ITO, Jaipur V. M/S GOYAL COLOUR LAB, Jaipur

ITA 496/JPR/2011

• Counselvise Citation: 49623114 RSA 2011
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Rejection of books of accounts

Judgement Text

1 ITA 496-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 496/JP/2011 ASSTT. YEAR : 2008-09. THE INCOME-TAX OFFICER, VS. M/S. GOYAL COLOUR LAB ., WARD 1(3), 158, MEHANDIWAS HOUSE, JAIPUR. NEHRU BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH CHANDRA RESPONDENT BY : SHRI MANISH AGARWAL DATE OF HEARING : 11.10.2011 DATE OF PRONOUNCEMENT : 21.10.2011 ORDER DATED : 21/10/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2008-09. 2. THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE DEPARTMENT IN ITS APPEAL :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN :- (I) DELETING THE ADDITION OF RS. 2,71,10,725/- MADE BY THE AO ON A/C OF TRADING ADDITION (PHOTOGRAPHY JOB WORK). (II) DELETING THE DISALLOWANCES OF INTEREST OF RS. 9,75,545/- U/SL 36(1)(III) MADE BY THE AO. 2 (III) DELETING THE DISALLOWANCES OF OUT OF JOB COLL ECTION CHARGES OF RS.8,82,522/- U/S 40(A)(IA) MADE BY THE AO. 3. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S TATED THAT ALL THE GROUNDS TAKEN IN THE APPEAL OF THE DEPARTMENT ARE COVERED BY THE ORD ER OF THE TRIBUNAL FOR IMMEDIATELY PRECEDING YEAR, COPY OF THE ORDER OF TRIBUNAL WAS A LSO FILED. 4. THE LD. D/R ON THE OTHER HAND FAIRLY STATED THAT THOUGH THE ISSUES INVOLVED IN THE APPEAL OF THE DEPARTMENT ARE COVERED BY THE ORDER O F TRIBUNAL FOR IMMEDIATELY PRECEDING YEAR, HOWEVER, HE MENTIONED THAT FIRSTLY HE PLACED RELIANCE ON THE ORDER OF THE AO; SECONDLY, IT WAS SUBMITTED THAT PROVISIONS OF SECTI ON 145(3) WERE APPLIED AND APPLICATION OF PROVISIONS OF SECTION 145(3) HAS BEEN UPHELD BY THE TRIBUNAL FOR EARLIER; YEAR. THEREFORE, THE AO AFTER NOTING VARIOUS DEFECTS AND DISCREPANCIES HAS DISTURBED THE TRADING RESULT AND ACCORDINGLY THE ORDER OF AO IS LIABLE TO BE SUSTAINED. THE GP RATE APPLIED BY THE AO IS IN THE LIGHT OF GP RATE SHOWN IN THE PAST YEARS. 5. IN REPLY, THE LD. COUNSEL OF THE ASSESSEE STATED THAT NO DOUBT THE PROVISIONS OF SECTION 145(3) HAVE BEEN UPHELD UPTO THE STAGE OF T RIBUNAL, HOWEVER, TRIBUNAL HAS DISCUSSED THE ISSUE IN DETAIL AND THEN ONLY THE ORD ER OF LD. CIT (A) AS WELL AS CROSS OBJECTION OF THE ASSESSEE WERE ALLOWED IN PART. TH E FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES OF EAR LIER YEAR. ATTENTION OF THE BENCH WAS DRAWN ON RELEVANT FINDINGS OF THE TRIBUNAL IN RESPE CT OF EACH GROUND RAISED BY THE DEPARTMENT. ACCORDINGLY IT WAS SUBMITTED THAT SINC E THE ISSUES ARE COVERED BY THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR, THEREFORE, THE AP PEAL OF THE DEPARTMENT IS LIABLE TO BE DISMISSED ON ACCOUNT OF EACH GROUND TAKEN BY THE DE PARTMENT. 