The DCIT, Circle-2, Surat V. Shri Rakesh O.Agarwal, Surat

ITA 453/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0522 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: RASESH SHAH
• Keywords: Source of fund; Corroborative evidences; Bogus loan
• Section: 143(3); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI A. MOHAN ALANKAMONY, AM AND SHRI KUL B HARAT, JM) ITA NO. 4/AHD/2010 A. Y.: 2006-07 RAKESH O. AGARWAL, 2001, SILK PLAZA MARKET, RING ROAD, SURAT P. A. NO. AAQPA 4811 P VS THE A. C. I. T., CENT. CIR-2, SURAT (APPELLANT) (RESPONDENT) ITA NO. 453/AHD/2010 A. Y.: 2006-07 THE D. C. I. T., CIRCLE-2, ROOM NO.110, 1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS RAKESH O. AGARWAL, 2001, SILK PLAZA MARKET, RING ROAD, SURAT P. A. NO. AAQPA 4811 P (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RASESH SHAH, AR DEPARTMENT BY SHRI D. K. SINGH, SR. DR DATE OF HEARING: 10-01-2013 DATE OF PRONOUNCEMENT:15-03-2013 O R D E R PER A. MOHAN ALANKAMONY: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE AR E FILED BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A)-II, SU RAT DATED 30-11- 2009 IN APPEAL NO.CAS/II/434/08-09 FOR THE ASSESSME NT YEAR 2006- 07 PASSED U/S 250 READ WITH SECTION 143(3) OF THE I T ACT. FOR THE ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 2 SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOG ETHER AND DISPOSED OF BY THIS ORDER. ITA NO.4/AHD.2010 (ASSESSEES APPEAL FOR AY: 2006-07) 2. THE ASSESSEE HAS RAISED 5 ELABORATE GROUNDS IN H IS APPEALS, WHEREIN GROUNDS NO.4 AND 5 ARE GENERAL IN NATURE AN D DO NOT SURVIVE FOR ADJUDICATION. GROUNDS NO.1, 2 AND 3 OF THE APPE AL ARE CONCISED HEREIN BELOW FOR ADJUDICATION: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION ON ACCOUNT OF UNSECURED LOAN FOR RS.8,11,696/- U/S 68 OF THE ACT. 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST FOR RS.12,94,993/- THOUGH THE SAME HAD BEEN OFFERED BY THE LENDERS AS INCOME IN T HEIR RETURN. 3. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE A DDITION ON ACCOUNT OF CLOSING STOCK FOR RS.21,65,298/- BY ADOPTING THE AVERAGE COST. ITA NO.453/AHD/2010 (REVENUES APPEAL FOR AY: 2006-07) 3. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPE AL WHEREIN GROUNDS NO.2 AND 3 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE SOLE GROUND NO.1 SURVIVING FOR AD JUDICATION IS REPRODUCED HEREIN UNDER FOR REFERENCE: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION M ADE BY THE A. O. OF RS.33,40,635/- ON ACCOUNT OF DISALLOWA NCE OUT OF PACKING MATERIAL EXPENSES. ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 3 4. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF MANUFACTURING AND TRADING OF ART SILK CLOTH FILED H IS RETURN OF INCOME ON 12-12-2006 DECLARING TOTAL INCOME OF RS.5,27,106/- ALONG WITH TAX AUDIT REPORTS. THE CASE WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED U/S 143(3 ) OF THE ACT ON 30-12-2008 WHEREIN ADDITIONS WERE MADE U/S 68 OF TH E ACT FOR RS.8,11,696/-, BOGUS PAYMENT OF INTEREST FOR RS.12, 94,993/-, EXCESS CLAIM OF PACKING MATERIAL EXPENSES FOR RS.33,40,635 /- AND DISCREPANCY IN VALUATION OF CLOSING STOCK FOR RS.21 ,65,298/-. THE LEARNED CIT(A) CONFIRMED AND ALSO DELETED CERTAIN A DDITIONS AGAINST WHICH THESE APPEALS FILED BY THE ASSESSEE AND THE R EVENUE LAY BEFORE US WHICH ARE BEING DEALT WITH HEREIN BELOW. ITA NO.4/AHD.2010 (ASSESSEES APPEAL FOR AY: 2006-07) 5. GROUND NO.1 - ADDITION U/S 68 FOR RS.8,11,696/-:- DURING THE COURSE OF SCRUTINY ASSESSMENT IT WAS NOTICED BY THE LEARNED AO THAT THE ASSESSEE HAD OBTAINED UNSECURED LOANS FROM 20 I NDIVIDUALS AGGREGATING TO RS.8,11,696/-. ON FURTHER INVESTIGAT ION, THE LEARNED AO UNEARTHED VARIOUS DISCREPANCIES WHICH ARE SUMMARIZE D AS UNDER: (I) IN RESPECT OF FIVE LENDERS, FROM THE BANK STATE MENTS FURNISHED BY THE ASSESSEE IT REVEALED THAT ALL THE FIVE LENDERS OPENED ACCOUNT IN THE SAME BANK CONSEQUENTL Y WITHIN A WEEK. (II) IN RESPECT OF OTHER LENDERS THE ASSESSEE HAD N OT FURNISHED THEIR BANK STATEMENTS. ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 4 (III) IN RESPECT OF ALL THE LENDERS ON VERIFICATION OF THEIR BALANCE SHEET REVEALED THAT ONLY TWO ENTRIES ONE IN THE N AME OF ADITI PRINTS AND THE OTHER CASH ON HAND EXISTED. (IV) IN ALL THE CASES LOANS WERE RECEIVED BY DRAFTS AND PAY ORDERS, HOWEVER, NO SUCH ENTRIES WERE FOUND IN THE FEW BANK STATEMENTS OF THE LENDERS SUBMITTED BY THE ASSESSEE. (V) ALL DRAFTS WERE DRAWN FROM PUNJAB NATIONAL BANK ON THE SAME DAY BY PAYMENT OF CASH. 5.2 SUBSEQUENTLY, THE LEARNED AO HAD ISSUED LETTERS DATED 08-12- 2008 TO ALL THESE PARTIES CALLING FOR DETAILS U/S 1 33(6) OF THE ACT. BUT, NONE FILED ANY DETAILS. THEREAFTER, ON 29-12-2008 A FFIDAVITS WERE FILED THE SCRUTINY OF WHICH REVEALED THE FOLLOWING DISCRE PANCIES:- (I) THE AFFIDAVITS ARE NOT DRAFTED IN NORMAL LEGAL FORMAT WHICH IS A PREREQUISITE FOR ANY AFFIRMATION GIVEN ON OATH AND PRINTED ON A STAMP PAPER. (II) NONE OF THE AFFIDAVITS ARE NOTARIZED OR WITNES SED THEREBY FAILING TO FULFILL THE BASIC CONDITION OF THE AFFID AVIT. (III) THE STAMP PAPERS ARE TYPED IN ONE PATTERN AND FONT AND ARE UNFOLDED AND CONSPICUOUSLY NEAT AND CLEAN WITHO UT ANY CREASE CREATING A DOUBT AS TO THE ORIGIN AND PREPARATION OF THESE PAPERS FROM KHUSHINAGAR, UTTAR PRADESH. (IV) THE SIGNATURES ARE STRANGELY MADE BY ONE AND T HE BLACK PEN THOUGH THE ADDRESSES OF THE LOAN PARTIES IN THE CONFIRMATION AS WELL AS ON THE AFFIDAVITS ARE PERTA INING TO DIFFERENT VILLAGES. IT IS THEREFORE NOT POSSIBLE TH AT THE SIGNATURES COULD HAVE BEEN SIGNED BY THE SAME PEN B Y ALL THE ALLEGED CREDITORS ON THESE AFFIDAVITS. (V) THE SIGNATURES WHEN TALLIED WITH THAT ON THE PA N CARD ARE FOUND TO BE ENTIRELY DIFFERENT IN MOST OF THE CASES . ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 5 SURPRISINGLY IN SOME CASES THE SIGNATURE IS MADE IN HINDI ON AFFIDAVIT WHEREAS IT IS FOUND TO BE IN ENGLISH I N PAN CARD. FOR INSTANCE, IN THE CASE OF MANOJ GUPTA, THE SIGNATURE ON AFFIDAVIT IS IN HINDI AS MANOJ KUMAR W HILE IN PAN CARD IT SAYS MANOJKUMAR GUPTA IN ENGLISH. (VI) IN THE LETTERS ISSUED U/S 133(6), THE LOAN PAR TIES WERE REQUESTED TO FURNISH THE SOURCE OF OTHER INCOME A S REFLECTED IN THEIR COMPUTATION. HOWEVER, IN THE AFF IDAVIT, THE PERSON IS SILENT ON THIS ISSUE AND SIMPLY STATE D THAT THE DRAFTS WERE MADE OUT OF LEGITIMATE INCOME. (VII) IN EACH AFFIDAVIT IT IS STATED THAT THE DRAFT S HAVE BEEN PROCURED OUT OF CASH DEPOSITED IN THE BANK ACCOUNT, WHICH IS ABSOLUTELY FALSE SINCE, NO CASH WAS SEEN I N THE ASSESSEES BANK ACCOUNT WITH BANK OF INDIA, KHUSHIN AGAR AND THE DRAFTS WERE FOUND TO BE DRAWN ON PUNJAB NAT IONAL BANK. 5.3 FURTHER, IT WAS OBSERVED BY THE LEARNED AO THAT THE ASSESSEE HAD BORROWED A TOTAL AMOUNT OF RS.1,39,88,427/- FRO M ALL THESE TWENTY PERSONS WHICH COMPRISES 60% OF HIS TOTAL BOR ROWED FUNDS OF RS.2.33 CRORES. THESE TWENTY INDIVIDUALS WERE PEOPL E OF LIMITED MEANS AND DID NOT HOLD BANK ACCOUNT TILL SEPTEMBER, 2005 AND YET HAD ADVANCED SUBSTANTIAL FUNDS TO THE ASSESSEE. TH E LEARNED AO RELYING UPON THE FOLLOWING DECISIONS ADDED RS.8,11, 696/- TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 OF THE ACT. : (I) KALEKHAN MOHMED HANIF VS CIT, 50 ITR 1 (SC) (II) SHREELEKHA BANERJEE VS CIT, 49 ITR 112 (SC) (III) SHANKAR INDUSTRIES VS CIT, 114 ITR 689 5.4 THE LEARNED CIT(A) AFTER EXAMINING THE ISSUE IN DETAIL CONFIRMED THE ORDER OF THE LEARNED AO. THE RELEVANT PORTION OF HIS ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE: ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 6 6. I HAVE CAREFULLY CONSIDERED THE DETAILED FINDIN GS AND CONCLUSION OF THE AO AND THE EQUALLY DETAILED SUBMI SSIONS OF THE AR ON THE OTHER. I FIND THAT THE SUBMISSIONS OF THE AR MERELY REPRESENT A VERY FEEBLE ATTEMPT TO ANSWER TH E VERY IMPORTANT QUESTION RAISED BY THE AO AND THE CONCLUS IONS DRAWN BY HER. THE BASIC POINT AROUND WHICH THE ARGUMENTS OF THE AR REVOLVE IS THAT, THE DEPOSITORS WERE RESIDENTS OF A VERY SMALL VILLAGE FROM WHICH THE ASSESSEE AND HIS FAMILY ALSO HAILED. ALIGNED TO THIS FACT IS THIS ARGUMENT THAT THE LOAN S WERE GIVEN AND THE DEPOSITS MADE BY THE DEPOSITORS OUT OF RESP ECT AND REGARD TO THE ASSESSEE AND HIS FAMILY MEMBERS. UNFO RTUNATELY, SUCH CLAIMS AND SUBMISSIONS DO NOT SOUND VERY CONVI NCING. 6.1 THE FIRST QUESTION WHICH ARISES IS THAT IF, THE ASSESSEE WAS IN NEED OF FUNDS THERE WERE AMPLE OPPORTUNITIES TO GENERATE FUNDS IN SURAT ITSELF WHERE HE HAS BEEN RE SIDING AND DOING BUSINESS SINCE THE YEAR 2000. SECONDLY, IF VI LLAGERS OF SUCH SMALL MEANS IN A RELATIVELY BACKWARD DISTRICT OF UP WHO CAN BARELY MEET THEIR DAILY NEEDS AND PROVIDE TWO S QUARE MEALS A DAY TO THEIR FAMILIES WOULD NOT SPEND SUCH SUBSTANTIAL SUMS (AS PER THEIR STANDARDS) IN A BUSINESS OR GIVE LOANS TO A PERSON WHO IS THOUSANDS OF MILES AWAY, AND THAT TOO YEAR AFTER YEAR, WHEREBY THE TOTAL LOANS OUTSTANDING IN THEIR NAMES AT THE END OF THE YEAR UNDER CONSIDERATION WAS TO THE EXTE NT OF RS.1.40 CRORES. ACCOUNTS PREPARED BY EXPERT CHARTER ED ACCOUNTANTS AND PRINTED CONFIRMATION LETTERS AND AF FIDAVITS CANNOT BY ANY STRETCH OF IMAGINATION EXPLAIN THE GR OUND LEVEL SITUATION THAT PREVAILS IN A REMOTE VILLAGE IN AN U NDERDEVELOPED DISTRICT. 6.2 THOUGH THE AR HAS FURNISHED CONFIRMATIONS, AFFI DAVITS, BALANCE SHEETS, COPIES OF INCOME-TAX RETURNS ETC. E TC. YET, WHEN WE TAKE NOTE OF THE SURROUNDING CIRCUMSTANCES OF TH E CASE, ALL SUCH DOCUMENTS LOSE THEIR RELEVANCE AND MEANING. TH E CONFIRMATION LETTERS COULD HAVE BEEN SIGNED BY ANYB ODY, EVEN BY THE MAN ON STREET OUTSIDE THE BUSINESS PREMISES OF ADITI PRINTS, THE PROPRIETARY CONCERN OF THE ASSESSEE. I T RETURNS DO NOT AUTHENTICATE EITHER A PERSONS IDENTITY OR HIS CREDITWORTHINESS. THERE HAVE BEEN ANY NUMBERS OF CA SES OF FILING OF BOGUS RETURNS. HERE IT IS IMPORTANT TO TA KE NOTE OF A VERY ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 7 IMPORTANT FINDING OF THE AO, THE CAPITAL ACCOUNT AL LEGEDLY FILED WITH THE IT RETURNS OF THE DEPOSITORS HAD ONLY SUFF ICIENT AMOUNTS TO ENABLE THEM TO GIVE THE LOANS TO THE ASS ESSEE. THERE WERE NO OTHER WITHDRAWALS WHICH WOULD HAVE BE EN NECESSARY FOR THEIR SURVIVAL. THE BALANCE-SHEET S H AD ONLY TWO ENTRIES, ONE THE CASH IN HAND AND THE OTHER THE LOA N TO THE ASSESSEE. AGAINST THIS FINDING OF THE AO, THE AR HA S SUBMITTED VIDE LETTER DATED 28-04-2009 AS UNDER: IN THIS CONTEXT, IT IS SUBMITTED THAT THE LENDERS ARE FROM VILLAGE BACK GROUND AND DOES NOT HAVE MUCH KNOWLEDG E OF PREPARATION OF ACCOUNTS OR OTHERWISE. THESE PERSONS EVEN DO NOT EMPLOY PROPER ACCOUNTANTS/CONSULTANTS SO AS TO SAVE ON TO THEIR EXPENDITURE/FEES. UNDER THIS BACKGROUND THE S TATEMENT OF AFFAIRS ARE PREPARED AND SUBMITTED TO THE DEPARTMEN T. 6.3 THIS SUBMISSION OF THE AR COMPLETELY EXPOSES TH E MODUS OPERANDI. IT IS A CLEAR ADMISSION OF THE FACT THAT THE VILLAGERS BEING UNABLE TO DO SO, THE ACCOUNTS INCLUDING THE C APITAL ACCOUNTS AND BALANCE-SHEETS WERE PREPARED BY THE AS SESSEE HIMSELF. IT HAS BEEN ADMITTED BY THE AR THAT SOMEON E ELSE HAD PREPARED THE DOCUMENTS FOR THE DEPOSITORS. HE HAS J UST STOPPED SHORT OF ADMITTING THAT THE ACCOUNTS WERE PREPARED BY THE ASSESSEE HIMSELF. 6.4 COMING TO THE GENUINENESS OF THE TRANSACTIONS, THE AOS FINDING THAT, ONLY FIVE OF THE DEPOSITORS HAD BANK ACCOUNTS ALL HAVING CONSECUTIVE ACCOUNT NUMBERS, WHICH CLEARLY I NDICATED THAT SUCH ACCOUNTS WERE OPENED AT THE SAME TIME AND ON THE SAME DATE. THE REMAINING 15 (FIFTEEN) DID NOT HAVE ANY BANK ACCOUNT. THE EXPLANATION OF THE AR ONCE AGAIN IS TH AT, IN THE VILLAGE, BANK ACCOUNTS OPENED BY DIFFERENT PERSONS ON DIFFERENT DATES WOULD END UP HAVING CONSECUTIVE ACCOUNT NUMBE RS. SOME OF THE DEPOSITORS HAD OPENED THEIR ACCOUNTS AF TER PURCHASING DEMAND DRAFTS BECAUSE SUCH ACCOUNTS WERE OPENED BY THE BANK MANAGER AT HIS OWN CONVENIENCE. THIS EXPLANATION IS NOT CONVINCING AT ALL. EVEN A LAYMAN CAN SEE THROUGH THE FALSITY OF SUCH CLAIM. THE POINT TO NOT E IS THAT, EVEN IN REMOTE VILLAGES BANKING HAS BECOME VERY POPULAR, ESPECIALLY, WHEN PAYMENTS FOR THE NATIONAL RURAL EM PLOYMENT ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 8 GUARANTEE SCHEME, ARE BEING MADE BY THE GOVERNMENT ONLY THROUGH THE BANK. IT IS NOT AS IF IT IS AN ABANDONE D VILLAGE ONLY WITH A FEW RESIDENTS WHOSE BANK ACCOUNTS WOULD INEV ITABLY HAVE CONSECUTIVE NUMBERS. MORE IMPORTANTLY, THE FAC T THAT FIFTEEN OF THE DEPOSITORS DID NOT HAVE BANK ACCOUNT S CLEARLY MEANT THAT THE AUTHENTICITY OF THE CONFIRMATION LET TERS COULD NOT BE ESTABLISHED. ONE OF THE MAJOR FINDINGS OF THE AO IS THAT, THE ASSESSEE CLAIMED TO HAVE PAID INTEREST TO THE SAME PERSONS IN EARLIER YEARS WHEN THE LOANS FROM THEM TOTALED RS.1 ,39,88,427 (CLOSING BALANCE AS ON 31-03-2006) RS.8,11,696 (F RESH LOANS TAKEN THIS YEAR) = RS.1,31,76,731. THE INTEREST WAS CLAIMED TO HAVE BEEN PAID BY CHEQUES. WHERE DID SUCH PAYMENTS GO AND HOW DID SUCH INTEREST REACH THE ALLEGED DEPOSITORS ESPECIALLY WHEN FIFTEEN OF THEM DID NOT HAVE ANY BANK ACCOUNT. 