Baroda Earth Pvt.Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 387/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9788 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Gross profit estimation; Rejection of books of accounts; Unexplained expenditure; Business income; Depreciation; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 69C; 80HHC; 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABA D (BEFORE HON'BLE SHRI G.D. AGRAWAL, V.P.(AZ) & HON BLE SHRI T.K. SHARMA, J.M. ) I.T.A. NO. 387/AHD./2008 ASSESSMENT YEAR : 2004-2005 BARODA EARTH PVT. LTD., BARODA -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AAACB 7638 J) CIRCLE-1(1), BARODA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL H. TALAT I RESPONDENT BY : SHRI K. MADHUSUDAN, S R. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 05.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, BARODA FOR THE ASSESSMENT YEAR 2004-05. 2. VARIOUS GROUNDS RAISED BY THE ASSESSEE IN ITS AP PEAL ARE AS UNDER :- (1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING REJECTION OF BOOKS OF ACCOUNTS BY INVOKI NG PROVISIONS OF SECTION 145 OF THE ACT. YOUR APPELLANT SUBMITS THAT REGULAR BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED AND SAME ARE AUDITED UNDER COMPANIES ACT, 1956 AS WELL AS U/S. 44AB OF THE I.T. ACT. THU S REJECTION OF ACCOUNTS ARE UNJUST AND UNCALLED FOR SINCE PROVISIO NS OF SECTION 145 ARE NOT APPLICABLE IN CASE OF YOUR APPELLANT. IT BE HEL D SO NOW. (2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING GP ADDITION OF RS.16,13,014/- BY APPLYIN G GP RATE OF 38.79% AS AGAINST GP OF 30.47% DECLARED FOR THE YEA R. YOUR APPELLANT SUBMITS THAT FALL IN GP IS DULY EXPLAINED TO A.O. A ND HENCE ADDITION MADE IS UNJUST AND UNCALLED FOR. IT BE HELD SO NOW AND GP ADDITION MADE BY THE A.O. BE DELETED NOW. (3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN CONFIRMING THE CALCULATION OF DEDUCTION U/S. 80HHC OF THE ACT BY (I) REDUCING 90% OF LABOUR JOB INCOME OF RS.8,75,233/- FROM PROFITS OF BUSINESS TREATING THE SAME AS OTHER INC OME. YOUR APPELLANT SUBMITS THAT SINCE LABOUR JOB INCOME BEIN G EARNED IN THE ORDINARY COURSE OF BUSINESS AND TAXED BY THE A. O. UNDER THE HEAD BUSINESS INCOME, THE SAME BE TREATED AS BUS INESS 2 ITA NO. 387/AHD/2008 INCOME A.O. BE DIRECTED TO ALLOW DEDUCTION U/S. 80 HHC ON SAME. (II) REDUCING RS.9,03,365/- BEING ADDITIONAL INCOME DISC LOSED DURING SURVEY. YOUR APPELLANT SUBMITS THAT INCOME D ISCLOSED DURING SURVEY BEING EARNED IN THE ORDINARY COURSE O F BUSINESS, BE TREATED AS BUSINESS INCOME AND A.O. BE DIRECTED TO ALLOW DEDUCTION U/S. 80HHC ON SAME. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING FOLLOWING ADDITIONS :- (I) RS.3,05,000/- BEING DIFFERENCE IN STOCK FOUND D URING SURVEY INVOKING PROVISIONS OF SECTION 69C OF THE ACT. (II) RS.5,60,000/- BEING REPAIRS TO MACHINERY / BUI LDING DISCLOSED AS ADDITIONAL INCOME DURING SURVEY. YOUR APPELLANT SUBMITS THAT WHILE FILING RETURN OF INCOME, THE AMOUNT DISCLOSED DURING SURVEY HAS ALREADY BEEN OFFERED TO TAX AND HENCE ADDITION MADE BY THE A.O. AS ABOVE ARE UNJUST AND U NCALLED FOR. IT BE HELD SO NOW. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING NOT ALLOWING DEPRECIATION OF RS.4,796/- CLAIMED BY YOUR APPELLANT ON AMOUNT CAPITALIZED OF RS.38,365/- DURI NG SURVEY. YOUR APPELLANT SUBMITS THAT CLAIM OF DEPRECIATION BEING IN ACCORDANCE WITH LAW, BE ALLOWED NOW AND DISALLOWANCE MADE OF RS.4,7 96/- BE DELETED NOW. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS.5,355 /- BY CALCULATING DEPRECIATION ON BORE WELL @ 10% INSTEAD OF 25% CLAI MED AND @ 5% ON STAFF QUARTERS AS AGAINST SAME CLAIMED @ 10%. YO UR APPELLANT SUBMITS THAT CLAIM OF DEPRECIATION BEING IN ACCORDA NCE WITH LAW, BE ALLOWED NOW AND DISALLOWANCE MADE OF RS.5,355/- BE DELETED NOW. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OUT OF RS.2,75,599 /-BEING FOREIGN TOUR EXPENSES OF DIRECTORS. YOUR APPELLANT SUBMITS THAT DISALLOWANCE MADE IS UNJUST AND UNCALLED FOR AND SAME BE DELETED NOW. 9. THE CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDIT ION OF RS.71,860/- BEING OUTSTANDING CREDITORS ADDED U/S. 41(1) OF THE ACT. YOUR APPELLANT SUBMITS THAT ADDITION MADE IS UNJUST AND UNCALLED F OR SINCE PROVISIONS O SECTION 41(1) ARE NOT APPLICABLE. IT BE HELD SO NOW . 3 ITA NO. 387/AHD/2008 10. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS.2,88,678/- B EING INTEREST DISALLOWED U/S. 36(1)(III) OF THE ACT. YOUR APPELLA NT SUBMITS THAT DISALLOWANCE MADE IS UNJUST AND UNCALLED FOR AND SA ME BE DELETED NOW. 11. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CHARGING INTEREST U/S.234B/C OF THE ACT. THE LEVY O F INTEREST BE HELD INCORRECT AND SAME BE DELETED NOW. 3. GROUNDS NO. 1, 4, 7 & 8 OF THIS APPEAL ARE NOT P RESSED BY THE LD. COUNSEL OF THE ASSESSEE AT THE TIME OF HEARING. THEREFORE, THESE GROUNDS OF AP PEAL ARE BEING DISMISSED AS NOT PRESSED. 4. GROUNDS NO. 2 & 3 OF THIS APPEAL ARE COMMON, INA SMUCH AS THEY RELATE WITH REGARD TO REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE ACT AND CONSEQUENTIAL ADDITION OF GROSS PROFIT OF RS.16,13,014/-. THE ASSESSING OFFICER HAS DEALT THIS ISSUE IN PARA 3 AT PAGES 2 & 3 OF THE ASSESSMENT ORDER. AS PER TAX AUDIT REPORT, THE GROS S PROFIT IS 30.47% AND NET PROFIT IS 7.48%. AS AGAINST THIS, IN THE LAST YEAR GROSS PROFIT WAS 39. 21% AND NET PROFIT WAS 7.04%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER AS KED THE REASONS FOR FALL IN GROSS PROFIT. THE ASSESSEE SUBMITTED THAT FALL IN G.P. IS DUE TO REDU CTION IN DOMESTIC SALES AND EXPORT SALES BEING MORE AS COMPARED TO EARLIER YEARS. THEREAFTER THE A SSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE ALL THE SUPPORTING DOCUMENTS FOR VERIFICATI ON IN SUPPORT OF ITS CLAIM. THE ASSESSEE ALSO SUBMITTED THAT DURING THE PREVIOUS ASSESSMENT YEAR 2003-04, THE ASSESSEE WAS HAVING A MERCHANT EXPORT OF EPOXY DIE AND SOYABIN OIL, WHICH HAS A MA JOR CONTRIBUTION TO GROSS PROFIT AND DURING THE YEAR, SUCH MERCHANT EXPORT WAS NOT THERE. IT WA S SUBMITTED THAT AVERAGE SELLING PRICE OF EXPORT IN LAST YEAR WAS MORE COMPARED TO THIS YEAR. APART FROM THIS, THE ASSESSEE SUBMITTED THAT IT CONSUMES FUEL AS MAJOR MANUFACTURING PROCESS EXPENS ES AND PRICE OF FUEL HAS GONE UP SUBSTANTIALLY BY 23.9%. IT WAS SUBMITTED THAT DUE T O ALL THESE REASONS, THERE IS FALL IN G.P. THE ASSESSING OFFICER AFTER CONSIDERING THE VARIOUS SUB MISSIONS OBSERVED THAT SUBMISSION MADE BY THE ASSESSEE SUFFERS FROM VARIOUS CONTRADICTIONS. AFTER MANY REQUESTS, THE ASSESSEE PRODUCED ITS BOOKS OF ACCOUNTS ALONGWITH SOME BILLS AND VOUCHERS , WHICH WERE EXAMINED ON TEST-CHECKED BASIS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFIC ER STATED THAT DURING THE PROCESS OF TEST- CHECKED VERIFICATION, IT WAS NOTICED THAT THERE WER E MANY CASH VOUCHERS PREPARED WHERE THERE WAS NO VOUCHER NUMBER, NO SIGNATURE OF THE RECEIVER S AND EVEN THAT OF THE DIRECTORS AND ACCOUNTANT ALSO WHICH ARE PERTAINING TO TRANSPORTAT ION OF CONSUMABLE MATERIALS, ETC. IN SOME 4 ITA NO. 387/AHD/2008 CASES BEFORE THE ASSESSING OFFICER ASSESSEE ONLY PR ODUCED PHOTOCOPY OF SOME OF CASH VOUCHERS. THE STOCK RESISTER IN RESPECT OF VARIOUS MATERIALS WAS ALSO NOT PRODUCED. AS A MATTER OF FACT, BEFORE THE ASSESSING OFFICER IT WAS SUBMITTED THAT STOCK REGISTER OF RAW MATERIALS IS NOT TRACEABLE. THE ASSESSING OFFICER ACCORDINGLY REJECTED THE BOOK S OF ACCOUNTS BY INVOKING THE PROVISIONS CONTAINED IN SECTION 145 OF THE INCOME TAX ACT, 196 1. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER STATED THAT GROSS PROFIT PERCENTAGE OF PREV IOUS YEAR, I.E. ASSESSMENT YEAR 2003-04 IS TAKEN FOR COMPUTATION OF GROSS PROFIT FOR THE FINANCIAL Y EAR UNDER CONSIDERATION. THE ASSESSING OFFICER CALCULATED THE SAME AS UNDER :- F.Y. 2003-04 F.Y. 2002-03 TOTAL SALES 1,93,87,190/- 2,11,00,083/- CLOSING STOCK 2,75,000/- 21,675/- RAW MATERIAL CONSUMPTION 1,07,18,139/- 87,15,858/- MERCHANT EXPORT PURCHASE 15,60,900/- MANUFACTURING EXPENSES 30,36,550/- 26,60,001/- GROSS PROFIT 59,07,501/- 81,84,999/- GP PERCENTAGE 30.47% 38.79% 5. ON THE BASIS OF THE AFORESAID CALCULATION, THE A SSESSING OFFICER OBSERVED THAT DIFFERENCE IN GROSS PROFIT PERCENTAGE IS 8.32% AS COMPARED TO LAST YEAR TAKING THE SAME BASIS FOR COMPUTATION OF GROSS PROFIT FOR BOTH THE YEARS, HE MADE THE ADDITION OF RS.16,13,014/- (8.32% OF RS.1,93,87,190/-) TO THE TOTAL INCOME OF THE ASSESS EE. 6. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS AND ADOPTING THE GP RATE OF 38.79% SHOWN BY THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI SUNIL H. TALATI, LD. COUNSEL APPEARED AND ARGUED AT LENGTH BY STATING THAT THE B OOKS OF ACCOUNTS SHOULD NOT BE REJECTED. WITHOUT PREJUDICED TO THIS CONTENTION, THE LD. COUN SEL OF THE ASSESSEE SUBMITTED THAT EVEN IF THE 5 ITA NO. 387/AHD/2008 BOOKS OF ACCOUNTS ARE REJECTED, NO ADDITION SHOULD BE MADE BECAUSE IN THE ASSESSMENT YEAR UNDER APPEAL, THE NET PROFIT PERCENTAGE TO SALES IS 7.48% AS AGAINST 7.04% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. AT PAGE 108 OF THE PAPER BOOK, THE ASSESSEE FURNISHED THE STATEMENT SHOWING GROSS PROFIT AND NET PROFIT PERCENTAGE TO SALES OF FOUR ASSESSMENT YEARS. 8. ON THE OTHER HAND, SHRI K. MADHUSUDAN, LD. SR. D .R. APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). HE POINTED OUT THAT NEITHER BEFORE THE ASSESSING OFFICER NOR B EFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), ASSESSEE PRODUCED THE BOOKS OF ACCOU NTS IN SUPPORT OF ITS CLAIM. THE DEFECTS POINTED OUT BY THE ASSESSING OFFICER ARE SUFFICIENT TO UPHOLD THE ACTION OF ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PRO VISIONS CONTAINED IN SECTION 145 OF THE INCOME TAX ACT, 1961. THE LD. D.R. FURTHER POINTED OUT THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED, THE ASSESSING OFFICER HAS NO OPTION BUT T O ESTIMATE THE INCOME. IN THIS CASE, THE ASSESSING OFFICER HAS ESTIMATED THE INCOME ON THE B ASIS OF GROSS PROFIT DECLARED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THEREFORE, T HE ADDITION OF RS.16,13,014/- MADE BY THE ASSESSING OFFICER BE UPHELD. 9. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS MAINTAINING STOCK REGISTER BUT THE SAME WAS NOT PRODUCED BEFORE ANY OF THE AUTHORITIES BELOW. APART FROM THIS, THE ASSESSING OFFICER HAS FURTHER POINTED OUT THE VARIOUS DEFECTS IN MAINTENANCE OF V OUCHERS, ETC. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE CON VINCED THAT THE ASSESSING OFFICER IS LEGALLY AND FACTUALLY CORRECT IN REJECTING THE BOOKS OF ACC OUNTS BY INVOKING THE PROVISIONS CONTAINED IN SECTION 145 OF THE INCOME TAX ACT, 1961. 10. AFTER REJECTING THE BOOKS OF ACCOUNTS, THE SECO ND STEP WITH REGARD TO COMPUTATION OF INCOME WAS TAKEN. ON PAGE 108 OF THE PAPER BOOK, TH E ASSESSEE HAS GIVEN STATEMENT SHOWING GROSS PROFIT AND NET PROFIT PERCENTAGE TO SALES FOR FOUR YEARS, WHICH ARE AS UNDER :- PARTICULARS FOR THE YEAR TO 31.3.2004 FOR THE YEAR TO 31.3.2003 FOR THE YEAR TO 31.3.2002 FOR THE YEAR TO 31.3.2001 INCOME SALES : EXPORT SALES INCLUDING MERCHANT 6 ITA NO. 387/AHD/2008 INDEGINIOUS SALES 26,54,724 1,67,32,466 49,87,720 1,61,12,363 1,80,000 1,51,52,991 56,98,685 78,85,455 1,93,87,190 2,11,00,083 1,53,32,991 1,35,87,140 INCREASE/DECREASE IN STOCK 2,75,000 21,675 8,325 OTHER INCOME-SALES TAX SET OFF 1,44,996 87,660 49,862 3 ,357 TOTAL RS. 1,98,07,186 2,12,09,418 1,53,91,178 13, 62,071 LESS: EXPENDITURE RAW MATERIAL CONSUMED(SCHEDULE- 11) 1,07,18,139 87,15,858 80,72,450 55,81,440 MERCHANT EXPORT PURCHASE (TRADING) 16,50,900 10,88,513 MANUFACTURING EXPENSES (SCHEDULE- 12) 30,36,550 26,60,001 21,91,569 15,73,660 TOTAL 1,37,54,689 1,29,36,759 1,02,64,019 82,43,6 13 GROSS PROFIT RS. 60,52,497 82,72,659 51,27, 159 53,77,092 GROSS PROFIT % TO SALES 31.21% 39.21% 33.44% 39.57% NET PROFIT RS. 14,50,071 14,85,442 1,23,961 6,64,100 NET PROFIT % TO SALES 7.48% 7.04% 0.81% 4.89% FROM THE AFORESAID CHART, IT APPEARS THAT NET PROFI T TO SALES DECLARED BY THE ASSESSEE IS BETTER THAN THE IMMEDIATELY PRECEDING YEAR. HOWEVER, WE FEEL TH AT THIS NEEDS VERIFICATION AT THE END OF ASSESSING OFFICER. IN CASE, NET PROFIT IS BETTER TH AN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OR MORE THAN AVERAGE OF LAST THREE YEARS, IN THAT EVEN T, NO ADDITION ON ACCOUNT OF LOW GROSS PROFIT IS CALLED FOR. THE ASSESSING OFFICER IS ACCORDINGLY DI RECTED TO VERIFY THE WORKING AND IF NET PROFIT PERCENTAGE TO SALES IS BETTER THAN IT WAS IN THE IM MEDIATELY PRECEDING ASSESSMENT YEAR OR AVERAGE OF LAST THREE ASSESSMENT YEARS, IN THAT EVENT, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.16,13,014/- MADE BY THE ASSESSING OF FICER. 11. GROUND NO. 5 OF THIS APPEAL IS AGAINST CONFIRMI NG THE ADDITION OF RS.3,05,000/- MADE BY THE ASSESSING OFFICER UNDER SECTION 69C OF THE INCO ME TAX ACT, 1961 AND RS.5,60,000/- BEING REPAIRS TO MACHINERY/ BUILDING DISCLOSED AS ADDITIO NAL INCOME DURING SURVEY. 7 ITA NO. 387/AHD/2008 12. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN RESPECT OF DISCLOSURE OF RS.3,05,000/- IN THIS GROUND OF APPEAL ARE THAT RS.3,05,000/- ON ACC OUNT OF DISCREPANCY IN THE STOCK FOUND AT THE TIME OF SURVEY. AT THE TIME OF ASSESSMENT, THE ASSE SSEE EXPLAINED THAT IT HAD BEEN SHOWN AND INCLUDED IN STOCK-IN-TRADE AS SEMI-FINISHED GOODS A ND WAS REFLECTED IN THE STOCK STATEMENT. THE ASSESSING OFFICER CONSIDERED THE AMOUNT AS UNEXPLAI NED EXPENDITURE FOR MAKING UNACCOUNTED PURCHASES UNDER SECTION 69C OF THE ACT AND REFUSED TO CONSIDER IT AS A PART OF THE STOCK. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), I T WAS CONTENDED THAT SINCE THE DISCLOSURE HAS BEEN TREATED AS INCOME AND MAKING ADDITION AGAI N ON THIS SCORE WOULD AMOUNT TO DOUBLE ADDITION. THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) REJECTED THIS CONTENTION OF THE ASSESSEE ON THE GROUND THAT CERTAIN UNEXPLAINED EXP ENDITURE IN THE FORM OF PURCHASES HAS GONE INTO CREATION OF THE STOCK WHICH WAS FOUND IN EXCES S OF THE STOCK AS PER BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER RIGHTLY INCLUDED THIS AMOUNT OF RS.3,05,000/- AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE IN COME TAX ACT, 1961. 12.1. THE FACTS RELATING TO CONTROVERSY INVOLVED WI TH REGARD TO DISCLOSURE OF RS.5,60,000/- ARE THAT DURING THE COURSE OF SURVEY, THE ASSESSEE MADE A DISCLOSURE OF RS.2,60,000/- ON ACCOUNT OF MACHINERIES REPAIR AND RS.3,00,000/- ON ACCOUNT OF BUILDING REPAIR AS ADDITIONAL INCOME OVER AND ABOVE THE INCOME OF THE FINANCIAL YEAR. THE REASONS FOR MAKING THIS DISCLOSURE ARE THAT THE ASSESSEE COULD NOT PRODUCE ANY SUPPORTING DOCUMENTS . THE ASSESSEE ALSO DISCLOSED RS.38,365/- AS IT REPRESENTS A CAPITAL EXPENDITURE BUT WAS CLAI MED AS REVENUE EXPENDITURE. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSE SSEE HAD DISCLOSED THIS AMOUNT AS INCOME IN THE PROFIT & LOSS ACCOUNT AND AT THE SAME TIME, HAD CLAIMED THESE EXPENSES IN THE PROFIT & LOSS ACCOUNT, THUS NULLIFYING THE EFFECT OF THE DISCLOSU RE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS EXPENDITURE ALSO REPRESENTED UNEXPLAINED EXPEN DITURE FOR WHICH THE ASSESSEE HAD NOT BEEN ABLE TO DISCLOSE ANY SOURCE. UNDER THESE CIRCUMSTAN CES, THE ASSESSING OFFICER ADDED A SUM OF RS.5,60,000/- TO THE TOTAL INCOME OF THE ASSESSEE U NDER SECTION 69C OF THE ACT AS UNEXPLAINED EXPENDITURE. 13. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS), THE ASSESSEE CONTENDED THAT SINCE THE ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY HAS ALREADY BEEN DISCLOSED, THE SAME CANNOT BE ADDED ONCE AGAIN. THE LEARNED COMMISSIONER OF INCOME 8 ITA NO. 387/AHD/2008 TAX(APPEALS) CONFIRMED THIS ADDITION. AT THE TIME O F HEARING BEFORE US, THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO PAGES 10, 20 AND 30 OF THE PAPER BOOK, WHEREIN THE EXCESS STOCK OF RS.3,05,000/- AND OTHER INCOME OF RS.5,98,365/- TOT ALING TO RS.9,03,365/- HAS BEEN SEPARATELY SHOWN. IT WAS, THEREFORE, CONTENDED THAT THE ASSESS ING OFFICER ADDED THE SAME INCOME AGAIN UNDER SECTION 69C OF THE ACT ON THE GROUND THAT EXC ESS STOCK UNEXPLAINED IS UNEXPLAINED EXPENDITURE AND SIMILARLY OTHER THREE INCOME ARE AL SO REQUIRED TO BE ADDED SEPARATELY IN VIEW OF THE PROVISIONS OF SECTION 69C OF THE ACT. 14. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 15. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ADMITTEDLY, DURING THE COURSE OF SURVEY, THE ASSESSEE DISCLOSED THE INCOME OF RS.9,03,365/- AND THE ASSESSING OFFICER MADE AN ADD ITION OF RS.8,69,796/-. FROM THE FACTS, IN OUR OPINION, THE AMOUNT DISCLOSED DURING THE COURSE OF SURVEY CANNOT BE ADDED TWICE. FROM THE ANNUAL ACCOUNTS, WE ARE CONVINCED THAT THE ASSESSEE HAS ALREADY DISCLOSED RS.9,03,365/-. THEREFORE, NO FURTHER ADDITION OF RS.8,69,796/- IS CALLED FOR. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO DELETE THIS ADDITION. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED. 16. GROUND NO. 9 OF THIS APPEAL IS WITH REGARD TO A DDITION OF RS.71,860/- UNDER SECTION 41(1) OF THE INCOME TAX ACT, 1961. THIS ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT CREDITORS OF RS.71,860/- ARE OUTSTANDING FOR M ORE THAN ONE YEAR ON ACCOUNT OF SALES COMMISSION. SINCE THE ASSESSEE HAD NOT PAID THE SAM E, IT AMOUNTS TO CESSATION OF LIABILITY AND ADDED THE SAME AS INCOME ON THE GROUND THAT THE ASS ESSEE HAD FAILED TO SUBMIT ANY CORRESPONDENCE SHOWING THE EFFORTS MADE BY THESE PA RTIES TO RECOVER THE AMOUNT FROM THE ASSESSEE. IN THE IMPUGNED ORDER, THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) CONFIRMED THE SAID ADDITION. 17. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT THE SAID CREDITORS HAD BEEN PAID THE AMOUNT BY ACCOUNT PAYEE CHEQUE IN THE NEXT ASSE SSMENT YEAR AND COPY OF THE SAME WAS FURNISHED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IT WAS FURTHER SUBMITTED 9 ITA NO. 387/AHD/2008 THAT SINCE THE SAID CREDITORS HAD BEEN PAID IN THE SUBSEQUENT ASSESSMENT YEAR, NO ADDITION UNDER SECTION 41(1) IS CALLED FOR. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 18. IT IS PERTINENT TO NOTE THAT NEITHER THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER NOR THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER HAS REFERRED THIS CONTENTION OF THE ASSESSEE. WE, THEREFORE, SET ASID E THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON THIS ISSUE AND RESTORE THE M ATTER TO FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHALL FURNISH THE EVIDE NCE OF PAYMENT IN THE NEXT FINANCIAL YEAR. THE ASSESSING OFFICER WILL VERIFY THE SAME AND RE-ADJUD ICATE THE ADDITION OF RS.71,860/- AFRESH IN ACCORDANCE WITH LAW. 19. GROUND NO. 10 OF THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF INTEREST OF RS.2,88,678/-. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GR OUND THAT THE ASSESSEE DID NOT PRODUCE BANK STATEMENT TO VERIFY THE CASH FLOW AND TO EXAMINE WH ETHER INTEREST FREE LOAN WERE GIVEN OUT OF BORROWED FUNDS FOR MAKING NEW INVESTMENT OF RS.27,9 9,296/-. THE ASSESSING OFFICER, THEREFORE, WORKED OUT INTEREST ON THE TOTAL LOAN FUNDS AS ON 3 1.3.2004 OF RS.36,47,786/- AND MADE THE ADDITION OF RS.2,88,678/-. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER CONFIRMED THE SAID ADDITION. 20. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL OF THE ASSESSEE POINTED OUT THAT THE ENTIRE ADDITION IS TOTALLY BASELESS AS BECAUSE DETAILS OF INTEREST EXPENDITURE OF RS.4,34,359/- ARE ON PAGE 23 OF THE PAPER BOOK BEING SCHEDULE 14 OF THE AUDIT ED ACCOUNTS. THE LD. COUNSEL FURTHER SUBMITTED THAT INTEREST ON C.C. ACCOUNTS, AS SEEN O N PAGE 17 BEING SCHEDULE 3 OF THE AUDITED ACCOUNTS IS AGAINST HYPOTHECATION OF STOCK IN TRADE AND BOOK DEBT IS OF JUST RS.6,11,110/-, SO THIS IS NEVER ALLOWED TO INVESTMENT BY ANY BANK AND THE ONLY OTHER LOAN WAS FOR CAR LOAN. THE LD. COUNSEL FURTHER POINTED OUT THAT SO FAR AS THE UNSE CURED LOANS ARE CONCERNED, IT WAS RS.28.55 LAKHS IN THE LAST YEAR WHICH HAD INCREASED TO RS.29 .37 LAKHS DURING THE YEAR UNDER CONSIDERATION, WHICH REPRESENTS THE INCREASE OF JUST RS.82,000/-, THEREFORE, THERE IS NO JUSTIFICATION OF DISALLOWING SUCH HUGE INTEREST WHEN NO FRESH FUNDS ARE BORROWED FOR MAKING FRESH INVESTMENTS 10 ITA NO. 387/AHD/2008 IN MUTUAL FUNDS OF AROUND RS.30 LAKHS. HE FURTHER P OINTED OUT THAT THEY ARE ALL FROM INTERNAL ACCRUALS AND REALIZATION FROM DEBTORS IN NORMAL COU RSE OF BUSINESS AND IT SHOULD BE DELETED. 21. ON THE OTHER HAND, THE LD. D.R. POINTED OUT THA T SINCE CASH FLOW STATEMENT, BANK ACCOUNT THROUGH WHICH INVESTMENTS WERE MADE, WAS NOT FURNIS HED BEFORE THE ASSESSING OFFICER, THEREFORE, THE ADDITION MADE BE UPHELD. 22. RIVAL SUBMISSIONS WERE CONSIDERED. IT IS PERTIN ENT TO NOTE THAT NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS), THE ASSESSEE FURNISHED CASH FLOW STATEMENT/ BANK ACCOUNT THROUGH WHICH INVESTMENTS WERE MADE. BEFORE US, THE LD COUNSEL OF THE ASSESSEE SUBMITTED THAT THE S AME CAN BE PRODUCED BEFORE THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDER OF LEAR NED COMMISSIONER OF INCOME TAX(APPEALS) AND RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFF ICER WITH THE DIRECTION THAT THE ASSESSEE SHALL FURNISH THE CASH FLOW STATEMENT/ BANK ACCOUNT THROU GH WHICH INVESTMENTS WERE MADE. THE ASSESSING OFFICER WILL VERIFY THE SAME AND RE-ADJUD ICATE THE ADDITION OF RS.2,88,678/- AFRESH IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER IS ALSO AT LIBERTY TO CONSIDER THE ALTERNATE CONTENTION OF THE ASSESSEE TO WORK OUT THE ADDITION UNDER SECT ION 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 24.09.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 24 / 09 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT CONCERNED, (4) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR, ITAT, AHMEDABAD LAHA/SR.P.S.