3 6. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. WE HAVE ALSO PERUSED THE ORDER OF THE AO AS WELL AS THE ORDER OF LD. CIT (A). WE NOTED THAT EVEN THE AO AT PAGE 4 OF HIS ORDER HAS MENTIONED THAT THE POSITION/NATURE OF BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE WAS FOUND TO BE SAME AS HAS BEEN DISCUSSED IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2007-08. THEREAFTER THE AO DISCUSSED THE ON THE BASIS OF HISTORY OF LAST YEAR AND FOUND THAT IN LAST YEAR TH E GROSS RECEIPT WAS COMPUTED AT RS. 9.34 CRORES OR ODD AFTER ALLOWING 10% DEDUCTION ON ACCOU NT OF DISCOUNT TO PROFESSIONAL PHOTOGRAPHERS, WASTAGE, FREE SERVICES ETC. IT WAS FURTHER MENTIONED IN THE ORDER THAT SINCE APPEAL OF THE DEPARTMENT IS PENDING BEFORE TRIBUNAL FOR ASSESSMENT YEAR 2007-08, THEREFORE, IT WILL BE FAIR AND JUSTIFIED TO FOLLOW THE SAME PRINCIPLE IN THIS YEAR ALSO AT THIS STAGE AND DIFFERENCE OF RS. 2,74,98,407/- WAS WORKE D OUT ON THE BASIS OF LAST YEARS HISTORY AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. 6.1. BEFORE LD. CIT (A) IT WAS SUBMITTED THAT APPEA L OF THE DEPARTMENT HAS ALREADY BEEN DISPOSED OFF BY THE TRIBUNAL AND A TRADING ADD ITION OF RS. 2.50 LACS HAS BEEN SUSTAINED VIDE ORDER DATED 13.1.2011 DECIDED IN ITA NO. 466/JP/2010 AND C.O. NO. 40/JP/2010. 6.2. AFTER CONSIDERING THE ORDERS OF THE AO AND TRI BUNAL, THE LD. CIT (A) FOUND THAT ISSUE HAS BEEN DECIDED PARTLY IN FAVOUR OF THE ASSE SSEE. ACCORDINGLY RELYING ON THE ORDER OF THE TRIBUNAL, THE LD. CIT (A) CONFIRMED THE ADDI TION OF RS. 3,87,680/- FOR THE YEAR UNDER CONSIDERATION. FINDINGS OF LD. CIT (A) HAS B EEN GIVEN AT PAGES 3 & 4 OF HIS ORDER ARE AS UNDER :- CONTENTION OF THE AR IS CONSIDERED. STOCK REGIST ER AND CONSUMPTION REGISTER HAS NOT BEEN MAINTAINED. DIFFE RENT RATES HAVE BEEN 4 CHARGED FROM DIFFERENT CUSTOMERS FOR THE SIMILAR PR ODUCT AND SERVICES. THE DAILY SHEETS ARE NOT DULY NUMBERED AND ENTRIES ARE NOT IN CHRONOLOGICAL ORDER. PURCHASE BILLS FOR ONE QUARTER WERE NOT PROD UCED. THE REJECTION OF BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF SECTION 145(3) IS, THEREFORE, UPHELD. IN AY 07-08 DETAILED FINDING WAS GIVEN WHILE CONSID ERING THE ASSESSMENT ORDER, DETAILED EXPLANATION FILED BY THE AR AND FURTHER REMAND REPORT OF THE AO. ACTION OF THE AO OF RECASTING TH E TRADING ACCOUNT SIMPLY BY REPLACING THE RECEIPTS WAS ;NOT APPROVED AS THE AO HAS TAKEN INTO ACCOUNT THE CONSUMPTION OF PAPERS ONLY WITHOUT LOOKING INTO THE CONSUMPTION OF CHEMICALS WHICH IS ANOTHER IMPORTANT RAW MATERIAL. IT WAS, THEREFORE, CONSIDERED MORE REASONABLE TO RELY ON PA ST HISTORY OF THE CASE. LAST YEAR G.P. RATE OF 39.05% WAS APPLIED AGAINST 36.27% DECLARED BY THE APPELLANT. THIS YEAR ON TURNOVER OF RS. 3,87,68,048 /- DECLARED G.P. RATE IS 34.52%. THE HONBLE ITAT IN AY 07-08 HAS FINALLY S USTAINED RS. 2.50 LACS ON THIS ACCOUNT WHILE CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS BUT NOT UPHOLDING ANY ADDITION ON ACCOUNT OF JOB RE CEIPTS. THE HONBLE ITAT RELYING ON PAST HISTORY OF THE CASE FOUND IT R EASONABLE TO MAKE A LUMP SUM ADDITION OF RS. 2.50 LACS TO COVER UP ALL POSSIBLE LEAKAGES AND TO MEET THE END OF JUSTICE. THE ESTIMATE MADE BY AO O F GROSS RECEIPTS CANNOT BE UPHELD. THE ADDITION MADE BY AO IS DISALL OWED. HOWEVER, CONSIDERING THE PAST HISTORY OF THE CASE G.P. RATE IS INCREASED BY 1% OR IN OTHER WORDS AN ADDITION OF RS. 3,87,680/- IS HEREBY UPHELD. WITH THIS, THOUGH THE 2 ND GROUND OF APPEAL IS DECIDED AGAINST THE APPELLANT, PARTIAL RELIEF IS GRANTED IN GROUND OF APPEAL NO. 3. 7. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. C IT (A), WE FIND THAT IDENTICAL ISSUE WAS INVOLVED IN EARLIER YEAR. THE TRIBUNAL D ISCUSSED THE ISSUE IN DETAIL AND AFTER DISCUSSING THE ISSUE IN DETAIL AND ALSO VARIOUS COR RESPONDENCE, THE TRIBUNAL FOUND THAT THE ADDITION SUSTAINED BY LD. CIT (A) WAS NOT JUSTIFIED AS THE SAME WAS ON HIGHER SIDE. 5 7.1. IN FACT, THE LD. CIT (A) NOTED THAT IN ASSESSE ES OWN CASE FOR IMMEDIATELY PRECEDING YEAR I.E. 2006-07, THE TRIBUNAL HAS CONFI RMED THE GP RATE OF 39.05%. THEREFORE, THE AO WAS DIRECTED TO APPLY GP RATE OF 39.05% AGAINST 36.27% DECLARED BY THE ASSESSEE ON THE TURNOVER DECLARED. AGAINST THI S ORDER OF LD. CIT (A), BOTH THE PARTIES CAME IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL AFTER DISCUSSING THE ISSUE AT GREAT LENGTH AND ANALYZING ALL THE FACTS HELD THAT LD. CI T (A) WAS NOT JUSTIFIED IN DIRECTING TO APPLY GP RATE OF 39.05% ON THE BASIS OF PAST HISTOR Y AND THEN DIRECTED TO SUSTAIN AN ADDITION OF RS. 2.50 LACS. THE FINDINGS OF TRIBUNA L HAVE BEEN GIVEN IN PARAS 15 TO 15.5 AT PAGES 37 TO 40 OF ITS ORDER. FOR THE SAKE OF CONVE NIENCE, THESE FINDINGS OF TRIBUNAL FOR EARLIER YEAR ARE REPRODUCED HERE AS UNDER :- 15. AFTER GOING THROUGH THE COMMENTS OF THE AO, WHICH IN FACT IS THE SUMMARY OF ORDER ALREADY PASSED AND THE WRITTEN SUB MISSIONS OF THE ASSESSEE, WE FIND THAT THE AO HAS MADE ADDITION MAI NLY ON THE BASIS OF THAT 50% RATE INCREASED IN THE YEAR UNDER CONSIDERA TION. FOR THIS, HE HAS PLACED RELIANCE ON THE DAILY SHEET PREPARED BY THE ASSESSEE. HOWEVER, WE NOTED THAT AO HAS NOT TAKEN INTO CONSIDERATION THE DAILY SHEET PREPARED IN RIGHT PERSPECTIVE. THE DAILY SHEET SHOWS THE CHARG ES FOR NEGATIVE PRINT FOR RS. 10/- IN PRECEDING YEAR AND RS. 15/- FOR THE YE AR UNDER CONSIDERATION. HOWEVER, THE AO HAS NOT TAKEN INTO CONSIDERATION T HAT THIS INCREASE WAS ONLY IN CASE OF AMATEUR CUSTOMERS. THESE RAT ES WERE NOT IN CASE OF PHOTOGRAPHER CUSTOMERS AND STUDIO PHOTO CUSTOMERS. AS PER DAILY SHEET PREPARED BY ASSESSEE SHOWS THAT THE RATE CHARGED FR OM AMATEUR CUSTOMER IS RS.15/- AND RATE CHARGED FROM PHOTOGRAPHER CUSTOMER S AND STUDIO PHOTO CUSTOMERS RANGES FROM RS. 2.5 TO RS. 2.8 PER NEGATI VE PRINTING. HOWEVER, THE AO HAS TAKEN THAT IN ALL CATEGORY OF CUSTOMERS THE ASSESSEE HAS CHARGED THE INCREASED RATE BY 50% AS COMPARED TO EA RLIER YEAR. THIS IS FACTUALLY INCORRECT. IF THIS FACT IS TAKEN INTO CO NSIDERATION, THIS WILL REDUCE 6 THE ADDITION BY RS. 3,85,33,545/- WHEREAS THE AO HA S MADE ADDITION OF RS. 3,84,23,974/- BY ENHANCING THE RECEIPT ON ACCOU NT OF INCREASED RATE @ 50%. THEREFORE, IN THIS MANNER THE ENTIRE ADDITION GOES FOR THE SIMPLE REASON THAT THE ASSESSEE HAS CALCULATED ITS RECEIPT S ON THE BASIS OF RATE CHARGED WHICH ARE BASED ON DAILY SHEETS. NO MATERI AL WHATSOEVER, HAS BEEN BROUGHT ON RECORD THAT RECEIPTS SHOWN BY ASSES SEE ARE NOT CORRECT OR ASSESSEE HAS NOT RECORDED SOME OF THE RECEIPTS IN T HE BOOKS OF ACCOUNT. ONLY BY MAKING HIS OWN GUESS WORK AND PRESUMPTION, THE AO CAME TO THE CONCLUSION THAT THE GROSS RECEIPTS SHOULD RS. 11,56 ,00,635 AGAINST TOTAL RECEIPTS SHOWN BY ASSESSEE. NO DOUBT, TECHNICALLY PROVISIONS OF SECTION 145(3) ARE APPLICABLE, HOWEVER, AS HELD BY HONBLE JURISDICTIONAL HIGH COURT AS WELL AS HONBLE SUPREME COURT, ADDITION CA NNOT BE MADE MERELY ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT BUT THE RE SHOULD BE SOME MATERIAL WITH THE AO TO MAKE HIS GUESS WORK THAT SO ME INCOME HAS NOT BEEN DECLARED IN THE PROFIT & LOSS ACCOUNT. THE AO HAS TRIED TO DISTINGUISH THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF GOTTAN LIME KHANIZ UDYOG AND THEN HAS PLACED RELIANCE ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF KANCHWALA GEMS. BOTH THE DECISIONS ARE SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CAS E. NO DOUBT SOME GUESS WORK CAN BE MAKE BUT THAT GUESS WORK SHOULD BE BASE D ON CERTAIN MATERIAL AND NOT ON GUESS WORK ONLY. THE MATERIAL BEFORE TH E AO IS THE DAILY SHEET BY WHICH HE FOUND THAT 50% RATE HAS BEEN INCREASED IN NEGATIVE PRINT BUT THAT 50% HAS BEEN INCREASED ON ACCOUNT OF AMATEUR C USTOMERS ONLY. // THE SECOND MAIN REASON ON WHICH BASIS THE ADDITION HAS BEEN MADE IS RATE FOR AVERAGE PHOTO PRINT BY THE ASSESSEE. THE AO HAS AP PLIED THE RATE OF 0.04% WHEREAS ASSESSEE HAS GIVEN COMPLETE DETAILS OF RATE S THAT HAVE BEEN CHARGED ON DIFFERENT TYPES AND SIZES OF PHOTO PRINT BY IT. THIS HAS BEEN EXPLAINED IN THE WRITTEN SUBMISSIONS FILED BY THE A SSESSEE, REPRODUCED SOMEWHERE ABOVE. THEREFORE, WE NEED NOT TO REPEAT THOSE ANALYSIS AGAIN HERE IN THIS PARA OF THE ORDER. IF THE INCREASED R ATE OF 50% AND THE ESTIMATION OF 0.04% ARE REMOVED, THEN NO DIFFERENCE REMAINS. AS STATED 7 ABOVE, THE AO HAS PRESUMED THAT IN EACH AND EVERY N EGATIVE PRINT THE ASSESSEE HAS CHARGED RATE INCREASED BY 50% IN THE Y EAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR WHICH IS INCORRECT. LIKEWISE, AVERAGE RATE OF 0.04% CANNOT BE APPLIED IN EACH AND EVERY TYPE OF PHOTO PRINT SPECIFICALLY WHEN THE DETAILED CHARGING OF RA TES OF SPECIFIC SIZE OF PHOTO ARE AVAILABLE. 15.1. THIS IS ALSO NOT IN DISPUTE THAT THERE IS NO DIFFERENCE IN WORKING OF THE BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDE RATION AS COMPARED TO EARLIER YEAR. IDENTICAL FACTS ARE INVOLVED IN THIS YEAR ALSO. TRADING ADDITIONS AS WELL AS ON ACCOUNT OF JOB RECEIPTS ADD ITIONS WERE MADE IN PAST. HOWEVER, ENTIRE ADDITIONS HAVE BEEN DELETED B Y THE TRIBUNAL FOR ASSESSMENT YEARS 2003-04, 05-06 AND 06-07. TABLE OF ADDITIONS MADE, DELETED BY LD. CIT (A) AND DELETED BY TRIBUNAL HAVE BEEN MENTIONED IN THE WRITTEN SUBMISSIONS AT PAGES 1 AND 2 WHICH REPRODUC ED SOMEWHERE ABOVE IN THIS ORDER. THEREFORE, IN OUR CONSIDERED VIEW IN STEAD OF GOING TO EXAMINE THE CASE BY EACH AND EVERY FILM DEVELOPED B Y ASSESSEE OR PHOTO PRINTED BY ASSESSEE OR JOB DONE BY ASSESSEE, THE AO SHOULD HAVE TAKEN INTO CONSIDERATION THE PAST HISTORY OF THE CASE AS WELL AS THE ORDER OF THE TRIBUNAL WHICH ARE BINDING IN NATURE. HOWEVER, THE AO HAS NOT GONE INTO THE PAST HISTORY OF THE CASE AS WELL AS THE ORDER OF THE TRIBUNAL OR OF THE LD. CIT (A) FOR LAST 3-4 YEARS. 15.2. NO DOUBT, PRINCIPLE OF RES JUDICATA DOES NOT APPLY IN THE INCOME- TAX PROCEEDINGS, HOWEVER, THIS IS A WELL SETTLED PR OPOSITION THAT WHERE THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE CUR RENT YEAR AS COMPARED TO THE FACTS OF EARLIER YEARS, THEN A DIFFERENT VIEW O R A DIFFERENT YARDSTICK CANNOT BE ADOPTED. THEREFORE, IN OUR CONSIDERED VI EW THE AO INSTEAD OF ADOPTING A DIFFERENT YARDSTICK TO EXAMINE THE CASE OF THE ASSESSEE, SHOULD HAVE TAKEN INTO CONSIDERATION THE PAST HISTORY OF T HE CASE. 15.3. EVEN THERE WAS NO SURVEY IN THIS YEAR. THERE WAS NO ANY FURTHER INFORMATION THAT ASSESSEE HAS INDULGED IN RECEIVING THE RECEIPTS OUT OF 8 BOOKS OF ACCOUNT. IN EARLIER YEAR THE SURVEY WAS CO NDUCTED AND THE ASSESSMENTS WERE COMPLETED WHERE ADDITIONS WERE MAD E. HOWEVER, ENTIRE ADDITIONS WERE DELETED. 15.4. THE FINDING OF LD. CIT (A) HAVE ALSO BEEN MEN TIONED IN THE WRITTEN SUBMISSIONS FILED BY ASSESSEE WHICH IS REPRODUCED S OMEWHERE ABOVE IN THIS ORDER. THEREFORE, WE NEED NOT TO DISCUSS THOSE FINDING OF LD. CIT (A) ONCE AGAIN. 15.5. IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE BEST GUIDE TO TAKE INTO CO NSIDERATION IS THE PAST ACCEPTED HISTORY OF THE CASE. ACCEPTED HISTORY OF THE CASE IS THAT WHATEVER THE G.P. SHOWN BY ASSESSEE THAT WAS ACCEPTED BY THE TRIBUNAL AS NO TRADING ADDITION OR ADDITION ON ACCOUNT OF JOB RECEIPTS WER E SUSTAINED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE DE CISION OF TRIBUNAL FOR PAST YEAR, WE ARE OF THE VIEW THAT IF A TRADING ADD ITION OF RS. 2.5 LACS IS SUSTAINED TO COVER UP ANY LEAKAGE, IF ANY, THAT WIL L MEET THE ENDS OF JUSTICE. ACCORDINGLY TO THIS EXTENT THE CROSS OBJE CTION OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE DEPARTMENT ON THIS IS SUE IS REJECTED. 8. THE AO HAS ALSO MADE ADDITION ON THE BASIS OF PA ST HISTORY. THE LD. CIT (A) HAS ALSO DELETED THE ADDITION ON THE BASIS OF PAST HIST ORY I.E. ORDER OF TRIBUNAL. FINDINGS OF LD. CIT (A) HAVE BEEN REPRODUCED SOMEWHERE ABOVE IN THI S ORDER. THE FINDINGS OF LD. CIT (A) ARE IN CONSONANCE WITH THE FINDINGS OF TRIBUNAL FOR IMMEDIATE PRECEDING YEAR. THE FINDINGS OF TRIBUNAL HAS ALSO BEEN REPRODUCED SOMEW HERE ABOVE IN THIS ORDER. THEREFORE, IN VIEW OF THE REASONING GIVEN BY LD. CIT (A) WHICH IS IN LIGHT OF THE FINDING OF THE TRIBUNAL, WE CONFIRM THE FINDING OF LD. CIT (A) FOR THE YEAR UNDER CONSIDERATION. 9. SECOND ISSUE RELATES TO DELETING THE INTEREST OF RS. 9,25,505/- DISALLOWED UNDER SECTION 36(1)(III). 9 10. THIS ISSUE WAS ALSO INVOLVED IN EARLIER YEAR WH ERE A DISALLOWANCE OF RS. 9,57,898/- WAS DISALLOWED. THE LD. CIT (A) DELETED THIS ADDITION AND THE TRIBUNAL HAS CONFIRMED THE ORDER OF LD. CIT (A). FACTS AND FIND INGS OF THE TRIBUNAL HAVE BEEN RECORDED IN PARAS 20 TO 25 AT PAGES 40 TO 42 WHICH ARE AS UNDER :- 20. WHILE MAKING THIS ADDITION, THE AO OBSERVED THAT ASSESSEE HAS MADE INTEREST BEARING BORROWINGS FROM VARIOUS BANKS . INTEREST OF RS. 8,90,395/- HAS BEEN PAID TO BANK AND RS. 1,71,787/- TO OTHERS. THUS TOTAL INTEREST CLAIMED UNDER SECTION 36(1)(III) COMES TO RS. 10,62,182/-. AT THE SAME TIME THE ASSESSEE HAD GIVEN INTEREST FREE ADVA NCES. THE AR COULD NOT PRODUCE EVIDENCE THAT INTEREST FREE ADVANCES OF RS. 59,57,627/- REPRESENTS ADVANCES GIVEN FOR BUSINESS PURPOSES AND STAFF ADVA NCES. THE AO HAS FURTHER MENTIONED THAT INTEREST FREE ADVANCES OF RS .15 LACS AND RS.5 LACS IN THE NAME OF DAULAT MAL JAIN AND M/S. RISHI TEXTILES RESPECTIVELY WERE GIVEN AT THE END OF MARCH AND THEREFORE EXCLUDING T HESE TWO ADVANCES AVERAGE INTEREST @12% WAS APPLIED ON THE REMAINING ADVANCES OF RS.32,20,907/- (ADVANCES OF RS.52,20,907/- ONLY WERE CONSIDERED AS ADVANCES GIVEN TO PERSONS OTHER THAN RELATIVES) AND ADDITION OF RS.3,86,508/- WAS MADE BY MAKING DISALLOWANCE OF IN TEREST TO THAT EXTENT. 21. FURTHER ON THE TOTAL INTEREST FREE ADVANCES OF RS.59,57,629/- GIVEN TO THE RELATIVES INTEREST WAS CALCULATED @12% AND A DDITION OF RS.5,71,390/- WAS MADE BY DISALLOWING INTEREST. THU S TOTAL INTEREST DISALLOWANCE OF RS.9,57,898/- WAS MADE. 22. IT WAS CONTENDED BEFORE LD. CIT (A) THAT TOTAL UNSECURED LOANS OF RS. 1,05,53,816/- WERE AVAILABLE WHICH INCLUDES THE INTEREST FREE LOANS TAKEN FROM THE FRIENDS AND RELATIVES OF THE PARTNER S TOTALING TO RS.76,03,816/-. FURTHER CAPITAL OF RS.10,00,935/- A ND NP OF THE YEAR OF RS.14,44,877/- SHOULD ALSO BE CONSIDERED ON WHICH N O INTEREST WERE PAID TO THE PARTNERS. THUS THE TOTAL INTEREST FREE FUNDS OF RS.L,00,49,628/- WERE 10 AVAILABLE WITH THE FIRM. AS AGAINST THIS INTEREST F REE ADVANCES OF RS.59,57,629/- + RS.32,20,907/- = RS.89,78,534/- WE RE MADE TO THE FRIENDS AND RELATIVES ON WHICH NO INTEREST WAS CHAR GED. SINCE THE AMOUNT SO GIVEN AS INTEREST FREE TO FRIENDS AND RELATIVES IS MUCH LESSER THAN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF PARTNER'S CAPITAL AND INTEREST FREE LOANS FROM FRIENDS AND RE LATIVES, IT CANNOT BE HOLD THAT THE APPELLANT HAS UTILIZED THE INTEREST BEARIN G FUNDS FOR MAKING INTEREST FREE ADVANCES. THE AO HAS FAILED TO ESTABL ISH THE NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE FUNDS. 23. FURTHER IT WAS SUBMITTED THAT OUT OF THE ADVANC E CONSIDERED BY THE AO FOR MAKING DISALLOWANCE SOME OF THE ADVANCES ARE THE OPENING BALANCES CARRIED OVER FROM EARLIER YEARS WHEREIN TH E ASSESSMENT WAS COMPLETED U/S 143(3). NO SUCH DISALLOWANCES WERE MA DE IN PAST. 24. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THT THERE WAS A OPENI NG CAPITAL OF RS. 32,43,375/- AND INTEREST FREE ADVANCES WERE OF RS. 76,03,816/- TOTALING TO RS. 1,08,47,191/- ARE AVAILABLE AS INTEREST FREE FU NDS WITH THE ASSESSEE. AS AGAINST THIS, INTEREST FREE ADVANCES GIVEN WERE ONL Y RS. 89,78,534/- WHICH IS LESS THAN THE INTEREST FREE FUNDS AVAILABLE. BY FURTHER PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT VS. HOTEL SAVERA, 2 39 ITR 795 (MAD.) WHEREIN IT WAS FOUND THAT THERE WAS A COMMON FUND C ONSISTING OF OWN FUNDS AS WELL AS BORROWED FUNDS, THE PRESUMPTION WO ULD BE THAT THE INTEREST FREE FUNDS HAVE BEEN ADVANCES OUT OF OWN F UNDS AND, THEREFORE, INTEREST SHOULD NOT BE DISALLOWED. SIMILAR FINDING HAS BEEN GIVEN IN CASE OF MUNJAL SALES CORPORATION VS. CIT, 298 ITR 298 (S C) AND IN THE CASE OF CIT VS. TIN BOX CO., 260 ITR 637 (DEL.). ACCORDING LY THE ADDITION MADE BY AO WAS DELETED. 25. IN THE ABOVE FINDING OF LD. CIT (A), WE SEE NO REASON TO INTERFERE AS LD. CIT (A) HAS ANALYZED THE FACTUAL ASPECTS OF THE CASE THAT INTEREST FREE 11 FUNDS AVAILABLE WITH THE ASSESSEE WERE MORE THAN TH E INTEREST FREE ADVANCES ADVANCED BY THE ASSESSEE. THEREFORE, WE CO NFIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE. 11. SIMILAR FACTS ARE INVOLVED IN THE YEAR UNDER CO NSIDERATION ALSO. THE AO MADE ADDITION ON SIMILAR REASONS AND THE LD. CIT (A) HAS DELETED THE DISALLOWANCE FOLLOWING THE ORDER OF TRIBUNAL FOR EARLIER YEAR. FINDINGS OF TRIBUNAL HAVE BEEN RECORDED SOMEWHERE ABOVE IN THIS ORDER. FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR, THE LD. CIT (A) HAS DELETED THE DISALLOWANCE. ACCORDIN GLY WE CONFIRM THE ORDER OF THE TRIBUNAL ON THIS ISSUE ALSO. 12. REMAINING ISSUE IS AGAINST DELETING THE DISALLO WANCE OUT OF JOB COLLECTION OF RS. 8,82,522/- UNDER SECTION 40(A)(IA) OF THE IT ACT. 13. THE AO HAS OBSERVED THAT PAYMENT OF RS. 8,82,52 2/- WERE MADE TO 12 PERSONS AS JOB COLLECTION CHARGES BUT NO TAX WAS DEDUCTED AT S OURCE. THE CLAIM OF THE ASSESSEE THAT THESE PERSONS ARE EMPLOYEES OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AS EMPLOYER EMPLOYEE RELATIONSHIP COULD NOT BE ESTABLISHED. THE REFORE, BY ATTRACTING PROVISIONS OF SECTION 40(A)(IA), THE AO MADE THIS DISALLOWANCE. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT SIMILAR ADDITIONS WERE MADE IN EARLIER YEAR AN D THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR EARLIER YEAR. F OLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR, THE LD. CIT (A) DELETED THE DISALLOWA NCE. 14. AFTER CONSIDERING THE ORDERS OF THE AO AND LD.C IT (A), WE FIND NO INFIRMITY THAT ON IDENTICAL FACTS THE DISALLOWANCE WAS MADE FOR EA RLIER YEAR I.E. FOR ASSESSMENT YEAR 2005-06. TRIBUNAL ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND FOLLOWING THE ORDER OF THE TRIBUNAL, THE LD. CIT (A) HAS DELETED THE DISAL LOWANCE MADE FOR THE YEAR UNDER 12 CONSIDERATION. SINCE FACTS ARE SIMILAR TO THE FAC TS INVOLVED IN EARLIER YEAR, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDINGS OF LD. CIT (A) WHO DELETED THE DISALLOWANCE FOLLOWING THE ORDER OF TRIBUNAL FOR EARLIER YEAR. ACCORDINGLY ORDER OF LD. CIT (A) IS CONFIRMED ON THIS ISSUE ALSO. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 16. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- THE ITO WARD 1(3), JAIPUR. M/S. GOYAL COLOUR LAB., JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 496/JP/2011) BY ORDER, AR ITAT JAIPUR.