6.5 COMING TO THE AFFIDAVITS WHICH THE AR FURNISHED BEFORE THE AO IN RESPONSE TO SUCH FINDINGS, IT HAS BEEN RE CORDED BY THE AO (PARA4, PAGE -5), THAT THE AFFIDAVITS WERE N OT IN A LEGAL FORMAT. THEY WERE NOT NOTARIZED, THE STAMP PAPERS W ERE TYPED IDENTICALLY AND IN T HE SAME FONT. THEY WERE NOT FO LDED WHICH MEANT THAT THEY WERE NOT DISPATCHED FROM THE VILLAG E, TUMKUHI. THE SIGNATURES WERE MADE WITH THE SAME PEN WITH BLA NK INK EVEN THOUGH THE DEPOSITORS ALLEGEDLY RESIDE IN DIFF ERENT VILLAGES; AND FINALLY, SOME OF THE SIGNATURES ON THE AFFIDAVI TS DID NOT TALLY WITH THE SIGNATURES ON THE PAN CARDS. IN SOME, WHIL E THE SIGNATURE IN THE AFFIDAVIT WAS IN HINDI, IT WAS IN ENGLISH IN THE PAN CARD. ALL THE AFFIDAVITS SAID THAT THE DRAFTS W ERE PURCHASED WITH THE CASH DEPOSITED IN THE BANK WHICH WAS ABSOL UTELY FALSE SINCE, THREE-FOURTHS OF THEM DID NOT HAVE ANY BANK ACCOUNT, AND THE FIVE WHO HAD BANK ACCOUNTS SHOWED NO DEPOSITS I N THE BANK. INTERESTINGLY, ON THIS ISSUE THE AR HAS ONLY SUBMITTED THAT THE AO HAD AGREED TO ACCEPT THE AFFIDAVITS WITHOUT NOTARIZATION. THE REASON FOR THE ABSENCE OF NOTARIZATION IS VERY SIMPLE. SINCE, THE AFFIDAVITS WERE PREPARED IN SURAT BY THE ASSESSEE IN THE NAMES OF THE ALLEGED DEPOSITORS WHO RESIDE IN V ILLAGE: TUMKHUL, IT COULD NOT BE NOTARIZED IN SURAT. 6.6 GIVEN SUCH FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE IN CONSIDERABLE DETAIL, IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN TREATING THE LOANS/DEPOSITS TOTALING ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 9 RS.8,11,696 AS BOGUS. THE AR HAS PLACED RELIANCE ON SEVERAL CASE-LAWS. BUT, THESE CASE-LAWS CAN BE MADE OPERATI ONALLY ONLY IF THE FACTS OF THE ASSESSEES CASE CO-RELATE WITH THE FACTS OF THE ASSESSEES CASE. I AM OF THE VIEW THAT THERE CANNOT BE ANY RULE FOR DETERMINING WHETHER OR NOT A CASH CRED IT IS GENUINE. THE GENUINENESS OF A CASH CREDIT WILL DEPEND ENTIRE LY ON THE SPECIFIC FACTS OF EACH CASE. ALL SUCH CASE-LAWS TUR N ON RESPECTIVE FACTS OF EACH CASE. THEREFORE, NO CASE-L AW CAN BE RELIED UPON TO ARGUE A CASE PERTAINING TO CASH CRED ITS. THE ADDITION OF THE SUM OF RS.8,11,696, UNDER THE PROVI SIONS OF SECTION 68 OF THE IT ACT, WILL STAND CONFIRMED. 6. THE LEARNED AR SUBMITTED BEFORE US THAT THE ASSE SSEE HAD FURNISHED BANK STATEMENTS, CONFIRMATION OF ACCOUNTS , PAN AND THE ADDRESS OF ALL THE LENDERS AND, THEREFORE, THE ASSE SSEE HAD ESTABLISHED BEYOND DOUBT THAT THE LOAN WAS GENUINE. HE STRONGLY RELIED ON THE PAPER BOOK SUBMITTED BY HIM AND ALSO RELIED UPON THE FOLLOWING DECISION OF THE ITAT AND PRAYED THAT THE ADDITION MAY BE DELETED: (I) TRILOCHAN SINGH VS. ITO, REPORTED IN [2008] 11 6 TTJ 149 (DELHI) (II) ACIT VS M/S. KOTHI SHIP BREAKING INDUSTRIES ITA NO.2018/AHD/2008 FOR AY 2004-05 DATED 21-03-2012. 7. THE LEARNED DR STRONGLY SUPPORTED THE ORDERS OF THE REVENUE AND ARGUED THAT THE CREDITWORTHINESS OF THE LENDERS HAD BEEN ESTABLISHED TO BE UNRELIABLE AND THE GENUINENESS OF THE TRANSACTIONS IS PROVED TO BE BOGUS. CONSIDERING THE FACTS AND CI RCUMSTANCES OF THE PRESENT CASE, THE ADDITION MADE BY THE LEARNED AO MAY BE SUSTAINED. ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 10 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. THE LEARNED AO HIMSELF HAD COM MENTED THAT THE ASSESSEE HAD BORROWED TOTAL FUNDS OF RS.1,39,88,427 /- FROM THESE TWENTY PERSONS. DURING THE RELEVANT ASSESSMENT YEAR THE AMOUNT BORROWED FROM THESE TWENTY PERSONS AMOUNTS TO RS.8, 11,696/-. THEREFORE, IT IS OBVIOUS THAT THE ASSESSEE HAD BEEN CONSISTENTLY BORROWING MONEY FROM THESE TWENTY PERSONS DURING TH E PAST YEARS AND THE SAME IS ACCEPTED BY THE REVENUE. IT IS ALSO NOT DISPUTED THAT ALL THE LOAN TRANSACTIONS WITH THESE PARTIES ARE TH ROUGH BANKING CHANNELS. THE ASSESSEE HAS ALSO SUBMITTED PAPER BOO K CONTAINING TWO VOLUMES RUNNING FROM PAGES 1 TO 229 THE CONTENT S OF WHICH INCLUDE CONFIRMATION OF ACCOUNTS, AFFIDAVITS AND BA NK STATEMENTS ETC. OF ALL THESE PARTIES FROM WHICH THE FOLLOWING FACTS EMERGE:- SR. NO. NAME COMMENTS ON BANK STATEMENTS COMMENTS ON CONFIRMATIONS COMMENTS ON AFFIDAVITS 1 ANITA AGARWAL NOT FURNISHED PAPER BOOK PAGE 27- CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE 28 AFFIDAVIT SIGNED AND FURNISHED DATED 24-04-2007 DULY NOTARIZED AND APPEARS TO BE IN ORDER 2 SABITA GUPTA PAPER BOOK PAGE 207 BANK STATEMENT FURNISHED. THERE IS NO SUBSTANTIAL AMOUNT OF CASH DEPOSIT AS CLAIMED BY THE REVENUE PAPER BOOK PAGE 32 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE -33 AFFIDAVIT FURNISHED DATED 06-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 11 3 VASIRAMAN PAPER BOOK PAGE 211 BANK STATEMENT FURNISHED. THERE IS NO SUBSTANTIAL AMOUNT OF CASH DEPOSIT AS CLAIMED BY THE REVENUE - - 4 OM PRAKSAH AGARWAL PAPER BOOK PAGE 215 AND 216 BANK STATEMENT FURNISHED. THERE IS CASH DEPOSIT OF ONLY RS.1 LAC. PAPER BOOK PAGE 41 CONFIRMATION STATEMENT 06- 04-2009 FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE -42 AFFIDAVIT FURNISHED DATED 06-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 5 RADHESHYAM SITARAM GUPTA PAPER BOOK PAGE 219 TO 221 BANK STATEMENT FURNISHED. VARIOUS TRANSACTIONS ARE RECORDED PAPER BOOK PAGE 46 CONFIRMATION STATEMENT 06- 04-2009 FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE -47 AFFIDAVIT FURNISHED DATED 06-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 6 BABULAL PRASAD PAPER BOOK PAGE 223 TO 225 BANK STATEMENTS FURNISHED. VARIOUS TRANSACTIONS ARE RECORDED PAPER BOOK PAGE 52 CONFIRMATION STATEMENT DATED 06-04- 2009 FURNISHED AND APPEARS TO BE IN ORDER NOT FURNISHED 7 VIJAY KR. AGARWAL NOT FURNISHED. HOWEVER, WIFE OF DECEASED MR. VIJAY AGARWAL HAS FURNISHED CONFIRMATION STATEMENT. PAPER BOOK PAGE 56 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 57 AFFIDAVIT FURNISHED BY MRS. VIMLA DEVI, WIFE OF SHRI LATE VIJAY KR. AGARWAL DATED 15-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 12 8 JAGANNATH PRASAD PAPER BOOK PAGE 232 TO 234. BANK STATEMENT FURNISHED. NO SUBSTANTIAL CASH TRANSACTIONS ARE RECORDED IN THE BANK ACCOUNT AND THE TRANSACTIONS APPEAR TO BE GENUINE. PAPER BOOK PAGE 62 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 63 AFFIDAVIT FURNISHED DATED 01-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 9 VIMLA DEVI PAPER BOOK PAGE 236 TO 238. BANK STATEMENT FURNISHED. FEW TRANSACTIONS ARE RECORDED IN THE BANK STATEMENT AND THERE IS NO SUBSTANTIAL CASH DEPOSIT IN THE BANK. BANK ACCOUNT APPEARS TO BE IN ORDER. PAPER BOOK PAGE 67 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 68 AFFIDAVIT FURNISHED DATED 15-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 10. LALBIHARI GUPTA PAPER BOOK PAGE 240 TO 242. BANK STATEMENT FURNISHED. FEW TRANSACTIONS ARE RECORDED IN THE BANK STATEMENT AND THERE IS NO SUBSTANTIAL CASH DEPOSIT IN THE BANK. BANK ACCOUNT APPEARS TO BE IN ORDER. PAPER BOOK PAGE 73 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 74 AFFIDAVIT FURNISHED DATED 30-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 13 11 RAMA PRASAD PAPER BOOK PAGE 244 TO 246. BANK STATEMENT FURNISHED. FEW TRANSACTIONS ARE RECORDED IN THE BANK STATEMENT AND THERE IS NO SUBSTANTIAL CASH DEPOSIT IN THE BANK. BANK ACCOUNT APPEARS TO BE IN ORDER PAPER BOOK PAGE 78 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 79 AFFIDAVIT FURNISHED DATED 30-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 12 RAMNARESH AGARWAL PAPER BOOK PAGE 248 TO 250. BANK STATEMENT FURNISHED. NO SUBSTANTIAL CASH IS DEPOSITED IN THE BANK. TRANSACTIONS APPEAR TO BE GENUINE. PAPER BOOK PAGE 83 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 84 AFFIDAVIT FURNISHED DATED 30-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 13 PRABHUSHANKAR VERAMA PAPER BOOK PAGE 252 TO 254. BANK STATEMENT FURNISHED. NO SUBSTANTIAL CASH IS DEPOSITED IN THE BANK. TRANSACTIONS APPEAR TO BE GENUINE. PAPER BOOK PAGE 88 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 84 AFFIDAVIT FURNISHED DATED 31-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 14 SHAMBHU PRASAD PAPER BOOK PAGE 256 TO 258.BANK STATEMENT FURNISHED.NO SUBSTANTIAL CASH IS DEPOSITED IN THEBANK. TRANSACTIONS APPEAR TO BE GENUINE . PAPER BOOK PAGE 93 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 94 AFFIDAVIT FURNISHED DATED 01-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 14 15 RAJENDRA KUMAR DALMIYA PAPER BOOK PAGE 260 TO 262. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS. PAPER BOOK PAGE 98 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 99 AFFIDAVIT FURNISHED DATED 31-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 16 BUNNILAL PRASAD PAPER BOOK PAGE 264. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS. PAPER BOOK PAGE 103 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 104 AFFIDAVIT FURNISHED DATED 30-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 17 MANOJKUMAR GUPTA PAPER BOOK PAGE 266 TO 268. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS. PAPER BOOK PAGE 108 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 109 AFFIDAVIT FURNISHED DATED 30-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 18 GINNIDEVI DALMIYA PAPER BOOK PAGE 270 TO 272. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS PAPER BOOK PAGE 114 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 115 AFFIDAVIT FURNISHED DATED 31-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER 19 SUKHDEV PRASAD PAPER BOOK PAGE 274 TO 276. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS. PAPER BOOK PAGE 119 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 120 AFFIDAVIT FURNISHED DATED 31-03-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 15 20 RAM ASHAARAY PRASAD PAPER BOOK PAGE 278 TO 280. BANK STATEMENT FURNISHED WITH FEW BANK TRANSACTIONS PAPER BOOK PAGE 124 CONFIRMATION STATEMENT FURNISHED AND APPEARS TO BE IN ORDER PAPER BOOK PAGE - 125 AFFIDAVIT FURNISHED DATED 01-04-2009 DULY SIGNED AND NOTARIZED AND APPEARS TO BE IN ORDER HOWEVER, DURING THE RELEVANT ASSESSMENT YEAR THE LE ARNED AOS OBSERVATION WAS THAT IN RESPECT OF FIVE LENDERS BAN K ACCOUNTS WERE OPENED IN THE SAME BANK WITHIN A WEEK AND THE OTHER LENDERS HAD NOT FURNISHED THEIR BANK STATEMENTS. FURTHER, THERE ARE TRANSACTIONS ONLY WITH RESPECT TO THE ASSESSEE IN THESE BANK ACCOUNTS AND THE AFFIDAVITS FURNISHED BY THE LENDERS DO NOT APPEAR T O BE GENUINE. ON OUR PERUSAL OF THE RECORDS AND PAPER BOOK FURNISHED BY THE ASSESSEE, THE FACTS SEEM TO BE CONTRADICTORY TO THE FINDINGS OF THE LEARNED AO. AS STATED ABOVE, PREDOMINANTLY ALL THE LENDERS HAD FURNISHED BANK STATEMENTS AND THERE ARE NO SUBSTANTIAL CASH DEPOSI TS THOUGH ALL THE LOAN TRANSACTIONS WERE WITH THE ASSESSEE. THOUGH, T HIS FACT MAY RAISE AN AIR OF SUSPICION, SOMETHING MORE SHOULD BE BROUG HT ON RECORD TO CONFIRM THE APPREHENSIONS OF THE LEARNED AO. THE AF FIDAVITS APPARENTLY ARE ALL IN ORDER AND DULY SIGNED BY THE EXECUTANTS AND NOTARIZED. THOUGH, THE AFFIDAVITS BY ITSELF WILL NO T SUBSTANTIALLY PROVE THE GENUINENESS OF THE TRANSACTIONS THE REVENUE HAS TO BRING OUT SOME ADDITIONAL MATERIALS ON RECORD TO DISPROVE THE STAND OF THE ASSESSEE. NO ACTION HAS BEEN TAKEN BY THE REVENUE T O EXAMINE THE LENDERS U/S 133(6) OF THE ACT IN ORDER TO PROVE THA T THE LENDERS ARE BOGUS. WE ALSO AGREE THAT PROVING THE EXISTENCE OF THE LENDERS AND DOCUMENTATION OF THE LOAN TRANSACTIONS ALONE WILL N OT CONFIRM THE ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 16 TRANSACTIONS THAT THE LOAN TRANSACTIONS ARE GENUINE . AT THE SAME TIME THE REVENUE HAS ALSO TO ESTABLISH WITH SOME COGENT EVIDENCE TO DISPROVE THE CONTENTIONS OF THE ASSESSEE. MERE APPR EHENSIONS OF THE REVENUE BASED ON SOME INFORMATION ALONE CANNOT DISP ROVE THE STAND OF THE ASSESSEE. MOREOVER, FROM THE FACTS OF THE CA SE, IT IS APPARENT THAT THE DECISIONS OF THE CASES RELIED BY THE LEARN ED AO, SUPRA DO NOT APPLY TO THE PRESENT CASE. FURTHER, THE OBSERVATION S OF THE LEARNED CIT(A) ARE LISTED AND DISCUSSED HEREUNDER: (A) ALL THE LENDERS ARE FROM VILLAGE FROM WHICH TH E ASSESSEE ALSO HAILS. THIS OBSERVATION OF THE LEARNED CIT(A) RATHER SUPPORTS THE ARGUMENTS OF THE ASSESSEE THAT THE LEN DERS ARE GENUINE. (B) THE LENDERS ARE FROM REMOTE VILLAGE HAVING MEA GER SOURCE OF INCOME IS ALSO NOT A GROUND TO BE GIVEN WEIGHTAG E UNLESS THE SOURCES OF INCOME OF THE VILLAGERS ARE PERUSED. (C) BY THE GENERALIZED REMARK OF THE REVENUE THAT T HERE ARE NUMBERS OF CASES OF FILING BOGUS RETURNS IN THE PRE SENT SCENARIO, IT CANNOT BE PRESUMED THAT THE ASSESSEE H AD INDULGED IN BOGUS TRANSACTIONS UNLESS AND UNTIL SPE CIFICALLY PROVED. (D) FROM THE BANK STATEMENTS SUBMITTED BY THE LENDE RS THOUGH THERE IS AN AIR OF SUSPICION COMING OUT SINCE IN MO ST OF THE CASES THE TRANSACTIONS ARE ONLY RELATED TO THE LOAN TRANSACTIONS WITH THE ASSESSEE, THAT ALONE CANNOT DISPROVE THE STAND OF THE ASSESSEE. (E) THE AFFIDAVITS SIGNED AND NOTARIZED BY THE ASSE SSEE CANNOT BE OUT RIGHTLY REJECTED BECAUSE ON THE FACE OF IT, IT APPEARS TO BE GENUINE. ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 17 8.1 CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES O F THE CASE AND FROM THE DISCUSSION IN THE FOREGOING PARAGRAPHS, WE ARE OF THE CONSIDERED VIEW THAT THE REVENUE IS NOT JUSTIFIED I N MAKING THE ADDITION OF RS.8,11,696/- AS BOGUS LOANS OBTAINED F ROM THE LENDERS ESPECIALLY WHEN THE REVENUE HAD ACCEPTED THE AMOUNT OF RS.1,31,76,731/- [RS.1,39,88,427/- RS.8,11,696/-] AS GENUINE WHICH ARE LOANS OBTAINED FROM SAME PARTIES IN THE PREVIOU S ASSESSMENT YEARS. THEREFORE, WE ALLOW THIS GROUND RAISED BY TH E ASSESSEE. 9. GROUND NO.2 - CONFIRMING THE DISALLOWANCE OF INTEREST FOR RS.12,94,993/-:- THE LEARNED AO HAS DISALLOWED THE INTEREST PAYMENT OF RS.12,94,993/- TO THE ABOVE MENTIONED TWENTY IND IVIDUALS SINCE THE REVENUE OPINED THAT THE LOANS RECEIVED FROM THEM AR E BOGUS. HOWEVER, WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE, AND REVERSED THE FINDINGS OF THE REVENUE WITH RESPE CT TO THE GENUINENESS OF THE LOAN TRANSACTIONS BETWEEN THE AS SESSEE AND THE TWENTY INDIVIDUALS, THEREFORE, CONSEQUENTLY WE HERE BY ALLOW THE APPEAL OF THE ASSESSEE FOR GRANTING DEDUCTION OF RS .12,94,993/- BEING THE INTEREST PAYMENT TO THE ABOVE REFERRED TW ENTY LENDERS. THIS GROUND RAISED BY THE ASSESSEE IS ALSO ALLOWED IN HI S FAVOUR. 10. GROUND NO.3 - CONFIRMING THE ADDITION ON ACCOUNT OF CLOSING STOCK FOR RS.21,65,298/-. THE LEARNED AO ON VERIFICATION OF THE SALES BILLS FROM 01-04-2006 TO 15-04-2006 NOTIC ED THAT THE NET REALIZABLE VALUE OF FINISHED GOODS ON AN AVERAGE IS RS.33.88 PER METER. HOWEVER, THE LEARNED AO WORKED OUT THE RATE BY REDUCING THE GROSS PROFIT MARGIN OF 4.97% (AS DISCLOSED IN THE T AX AUDIT REPORT) ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 18 FROM THE NET REALIZABLE VALUE AND ARRIVED AT THE RA TE OF RS.32.2 PER METER AS AGAINST THE RATE ADOPTED BY THE ASSESSEE A T RS.28.50 PER METER. FURTHER, IT WAS NOTICED BY THE LEARNED AO TH AT WITH RESPECT TO SALES RETURNED, THE ASSESSEE HAD ACCOUNTED @ RS.34. 93 PER METER. CONSIDERING THE ABOVE FACTS, THE LEARNED AO OPINED THAT THE ASSESSEE HAD DISCLOSED STOCK AT LOWER VALUE AND THE REFORE, ESTIMATED THE VALUE OF FINISHED GOODS AS ON 31-03-2006 AD OPTING THE RATE OF RS.32.20 PER METER AND ARRIVED AT THE VALUE OF RS. 1,88,43,943/-. THE DIFFERENTIAL AMOUNT OF RS.21,65,298/- WAS THUS ADDE D TO THE INCOME OF THE ASSESSEE BEING UNDERVALUATION OF STOCK. THE LEA RNED CIT(A) SUBSCRIBED TO THE VIEW OF THE LEARNED AO AND CONFIR MED HIS ORDER. 11. THE LEARNED AR SUBMITTED BEFORE US THAT THE LEA RNED AO HAD ESTIMATED THE VALUE OF THE CLOSING STOCK WITHOUT EX AMINING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND MADE ADD ITION ON FLIMSY GROUNDS. HE, THEREFORE, PRAYED THAT THE ADDITION MA DE BY THE LEARNED AO MAY BE DELETED. THE LEARNED DR ON THE OTHER HAN D, RELIED ON THE ORDERS OF THE REVENUE AND ARGUED IN SUPPORT OF THE SAME. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS AND CIRCUMSTANC ES OF THE CASE IT IS APPARENT THAT THE LEARNED AO WITHOUT EXAMINING T HE STOCK RECORDS MAINTAINED BY THE ASSESSEE PROCEEDED TO ESTIMATE TH E VALUE OF THE CLOSING STOCK BASED ON TRANSACTIONS FOR A LIMITED P ERIOD BETWEEN 01- 04-2006 TO 15-04-2006. THIS CALCULATION ADOPTED BY THE LEARNED AO IS CRUDE AND WITHOUT ANY REASONABLE BASIS. FURTHER, TH E LEARNED AO HAD NOT COMMENTED ON THE RELIABILITY OF THE BOOKS OF AC COUNTS, STOCK ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 19 RECORDS ETC. MAINTAINED BY THE ASSESSEE. FURTHER, I T IS PERTINENT TO NOTE THAT THE VALUE OF THE CLOSING STOCK HAS TO BE DETERMINED BY ITS COST OR MARKET PRICE WHICHEVER IS LESS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOR THE REASONS DISCU SSED ABOVE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE LEARN ED AO FOR RS.21,65,298/- ON ACCOUNT OF UNDERSTATEMENT OF VALU E OF STOCK IS NOT WARRANTED. THEREFORE, WE HEREBY DELETE THE SAME. AC CORDINGLY, GROUND NO.3 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D IN ITS FAVOUR. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NO.453/AHD/2010 (REVENUES APPEAL FOR AY: 2006-07) 14. GROUND NO.1 - A DDITION MADE BY THE A. O. OF RS.33,40,635/- ON ACCOUNT OF EXCESS CLAIM OF PACKING MATERIAL EXPE NSES. THE LEARNED AO OBSERVED THE FOLLOWING DISCREPANCIES IN THE CLAIM OF PACKING MATERIAL EXPENSES AGGREGATING TO RS.1,09,48 ,241/-. (I) NO SUPPORTING EVIDENCE WAS FURNISHED IN REGARD TO SAREE VALUE ADDITION FOR RS.20,93,519/- BEING THE BREAK- UP FIGURE OF PACKAGING MATERIAL EXPENSES AND NO TDS WA S DEDUCTED. (II) SAREE CUTTING EXPENSES OF RS.1,07,789/- AND C HECKING EXPENSES OF RS.3,41,548/- APPEARED TO BE ACCOUNTED TWICE. (III) FOR VERIFICATION OF SIX PARTIES WITH RESPECT TO THE ABOVE DISCREPANCIES NOTICES WERE ISSUED U/S 133(6) OF THE ACT BASED ON THE ADDRESSES FURNISHED BY THE ASSESSEE, W HICH WERE RETURNED UN-SERVED. THE ASSESSEE COULD NOT FUR NISH ANY EXPLANATION. ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 20 (IV) THE ASSESSEE HAD CONFIRMATION STATEMENT WITH R ESPECT TO ONLY ONE PARTY VIZ. M/S. SONI MARKETING AND THAT TO O TURNED OUT TO BE THE PROPRIETARY CONCERN OF A RELAT ED PARTY TO THE ASSESSEE. (V) ON COMPARISON OF PACKING EXPENSES WITH THE PREC EDING ASSESSMENT YEARS IT WAS NOTICED THAT DURING THE REL EVANT ASSESSMENT YEAR PACKING EXPENSES WORKED OUT TO 11.58% AS AGAINST 5.55%, 4.15%AND 5.69% FOR THE ASSESSMENT YEARS 2005-06, 2004-05 AND 2003-04 RESPECTIVELY. THUS, THERE WAS ABNORMAL INFLATION OF PACKING EXPENSES IN THE RELEVANT ASSESSMENT YEAR 20 06- 07. (VI) THE TOTAL QUANTITY OF SAREES SOLD DURING THE Y EAR WAS 6,63,237 PIECES, THUS THE PIECE RATE PER PACKING MA TERIALS WORKS OUT TO RS.16.50. (VII) IN OTHER COMPARABLE CASES, THE PACKING EXPENS ES RANGE BETWEEN 0.5% TO 3.5% OF THE TOTAL TURNOVER. 14.1 THE LEARNED AO DUE TO THE ABOVE MENTIONED REA SONS ESTIMATED THE PACKING EXPENSES AT 6% OF THE TURNOVE R WHICH WORKS OUT TO RS.77,07,606/- AND ADDED THE EXCESS CLAIM AM OUNT OF RS.33,40,635/- TO THE TOTAL INCOME OF THE ASSESSEE. 14.2 WHEN THE MATTER CROPPED UP BEFORE THE LEARNED CIT(A), THE LEARNED CIT(A) AFTER AN EXTENSIVE DELIBERATION AND OBTAINING REMAND REPORT FROM THE LEARNED AO, DELETED THE ADDI TION MAINLY DUE TO THE FOLLOWING REASONS: (I) THERE WERE LARGE NUMBERS OF BILLS UNDER THE HEA D PACKAGING MATERIAL EXPENSES. THE BIFURCATION AND IN TER- HEAD ACCOUNTING COULD HAVE BEEN FAULTY DUE TO WRONG TOTALING. THE SAME COULD HAVE BEEN RECONCILED. HOWE VER, THE AO HAD NOT GIVEN SUFFICIENT OPPORTUNITY TO THE ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 21 ASSESSEE TO RECONCILE THE SAME DURING THE ASSESSMEN T PROCEEDINGS. (II) IN THE REMAND PROCEEDINGS, THE LEARNED AO SEEM S TO HAVE VERIFIED THE ACCOUNTS AND BILLS, HOWEVER, HE H AS NOT COMMENTED ON THE AUTHENTICITY OF THE BILLS WHICH ESTABLISHED THAT HE HAS ACCEPTED THE SAME TO BE GEN UINE. (III) FOR THE ABOVE SAID TWO REASONS, BIFURCATION O R TRANSFERRING OF AMOUNTS BETWEEN TWO MINOR HEADS COULD NOT HELD A S A GROUND TO REJECT THE PACKING EXPENSE. (IV) DURING THE RELEVANT ASSESSMENT YEAR TURNOVER H AS SUBSTANTIALLY INCREASED FROM RS.7.9 CRORES TO RS.12 .68 CRORES WHICH COULD HAVE RESULTED IN INCREASE IN PAC KING MATERIAL EXPENSES. (V) THOUGH THE LEARNED AO HAD COMPARED THE ASSESSEE S CASE WITH OTHER SIMILAR CASES WITH RESPECT TO PACKI NG MATERIAL EXPENSES, COMPLETE FACTS AND DETAILS OF SU CH COMPARABLE CASES WERE NOT BROUGHT ON RECORD FOR THE ASSESSEE TO CONFRONT WITH. 15. THE LEARNED DR ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED AO WHILE AS THE LEARNED AR RELIED ON THE OR DER OF THE LEARNED CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE IT APPEARS THAT THE LEARNED CIT(A) HAD THOROUGHLY EXAM INED THE ISSUE AND HAD PASSED A REASONED ORDER AFTER OBTAINING A R EMAND REPORT FROM THE LEARNED AO. IT IS EVIDENT FROM THE ORDER O F THE LEARNED CIT(A) THAT THE LEARNED AO HAD NEITHER EXAMINED THE VOUCHE RS PRODUCED BY THE ASSESSEE IN DETAIL NOR AFFORDED SUFFICIENT TIME TO THE ASSESSEE TO RECONCILE THE VOUCHERS. THE TURNOVER OF THE ASSESSE E HAD ALSO ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 22 SUBSTANTIALLY INCREASED DURING THE RELEVANT ASSESSM ENT YEAR. IT IS NOT UNUSUAL FOR A DEVELOPING TRADER TO PROVIDE BETTER S ERVICE BY PROVIDING BETTER PACKING MATERIALS. THE LEARNED AO HAD ALSO N OT FURNISHED THE DETAILS OF THE COMPARABLE CASES TO THE ASSESSEE IN ORDER TO DEFEND HIS STAND. CONSIDERING ALL THESE FACTS AND CIRCUMST ANCES OF THE CASE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE O RDER OF THE LEARNED CIT(A). THEREFORE, THIS GROUND RAISED BY THE REVENU E IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15-03-2013 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANTA DEKA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO.4/AHD/2010 AND 453/AHD/2010 (AY- 2006-07) RAKESH O. AGARWAL, SURAT 23 1. DATE OF DICTATION- DIRECT ON COMPUTER 28-02-13/0 1-03-13/06-03-13/ 11-03-13 2 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 11-03-2013 3 DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S.: 6 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER 9 DATE OF DESPATCH OF THE ORDER: