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

ITA 502/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57007 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAMES KURAIR
• Assessee Lawyers: M K PATEL
• Keywords: Unexplained cash credit; Principle of natural justice; Additional evidence; Third party statement; Onus to prove
• Section: 133(6); 68; 10

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. K. GARODIA, AM. ITA NO.502/AHD/2009 ASST. YEAR:2005-06 M/S DHARAM BARREL, PLOT NO.604/3, OPP. PROHIBITION OFFICE, GIDC SACHIN, SURAT. VS. INCOME-TAX OFFICER, WARD-2(4), SURAT. (APPELLANT) .. (RESPONDENT) AND ITA NO.566/AHD/2009 ASST. YEAR:2005-06 INCOME-TAX OFFICER, WARD NO.2(4), SURAT. VS. M/S DHARAM BARREL, PLOT NO.604/3, OPP. PROHIBITION OFFICE, GIDC SACHIN, SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI M. K. PATEL, AR REVENUE BY:- SHRI JAMES KURAIR, DR DATE OF HEARING :28/11/2011 DATE OF PRONOUNCEMENT : 06-01-2012 O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 2 THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSE SSEE AND THE OTHER BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A ) DATED 26/11/2008. ITA NO.502/AHD/2009 ASST. YEAR 2005-06 (ASSESSEES APPEAL): 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL :- (1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED CIT(A) HAS ERRED IN PARTLY CONFIRMING ADDITION OF RS.3,00,000/- OUT OF TOTAL ADDITION OF RS.18,05,000/- MADE BY AO FOR UNSECURED LOANS FROM UNDISCLOSED SOU RCES. (2) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.4,66,093/- AS UNEXP LAINED CASH CREDIT U/S 68 OF THE ACT. (3) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN PARTLY CON FIRMING ADDITION OF RS.50,91,930/- OUT OF TOTAL ADDITION OF RS.61,33,780/- MADE BY THE AO AS UNEXPLAINED CREDITS U/S 68 OF THE ACT. (4) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS.82,515/- BEING 12% ON RS.6,87,622/- FOR INTEREST EXPENSES U/S 36(1)(III) OF THE ACT. ITA NO.566/AHD/2009 ASST. YEAR 2005-06 (REVENUES A PPEAL): 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THE APPEAL : (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN DELETING THE A DDITION OF RS.32,37,280/- MADE BY A.O, ON ACCOUNT OF UNEXPLAIN ED CAPITAL INTRODUCED IN THE ACCOUNTS OF THE PARTNERS HOLDING THAT - A. THE SUMS INTRODUCED IN THE INDIVIDUAL ACCOUNTS OF THE PARTNERS WERE TRANSFERRED BY THEM THROUGH THEIR BAN K PASS BOOKS OR FROM THEIR PERSONAL CASH BOOK AND THEREBY THE SOURCES OF SUCH INTRODUCTION OF CREDITS WERE STAND EXPLAINED. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 3 B. IF AT ALL ANY ADDITION WAS TO BE MADE, IT COULD ONLY BE MADE IN THE HANDS OF THE 'INDIVIDUAL PARTNERS' IN THE CO URSE OF THEIR ASSESSMENTS AND NOT IN THE HANDS OF THE ASSESSEE FI RM. IGNORING THE MATERIAL FACTS THAT [I] WHERE A SUM HAS BEEN FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR A PREVIOUS YEAR AND THE ASS ESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCES OF THAT SUM, OR THE EXPLANATION OFFERED BY HIM IS, IN THE O PINION OF THE A.O. R NOT SATISFACTORY, THEN THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE FOR THAT PREVIOUS YEAR. [II] AS PER THE LANGUAGE USED IN SECTION 68 OF THE ACT, ON BEING FAILED BY THE ASSESSEE TO OFFER SATISFACTORY EXPLAN ATION ONLY FOLLOWING CONCLUSION CAN BE DRAWN- A. THERE IS NO DISTINCTION BETWEEN THE 'CASH CREDIT ' EXISTING IN THE BOOKS OF THE FIRM WHETHER IT IS OF A PARTNER OR OF A THIRD PARTY, B. THE BURDEN TO PROVE THE IDENTITY, CAPACITY AND G ENUINENESS HAS TO BE ON THE ASSESSEE. C. IF THE CASH CREDIT IS NOT SATISFACTORILY EX PLAINED, THE A.Q. IS JUSTIFIED TO TREAT IT AS INCOME FROM 'UNDISCLOSE D SOURCES'. D. THE FIRM HAS TO ESTABLISH THAT THE AMOUNT WAS AC TUALLY GIVEN BY THE LENDER. E. IF THE EXPLANATION IS NOT SUPPORTED BY ANY DOCUM ENTARY OR OTHER EVIDENCE THEN THE DEEMING FICTION CREATED BY SECTION 68 CAN BE INVOKED. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN DELETING THE A DDITION OF RS.5,00,000/- ON ACCOUNT OF UNEXPLAINED UNSECURED L OANS (INCLUDED IN RS.18,05,000/- HOLDING THAT IN RESPECT OF CREDIT S OF RS.3,50,000/- AND RS.L,50,000/- IN THE NAMES OF HEMA D. MISTRI AN D D. K, MISTRI RESPECTIVELY AGGREGATING TO RS.5,00,000/-, THE ASSE SSEE HAD FURNISHED ALL THE DETAILS SUCH AS COPY OF ACCOUNT O F THE ASSESSEE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 4 CONFIRMATORY LETTER, I. T. PAN TO THE A.O. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS. THE A,O. HAD, HOWEVER, MADE THE ADDITION OF RS,5,00,000/- [INCLUDED IN RS.18.5 LACS ] ONLY FOR THE REASONS THAT NO BANK PASS BOOK IN RESPECT OF AFORES AID TWO CREDITORS ARE FILED BY THE ASSESSEE WHICH THE A,O. COULD HAVE VERIFIED DIRECTLY FORM THE CONCERNED BANK FROM THE DETAILS FURNISHED BY THE ASSESSEE, IGNORING THE MATERIAL FACTS THAT THE ASSESSEE HAS N OT FURNISHED ANY COPY OF BANK PASS BOOKS OF THE AFORESAID CREDITS AN D IT CONTAINS NO DETAILS OF BANK ACCOUNT OF SO-CALLED CREDITORS IN T HE OTHER DETAILS FILED BY THE ASSESSEE IN RESPECT OF AFORESAID CREDI TORS- IN ABSENCE OF ANY DETAILS OF BANK ACCOUNT NO. OR NAME AND BRANCH OF THE BANK NO DIRECT ENQUIRIES CAN BE MADE AS HOLD BY THE CIT(A) IN HIS APPELLATE ORDER, 4. FIRST WE TAKE UP REVENUES APPEAL. THE FIRST GRO UND OF REVENUES APPEAL RELATES TO DELETION OF ADDITION OF RS.32,37, 280/- MADE BY AO ON ACCOUNT OF UNEXPLAINED CAPITAL INTRODUCED IN THE AC COUNTS OF THE PARTNERS. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF TRADING OF ALL TYPES OF SCRAP MATERIAL IN THE NAME OF M/S DHARAM BARREL. THE ASSESSEE FILED ITS RETURN OF INCOME ON 19.10.20 05 DECLARING TOTAL INCOME OF RS.3,10,832/- ALONG WITH AUDIT REPORT U/S 44AB OF THE ACT IN FORM NO.3CB & 3 CD AND BALANCE SHEET, P & L A/C ETC . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 30.03.2007 THERE BY ACCEPTING THE RETURNED INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 20.10.2006 AND DULY SERVED . FURTHER A NOTICE U/S 142(2) OF THE ACT ALONG WITH DETAILED QUESTIONNAIRE CALLING FOR VARIOUS DETAILS WAS ISSUED AND SERVED ON THE ASSESSEE. ON P ERUSAL OF THE BALANCE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 5 SHEET FILED WITH RETURN OF INCOME, IT WAS NOTED BY THE AO THAT DURING THE YEAR UNDER CONSIDERATION THERE WERE ADDITION IN PAR TNERS CAPITAL ACCOUNT AS UNDER :- SHILPABEN P. SANGHANI RS.3,30,000/- BABUBHAI B. SALIYA RS.2,50,000/- BHARATBHAI B. SALIYA 2,50,000/- DHARAMSINHBHAI P. KALATHIA RS.14,87,280/- JITENDRA D. BHALANI NIL JITESH B. SALIYA RS.2,50,000/- PARIMAL S. SANGHANI RS.2,70,000/- PARSHOTTAM R. KALATHIA RS.4,00,000/- RS.32,37,280/- IN THE CASE OF THE ASSESSEE FIRM THE CREDIT ENTRY W AS MADE THROUGH THE PARTNERS ACCOUNTS. IT WAS OPEN TO THE FIRM TO PROD UCE THE PARTNER DURING THE ASSESSMENT PROCEEDINGS AND ALSO TO PROVE THE CA PACITY AND GENUINENESS OF THE DEPOSIT. HOWEVER THE ASSESSEE FA ILED TO DO SO. ACCORDINGLY, VIDE SHOW CAUSE NOTICE 26.11.2007 THE ASSESSEE FIRM WAS ASKED TO GIVE DETAILS OF ADDITION TO CAPITAL ACCOUN T WITH DOCUMENTARY PROOF, OTHERWISE SHOW CAUSE WHY IN ABSENCE OF THE D ETAILS, THE SAME MIGHT NOT BE TREATED AS UNEXPLAINED AND ADDED BACK TO THE TOTAL INCOME U/S 68 OF THE ACT. THE ASSESSEE HAD SUBMITTED THE C OPY OF ACKNOWLEDGEMENT, COMPUTATION AND P & L ACCOUNT AND BALANCE SHEET OF ALL THE PARTNERS IN SUPPORT OF THE CAPITAL INTRODUC ED BY THEM. HOWEVER, THE COPIES OF PASSBOOK OR PERSONAL CASH BOOK WERE NOT S UBMITTED IN THE CASE OF ANY OF THE PARTNERS WHICH COULD PROVE GENUINENES S OF TRANSACTION AND CAPACITY OF THE DEPOSITORS TO PAY SUCH SUM. AS REGA RDS THE CREDIT ENTRY ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 6 AMOUNTING TO RS.32,37,280/- APPEARING IN THE BOOKS OF THE ASSESSEE, THE SAME REMAINED UNVERIFIABLE IN ABSENCE OF COMPLETE D ETAILS/EVIDENCE OF DEPOSITS BY THE PARTNER IN HIS CAPITAL ACCOUNT. THE AO NOTED THAT IT IS SETTLED LAW, IF THERE IS AN ENTRY IN THE ACCOUNTS O F THE ASSESSEE, WHICH SHOWS THE RECEIPT OF A SUM THE BURDEN IS ON THE ASS ESSEE TO EXPLAIN THE NATURE AND SOURCE OF SUCH CREDIT. IN THIS CONNECTIO N HE RELIED ON SOME CASE LAWS AND MADE THE ADDITION OF RS.32,37,280/- U /S 68 TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE LD. AR OF ASSESSEE CONTENDED THAT WHILE ALL RELEVANT DOCUMENTARY EVIDENCES HAD BEEN FURNISHED, THE AO HA D UNFAIRLY DRAWN ADVERSE INFERENCE ON THE GROUND THAT COPIES OF BANK PASS-BOOKS AND PERSONAL CASH-BOOKS OF THE PARTNERS WERE NOT SUBMIT TED. THE LD. AR FURTHER SUBMITTED THAT ONCE THE ASSESSEE HAD FURNIS HED THE OTHER EVIDENCES, THE ONUS WAS ON THE AO TO BRING ON RECOR D COGENT EVIDENCE TO SUPPORT THE ADDITION MADE BY HIM. FOUR PARTNERS HAD TAKEN LOAN FROM VARIOUS BANKS. ALL THE PARTNERS WERE SEPARATELY ASS ESSED TO TAX FOR THE PAST SEVERAL YEARS. IF THE AO HAD CONSIDERED IT NECESSAR Y, HE WOULD HAVE SPECIFICALLY ASKED THE ASSESSEE TO PRODUCE THE PART NERS. HE NEVER DID SO. HE SUBMITTED THAT WHERE CAPITAL IS INTRODUCED BY A PARTNER IN A FIRM AND ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 7 THE SAME IS DULY CONFIRMED BY THE PARTNER, NO ADDIT ION COULD BE MADE IN THE HANDS OF THE FIRM. HE ALSO RELIED ON SOME CASE LAWS. 6. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF TH E CASE AND THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS, THE VIEW TAKEN BY THE AO AND THE WRITTEN SUBMISSIONS OF THE AR. AT TH E VERY OUTSET, IT MUST BE SAID THAT THE AO WAS NOT REALLY FOCUSED ON THE I SSUE. IT IS FOR THIS REASON PERHAPS THAT HE MENTIONED AT THE VERY BEGINN ING OF PARA 4.1 THAT SINCE THE CREDIT ENTRIES WERE MADE THROUGH THE PART NERS CAPITAL ACCOUNTS, IT IS OPEN TO THE FIRM TO PRODUCE THE PARTNER DURI NG THE ASSESSMENT PROCEEDINGS. THIS OBSERVATION OF THE AO CLEARLY S HOWS THAT HE WAS NOT REALLY SURE OF THE LINE OF ACTION HE WAS GOING TO T AKE. IN ANY CASE, UNLESS THE AO HAD SPECIFICALLY SUMMONED THE PARTNERS, THER E WAS NO REQUIREMENT ON THE PART OF THE ASSESSEE TO PRODUCE THE PARTNERS BEFORE THE AO. IT IS ALSO CLEAR THAT THE AO DID NOT ASK THE PA RTNERS TO BE PRODUCED, AT LEAST IN WRITING. THEREFORE, THE NON-PRODUCTION OF THE PARTNERS COULD NOT BE TAKEN AS GROUND TO TREAT THE CAPITAL INTRODU CED AS UNEXPLAINED. 6.1 MOST IMPORTANTLY, WHERE THE SOURCE OF SUCH CAPI TAL OR CREDIT ENTRIES IN THE CAPITAL ACCOUNT OF THE PARTNERS WAS CLEARLY EXPLAINED AND IDENTIFIED, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE FIRM. THERE HAVE BEEN SEVERAL CASE-LAWS WHICH HAVE LAID D OWN THIS PRINCIPLE. IT IS EXPLAINED THAT THE SUM INTRODUCED IN THE INDIVID UAL CAPITAL ACCOUNTS OF THE PARTNERS WITH THE FIRM HAD COME FROM THE PERSON AL ACCOUNTS OF THE PARTNERS, EITHER FROM THEIR CASH IN HAND OR FROM TH EIR BANK ACCOUNT ETC. IF AT ALL ANY INQUIRY WAS TO BE MADE IT COULD ONLY BE DONE IN THE HANDS OF THE INDIVIDUAL PARTNERS IN COURSE OF THEIR ASSESSMENT P ROCEEDINGS. AS FAR AS THE FIRM WAS CONCERNED SUCH CAPITAL INTRODUCTION WO ULD STAND EXPLAINED ONCE IT WAS CLAIMED BY THE PARTNERS THAT THEY HAD I NTRODUCED SUCH CAPITAL FROM OUT OF THEIR OWN SOURCES. IT WOULD THUS MEAN T HAT NOT ONLY WAS THE IDENTITY OF THE CREDITORS ESTABLISHED (THOUGH IN SU CH A CASE THE PARTNERS COULD NOT REALLY BE TREATED AS CREDITORS) THEIR CRE DITWORTHINESS AS WELL AS THE GENUINENESS OF THE TRANSACTIONS WOULD ALSO HAVE TO BE ACCEPTED AS PROVED AND ESTABLISHED. 6.2 GIVEN SUCH FACTS OF THE CASE AND THE LEGAL POSI TION ON THE ISSUE, THE AO WILL HAVE TO DELETE THE ADDITION OF THE SUM OF R S.32,37,280/-. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 8 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ON IDENTICAL FACTS THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PANKAJ DYESTUFF INDUSTRIES IN INCOME-TAX REFERENCE NO.241 OF 1993 DATED 06/07/2005 HAS DECIDED THE ISSUE BY OBSERVING AS UNDER :- 13. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHE D THE DETAILS WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASS ESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE PARTNERS OF THE AS SESSEE FIRM ARE FICTITIOUS. THE INCOME TAX OFFICER HAS NOT DISPUTED THAT THE CREDITS IN THE ACCOUNTS OF THE PARTNERS WERE NOT DEPOSITS F ROM 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 NOT ACCEPT THE EXPLANATION G IVEN ON BEHALF OF THE ASSESSEE IN RESPECT OF THE NEW DEPOSITS OR C ASH CREDITS IN THE ACCOUNTS OF THE PARTNERS. THE MERE NON-ACCEPTANCE O F THAT EXPLANATION DOES NOT, HOWEVER, PROVIDE MATERIAL FOR FINDING THAT THE SAID SUM REPRESENTED INCOME OF THE ASSESSEE FIR M,. AS HELD BY THE ALLAHABAD HIGH COURT IN THE CASE OF COMMISSIONE R 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 AMOUNT 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 ARE THEIR OWN, T HE INCOME TAX OFFICER IS ENTITLED TO AND MAY PROCEED AGAINST THE PARTNERS AND ASSESS THE SAME IN THEIR HANDS, IF THEIR EXPLANATIO N IS NOT FOUND SATISFACTORY. 14. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, BOTH THE DEPUTY CIT(APPEALS) AND THE TRIBUNAL HAVE FOUND THA T THE ASSESSEE HAD DISCHARGED THE PRIMARY ONUS WHICH WAS ON IT BY OFFERING EXPLANATION, WHICH HAS NOT BEEN FOUND TO B E INCORRECT OR FALSE IN ANY MANNER. THE INTEREST OF THE REVENUE IS ALSO SAFEGUARDED AS THE INCOME-TAX OFFICER HAS BEEN GIVE N THE LIBERTY TO CONSIDER THE SAID CREDITS IN THE HANDS OF THE PA RTNERS IF HE IS NOT SATISFIED WITH THE SOURCES OF INVESTMENT OF CASH CR EDITS IN THE ACCOUNTS OF THE PARTNERS. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 9 15. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO F IND THAT THE ORDER OF THE TRIBUNAL SUFFERS FROM ANY INFIRMITY WH ICH WOULD REQUIRE INTERFERENCE AT THE HANDS OF THIS COURT. AC CORDINGLY, IT IS HELD THAT THE TRIBUNAL WAS RIGHT IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.87,250/- BEING DEPOSITS IN THE ACCOU NTS OF THE PARTNERS. THE QUESTION REFERRED TO THIS COURT IS, A CCORDINGLY, ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE JU RISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) . ACCORDINGLY, THE GROUND RAISED BY THE IS DISMISSED. 8. THE SECOND GROUND OF REVENUES APPEAL AND FIRST GROUND OF ASSESSEES APPEAL RELATE TO ADDITION OF RS.18,05,00 0/- BEING UNEXPLAINED UNSECURED LOANS. DURING THE YEAR, THE ASSESSEE HAD SHOWN NEW UNSECURED LOANS FROM SEVEN DIFFERENT PERSONS TOTALING TO RS.1 8,05,000/-. IN RESPONSE TO THE REQUEST MADE BY THE AO, THE ASSESSEE MENTION ED A BREAK UP OF THE LOANS, COPIES OF ACKNOWLEDGEMENTS OF RETURNS FILED, COMPUTATION OF INCOME, CONFIRMATION LETTERS FROM SOME OF THE CREDI TORS/DEPOSITORS. HOWEVER, COPIES OF BANK PASS-BOOKS WERE NOT SUBMITT ED FROM ANY OF THE CREDITORS. THE AO HAD FURNISHED DETAILS OF THE EVID ENCES FILED IN RESPECT OF THE DIFFERENT CREDITORS. HE ISSUED A SHOW CAUSE NOTICE ASKING THE ASSESSEE TO EXPLAIN WHY THE LOANS TOTALING TO RS.18 ,05,000/- SHOULD NOT BE TREATED AS UNEXPLAINED. THE ASSESSEE WAS UNABLE TO FURNISH ANY RESPONSE WHICH RESULTED IN THE AO TREATING SUCH LOANS AS UNE XPLAINED IN TERMS OF ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 10 SECTION 68 OF THE ACT AND MAKING THE ADDITION OF TH E SUM OF RS.18,05,000/- TO THE ASSESSEES TOTAL INCOME. 9. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE FIRST APPELLATE AUTHORITY WHEREIN VIDE ITS WRITTEN SUBMISSION, IT W AS SUBMITTED BY THE LD.AR THAT OF THE SEVEN PARTIES, THE ASSESSEE HAD F URNISHED CONFIRMATION LETTERS AND ACKNOWLEDGEMENTS OF RETURNS FILED FROM ALL OF THEM, EXCEPT FROM TWO, I.E. SHRI MATHEW AND SHRI SVJIBHAI N. PAT EL. IT WAS ALSO SUBMITTED THAT THE LOANS STANDING IN THE NAMES OF S HRI JITESH PARSHOTTAMBHAI RS.1,90,000/-, M/S PARTH COMPUTERISE D WEIGH BRIDGE RS.4,65,000/- AND SHRI SAVJIBHAI PATEL RS.4,00,000/ - WERE LOANS TAKEN IN THE EARLER YEARS, EXCEPT FOR A SUM OF RS.50,000/- F ROM M/S PARTH COMPUTERISED WEIGH BRIDGE TAKEN DURING THE YEAR UND ER CONSIDERATION. THESE SUMS HAD APPEARED AS OPENING BALANCES IN THE CONFIRMATION LETTERS FURNISHED BY THE CREDITORS, AS ALSO FROM THE AUDITE D BALANCE SHEET. AS REGARDS SMT. HEMA MISTRY RS.3,50,000/-, SHRI D.K. M ISTRY RS.1,50,000/- AND SHRI SUDHIR K. GUPTA RS.1,00,000/- THESE PERSON S WERE ALL ASSESSED TO TAX AND COMPLETE DETAILS INCLUDING THE CHEQUE NOS. AND THE NAMES OF THE BANKS ETC. HAD BEEN DULY FURNISHED AND MENTIONED IN THE CONFIRMATION LETTERS FILED BY SUCH CREDITORS. LOANS FROM THESE P ARTIES HAD SUBSEQUENTLY BEEN REPAID, AND RELEVANT DETAILS PERTAINING TO SUC H REPAYMENTS HAD BEEN FURNISHED ALONG WITH THE WRITTEN SUBMISSIONS. THERE FORE, SUCH LOANS COULD ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 11 NOT BE TREATED AS BEING NOT GENUINE, ESPECIALLY WHE N THE AO HAD FAILED TO BRING ON RECORD ANY MATERIAL EVIDENCE IN SUPPORT OF HIS TREATMENT OF SUCH LOANS AS UNEXPLAINED. IN SUPPORT OF HIS CONTENTIONS , THE AR HAD PLACED RELIANCE ON SEVERAL CASE-LAWS. 10. THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.3,0 0,000/- GIVING RELIEF TO THE ASSESSEE OF RS.15,05,000/- BY OBSERVI NG AS UNDER :- 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . AFTER GOING THROUGH THE SUBMISSIONS OF THE AR, I HAVE COME TO BELIEVE THAT THE AQ MADE THIS PARTICULAR ADDITION WITHOUT REALLY APPLYING HIS MIND AND WITHO UT CARRYING OUT ANY INQUIRY WHATSOEVER, NOT TO SPEAK OF MAKING RELEVANT INQUIRI ES TO ARRIVE AT A LOGICAL CONCLUSION. TO BEGIN WITH, WHEN THE NAMES AND ADDRE SSES OF ALL THE DEPOSITORS AND CREDITORS HAD BEEN FURNISHED IN THE CONFIRMATION LE TTERS, NOTHING STOPPED THE AO FROM CARRYING OUT INVESTIGATIONS OF HIS OWN. HE COMPLETE LY FAILED IN CARRYING OUT THE DUTIES OF AN AO, AND EVEN TO EXERCISE THE POWERS THAT ARE VESTED IN HIM UNDER THE PROVISIONS OF THE IT ACT. SECONDLY, THERE IS SOME CONFUSION AN D CONTRADICTION IN THE OBSERVATIONS OF THE AO AS RECORDED IN PARAS-5 AND 5.1. FIRST HE SAYS THAT THE ASSESSEE HAD SUBMITTED CONFIRMATION LETTERS, ACKNOWLEDGMENTS OF RETURN, COMPUTATION OF INCOME AND COPIES OF ACCOUNTS OF SOME OF THE CREDITORS, BU T THE BANK PASS-BOOKS WERE NOT SUBMITTED. HOWEVER, SOME PARTIES HAD NOT PROVIDED E VEN THE CONFIRMATION. THEN, IN A COMPLETE CONTRADICTION TO SUCH OBSERVATION JN PARA- 5, HE RECORDS IN PARA-5,1 THAT NO DETAILS SUCH AS NAMES AND ADDRESSES OF THE PERSONS, CONFIRMATION FETTERS, ACCOUNT STATEMENTS, PAN, MODE OF TRANSACTION ALONG WITH DAT ES AND SOURCE OF INVESTMENT ETC, AS ALSO ASSESSMENT DETAILS, HAD BEEN FURNISHED BY T HE ASSESSES, AS A RESULT OF WHICH THE GENUINENESS OF SUCH UN5ECURED LOANS WAS NOT VER IFIABLE. 10.1 THE AO WAS THEREFORE NOT DEAR AS TO WHETHER EVIDENCES HAD AT ALL BEEN FILED, AND IF SO, WHAT WERE THE EVIDENCES FILED IN RESPEC T OF THE DIFFERENT CREDITORS. SUCH CONFUSION HAS BEEN CREATED INSPITE OF THE AO LAYING OUT THE DETAILS OF ALL THE EVIDENCES FILED IN RESPECT OF THE CREDITORS ON PAGE-5 OF THE ASSESSMENT ORDER. THE AO HAS LISTED OUT SEVEN CREDITORS. THE FIRST TWO ARE SMT. HEMA D.MISTRY (RS 3,50,000) AND SHRI D,K.MISTRY (RS 1,50,000). ACCORDING TO T HE AO, ONLY THE BANK PASS-BOOKS OF THESE CREDITORS WERE NOT FURNISHED. I AM OF TH E VIEW THAT THE STATEMENTS COULD HAVE BEEN EASILY OBTAINED FROM THE CONCERNED BA NK(S). WHEN THE ASSESSEE HAD FURNISHED ALL OTHER RELEVANT EVIDENCES AND THE CRED ITORS WERE ASSESSED TO TAX, THERE WAS NO REASON WHY SUCH SUMS SHOULD HAVE BEEN TREATE D AS UNEXPLAINED. NEXT, IN THE CASE OF SHRI JITENDRA PARSHOTTAMBHAI (R S 1,90,000) AND M/S PARTH COMPUTERISED WEIGH BRIDGE (RS 4,65,000) IT HAS BEEN SUBMITTED BY THE AR THAT EXCEPT FOR A SUM OF RS 50,000 FROM M/S PARTH COMPUTERISE D WEIGH BRIDGE, THE OTHER SUMS HAD BEEN TAKEN IN EARLIER YEAR(S) AND NOT DURING TH E YEAR UNDER CONSIDERATION. THIS MEANS THAT THE PROVISIONS OF SECTION 68 OF THE ACT CANNOT BE INVOKED DURING THE YEAR IN RESPECT OF THE LOANS TAKEN IN THE EARLIER YEARS . THE ADDITION OF RS 1,90,000 AND ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 12 OF RS 4,15,000 (RS 4,65,000 - RS 50,000) WILL HAVE TO BE DELETED. SINCE, CONFIRMATIO NS LETTERS AND PASS-BOOKS WERE NOT FURNISHED, THE LOAN S OF RS 50,000 TAKEN DURING THE YEAR WILL STAND CONFIRMED. THE NEXT LOT COMPRISED OF SHRI MATTHEW (RS 1,50,000), SHRI SAVJLBHAI PATEL (RS 4,00,000) A ND SHRI SUDHIR GUPTA (RS 1,00,000). IT HAS BEEN EXPLAINED BY THE AR THAT THE SUM OF RS 4 LAKH FROM SHRI SAVJIBHAI PATET HAD BEEN TAKEN IN THE EARLIER YEAR, THEREFORE, THE SAID SUM COULD NOT BE ADDED U/S 68 DURING THE YEAR UNDER CONSIDERATION . AS REGARDS THE LOANS FROM SHRI MATHEW AND SHRI SUDHIR GUPTA SINCE NEITHER ANY CONF IRMATION, NOR PASS-BOOKS NOR PAN WAS FURNISHED, THESE LOANS WERE JUSTIFIABLY TREATED BY THE AO AS UNEXPLAINED, EVEN THOUGH THE AR HAS CLAIMED THAT TH EY WERE INDIVIDUALLY ASSESSED TO TAX AND CHEQUES NOS. HAD BEEN FURNISHED. THE FI NDINGS OF THE AO WITH REGARD TO THESE CREDITORS IS ABSOLUTELY CLEAR THAT NO CONFIRM ATION, NOR PAN, NOR THE BANK PASS- BOOK, NOR ANY ADDRESS HAD BEEN FURNISHED. SUM MING UP THE ABOVE DISCUSSION, THE LOANS OF RS 1,50,000 FROM SHRI MATT HEW, RS 1,00,000 FROM SHRI S.K.GUPTA AND RS 50,000 FROM M/S PARTH COMPUTERIS ED WEIGH BRIDGE, TOTALLING RS 3 LAKH WILL BE TREATED AS UNEXPLAIN ED. CONSEQUENTLY, THE ADDITION OF RS 18,05,000 RS. 3,00,000 = RS 15,05,000 WILL STAND DELETED. 11. AGGRIEVED BY THIS ORDER OF LD. CIT(A) NOW THE R EVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. THE REVENUE IS IN APPEAL FOR THE RELIEF OF RS.15,05,000/- GIVEN TO THE ASSESSEE WHILE THE ASSE SSEE HAS COME IN APPEAL AGAINST THE CONFIRMATION OF RS.3,00,000/-. 12. AT THE TIME OF HEARING THE LD. DR SUBMITTED THA T THE AO HAD ADDED THE SUM OF RS.18,05,000/- BECAUSE NO DETAILS WERE F URNISHED BEFORE HIM AND THE LD. CIT(A) HAS GIVEN THE RELIEF ACCEPTING T HE SUBMISSIONS OF ASSESSEE MADE BEFORE HIM. 13. THE LD. COUNSEL ON THE OTHER HAND SUBMITTED THA T DETAILS LIKE CONFIRMATION, COMPUTATION OF INCOME, ACKNOWLEDGEMEN T OF RETURN FILED, FOR UNSECURED LOANS FROM SHRI S. K. GUPTA (RS.1,00, 000/-) AND M/S PARTH COMPUTERIZED WEIGH BRIDGE (RS.50,000/-), WERE FILED BEFORE THE LOWER ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 13 AUTHORITIES AND, THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT GIVING RELIEF TO THE EXTENT OF RS.1,50,000/-. 14. HEARD BOTH THE PARTIES, PERUSED THE RECORD AND WE FIND THAT THE AO HAS MADE AN ADDITION OF RS.18,05,000/- TO THE TOTAL INCOME OF THE ASSESSEE BY HOLDING THAT SINCE THE ASSESSEE WAS UNABLE TO FU RNISH ANY RESPONSE TO THE SHOW CAUSE NOTICE AND THUS BY TREATING THE LOAN S AS UNEXPLAINED, IN TERMS OF SECTION 68. THE LD. CIT(A), HOWEVER, HAS F OUND THAT THERE ARE SOME CONTRADICTIONS IN THE ORDER OF THE ASSESSING O FFICER. IN PARA 5 OF HIS ORDER THE AO HAS MENTIONED THAT ASSESSEE HAS SUBMIT TED CONFIRMATION LETTERS, ACKNOWLEDGEMENT OF RETURNS, COMPUTATION OF INCOME AND COPIES OF ACCOUNTS OF SOME OF THE CREDITORS BUT THE BANK P ASS BOOKS WERE NOT SUBMITTED. THEN IN PARA 5.1 OF HIS ORDER THE AO REC ORDS THAT NO DETAILS SUCH AS NAMES AND ADDRESSES OF THE PERSONS, CONFIRM ATION LETTERS, ACCOUNT STATEMENT ETC. WERE FURNISHED. THE LD. CIT(A), THER EFORE, DECIDED THE ISSUE ON MERITS AND HE FOUND THAT IN THE CASE OF SM T. HEMA D. MISTRY (RS.3,50,000/-) AND SHRI D. K. MISTRY (RS.1,50,000/ -) ALL THE NECESSARY DETAILS WERE FILED BEFORE THE AO AND HE WITHOUT MAK ING ANY FURTHER ENQUIRY HAS WRONGLY TREATED THIS AMOUNT AS UNEXPLAI NED. 14.1 SIMILARLY, IN THE CASE OF SHRI JITESH PARSHOTT AMBHAI (RS.1,90,000/-) AND M/S PARTH COMPUTERIZED WEIGH BRIDGE (RS.4,65,00 0/-) LD. CIT(A) FOUND THAT EXCEPT FOR RS.50,000/-, THE OTHER SUMS W ERE TAKEN BY THE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 14 ASSESSEE IN EARLIER YEARS. THEREFORE, PROVISIONS OF SECTION 68 OF THE ACT COULD NOT HAVE BEEN INVOKED DURING THE YEAR UNDER A PPEAL IN RESPECT OF THE LOANS TAKEN IN THE EARLIER YEAR. SO HE HAS RIGH TLY DELETED THIS ADDITION. IN RESPECT OF RS.50,000/- IT WAS ARGUED ON BEHALF O F THE ASSESSEE BEFORE US THAT CONFIRMATION AND OTHER NECESSARY DETAILS WERE AVAILABLE BEFORE THE LOWER AUTHORITIES. THEREFORE, WE DEEM IT PROPER TO RESTORE THE ISSUE RELATING TO RS.50,000/- BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. 14.2 SIMILARLY, THE SUM OF RS.4,00,000/- FROM SHRI SAVJIBHAI PATEL WAS TAKEN BY THE ASSESSEE IN THE EARLIER YEARS, THEREFO RE, THE SAME HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A). 14.3. IN RESPECT OF RS.1,50,000/- FROM SHRI MATHEW, SINCE NO DETAILS WHATSOEVER WERE FILED BY THE ASSESSEE EITHER BEFORE THE LOWER AUTHORITIES OR EVEN BEFORE US, WE CONFIRM THE ACTION OF THE LOW ER AUTHORITIES IN TREATING THIS AMOUNT AS UNEXPLAINED. 14.4 AS FAR AS LOAN OF RS.1,00,000/- FROM SHRI S. K . GUPTA IS CONCERNED, WE FIND THAT THE LD. CIT(A) HAS CONFIRMED THIS ADDI TION MADE BY AO BUT SINCE THE CONFIRMATION AND OTHER RELATED DETAILS HA VE BEEN FILED BY THE ASSESSEE, WE DEEM IT PROPER THAT THE ISSUE RELATING TO THIS AMOUNT MAY BE RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION A FTER VERIFICATION. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 15 IN VIEW OF THE ABOVE DISCUSSION, THE ACTION OF THE LD. CIT(A) DELETING THE ADDITION OF RS.15,05,000/- IS CONFIRMED AND THUS TH E REVENUES APPEAL IS DISMISSED. 14.5 AS FAR AS ASSESSEES APPEAL IS CONCERNED, LOAN OF RS.1,50,000/- IN RESPECT OF SHRI MATHEW IS HEREBY CONFIRMED AND ADDI TION IN RESPECT OF RS.50,000/- FROM M/S PARTH COMPUTERIZED WEIGH BRIDG E AND RS.1,00,000/- FROM SHRI S. K. GUPTA ARE RESTORED BA CK TO THE FILE OF AO FOR VERIFICATION AND FRESH ADJUCATION. ASSESSEES S ECOND GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.2 OF ASSESSEES APPEAL RELATES TO ADD ITION OF RS.4,66,093/- U/S 68 ON ACCOUNT OF UNEXPLAINED CASH CREDIT. THIS AMOUNT OF RS.4,66,093/- CREDIT BALANCE RELATES TO M/S PANW AR STEEL. THE CONFIRMATION FURNISHED FROM THE SAID PARTY SHOWED T HE CLOSING BALANCE AS NIL. THE ASSESSEE FAILED TO PROVIDE ANY RECONCILIAT ION. THE AO, THEREFORE, TREATED THE SUM OF RS.4,66,093/- AS UNEXPLAINED CAS H CREDIT. 16. IN APPEAL BEFORE LD. CIT(A) THE ASSESSEE VIDE I TS WRITTEN SUBMISSIONS IT HAS SUBMITTED THAT THE AO HAD MADE T HE ADDITION SIMPLY ON THE BASIS OF A RESPONSE OF M/S PANWAR STEEL TO T HE NOTICE U/S 133(6) OF THE ACT, ISSUED BY THE AO. THE ASSESSEE HAD PRODUCE D ALL RELEVANT RECORDS, AND THEREFORE, THERE WAS NO JUSTIFICATION IN PRESUMING THAT THE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 16 INFORMATION FURNISHED BY A THIRD PARTY WAS CORRECT, AND THE RECORD PRODUCED BY THE ASSESSEE WAS INCORRECT. THE AO HAD NOT PROVIDED A COPY OF THE LEDGER ACCOUNT SUBMITTED BY M/S PANWAR STEEL , AND HAD NOT ISSUED ANY SHOW-CAUSE NOTICE PRIOR TO MAKING THE ADDITION. 17. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF T HE CASE AND SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE AR HA D ONLY TRIED TO BEAT AROUND THE BUSH AND TO MAKE A VERY VAGUE AND GENERA LIZED SUBMISSION REGARDING NOT BEING PROVIDED WITH A LEDGER COPY OR A SHOW CAUSE NOTICE. HE HAD MADE NO ATTEMPT, EVEN IN APPELLATE PROCEEDIN GS TO RECONCILE THE BALANCE SHOWN IN THE ASSESSEES BOOKS AND THE BALAN CE CONFIRMED BY M/S PANWAR STEEL, WHICH CLEARLY MEANT THAT THE CREDIT B ALANCE SHOWN IN THE BALANCE SHEET OF THE ASSESSEE WAS ABSOLUTELY BOGUS. THUS THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.4,66,093/-. AGAINST THIS DECISION OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 18. BEFORE US THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ADDITION HAS BEEN MADE ONLY ON THE BASIS OF INFORMATION PROV IDED BY M/S PANWAR STEEL. NO LEDGER ACCOUNT WAS GIVEN TO ASSESSEE, NOR ANY SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 17 19. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDE RS OF LOWER AUTHORITIES. 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOI NG THROUGH THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT SINCE T HE ASSESSEE WAS NOT CONFRONTED WITH ADVERSE MATERIAL BY THE REVENUE, IN THE INTEREST OF JUSTICE, IT WILL BE JUST AND PROPER, IF THE MATTER IS RESTORED TO THE AO FOR DECIDING THE ISSUE AFRESH, AFTER PROVIDING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 21. GROUND NO.3 OF ASSESSEES APPEAL RELATES TO CON FIRMATION OF ADDITION OF RS.50,91,930/- OUT OF TOTAL ADDITION OF RS.61,33,780/- MADE BY THE AO AS UNEXPLAINED CREDITS U/S 68 OF THE ACT. TH IS ADDITION REPRESENTS CREDIT BALANCES IN THE NAMES OF FIVE DIFFERENT PART IES. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO ISSUED SHOW CAUSE NOT ICE DATED 26.11.2007 ASKING THE ASSESSEE TO FURNISH THE CONTR A CONFIRMATION FROM THE CREDITORS. THE AO OBSERVED THAT THE ASSESSEE HA D NOT FILED ANY CONTRA CONFIRMATION OF THE CREDITORS WHOSE LIST WAS PRODUC ED BY THE AO AT PARA NOS.6.1 OF THE ASSESSMENT ORDER (PAGE NO.6). THE AO OBSERVED THAT THE ASSESSEE HAD NOT FILED THE CONFIRMATION OF THE CRED ITORS AND THUS HE MADE ADDITION OF RS.61,33,780/- AS UNEXPLAINED CREDITS U /S 68 OF THE ACT TO THE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 18 TOTAL INCOME OF THE ASSESSEE. THIS ISSUE HAS BEEN D ISCUSSED BY THE AO AT PARA NOS.6.1 & 6.2 OF THE ASSESSMENT ORDER. 22. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT THE AO HAD MADE THE ADDITION ON THE SOLE GROUND THAT CONFIRMATION LETTE RS HAD NOT BEEN FURNISHED FROM THE SAID PARTIES, EVEN THOUGH THE AS SESSEE HAD PROVIDED COMPLETE DETAILS INCLUDING THE NAMES AND ADDRESSES OF SAID PARTIES AND THE AMOUNT OF PURCHASES AND THE AMOUNTS OUTSTANDING ETC . COPIES OF THEIR LEDGER ACCOUNTS HAD ALSO BEEN FURNISHED. CONFIRMATI ON LETTERS COULD NOT BE FURNISHED BECAUSE OF THE SHORTAGE OF TIME. THE A O COULD HAVE ASKED THE SAID PARTIES TO PRODUCE CONFIRMATIONS DIRECTLY TO HIM. THE AR HAD SOUGHT TO FURNISH CONFIRMATION LETTERS FROM THE SAI D PARTIES ALONG WITH THE WRITTEN SUBMISSIONS. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD BEEN REGULARLY DEALING WITH THE SAID PARTIES AND ALL PAY MENTS MADE AND RECEIVED WERE BY MEANS OF ACCOUNT PAYEE CHEQUES. TH E ASSESSEE ALSO CONTESTED THE AOS OBSERVATION THAT BOOKS OF ACCOUN T WERE NOT PRODUCED. THE BOOKS WERE DULY AUDITED U/S 44AB AND PRODUCED B EFORE THE AO. IN ANY CASE, LEDGER ACCOUNTS OF ALL THE SAID PARTIES H AD BEEN FILED BEFORE THE AO. THE ASSESSEE HAD SHOWN GP RATE OF 11.47% AND AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, THERE WAS A REDUCTION O F ONLY 0.35%. IF THE ADDITIONS MADE BY THE AO ARE TAKEN INTO CONSIDERATI ON, THEN THE GP RATE WOULD GO UPTO 33.85% WHICH WOULD BE VERY UNREASONAB LE AND UNREALISTIC ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 19 IN THE ASSESSEES LINE OF BUSINESS. IT WAS FURTHER ARGUED THAT THE AMOUNTS OUTSTANDING OF RS.10,41,850/- REPRESENTED THE OPENI NG BALANCE OF THE YEAR AND THERE WAS NO FURTHER AMOUNT BORROWED DURING THE YEAR. 23. THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF T HE CASE AND SUBMISSIONS OF THE ASSESSEE DELETED ADDITION OF RS. 10,41,850/- AND CONFIRMED THE ADDITION OF RS.50,91,930/- BY OBSERVI NG AS UNDER :- 14.3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION S OF THE AO IN THE ASSESSMENT ORDER ON ONE HAND, AND THE WRITTEN SUBMI SSIONS OF THE AR ON THE OTHER. FROM THE ASSESSMENT ORDER, IT IS SEEN TH AT THE AO HAD ISSUED THE SHOW CAUSE NOTICE ON 26.11.2007 PROPOSING TO TR EAT SUCH CREDITS AS UNEXPLAINED IN THE EVENT OF ASSESSEES FAILURE TO S UBMIT AN EXPLANATION ALONG WITH EVIDENCE. THIS HAS BEEN CONFIRMED BY THE AR. THE TIME GIVEN WAS UPTO 17.12.2007 A PERIOD OF 21 DAYS WHICH ACCOR DING TO ME, WAS QUITE SUFFICIENT EVEN THOUGH THE AR HAS CONTENDED T HAT IT WAS NOT SUFFICIENT. THE POINT TO NOTE IS THAT IF THE ARS C LAIM THAT THESE WERE THE PARTIES WITH WHOM THE ASSESSEE HAD BEEN DEALING WIT H ON A REGULAR BASIS THEN, THERE COULD BE NO REASON WHY THE REQUISITE CO NFIRMATION COULD NOT HAVE BEEN FURNISHED BY THE ASSESSEE WITHIN THE PERI OD OF 21 DAYS OR EVEN UPTO THE DATE OF COMPLETION OF THE ASSESSMENT PROCE EDINGS I.E. 27-12- 2007. IT CLEARLY APPEARS THEREFORE THAT, THERE WAS AN ELEMENT OF DELIBERATENESS N THE ASSESSEES FAILURE TO FURNISH THE REQUISITE CONFIRMATIONS ESPECIALLY WHEN SEEN IN THE BACKGROUN D OF THE CONFIRMATION FURNISHED OF M/S PANWAR STEEL VERYING TOTALLY WITH THE BALANCE SHOWN IN THE ASSESSEES BOOKS IN THE NAME OF THE SAID PARTY. GIVEN SUCH FACTS, THE CONFIRMATION LETTERS NOW FURNISHED BY THE AR ALONG WITH THE WRITTEN SUBMISSION CANNOT BE ADMITTED, IN VIEW OF THE STRIN GENT PROVISIONS OF RULE 46A OF THE IT RULES. THIS IS BECAUSE, THE ASSESSEE S CASE IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDED UNDER THE SAID RULE. HAVING REJECTED SUCH CONFIRMATION LETTERS, THERE REMAINS NO OTHER OPTION BUT TO SUSTAIN THE ACTION TAKEN BY THE AO AND CONFIRM THE ADDITION OF THE SUM OF RS.61,33,780/-. HOWEVER, SINCE THE OUTSTANDING BALA NCE OF RS.10,41,850/- IN THE NAME OF M/S R I TRADERS WAS ACTUALLY THE CLO SING BALANCE OF THE IMMEDIATELY PRECEDING YEAR AND THE OPENING BALANCE OF THIS YEAR, NO ADDITION COULD BE MADE OF THE SAID AMOUNT DURING TH E YEAR UNDER CONSIDERATION. THIS MEANS THAT THE ADDITION WHICH I S CONFIRMED WOULD BE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 20 RESTRICTED TO THE SUM OF RS.61,33,780/- (-) RS.10,4 1,850 = RS.50,91,930/-. THE AO IS DIRECTED TO TAKE ACTION ACCORDINGLY. AGAINST THIS ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 24. BEFORE US THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT COMPLETE NAMES AND ADDRESSES WERE GIVEN DURING ASSESSMENT VI DE REPLY DATED 3/8/2007 (PAGE 85 OF PAPER BOOK AT PAGE 87 OF PAPER BOOK). NO ENQUIRY WAS MADE BY THE AO OR EVIDENCE OF REMISSION OF LIAB ILITY BROUGHT ON RECORD BY THE AO NO ADEQUATE OPPORTUNITY WAS GRANTE D TO FURNISH CONFIRMATIONS. BEFORE LD. CIT(A) CONFIRMATIONS WERE FILED (PLACED AT PAGES 77 TO 83 OF THE PAPER BOOK) BUT THE SAME WERE NOT ADMITTED. THE LD. COUNSEL RELYING ON THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF SUGANLI SAGAR WORKS, SUBMITTED THAT NO ADDITION COULD BE MADE U/S 41(1) OF THE ACT. ALTERNATIVELY, HE SUBMITTED THAT THE ADDITIONAL EVIDENCES OUGHT TO HAVE BEEN ADMITTED BY THE LD. CIT(A). THUS HE PRAYED THAT ONE MORE OPPORTUNITY MAY KINDLY BE GIVEN TO THE ASSESSE E. 25. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORD ERS OF AUTHORITIES BELOW. 26. HEARD BOTH THE PARTIES, PERUSED THE RECORD AND WE FIND THAT SUFFICIENT OPPORTUNITY WAS NOT PROVIDED BY THE AO W HILE DECIDING THIS ISSUE AND THE EVIDENCES PRODUCED IN THIS RESPECT BE FORE LD. CIT(A) WERE ALSO NOT CONSIDERED BY HIM. THEREFORE, IN THE INTER EST OF NATURAL JUSTICE ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 21 AND FAIR PLAY WE ARE OF THE CONSIDERED OPINION THAT THE MATTER BE RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION AFTER VERIFYING THE EVIDENCES PRODUCED BY THE ASSESSEE BEFORE THE LD. CIT(A) IN S UPPORT OF HIS CLAIM BY THE ASSESSEE. WE ORDER ACCORDINGLY. 27. THE LAST ISSUE RAISED IN THE ASSESSEES APPEAL RELATES TO DISALLOWANCE OF INTEREST OF RS.82,515/- MADE U/S 36 (1)(III). DU RING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD CLAI MED BANK INTEREST EXPENSE OF RS.3,65,885/- WHILE NO INTEREST HAD BEEN CHARGED ON THE ADVANCES GIVEN TO GITABEN KALATHIA OF RS.3,40,303/- AND TO PARTH SUGAR CANDI WORKS OF RS.3,47,319/-. IN RESPONSE TO A SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE INTEREST FREE ADVANCES HAD BEEN GIVEN OUT OF THE AMOUNTS RECEIVED FROM CREDITORS AND THE AMOUNTS RECEIVED AS ADVANCES FROM DBTORS, WHICH WERE NON-INTEREST BEARI NG FUNDS. ACCORDING TO THE AO, THE ASSESSEE FAILED TO PROVIDE ANY DOCUM ENTARY EVIDENCE TO SUPPORT SUCH A CLAIM. THE AO THEREFORE WORKED OUT T HE INTEREST RECEIVABLE @ 12% ON SUCH ADVANCES AND DISALLOWED THE SAME OUT OF THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE, WHICH RESULTED IN THE ADDITION OF RS.82,515/-.. 28. BEFORE LD. CIT(A) THE ASSESSEE SUBMITTED THAT O NUS WAS ON THE AO AND NOT ON THE ASSESSEE TO PROVE THAT INTEREST-BEAR ING FUNDS HAD BEEN UTILIZED FOR NON-BUSINESS PURPOSES, ON WHICH NO INT EREST HAD BEEN ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 22 CHARGED. WITHOUT PREJUDICE, IT HAD BEEN FURTHER CON TENDED THAT THE ASSESSEE HAD NOT PAID ANY INTEREST ON THE UNSECURED LOANS TAKEN DURING THE YEAR, WHICH MEANT THAT THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS FOR GIVING INTEREST-FREE ADVANCES TO THE SAID PARTIES. 29. THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.82, 515/- AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE BY OBSE RVING AS UNDER :- 18. ONCE AGAIN, BOTH THE ASSESSEE AND THE AR HAVE FAILED TO PROVIDE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM TH AT THE INTEREST FREE LOANS RECEIVED WERE UTILIZED FOR MAKING INTEREST-FR EE ADVANCES. SECONDLY, THE ONUS WAS ON THE ASSESSEE TO SHOW THE AVAILABILI TY OF THE INTEREST FREE FUNDS BEFORE THE AO, INSTEAD OF SIMPLY STATING IN T HE WRITTEN SUBMISSION THAT THE INTEREST FREE ADVANCES WERE GIVEN FROM AMO UNTS RECEIVED FROM THE DEBTORS AND THE CREDITORS. IT IS HIGHLY UNUSAL THAT THE CREDITORS WERE NOT TO BE PAID ANY INTEREST. AT LEAST NO EVIDENCE H AS BEEN PRODUCED TO SUPPORT SUCH CLAIM. UNLESS THE INITIAL BURDEN WAS D ISCHARGED BY THE ASSESSEE SHOWING THE AVAILABILITY OF INTEREST FREE FUNDS, IT COULD NOT BE SAID THAT THE ONUS HAD SHIFTED TO THE AO TO ESTABLI SH THAT INTEREST BEARING BORROWINGS HAD BEEN GIVEN OUT AS INTEREST FREE ADVA NCES. GIVEN SUCH FACTS, I HAVE NO OTHER OPTION BUT TO CONFIRM THE AD DITION OF THE SUM OF RS.82,515/-. AGAINST THIS DECISION OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 30. BEFORE US THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE AO HAD NOT PROVED THAT INTEREST BEARING FUNDS WERE ADVANCE D. THE ASSESSEE HAD SUBSTANTIAL INTEREST-FREE FUNDS AS PER DETAILS FURN ISHED AT PAGE 87 TO 89 OF THE PAPER BOOK. 31. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF LOWER AUTHORITIES. ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 23 32 HEARD BOTH THE PARTIES AND PERUSED THE RECORD. W E FIND THAT THE ASSESSEE HAS TRIED TO MAKE OUT A CASE THAT ASSESSEE HAD SUBSTANTIAL INTEREST-FREE FUNDS FOR GIVING INTEREST FREE ADVANC ES IN RESPECT OF WHICH HE HAS FILED THE DETAILS WHICH ARE AVAILABLE AT PAGES 87 TO 89 OF THE PAPER BOOK. BUT THESE DETAILS REQUIRE VERIFICATION AT TH E END OF THE AO, THE MATTER IS, THEREFORE, RESTORED BACK TO THE FILE OF AO FOR FRESH DECISION. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 33. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.502 & 566/AHD/2009 ASST. YEAR 2005-06 24 1.DATE OF DICTATION 9/12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 23/12/2011 3.DATE ON WHICH THE 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 ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..