The ITO, Ward-8(1), Ahmedabad V. Truimph Fab Pvt.Ltd., Ahmedabad

ITA 535/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1910 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 22-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Unexplained cash credit; Commercial expediency; Onus to prove
• Section: 43B; 143(3); 142(1); 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM. ITA NO. 535 /AHD/2011 ASST. YEAR: 2007-08 ITO, WD-8(1), AHMEDABAD VS. TRIUMPH FAB PVT. LTD., HANSRAJ COMPLEX, KRISHNABAUG CHAR RASTA, AHMEDABAD. APPELLANT RESPONDENT PAN AABCT 8664R APPELLANT BY SMT. SONIA KUMAR, SR.DR RESPONDENT BY SHRI ANIL KSHATRIYA, AR DATE OF HEARING: 13.1.2016 DATE OF PRONOUNCEMENT: 01/ 04 /2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(A)-XIV, AHMEDABAD, IN APPEAL NO.CIT(A) XIV/WD.8 (1)/203/2009- 10, DATED 27/10/2010. ASSESSMENT U/S 143(3) OF IT A CT, 1961 (IN SHORT THE ACT) WAS FRAMED ON 11.12.2009 BY ITO, WD- 8(1), AHMEDABAD FOR ASST. YEAR 2007-08. REVENUE HAS RAISE D FOLLOWING GROUNDS OF APPEAL :- 1} THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,5 7,840/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNSECURED LOANS. ITA NO.535/AHD/2015 ASST. YEAR 2007-08 2 2) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .2,07,381/-MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION EXPENSES . 3) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .18,90,321/- MADE BY THE ASSESSING OFFICER INVOKING PROVISIONS OF SECTIO N 36(1)(III) ON ACCOUNT OF INTEREST EXPENSES. 4) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.6,3 0,546/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNPROVED CREDITORS. 5) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .2,71,032/- MADE BY THE ASSESSING OFFICER, OUT OF TOTAL PACKING MATERIAL AN D STORES EXPENSES. 6) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .64,103/- MADE BY THE ASSESSING OFFICER, OUT OF TRACTOR EXPENSES. 7) THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS . 1,26,662/- MADE BY THE ASSESSING OFFICER, OUT OF PROVISIONS FOR EXPENS ES LIKE STAFFS SALARY & BONUS, TRAVELLING EXP., TELEPHONE EXP., ELECTRICITY CHARGES, AUDIT FEES AND STATIONARY BILLS ETC.. 8). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDABAD OUGHT TO HAVE UPHE LD THE ORDER OF THE ASSESSING OFFICER. 9). IT IS THEREFORE, PRAYED THAT THE ORDER OF THE I D. COMMISSIONER OF INCOME- TAX(A)- XIV, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE ASSE SSMENT RECORDS ARE THAT ASSESSEE IS A COMPANY ENGAGED IN TRADING O F CLOTHES. IT FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING INCOME OF RS.2,33,605/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE U/S 143(2) OF THE ACT WAS ISSUED ON 15.9.2008 AND SERVED UPON THE ASSESSEE. THEREAFTER NOTICE U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE WAS ITA NO.535/AHD/2015 ASST. YEAR 2007-08 3 ISSUED ON 7.1.2009. THE CASE WAS DISCUSSED, NECESSA RY DETAILS WERE FURNISHED AND ASSESSMENT WAS COMPLETED AFTER MAKING FOLLOWING ADDITIONS OUT OF UNSECURED LOANS UNEXPLAINED CASH CREDIT U/S 68 AS PER PARA 4.1. RS.1,57,840/- ON ACCOUNT OF DIFFERENCE IN BANK RECONCILIATION AS PER PARA 4.8 RS.560/- OF UNPROVED CREDITORS AS PER PARA 4.4. RS.6,30,546/- DISALLOWANCE OUT OF COMMISSION EXPENSES AS PER PARA 4.2 RS.2,07,381/- OUT OF INTEREST EXPENSES AS PER PARA 4.3 RS.18,90,321/- OUT OF PACKING MATERIAL & STORE EXPENSES AS PER PAR A 4.5 RS.2,71,032/- OUT OF TRACTOR EXPENSES AS PER PARA 4.6 RS.64,103/- OUT OF PROVISION FOR EXPENSES AS PER PARA 4.7 RS.1,26,515/- TOTAL RS.33,48,298/- AND THE INCOME WAS ASSESSED AT RS.35,81,903/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO PARTLY ALLOWED THE APPEAL OF ASSESSEE BY DELETING A DDITION OF RS.33,47,738/- OUT OF TOTAL ADDITION AT RS.33,48,29 8/-. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 5. GROUND NO.1 - THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,5 7,840/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNSECURED LOANS. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSE SSEE WAS REQUESTED TO FURNISH COPY OF LEDGER ACCOUNT AND PAN OF HEMAL ITA NO.535/AHD/2015 ASST. YEAR 2007-08 4 NANAVATI IN WHOSE NAME UNSECURED LOAN OF RS.1,57,84 0/- STOOD AT THE YEAR END AND IN RESPONSE AFTER AVAILING SEVERAL OPPORTUNITIES, ASSESSEE COULD NOT PROVE THE IDENTITY AS WELL AS GE NUINENESS OF THE TRANSACTIONS, CREDITWORTHINESS OF THE CASH CREDITOR MR. HEMAL NANAVATI. SO HE TREATED THIS AMOUNT OF RS.1,57,840/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND ADDED IT TO THE T OTAL INCOME OF THE ASSESSEE. 7. ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) WHO DE LETED THE ADDITION OF RS.1,57,840/- BY OBSERVING AS UNDER :- THE FIRST GROUND RAISED BY THE APPELLANT IS REGARDI NG UNSECURED LOANS IN THE NAME OF MR. HEMAL NANAVATI. IT IS SUBM ITTED BY THE APPELLANT THAT THE APPELLANT HAS ALREADY PLACED ON RECORD OF THE ASSESSING OFFICER A CONFIRMATION LETTER DATED 16 TH NOVEMBER, 2009. THE ACCOUNT OF SAID PERSON IS NOT A NEW ACCOUNT IN THE PREVIOUS YEAR. IN FACT THERE IS OPENING BALANCE OF RS. 1,59, 000/- AS ON 1 ST APRIL, 2006 IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY IN THE NAME OF THE SAID PERSON. FURTHER, ON 25 TH MAY, 2006, THE ASSESSEE HAS RECEIVED A SUM OF RS. 1,57,839/- BY ACCOUNT PAY EE CHEQUE NO. 801506 DRAWN ON BANK OF INDIA, SHAHIBAUG BRANCH, AH MEDABAD. THUS, THE TOTAL CREDIT BALANCE IN THE NAME OF PARTY AT THE END OF THE PREVIOUS YEAR REMAINED TO BE RS. 3,16,840/-. WITH R EGARD TO THE ASSESSING OFFICER HAVING COLLECTED DETAILS BY ISSUI NG A LETTER AND LOCAL ENQUIRY THROUGH HIS INSPECTOR, BUT BEFORE TAK ING ADVERSE VIEW THE ASSESSING OFFICER HAS NEITHER ISSUED A SHOW CAU SE NOTICE NOR PROVIDED AN OPPORTUNITY EXPLAIN THE EVIDENCE GATHER ED, IF ANY, AND PROVIDE A COPY OF INSPECTOR'S REPORT BEFORE HOLDING AN ADVERSE VIEW. ON THIS GROUND, THE APPELLANT VEHEMENTLY OBJECTED T O THE ACTION OF THE ASSESSING OFFICER WHICH IS ARBITRARY AND WHOLLY UNJUSTIFIED. THE APPELLANT HAS FURTHER EXPLAINED THAT THE AMOUNT WAS RECEIVED BY ACCOUNT PAYEE CHEQUE AND THE TRANSACTION HAS BEEN R EFLECTED IN THE REGULAR BOOKS OF ACCOUNT, THE PERSON CONCERNED HAS ALSO CONFIRMED THE SAME IN WRITING IN THE FORM OF A CONFIRMATORY L ETTER CONTAINING HIS DETAILED ADDRESS AND PARTICULARS OF CHEQUE FOR DEPO SIT. THE APPELLANT HAS FURTHER RELIED UPON THE HON'BLE JURISDICTIONAL HIGH COURT'S DECISION IN THE CASE OF DCIT V/S ROHINI BUILDERS (2 002) 256 ITR 260 (GUJARAT) WHEREIN IT IS HELD THAT FOR CASH CREDIT T HE ASSESSEE CAN BE ITA NO.535/AHD/2015 ASST. YEAR 2007-08 5 ASKED TO PROVE THE SOURCE OF CREDIT IN THE BOOKS OF ACCOUNT, BUT CANNOT BE ASKED TO PROVE THE SOURCE OF SOURCE. IT I S FURTHER SUBMITTED BY THE APPELLANT THAT THE MONEY HAS BEEN RECEIVED A S SHARE APPLICATION AND, THEREFORE, PLACING RELIANCE ON THE FOLLOWING JUDGMENTS OF HON'BLE COURTS IT IS EXPLAINED BY THE APPELLANT THAT THE AMOUNT RECEIVED TOWARDS SHARE APPLICATION CANNOT BE DISALLOWED UNDER SECTION 68 OF THE ACT ONCE THE ASSESSEE HAS F URNISHED CONFIRMATION OF THE SUBSCRIBER AND THERE IS NOTHING TO SUGGEST THAT AMOUNT BELONGS TO THE COMPANY: (I) A-ONE HOUSING COMPLEX LIMITED V/S. ITO (2008) 299 ITR (AT) 327 DELHI) 'TRIBUNAL FOUND THAT WHERE THE COMPANY WAS ABLE TO GET A LETTER OF CONFIRMATION AS PROOF OF IDENTITY OF THE SHAREHOLDE RS AND THE GENUINENESS OF THE DEPOSIT, IT CANNOT BE DISMISSED MERELY ON TH E GROUND THAT THE CONFIRMATION WERE PREPARED BY THE ASSESSEE AND GOT SIGNED. IT WAS POINTED OUT THAT THERE WAS NOTHING AMISS IN SUCH A PROCEDURE AND THAT THERE WAS NO MATERIAL TO JUSTIFY THAT THE INFERENCE THAT THE AMOUNT RECEIVED TOWARDS SHARE CAPITAL WAS NOT PROVED.' (II) CIT V/S MICROMELT PVT. LIMITED (2009) 2 12 TAXATION PAGE -1 (GUJARAT) 'THE ASSESSING OFFICER MADE ADDITION OF RS. 8,33,50 0/- UNDER SECTION 68. THE CIT(A) HELD THAT AFFIDAVIT OF CREDITORS, THEIR CREDITWORTHINESS, LOANS BEING TAKEN THROUGH BANK AND GENUINENESS WAS PROVED AND THERE WAS NO MATERIAL BROUGHT BY THE ASSESSING OFFICER TO CONTRO VERT THE ABOVE EVIDENCES, ALLOWED THE ASSESSEE'S APPEAL. THE TRIBU NAL APPRECIATING THE EVIDENCE AS DISCUSSED IN THIS ORDER OF THE LEARNED CIT(A), CONFIRMING THE FINDINGS OF THE LEARNED CIT(A) IN HIS ORDER. ON FUR THER APPEAL BY THE REVENUE, THE HIGH COURT AFFIRMED THE VIEWS OF THE T RIBUNAL AND DISMISSED THE REVENUE'S APPEAL.' (III) CIT V/S SMT. SUSHILADEVI KHADARAI (2009) 319 ITR 413 (BOM) 'HELD; DISMISSING THE DEPARTMENT'S APPEAL THAT (I) ADMITTEDLY ALL THESE FRESH LOANS WERE TAKEN BY ACCOUNT PAYEE CHEQUES; AN D (II) RECORDS INDICATED THAT THERE WAS NO CASH PAYMENT IN THE ACC OUNT OF THE BORROWER TO THE ISSUE OF SUCH CHEQUES. AFTER ANALYZING THE E NTIRE EVIDENCE, REGARDING GRANT OF THESE LOANS, THERE WAS A CONCURR ENT FINDING OF FACTS OF CIT(A) AS WELL AS THE TRIBUNAL THAT THE LOANS WERE GENUINE LOANS.THE DETAILS OF PAYMENTS WERE ALSO FURNISHED. THERE WAS ALSO FINDING THAT THE ITA NO.535/AHD/2015 ASST. YEAR 2007-08 6 AMOUNT OF INTEREST WAS PAID BY ASSESSEE ON SUCH GEN UINE LOANS. THE ADDITION RESPECT OF CASH CREDIT AND INTEREST WERE N OT VALID.' (IV) DIVINE LEASING & FINANCE LIMITED (2008) 299 IT R 268 (DELHI HC) 'AS REGARDS CREDITWORTHINESS IN A MATTER OF SUBSCRI PTION TOWARDS SHARE APPLICATION, MORE MAY NOT BE EXPECTED FROM THE ASSE SSEE. THE BURDEN OF PROOF THAT IS EXPECTED AS REGARDS CREDITWORTHINESS HAS TO BE DECIDED IN THE LIGHT OF FACTS OF EACH CASE. WHERE THE SUBSCRIPTION S WERE RECEIVED THROUGH BANKING CHANNELS AS PRESCRIBED UNDER SEBI REGULATIO NS, THE INFERENCE THAT THE SUBSCRIBERS LACK CREDITWORTHINESS COULD NOT HAV E BEEN LIGHTLY DRAWN WITHOUT SOME INVESTIGATION ON THE PART OF THE ASSES SING OFFICER. THE ADDITION WITHOUT SUCH INVESTIGATION SHOULD BE TREAT ED AS BASED UPON MERE SURMISES. THE PRINCIPLE THAT IDENTITY IS MORE IMPOR TANT IN SUCH CASES HAS BEEN REITERATED AND THAT EVEN WHERE CREDITWORTHINES S IS NOT ESTABLISHED TO THE SATISFACTION OF THE ASSESSING OFFICER, IT NEED NOT BE UNEXPLAINED INCOME OF THE COMPANY, SINCE THE LEGITIMATE INFEREN CE IS THAT THE INCOME IS THAT OF THE SUBSCRIBER AS LONG AS THE ADVANCE OF THE AMOUNT TO THE COMPANY IS ESTABLISHED AND THERE IS NOTHING TO SUGG EST THAT THE AMOUNT BELONGED TO THE ASSESSEE.' CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND LEGAL POSITION, AS AFORESAID, I AM OF THE FIRM VIEW THAT THE ACTION OF THE ASSESSING OFFICER IS PATENTLY ILLEGAL AND NO T JUSTIFIED IN MAKING ADDITION INVOKING PROVISIONS OF SECTION 68 OF THE A CT IN CASE OF THE ABOVE REFERRED PERSON AS THE IDENTITY OF THE PERSON AND GENUINENESS OF THE TRANSACTION IS FULLY ESTABLISHED AND SINCE T HE AMOUNT IS TRANSFERRED BY A WAY OF ACCOUNT PAYEE CHEQUE FROM T HE CREDITOR'S BANK ACCOUNT OUT OF HIS OWN FUND AVAILABLE IN THE S AID BANK ACCOUNT, THE CREDIT WORTHINESS IS ALSO ESTABLISHED THEREFOR E, THE ADDITION MADE FOR RS.1,57,840/- INVOKING .PROVISIONS OF SECT ION 68 IS DELETED. 8. LD. DR SUPPORTED THE ORDER OF LD. ASSESSING OFFI CER WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND IS THAT REVENUE IS AGGRIEVED, AGAINST THE ACTION OF LD. CIT(A) DELETING THE ADDITION OF R S.1,57,840/ MADE BY LD. ASSESSING OFFICER BY APPLYING THE PROVISIONS OF SECTION 68 OF THE ACT FOR UNEXPLAINED CREDIT IN THE NAME OF HEMAL NAN AVATI. FROM ITA NO.535/AHD/2015 ASST. YEAR 2007-08 7 GOING THROUGH THE RECORDS, WE OBSERVE THAT CONFIRMA TION LETTER WAS PLACED ON RECORD BY THE ASSESSEE BEFORE ASSESSING O FFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 11.12.2009. THE RE STOOD AN OPENING BALANCE OF RS.1,59,000/- AS ON 1.4.2006 IN THE BOOKS OF ASSESSEE AND SUM OF RS.1,57,840/- WAS RECEIVED BY A CCOUNT PAYEE CHEQUE AND THE TOTAL CREDIT BALANCE AT THE END OF T HE YEAR REMAINED AT RS.3,16,940/-. ASSESSING OFFICER MADE ADDITION OF O NLY RS.1,57,840/- WHICH WAS THE AMOUNT RECEIVED DURING THE YEAR BY AS SESSEE AS UNSECURED LOAN FROM HEMAL NANAVATI. WE FURTHER OBSE RVE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING ASSESSEE VIDE H IS LETTER DATED 30.10.2009 ITSELF HAD SUBMITTED THAT HEMAL NANAVATI HAS LEFT AHMEDABAD AND CONFIRMATION FROM HIM IS NOT AVAILABL E AND THEREAFTER ON 16.11.2009 CONFIRMATION LETTER WAS PLACED ON REC ORD BUT THERE WAS NO PROOF OF IDENTITY BY WAY OF COPY OF PAN, DRIVING LICENSE/PASSPORT NOR ANY COPY OF BANK ACCOUNT OF HEMAL NANAVATI WAS FURNISHED TO DEMONSTRATE THE CREDITWORTHINESS OF HEMAL NANAVATI. ASSESSEE HAS ALSO NOT FURNISHED COPY OF INCOME-TAX RETURN AND FI NANCIAL STATEMENT OF HEMAL NANAVATI. ASSESSEE THEREFORE, FAILED TO PR ODUCE THE PERSON AS WELL AS ALL THE RELATED DOCUMENTS TO PROVE THE I DENTITY, CREDITWORTHINESS OF HEMAL NANAVATI AND THE ONLY BAS IS TAKEN BY ASSESSEE WAS THAT THE AMOUNT HAS BEEN RECEIVED BY A CCOUNT PAYEE CHEQUE. DUE TO LACK OF COPY OF BANK STATEMENT AND C OPY OF IDENTITY IT IS DIFFICULT TO ACCEPT THE CONTENTION OF ASSESSEE A BOUT THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE UNSECURED L OAN TAKEN OF RS.1,57,840/- FROM HEMAL NANAVATI. IT IS PERTINENT TO NOTE THAT IN MANY CASES WHERE THE AMOUNT OF UNSECURED LOAN IS TA KEN BY ACCOUNT PAYEE CHEQUE BUT WHEN THE BANK STATEMENT OF THE LO AN CREDITOR IS ITA NO.535/AHD/2015 ASST. YEAR 2007-08 8 PERUSED IT IS OBSERVED THAT THE LOAN CREDITOR NORMA LLY MAINTAINS A MINIMUM BALANCE AND JUST BEFORE FEW DAYS OF GIVING A LOAN BY ACCOUNT PAYEE CHEQUE, CASH IS DEPOSITED IN THE BANK ACCOUNT AND UNLESS IT IS PROVED THAT LOAN CREDITOR HAS SUFFICIE NT SOURCE OF CASH TO DEPOSIT IN THE ACCOUNT, CREDITWORTHINESS OF THE LOA N CREDITOR IS NOT PROVED AND IN THE GROUND BEFORE US THERE IS NO DOCU MENTARY EVIDENCE EXCEPT THAT THE LOAN CREDITOR IS HAVING OPENING BAL ANCE IN THE BOOKS OF ACCOUNT AND DURING THE YEAR AMOUNT HAS BEEN RECE IVED BY ACCOUNT PAYEE CHEQUES BUT NO COPY OF BANK STATEMENT IS AVAI LABLE THROUGH WHICH WE COULD HAVE VERIFIED THE FACTUAL STATUS OF THE CREDITWORTHINESS OF THE LOAN CREDITOR. ALSO IF THE ASSESSEE HAS BEEN ABLE TO SHOW THAT FOR ASST. YEAR 2006-07 ASSESSEE HAD PASSED THROUGH SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT AND LOAN CREDITOR HEMAL NANAVATI HAS BEEN VERIFIED AND HELD AS GENUINE BY REVENUE FO R LOAN TAKEN IN ASST. YEAR 2006-07 THEN IT COULD HAVE FORMED THE BA SIS FOR US TO ACCEPT THE CREDITWORTHINESS OF HEMAL NANAVATI FOR T HE YEAR UNDER APPEAL. HOWEVER, NO SUCH INFORMATION IS PLACED ON R ECORD. THEREFORE, WE ARE OF THE VIEW THAT ASSESSING OFFICER HAS RIGHT LY MADE ADDITION OF RS.1,57,840/- U/S 68 OF THE ACT BY TREATING THE UNS ECURED LOAN TAKEN FROM HEMAL NANAVATI AS UNEXPLAINED CREDIT AS THE ID ENTITY, AND CREDITWORTHINESS WAS NOT PROVED BY THE ASSESSEE. AC CORDINGLY THIS GROUND OF REVENUE IS ALLOWED. 10. GROUND NO.2 - THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .2,07,381/-MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION EXPENSES . ITA NO.535/AHD/2015 ASST. YEAR 2007-08 9 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER OBSERVED THAT COMMISSION HAS BEEN PAID TO V ARIOUS PARTIES BUT ASSESSEE FAILED TO PRODUCE ANY DETAIL ABOUT SER VICES RENDERED FOR WHICH THE COMMISSION HAD BEEN DEBITED IN THE BOOKS OF ACCOUNT NOR ANY CONFIRMATION WAS PLACED ON RECORD IN RESPECT OF 7 PARTIES OUT OF 8 PARTIES LISTED IN THE ASSESSMENT ORDER AND HE, THER EFORE, WENT AHEAD TO MAKE ADDITION OF RS.2,07,381/- BY DISALLOWING CO MMISSION TO THIS EXTENT. 12. LD. CIT(A) DELETED THE ADDITION OF RS.2,07,381/ - BY OBSERVING AS UNDER :- 7.4 I HAVE GONE THROUGH THE SUBMISSIONS OF THE APP ELLANT AND HAVE GONE THROUGH THE RELEVANT MATERIAL AVAILABLE O N THE RECORD. I FIND THAT THE CLAIM OF THE ASSESSEE FOR COMMISSION IS QUITE GENUINE SINCE THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AFTER DEDUCTING TAX AT SOURCE AND APPELLANT HAS SUB MITTED REQUISITE QUARTERLY RETURNS IN FORM NO. 26Q AND HAS ALSO ISSU ED TDS CERTIFICATES IN FORM NO. 16A TO RESPECTIVE DEDUCTEE S. THE COMMISSION PAYMENT CLAIMED IN THE NAME OF AFORESAID PARTIES IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PAYMENTS ARE GENUINE HAVING REGARD TO THE AFORESAID FACTS MADE A VAILABLE ON RECORD OF THE ASSESSING OFFICER. THEREFORE, THE DIS ALLOWANCE OF RS.2,07,381/- 13. BEING AGGRIEVED, REVENUE IS NOW IN APPEAL BEFOR E THE TRIBUNAL. 14. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICE R WHEREAS LD. AR SUPPORTED THE ORDER OF LD. CIT(A). 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. FROM PERUSAL OF THE RECORD, WE UNDERSTAN D THAT ASSESSEE ITA NO.535/AHD/2015 ASST. YEAR 2007-08 10 HAS SUBMITTED VARIOUS DETAILS ON 20 TH OCTOBER, 2009 AS WELL AS ON 13.11.2009 STATING THE DETAILS OF CALCULATION OF CO MMISSION WHICH WAS BASED ON PERCENTAGE OF SALES EFFECTED BY THOSE PERS ONS AND COPIES OF CREDIT NOTES WERE ALSO PLACED ON RECORD. WE ALSO OBSERVE THAT TAX HAS BEEN DEDUCTED AT SOURCE AND PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE AND MOST OF THEM HAVE FURNISHE D CONFIRMATION LETTERS ALSO AS OBSERVED BY LD. CIT(A) DURING APPEL LATE PROCEEDINGS. WE, THEREFORE, ARE OF THE VIEW THAT NO DISALLOWANCE WAS CALLED FOR IN RELATION TO COMMISSION EXPENSES AT RS.2,07,381/- AS ASSESSEE HAS BEEN ABLE TO DEMONSTRATE COMPLETE DETAILS INCLUDING CALCULATION OF COMMISSION DEBITED DURING THE YEAR IN PROFIT AND LO SS ACCOUNT AND WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 16. GRUND NO.3 THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .18,90,321/- MADE BY THE ASSESSING OFFICER INVOKING PROVISIONS OF SECTIO N 36(1)(III) ON ACCOUNT OF INTEREST EXPENSES. 17. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT THERE STOOD A DEBIT BALANCE I N THE NAME OF AABHAR HOLDINGS PVT. LTD. AT RS.2,14,00,018/- AS ON 31.3.2007 AND OPENING BALANCE AT ON 1.4.2006 WAS SHOWN AT RS.1,68 ,00,000/- AND AABHAR HOLDINGS PVT. LTD. WAS A SISTER CONCERN OF T HE ASSESSEE. LD. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.18,90,321/- WHEREAS ON THE OTHER HAN D IT HAS GIVEN INTEREST FREE ADVANCES TO AABHAR HOLDINGS PVT. LTD. AT RS. ITA NO.535/AHD/2015 ASST. YEAR 2007-08 11 2,14,00,018/- AND THIS HAS BEEN INTENTIONALLY DONE BY THE ASSESSEE TO REDUCE THE PROFITS AND HE, THEREFORE, OUTRIGHTLY DI SALLOWED THE INTEREST EXPENSES OF RS.18,90,321/-. 18. ON APPEAL BY ASSESSEE BEFORE LD. CIT(A) THIS AD DITION OF RS.18,90,321/- WAS DELETED BY LD. CIT(A) BY OBSERVI NG AS UNDER :- 8.8 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND HAVING REGARD TO THE MATERIAL AVAILABLE ON RECORD. THERE I S SUBSTANTIAL FORCE IN THE SUBMISSION OF THE APPELLANT. I FIND THAT THE ASSESSEE COMPANY WHOSE ACCOUNTS ARE AUDITED UNDER THE COMPANIES ACT, 1956 AS WELL AS THE INCOME TAX ACT, 1961 AND STATUTORY TAX AUDIT REPORT ARE FILED ALONG WITH THE RETURN OF INCOME. AS PER SCHEDULE -1 0 ANNEXED TO THE TAX AUDIT REPORT, THERE WAS A DEBIT BALANCE IN THE NAME OF AABHAR HOLLDINGS PVT. LIMITED FOR RS. L R 68, 00,000/- AS ON 31/3/2006 AND THE CLOSING BALANCE AS ON 31 ST MARCH, 2007 WAS RS. 2, 14, 00,018/-. ON THE OTHER HAND AS PER THE SCHEDULE 11 TO THE TAX AU DIT REPORT( OUT OF SUNDRY CREDITORS FOR THE GOODS) THE OPENING CRED IT BALANCE AS ON 31/3/2006 WAS OF RS.1,66,94,884/- AND CLOSING BALAN CE AS ON 31/3/2007 WAS RS. 1,88,20,938/-. THUS THE NET DIFFE RENCE WORKS PUT AT RS. 25, 79, 080/-(DEBIT) (DR RS.2,1 4,00, 018/- - CR RS.1,88,20,938/-) AND NOT RS.2,14,00,018/-TAKEN AS BASE FOR CALCULATI NG THE NOTIONAL DISALLOWANCE. THEREFORE THE ASSESSING OFFICER HAS P ROCEEDED ON THE WRONG FACTS. BY ANY STRETCH OF IMAGINATION THE A.O. COULD NOT MAKE DISALLOWANCE OF INTEREST BEYOND THIS NET DEBIT BALA NCE OF RS. 25,79,080/- BESIDES M/S. AABHAR HOLDINGS PVT. LIMIT ED IS A GROUP/ASSOCIATED CONCERN, AS EVIDENT FROM THE ASSES SING OFFICER'S ORDER VIDE PARA 4.3(1) ON PAGE ~ 5 OF THE ORDER. TH E ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO C ONTRADICT THE ARGUMENTS OF THE APPELLANT. THE ADVANCES MADE TO M/ S. AABHAR HOLDINGS PVT. LIMITED WERE FOR GOODS AND THE GOODS HAVING ALREADY BEEN RECEIVED, THE ACCOUNT OF THE PARTY WAS REFLECT ED IN SUNDRY CREDITORS FOR GOODS. THAT BEING THE POSITION, THE A DVANCES WHICH WERE MADE TO M/S. AABHAR HOLDINGS PVT. LIMITED WAS FOR THE PURPOSE OF BUSINESS AND TO MAINTAIN BUSINESS RELATIONS WITH THE PARTY, FROM WHOM THE APPELLANT PURCHASES GOODS. FOR ALLOWABILIT Y OF CLAIM U/S 36(L)(III) ONLY THE TEST OF 'THE PURPOSE OF BUSINES S' HAS TO BE SATISFIED AND ONCE IT IS SATISFIED NO FURTHER CONDITION SHOUL D BE IMPOSED. THE ASSESSING OFFICER HAS NOT PRODUCED ANY EVIDENCE ON RECORD TO PROVE THAT THE ADVANCES WERE NOT MADE IN THE COURSE OF BU SINESS FOR ITA NO.535/AHD/2015 ASST. YEAR 2007-08 12 COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE OF BUSINE SS AND ON THE OTHER HAND THE PURCHASES HAVING BEEN ACCEPTED AS GE NUINE AND AT A REASONABLE RATE NOT BEING PURCHASE MADE AT A EXCE SSIVE PRICE/RATE SINCE NO DISALLOWANCE IS MADE OUT OF IT. AND THEREF ORE IT IS ESTABLISHED THAT IT WAS IN THE BUSINESS INTEREST OF THE ASSESSEE TO ADVANCE THE AMOUNT TO M/S. AABHAR HOLDINGS PVT. LIM ITED FOR MAKING PURCHASES AND HAD IN FACT MADE THE PURCHASES AS EVI DENT FROM THE AUDITED ACCOUNTS. THEREFORE, CONSIDERING THE VITAL FACTS BROUGHT ON RECORD, THE DISALLOWANCE FOR RS. 18,90,321/- IS WHO LLY UNJUSTIFIED. ACCORDINGLY, FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS (288) ITR PAGE - 1 (SC) AND THE OTHER DECISIONS AS RELIED BY THE APPELLANT, THE ADDITION OF RS.18,90,321/- MADE THE LEARNED ASSESSING OFFICER IS DELETED. TH IS GROUND OF APPEAL IS ALLOWED. 19. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 20. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . 21. LD. AR RELIED ON THE ORDER OF LD. CIT(A) AND SU BMITTED THAT ASSESSING OFFICER HAS NOT TAKEN NOTE OF THE FACT TH AT AS ON 31 ST MARCH, 2007 ON ONE HAND THERE WAS A DEBIT BALANCE OF RS.2, 14,00,018/- IN THE NAME OF AABHAR HOLDINGS PVT. LTD. AND ON THE O THER HAND THERE WAS A CREDIT BALANCE OF RS.1,88,20,938/-IN THE NAME OF SAME PARTY AS ON 31.3.2007 AND EFFECTIVELY THE DIFFERENCE OF RS.2 5,79,080/- WAS DEBIT BALANCE STANDING IN THE NAME OF AABHAR HOLDIN G PVT. LTD. LD. AR FURTHER SUBMITTED THAT ASSESSEE IS HAVING REGULA R BUSINESS TRANSACTION FOR PURCHASE AND SALES OF GOODS ROUND T HE YEAR AND EVEN IN PAST ALSO. THEREFORE, NO DISALLOWANCE OF INTERES T WAS CALLED FOR AND LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. ITA NO.535/AHD/2015 ASST. YEAR 2007-08 13 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. REVENUE IS AGGRIEVED WITH THE DELETION O F RS.18,90,321/- MADE BY LD. ASSESSING OFFICER WHO TOOK A VIEW THAT ASSESSEE HAS NOT CHARGED INTEREST ON LOANS GIVEN TO AABHAR HOLDINGS PVT. LTD. AT RS. 2,14,00,018/- AND HAS INDIRECTLY TRIED TO REDUCE TH E PROFIT BY CLAIMING INTEREST EXPENSES AGAINST SALES AND FROM PERUSAL OF RECORD, WE FIND THAT LD. ASSESSING OFFICER HAS NOT GONE THROUGH TH E FACTS OF THE CASE PROPERLY BECAUSE IN THE AUDITED FINANCIAL STATEMENT PRODUCED BEFORE US WE FIND THAT AABHAR HOLDING PVT. LTD. WHICH IS A GROUP CO. OF ASSESSEE IS APPEARING ON BOTH SIDES OF BALANCE SHEE T AND ASSESSEE HAS SEPARATELY SHOWN TRANSACTIONS IN THIS ACCOUNT I N ORDER TO FACILITATE THE PROPER ACCOUNTING OF THE TRANSACTIONS. AS ON TH E YEAR END ON 31.3.2007 DEBIT BALANCE OF RS.2,14,00,018/- IS APPE ARING IN THE NAME OF AABHAR HOLDING PVT. LTD. UNDER THE HEAD OF LOAN & ADVANCES AND IN THE LIST OF SUNDRY CREDITORS NAME OF AABHAR HOLDING PVT. LTD. IS APPEARING FOR THE CREDIT BALANCE OF RS.1,88,20,938/ -. WE HAVE GONE THROUGH THE LEDGER ACCOUNT OF AABHAR HOLDING PVT. L TD. AND WE OBSERVE THAT IN THE LEDGER ACCOUNT APPEARING IN THE SUNDRY CREDITOR LIST, ASSESSEE HAS ENTERED INTO VARIOUS TRANSACTION S OF SALE OF CLOTH AND SIMILARLY VARIOUS TRANSACTIONS OF BLEACHED CLOT H PURCHASES ARE APPEARING WHICH IS ENOUGH TO SHOW THAT THERE HAS BE EN REGULAR BUSINESS DEALING WITH AABHAR HOLDING PVT. LTD. THE NET DIFFERENCE BETWEEN THE DEBIT AND CREDIT BALANCE OF AABHAR HOLD ING PVT. LTD. AS ON 31.3.2007 WORKS OUT TO THE DEBIT BALANCE OF RS.2 5,80,080/- (RS.2,14,00,018/- (-) RS.1,88,20,938/-). IN THE GIV EN CIRCUMSTANCES ASSESSEE HAS BEEN ABLE TO PROVE THAT TRANSACTIONS H AVE BEEN ENTERED IN THE COURSE OF BUSINESS COMMERCIAL EXPEDI ENCY WITH REGARD ITA NO.535/AHD/2015 ASST. YEAR 2007-08 14 TO PURCHASES AND SALES THEN IT WAS NOT CORRECT ON T HE PART OF ASSESSING OFFICER TO MAKE DISALLOWANCE OF INTEREST OF RS.18,90,321/- ONLY WITH REFERENCE TO NON-CHARGING OF INTEREST IN DEBIT BALANCE OF RS.2,14,00,018/- IN THE NAME OF AABHAR HOLDING PVT. LTD. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DELE TED THE ADDITION OF RS. 18,90,321/- AND WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 23. GROUND NO.4 THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.6,3 0,546/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNPROVED CREDITORS. 24. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER CALLED FOR CONFIRMATION AND GENUINENESS OF OUTSTANDING LIABILITIES OF RS.6,30,546/- IN RESPECT OF FOLLOWIN G CREDITORS :- SL.NO. NAME AMOUNT IN RS. 1. RUPESH TEXTILE RS.3,27,444/- 2. HARIHAR CLOTH AGENCY RS.2,07,167/- 3. K.P. SHAH RS.56,424/- 4. CLG GLOBE LTD. RS.14,254/- 5. TRINITY MARKETING RS.12,569/- 6. PARTH INTERNATIONAL RS.6,833/- 7. ANKIT TEXTILE RS.3,280/- 8. LAXMI TEXTILE RS.1,963/- ITA NO.535/AHD/2015 ASST. YEAR 2007-08 15 9. VARDHAMAN TEXTILE RS.411/- 10. PRABHA TEXTILE RS.201/- TOTAL RS.6,30,546/- 25. AS REGARDS INFORMATION CALLED FOR BY THE ASSESS ING OFFICER, ASSESSEE COULD NOT PRODUCE ANY CONFIRMATION EXCEPT FOR TWO PARTIES NAMELY RUPESH TEXTILES AT RS.3,27,444/- AND HARIHAR CLOTH AGENCY AT RS.2,07,167/- IN REPLY TO THE NOTICE U/S 133(6) OF THE ACT BUT SURPRISINGLY BOTH THESE PARTIES DENIED TO HAVE MADE ANY TRANSACTION WITH THE ASSESSEE DURING FINANCIAL YEAR 2006-07 AND ALSO SUBMITTED THAT NO PAYMENT IS RECEIVABLE/PAYABLE TO THE ASSESS EE COMPANY. FURTHER ASSESSEE COULD NOT PLACE ANY THING ON RECOR D TO CONTROVERT THE REPLIES BY THE SUNDRY CREDITORS AND, THEREFORE, AS THE ASSESSEE WAS UNABLE TO PROVE THE LIABILITIES OF RS.6,30,546/ - THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. 26. ON APPEAL BY ASSESSEE BEFORE FIRST APPELLATE AU THORITY THE ADDITION OF RS.6,30,546/- WAS DELETED BY LD. CIT(A) BY OBSERVING AS UNDER :- 9.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPE LLANT AND HAVING REGARD TO THE MATERIAL AVAILABLE ON RECORD, I FIND THAT TH E ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS FOR RS. 6,30,546/- IS WITHOUT A NY SUBSTANCE. FURTHER THE NEW CREDIT DURING THE YEAR IS OF RS.28,500/-+RS.62, 960/- +RS.L,239/- = RS.92,699/- ONLY AND THE OPENING BALANCE OF EARLIER YEARS IS OF RS.5,37,847/-(RS.6,30,546/- -RS 92,699/~.) THE CRED ITS DURING THE YEAR ARE FOR COMMISSION EXCEPT FOR VEHICLE SALES AND AS PER GROUND NO. 2 ABOVE THE ADDITION OF COMMISSION ARE FULLY DELETED BY ME. THE A.O. SHOULD HAVE EXCLUDED THE OPENING BALANCE OF EARLIER YEARS AS IN DICATED ABOVE FOR MAKING ADDITIONS. THE ASSESSING OFFICER HAS NEITHER BROUGHT COGENT EVIDENCE ON RECORD TO DISPROVE THE EXPLANATION OF T HE APPELLANT NOR HAS THE LEARNED ASSESSING OFFICER APPLIED HIS MIND BEFORE M AKING SUCH HUGE ITA NO.535/AHD/2015 ASST. YEAR 2007-08 16 ADDITION. AS SUCH I FEEL NO HESITATION IN HOLDING T HAT THE SAID DISALLOWANCE WAS TOTALLY UNJUSTIFIED AND THIS GROUND OF APPEAL I S ALLOWED ACCORDINGLY AND THE ADDITION OF RS.6,30,545/- IS DELETED. 27. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 28. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). 29. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. REVENUE HAS RAISED THE GROUND AGAINST THE A CTION OF LD. CIT(A) DELETING THE ADDITION OF RS.6,30,546/- FOR U NPROVED CREDITORS. FROM PERUSAL OF RECORDS, WE FIND THAT THERE IS NO D ISPUTE ABOUT THE FACT THAT SUNDRY CREDITORS OF RS.5,37,847/- STOOD A T THE YEAR END AND OUT OF 10 PARTIES CONFIRMATION WAS RECEIVED ONLY IN THE CASES OF 2 PARTIES NAMELY RUPESH TEXTILES PVT. AND HARIHAR CLO TH AGENCY. BOTH THESE PARTIES ALSO DENIED TO HAVE ANY TRANSACTIONS WITH THE ASSESSEE DURING FINANCIAL YEAR 2006-07 AND NOR ANY AMOUNT WA S RECEIVABLE OR PAYABLE BY THE ASSESSEE. NORMALLY ANY PERSON WHO IS A SUNDRY CREDITOR IN THE BOOKS OF ACCOUNT OF ASSESSEE AND IN NORMAL COURSE OF BUSINESS THE PERSON WHO HAS TO RECOVER THE MONEY FR OM THE ASSESSEE CANNOT REPLY IN A NEGATIVE WAY RATHER IF H E HAS BEEN A GENUINE CREDITOR THEN HE WOULD HAVE REPLIED RIGHTLY AND PROMPTLY. IN SOME CASES IF THE ACCOUNT OF THE ASSESSEE IS SQUARE D OFF IN THE FOLLOWING YEAR AND ASSESSMENT PROCEEDINGS TAKES PLA CE AFTER A LAPSE OF 2 YEARS FROM THE END OF THE RELEVANT ASST. YEAR THEN SUCH PARTIES MAY NOT REPLY TO THE ASSESSEE FOR SIGNING CONFIRMAT ION LETTER BUT THEN ITA NO.535/AHD/2015 ASST. YEAR 2007-08 17 IN THAT CIRCUMSTANCES ASSESSEE CAN PROVE BY SUBMITT ING THAT THE ACCOUNT STATEMENT OF THE YEAR IN WHICH PAYMENT HAS BEEN PAID OFF. 30. IN THE CASE OF ASSESSEE IN ORDER TO ENQUIRE ABO UT THE STATUS OF THE SUNDRY CREDITORS IN FOLLOWING YEARS FINANCIAL S TATEMENT FOR ASST. YEAR 2010-11 RELEVANT TO F.Y. 2009-10 WERE CALLED F OR AND FROM THE PERUSAL OF THE LIST OF SUNDRY CREDITOR WE OBSERVE T HAT FOLLOWING 5 PARTIES STILL REMAIN TO BE SUNDRY CREDITOR SINCE FI NANCIAL YEAR 2006- 07:- I) ANKIT TEXTILE RS. 3,280/- II) HARIHAR CLOTH AGENCY RS.2,07,167/- III) PARTH INTERNAATIONAL RS. 6,833/- IV) RUPES TEXTILE RS.3,27,444/- V) TRINITY MARKETING RS. 12,569/- ------------------------ TOTAL RS.5,57,293/- ------------------------ THE ABOVE STATUS OF 5 SUNDRY CREDITORS OF RS.5,57,2 93/- SPEAKS ABOUT THE FACTUAL POSITION OF THE SUNDRY CREDITORS. HAD T HERE BEEN GENUINE SUNDRY CREDITORS THEN EITHER THEY HAD BEEN PAID OFF IN THE FOLLOWING YEARS OR THEY CERTAINLY WOULD HAVE GIVEN DULY SIGNE D CONFIRMATION LETTERS WHICH ARE COMPLETELY MISSING IN THE CASE OF ASSESSEE. WE ARE THEREFORE, OF THE VIEW THAT TO THE EXTENT OF RS.5,5 7,293/- ADDITION WAS RIGHTLY MADE BY ASSESSING OFFICER. AS FAR AS DIFFE RENCE OF THE REMAINING AMOUNT OF ADDITION OF RS.73,253/- (RS. 6, 30,546/- (-) RS.5,57,293/-), WE CONFIRM THE DECISION OF LD. CIT( A) AS THESE AMOUNTS MUST HAVE BEEN PAID OFF IN THE FOLLOWING YE ARS. ACCORDINGLY ITA NO.535/AHD/2015 ASST. YEAR 2007-08 18 WE SUSTAIN THE ADDITION OF RS.5,57,293/- OUT OF RS. 6,30,293/- IN RELATION TO SUNDRY CREDITORS WHICH HAVE NOT BEEN PR OVED BY THE ASSESSEE. THIS GROUND OF REVENUE IS PARTLY ALLOWED. 31. GROUND NO. 5 THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .2,71,032/- MADE BY THE ASSESSING OFFICER, OUT OF TOTAL PACKING MATERIAL AN D STORES EXPENSES. 32. DURING ASSESSMENT PROCEEDINGS, ASSESSEE CLAIMED EXPENSES OF RS.7,12,662/- ON ACCOUNT OF CONSUMPTION PACKING MATERIAL AND STORES WHEREAS IN THE PRECEDING YEAR IT WAS CLAIMED AT RS.4,01,482/- AND SALES OF THE ASSESSEE HAVE MARGINALLY DECREASED FROM RS.9,98,29,584/- TO RS.9,84,21,650/- IN THE YEAR UN DER APPEAL. ASSESSING OFFICER WAS NOT CONVINCED ABOUT THE CONSU MPTION OF PACKING MATERIAL AT RS.7,12,662/-. THEREFORE, AFTER ALLOWING PRICE INFLATION FACTOR INCREASE OF 10% OF RS.4,01,482/- S HOWN IN THE PRECEDING YEAR, HE DISALLOWED THE EXCESS AMOUNT OF EXPENSES OF RS.2,71,032/-. ASSESSEE WENT IN APPEAL BEFORE LD. C IT(A) WHO DELETED THE ADDITION BY OBSERVING AS UNDER :- 10.3 IN VIEW OF THE FACTS AS WELL AS HAVING REGARD TO THE CASE LAWS, IT IS STATED THAT THE EXPENDITURE INCURRED ON REVENUE COU NT CANNOT BE DISALLOWED IN THE ROUTINE FASHION. THEREFORE, THE I MPUGNED ADDITION, MADE BY THE ASSESSING OFFICER FOR RS. 2,71,032/- REQUIRE S TO BE DELETED. 10.4 CONSIDERING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES AND HAVING REGARD TO THE RELEVANT MATERIAL MADE AVAILABLE ON R ECORD OF THE ASSESSING OFFICER IN THE FORM OF COPIES OF ALL THE RELEVANT B ILLS AND LEDGER A/C. ON SCRUTINY OF IT, IT IS FOUND THAT THE PURCHASES OF P ACKING MATERIAL AND STORES EXPENSES ARE DIRECTLY RELATED TO THE APPELLANT'S BU SINESS OF TRADING IN TEXTILE PRODUCTS AND ARE FOR THE PURPOSE OF THIS BUSINESS. I AGREE THAT THE RATIO LAID DOWN IN THE CITED DECISIONS (SUPRA) SQUARELY APPLIE S TO THE FACTS OF THE APPELLANT'S CASE AS THE TRANSACTION OF PURCHASE OF MATERIAL IS NOT PROVED TO ITA NO.535/AHD/2015 ASST. YEAR 2007-08 19 BE SHAM AND THERE IS A DIRECT NEXUS BETWEEN THE EXP ENDITURE AND THE PURPOSE OF BUSINESS. IN VIEW OF ABOVE I FIND THAT T HE ACTION OF THE AO IS TOTALLY ILLEGAL AND NOT JUSTIFIED FOR MAKING ROUTIN E ADDITION WITHOUT BRINGING ANY MATERIAL ON RECORD. THEREFORE, THE DISALLOWANCE OF RS.2,71,032/- MADE BY THE LEARNED ASSESSING OFFICER IS DELETED. 33. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 34. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR SUPPORTED THE ORDER OF LD. CIT(A). 35. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND RAISED BY THE R EVENUE IS AGAINST DELETION OF ADDITION OF RS.2,71,032/- MADE BY ASSES SING OFFICER. FROM PERUSAL OF RECORD, WE OBSERVE THAT ALL RELEVANT MAT ERIAL IN THE FORM OF COPIES OF PURCHASE BILLS OF PACKING MATERIAL, STORE S CONSUMED WERE PLACED BEFORE THE ASSESSING AUTHORITY AND NO DEFECT HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. THE EVIDENCES PLACED ON RECORD ARE SUFFICIENT TO SUPPORT THE CLAIM OF ASSESSEE FOR CLA IMING ALLOWANCE OF RS. 7,12,662/- TOWARDS PACKING MATERIAL AND STORES CONSUMED AND WE ARE OF THE VIEW THAT LD. ASSESSING OFFICER ERRED IN MAKING AN AD HOC DISALLOWANCE BY TAKING A VIEW ON THE BASIS OF H IS OWN SURMISES AND CONJECTURES AND COMPLETELY IGNORING THE DOCUMEN TARY EVIDENCES AND AUDITED FINANCIAL STATEMENTS. WE ARE THEREFORE, OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AND WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. ITA NO.535/AHD/2015 ASST. YEAR 2007-08 20 36. GROUND NO.6 THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMEDAB AD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .64,103/- MADE BY THE ASSESSING OFFICER, OUT OF TRACTOR EXPENSES. 37. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER FOUND THAT ASSESSEE HAD CLAIMED TRACTOR EXP ENSES AT RS.1,38,768/-. IN THE PRECEDING YEAR THE SAME WAS R S.67,875/-. AS THE EXPENSES ARE INCREASED SUBSTANTIALLY THOUGH THE SALES WERE REDUCED, THEREFORE BY ORDER SHEET DATED 31.8.2009 A SSESSEE WAS REQUESTED TO JUSTIFY THE SAME WITH SUPPORTING EVIDE NCES. IN RESPONSE ASSESSEE FAILED TO FURNISH ANYTHING IN THIS REGARD. WE OBSERVE THAT ASSESSING OFFICER HAS DISALLOWED THE TRACTOR EXPENS ES AT RS.64,103/- SIMILAR TO THE DISALLOWANCE IN RESPECT OF CONSUMPTI ON OF PACKING MATERIAL AND STORES. COMPARING THE PRECEDING YEAR E XPENSES OF RS.67,875/- TO THE EXPENSES OF THE YEAR UNDER APPEA L AT RS.1,38,768/- HE DISALLOWED RS.64,103/- AFTER GIVIN G 10% INFLATION RISE TO RS.67,875/-. ON APPEAL BY ASSESSEE BEFORE LD. CI T(A) THIS ADDITION OF RS.64,103/- WAS DELETED BY LD. CIT(A) BY OBSERVI NG AS UNDER :- 11.2 I HAVE GONE THROUGH THE SUBMISSION OF THE APPE LLANT AND PERUSED RELEVANT MATERIAL ON RECORD. THE DISALLOWANCE HAVIN G BEEN MADE ON AD HOC BASIS WITHOUT PIN-POINTEDLY DETECTING ANY DEFEC TS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE EXPENSES HAVE BEEN SUPPORTED BY BILLS AND VOUCHERS. THEREFORE, THE DISALLOWANCE OF RS.64, 103/- IS DELETED. 38. WE HAVE ALREADY DEALT SIMILAR ISSUE WHILE DEALI NG WITH GROUND NO.4 AND OUR OBSERVATION WILL APPLY TO THIS GROUND ALSO IN UPHOLDING THE ORDER OF LD. CIT(A) ON THIS ASPECT. ACCORDINGLY THIS GROUND OR REVENUE IS DISMISSED. ITA NO.535/AHD/2015 ASST. YEAR 2007-08 21 39. GROUND NO.7 THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS . 1,26,662/- MADE BY THE ASSESSING OFFICER, OUT OF PROVISIONS FOR EXPENS ES LIKE STAFFS SALARY & BONUS, TRAVELLING EXP., TELEPHONE EXP., ELECTRICITY CHARGES, AUDIT FEES AND STATIONARY BILLS ETC.. 40. ON PERUSAL OF FINANCIAL STATEMENT OF ASSESSEE, LD. ASSESSING OFFICER OBSERVED THAT THE PROVISIONS FOR EXPENSES P AYABLE STOOD AT RS.2,96,177/- AS ON 31 ST MARCH, 2007 OUT OF WHICH RS.1,96,662/- WAS PAID IN THE MONTH OF APRIL, 2007 AND THE REMAINING AMOUNTS WERE OUTSTANDING. NO DETAILS WERE FURNISHED BY THE ASSES SEE IN RELATION TO THE DETAILS OF PAYMENTS MADE FOR THE BALANCE AMOUNT OF RS.1,26,215/- DUE TO WHICH LD. ASSESSING OFFICER HA S MADE DISALLOWANCE OF RS.1,26,515/- OUT OF CREDITORS SHOW N UNDER THE PROVISIONS FOR EXPENSES. AGAINST THIS ADDITION, ASS ESSEE WENT IN APPEAL BEFORE LD. CIT(A) WHO VIDE HIS ORDER DELETED THIS ADDITION OF RS.1,26,515/- [IN THE GROUNDS OF APPEAL AMOUNT MENT IONED IS RS.1,26,662/- AND THE SAME WAS APPEARING IN THE ORD ER OF LD. CIT(A) ALSO BUT AFTER VERIFYING THE DETAILS OF PROVISIONS SHOWN IN THE AUDITED BALANCE SHEET AT RS.2,96,177/- AND REDUCING THE AMO UNT OF RS. 1,96,662/- WHICH LD. ASSESSING OFFICER HAS ALLOWED ON THE BASIS OF PAYMENT MADE IN THE SUBSEQUENT YEAR, THE REMAINING AMOUNT WORKS OUT AT RS.1,26,515/-, THEREFORE, IN THIS GROUND THE FIGURE RS.1,26,662/- IS REPLACED BY RS.1,26,515/-] BY OBSERVING AS UNDER :- 12.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND HAVING REGARD TO THE RELEVANT MATERIAL PLACED ON RECORD OF THE AS SESSING OFFICER. THE COMPLETE DETAILS ARE AVAILABLE IN P.B. PAGE NO. 248 & 249 R. W. P.B. PAGE NO. 277 WHICH ARE IN THE NATURE OF SALARY, TRACTOR EXPENSES, TELEPHONE EXPENSES, ELECTRICITY EXPENSES, AUDIT FEES & VEHICL E AND STATIONERY EXPENSES. THE PROVISION OF UNPAID EXPENSES IS FOR T HE MONTH OF MARCH, ITA NO.535/AHD/2015 ASST. YEAR 2007-08 22 2007 OUT OF WHICH RS.1,69,662/- IS PAID IN THE SUBS EQUENT MONTH I.E. APRIL, 2007 AND THE REMAINING AMOUNT IS SHOWN OUTSTANDING. THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT IS MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE THE ACTION OF A.O. IN ALLOWING ONLY R S.1,69.662/- PAID IN SUBSEQUENT MONTH OUT OF TOTAL PROVISION OF RS.2,96, 177/- AND THEREBY MAKING DISALLOWANCE FOR THE BALANCE AMOUNT OF RS.1, 26,662/- IS AGAINST THE CONSISTENTLY FOLLOWED MERCANTILE SYSTEM OF ACCO UNTING BY THE APPELLANT AS UNDER MERCANTILE SYSTEM ANY EXPENSE PAID OR PAYA BLE IS ELIGIBLE FOR DEDUCTION IF IT IS NOT A PAYMENT SPECIFICALLY COVER ED U/S 43B OF THE ACT. IT IS SEEN THAT THE PROVISIONS FOR EXPENSES IS NOT FOR AN Y STATUTORY LIABILITY U/S 43B AND ARE THEREFORE ALLOWABLE UNDER THE MERCANTIL E METHOD OF ACCOUNTING. I FIND THAT THE DISALLOWANCE OF RS.1,26 ,662/- IS WITHOUT ANY SUBSTANCE. AS SUCH I FEEL NO HESITATION IN HOLDING THAT THE AD HOC DISALLOWANCE WAS TOTALLY UNJUSTIFIED AND THE DISALL OWANCE OF RS.1,26,662/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED ACCORD INGLY. 41. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 42. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER , WHEREAS LD. AR SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THA T ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THE AMOUNT OF R S.2,96,177/- WAS PROVIDED IN THE BOOK FOR THE EXPENSES WHICH HAV E BECOME PAYABLE DURING FINANCIAL YEAR 2006-07 BUT PAID IN T HE SUBSEQUENT YEAR AND MORE PARTICULARLY THERE WAS NO SPECIFIC LI ABILITY COVERED U/S 43B OF THE ACT WHICH OUGHT TO HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE RAISED BY THE REVENUE IN THIS GROUND IS AGAINST THE ACTION OF LD. CIT(A) WHO HAS DELETED THE ADDITI ON OF RS. 1,26,515/- MADE BY LD. ASSESSING OFFICER IN RELATION TO UNPROV ED PROVISIONS OF EXPENSES WHICH WERE NOT PAID SUBSEQUENTLY AFTER THE CLOSE OF THE ITA NO.535/AHD/2015 ASST. YEAR 2007-08 23 YEAR UNDER APPEAL. FROM PERUSAL OF RECORD, WE OBSER VE THAT ASSESSEE HAS MADE PROVISIONS OF FOLLOWING ITEMS IN ITS BALAN CE-SHEET:- OUT OF THE PROVISIONS OF RS.2,96,177/- AS MENTIONED ABOVE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF ASSESSEE FOR RS.1, 69,622/- BY TAKING A BASIS THAT THEY HAVE BEEN PAID IN THE SUBSEQUENT YEAR AND ADDED THE REMAINING UNPAID AMOUNT OF RS.1,26,515/- TO THE INCOME OF ASSESSEE. IN OUR VIEW, IN CASE OF ASSESSEE WHO MAI NTAINS HIS BOOKS OF ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING, THE N EXPENSES WHICH HAVE BEEN INCURRED FOR THE RELEVANT FINANCIAL YEAR (WHICH IN THIS CASE IS FINANCIAL YEAR 2006-07) THEN THOSE EXPENSES /PRICES/INCOME HAS TO BE ENTERED IN THE BOOKS OF ACCOUNT FOR THAT YEAR IRRESPECTIVE OF THE PAYMENT WHICH MIGHT HAVE BEEN PAID DURING THE Y EAR OR AFTER THE YEAR IN OTHER WORDS FOR ALLOWING EXPENSES, THE PIVO TAL POINT TO PRINTING & STATIONERY RS.945/- TELEPHONE EXPENSES RS.1256/- SALARY & WAGES RS.73068/- TRACTOR EXPENSES RS.10829/- BONUS RS.57,590/- RENT RS.96,000/- LEGAL FEES RS.3,371/- AUDIT FEES RS.16,854/- ELECTRIC EXPENSES RS.3,864/- GODOWN RENT RS.12,400/- TOTAL RS.2,96,177/- ITA NO.535/AHD/2015 ASST. YEAR 2007-08 24 EXAMINE AS TO WHETHER THE EXPENSES HAVE BEEN GENUIN ELY INCURRED FOR THE PARTICULAR YEAR. FROM GOING THROUGH THE LIS T REFERRED ABOVE, SHOWING PROVISIONS OF EXPENSES OF RS.2,96,177/- WE FIND THAT ALL THE EXPENSES ARE OF RECURRING NATURE WHICH REMAINED UNP AID AT THE END OF THE YEAR WHICH MOSTLY PERTAINING TO THE LAST MONTH OR AS THE CASE MAY BE. HOWEVER, WE DO NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER WHO HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN REGARD TO THE EXPENSES CLAIMED BY THE ASSESSEE FOR RS.2,96,177/- RATHER HE HAS MADE DISALLOWANCE ONLY BY TAKING THE BASIS OF PAYME NT MADE IN THE SUBSEQUENT YEAR. IN OUR VIEW IF THE EXPENSES HAS BE EN GENUINELY BOOKED IN THE BOOKS OF ACCOUNT THEN PAYMENT MADE OR NOT IS NOT MATERIAL AND THE SAME IS THE FACTUAL POSITION IN TH IS GROUND WHEREIN NO DEFECT HAS BEEN SPECIFICALLY POINTED OUT BY THE ASSESSING OFFICER IN THE CLAIM AND HE HAS JUST MADE THE DISALLOWANCE FOR THE UNPAID AMOUNT WHICH IN OUR VIEW IS NOT CORRECT. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THIS ADDITION. WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 44. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 / 4 /20 16 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 1/ 4 /2016 MAHATA/- ITA NO.535/AHD/2015 ASST. YEAR 2007-08 25 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 23/03/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 28/03/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 1/4/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: