The ITO, Ward-2(4), Surat V. M/s. Dharam Barrel, Surat

ITA 455/AHD/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9897 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-11-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITA RAM MEENA
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation; Unexplained cash credit
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 455/AHD/2010 (ASSESSMENT YEAR: 2006-07) INCOME-TAX OFFICER, WARD- 2(4), SURAT V/S M/S. DHARAM BARREL, PLOT NO. 604/3, OPP. PROHIBITION OFFICE, GIDC, SACHIN, DIST. SURAT. (APPELLANT) (RESPONDENT) PAN: AADFD2159E APPELLANT BY : SHRI SITA RAM MEENA, SR. D .R. RESPONDENT BY : SHRI M.K. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 17 -11-201 6 DATE OF PRONOUNCEMENT : 24 -11-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, SURAT DATED 27.11.2009 PERTAINING TO A.Y. 2006-07. ITA NO 455/A HD/2010 . A.Y. 2006-0 7 2 2. THE REVENUE HAS RAISED SIX SUBSTANTIVE GROUNDS OF A PPEAL. WE WILL TAKE UP EACH ONE BY ONE. 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 15,39,495/- ON ACCOUNT OF LOW GP . 3. THE A.O. HAS MADE THE AFOREMENTIONED ADDITION ON TH E GROUND THAT DURING THE YEAR UNDER CONSIDERATION THE G.P. RATIO DISCLOS ED WAS 7.59% ON TURNOVER OF RS. 3.97 CRORES AS AGAINST G.P. RATIO O F 11.47% ON TURNOVER OF RS. 2.74 CRORES. THE A.O. FURTHER FOUND THAT THE AS SESSEE HAS NOT MAINTAINED ANY QUANTITATIVE RECORD AND FAILED TO PR ODUCE INVENTORY OF THE OPENING STOCK AND THE CLOSING STOCK. 4. BEFORE THE FIRST APPELLATE AUTHORITY, THIS ISSUE WA S STRONGLY AGITATED CLAIMING THAT ASSESSEE HAS MAINTAINED COMPLETE SET OF BOOKS OF ACCOUNTS WHICH WERE DULY AUDITED. THE ASSESSMENTS, THOUGH IN ITIATED IN NOVEMBER 2007, WERE ACTUALLY TAKEN UP TOWARDS THE END OF NOV EMBER 2008. THE ASSESSEE WAS GIVEN A VERY LITTLE TIME TO FURNISH CO MPLETE DETAILS. THE ASSESSEE PRODUCED ALL THE NECESSARY DETAILS AND REL EVANT BOOKS OF ACCOUNTS BEFORE THE LD. CIT(A). THE LD. CIT(A) TRANSMITTED A LL THE DOCUMENTARY EVIDENCES TO THE A.O. CALLING FOR A REMAND REPORT. AFTER RECEIVING THE REMAND REPORT, THE FIRST APPELLATE AUTHORITY FOUND THAT THE A.O. HAS NOT MADE ANY COMMENT IN THE REMAND REPORT. ON THIS PART ICULAR GROUND OF APPEAL, THE CLAIM OF THE ASSESSEE THAT THERE WAS NO JUSTIFICATION IN EITHER ITA NO 455/A HD/2010 . A.Y. 2006-0 7 3 REJECTING THE BOOK RESULTS OR MAKING THE ADDITION O F RS. 15,39,495/-. THE LD. CIT(A) FOUND THAT THE AUDIT REPORT CONTAINS ALL REL EVANT DETAILS INCLUDING QUANTITATIVE DETAILS AND THE VALUATION OF THE CLOSI NG STOCK AND THE AUDITORS HAVE NOT MADE ANY ADVERSE COMMENT ON THE ACCOUNTS M AINTAINED BY THE ASSESSEE. THE LD. CIT(A) FOUND THAT THERE WAS NO JU STIFICATION ON THE PART OF THE A.O. IN REJECTING THE BOOK RESULTS AND CONSEQUE NTLY MAKING THE ADDITION OF RS. 15,39,495/-. THE LD. CIT(A) DELETED THE ADDI TION ON ACCOUNT OF LOW G.P. 5. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. A PERUSAL OF THE ORDE R OF THE AUTHORITIES BELOW SHOWS THAT THE LD. CIT(A) HAD GIVEN AMPLE OPP ORTUNITY TO THE A.O. TO EXAMINE THE BOOKS OF ACCOUNTS DURING THE REMAND PRO CEEDINGS. THE A.O. DID NOT EXAMINE THE BOOKS OF ACCOUNTS. WE ALSO FIND THAT THE REMAND REPORT IS ALSO DEVOID OF ANY SUCH FINDING. THE OBSE RVATIONS OF THE LD. CIT(A) THAT THE AUDIT REPORT CONTAINS THE COMPLETE QUANTIT ATIVE DETAILS OF THE STOCK AND THE VALUATION OF THE SAME. WE DO NOT FIND ANY E RROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDI NGLY DISMISSED. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 5,00,000/- ON ACCOUNT OF CAPITAL INTRODUCED BY PARTNERS, TREATED AS UNEXPLAINED CASH CREDITS U/S.68. ITA NO 455/A HD/2010 . A.Y. 2006-0 7 4 6. THE A.O. HAS MADE THE ADDITION OF RS. 5,00,000/- ON ACCOUNT OF UNEXPLAINED CAPITAL INTRODUCED IN THE NAMES OF THE PARTNERS. WE FIND THAT THE ADDITIONS HAVE BEEN MADE BECAUSE THE A.O. FOUND THAT THE PARTNERS HAVE INTRODUCED CAPITAL AND ON RECEIVING NO SATISFA CTORY EXPLANATION HAS MADE THE ADDITIONS U/S. 68 OF THE ACT. 7. IN OUR CONSIDERED OPINION, THE A.O. IS NOT JUSTIFIE D IN MAKING THE ADDITIONS U/S. 68 OF THE ACT IN RESPECT OF CAPITAL INTRODUCED BY THE PARTNERS IN THEIR RESPECTIVE CAPITAL ACCOUNTS. OUR VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. PANKAJ DYESTUFF INDUSTRIES IN INCOME-TAX REFERENCE NO. 241 OF 1993 DATED 06/07/2005 WHEREIN THE HONBLE HIGH COURT HAS OBSERVED AS UNDE R:- '13. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHED THE DETAILS WHICH W OULD DISCHARGE THE ONUS WHICH LAY ON THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE PARTNERS OF THE ASSESSEE FIRM ARE FICTITIOUS. THE INCOME TAX OFFICER HAS NOT DISP UTED THAT THE CREDITS IN THE ACCOUNTS OF THE PARTNERS WERE NOT DEPOSITS FROM THE PARTNERS. MOREOVER, IT IS AN ADMITTED POSITION THAT THIS WAS THE SECOND YEAR OF THE FIRM, AND THAT IT WAS RUNNING IN LOSS. IT IS TRUE THAT THE INCOME TAX OFFICER DID NO T ACCEPT THE EXPLANATION GIVEN ON BEHALF OF THE ASSESSEE IN RESPECT OF THE NEW DEPOSI TS OR CASH CREDITS IN THE ACCOUNTS OF THE PARTNERS. THE MERE NON-ACCEPTANCE OF THAT EXPLA NATION DOES NOT, HOWEVER, PROVIDE MATERIAL FOR FINDING THAT THE SAID SUM REPR ESENTED INCOME OF THE ASSESSEE FIRM,. AS HELD BY THE ALLAHABAD HIGH COURT IN THE C ASE OF COMMISSIONER OF INCOME TAX ALLAHABAD VS. JAISWAL MOTOR FINANCE (SUPRA), IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT THERE WERE PROFITS OF THE FIRM, THE A MOUNT CREDITED TO THE PARTNERS' ACCOUNTS COULD NOT BE ASSESSED IN THE HANDS OF THE FIRM. ONCE THE PARTNERS HAVE OWNED THAT THE MONIES DEPOSITED IN THEIR ACCOUNTS A RE THEIR OWN, THE INCOME TAX ITA NO 455/A HD/2010 . A.Y. 2006-0 7 5 OFFICER IS ENTITLED TO AND MAY PROCEED AGAINST THE PARTNERS AND ASSESS THE SAME IN THEIR HANDS, IF THEIR EXPLANATION IS NOT FOUND SATI SFACTORY.' 8. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DECLINE TO INTERFERE. GROUND NO. 2 IS DISMISSED . 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD, CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.25,00,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDITS U/S.68 OF THE I .T .ACT. 9. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. FOUND THAT THE ASSESSEE HAS INTRODUCED CREDITS OF RS. 25 LACS IN THE NAMES OF THE FOLLOWING CREDITORS. (A) JAYSUKHBHAI SAVALIYA RS. 100000/- (B) KHODIDASBHAI RANCHODBHAI RS. 700000/- (C)PARESHBHAI DOBARIYA RS. 100000/- (D) R.N. PATEL RS. 1600000/- 10. THE A.O. CALLED FOR NECESSARY DETAILS FROM THE ASSE SSEE TO JUSTIFY THE CREDIT ENTRIES IN THE LIGHT OF THE PROVISIONS OF SECTION 6 8 OF THE ACT. THE A.O. FOUND THAT THE ASSESSEE HAS FAILED TO FURNISH THE BANK PA SSBOOK OF ALL THE CREDITORS FOR VERIFICATION OF THE CREDITWORTHINESS AND ACCORD INGLY MADE THE ADDITIONS U/S. 68 OF THE ACT. 11. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE FURNISHED ALL THE DETAILS SUCH AS COPY OF ACCOUNT OF THE ASSESSEE, CONFIRMATO RY LETTERS AND PAN ITA NO 455/A HD/2010 . A.Y. 2006-0 7 6 NUMBERS. IT WAS STRONGLY ARGUED THAT MERELY BECAUSE PASSBOOKS OF THE CREDITORS COULD NOT BE FURNISHED WOULD NOT JUSTIFY THE ADDITIONS. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND AFTER GOING THROUGH THE REMAND REPORT, THE LD. CIT(A) OBSERVED AS UNDER:- 14.1 I HAVE CAREFULLY CONSIDERED THE MATTER. I HAVE ALSO EXAMINED THE AUDIT REPORT OF THE ASSESSEE. FROM THE DETAILS OF UNSECUR ED LOANS, AS LAID OUT IN SCHEDULE A-L OF THE AUDIT REPORT, I FIND THAT AGAIN ST THESE TWO PERSONS THE DEPOSITS SHOWN ARE AS UNDER : (ALSO CONFIRMED BY THE AO IN T HE REMAND REPORT) 1. KHODIDASBHAI RANCHODBHAI RS. 7,00,000/- 2. R.N. PATEL RS. 9,00,000/- 14.2 IN THE ASSESSMENT ORDER, AS ALSO IN THE REMAND REPORT THE AO HAS SHOWN THE DEPOSITS STANDING IN THE NAMES OF THESE TWO PERSONS AS UNDER: 1. KHODIDASBHAI RANCHODBHAI RS. 7,00,000/- 2. R.N. PATEL RS. 16,00,000/- THIS CLEARLY SHOWS THAT THE AO MADE AN ERROR BOTH I N THE ASSESSMENT PROCEEDINGS AS ALSO IN REMAND PROCEEDINGS. WHILE HE CORRECTLY S HOWED THE DEPOSITS OF RS 7 LAKHS AGAINST THE NAME OF SHRI KHODIDASBHAI RANCHOD BHAI, AGAINST THE NAME OF SHRI R.N.PATEL HE SHOWED RS 16 LAKHS WHICH WAS THE PRODUCT OF RS 9 LAKHS + RS 7 LAKHS = RS 16 LAKHS WHICH WAS IN CONTRADICTION TO W HAT IS SHOWN IN THE AUDIT REPORT WHICH ALSO HE MENTIONED IN THE REMAND REPORT . IN OTHER WORDS, HE ADDED THE DEPOSITS OF BOTH SHRI R.N.PATEL (RS 9 LAKHS) AN D OF SHRI KHODIDASBHAI RANCHODBHAI (7 LAKHS) AND SHOWED THE RESULTANT RS 1 6 LAKHS AGAINST THE NAME OF SHRI R.N.PATEL. 14.3 THE AUDIT REPORT SHOWS A DEPOSIT OF RS 7 LAKHS IN THE NAME OF SHRI KHODIDASBHAI RANCHODBHAI AND RS 9 LAKHS IN THE NAME OF HIS FATHER SHRI R.N.PATEL WHICH MEANS THAT BETWEEN THE TWO OF THEM, THEY HAD MADE DEPOSITS TOTALLING RS 16 LAKHS. OUT OF THIS SUM, THE DEPOSIT S OF RS 14 LAKHS WAS VERIFIED BY THE AO FROM THE BANK ACCOUNT OF SHRI R. N PATEL. TH AT MEANS THAT THE BALANCE OF RS 2 LAKHS HAS NOT BEEN EXPLAINED SO FAR. THUS, THE DEPOSITS OF RS 1 LAKH EACH ITA NO 455/A HD/2010 . A.Y. 2006-0 7 7 SHOWN IN THE NAMES OF SHRI JAYSUKHBHAI SAVALIYA AND SHRI PARESHBHAI DOBARIYA STAND EXPLAINED. OUT OF THE TOTAL DEPOSITS OF RS 7 LAKHS + RS 9 LAKHS = RS 16 LAKHS STANDING IN THE NAME OF SHRI KHODIDASBHAI RANCHODBH AI AND SHRI R.N.PATEL, DEPOSITS TOTALLING 14 LAKHS HAVE BEEN SATISFACTORIL Y EXPLAINED. WHILE THE DEPOSITS ACTUALLY TOTALLED RS 1 LAKH + RS 1 LAKH + RS 9 LAKH S + RS 7 LAKHS = RS 18 LAKHS, THE AO ERRONEOUSLY ADOPTED THE FIGURE OF RS 25 LAK HS OF UNSECURED LOANS, OUT OF THE ACTUAL DEPOSITS OF RS 18 LAKHS AS EVIDENCED BY THE AUDIT REPORT, DEPOSITS OF ONLY RS 2 LAKHS HAVE NOT BEEN SATISFACTORILY EXPLAI NED. THE ADDITION UNDER THE PROVISIONS OF SECTION 68 WILL THEREFORE BE RESTRICT ED TO RS 2 LAKHS, WHILE THE ASSESSEE WILL GET RELIEF OF RS 23 LAKHS. THE AO IS DIRECTED TO TAKE ACTION ACCORDINGLY. 12. A PERUSAL OF THE ABOVE SHOWS THAT THE A.O. HAD ACCE PTED IN HIS REMAND REPORT ONLY RS. 2,00,000/- COULD NOT BE SATISFACTOR ILY EXPLAINED THE ADDITION WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A). THE BAL ANCE OF RS. 23 LACS WAS DELETED. SINCE NO ERROR OR INFIRMITY HAS BEEN POINT ED OUT BY THE LD. D.R. IN THE ABOVE FACTUAL FINDING OF THE LD. CIT(A) BASED U PON THE REMAND REPORT, WE DECLINE TO INTERFERE. 4. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 34,70,870/-ON ACCOUNT OF UNVERIFIABLE CREDITORS U/S.68 OF THE ACT . 13. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE HAS INTRODUCED RS. 34,70,870/- IN THE NAME S OF THE VARIOUS CREDITORS. THE A.O. FURTHER OBSERVED THAT THE ASSES SEE HAS FAILED TO FURNISH CONFIRMATORY LETTERS, BANK STATEMENTS OF THE CREDIT ORS AND THEIR PAN AND ITA NO 455/A HD/2010 . A.Y. 2006-0 7 8 SINCE THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS CAST UPON HIM WITHIN THE MEANING OF SECTION 68 OF THE ACT. THE A.O. PROC EEDED BY MAKING THE ADDITION OF RS. 34,70,870/-. 14. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A). IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE A.O. DID NOT GIVE SUFFICIENT OPPORTUNITY TO THE ASSESSEE. THE LD. CIT(A) CALLED FOR A REMAND RE PORT FROM THE A.O. IN RESPECT OF THE ALLEGED UNEXPLAINED CREDITORS. DURIN G THE REMAND PROCEEDINGS, THE ASSESSEE HAD FURNISHED THE CONFIRM ATION OF ALL THE PARTIES EXCEPT FROM M/S.RAJASTHAN TEX DEVELOPERS IN RESPECT OF LOAN AMOUNT OF RS. 3,950/-. IT WAS BROUGHT TO THE NOTICE OF THE LD. CI T(A) THAT IN RESPECT OF CREDITS IN THE NAME OF M/S. PANWAR STEEL , THE AMOU NT REPRESENTS THE OUTSTANDING BALANCE OF EARLIER YEAR I.E. A.Y. 2005- 06. THIS AMOUNT WAS TREATED AS UNEXPLAINED CASH CREDIT BY THE A.O. AFTE R CONSIDERING THE FACTS AND THE SUBMISSIONS AND ALSO THE REMAND REPORT OF T HE A.O., THE LD. CIT(A) HELD AS UNDER:- 22. I HAVE CAREFULLY CONSIDERED THE FINDINGS AND C ONCLUSION OF THE AO, BOTH IN ASSESSMENT PROCEEDINGS AS ALSO IN REMAND PROCEEDING S. I HAVE ALSO GONE THROUGH THE SUBMISSIONS OF THE AR, AND HAVE DISCUSSED THE M ATTER WITH THE THEN ITO WD 2(4) WHO FRAMED THE ASSESSMENT ORDER. THE TOTAL ADD ITION WAS OF RS 34,70,870. IN REMAND PROCEEDINGS, THE ASSESSEE APPEA RS TO HAVE FURNISHED CONFIRMATION FROM ALL THE PARTIES EXCEPT M/S RAJASH TAN TEX DEV FOR RS 3,950 AND FROM M/S RIL FOR RS 38,476. THE SUM OF RS 38,47 6 WAS SEPARATELY ADDED AND HAS ALREADY BEEN TAKEN UP IN THE THIRD GROUND OF APPEAL. THE ADDITION THEREFORE WILL BE RESTRICTED TO ONLY RS 3,950. AS R EGARDS M/S PANWAR STEEL WHO APPEARS TO HAVE BEEN A BUYER OF SCARP FROM THE A SSESSEE, THE OPENING BALANCE ITA NO 455/A HD/2010 . A.Y. 2006-0 7 9 CREDITED IN ITS NAME IN THE BOOKS OF THE ASSESS EE WAS RS 4,66,093 WHICH WAS THE CLOSING BALANCE OF THE IMMEDIATELY PRECEDING YEAR. SINCE, IN THE PRECEDING YEAR, WHICH WAS RELEVANT TO THE AY 2005-06, THE ASSESSEE WAS UNABLE TO VERIFY SUCH BALANCE, IT WAS ADDED TO THE TOTAL INCOME OF T HE ASSESSEE AND WAS CONFIRMED IN APPEAL, VIDE ORDER DATED 26-11-2008 IN CAS/II/45 0/07-08. THE AO HAS STATED IN THE REMAND REPORT THAT DURING THE YEAR UNDER CON SIDERATION, THE ASSESSEE HAD RECEIVED FURTHER PAYMENTS OF RS 4 LAKHS AND RS 1 LA KH VIDE CHEQUES DATED 14-05- 2005 AND 20-05-2005 DRAWN ON THE AKHAND ANAND BANK. THE TRANSACTIONS THEREFORE WERE FULLY VERIFIABLE AND TH E IDENTITY OF THE PARTY ESTABLISHED. AS DISCUSSED ABOVE, AGAINST THE ADD ITION - OF RS 34,70,870, ONLY THE SUM OF RS 3,950 WILL STAND CONFIRMED, AND THE REFORE, THE ASSESSEE WILL GET A RELIEF OF RS 34,70,870 - RS 3,950 = RS. 34,66,920. 15. THE LD. D.R. COULD NOT BRING ANY FACTUAL ERROR IN T HE FINDINGS OF THE LD. CIT(A) AND AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE AFORE-STATED FINDING OF LD. CIT(A), IN OUR CONSIDERED OPINION, THERE IS NO ERRO R OR INFIRMITY WHICH CALLS FOR ANY INTERFERENCE. GROUND NO. 4 IS DISMISSED. 5. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD, CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 38,476/- ON ACCOUNT OF PROFIT ON ACCOUNT UNACCOUNTED PURCHASE/S ALES OF RS.2,96,975. 16. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE CONFIRMATION ACCOUNT FURNISHED BY RIL, THE A.O. NOT ICED THAT THE ASSESSEE HAS SHOWN THE PURCHASES OF RS. 2,61,36,270/-, WHERE AS THE RIL HAS SHOWN RS. 2,64,33,245/-. ACCORDING TO THE A.O., THERE WAS A DIFFERENCE OF ITA NO 455/A HD/2010 . A.Y. 2006-0 7 10 PURCHASES OF RS. 296,975/-. ON FINDING NO PLAUSIBLE RECONCILIATION ON THE PART OF THE ASSESSEE, THE A.O. MADE AN ADDITION OF RS. 38,476/- BEING 11.47%. 17. WHEN THIS MATTER WAS AGITATED BEFORE THE LD. CIT(A) , THE LD. CIT(A) FOUND THAT THE TRANSACTIONS WITH RIL IS FAR IN EXCESS OF RS. 2 CRORES AND IT MAY BE POSSIBLE THAT THERE WERE CERTAIN DISCREPANCIES OR D IFFERENCES IN THE ACCOUNTS. THE LD. CIT(A) WAS OF THE OPINION THAT SU CH DISCREPANCIES OR DIFFERENCES COULD BE FOR VARIOUS REASONS AND SOMET IMES THE DISPUTES TAKE LONG TO SETTLE AND RECONCILE. THE LD. CIT(A) FURTH ER FOUND THAT IT IS NOT A CASE OF SALE OUTSIDE THE BOOKS. THEREFORE, THE ASSESSEE COULD NOT HAVE BEEN BENEFITTED BY SHOWING LOWER PURCHASES. THE LD. CIT( A) DELETED THE ADDITION OF RS. 38,476/-. 18. BEFORE US, THE LD. D.R. COULD NOT POINT OUT THAT TH E ASSESSEE WAS INDULGED IN SALES OUTSIDE THE BOOKS OF ACCOUNTS. WE ALSO FIND T HAT THE ASSESSEE WOULD NOT DERIVE ANY BENEFIT IN SHOWING LESSER AMOUNT OF PURCHASES IN ITS BOOKS OF ACCOUNTS THEREBY EXPOSURE ITSELF TO A HIGHER GROSS PROFIT. WE FIND THAT THERE IS NO MERIT IN THE GRIEVANCE OF THE REVENUE AND, TH EREFORE, DECLINE TO INTERFERE. GROUND NO. 5 IS ACCORDINGLY DISMISSED. 6. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS. 96,930/- ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST EXPENSES. ITA NO 455/A HD/2010 . A.Y. 2006-0 7 11 19. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. FOUND THAT THE ASSESSEE HAS CLAIMED INTEREST PAYMENT TO BANK AT RS . 4,65,956/-. THE A.O. FURTHER FOUND THAT THE ASSESSEE HAS NOT CHARGED ANY INTEREST ON THE ADVANCES GIVEN TO SMT. GITABEN KALATHIA, SRI LABHUB HAI N. PATEL AND PARTH SUGAR CANDY WORKS. THE A.O. WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAD NO JUSTIFICATION IN GIVING INTEREST FREE ADVANCES T O THESE PARTIES. THEREFORE APPLYING THE INTEREST RATE OF 10% ON THE TOTAL INTE REST FREE ADVANCES, THE A.O. MADE AN ADDITION OF RS. 96,930/-. 20. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT(A), THE LD. CIT(A) OBSERVED THAT THE A.O. HAS FAILED TO ESTABLISH ANY NEXUS OF BORROWINGS AND INTEREST FREE ADVANCES. THE LD. CIT(A) WAS OF THE OPINION TH AT IT WAS FOR THE A.O. TO ESTABLISH THAT THE ASSESSEE HAS UTILIZED INTEREST B EARING FUNDS FOR GIVING INTEREST FREE ADVANCES. ON FINDING NO SUCH NEXUS, T HE LD. CIT(A) DELETED THE ADDITIONS. 21. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE FIND INGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. WE FIND THAT THE A.O. HAS NOWHERE MENTIONED THAT THE INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR GIVING INTEREST FREE ADVANCES. WE, THEREFORE, DECLINE TO INTERFERE. GROU ND NO. 6 IS ACCORDINGLY DISMISSED. GROUND NO. 7 & 8 ARE OF GENERAL IN NATURE AND NEED S NO SEPARATE ADJUDICATION. ITA NO 455/A HD/2010 . A.Y. 2006-0 7 12 22. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24 - 11- 2016. SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED: /11/2016 RAJESH TRUE COPY COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD