN LAY UPON T HE ASSESSEE TO PROVE IDENTITY/EXISTENCE OF THE CREDITO R, ITS CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIO N HAVE BEEN DISCHARGED BY THE ASSESSEE. THE ASSESSING OFF ICER HAS, HOWEVER, NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THAT LOAN WAS NOT GENUINE IN THE MATTER. THEREFORE , THERE WAS NO JUSTIFICATION FOR THE AUTHORITIES BELOW TO M AKE ADDITION AGAINST THE ASSESSEE UNDER SECTION 68 OF T HE ACT. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHOR ITIES BELOW AND DELETE THE ADDITION OF RS. 85 LACS. 31. IN THE RESULT, GROUND OF APPEAL NO. 3 OF THE AP PEAL OF THE ASSESSEE IS ALLOWED 30 32. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 33. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16 TH SEPT.,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH