ACIT, New Delhi V. M/s Sage Metals Pvt. Ltd., Delhi

ITA 5187/DEL/2013

• Counselvise Citation: 518720114 RSA 2013
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMASR
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Depreciation; Business expenditure; Opportunity of cross examination; Assessment record; Onus to prove
• Section: 131; 69; 15; 139; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H , NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5629 /DEL/2010 ASSESSMENT YEAR : 2006-07 ACIT, CIRCLE 2, VS. M/S. U.S. ENTERPRISES MEERUT 503, BEGUM BAGH, MEERUT GIR / PAN:AABFU7273J C.O. NO.13/DEL/2011 (ASSESSMENT YEAR 2006-07) M/S. U.S. ENTERPRISES, VS. ACIT, CIRCLE 2, 503, BEGUM BAGH, MEERUT MEERUT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAMEER SHARMA,SR. DR RESPONDENT BY : SHRI K. SAMPATH, ADV. ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 30.09.2010. THE ASSESSEE HAS ALSO PRE FERRED C.O. AGAINST THE APPEAL FILED BY THE REVENUE. THE GROUNDS OF AP PEAL TAKEN BY THE REVENUE AS WELL GROUNDS OF C.O. TAKEN BY THE ASSESS EE ARE AS UNDER: GROUNDS OF APPEAL: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW BY IGNORING THE 2 ITA NO.5629/DEL/2010 COPY OF PARTNERSHIP DEED FILED ALONG WITH THE RETUR N OF INCOME WHICH WAS NOT HELD VALID BY THE ASSESSING OFFICER. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AND FACTS IN DELETING THE ADDITION OF RS. 22 LACS ON ACCOUNT OF CAPITAL CONTRIBUTION BY SH. UDAL SINGH VERMA IGNORING THE MOST OF THE TRANS ACTIONS WERE SHOWN IN CASH AND CREDIT WORTHINESS OF THE PERSON AS WELL AS THE GENUINENESS OF THE TRANSACTION REMAINED UN-PROVED. 3'. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AND FACTS IN DELETING THE ADDITION OF RS. 5,50,000/- ON ACCOUNT OF CAPITAL CONTRIBUTION OF SH. SUBHASH CHNAD VERMA IGNORING THE MOST OF THE TRANSACTIONS WERE SHOWN IN CASH AND CREDIT WORTHINESS OF THE PERSON A S WELL AS THE GENUINENESS OF THE TRANSACTION REMAINED UN-PROVED. 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AND FACTS IN DELETING THE ADDITION OF RS. 12,72,342/- ON ACCOUNT OF CAPITAL CONTRIBUTION BY SH. PRAVEEN KANSAL AND SMT. SUSHMA KANSAL IGNORI NG THAT MOST OF THE TRANSACTIONS WERE SHOWN IN CASH AND CREDIT WORTHINE SS OF THE PERSON AS WELL AS THE GENUINENESS OF THE TRANSACTION REMAINED UNPROVED. 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN A ND FACTS IN DELETING THE ADDITION OF RS. 9,95,033/- IGNORING THE FACTS T HAT THE INCOMPLETE BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE ASSESSING OFFI CER WHICH WERE NOT AUTHENTIC AND THE BUSINESS RESULTS WERE TOTALLY UNV ERIFIABLE AND THE 3 ITA NO.5629/DEL/2010 ASSESSING OFFICER DULY INVOKED THE PROVISIONS OF SE CTION 145(3) BEFORE REJECTING THEM AND MADE A VERY REASONABLE ADDITION BASED UPON COMPARABLE CASE. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SET ASI DE AND THAT OF THE AO RESTORED. GROUNDS OF CROSS OBJECTIONS: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LOSS DECLARED BY THE ASSESSEE AT RS.11,70,155/- OUGHT TO HAVE BEE N ACCEPTED AND DIRECTED TO BE MADE BASIS FOR ASSESSMENT. THAT LD. CIT(A) AFTER HAVING DELETED THE ESTIMATED ADDITION OF RS.9,95,033/- OUGHT TO HAVE MADE FURTHER DIRECITON THAT DECLARED BUSINESS LOSS OF RS.11,70,155/- DESERVE TO BE ACCEPTED FOR A SSESSMENT IN THE CASE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D RETURN OF INCOME DECLARING LOSS OF RS.11,70,155/-. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE TRADING OF LIQUOR WHICH CAME INTO EX ISTENCE ON 08.02.2005 AND IS CONSISTING OF FOUR PARTNERS HOLDING SHARE OF 25% EACH. THE A.O. OBSERVED THAT COPY OF PARTNERSHIP DEED FILED ALONG WITH THE RETURN OF INCOME WAS CERTIFIED ONLY BY THREE PARTNERS NAMELY SHRI PRAVEEN KANSAL, SMT. SUSHMA KANSAL & SHRI UDAL SINGH VERMA AND THE FOURTH PARTNER SHRI SUBHASH CHAND VERMA HAD NOT CERTIFIED THE DEED . THEREFORE THE A.O. HELD THAT BEING FIRST YEAR OF RETURN, THE PROV ISIONS OF SECTION 184(2) OF THE ACT WERE NOT FULFILLED AND THEREFORE, HE ASS ESSED THE ASSESSEE AS AOP. THE A.O. FURTHER DIRECTED THE ASSESSEE TO FUR NISH SOURCE OF CAPITAL INTRODUCED BY PARTNERS. IN REPLY, THE ASSESSEE SUB MITTED CAPITAL ACCOUNT OF SHRI UHAL SINGH VERMA AND SHRI SUBHASH CHAND VER MA AND SUBMITTED 4 ITA NO.5629/DEL/2010 THAT OTHER TWO PARTNERS SHRI PRAVEEN KANSAL AND SMT . SUSHMA KANSAL WERE NOT COOPERATING. DURING THE ASSESSMENT PROC EEDINGS, THE ASSESSEE ALSO SUBMITTED THAT SHRI UDAL SINGH VERMA WAS PARTN ER IN THE FIRM IN REPRESENTATIVE CAPACITY ON BEHALF OF FIRM M/S. S.S. & CO. AND THE SOURCE OF CAPITAL CONTRIBUTED BY HIM WAS FROM M/S. S. S. & CO. HOWEVER THE A.O. OBSERVED THAT THE FACT THAT SHRI UDAL SINGH V ERMA WAS A PARTNER IN REPRESENTATIVE CAPACITY WAS NOT MENTIONED IN THE PA RTNERSHIP DEED AND THEREFORE, THIS CANNOT BE GIVEN COGNIZANCE. HE FUR THER OBSERVED THAT M/S. S.S. & CO. HAD COME INTO EXISTENCE ON 14.04.2005 WH ICH WAS AFTER THE FORMATION OF THE ASSESSEE FIRM ON 08.02.2005. THER EFORE, HE HELD THAT SHRI UDAL SINGH VERMA CANNOT BE SAID TO BE A PARTNE R IN THE ASSESSEE FIRM IN A REPRESENTATIVE CAPACITY. REGARDING SOURCES OF CAPITAL CONTRIBUTED BY THE PARTNERS OF FIRM, THE A.O. ISSUED NOTICES U/S 1 31 TO ALL FOUR PARTNERS AND OBSERVED FROM THEIR REPLIES THAT PARTNERS WERE GIVING DIVERGENT STATEMENT. THEREFORE, THE A.O. MADE ADDITION OF RS .22 LACS, RS.5 LACS AND RS.12,72,342/- U/S 68 OF THE ACT AS UNEXPLAINED CRE DIT INTRODUCED BY THREE PARTNERS IN THEIR CAPITAL ACCOUNT. THE A.O. FURTHE R REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLIED NET PROFIT @ 2% OF GROSS TURNOVER. AGGRIEVED WITH THE ACTION OF THE A.O., THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) ON THE BASIS OF SUBMISSIO NS OF THE ASSESSEE, ALLOWED THE APPEAL OF THE ASSESSEE. LD. CIT(A) DEL ETED THE ADDITION BY HOLDING AS UNDER: 6. GROUND NO.2: 6.1. THIS GROUND RELATES TO CAPITAL CONTRIBUTION O F SHRI UDAL SINGH VERMA PARTNER AT RS.22,00,000/- HELD AS UNEXPLAINED . 6.2. AO'S OBSERVATIONS: 'SHRI UDAL SINGH VERMA IN HIS STATEMENT ON OATH U/S 131 STATED THAT HIS CAPITAL CONTRIBUTION IN THE ASSESSEE FIRM WAS RS. 4 200000/- IN F.Y. 2005- 5 ITA NO.5629/DEL/2010 6. HE ALSO DID NOT REMEMBER THE OPENING AND CLOSING BALANCES OF HIS ACCOUNT ON THE FIRM. THE ASSESSEE SUBMITTED THAT SH. UDAL SINGH VERMA IS PARTNER IN REPRESENTATIVE CAPACITY FOR AND ON BEHALF OF THE SU B PARTNERSHIP FIRM M/S S.S. & CO. THE SAID FIRM I.E. M/S S.S. & CO. INVEST ED IN THE ASSESSEE FIRM AS ITS CAPITAL TO BE CREDITED IN THE CAPITAL ACCOU NT OF SH. UDAL SINGH VERMA. THE TOTAL AMOUNT OF RS.: 4155990/- WAS INVES TED BY S.S. & CO. IN F.Y. 2005-06 OUT OF WHICH THOROUGH MISUNDERSTANDING OF THE ACCOUNTANT AMOUNT OF RS. 1100000/- WAS CREDITED IN THE CAPITA L ACCOUNT OF OTHER PARTNER OF ASSESSEE FIRM SH. SUBHASH CHAND VERMA AN D ONLY AMOUNT OF RS. 3055990/- WAS CREDITED IN THE CAPITAL ACCOUNT O F SH. UDAL SINGH VERMA. FROM THE COPY OF THE PARTNERSHIP DEED OF M/S SS. & CO. FILED BY THE ASSESSEE, IT IS FURTHER SEEN THAT THE SAID FIRM I.E M/S S.S. & CO CAME INTO EXISTENCE MUCH LATER ON 14TH APRIL 2005. WHEREAS TH E ASSESSEE FIRM WAS FORMED ON 8 TH FEBRUARY 2005. THE PARTNERSHIP DEED OF THE ASSESS EE FIRM DOES NOT MENTION THAT SH. UDAL SINGH VERMA IS A PAR TNER IN REPRESENTATIVE CAPACITY ON BEHALF OF M/S S,S. & CO. HOWEVER THE PARTNERSHIP DEED OF M/S S.S. & CO. SAYS THAT SH. UD AL SINGH VERMA MAY, FOR AND OR BEHALF THIS FIRM ENTER INTO PARTNERSHIP OF M/S U.S. ENTERPRISES WITH FUNDS OF THIS PARTNERSHIP, SINCE THE SAID FIRM CAME INTO EXISTENCE MUCH LATER AND THE REPRESENTATIVE CAPACITY OF SH. U DAL SINGH VERMA IS NOT MENTIONED IN PARTNERSHIP DEED OF ASSESSEE FIRM, THIS SUBMISSION OF THE ASSESSEE HOLDS NO LEGAL FORCE AND MERIT. AS THE SOURCES OF CAPITAL INTRODUCED BY THE PARTNER WERE NOT EXPLAINED CLEARLY BY THE ASSESSEE. SUMMONS U/S 131 OF THE IT ACT 1961, WERE ISSUED TO ALL THE 4 PARTNERS OF THE ASSESSEE FIRM. FROM TH E STATEMENTS OF THE PARTNERS RECORDED ON OATH U/S 131 THE FOLLOWING CON TRADICTORY POINTS EMERGE:- SH. UDAL SINGH VERMA STATED THAT HIS CAPITAL CONTRI BUTION IN THE ASSESSEE FIRM WAS OUT OF THE FUNDS OF M/S S.S. & CO. OF WHIC H RS. 220000Q/- WAS CONTRIBUTED BY HIM RS. 4000000/- WAS CONTRIBUTED BY SMT. SEETA VERMA RS.1280000/- BY SMT. SAVITRI DEVI & RS. 2000001- BY RAM DUTT SHARMA RS. 1000001- BY SH. NAVEEN KUMAR VERMA. THE ENTIRE CAPITAL WAS INVESTED IN CASH IN THE ASSESSEE FIRM. IT IS NOTEWO RTHY HERE THAT THE FIRM M/S S.S. & CO. CAME INTO EXISTENCE MUCH LATER THAN THE ASSESSEE FIRM. THUS HOW THE FUNDS FROM M/S S.S. & CO. COULD HAVE B EEN INVESTED IN THE ASSESSEE FIRM IS THUS NOT CLEAR. SINCE THE ENTIRE T RANSACTION WAS IN CASH, THE GENUINENESS OF THE ENTIRE TRANSACTION IS HIGHLY DOUBTED. IT CANNOT BE CONSIDERED AS A GENUINE TRANSACTION. FURTHER SH. UD AL SINGH VERMA COULD NOT TELL THE INCOME RETURNED BY HIM IN A. Y. 2005-06. ALSO HE WAS UNABLE TO DISCLOSE THE SOURCE OF RS. 22000001- INVE STED BY HIM FROM HIS 6 ITA NO.5629/DEL/2010 PERSONAL BALANCE SHEET IN THE FIRM M/S S.S. & CO. A ND WHICH IN TURN ACCORDING TO HIM WAS INTRODUCED IN THE ASSESSEE FIR M. FORM THE COPY OF HIS RETURN OF INCOME IT IS SEEN HIS TOTAL INCOME FO R A.Y. 2006-07 IS ONLY RS. 776501-. THUS IT IS PROVED BEYOND DOUBT THAT SH . UDAL SINGH VERMA DID NOT HAVE THE CREDIT WORTHINESS TO ADVANCE RS. 2 2000001- TO THE ASSESSEE FIRM. SH. UDAL SINGH VERMA COULD NOT TELL THE AMOUNT OF C APITAL INTRODUCED IN THE ASSESSEE FIRM BY SH. SUBHASH CHAND VERMA. AS DISCUSSED EARLIER, THE SOURCE OF THE CAPITAL INT RODUCED BY SH. UDAL SINGH VERMA IS NOT CLEAR AND MOST OF THE TRANSACTIO N HAS BEEN DONE IN CASH, THE GENUINENESS OF TRANSACTION IS HIGHLY DOUB TFUL AND ASSESSEE HAS NOT DISCHARGED HIS ONUS OF PROVING THE GENUINENESS OF THE TRANSACTION. THE CAPITAL CONTRIBUTED BY SH. UDAL SINGH VERMA AMO UNTING TO RS. 22000001- IS THUS, HEREBY TREATED AS UNEXPLAINED CA SH CREDIT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE.' 6.3. AR'S SUBMISSIONS: AR MADE SUBMISSIONS AS UNDER: '1. SHRI UDAL SINGH VERMA PARTNER OF THE APPELLANT FIRM FOR AND ON BEHALF OF SUB PARTNERSHIP FIRM M/S S.S. & CO, HAS BEEN REG ULARLY ASSESSED TO INCOME TAX FOR LAST MORE THAN 40 YEARS. ALONG WITH HIS INCOME TAX RETURN HE HAS BEEN FILING COPY OF HIS CAPITAL ACCOUNT AND STATEMENT OF HIS AFFAIRS EACH YEAR ALONG WITH HIS INCOME TAX RETURNS. EACH Y EAR, HIS CAPITAL ACCOUNT AND STATEMENT OF HIS AFFAIRS STOOD TO EXPLA IN SOURCES OF INVESTMENT MADE IN ASSETS APPEARING ON DEBIT SIDE O F AND LOAN RAISED APPEARING ON CREDIT SIDE OF HIS SAID STATEMENT OF A FFAIRS. THE COPY OF HIS STATEMENT OF AFFAIRS FOR THIS YEAR, FILED BEFORE TH E AO IN THE COURSE OF HEARING OF THE CASE, SHOWS THAT HE HAS INVESTED IN THE FIRM M/S S.S. & CO. AT RS. 2198717/- AS ON 31-032006 AND THE FIRM M/S S .S. & CO. AS SUB PARTNERSHIP FIRM HAS INVESTED THROUGH ITS PARTNER U DAL SINGH VERMA TOTAL AMOUNT OF RS. 4155990/- IN THE APPELLANT FIRM. AS A GAINST THE CAPITAL INVESTMENT MADE BY SHRI UDAL SINGH VERMA OUT OF HIS INDIVIDUAL FUNDS IN SUB PARTNERSHIP FIRM THE AO HAS MADE ADDITION OF RS . 2200000/- AS UNEXPLAINED INVESTMENT IN THE APPELLANT FIRM IN PLA CE OF RS. 2198717/-. 2. THAT THE SUB PARTNERSHIP FIRM M/S S.S. & CO. WAS FORMED ON 01-04- 2005, THOUGH ITS PARTNERSHIP DEED WAS EXECUTED ON 1 4-04-2005 EFFECTIVE FROM 01-04- 2005. THERE ARE 5 PARTNERS IN THE SAID SUB PARTNERSHIP FIRM M/S S.S. CO, INCLUDING SHRI UDAL SINGH VERMA. THE S UB PARTNERSHIP FIRM M/S S.S. & CO HAS BEEN FILING ITS INCOME TAX RETURN IN WARD 2(3) MEERUT, WITH ITS PAN ABIFS2256F. ALL THE PARTNERS OF THIS S UB PARTNERSHIP FIRM ARE REGULAR INCOME TAX ASSESSEE WITH THEIR OWN PAN IN DIFFERENT WARDS AT MEERUT. 7 ITA NO.5629/DEL/2010 IN THE COURSE OF HEARING BEFORE THE AO THE APPELLAN T FIRM HAS FILED CONFIRMATION OF ALL THE PARTNERS OF SUB PARTNERSHIP FIRM. IN THEIR CONFIRMATION THE PARTNERS HAVE CONFIRMED THE NATURE AND SOURCES OF THEIR INVESTMENT IN THE SAID SUB PARTNERSHIP FIRM WITH TH EIR OWN PANS AND INCOME TAX RECORDS. IN THE COURSE OF ASSESSMENT PRO CEEDINGS APPELLANT FIRM HAS ALSO FILED BEFORE THE AO COPIES OF PARTNER SHIP DEED AND BALANCE SHEET OF THE SAID SUB PARTNERSHIP FIRM AS ON 31-03- 2006. THIS BALANCE SHEET SHOWS THAT SHRI UDAL SINGH VERMA HAS INVESTED IN THE SUB PARTNERSHIP FIRM AT RS. 2198717/- AND THE SUB PARTN ERSHIP FIRM THROUGH SHRI UDAL SINGH VERMA INVESTED AT RS. 4155990/- AS ON 31-03-2006 IN THE APPELLANT FIRM. AS AGAINST TOTAL INVESTMENT OF RS. 2198717/- MADE BY SHRI UDAL SINGH VERMA IN SUB PARTNERSHIP FIRM LUMP SUM A DDITION OF RS. 2200000/- HAS BEEN MADE IN THE HANDS OF APPELLANT F IRM AS CAPITAL INVESTMENT REMAINING UNEXPLAINED. HERE IT MAY ALSO BE CLARIFIED THAT THROUGH MISTAKE OF THE ACCOUNTANT OF THE APPELLANT FIRM, OUT OF TOTAL INVESTMENT OF RS. 4155990/- AMOUNT OF RS. 1100000/- WAS CREDITED IN THE CAPITAL ACCOUNT OF SHRI SUBHASH CHAND VERMA, PARTNE R OF THE APPELLANT AND AMOUNT OF RS. 3055990/- ONLY REMAINED INVESTED IN THE NAME OF UDAL SINGH VERMA IN THE BOOKS OF APPELLANT FIRM. 3. THAT IT MAY BE SUBMITTED THAT LAW ON THE POINT S TOOD WELL SETTLED THAT A PARTNER OF THE FIRM NEED NOT TO DISCLOSE TO THE FIR M OR TO ITS OTHER PARTNERS, AS TO WHOM HE IS REPRESENTING OUT SIDE THE FIRM. A PARTNER OF THE FIRM, MAY REPRESENT, TO HIS HUF, TO A COMPANY OR TO ANY O THER SUB PARTNERSHIP CONCERN BUT IN HIS PARENT PARTNERSHIP FIRM HE NEED NOT TO DISCLOSE THIS FACT. THE PARENT PARTNERSHIP FIRM OR ITS PARTNERS H AVE NO CONCERN WITH INDIVIDUAL LIABILITY OF ITS PARTNERS TO ANY OTHER P ERSON. IN PARTNERSHIP FIRM, EACH PARTNER, INTER SE IS AN INDIVIDUAL AND O UT SIDE THE PARTNERSHIP FIRM HE MAY BE REPRESENTATIVE OF ANY OTHER PERSON W ITHOUT DISCLOSING THIS FACT TO THE PARENT PARTNERSHIP FIRM OR TO ITS OTHER PARTNERS. IT IS ALSO NOT NECESSARY THAT FORMATION OF PARENT PARTNERSHIP CONC ERN AND SUB PARTNERSHIP CONCERN TAKE PLACE SIMULTANEOUSLY. A PA RTNERSHIP DEED REGULATE THE INTER-SE RELATION OF ITS PARTNERS. A P ARTNER OF A PARENT FIRM MAY ENTER IN TO AGREEMENT OF SUB PARTNERSHIP FIRM I N RESPECT OF HIS SHARE IN PARENT FIRM, AT ANY TIME ACCORDING TO HIS OWN IN TEREST FINANCIAL NEED AND BUSINESS EXPEDIENCY WITHOUT DISCLOSING IT TO AN Y OTHER PERSON. 4. THAT REGARDING SOURCES OF INVESTMENT OF RS. 2198 717/- BY SHRI UDAL SINGH VERMA OUT OF HIS INDIVIDUAL FUNDS, YOUR HONOU R'S KIND ATTENTION IS INVITED TO PAGE 2 OF THE PAPER BOOK NO-IL AS UNDER . A. A SUM OF RS. 900000/- WAS INVESTED BY HIM BY ACC OUNT PAYEE CHEQUE IN F.Y. 2004-05 RELEVANT FOR A.Y. 2005-06 FROM HIS SAV ING BANK ACCOUNT NO- 8 ITA NO.5629/DEL/2010 530010034327 IN ING VYSYA BANK DELHI. IN THIS S.B. A/C THERE WAS OLD BALANCE OF RS. 516860/-. THERE IS CREDIT ENTRY OF R S. 419208.10 IN RESPECT OF MATURITY OF BANK FDR. AGAINST THESE CREDIT ENTRI ES, THERE IS ONE DEBIT ENTRY OF RS. 900000/- IN RESPECT CHEQUE DEPOSITED I N THE APPELLANTS FIRM. REFER TO PAGE 3 OF THE PAPER BOOK. B. THERE IS NEXT INVESTMENT OF RS. 350000/- IN CASH ON 05-04-2005 IN THE APPELLANT FIRM. THIS INVESTMENT IS COVERED WITH CAS H WITHDRAWAL MADE FROM HIS S.B. A/C WITH PNB KHAIR NAGAR MEERUT. REFE R TO PAGE 4 OF THE PAPER BOOK. IN THE SAID BANK ACCOUNT THERE IS A CRE DIT ENTRY OF RS. 350000/- IN RESPECT OF LOAN TAKEN BY HIM AGAINST HI S BANK FDR AND THEN CASH WITHDRAWALS OF RS. 350000/- TO EXPLAIN THE ENT RY IN THE BOOKS OF APPELLANT FIRM. C. THERE IS FURTHER INVESTMENT OF RS. 85000/- MADE BY HIM IN THE APPELLANT FIRM ON 06-04-2005 BY ACCOUNT PAYEE CHEQUE FROM HIS SAME S.B. ALE WITH PNB. THIS WITHDRAWAL FROM THE BANK ACCOUNT IS COVER ED BY OLD BALANCE OF RS. 65017/- AND CASH DEPOSIT OF RS. 25000/- OUT OF HIS CASH IN HAND. UDAL SINGH & SONS JEWELLERS DELHI. COPY OF CAPITAL ACCOUNT IN THE FIRM IS ATTACHED AT PAGE 5 OF (HE PAPER BOOK. E. FURTHER INVESTMENT OF RS. 150000/- ON 25-03-2006 AND OF RS. -150000/- ON 27-03-2006 WERE IN RESPECT OF LOAN TAKEN FORM SM T. VANDANA VERMA. SHE IS REGULARLY ASSESSED TO INCOME TAX. HER CONFIR MATION IN SUPPORT OF THESE ENTRIES IS PLACED AT PAGE 7 OF THE PAPER BOOK . THESE ENTRIES ARE THROUGH ACCOUNT PAYEE CHEQUES ISSUED BY SMT. VANDAN A VERMA. F. BALANCE INVESTMENT OF RS. 243717/- ON DIFFERENT DATES DURING THE YEARS WERE IN CASH. THESE ARE COVERED WITH CASH IN HAND O F RS. 2697911- ON 31- 03-2005. COPY OF HIS STATEMENT OF AFFAIRS FILED BY HIM WITH HIS INCOME TAX RETURN FOR A.Y. 2005-06 IS PLACED AT PAGES 9 & 10 O F THE PAPER BOOK. 5. THAT IT MAY BE POINTED OUT THAT OUT OF TOTAL INV ESTMENT OF RS. 2198717/- THE INVESTMENT TO THE EXTENT OF RS. 1605000/- IS TH ROUGH BANKING CHANNEL AND ACCOUNT PAYEE CHEQUES I.E. THE FUNDS IN FIRST I NSTANCE REMAINED INVESTED IN THE BANK ACCOUNT OF THE PAYER AND THEN WERE BROUGHT IN THE BANK ACCOUNT OF THE ASSESSEE FIRM. THESE FACTS ARE VERIFIABLE FROM BANK ACCOUNT OF THE APPELLANT FIRM PLACED AT PAGES 1 05 .TO 133 OF 2ND PAPER BOOK. IN RESPECT OF THESE ENTRIES .EXPLANATION FOR SOURCES 0F INVESTMENT MAY BE SOUGHT FROM PAYER UNDER SECTION 69 OF THE AC T. ASSESSEE FIRM IS NOT LIABLE TO EXPLAIN THESE ENTRIES U/S 68 OF THE . ACT PARTICULARLY WHERE THIS IS THE FIRST YEAR OF ASSESSEE'S BUSINESS AND S HRI UDAL SINGH VERMA HAS BEEN REGULARLY ASSESSED TO INCOME TAX FOR LAST 40 Y EARS. 6. THAT COMPARATIVE STATEMENT OF CAPITAL CONTRIBUT ION BY SHRI UDAL SINGH VERMA MAY BE REPRODUCED YEAR WISE AS BELOW:- F.Y. 2004-05 RELEVANT FOR A.Y 2005-06 F.Y. 2005-06 RELEVANT FOR A.Y. 2006-07 9 ITA NO.5629/DEL/2010 AS PER BOOKS OF A/C AS PER STATEMENT OF AS PER BOOK S OF A/C AS PER STATEMENT OF PRAVEEN KANSAL PRAVEEN KANSAL RS. 900000/- BY RS.700000/- RS. 1298717/- RS. 500000/- CHEQUE TOTALLY (THROUGH CHEQUES RS. 705000/-) FROM THIS STATEMENT, STATEMENT U/S 131 OF SHRI PRAV EEN KUMAR KANSAL HOSTILE PARTNER IS PROVED TO BE FALSE. THIS STATEME NT U/S 131 BEING BEHIND THE BACK OF OTHER PARTNERS WITHOUT OPPORTUNITY OF H IS CROSS EXAMINATION TO OTHER PARTNERS IS NOT ADMISSIBLE IN EVIDENCE. 7. THAT IT MAY ALSO BE MENTIONED THAT 1ST ENTRY OF RS. 900000/- THROUGH ACCOUNT PAYEE CHEQUE TOOK PLACE IN F.Y. 2004-05. TH IS FACT MAY ALSO BE VERIFIED FORM THE BANK ACCOUNT OF THE APPELLANT FIR M PLACED ON PAGE 105 OF THE 2ND PAPER BOOK. IN VIEW OF ABOVE SUBMISSIONS CAPITAL INVESTMENT BY SHRI UDAL SINGH VERMA AT RS. 2198717,- STOOD FULLY EXPLAINED. ADDIT ION MAD AT RS. 2200000/- ON THIS ACCOUNT IS WRONG AND ILLEGAL.' 6.4. DECISION AND REASONS THEREFOR: I HAVE GONE THROUGH THE FACTS OF THE CASE CAREFULLY AND ALSO PERUSED THE PAPERS FILED WITH THE PAPER-BOOK IN SUPPORT OF CONT ENTIONS. IT TRANSPIRES FROM THE DOCUMENTS THAT SHRI UDAL SINGH VERMA'S INV ESTMENT IN THE FIRM M/S. S.S& CO. STOOD AT RS.21,98,717/- AS ON 31.3.20 06. THE FIRM M/S. S.S. & CO. HAD INVESTED THROUGH ITS PARTNER SHRI UDAL SI NGH VERRNA A TOTAL OF RS41,55,9901- IN THE APPELLANT FIRM. REGARDING THE SOURCES OF RS.21,98,717/- IT IS CLEARLY BORNE OUT BY DOCUMENTS THAT OUT OF RS.21,98,717/-, INVESTMENT OF RS.16,05,000/- WAS TH ROUGH BANKING CHANNELS AND AO'S OBSERVATIONS THAT MOST OF THE INV ESTMENT WAS IN CASH IS NOT FOUND TO BE CORRECT ON FACTS. SHRI UDAL SINGH V ERMA HAS BEEN REGULARLY ASSESSED TO TAX SINCE PAST SEVERAL YEARS. ALONG WITH HIS RETURN, HE HAS BEEN FILING COPIES OF HIS CAPITAL ACCOUNT AN D STATEMENT OF AFFAIRS WHICH SHOWED SOURCES OF INVESTMENTS MADE IN ASSETS AND LOANS RAISED. IN THE LIGHT OF THESE FACTS, I DO NOT FIND ANY BASIS O N THE PART OF THE AO FOR HAVING MADE THE ADDITION OF RS.22,00,000/-. THE SAM E IS ACCORDINGLY DELETED, 7. GROUND NO.3: 7.1. THIS GROUND IS REGARDING CAPITAL CONTRIBUTION BY SHRI SUBHASH CHAND VERMA PARTNER HELD AS UNEXPLAINED TO THE EXTE NT OF RS. 550000/-. 7.2. AO'S OBSERVATIONS: 'SH, SUBHASH CHAND VERMA IN HIS STATEMENT UNDER OAT H U/S 131 STATED THAT HIS CAPITAL CONTRIBUTION IN THE ASSESSEE FIRM WAS RS. 900000/-. HE COULD NOT TELL THE DETAILS OF THE OPENING & CLOSING BALANCE OF HIS CAPITAL IN THE F.Y. 2005-06 RELEVANT ON A. Y. 2006-07 IN TH E ASSESSEE FIRM. 10 ITA NO.5629/DEL/2010 THE CAPITAL CONTRIBUTION BY SH. SUBHASH CHAND VERMA WAS PARTLY MADE THOUGH BANKING CHANNEL (RS.350000/-) AND THE BALANC E RS. 5500001- WAS THROUGH CASH OR BANK, HE DID NOT REMEMBER. THE BALANCE RS.550000/-CONTRIBUTED BY SH. SUBHASH C HAND VERMA WAS TAKEN OUT FROM M/S. UDAL SINGH AND SONS JEWELLERS, IN WHICH HE WAS A PARTNER. SH. SUBNASN CHAND VERMA WAS CONFRONTED WITH HE STAT EMENT OF SH. PRAVEEN KUMAR KANSAL ALLEGING THAT THE CAPITAL CONT RIBUTION OF SH. SUBHASH CHAND VERMA IN THE ASSESSEE FIRM WAS RS. 20 0000/- AND THAT OF SI. UDAL SINGH VERMA WAS RS. 500000/-. IN RESPONSE HE STATED THAT THE STATEMENT GIVEN BY PRAVEEN KANSAL WAS NOT CORRECT. SH. SUBHASH CHAND VERMA ALSO STATED THAT SH. PRAVEE N KANSAL DENIED BEING PARTNER OF THE FIRM ON SEEING THAT THE FIRM H AD INCURRED LOSS AND REFUSED TO SIGN ON THE BALANCE SHEET. FURTHER THE CAPITAL CONTRIBUTED BY SH. SUBHASH CHAN D VERMA AMOUNTING TO RS. 550000/- IS ALSO IN CASH, AND THE ASSESSEE H AS AGAIN NOT DISCHARGED THE ONUS OF PROVING THE GENUINENESS OF TRANSACTION AND THE SOURCE OF CAPITAL. SH. SUBHASH CHAND VERMA HAS RETURNED AND I NCOME OF ONLY RS. 148462/- FOR THE SAME PERIOD, THUS HIS CREDITWORTHI NESS IS NOT PROVED. THEREFORE, THIS CAPITAL OF RS. 550000/- IS ALSO HER EBY TREATED AS UNEXPLAINED CASH CREDIT U/S 68 OF IT ACT 1961.' 7.3. AR'S SUBMISSIONS: THE AR MADE THE SUBMISSIONS AS UNDER: 'CAPITAL CONTRIBUTION BY SHRI SUBHASH CHAND PARTNER RS. 861515/- 1. THAT TOTAL CAPITAL CONTRIBUTION MADE BY SHRI SUB HASH CHAND VERMA PARTNER STOOD AT RS. 861515/-. TO EXPLAIN THE DATE WISE AND YEAR WISE INVESTMENT MADE, A STATEMENT IS ATTACHED AT PAGE 42 OF THE PAPER BOOK. FROM THIS STATEMENT YOUR HONOUR MAY APPRECIATE THAT INVESTMENT TO THE EXTENT OF RS. 738000/- HAS BEEN THROUGH ACCOUNT PAY EE CHEQUES AND BALANCE INVESTMENT OF RS. 123515/- ONLY IS THROUGH CASH. THE AO HAS BASELESSLY ASSUMED THAT INVESTMENT TO THE EXTENT OF RS.350000/- ONLY IS THROUGH BANKING CHANNEL. SHRI SUBHASH CHAND VERMA I N HIS STATEMENT U/S 131 STATED THAT HIS INVESTMENT IN APPELLANT FIRM IS ABOUT RS. 900000/- (INSTEAD OF EXACT FIGURE OF RS. 861515/-) ON THE BA SIS OF THIS FIGURE OF 9000001- THE AO HAS WORKED OUT THE CASE INVESTMENT AT RS. 550000/- (900000- 350000) WHICH HAS BEEN HELD AS UNEXPLAINED AND MADE ADDITION IN RESPECT THEREOF AT RS. 550000/-. THE AO HAS WRON GLY ASSUMED CASH INVESTMENT AT RS. 550000/- INSTEAD OF RS. 123515/-. 2. THAT SOURCES OF TOTAL INVESTMENT OF RS.861515/ - MAY BE EXPLAINED AS UNDER:- A SUM OF RS. 100000/- WAS INVESTED ON 23-03-2005 IN F.Y. 2004-05 RELEVANT FOR A. Y. 2005-06 THROUGH ACCOUNT PAYEE CH EQUE. FOR SOURCE OF INVESTMENT, YOUR HONOUR'S KIND ATTENTION IS INVITED TO COPY OF BANK ALE OF 11 ITA NO.5629/DEL/2010 THE PARTNER PLACED AT PAGE 43 OF THE PAPER BOOK. S HRI SUBHASH CHAND VERMA HAS BEEN EMPLOYEE AS MANAGER OF M/S MAHARANI JEWELLERS. THE CREDIT BALANCE IN THE SAID BANK ACCOUNT PERTAIN TO THE SALARY RECEIPTS THROUGH ACCOUNT PAYEE CHEQUE FROM THE SAID CONCERN. B. FURTHER INVESTMENT OF RS. 35000:- ON 08-04-2005 WAS THROUGH CASH WITHDRAWN FROM HIS SAME PERSONAL S.B. A/C IN PNB KH AIR NAGAR MEERUT. THIS AMOUNT OF RS. 35000/- WAS RAISED BY HIM BY WAY OF LOAN ON THE SECURITY OF HIS BANK FDR. THE RELEVANT LOAN ENTRY A LSO APPEARS IN THE SAID S.B. A/C STATEMENT PLACED AT PAGE 43 OF THE PA PER BOOK. C. SHRI SUBHASH CHAND VERMA PARTNER WAS ALSO PARTNE R OF THE FIRM M/S UDAL SINGH & SONS JEWELLERS DELHI. HE WITHDREW A SUM OF RS. 175000/- BY ACCOUNT PAYEE CHEQUE FROM THE SAID CONC ERN AND DEPOSITED THE SAME ON 26-04-2005 WITH THE APPELLANT FIRM. COP Y OF HIS ACCOUNT IN THE SAID CONCERN IS ATTACHED AT PAGE 44 OF THE PAPE R BOOK. D. A FURTHER SUM OF RS. 263000/- WAS INVESTED IN TH E APPELLANT FIRM ON 30- 04-2005 THROUGH ACCOUNT PAYEE CHEQUE. THIS AMOU NT HAS BEEN WITHDRAWN BY HIM FROM HIS PERSONAL OD BANK ACCOUNT IN ING VYSHYA BANK COPY OF SAID BANK OD ACCOUNT IS PLACED AT PAGE 45 OF THE PAPER BOOK WHERE FROM THE INVESTMENT IN QUESTION IS VERIF IABLE. E. NEXT INVESTMENT OF RS. 200000/- WAS MADE BY HIM ON 21-09-2005 THROUGH ACCOUNT PAYEE CHEQUES TAKEN FROM THE PARTNE RSHIP FIRM M/S UDAL SINGH & SONS JEWELLERS. THIS FIGURE OF RS. 200000/- IS ALSO VERIFIABLE FROM THE COPY OF ACCOUNT OF SHRI SUBHASH CHAND VERM A IN THE BOOKS OF M/S UDAL SINGH & SONS JEWELLERS PLACED AT PAGE 44 O F THE PAPER BOOK. F. FURTHER INVESTMENT OF RS. 88515/- HAS BEEN MADE IN CASH ON DIFFERENT DATES DURING THE YEAR UNDER CONSIDERATION . HERE IT MAY BE MENTIONED THAT SHRI SUBHASH CHAND VERMA HAS BEEN RE GULAR INCOME TAX ASSESSEE FOR LAST MORE THAN 10 YEARS. ALONG WITH HI S INCOME TAX RETURN HE HAS BEEN FILING HIS CAPITAL ACCOUNT AND STATEMENT O F AFFAIRS. THE CREDIT SIDE OF THE STATEMENT OF AFFAIRS SHOW HIS CAPITAL A ND LOANS RAISED AS ON LAST DAY OF THE RELEVANT PRE. YEAR AND DEBIT SIDE T HEREOF INDICATES, STATEMENT OF ALL THE ASSETS INCLUDING BANK BALANCE AND CASH IN HAND ON THE LAST DAY OF THE RELEVANT YEAR. COPIES OF STATEM ENT OF HIS AFFAIRS AS ON 31-03-2005 IS PLACED AT PAGE 45A OF THE PAPER BOOK WHICH SHOWS THAT AS ON 31-03-2005 HE WAS HOLDING CASH IN HAND AT RS. 19 3692/- OUT OF THIS CASH IN HAND, HE MADE CASH INVESTMENT OF RS. 88515/ - ON DIFFERENT DATES DURING F.Y. 2005-06. FROM THE ABOVE SUBMISSION YOUR HONOUR WOULD APPRECI ATE THAT ENTIRE INVESTMENT MADE BY SHRI SUBHASH CHAND VERMA PARTNER STOOD FULLY EXPLAINED AND THEREFORE NO ADDITION ON THIS ACCOUNT IS CALLED. IT MAY ALSO BE URGED THAT OUT OF TOTAL INVESTMENT OF RS. 861515 - THE INVESTMENT TO THE EXTENT OF RS.7,38,000/ - IS THROUGH BANKING CHANNEL . TO PROVE THIS ASSERTION ASSESSEE HAS FILED COPIES OF BANK ACCOUNT AND CAPITAL ACCOUNT 12 ITA NO.5629/DEL/2010 OF THE PARTNER IN M/S UDAL SINGH & SONS JEWELLERS. THIS FACT IS ALSO VERIFIABLE WITH THE COPY OF THE BANK. ACCOUNT OF TH E APPELLANT FIRM PLACED AT PAGE 105 TO 132 OF THE 2ND PAPER BOOK. THUS CASH INVESTMENT MADE BY THE PARTNER SHRI SUBHASH CHAND VERMA STOOD AT RS. 1 23515/- ONLY (861515-738000) AS AGAINST RS. 550000/- ASSUMED BY THE AO. C. IT MAY ALSO BE ADDED THAT OUT OF TOTAL INVESTME NT OF RS. 861515/- INVESTMENT OF RS. 100000/- WAS MADE ON 23-03-2005, WHICH FELL IN F.Y. 2004-05 RELEVANT TO AY. 2005-06, LEAVING BALANCE OF RS. 761515/- FOR THE YEAR UNDER CONSIDERATION. D. IT MAY ALSO BE STATED THAT M/S S.S. & CO. THROU GH ITS PARTNER SHRI UDAL SINGH VERMA HAS INVESTED AMOUNT OF RS. 4155990 /- IN THE APPELLANT FIRM. THROUGH MISTAKE OF THE ACCOUNTANT OF THE FIRM AMOUNT OF RS. 1100000/- WAS CREDITED IN THE CAPITAL ACCOUNT OF SU BHASH CHAND VERMA AND REMAINING AMOUNT OF RS. 3055990/- ONLY WAS CRED ITED IN THE CAPITAL ACCOUNT OF SHRI UDAL SINGH VERMA REPRESENTING THE F IRM M/S S.S. & CO. IN THIS WAY CAPITAL OF SHRI SUBHASH CHAND VERMA IN THE BOOKS OF APPELLANT FIRM SHOWS HIS INVESTMENT AT RS. 1961515/ - (861515+ 11 00000) INSTEAD OF RS. 861515/- THIS MISTAKE HAS BEE N ACCEPTED BY THE A O. E. COMPARATIVE STATEMENT OF CAPITAL CONTRIBUTION B Y SHRI SUBHASH CHAND VERMA, MAY BE REPRODUCED YEAR WISE AS BELOW. F.Y. 2004-05 RELEVANT FOR AY 2005-06 F.Y. 2005-06 RELEVANT FOR AY. 2006-07 AS PER BOOKS OF A/C AS PER STATEMENT OF AS PER BOOKS OF A/C AS PER STATEMENT OF PRAVEEN KANSAL U/S PRAVEEN KANSAL U/S 131 131 --------------------------------------------------- --------------------------------------------------- - -- RS. 100000/- BY RS. 100000/- RS.761515/- RS. 200 000/- CHEQUE (THROUGH CHEQUES RS. 638000/-) --------------------------------------------------- --------------------------------------------------- - ---- HERE IT MAY BE STATED THAT MAJOR PART OF HIS CAPITA L CONTRIBUTION IS THROUGH ACCOUNT PAYEE CHEQUES VERIFIABLE FROM THE B ANK ACCOUNT OF THE FIRM. THE CHEQUE FIGURES OF INVESTMENT STAND TO PRO VE THAT STATEMENT U/S 131 OF HOSTILE PARTNER SHRI PRAVEEN KANSAL IS FALSE AND INTENDED TO CREATE PROBLEM IN THE CASE OF FIRM. HIS STATEMENT WAS RECO RDED BEHIND THE BACK OF OTHER PARTNERS WITHOUT ALLOWING OPPORTUNITY OF C ROSS EXAMINATION AND HENCE HIS STATEMENT IS INADMISSIBLE AS EVIDENCE. 4. THAT IT MAY BE SUBMITTED THAT STATEMENT OF SHRI SUBHASH CHAND VERMA WAS RECORDED U/S 131 ON 10-12-2008 I.E. AFTER ABOU T 3 YEARS FROM END OF THE 13 ITA NO.5629/DEL/2010 RELEVANT FINANCIAL WITHOUT HELP OF ANY MATERIAL ON THE BASIS OF HIS MEMORY. ONE MAY NOT BE EXPECTED TO KEEP FIGURE WORK OF EACH YEAR IN HIS MEMORY. WITHOUT PREJUDICE TO ABOVE SUBMISSIONS, IT MAY URGED THAT SHRI SUBHASH CHAND VERMA IF HIS STATEMENT U/S 131 STATED THAT TO THE EXTENT OF RS. 700000/- THE INVESTMENT IN THE FIRM WAS THROUGH ACCOUNT PAYEE CHEQUE. AGAINST THIS FIGURE OF RS. 700000/- THE AO HAS ADOPTED FIGURE OF RS.350000/- ONLY.' 7.4 DECISION AND REASONS THEREFOR: I HAVE CONSIDERED FACTS CAREFULLY AND PERUSED THE D OCUMENTS FILED WITH THE PAPER- BOOK. THE AR, THROUGH HIS WRITTEN SUBMIS SIONS EXTRACTED UNDER PARA 7.3. ABOVE HAS BEEN ABLE TO SHOW THAT THE TOTA L CAPITAL CONTRIBUTION MADE BY SHRI SUBHASH CHAND VARMA STOOD AT RS.8,61,5 15/- OUT OF WHICH RS.7,38,000/- WAS THROUGH BANKING CHANNELS AND BALA NCE IN CASH. THE AO, IT APPEARS, HAS MADE THE ADDITION IN A PERFUNCT ORY MANNER WITHOUT PROPERLY GOING INTO FACTS AND FIGURES. THE ADDITION IS DELETED. 8. GROUND NO.4: 8.1. THIS GROUND IS IN RESPECT OF ADDITION OF RS.1 2,72342/- ON ACCOUNT OF CAPITAL SUBSCRIBED BY THE PARTNERS SHRI PRAVEEN KUMAR KANSAL AND SMT. SUSHMA KANSAL, HELD AS UNEXPLAINED. 8.2. AO'S OBSERVATIONS: AS THE SOURCES OF CAPITAL INTRODUCED BY THE PARTNER S WERE NOT EXPLAINED CLEARLY BY THE ASSESSEE. SUMMONS U/S 131 OF THE IT ACT 1961 WERE ISSUED TO ALL THE 4 PARTNERS OF THE ASSESSEE FIRM. FROM TH E STATEMENT OF THE PARTNERS RECORDED ON OATH U/S 131 THE FOLLOWING CON TRADICTORY POINTS EMERGE:- 1. SH. PRAVEEN KANSAL WORKING PARTNER OF THE FIRM I N HIS STATEMENT UNDER OATH ULS 131 OF IT ACT 1961 STATED THAT HIS OPENING CAPITAL AS ON 01-04- 2005 IN THE ASSESSEE FIRM WAS RS. 61000/- AND TOTAL CAPITAL INTRODUCED WAS RS. 661000/-. 2. SH. PRAVEEN KANSAL ALSO STATED THAT THE OPENING CAPITAL CONTRIBUTION OF THE OTHER PARTNERS IS AS FOLLOW. SH. PRAVEEN KANSAL RS. 61000/- (OPENING CAPITAL) SH. SUSHMA KANSAL RS.611342/- SH. SUBHASH CHAND VERMA RS. 100000/- SH. UDAL SINGH VERMA RS. 700000/- 3. SH. PRAVEEN KANSAL ALSO STATED THAT IN F.Y. 20 06-07 A NEW FIRM BY THE SAME NAME OF M/S U.S. ENTERPRISES WAS STARTED B Y SH. SUBHASH (HAND VERMA, ST. UDAL SINGH VERMA & KULDEEP SHARMA. THE C LOSING BALANCE OF CAPITAL ACCOUNT OF SH. UDAL SINGH VERMA AND SH. SUB HASH CHAND VERMA ARE NOT CORRECT FOR THE PERIOD UNDER CONSIDERATION. FROM SH. PRAVEEN KUMAR KANSAL AND SMT. SUSHMA KANSA L HAVE STATED THAT THAT THEY INTRODUCED CAPITAL OF RS. 661 000/- AND RS. 611342/- 14 ITA NO.5629/DEL/2010 IN THE ASSESSEE FIRM BY SELLING THEIR SHARE OF PROP ERTY AT 503, BEGUM BAGH, MEERUT TO SH. SUBHASH CHAND VERMA & SH. UDAL SINGH VERMA OF WHICH SH. PRAVEEN KANSAL'S SHARE WAS RS. 600000/- A ND SMT. SUSHMA KANSAL'S SHARE RS. 6,11,342/-. HOWEVER FROM THE COPY OF RETURN OF INCOME FOR A.Y. 2005-06 AND A.Y. 2006-07 FILED BY SH. PRAVEEN KANSAL. IT IS SEE N THAT HE HAS NOT DECLARED INCOME FROM CAPITAL GAINS ON SALE OF THE A FOREMENTIONED PROPERTY AND HAS RETURNED INCOME OF ONLY RS. 261411 - & RS. 901901- RESPECTIVELY FOR THE 2 A. Y S. SMT. SUSHMA KANSAL HAS ALSO NOT DECLARED CAPITAL GA INS IN HER RETURN OF INCOME. SHE HAS RETURNED INCOME OF RS. 73 170/- FOR A.Y. 2006- 07 AND RS. 14285/- FOR A.Y. 2005-06. THEREFORE, THE SOURCE OF CAPITAL INTRODUCED BY THEM IS ALSO NOT SUBSTANTIATED AND EX PLAINED. THE CREDITWORTHINESS TO PROVE RS. 661000/- AND RS. 6113 42/- IS THUS NOT ESTABLISHED. FURTHER THESE AMOUNTS DIFFER FROM THE CAPITAL ACCOU NT STATEMENT SUBMITTED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME, THEREFORE I TREAT THE CAPITAL INTRODUCED AS UNEXPLAINED CASH CR EDIT U/S 68 OF IT ACT 1961. IT WAS HELD IN THE CASE OF CIT V. KISHORILAL SANTOSH LAL (1995, 216 IT 9 (RAJ.) THAT IN THE CASE OF CASH CREDITS IN ACC OUNT OF FIRM THE FOLLOWING POINTS NEED BE NOTED: (I) THERE IS NO DISTINCTION B ETWEEN THE CASH CREDIT EXISTING IN THE BOOKS OF THE FIRM WHETHER IT IS OF A PARTNER OR OF A THIRD PARTY; (II) THE BURDEN TO PROVE THE IDENTITY, CAPAC ITY AND GENUINENESS HAS TO BEEN THE ASSESSEE; (III) IF THE CASH CREDIT IS N OT SATISFACTORILY EXPLAINED, THE ITO WILL BE JUSTIFIED TO TREAT IT AS INCOME FRO M UNDISCLOSED SOURCES; (IV) THE FIRM HAS TO ESTABLISH THAT THE AMOUNT WAS ACTUALLY GIVEN BY THE LENDER; (V) THE GENUINENESS AND REGULARITY IN THE M AINTENANCE OF THE ACCOUNT HAS TO BE TAKEN INTO CONSIDERATION BY THE T AXING AUTHORITIES; (VI) IF THE EXPLANATION IS NOT SUPPORTED BY ANY DOCUMENT ARY OR OTHER EVIDENCE. THEN THE DEEMING FICTION CREATED BY SECTION 68 CAN BE INVOKED; (VII) SIMPLY BECAUSE THE AMOUNT IS CREDITED IN THE BOOKS OF THE FIRM AND THAT IN ALL CASES IT HAS TO BE ASSESSED AND UNDISCLOSED INC OME OF THE PARTNER ALONE- FURTHER IT WAS HELD IN THE CASE OF JAGMOHAN RAM RAM CHANDRAGIRISH NARAIN V. CIT (2005) 274 ITR 405 (ALL ) THAT IT IS SETTLED THAT IF AN ENTRY OF CASH CREDIT IS FOUND IN THE BO OKS OF ACCOUNT OF A FIRM, IT IS FOR THE FIRM TO GIVE EXPLANATION REGARDING THE I DENTITY AND SOURCE OF SUCH DEPOSITS AND IF HE EXPLANATION IS DISBELIEVED THEN IT IS TO BE ADDED AS AN INCOME UNDER SECTION 68 OF THE ACT, IN THE HANDS OF THE FIRM. THAT THE BOOKS OF ACCOUNTS CANNOT BE RELIED ON HAS ALREADY B EEN ESTABLISHED BEYOND DOUBT AND THE CREDITS STANDING IN THE NAME OF THE PARTNERS CANNOT BE ASSUMED TO BE ACTUALLY CORRECT BALANCES. THEREFO RE, I TREAT THIS CAPITAL INTRODUCED BY THE PARTNERS AN UNEXPLAINED CASH CRED IT U/S 68 AS THE 15 ITA NO.5629/DEL/2010 ASSESSEE HAS FAILED TO SATISFACTORILY EXPLAIN THE S OURCE OF THE CAPITAL IN MY OPINION. ADDITION OF RS.12,72,342/- U/S 68' 8.3. AR'S SUBMISSIONS: AR MADE SUBMISSIONS AS UNDER: '1. THAT ADDITIONS ON ACCOUNT OF CAPITAL INVESTMEN T MADE BY SHRI PRAVEEN KANSAL RS. 661000/- SMT. SUSHMA KANSAL RS. 611342/- TOTAL ADDITIONS 1272342/- HAVE BEEN MADE ON THE BASIS OF THEIR STATEMENT RECO RDED BY THE AO U/S 131 OF THE ACT. SOURCES OF ABOVE INVESTMENT HAVE BE EN STATED BY BOTH ABOVE PARTNERS, OUT OF SALE PROCEEDS OF THEIR HOUSE AT 503, BEGUM BAGH MEERUT. THE STATEMENT OF THE ABOVE PARTNERS WERE R ECORDED BEHIND THE BACK OF OTHER PARTNERS OF THE FIRM AND WITHOUT ALLO WING THEM OPPORTUNITY OF CROSS EXAMINING THESE HOSTILE PARTNERS OF THE FI RM AND THEREFORE THEIR STATEMENT REGARDING FIGURES OF INVESTMENT ARE NOT R ELIABLE AND NOT ADMISSIBLE IN EVIDENCE. 2. THAT ABOVE TWO PARTNERS WERE HOSTILE AND FIRMLY DETERMINED TO CAUSE LOSSES AND PROBLEMS AS MUCH AS POSSIBLE IN ALL POSS IBLE WAYS. THEY DID NOT COOPERATED TO THE APPELLANT FIRM TO PROVIDE NEC ESSARY EVIDENCE TO PROVE THEIR INVESTMENT IN THE FIRM AND THEREFORE TH E APPELLANT FIRM HAD TO REQUEST TO THE AO. TO ISSUE NOTICES U/S 131 TO THES E PARTNERS TO ASCERTAIN SOURCES OF THEIR INVESTMENT IN THE FIRM, ON NOTICES U/S 131 HAVING BEEN ISSUED, THEIR STATEMENTS WERE RECORDED WITHOUT ALLO WING OPPORTUNITY OF CROSS EXAMINATION TO THE APPELLANT FIRM. IN THEIR S TATEMENT, THEY STATED THE SOURCE OF THEIR INVESTMENT IN THE FIRM OUT OF SALE PROCEEDS OF THE HOUSE. INSTEAD OF ASKING COPY OF SALE DEED OF THE SAID HOU SE, THE AO EXAMINED THEIR ASSESSMENT RECORDS AND BECAUSE THEY HAD NOT D ECLARED CAPITAL GAIN IN THEIR INDIVIDUAL RETURNS, THE INVESTMENT MADE BY THEM HELD UNEXPLAINED AND ADDITION OF RS. 1272342/- HAS BEEN MADE IN THE HAND OF FIRM. THUS IN WAY INCOME TAX HAS BEEN CHARGED FROM THE APPELLANT FIRM IN LIEU OF CAPITAL GAIN TAX PAYABLE BY THE PARTNERS OF THE FIR M. THAT THE COPY OF SALE DEED OF THE HOUSE IS BEING F URNISHED BEFORE YOUR HONOUR AND IS PLACED AT PAGES 61 TO 75 OF THE PAPER BOOK. THE HOUSE AT 503, BEGUM BAGH MEERUT WAS SOLD ON 04-01-2005 I. E. IN F.Y. 2004-05 FOR RS.1936000/-. THUS THE SALE PROCEEDS OF THE HOU SE ARE MUCH MORE THAN THE CAPITAL INVESTMENT MADE BY THEM IN THE APP ELLANT FIRM AND THEREFORE THE INVESTMENT MADE B THESE PARTNERS IN T HE FIRM MAY HELD AS FULLY EXPLAINED. 4. THAT AS A NEXT POINT IT MAY BE URGED .HAT TOTAL INVESTMENT OF SMT. SUSHMA KANSAL FELL IN FINANCIAL YEAR 2004-05 RELEVA NT FOR A.Y. 2005-06 16 ITA NO.5629/DEL/2010 BOTH AS PER BOOKS OF ACCOUNT AS WELL AS PER STATEME NT RECORDED U/S 131 OF THE ACT AND HENCE IN RESPECT OF INVESTMENT MADE BY SMT. SUSHMA KANSAL, NO ADDITION IS CALLED FOR IN A.Y. 2006-07. 5. THAT REGARDING CAPITAL INVESTMENT MADE BY SHRI P RAVEEN KANSAL PARTNER, IT MAY BE STATED THAT AS PER HIS STATEMENT RECORDED UNDER 131 HE STATED THAT HE MADE INVESTMENT OF RS. 600000/- IN F . Y. 2005-06 RELEVANT FOR A. Y. 2006-07 AND THAT SOURCE OF INVESTMENT WAS SALE PROCEEDS OF THE HOUSE AT 503, BEGUM BAGH MEERUT. AS PER COPY OF SAL E DEED PLACED AT PAGES 61 TO 75 OF THE PAPER BOOK, SALE OF THE HOUSE WAS MADE ON 04-01- 2006 FOR RS. 1936000/-. THE SALE AMOUNT IS MUCH MOR E THAN INVESTMENT MADE BY THE OWNERS IN THE APPELLANT AT RS. 1272342/ -. 6. THAT IT MAY BE URGED THAT OUT OF TOTAL INVESTMEN T MADE IN F. Y. 2005-06 BY SHRI PRAVEEN KANSAL, THE INVESTMENT TO THE EXTEN T OF RS. 400000/- IS THROUGH BANKING CHANNEL AS UNDER.- DATE AMOUNT 04-04-2005 250000/- 11-04-2005 150000/- 400000/- THE FACT OF INVESTMENT THROUGH ACCOUNT PAYEE CHEQUE IS VERIFIABLE FROM THE BANK ACCOUNT OF THE APPELLANT FIRM PLACED AT PAGE 1 05 OF THE 2ND PAPER BOOK. THUS ADDITION TO THE EXTENT OF RS. 400000/- I S ALSO UNWARRANTED ON THIS GROUND OF BANKING CHANNEL OUT OF ADDITION OF R S. 661000/-. 7. THAT AS PER STATEMENT OF SHRI PRAVEEN KANSAL REC ORDED U/S 131, THE INVESTMENT TO THE EXTENT OF RS. 61000/- WAS MADE IN F.Y. 2004-05 RELEVANT FOR A. Y. 2005-06 AND THEREFORE ADDITION TO THE EXT ENT OF RS. 610001- IS ALSO LIABLE TO BE DELETED ON THE GROUND OF YEAR OF INVESTMENT. 8. THAT IT MAY ALSO BE CLARIFIED THAT AS PER BOOKS OF ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS SHRI PRAVEEN K ANSAL AND SMT. SUSHMA KANSAL IN F.Y. 2004-05 RELEVANT FOR A.Y. 200 5-06 DIFFER FROM FIGURES OF THEIR INVESTMENTS STATED BY THEM U/S 131 OF THE ACT AS UNDER. --------------------------------------------------- -------------------------------------- S.NO. NAME AS PER STATEMENT U/S AS PER BOOKS OF A/C 131 OF THE ACT --------------------------------------------------- -------------------------------------- 1. SHRI PRAVEEN KANSAL 61000.00 496000.00 2. SMT. SUSHMA KANSAL 611342.00 176342.00 TOTAL 672342.00 672342.00 --------------------------------------------------- -------------------------------------- THIS DIFFERENCE IN THE STATEMENT RECORDED U/S 131 HAS BEEN DELIBERATE MADE BY THE HOSTILE PARTNERS TO CREATE P ROBLEMS IN THE ASSESSMENT OF THE FIRM, ON THE POINT THAT THESE PAR TNERS ARE DETERMINED 17 ITA NO.5629/DEL/2010 HOSTILE PARTNERS A SEPARATE, WRITTEN NOTE IS BEING FURNISHED. HERE IT MAY BE URGED THAT, THIS DIFFERENCE DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND HENCE NO ADVERSE INFERENCE IS CAL LED FOR ON THIS ACCOUNT. HERE IT MAY ALSO BE URGED THAT OUT OF ABOV E FIGURE OF RS. 672342/- INVESTMENT TO EXTENT OF RS. 176312/- IS TH ROUGH ACCOUNT PAYEE CHEQUE. 9. THAT IT MAY ALSO BE CLARIFIED THAT IN F.Y. 2005- 06 RELEVANT FOR ASSTT. YEAR UNDER CONSIDERATION, AS PER BOOKS OF ACCOUNT I NVESTMENT, MADE BY SHRI PRAVEEN KANSAL STOOD AT RS. 579000/- BUT AS PE R HIS STATEMENT U/S 131 HE INVESTED IN THE FIRM AT RS. 600000/-. THIS D IFFERENCE MAY BE EITHER DELIBERATE TO CREATE PROBLEM IN THE ASSESSMENT OF T HE FIRM OR THROUGH MISTAKE OF MEMORY. AT ANY RATE AND WITHOUT PREJUDIC E BECAUSE FIGURE OF RS. 600000/- STATED BY HIM U/S 131 IS MORE THAN FIG URE OF RS. 579000/- RECORDED IN THE BOOKS OF ACCOUNT NO ADVERSE INFEREN CE IS CALLED FOR ON THIS ACCOUNT TOO AGAINST THE APPELLANT FIRM. 10. THAT SHRI PRAVEEN KUMAR KANSAL AFTER FINDING TH AT THE FIRM IS GOING TO SUFFER HEAVY LOSSES, STARTED TO DEMAND PAYMENT O F HIS CAPITAL WITH INTEREST WHEN THIS DEMAND WAS NOT ACCEPTED BY THE F IRM, HE TURNED OUT TO BE HOSTILE TO CAUSE AS MUCH PROBLEM AS POSSIBLE. HE REFUSED TO COOPERATE IN THE ASSESSMENT PROCEEDINGS AND THE FIRM HAS TO R EQUEST TO ISSUE NOTICES U/S 131 TO HIM. HIS STATEMENT WAS RECORDED U/S 131 BEHIND THE BACK OF ASSESSEE FIRM WITHOUT ALLOWING OPPORTUNITY OF CROSS EXAMINATION AND THEREFORE, HIS STATEMENT MAY NOT BE TREATED HAVING ANY EVIDENTIAL VALUE. IN VIEW OF ABOVE SUBMISSIONS ADDITION MADE AT RS. 1 272342/- IS LIABLE TO BE DELETED.' 8.4. DECISION AND REASONS THEREFOR: I HAVE CONSIDERED FACTS CAREFULLY AND THE DOCUMENTS FILED WITH THE PAPER BOOK. THE AR BROUGHT ON RECORD THAT THE TWO PARTNER S VIZ. PRAVEEN KANSAL AND SUSHMA KANSAL WERE HOSTILE PARTNERS. THE APPELLANT REQUESTED THE AO TO ISSUE SUMMONS TO THEM UNDER SEC TION 13 1. THEIR STATEMENTS WERE RECORDED BUT THE APPELLANT WAS NOT ALLOWED THE OPPORTUNITY OF CROSS-EXAMINING THEM. IT IS ALSO SEE N THAT THE INVESTMENT OF SUSHMA KANSAL FELL IN F.Y. 2004-05 WHICH COULD NOT HAVE BEEN ADDED IN A.Y. 1006-07. I.E. THE YEAR UNDER APPEAL. AS REGARD S SOURCES OF INVESTMENT IT WAS STATED BY PRAVEEN KANSAL BEFORE THE AO THAT THE SAME WAS OUT OF THE SALE PROCEEDS OF A HOUSE AT BEGUM BA GH, MEERUT, WHICH WAS SOLD ON 4.1,2005 FOR RS.19,36,000/-. IT IS ALSO FOUND THAT OUT OF RS.6,61,000/- INVESTED BY SHRI PRAVEEN KANSAL, RS. 4,00,0001- WAS THROUGH BANKING CHANNELS. ON THESE FACTS, I DO NOT SEE ANY JUSTIFICATION ON THE PART OF THE AO FOR HAVING MADE THE ADDITION OF RS.12. 72,342/- UNDER SECTION 68 OF THE INCOME-TAX ACT, 1961. THE S AME IS DELETED. 18 ITA NO.5629/DEL/2010 THE AO IS ALSO DIRECTED TO INITIATE PROCEEDINGS FOR ESCAPEMENT OF INCOME FROM CAPITAL GAIN IN THE CASES OF SHRI PRAVEEN KANS AL AND SMT. SUSHMA KANSAL. 9. GROUND NO.5: 9.1. THIS GROUND IS REGARDING REJECTION OF THE BOO KS OF ACCOUNTS AND ESTIMATION OF NET PROFIT AT RS. 995033/-INSTEAD OF DECLARED LOSS OF RS. 1170155/-. 9.2. AO'S OBSERVATIONS: '1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNTS. AFTER MUCH DELAY AND RELUCTANCE THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS WERE LOST BY HIM ON 27.03.2007 AND THE REPORT OF THIS LOSS WAS MADE TO THE POLICE AND PUBLISHED IN A NEWSPAPER. HOWEVER, THE COPY OF THE FIR WAS NOT FURNISHED AND MOREOVER, IT IS INEXPLICABLE AS TO HO W THE BOOKS OF ACCOUNTS WHICH ARE SUPPOSED TO BE MAINTAINED AT THE PRINCIPAL PLACE OF BUSINESS WERE BEING KEPT AT THE RESIDENTIAL PREMISE , THE ASSESSEE'S STORY OF LOSS OF BOOKS OF ACCOUNTS SEEMS TO BE A COOKED U P STORY AND CANNOT BE RELIED UPON. 2. THE ASSESSEE PRODUCED THE COMPUTERIZED LEDGER AC COUNT FROM WHICH IT IS SEEN THAT THERE IS NO HEAD OF 'BREAKAGE OUTWARDS , UNDER WHICH THE ASSESSEE HAS DEBITED RS. 554149/- AS EXPENDITURE AV AILABLE WITH THE ASSESSEE. THE ASSESSEE WAS PROVIDED A COPY OF THE S TATEMENT U/S 131 OF IT ACT, OF SH. PRAVEEN KANSAL ON HIS REQUEST ON 18.12. 2008. FURTHER WHEN THE ASSESSEE WAS GIVEN OPPORTUNITY TO MAKE HIS SUBM ISSIONS TO THE OBSERVATION MADE ON 18.12.2008 AND RECORDED ON THE ORDER SHEET REGARDING THE VARIOUS DISCREPANCIES NOTICED IN ITS BOOKS OF ACCOUNTS AND ALSO THAT BOOKS SHALL BE REJECTED. THE ASSESSEE ON 23.12.2008 CAME UP WITH A STARTLING REVELATION WHICH IS A PRODUCED AS BELOW. THAT WITH THE STATEMENTS ON OATHS OF THE PARTNERS S H. PRAVEEN KANSAL AND ALSO FROM THE VERBAL QUERIES ABOUT BREAKAGE OUT WAR D OF RS. 5 LACS OR SO BY YOUR HONOUR, IT IS BELIEVED THAT THE AUDITED ACC OUNTS DIFFER FROM THE TWO SETS OF THE AUDITED BALANCE SHEET SUPPLIED BY T HE CA, TO SH. UDAL SINGH PARTNER AND SH. SUBHASH CHAND PARTNER. ON THE BASIS OF THE BALANCE SHEET SUPPLIED TO SH. UDAL SINGH VERMA, SAL E TAX RETURN WAS FIELD AND ACCORDINGLY SALES ASSESSED AT RS.49751638.86/- AND PURCHASES ASSESSED AT RS. 50429365.05- AND CLOSING STOCKS AT RS. 927587.55/- AS PER BALANCE SHEET SUPPLIED BY THE CA TO SH. UDAL SI NGH VERMA (COPY OF WHICH IS ENCLOSED) THE FIGURE OF BREAKAGE OUTWARD I S RS 13,186/- WHICH STAND PROVED WITH THE STATEMENT' ALREADY FURNISHED BEFORE YOUR HONOUR PAGES 89 TO 91 OF COMPILATION DATED 01.09,2008. FOR DIFFERENCES IN TWO SETS OF AUDITED BALANCE SHEE T BY SAME CA CLARIFICATION MAY BE SOUGHT FROM THE CA SH. VISHAL JAIN 1-3. SHASTRI NAGAR MEERUT U/S 131 OF THE ACT. IT IS ALSO REQUEST ED THAT A COPY OF THE 19 ITA NO.5629/DEL/2010 BALANCE SHEET ATTACHED WITH INCOME TAX RETURN MAY B E SUPPLIED TO SH. UDAL SINGH VERMA. SO THAT DIFFERENCES BETWEEN THE T WO BALANCE SHEET MAY BE GONE THROUGH AND SPECIFIC REPLIES MY BE ASKE D FROM THE CA. IT IS ALSO SUBMITTED THAT BALANCE SHEET SUPPLIED BY THE C A TO SH. UDAL SINGH VERMA TALLY WITH THE REGULAR BOOKS OF ACCOUNTS MAIN TAINED IN THE USUAL COURSE OF BUSINESS. 3. THE ASSESSEE WAS THUS PROVIDED A XEROX COPY OF T HE BALANCE SHEET AND P& L ACCOUNT FIELD BY IT ALONG WITH THE RETURN OF I NCOME AND DULY SINGED BY PARTNER SH. UDAL SINGH VERMA. ON 23.12.2008. THE ASSESSEE ALSO FILED A COMPARATIVE STATEMENT BASED ON THE TWO BALANCE SH EET- I.E. ONE AS STATED BY HIM TO HAVE BEEN RECEIVED BY SH. UDAL SIN GH VERMA FROM CA AND THE OTHER ONE WHICH WAS FILED ALONG WITH THE RE TURN OF INCOME OF THE ASSESSEE. WHICH HE HAS DEPICTED AS HAVING BEEN RECE IVED FROM INCOME TAX OFFICE. THE CHART FIELD BY THE ASSESSEE IS REPRODUC ED BELOW: --------------------------------------------------- -------------------------------------- -- S. NO. NARRATION AMOUNT 1. TOTAL PURCHASES AS PER BALANCE SHEET RECEIVED FR OM CA BY SH. UDAL SINGH VERMA. (I) THESE PURCHASES ARE BASED ON BOOKS OF ACCOUNT REGULARLY MAINTAINED IN THE USUAL COURSE OF BUSINESS AND (III) THESE PURCHASES ARE PROVED WITH TCS CERTIFIC ATE FIELD WITH RETURN OF INCOME. 50429365.05 2. BASELESS FIGURE OF TOTAL PURCHASE AS PER BALANCE SHEET RECEIVED FROM INCOME TAX DEPARTMENT. I.E. FILED WIT H THE ROI BY ASSESSEE 49812414.73 3. PURCHASES REDUCED BASE LESS I.E. DIFFERENCE BETW EEN THE TWO FIGURES OF THE TWO BALANCE SHEETS (1-2) 6 16950.32 4(I). THE BREAKAGE OUTWARD AS PER BALANCE SHEET REC EIVED BY SH. UDAL SINGH VERRNA FROM CA AND ALSO AS PER BOOKS OF ACCOUNT. 13186/- II) BASE LESS FIGURE OF THE BREAKAGE OUT WARD AS PE R BALANCE SHEET RECEIVED FROM THE INCOME TAX DEPTT. I.E. FILED WITH THE ROI BY ASSESSEE 554149/- (III) BREAKAGE OUT WARD STOOD INCREASED BASELESSLY IN THE BALANCE SHEET RECEIVED FROM THE DEPTT.(II-I) I.E. FILED WIT H THE ROI BY ASSESSEE 540963/- 5. CREDIT FIGURE OF BREAKAGE INWARD AS PER BOOKS OF ACCOUNT AND AS APPEARING IN THE BALANCE SHEET RECEIVED FROM THE CA BUT IGNORED IN THE BALANCE SHEET RECEIVED FROM THE DEPTT. I.E. FILED WITH THE ROI BY ASSESSEE 75987.32 TOTAL DIFFERENCES 4(III)+5 616950.32 --------------------------------------------------- -------------------------------------- 20 ITA NO.5629/DEL/2010 THE ABOVE STATED SUBMISSION OF ASSESSEE HAVE THUS E STABLISHED BEYOND DOUBT THAT THE BOOKS OF ACCOUNTS ARE NOT REL IABLE AND DO NOT PRESENT A CORRECT PICTURE OF THE ACCOUNTS. FURTHERM ORE, THE ASSESSEE HAS STATED THAT HE HAD LOST THE BOOKS OF ACCOUNTS AND D URING THE COURSE OF ASSESSMENT PROCEEDINGS HE COULD PRODUCE ONLY INCOMP LETE BOOKS WITHOUT ANY VOUCHERS IN SUPPORT OF THE EXPENSES AND THE LOS S CLAIMED. IN SUCH FACTS AND CIRCUMSTANCES. THE ASSESSMENT OF INCOME C ANNOT BE BASED ON THE INCOMPLETE BOOKS PRESENTED BY THE ASSESSEE. THE AUTHENTICITY OF WHICH HE HIMSELF IS NOT SURE OF, AND HAS SOUGHT CLARIFICA TION FROM THE CA FOR THE DIFFERENCES IN THE 2 SETS. THEREFORE, IN VIEW OF TH E FACTS AND CIRCUMSTANCES, THE BOOKS OF ACCOUNTS ARE BEING REJE CTED U/S 145A, AS A TRUE AND CORRECT PICTURE OF. THE PROFIT CANNOT BE A SCERTAINED FORM THE INCOMPLETE AND UNRELIABLE BOOKS. THEREFORE IN ORDER TO BE JUST, FAIR & REASONABLE AN NP OF 2% IS BEING APPLIED AT AFTER EXAMINATION OF A COMPARABLE CASE, NAMELY M/S NARESH KUMAR ASHOK KUMAR, DEALING IN THE SAME LINE OF TRADE DURING THE SAME PERIOD. GROSS TURNOVER RS.49751638.16 NP OF2% RS. 995032.76' 9.3. AR'S SUBMISSIONS: AR MADE SUBMISSIONS AS UNDER: 'INCOME TAX RETURN WAS FILED DECLARING NET LOSS OF RS. 1170155.38 U/S 139 (1) OF THE ACT, ON 31-10-2006. THE AO AFTER REJECTI NG THE BOOKS OF ACCOUNT AND IGNORING DECLARED LOSS OF RS.11701555.3 8, HAS ESTIMATE INCOME AT RS. 995032.76 @ 2% ON DECLARED SALES OF R S. 49751638.16. THE BASIS OF 2% RATE HAS BEEN ADOPTED FORM DECLARED PROFIT RATE OF M/S NARESH KUMAR ASHOK KUMAR WITHOUT APPRECIATING THAT NATURE OF BUSINESS OF THE SAID CONCERN WAS NOT COMPARABLE WITH HE BUSI NESS OF THE APPELLANT FIRM. IN SUPPORT OF BOOKS OF ACCOUNT REGULARLY MAINTAINED IN THE USUAL COURSE OF BUSINESS IT IS SUBMITTED AS UNDER.- 1. THAT THE APPELLANT FIRM HAS BEEN CARRYING ON WHO LE SALE TRADING BUSINESS OF IMFL DURING THE YEAR UNDER CONSIDERATIO N. THE REGULAR BOOKS OF ACCOUNTS WERE MAINTAINED IN THE USUAL COURSE OF BUSINESS. THE PURCHASES SALES AND CLOSING STOCKS AS ON 31-03-2006 HAVE BEEN SHOWN RESPECTIVELY AT RS. 50429365.05. RS. 49751638.86 AN D RS. 927587.55. THE INCOME TAX RETURN WAS FILED DECLARING NET LOSS OF RS. 1170155.38 ALONG WITH AUDITED BALANCE SHEET, PROFIT AND LOSS A CCOUNT AND TDS CERTIFICATES ETC. THE AO INSTEAD OF COMPUTING ITS L OSS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT FIRM, HAS PROCEEDED TO ESTIMATE ITS BUSINESS INCOME @ 2% OF T HE DECLARED SALES ON THE BASIS OF SOME ALLEGED COMPARABLE CASE AFTER REJ ECTING ITS REGULAR 21 ITA NO.5629/DEL/2010 BOOKS OF ACCOUNTS U/S 145A OF THE ACT. THUS INCOME HAS BEEN ESTIMATED AT RS. 995032.76 IN PLACE OF DECLARED LOSS OF RS. 1170 155.38. 2. THAT BOOKS OF ACCOUNTS HAVE BEEN REJECTED U/S 1 45A OF THE ACT ON THE FOLLOWING GROUNDS NAMELY. A. THE BOOKS OF ACCOUNTS WERE STATED TO BE LOST ON 27-03-2007. THE REPORT OF THE LOSS WAS MADE TO THE POLICE STATION A ND PUBLISHED IN A NEWS PAPER. HOWEVER THE COPY OF THE FIR WAS NOT FURNISHE D. IT IS INEXPLICABLE AS TO HOW THE BOOKS OF ACCOUNTS WERE BEING KEPT AT RESIDENTIAL PSEMISES INSTEAD OF PRINCIPAL PLACE OF BUSINESS. B. THERE IS NO HEAD OF BREAKAGE OUT WARD UNDER WHIC H THE ASSESSEE HAS DEBITED RS. 554149/- AS EXPENDITURE. THIS ACCOU NT IS ABSENT IN THE LEDGER ACCOUNT. C. NE VOUCHER FOR EXPENSES ARE AVAILABLE WITH THE A SSESSEE. D. ASSESSEE WAS PROVIDED A COPY OF STATEMENT OF SHR I PRAVEEN KUMAR KANSAL PARTNER RECORDED U/S 131 OF THE ACT, REGARDI NG VARIOUS DISCREPANCY NOTICED IN THE BOOKS OF ACCOUNT. E. ASSESSEE HAS FILED A COMPARATIVE STATEMENT BASED ON TWO BALANCE SHEETS ONE RECEIVED BY SHRI UDAL SIAGH VERMA PARTNE R FROM THE CA OF THE FIRM AND OTHER FILED BY THE CA ALONG WITH INCOME TA X RETURN AND COPY THEREOF PROVIDED BY THE AO TO THE ASSESSEE FIRM. TH E COMPARABLE STATEMENT HAS ESTABLISHED THAT BOOKS OF ACCOUNTS AR E NOT RELIABLE. F. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HE COULD PRODUCE ONLY INCOMPLETE BOOKS WITHOUT ANY VOUCHERS IN SUPPO RT OF THE EXPENSES AND THE LOSS CLAIMED. G. ASSESSEE IS HIMSELF NOT SURE AS TO WHICH BALANCE SHEET IS AUTHENTIC AS HE HAS SOUGHT CLARIFICATION FROM THE CA FOR THE DIFFERENCE BETWEEN THE 2 BALANCE SHEETS. 3. THAT POINT BY POINT SUBMISSIONS ON EACH POINT A RE BEING MADE HERE UNDER:- A. TO PROVE THE LOSS OF ACCOUNT BOOKS AND FACTS AND CIRCUMSTANCES UNDER WHICH SAID LOSS TOOK PLACE, THE APPELLANT FIR M IS HEREWITH FILLING THE FOLLOWING EVIDENCE NAMELY. I. COPY OF WRITTEN NOTE ON THE POINT FILED BEFORE THE AO. II. AFFIDAVIT OF PARTNER SHRI SUBHASH CHAND VERMA . III. COPY OF NEWS PAPER IN WHICH THE LOSS OF THE B OOKS WAS PUBLISHED. IV. COPY OF REPORT FILED IN POLICE STATION. B. ON THE NEXT POINT IT MAY BE SUBMITTED THAT THE C HARTERED ACCOUNTANT OF THE FIRM WAS WORKING IN THE INTEREST AND AT THE INSTANCE OF THE HOSTILE PARTNER SHRI PRAVEEN KANSAL. HE PREPARED TWO SETS O F PROFIT & LOSS ACCOUNT OF THE FIRM. ONE SET WHICH WAS TRUE AND COR RECT, WAS HANDED OVER TO THE PARTNER SHRI UDAL SINGH VERMA AND OTHER SET WAS ATTACHED WITH THE INCOME TAX RETURN OF THE FIRM FILED BY HIM. IN THE SAID TWO SETS OF PROFIT 22 ITA NO.5629/DEL/2010 AND LOSS ACCOUNT, THE NET LOSS WAS KEPT AT SAME FIG URE BUT INSIDE IT, THERE WERE MADE SOME DIFFERENCES AS UNDER:- --------------------------------------------------- --------------------------------------------------- - S.NO. HEAD OF ALE'S AS PER P&L ALE HANDED AS PE R P&L ALE'S ATTACHED WITH OVER TO THE PARTNERS & BASED RETURN OF INCOME A ND BASED ON ON BOOKS OF A/C'S DEBIT RATE MISTAKES MADE BY CA --------------------------------------------------- --------------------------------------------------- 1 PURCHASES 50429365.05 49812414.73 2 BREAKAGE OUTWARD 13186.00 554149.00 ON DEBIT SIDE 50442551.05 3 BREAKAGE INWARD ON - 75987.32 NIL CREDIT SIDE 50366563.73 50366563.73 HERE IT MAY BE SUBMITTED THAT ABOVE FIGURES OF PROF IT AND LOSS ACCOUNT HANDED OVER TO SHRI UDAL SINGH VERMA, HAVE BEEN PRO VED TO BE TRUE AND CORRECT IN OTHER PARAS OF THIS WRITTEN NOTE. THE FI GURES ADOPTED BY THE CA IN PROFIT AND LOSS ACCOUNT ATTACHED WITH THE RETURN ARE BASED ON DELIBERATE AND CALCULATED MISTAKES MADE BY HIM TO C REATE PROBLEMS IN THE ASSESSMENT OF THE FIRM. THE AO IN THE COURSE OF HEA RING ASKED THE FIRM TO SHOW BREAKAGE OUTWARD ACCOUNT RELATING TO EXPENSES OF RS. 5541491-. IN VIEW ABOVE SUBMISSIONS, THERE IS NO SUCH ACCOUNT IN THE ACCOUNT BOOKS. THERE UPON THE FIRM REQUESTED THE AO TO ISSUE COPY OF P&L A/C ATTACHED WITH RETURN OF INCOME AND THEN THE SAID DIFFERENCE WAS EXPLAINED TO THE AO. IN THE BOOKS OF ACCOUNT THERE IS ACCOUNT SHOWIN G BREAKAGE OUTWARD AT RS. 13186/- WHICH HAS BEEN PROVED TO BE TRUE AND CORRECT IN OTHER PARAS OF THIS WRITTEN NOTE. COPY OF THIS ACCOUNT WA S FILED BEFORE THE AO. C. THE ASSESSEE FIRM HAS ALREADY PROVED THAT ORIGIN AL BOOKS OF ACCOUNTS AND VOUCHERS WERE LOST AND THEREFORE COULD NOT BE MADE AVAILABLE BEFORE THE AO AND NO ADVERSE INFERENCE ON THIS ACCOUNT IS CALLED FOR AGAINST THE ASSESSEE. WITHOUT PREJUDICE IT MAY BE URGED THAT TOTAL EXPENSES OF THE BUSINESS MAY BE BROKEN UP INT O 3 FIGURES. 1 THE EXPENSES WHICH STAND PROVED EVEN WITHOUT VOU CHERS WITH HELP OF OTHER MATERIALS E.G. CONFIRMATION OF THE PARTIE S BANK STATEMENTS LICENSE COPY DEPRECIATION AT PRESCRIBED RATES ETC, PLACED AT PAGES 48 TO 219 OF THE PAPER BOOK. 1714215. 261 2 BED DEBT CLAIMED AS PER WRITTEN NOTE FILED BEFOR E THE AO AND PLACED AT PAGE 211 TO 215 157951.00 3 REMAINING EXPENSES UNDER DIFFERENT HEADS E.G . C ONVEYANCE EXPENSES, GENERATOR REPAIR EXPENSES, MISC. EXPENSE S, OFFICE EXPENSES, PRINTING & STATIONERY EXPS, STAFF WELFAR E EXPS. AND TATA 23 ITA NO.5629/DEL/2010 & TELEPHONE EXPS. ETC. 197098.38 TOTAL CLAIM OF EXPENSES AS PER P&L A/C 2069264.64 THE WORKING OF ABOVE FIGURES IS PLACED AT PAGE 219 OF THE PAPER BOOK. THE EXPENSES OF RS. 197098.38, UNDER DIFFERENT HEAD S ARE ALLOWABLE ON THE BASIS OF REASONABILITY, THEREOF IN VIEW NATURE AND EXTENT OF EXPENSES. IT HAS BEEN SEPARATELY SUBMITTED IN OTHER PARAS THA T PURCHASES, SALES AND CLOSING STOCKS ARE ALSO STAND PROVED CONCLUSIVELY. D. THAT THE EXPLANATION AND REASONS OF THE DISCREPA NCY IN THE BOOKS OF ACCOUNT AND IN THE STATEMENT OF SHRI PRAVEEN KANSAL PARTNER HAVE BEEN EXPLAINED FIGURE WISE IN THE SEPARATE STATEMENT ATT ACHED HEREWITH. IN VIEW OF FACTS AND FIGURES TABULATED IN THE STATEMEN T AND WRITTEN NOTES ADDED THERETO YOUR WOULD FIND THAT NO ADVERSE INFER ENCE IS CALLED FOR ON THIS ACCOUNT ALSO. E. THAT REGARDING COMPARATIVE FIGURES OF TWO PROFIT & LOSS ACCOUNT FURNISHED BEFORE THE AO AND SUBMISSIONS MADE BEFORE YOUR HONOUR IN OTHER PARAS OF THE WRITTEN NOTE IT MAY BE URGED THA T THERE IS NOTHING ON THE RECORD OF THE CASE ON THE BASIS OF WHICH THE BO OKS OF ACCOUNT MAY BE HELD AS UNRELIABLE. THERE IS ONLY ONE PROFIT & LOSS ACCOUNT WHICH WAS ATTACHED BY THE CA WITH THE RETURN OF INCOME AND WH ICH MAY BE HELD AS UNRELIABLE. THE FIGURE OF PROFIT & LOSS ACCOUNT HAN DED OVER BY THE CA TO THE PARTNERS, STAND PROVED AND TALLY WITH THE REGUL AR BOOKS OF THE ACCOUNT MAINTAINED IN THE USUAL COURSE OF BUSINESS OF THE F IRM. THE AO WENT WRONG TO OBSERVE THAT ASSESSEE COULD PR ODUCE ONLY INCOMPLETE BOOKS OF ACCOUNT. FROM THE ASSESSMENT RE CORD OF THE CASE YOUR HONOUR WOULD APPRECIATE THAT COMPLIANCE TO ALL THE QUERIES WERE MADE WITH EVIDENCE STATEMENTS EXPLANATION ETC. THE BOOKS OF ACCOUNT COMPLETE IN ALL RESPECT WERE PRODUCED FOR HER EXAMI NATION AND VERIFICATION. ONLY VOUCHERS COULD NOT BE PRODUCED DUE TO THEIR PROVED LOSS. G. THE AO WENT WRONG TO OBSERVE THAT ASSESSEE HIMSE LF IS NOT SURE AS TO WHICH BALANCE SHEET IS AUTHENTIC AS HE HAS SOUGH T CLARIFICATION FROM THE CA. THE ASSESSEE HAS REQUESTED THE AO TO ISSUE NOTICE U/S 131 TO THE CA WITH THE OBJECT OF EXTRACTING ADMISSION FROM THE CA HIMSELF IN CROSS EXAMINATION THAT PROFIT & LOSS ACCOUNT DELIVERED TO SHRI UDAL SINGH VERMA TALLY WITH THE REGULAR BOOKS OF ACCOUNTS. BUT THE INTENDED OPPORTUNITY OF CROSS EXAMINATION WAS NOT ALLOWED BY THE AO. HERE IT MAY BE ADDED HAT SHRI UDAL SINGH VERMA PARTNER DOES NOT KNOW, ABCD OF ENGLISH LANGUAGE AND ACCOUNTANCY. HE SIMPLY NOTED N ET FIGURE OF LOSS IN TWO SETS PROFIT & LOSS ACCOUNT WHICH WAS SAME IN TH E TWO AND PUT HIS SIGNATURES ON THE TWO SETS OF PROFIT & LOSS ACCOUNT AND INCOME TAX RETURN 24 ITA NO.5629/DEL/2010 IN GOOD FAITH. HE COULD NOT ANTICIPATE THAT PROFESS IONAL ACTIVITIES OF THE CA MAY BE OF ILLEGAL AND MISCHIEVOUS NATURE. IN VIEW OF ABOVE SUBMISSION, THERE REMAINED NOTHING ON THE RECORD OF THE CASE ON THE BASIS OF WHICH THE BOOKS OF ACCOUNT MAY BE REJECTED. 4. THAT AFTER HAVING REJECTED THE BOOKS OF ACCOUNT THE AO HAS ESTIMATED THE INCOME @ 2% ON THE BASIS OF ALLEGED COMPARABLE CASE OF M/S NARESH KUMAR ASHOK KUMAR WITHOUT APPRECIATING THE DISTINCT IVE NATURE OF THE TWO CASES. IN THE FIRST INSTANCE KINDLY EXAMINE THE RECORD OF ASSESSEE FOR THIS PURPOSE IN THE 2ND PAPER BOOK AT PAGES 48 TO 5 0. FROM ASSESSEE'S LICENSE IT IS EVIDENT THAT IT HAS BEEN ISSUED FOR W HOLE SALE TRADING OF IMFL. SECONDLY ALL PURCHASE ARE MADE FROM DISTILLER IES DIRECTLY WITHOUT ANY INTERVENING PERSON IN BETWEEN. THIRDLY ALL SALE S ARE MADE TO THE PERSONS HOLDING LICENSE OF RETAILERS FROM EXCISE DE PTT. THERE ARE NO SALES PERMISSIBLE TO THE CONSUMERS. FROM THIS MATERIAL YO UR HONOUR WOULD APPRECIATE THAT APPELLANT FIRM IS A WHOLE TRADERS O F IMFL. ON THE CONTRARY, KINDLY EXAMINE THE RECORD OF M/S NARESH K UARNR ASHOK KUMAR. THE EXCISE LICENSE OF THIS PARTY IS PLACED AT PAGES 234 OF THE PAPER BOOK. WHICH IS CLEARLY FOR RETAILERSHIP. THE PURCHASES BY THIS PARTY IS FROM WHOLE SALE TRADERS INSTEAD OF DISTILLERY. THIS PART Y HAS BEEN MAKING PURCHASES FROM THE APPELLANT FIRM. THE COPY OF ACCO UNT OF THIS FILM IN THE BOOKS OF APPELLANT FIRM IS PLACED AT PAGE 235. M/S NARESH KUMAR ASHOK KUMAR IS AUTHORIZED TO MAKE SALES TO THE CONSUMERS. THUS IT ALSO STOOD PROVED THAT M/S NARESH KUMAR ASHOK KUMAR HAS BEEN R ETAILER OF THE IMFL. IN VIEW OF THE ABOVE EVIDENCE THE CASE OF M/S NARESH KUMAR ASHOK KUMAR IS NOT COMPARABLE CASE WITH THAT OF APP ELLANT FIRM AND HENCE THE NET PROFIT OF THE SAID PARTY MAY NOT BE A DOPTED FOR ESTIMATING INCOME IN THE CASE OF FIRM. 5. AS A NEXT POINT IT MAY BE URGED THAT PURCHASE RA TE. SALE RATE AND MARGIN OF PROFIT AVAILABLE TO THE WHOLE SALE TRADER S ARE FIXED BY EXCISE DEPTT. THE WHOLE SALE TRADERS HAVE NO OPTION IN THI S CONNECTION. LIKEWISE PURCHASE RATE. SALE RATE AND MARGIN OF PROFIT AVAIL ABLE TO THE RATAILER ARE ALSO FIXED BY THE EXCISE DEPTT. ON THE BASIS OR THE SE TWO SETS OF RATES COMPARISON MAY BE MADE BETWEEN MARGIN OF PROFIT ON SALE AVAILABLE TO THE WHOLE SALE TRACERS AND MARGIN PROFIT AVAILABLE TO THE RETAILERS. IT MAY ALSO BE APPRECIATED THAT SALE RATES OF WHOLE TRADER S ARE PURCHASE RATES OF RETAILERS. THE STATEMENTS ON WHICH COMPARATIVE MARG IN OF PROFIT AVAILABLE TO THE WHOLE SALE TRADERS AND MARGIN OF PROFIT AVAI LABLE TO THE RETAILERS ARE WORKED OUT, FIND PLACES AT PAGES 236 TO 243OF T HE PAPER BOOK. FROM THESE STATEMENTS YOUR HONOUR WOULD APPRECIATE THAT MARGIN OF PROFIT AVAILABLE TO THE WHOLE TRADERS RANGES FORM 1.11 % T O 2.29%ONLY AGAINST MARGIN OF PROFIT AVAILABLE TO THE RETAILERS RANGES 16.5% TO 20.76%. THUS DIFFERENCE BETWEEN TWO RANGES IS VERY WIDE SAY FROM 900% TO 1975% APPROXIMATELY. THUS NET PROFIT RATE ADOPTED BY THE AO @ 2% IS WHOLLY IN 25 ITA NO.5629/DEL/2010 APPLICABLE IN THE CASE APPELLANT FIRM BECAUSE IN TH E CASE OF APPELLANT FIRM EVEN GROSS PROFIT MARGIN IS MUCH LESSER AT THAN 2%A GAINST WHICH BUSINESS EXPENSES ARE FURTHER TO BE CLAIMED TO ARRIVE NET PR OFIT RATE. HERE IT MAY BE ADDED THAT IN THE COURSE OF ASSESSMENT PROCEEDIN GS, NO OPPORTUNITY OF REBUTTAL WAS ALLOWED TO THE APPELLANT FIRM ON THE P OINT OF NET PROFIT RATE .APPLIED BY THE AO. IN THE FIRST INSTANCE TO PROVE THAT DECLARED RESULT S ARE REASONABLE AND SUPPORTED BY THE EVIDENCE AND MATERIAL AVAILABLE ON THE RECORD OF HE CASES IT IS SUBMITTED AS UNDER :- 6. THAT THIS IS THE FIRST YEAR OF THE BUSINESS AND ACCORDINGLY THERE WAS NO OPENING STOCKS OF THE BUSINESS. THE PURCHASES DURIN G THE YEAR WERE MADE AT RS. 50429365.05 OF IMFL FROM THE DISTILLERIES SA LES WERE MADE AT RS. 49751638.86 ON WHOLE-SALE BASIS. THE DECLARED SALES HAVE BEEN ACCEPTED BY THE AO AND MADE BASIS FOR ESTIMATING INCOME. HOW EVER THE PURCHASE HAVE BEEN MADE DOUBTFUL BY CA OF THE FIRM BY PREPAR ING TWO SETS OF BALANCE SHEETS ONE FILED WITH INCOME TAX RETURN AND OTHER SET HANDED OVER TO THE PARTNERS OF THE FIRM. IN THE SET OF BALANCE SHEET FILED BY THE CA WITH INCOME TAX RETURN, PURCHASES HAVE SHOWN AT RS. 4981 2414.73 INSTEAD OF ACTUAL PURCHASES OF RS. 50424365.05 AS PER BALANCE SHEET HANDED OVER BY THE CA TO THE PARTNERS OF THE FIRM. FOR THIS PUR POSE KINDLY REFER TO THE PAGES 220 AND 221 OF THE PAPER BOOK. NOW TO PROVE T HAT ACTUAL PURCHASES MADE STOOD AT RS. 50429365.05 IT IS SUBMITTED AS UN DER.- A. THOUGH ORIGINAL BILLS WERE LOST IN TRANSIT FROM OFFICE OF THE CA TO THE HEAD OF FIRM, THE COPIES OF THE BILLS ARE AVAIL ABLE AND RELEVANT FACTS AND FIGURES ARE VERIFIABLE FROM THE DISTILLERIES, L EAVING NO SCOPE FOR DOUBTING THE TRANSACTIONS. THE LIST OF THE RESPECTI VE DISTILLERIES WITH THEIR ADDRESSES AND PURCHASE AMOUNTS OF THE YEAR ARE ATTA CHED AT PAGES 3 & 4 OF THE PAPER BOOK. B. THE LIST OF DATE WISE AND PARTY WISE PURCHASES S HOWING DATES, NAMES AND ADDRESSES OF THE PARTIES BILL NOS, BILL A MOUNTS, PURCHASE AMOUNTS TCS @ 1.1 % EDUCATION CESS 2% AND UPTT NOS OF THE SELLERS IS PLACED AT PAGES 5 TO 10 OF THE PAPER BOOK. THIS LIS T WAS ALSO FILED BEFORE THE SALE TAX COMMISSIONER IN THE COURSE SALE TAX AS SESSMENT PROCEEDING AND HAS BEEN MADE BASIS OF SALE TAX ASSESSMENT BY S ALE TAX DEPTT. COPY OF ASSESSMENT IS PLACED AT PAGES 20 & 21 OF THE PA PER BOOK IN WHICH DECLARED PURCHASES HAVE BEEN ACCEPTED BY THE SALE T AX DEPTT. C. THAT EACH ITEM OF PURCHASES MADE FROM THE DISTIL LERIES IS SUBJECT TO TCS AND EDUCATION CESS. DURING THE YEAR UNDER CONSI DERATION AMOUNT OF RS. 565766/- INCLUDING EDUCATION CESS WAS COLLECTED BY THE DISTILLERIES FROM THE APPELLANT FIRM. THE LIST OF PARTY WISE, DA TE WISE AND AMOUNT WISE TCS CERTIFICATE ISSUED BY THE DISTILLERIES IS PLACE D AT PAGES 11 & 12 OF THE 26 ITA NO.5629/DEL/2010 PAPER BOOK. THESE CERTIFICATES WERE FILED BY THE AP PELLANT FIRM WITH ITS INCOME TAX RETURN. THESE CERTIFICATES OF RS. 565766 /- STAND TO PROVE THE PURCHASE AMOUNT OF RS.50429365.05. 7. IN RESPECT OF DECLARED SALES OF RS. 49751638.86 MONTH WISE STATEMENT OF SALES IS PLACED AT PAGE 13 AND STATEMENT OF PART Y WISE NAMES ADDRESSES AND PAN IS PLACED AT PAGE 14 & 15 OF THE PAPER BOOK S. HERE IT MAY BE SUBMITTED THAT SALES MADE BY THE APPELLANT FIRM WER E ALSO SUBJECT TO TCS AND EDUCATION CESS. APPELLANT FIRM DEDUCTED TCS FRO M ITS BUYERS AND ISSUED TCS CERTIFICATES TO THEM. THE APPELLANT FIRM DEDUCTED TCS AMOUNT OF RS. 556474.52 FROM THE BUYERS AND DEPOSITED THE SAME TO THE ACCOUNT OF CENTRAL GOVT. THE DETAILS AND COPIES OF THE CHAL LANS ARE ATTACHED AT PAGES 16 TO 18 OF THE PAPER BOOK. TO PROVE THAT THE SALES MADE, WERE CHECKED BY THE EXCISE DEPTT AND REGULAR INFORMATION OF SALES WERE SENT TO EXCISE DEPTT, THE DEPTT INSTRUCTION DATED 19-06-200 5 IS FURNISHED AT PAGE 19 OF THE PAPER- BOOK. COPY OF SALE TAX ASSESSMENT ORDER IN WHICH SALES HAVE BEEN ACCEPTED IS FURNISHED AT PAGE 20 & 21 OF THE PAPER BOOK. THUS SALES MADE AT RS.49751638.86 STAND PROVED WITH THE ABOVE MATERIALS. 8. THAT IN RESPECT OF EACH PURCHASE TRANSACTION FRO M DISTILLERY, THE WHOLE SALE TRADERS MAY CLAIM BENEFITS OF (I) DISCOUNT AND (II) BREAKAGE. THE CLAIM OF DISCOUNT HAS BEEN ALLOWABLE ON THE BASIS O F FULFILMENT OF CERTAIN CONDITIONS PROPOSED BY THE DISTILLERY AND BREAKAGE HAS BEEN ALLOWED ON THE BASIS OF ACTUAL BREAKAGE FOUND AND NOTED AT THE TIME OF TAKING DELIVERY OF THE GOODS. THE BILL AMOUNTS OF PURCHASE S ARE CREDITED TO THE ACCOUNT OF RESPECTIVE DISTILLERY AND DISCOUNT AMOUN T AND BREAKAGE AMOUNTS ARE DEBITED TO THE ACCOUNT OF THE SAID DIST ILLERY AND CREDITED TO THE DISCOUNT ACCOUNT AND BREAKAGE ACCOUNT RESPECTIV ELY. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT FIRM RECEIVED TH E CLAIM OF RS. 566493.69 ON ACCOUNT OF DISCOUNT AND OF RS. 759987. 3') ON ACCOUNT OF BREAKAGE WHICH FIND PLACE ON CREDIT SIDE OF TRADING ACCOUNT OF THE YEAR. A. TO MAKE THE ABOVE RECEIPTS VERIFIABLE A STATEME NT HAS BEEN PREPARED AND IS PLACED AT PAGES 22 TO 23 OF THE PAP ER BOOK. THIS STATEMENT SHOWS, THE NAMES AND ADDRESSES OF ALL THE DISTILLERIES FROM WHICH PURCHASES WERE MADE. AGAINST EACH DISTILLERY, THERE ARE PLACED FIGURES OF PURCHASES MADE FROM THE SAID DISTILLERY AND ALSO CORRESPONDING FIGURES OF DISCOUNT AND BREAKAGE RECEIVED IN RESPEC T OF SAID PURCHASE BILL AMOUNT. FROM THIS PARTY-WISE STATEMENT IT IS VERIF IABLE THAT IN RESPECT OF PURCHASE BILL AMOUNT OF RS 50429365.05 APPELLANT FI RM GOT AMOUNT OF RS. 56649 3.69 ON ACCOUNT OF DISCOUNT AND AMOUNT OF RS. 75987.32 ON ACCOUNT OF BREAKAGE. B. ALL THE PAYMENT TO THE DISTILLERIES WERE THROUGH ACCOUNT PAYEE CHEQUE OR BANK DRAFT AFTER ADJUSTMENT OF CLAIMS OF DISCOUNT AND BREAKAGE. THERE WAS NO CASH PAYMENT OR CASH RECEIPTS ON THESE ACCOUNTS. IT MAY BE 27 ITA NO.5629/DEL/2010 MENTIONED THAT PAYMENTS THROUGH CHEQUES/BANK DRAFT ARE MADE IN ADVANCE OF TAKING DELIVERIES. C. BREAKAGE IN RESPECT OF EACH TRANSACTION IS NOTED ON EACH BUILTY SIGNED BY THE DRIVER OF THE DISTILLERY AND AUTHORIZ ED SIGNATORY OF THE APPELLANT FIRM. ORIGINAL BUILTY PAPERS ARE SENT TO THE DISTILLERY AND COPIES THEREOF ARE ALSO MAINTAINED BY THE APPELLANT FIRM. THUS BREAKAGES RECEIVED ARE SUPPORTED BY THE BUILTY PAPERS. D. THE APPELLANT FIRM HAS PREPARED DISTILLERY WISE LEDGER ACCOUNT SHOWING DATE WISE RESPECTIVE ENTRIES OF DISCOUNT AN D BREAKAGE DEBITED TO THE ACCOUNT OF THE DISTILLERIES, COPIES OF SUCH ACC OUNTS FIND PLACE AT PAGES 24 TO 41 OF THE PAPER BOOK. FROM THE ABOVE SUBMISSI ONS THE FIGURES OF BREAKAGE AND DISCOUNT APPEARING IN THE TRADING ACCO UNT STOOD PROVED. 9. THAT THE NEXT FIGURE APPEARING IN THE CREDIT SID E OF TRADING ACCOUNT IS THAT OF CLOSING- STOCKS OF RS. 927587.55. HERE IT M AY BE MENTIONED THAT ALMOST EACH YEAR THE RATES OF EXCISE DUTY PAYABLE B Y THE WHOLE SALE TRADERS ARE INCREASED IN THE MONTH OF MARCH EFFECTI VE FROM 1 ST APRIL OF NEXT F.Y. THIS INCREASED EXCISE DUTY HAS TO BE PAID BY THE WHOLE SALE TRADERS IN RESPECT OF THEIR CLOSING STOCKS ON 31 ST MARCH BY WAY OF ADDL. EXCISE DUTY. IN RESPECT OF CLOSING STOCKS OF RS. 92 7587.55 APPELLANT FIRM HAD TO PAY ADDL. EXCISE OF RS. 198201- BY CHALLAN D ATED 07-04-2006. COPY OF THE CHALLAN IS PLACED AT PAGE 42 OF THE PAP ER BOOK. WORKING OF RS. 198201- ON THE BASIS OF CLOSING OF RS. 927587.5 5 IS PLACED AT PAGE 44 & 45 OF THE PAPER BOOK. THIS WORKING HAS BEEN CHECK ED AND APPROVED BY THE EXCISE DEPTT. ON 04-04-2006. FOR THIS ADDL. EXC ISE PAID AT RS. 198201- APPELLANT FIRM HAD TO PAY A SUM OF RS. 714/- TO PRO CURE REQUIRED HOLOGRAM. THESE HOLOGRAMS ARE AFFIXED ON EACH BOTTL E OF CLOSING STOCKS BY WAY OF PROOF THAT ADDL. EXCISE DUTY HAS BEEN PAI D THEREON. WITH ABOVE MATERIAL FURNISHED BEFORE YOUR HONOUR IT STANDS PRO VED THAT ON THE LAST DAY OF THE YEAR, THE APPELLANT FIRM HAD CLOSING STO CKS OF RS. 927587.55. IN ABOVE CLAUSE 1 TO 9 THUS ALL ITEMS OF TRADING A/C STOOD PROVED. 10. AT A NEXT STEP YOUR HONOUR'S KIND ATTENTION IS DRAWN. TO THE FIRST ITEM OF PROFIT & LOSS ACCOUNT I.E. LICENSE FEE PAID AT R S. 5500001-.TO PROVE THIS ITEM OF EXPENSES, PHOTO COPIES OF LICENSE FOR THE P ERIOD 01-04-2005 TO 31- 03-2006 AND COPY OF RESPECTIVE DEMAND DRAFT THROUGH WHICH THE LICENCE FEE WAS PAID FIND PLACE AT PAGE 50 OF THE PAPER BOO K. THUS THE LICENSE FEE PAID TO THE EXCISE DEPTT. AT RS.550000 -STOOD PROVE D. 1L. A. THAT THE NEXT ITEM OF EXPENSES IS DISCOUNT OF RS . 261223/-ALLOWED BY THE APPELLANT FIRM TO ITS BUYERS. HERE IT MAY BE MENTIONED, THAT APPELLANT FIRM BEING WHOLE SALE TRADER, HAS TO MAKE SALES TO' THE LICENSE HOLDERS ONLY. EACH YEAR THERE REMAINS A PARTICULAR PREVALENT RATE OF DISCOUNT TO BE ALLOWED TO THE BUYERS. SOME TIME KEE PING IN VIEW THE PREVALENT COMPETITION IN THE MARKET, THE WHOLE SALE TRADER HAS TO OFFER 28 ITA NO.5629/DEL/2010 DISCOUNT AT HIGHER RATE TO SOME LICENSE HOLDERS. TH US RATE OF DISCOUNT ALLOWED TO THE BUYERS MAY DIFFER FROM BUYER TO BUYE R AND ALSO FORM WHOLE TRADER TO WHOLE SALE TRADER. REGARDING ACCOUNTING S YSTEM IT MAY BE URGED THAT SALE BILL AMOUNT IS DEBITED TO THE ACCOUNT OF THE BUYERS. THE BUYER MADE PAYMENT OF BILL AMOUNT AFTER ADJUSTING THE DIS COUNT ALLOWABLE. THE DIFFERENCE BETWEEN BILL AMOUNT AND AMOUNT RECEIVED IS CREDITED TO THE ACCOUNT OF THE BUYER AND DEBITED TO THE DISCOUNT AC COUNT. MODE OF PAYMENT OF BILL AMOUNT, WHETHER BY CASH OR THOUGH A CCOUNT PAYEE CHEQUE/DEMAND DRAFT IS WITHIN THE OPTION OF THE PAY ERS. AS A MATTER OF PRACTICE USUALLY PAYMENTS ARE RECEIVED THROUGH ACCO UNT PAYEE CHEQUE. B. THAT APPELLANT FIRM HAS PREPARED A STATEMENT SHO WING NAME AND ADDRESSES OF THE BUYERS, THEIR RESPECTIVE PANS AND AMOUNT OF DISCOUNT ALLOWED TO EACH BUYER DURING THE YEAR. FROM THIS ST ATEMENT DISCOUNT ALLOWED IS VERIFIABLE FROM THE PARTIES. C. HERE IT MAY BE MENTIONED THAT IN RESPECT OF DISC OUNT ALLOWED TO THE PARTIES AT RS. 233303/- CONFIRMATIONS FROM THE RESP ECTIVE PARTIES HAVE BEEN RECEIVED, WHICH ARE PLACED AT PAGES 57 TO 78 O F THE PAPER BOOK. D. REGARDING NEXT AMOUNT OF DISCOUNT ALLOWED AT RS. 18715/- TO SIX PARTIES MENTIONED AT PAGE 52 OF THE PAPER BOOK, IT MAY BE URGED THAT ENTIRE PAYMENTS FROM THESE PARTIES WAS RECEIVED THR OUGH ACCOUNT PAYEE CHEQUES AND THE DIFFERENCE BETWEEN BILL AMOUNTS AND CHEQUE AMOUNTS WAS CREDITED TO THE ACCOUNTS OF THE PARTIES AND DEB ITED TO DISCOUNT ACCOUNT. THUS NO ADVERSE INFERENCE IS CALLED FOR ON THIS ACCOUNT AGAINST THE APPELLANT FIRM. COPIES OF LEDGER ACCOUNT OF THE SE SIX PARTIES ARE PLACED AT PAGE 78 TO 100 OF THE PAPER BOOK. E. THE AMOUNT OF RS.9205/-REMAINS IN RESPECT OF WHI CH THERE IS NEITHER CONFIRMATION OF THE PARTIES NOR THERE ARE R ECEIPTS THROUGH ACCOUNT PAYEE CHEQUES. THESE WERE TRANSACTIONS OF VERY SMAL L SALE AMOUNTS IN RESPECT OF WHICH IT HAS NOT BEEN POSSIBLE TO PROCUR E CONFIRMATION OF THE PARTIES AND THESE PARTIES HAVE DISCONTINUED THEIR B USINESSES AND THEIR WHEREABOUTS ARE NOT AVAILABLE. 12. THAT NEXT EXPENSES IS UNDER THE HEAD BANK CHARG ES AND COMMISSION WHICH HAS BEEN CLAIMED AT RS. 11923/-. TO SUBSTANTI AL THIS CLAIM, THE COPY OF LEDGER ACCOUNT IN THE BOOKS OF APPELLANT IS PLACED AT PAGES 101 TO 104. OUT OF TOTAL CLAIM OF RS. 11923.10 AMOUNT OF R S. 9493.10 HAS BEEN PAID TO INO VSHYA BANK. WHICH IS VERIFIABLE FROM CO PY OF THE BANK STATEMENT ATTACHED AT PAGES 105 TO 132. THE AMOUNT OF RS. 2430/-WAS PAID TO M/S SURENDRA KUMAR TYAGI. THESE EXPENSES OF RS. 2430/- ARE IN RESPECT OF DD CHARGES INCURRED BY THE PARTY AND CLA IMED DEDUCTION FROM SALE PRICE. THE APPELLANT FIRM ALLOWED CREDIT TO TH E PARTY AND DEBITED TO BANK CHARGES ACCOUNT. THE COPY OF ACCOUNT OF THE PA RTY IS PLACED AT PAGES 99 & 100. 29 ITA NO.5629/DEL/2010 13. THAT NEXT EXPENSES AT RS. 13186/- IS IN RESPECT OF BREAKAGE OUTWARD. OUT OF GOODS DESPATCHED TO THE SELLERS SOME ITEMS A RE FOUND BROKEN. THE BUYER MADE PAYMENT OF BILL AMOUNT AFTER DEDUCTING T HEREFROM COST OF BROKEN ITEMS. THE APPELLANT FIRM PASSED CREDIT ENTR Y IN RESPECT THEREOF, IN THE LEDGER ACCOUNT OF THE PARTY AND DEBIT ENTRY IN RESPECT THEREOF IN THE BREAKAGE OUTWARD ACCOUNT. THE COPY OF BREAKAGE OUTW ARD ACCOUNT IS ATTACHED HEREWITH. THE BREAKUP OF RS. 13186/- HAS B EEN MADE AND IS PLACED AT 55 & 56 OF THE PAPER BOOK. FROM THE EXPEN SES CLAIMED UNDER THIS HEAD THE AMOUNT OF RS. 9098/- PERTAIN THE- PAR TIES WHO HAVE CONFIRMED THE RECEIPTS AND THE RELEVANT CONFIRMATIO NS ARE PLACED AT PAGES 57 TO 78 OF THE PAPER BOOK. NEXT FIGURE OF RS. 2875 /-PERTAIN TO THOSE PARTIES FROM WHOM THE SALE PROCEEDS WERE RECEIVED T HROUGH ACCOUNT PAYEE CHEQUES ONLY AFTER DEDUCTING THE BREAKAGE AMO UNT. COPIES OF THEIR ACCOUNTS ARE TO BE FOUND AT PAGES 79 TO 100 OF THE PAPER- BOOK. THE BALANCE AMOUNT OF RS. 1213/- ONLY PERTAIN TO THOSE PARTIES FROM WHOM THE SALE PROCEEDS WERE IN CASH. AS AGAINST CLAIM OF EXP ENSES MADE IN THE BOOKS OF ACCOUNT AT RS. 13186/- UNDER THE HEAD BREA KAGE OUTWARD, THE CHARTERED ACCOUNT IN COLLUSION WITH THE HOSTILE PAR TNER SHRI PRAVEEN KUMAR KANSAL INCREASED THE EXPENSES UNDER THIS HEAD AT RS. 554149/- IN BALANCE SHEET FILED BY HIM WITH INCOME TAX RETURN A ND REDUCED THE PROVED PURCHASES OF RS. 50429365.05 TO RS. 49812414.73 ONL Y. HE FURTHER OMITTED FROM CREDIT SIDE OF P & L ACCOUNT A FIGURE OF RS. 75987.32 IN RESPECT OF BREAKAGE INWARD, UNDER THESE THREE ADJUS TMENTS MADE BY THE CA, HE APPEARED TO HAVE 2 THINGS IN HIS MIND. FIRST LY THAT NET PROFIT FIGURE SHOULD BE KEPT AT THE SAME IN BOTH THE BALANCE SHEE TS AND SECONDLY HE WANTED TO CREATE PROBLEMS IN THE ASSESSMENT OF THE FIRM. THE THREE ADJUSTMENT MADE BY HIM MAY BE RECOSTED AS UNDER. I. PURCHASES AS PER BOOKS OF ACCOUNT SHOWN AT RS. 50429365.05 REDUCED TO RS. 49812414.73. II. EXPENSES UNDER THE HEAD BREAKAGE OUTWARD APPEAR ING AT RS. 13186/- INCREASED FROM RS. 13186/- TO RS. 554149/-. III. BREAKAGE INWARD SHOWN IN BOOKS OF ACCOUNT OF THE ASSESSEE AND IN CREDIT SIDE OF TRADING ACCOUNT IN THE BALANC E SHEET HANDED OVER TO THE PARTNERS, AT RS. 75987.32 HAS BE EN OMITTED FROM THE PROFIT LOSS ACCOUNT IN THE BALANCE SHEET FILED WITH THE INCOME TAX RETURN. HERE IT MAY BE AGAIN URGED THAT APPELLANT FIRM HAS ALREADY EXPLAINED THAT THE PURCHASE FIGURE OF RS.50429365.05 STOOD PROVED CONCLUSIVE. SECONDLY IT MAY ALSO BE SUBMITTED THAT SO LONG AS EXPENSES C LAIMED AT RS.13186I- ARE LESSER THAN THE ALLEGED FIGURE OF RS. 554149/- NO ADVERSE INFERENCE IS CALLED FOR AGAINST THE ASSESSEE. FURTHER THE ASSESS EE FIRM HAS SHOWN CREDIT FIGURE OF BREAKAGE INWARD AT RS. 75987.32 WH ICH THE CA HAS 30 ITA NO.5629/DEL/2010 OMITTED FROM CREDIT SIDE OF P&L ALC IE HE HAS REDUC ED THE DECLARED INCOME BY THIS ADJUSTMENT AND HENCE ON THIS ACCOUNT TO NO ADVERSE INFERENCE IS CALLED FOR AGAINST THE APPELLANT. IT MAY ALSO BE BROUGHT TO YOUR HONOUR'S KIND INFORM ATION THAT CA OF THE APPELLANT WAS WORKING IN COLLUSION WITH THE HOSTILE PARTNERS OF THE FIRM SHRI PRAVEEN KANSAL AND CREATING NUMBER OF PROBLEMS IN DIFFERENT WAYS TO THE APPELLANT FIRM. ON THIS POINT DETAILED WRITT EN NOTICE WAS SERVED ON THE CA, COPY OF THE SAID NOTICE IS FURNISHED AT PAG ES 226 TO 231 OF THE PAPER BOOK AND WRITTEN NOTE FILED BEFORE AO IS PLAC ED AT PAGES 222 TO 225. COPIES OF TWO PROFIT & LOSS ACCOUNT PREPARED B Y THE SAME CA IN RESPECT OF SAME BUSINESS ARE TO BE FOUND AT PAGES 2 20 TO 221. HERE IT MAY BE URGED THAT MISCHIEF PLAYED BY THE CA CAME TO THE KNOWLEDGE OF APPELLANT IN THE COURSE OF HEARING OF THE CASE WHEN AO ASKED THE APPELLANT FIRM TO PROVE EXPENSES OF BREAKAGE OUTWAR D AT RS. 55419/- INSTEAD OF RS. 131861-. THERE UP ON THE APPELLANT F IRM REQUESTED THE' AO TO PROVIDE COPY OF P&L ALE ATTACHED BY THE CA WITH INCOME TAX RETURN AND GOT THE SAME THEREAFTER. 14. THAT NEXT ITEM OF EXPENSES APPEARING IN THE P&L A/C IS IN RESPECT OF COMPUTER REPAIR AND MA INTENANCE EXPENSES CLAIMED AT RS. 178001- ON THIS POINT IT IS URGED TH AT THE EXPENSES OF RS. 170001- STOOD PROVED WITH SUPPORTING RECEIPTS ISSUE D BY SHRI SANJAY BHUTANI 190, BHATWARA GALI BAGH WALI MEERUT, SHRI S ANJAY BHUTANI IS AN INDEPENDENT THIRD PARTY AND HIS INTEGRITY MAY NOT B E DOUBTED COPY OF THE LEDGER ACCOUNT IS AT PAGES 133 OF THE PAPER BOOK AN D COPIES OF RECEIPTS ARE PLACED AT PAGES 134 TO 138. 15. THAT THE CONVEYANCE EXPENSES HAVE BEEN CLAIMED AT RS. 13380.38 COPY OF THE ACCOUNT IS PLACED AT PAGES 139 TO 142. SUPPORTING BILLS AND VOUCHERS WERE LOST IN TRANSIT FROM OFFICE OF THE CA TO THE OFFICE OF THE FIRM HERE IT MAY BE ADDED THAT LOOKING TO THE NATURE AND EXTENT OF THE BUSINESS, THE CLAIM OF EXPENSES IS VERY REASONABLE AND THEREF ORE SAME DESERVE TO BE ALLOWED PARTICULARLY BECAUSE THE EXPENSES ARE VERY PETTY IN NATURE AND HAVE BEEN INCURRED ON DAY TO DAY BASIS IN THE USUAL COURSE OF BUSINESS. 16. THAT THE APPELLANT FIRM HAS CLAIMED DEPRECIATIO N AT RS. 99557/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS COPIES OF ACCO UNT OF DEPRECIABLE ASSETS DEPRECIATION CHARTS AND SUPPORTING BILLS OF THE ASSETS PURCHASED, WERE FURNISHED BEFORE THE AO. THE DEPRECIATION HAS BEEN CLAIMED AT THE PRESCRIBED RATE AND THEREFORE NO DISALLOWANCE IS CA LLED FOR ON THIS ACCOUNT 17. THAT NEXT ITEM OF EXPENSES IN THE P & L A/C IS THAT OF ELECTRICITY EXPENSES CLA.MED AT RS. 7484/-. HERE IT MAY BE URGE D THAT ALL PAYMENT ARE MADE THROUGH ACCOUNT PAYEE CHEQUES TO THE GOVT. ELE CTRICITY DEPTT. COPY OF LEDGER ACCOUNT IS PLACED AT PAGE 143 OF THE PAPE R BOOK AND THEREFORE THE EXPENSES BEING DOUBTLESSLY PROVED AND VERIFIABL E NO DISALLOWANCE IS CALLED FOR. 31 ITA NO.5629/DEL/2010 18. THAT NEXT ITEM OF EXPENSES IS FREIGHT OUTWARD C LAIMED AT RS. 26161-. THESE EXPENSES ARE IN RESPECT OF PETTY LOADS OF GOO DS SENT TO THE PREMISES OF THE BUYERS THROUGH RIKSHAW AND THELA. THESE EXPE NSES WERE OF PETTY NATURE PAID TO RIKSHAW PULLERS ETC, IN THE USUAL CO URSE OF BUSINESS AND THEREFORE THEIR NATURE MAY NOT BE DOUBTED BEING REA SONABLE ALSO. 19. THAT YOUR HONOUR'S KIND ATTENTION IS INVITED TO THE STATEMENT PLACED AT PAGE 219 OF THE PAPER BOOK. AT THIS PAGE THE CLAIM OF EXPENSES UNDER DIFFERENT HEADS HAVE BEEN BIFURCATED HEAD WISE INTO TWO FIGURES NAMELY VERIFIABLE EXPENSES AND UNVERIFIABLE EXPENSES AS UN DER. OUT OF TOTAL EXPENSES CLAIMED AT RS. 069264.64 AS PER P&L ALE, T HE EXPENSES OFRS.1714215.26 ARE FULLY VERIFIABLE FROM RECORD OF THE CASE E.G. ACCOUNT PAYEE CHEQUES, CONFIRMATION OF THE ACCOUNTS BY THE PARTIES AND THEIR FULL POSTAL ADDRESSES. THE BALANCE AMOUNT OF EXPENSES OF RS. 355049.38 CLAIMED UNDER DIFFERENT HEADS AS PER STATEMENT AT P AGE 219 REMAINED UNVERIFIABLE IN ABSENCE OF VOUCHERS LOST IN TRANSIT . THE EXPENSES WHICH REMAINED UNVERIFIABLE ARE ALLOWABLE ON THE GROUND R EASONABILITY KEEPING IN VIEW THE NATURE AND EXTENT OF BUSINESS. OUT OF U NVERIFIABLE EXPENSES OF RS. 355049.38THERE IS ONE ITEM OF RS.157951/- IN RE SPECT OF BAD DEBT CLAIM LEAVING BALANCE UNVERIFIABLE EXPENSES AT RS.1 97098.38, WHICH MAY BE CLAIMED ON THE BASIS OF REASONABILITY. IN RESPE CT BAD DEBT OF RS.1579511-A DETAILED WRITTEN NOTE WAS FILED BEFORE THE AO. THE COPY OF THE SAID WRITTEN NOTE AND COPY OF ACCOUNT ARE PLACE D AT PAGES 211 TO 215 OF THE PAPER BOOK. SAME MAY BE CONSIDERED BY YOUR H ONOUR. IN RESPECT OF VERIFIABLE EXPENSES OF RS. 1714215.26 AS PER STATEM ENT AT PAGE 219, THE RELEVANT CONFIRMATION BANK STATEMENT DOCUMENTARY EV IDENCE, VERIFIABLE ADDRESSES OF THE PARTIES AND THEIR PANS ETC, ARE PL ACED AT PAGES 48 TO 211 OF THE PAPER BOOK. 20. THAT THUS FROM ABOVE SUBMISSIONS YOUR HONOUR WO ULD APPRECIATE, THAT ALL ITEM OF TRADING A/C AND PROFIT AND LOSS ALE STA ND PROVED AND ACCEPTABLE AND THEREFORE THERE IS NO REASON WHY THE DECLARED LOSS MAY NOT BE ACCEPTED. IT MAY FURTHER BE ADDED THAT THE PARTNERS OF THE AP PELLANT HAVE SPENT THE PERIOD OF THEIR WHOLE LIFE IN OTHER NATURE OF JOB W ORK. THEY DID NOT KNOW EVEN ABCD OF TRADING IN IMFL. THEY DID NOT HAVE IDE A ABOUT MINIMUM REQUIREMENT OF CAPITAL INVESTMENT AND OTHER BUSINES S EXPEDIENCIES. THEY HAVE NO EXPERIENCE AND WERE TOTALLY RAW HANDS IN TH E LINE OF THIS TRADING. THEY HAVE ENTERED IN THIS LINE OF BUSINESS AT MISGU IDANCE OF SHRI PRAVEEN KANSAL THAT THE BUSINESS IS VERY LUCRATIVE. AFTER F EW MONTHS START OF THE BUSINESS THE PARTNERS REALIZED THAT CAPITAL AVAILAB LE WITH THE PARTNERS WAS MUCH LESSER THAN THE MINIMUM BUSINESS REQUIREMENT. WITH THEIR AVAILABLE CAPITAL THE FIRM COULD NOT MAINTAIN STOCKS OF ALL V ARIETIES OF IMFL. SECONDLY, THE APPELLANT FIRM COULD NOT PROVIDE CRED IT FACILITIES TO ITS CUSTOMERS. LASTLY SHRI PRAVEEN KANSAL STARTED 10 W ITHDRAW HIS CAPITA: IN 32 ITA NO.5629/DEL/2010 THE FIRM AND TURNED OUT HOSTILE. INSTEAD PROVIDING COOPERATION IN THE BUSINESS HE WAS CREATING HINDRANCES. UNDER THESE CI RCUMSTANCES THE MINIMUM TARGET OF REQUIRED TURNOVER COULD NO BE ACH IEVED AND REASONABLE UNAVOIDABLE EXPENSES HAVE TO BE INCURRED RESULTING IN HEAVY LOSSES TO THE FIRM. IN VIEW OF THESE UNAVOIDABLE CI RCUMSTANCES, IT WAS REALIZED THAT FIRM IS GOING TO SUFFER HEAVY LOSSES AND THEREFORE IT WAS DECIDED TO DISCONTINUE THE BUSINESS AT THE END OF P REVIOUS YEAR IN QUESTION. THUS ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE DECLARED LOSS DESERVE TO BE ACCEPTED. IN VIEW OF ABOVE SUBMISSION DECLARED RESULTS DESERV E TO BE ADMITTED AND ACCEPTED. ' 9.4. DECISION AND REASONS THEREFOR: I HAVE CAREFULLY CONSIDERED FACTS, THE AO'S ORDER A ND THE ELABORATE SUBMISSIONS MADE BY THE AR. THE AR IN HIS WRITTEN S UBMISSIONS HAS BEEN ABLE TO DISTINGUISH THE FACTS OF THE APPELLANT'S CA SE FROM THE CASE OF M/S. NARESH KUMAR ASHISH KUMAR WITH REFERENCE TO WHICH A DDITION ON ESTIMATE HAS BEEN MADE BY THE AO. I ALSO FIND THAT THE PURCHASE AND SALES OF RS.5,04,29,365/- AND RSA,97,51 ,638/- HAVE BEEN DULY ACCEPTED BY THE SALES-TAX DEPARTMENT. DETAILS OF AND EDUCATION CESS IN RESPECT OF PURCHASES AND SALES HAVE BEEN DULY FURNISHED WHICH SUBSTANTIATE APPELLANT'S POSITION. AS REGARDS EXPENSES, CREDIBLE EVIDENCES HAVE BEEN ADDUCED. IN THE LIGHT OF THESE FACTS, THE ESTIMATIO N OF PROFIT MADE BY THE AO IS NOT FOUND TO BE JUSTIFIED. THE ADDITION OF RS .9,95,033/- MADE BY THE AO IS ACCORDINGLY DELETED. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, LD. D.R. SUBMITTED THAT THE PARTN ERSHIP DEED SHOULD HAVE BEEN SIGNED BY ALL THE PARTNERS AS IT IS THE S TATUTORY REQUIREMENT OF REGISTRATION AND, THEREFORE, THE A.O. HAD RIGHTLY A SSESSED THE ASSESSEE AS AOP. REGARDING FORMATION OF SS & CO. THE LD. D.R. SUBMITTED THAT SHRI UDAL SINGH VERMA CANNOT BE SAID TO HAVE INTRODUCED AS PARTNER IN REPRESENTATIVE CAPACITY AS THE FIRM WAS FORMED AFTE R THE FORMATION OF ASSESSEE FIRM. AS REGARDS ADDITION MADE BY THE A.O ., THE LD. D.R. HEAVILY RELIED UPON THE ASSESSMENT ORDER FOR THE AD DITIONS MADE BY A.O. AND FURTHER ARGUED THAT BECAUSE OF VARIOUS DISCREPA NCIES IN THE BOOKS OF ACCOUNTS, THE SAME WERE REJECTED AND PROFIT WAS EST IMATED ON THE BASIS OF A COMPARABLE CASE. 33 ITA NO.5629/DEL/2010 5. LD. A.R. ON THE OTHER HAND SUBMITTED THAT ONLY O NE PERSON HAD NOT SIGNED / VERIFIED THE PARTNERSHIP DEED AND IN FACT HE HIMSELF HAD APPEARED BEFORE THE A.O. AND HAD SUBMITTED THAT HE WAS PARTN ER IN THE FIRM AND THEREFORE, IT WAS ONLY A TECHNICAL MISTAKE AND, THE REFORE, LD. CIT(A) HAD RIGHTLY HELD THE ASSESSEE AS PARTNERSHIP INSTEAD OF AOP. AS REGARDS M/S. SS & CO., THE LD. A.R. SUBMITTED THAT THE FIRM WAS IN FACT FOREMED ON 01.04.2005 BUT DEED WAS WRITTEN ON 14.04.2005 AND I N THE PARTNERSHIP DEED OF M/S. SS& CO., IT HAS BEEN MENTIONED THAT SH RI UDAL SINGH VERMA CAN BECOME PARTNER IN A REPRESENTATIVE CAPACITY. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAS PASSED A VERY ELABORATE ORDER AFTER EXAMINATION OF EACH DETAIL. 6. IN HIS REJOINDER, LD. D.R. SUBMITTED THAT THE A. O. HAS CLEARLY POINTED OUT THE CONTRADICTION IN THE STATEMENT OF P ARTNERS AND LD. CIT(A) WITHOUT INVITING THE COMMENTS OF THE A.O. THROUGH R EMAND REPORT, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY JUST REPRODUCING THE SUBMISSIONS OF THE ASSESSEE. IT WAS FURTHER SUBMIT TED THAT LD. CIT(A) HAS NOT HIMSELF VERIFIED THE DOCUMENTS AND HAS NOT GIVE N ANY FINDING ON ASSESSMENT OF EARLIER YEAR OF THE PARTNERS. AS REG ARDS THE DETERMINATION OF NET PROFIT ON THE BASIS OF 2% OF GROSS TURNOVER, LD. D.R. SUBMITTED THAT THIS BEING THE FIRST YEAR OF THE ASSESSEE THEREFORE THERE WAS NO HISTORY OF THE ASSESSEE AND THEREFORE, A.O. ON THE BASIS OF CO MPARABLE CASE HAD CALCULATED THE NET PROFIT. 7. ARGUING UPON CROSS OBJECTION, THE LD. A.R. SUBMI TTED THAT THE ASSESSEE HAD FILED RETURN OF LOSS AND, THEREFORE AS SESSMENT MADE BY A.O. SHOULD HAVE STARTED WITH THE RETURNED LOSS RETURNED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAS ALSO FAILED TO GIVE DIRECTION TO THE A.O. THAT DECLARED BUSINESS LOSS OF RS.11,70,155/- SHOULD HAVE BEEN ACCEPTED AS HE HAD ALREADY DELETED THE ADDITION. 8. LD. D.R. ON THE OTHER HAND RELIED UPON THE FINDI NGS OF A.O. 34 ITA NO.5629/DEL/2010 9. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. AS REGARDS REVENUES APPEAL, WE FIND THAT THOUGH COMPLETE BOOKS WERE NOT PRODUCED BEFORE THE A.O. AS THEY WERE CLAIMED TO HAVE BEEN LOST BUT DURING PROCEEDINGS BEFORE LD. CIT(A), THE ASSESSEE HAD EXPLAINED EACH AND EVERY HEAD OF EXPENDITURE AN D LD. CIT(A) HAS ACCEPTED THE SUBMISSIONS OF THE ASSESSEE WHICH HE C AN DO SO AS HIS POWERS ARE CO-TERMINUS WITH THE POWERS OF THE A.O. WE FURTHER OBSERVE THAT MAJOR HEADS OF EXPENDITURE WERE VERIFIABLE FRO M LICENCE, BANK STATEMENTS AND DEPRECIATION WAS VERIFIABLE FROM FIX ED ASSETS AND THERE WAS NO DISPUTE ABOUT THE FIGURE OF TURNOVER. MOREO VER, LD. CIT(A) HAS INCLUDED THE COMPLETE SUBMISSIONS OF ASSESSEE IN HI S ORDER TO MAKE THE DELETION OF ADDITIONS UNDERSTANDABLE. AS REGARDS C OMPARISON WITH THE FIGURES OF ANOTHER TRADER FOR THE PURPOSE OF CALCUL ATION OF NET PROFIT, WE FIND THAT CASE WAS NOT COMPARABLE AS THE ASSESSEE I S A WHOLESALER AND COMPARABLE CASE RELATED TO A RETAILER. AS REGARDS DETERMINATION OF STATUS, AS PARTNERSHIP FIRM INSTEAD OF ASSOCIATION OF PERSO NS, WE FIND THAT THREE PARTNERS HAD SIGNED THE DEED AS CERTIFIED COPY AND FOURTH PERSON IN RESPONSE TO SUMMONS U/S 131 HAD APPEARED BEFORE ASS ESSING OFFICER AND HAD CONFIRMED ABOUT HIS STATUS AS PARTNER. THE MIS TAKE WAS A SMALL TECHNICAL MISTAKE WHICH LD. CIT(A) HAD RIGHTLY ALLO WED. THEREFORE, KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). IN VIEW OF THE ABOVE, APPEAL FILED BY THE REVENUE IS DISMISSED. 10. AS REGARDS CROSS OBJECTIONS FILED BY THE ASSESS EE, WE FIND THAT IN VIEW OF DELETION MADE BY LD. CIT(A), HE SHOULD HAVE DIRECTED THE A.O. TO DETERMINE THE TOTAL INCOME OF THE ASSESSEE AT TH E RETURNED INCOME WHICH IS AT A LOSS AND THEREFORE, WE DIRECT THE A.O . TO DETERMINE THE NET INCOME OF THE ASSESSEE AT THE RETURNED INCOME AS TH E DELETIONS OF 35 ITA NO.5629/DEL/2010 ADDITIONS HAS BEEN CONFIRMED BY US. IN VIEW OF THE ABOVE, CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED. 11. IN A NUTSHELL, THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEP., 2014. SD./- SD./- ( I. C. SUDHIR ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 30 TH SEP., 2014 SP COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION DATE OF TYPING DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.