ITO, TONK V. SHRI MOHAN LAL AGARWAL, TONK

ITA 563/JPR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1553 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA
• Assessee Lawyers: S L PODDAR
• Keywords: Unexplained investment
• Section: 145

Judgement Text

1 ITA 563(4)-12 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH : A JAIPUR. BEFORE SHRI B.R. MITTAL AND SHRI B.R. JAIN ITA NO. 563 & 564/JP/2012 ASSTT. YEARS : 2007-08 & 08-09. THE INCOME-TAX OFFICER, VS. SHRI MOHAN LAL AGARWA L, TONK. PROP. M/S. BALA BUX MOHAN LAL & CO., NEWAI (TONK) PAN : ABFPA0302H. (APPELLANT) (RESPONDENT) C.O. NOS. 47 & 48/JP/2012 ( ARISING OUT OF ITA NO. 563 & 564/JP/2012 ) ASSTT. YEARS : 2007-08 & 08-09. SHRI MOHAN LAL AGARWAL, VS. THE INCOME-TAX OFFICE R, NEWAI (TONK). TONK. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : MS ROSHANTA MEENA RESPONDENT BY : SHRI S.L. PODDAR DATE OF HEARING : 15.01.2013. DATE OF PRONOUNCEMENT : 23.01.2013. ORDER PER B.R. JAIN, A.M. THE APPEALS BY THE REVENUE AND CROSS OBJECTIONS BY ASSESSEE BY RAISING THE FOLLOWING GROUNDS ARISE FROM THE ORDERS DATED 05.03 .2012 OF LD. CIT (A)-III, JAIPUR:- 2 ITA NO. 563/JP/2012 : (I) THE CIT (A) HAS ERRED IN RESTRICTING THE SPECIF IC TRADING ADDITION OF RS. 14.21 LAKHS TO RS. 2 LAKHS ON AN ADHOC BASIS EVEN W HILE UPHOLDING THE APPLICABILITY OF SECTION145(3) AFTER NOTING OTHER SERIOUS DEFECTS AND INCRIMINATING ASPECTS, AS POINTED BY THE ASSESSING OFFICER. (II) THE CIT (A) HAS PASSED A PERVERSE ORDER IN DIR ECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE OF INTEREST UNDER SEC . 40A(2)(B) BY HOLDING THE INTEREST PAYMENT OF 18% IS FAIR, EVEN WHEN THE ASSESSEE HAD PAID MUCH LESS INTEREST TO UNRELATED PERSONS AND ON THE BANK LOAN. (III) THE CIT (A) HAS PASSED A PERVERSE ORDER IN DE LETING THE ADDITION OF RS. 7.91 LAKHS UNDER SEC. 41(1) OF THE I.T. ACT, 1961 B Y HOLDING THAT THE LOANS OF 15 PERSONS WERE STILL ALIVE EVEN WHEN THEY WERE OVER 10 YEARS OF AGE AND WITHOUT ANY INTEREST BEING PAID ON THEM. C.O. NO. 47/JP/2012 : (1) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS ERRED IN CONFIRMING THE INVOCATION OF PROVISION OF SECTION 1 45(3) OF THE IT ACT, 1961 AND IN SUSTAINING THE TRADING ADDITION OF RS. 2,00,000/- (2) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER FOR DISALLOWANCE OF INTEREST U/S 40A(2)(B) OF THE IT ACT, 1961 BEYOND 1 8% INTEREST RATE WHICH IS NOT JUSTIFIED. (3) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS ERRED IN NOT GIVING ANY FINDING REGARDING ADDITION OF RS. 72 ,723/- ON ACCOUNT OF UNDISCLOSED INTEREST INCOME. ITA NO. 564/JP/2012. (I) THE CIT (A) HAS ERRED IN RESTRICTING THE SPECIF IC TRADING ADDITION OF RS. 8.90 LAKHS ON AN ADHOC BASIS EVEN WHILE UPHOLDING T HE APPLICABILITY OF SECTION 145(3). (II) THE CIT (A) HAS PASSED A PERVERSE ORDER IN DIR ECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE OF INTEREST UNDER SEC . 40A(2)(B) BY HOLDING THE INTEREST PAYMENT OF 18% IS FAIR, EVEN WHEN THE ASSESSEE HAD PAID MUCH LESS INTEREST TO UNRELATED PERSONS AND ON THE BANK LOAN. 3 C.O. NO. 48/JP/2012 : (1) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS ERRED IN CONFIRMING THE INVOCATION OF PROVISION OF SECTION 1 45(3) OF THE IT ACT, 1961 AND IN SUSTAINING THE TRADING ADDITION OF RS. 1,00,000/- (2) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER FOR DISALLOWANCE OF INTEREST U/S 40A(2)(B) OF THE IT ACT, 1961 BEYOND 1 8% INTEREST RATE WHICH IS NOT JUSTIFIED. 2. IN ASSESSMENT YEAR 2007-08 IN ITA NO. 563/JP/201 2 IN REVENUES APPEAL, BRIEFLY THE FACTS ARE THAT THE ASSESSEE IS A TRADER IN GOLD AND SILVER JEWELLERY. THE ASSESSEE HAS DECLARED GROSS PROFIT RATE OF 40.70% ON THE TOTAL T URNOVER OF RS. 31,62,795/- WHICH IS HIGHER THAN THE GP RATE DECLARED IN THE EARLIER YEA R. THE ASSESSEES SON SHRI ASHOK KUMAR AGARWAL HAS ADMITTED TO BE HANDLING THE BUSIN ESS ACTIVITIES OF HIS FATHER FOR LAST MORE THAN 20 YEARS. THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER WITH RESPECT TO PURCHASE AND SAL ES CARRIED BY THE ASSESSEE. ACCORDINGLY, PURCHASE AND SALES ENTERED IN THE BOOK S OF ACCOUNT WERE NOT VERIFIABLE. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAS MAINTAINED THREE TRADING ACCOUNTS FOR GOLD ORNAMENTS I.E. ROLLED GOLD, GOLD ORNAMENTS (ST PAID) AND GOLD ORNAMENTS (ST EXTRA) AND LIKEWISE SUCH THREE ACCOUNTS MAINTAINED FOR THE SILVER ARTICLES TRADED BY HIM. THE CORRECTNESS OF THE FIGURES CONTAINED IN THE TRA DING ACCOUNT WERE FOUND TO HAVE BEEN TAKEN ON ESTIMATE BASIS AND AS SUCH THE CORRECTNESS THEREOF WAS NOT VERIFIABLE WITH REFERENCE TO THE VOUCHERS AND BOOKS OF ACCOUNT MAIN TAINED BY THE ASSESSEE. THE ASSESSEE HAS ALSO CLAIMED TO HAVE PURCHASED OLD GOLD ORNAMEN TS IN CASH OF THE VALUE OF RS. 19,77,969/-. IT, HOWEVER, LAID NO EVIDENCE TO SUBS TANTIATE THE CORRECTNESS OF THE PURCHASES SO MADE. THE SAME, THEREFORE, REMAINED UNVERIFIABL E. THE ASSESSING OFFICER THUS 4 RECORDED THAT THE ASSESSEE HAS NOT MAINTAINED THE B OOKS OF ACCOUNT AS PER REQUIREMENT OF SECTION 44AA OF THE IT ACT, 1961. THE ASSESSING OFF ICER FURTHER FOUND THAT THERE IS AN UNDER VALUATION OF CLOSING STOCK BY RS. 6,87,902/- AS THE CLOSING STOCK OF ST PAID AND ST EXTRA ACCOUNT WERE VALUED AT DIFFERENT RATES AND WA S NOT SUPPORTED BY ANY RELIABLE DOCUMENT. THE TRADING ACCOUNT PREPARED BY THE ASSE SSEE WAS ALSO NOT FOUND RELIABLE AT ALL. THE ASSESSING OFFICER CONSIDERING THE FACT TH AT TRUE AND CORRECT PROFIT CANNOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSE E PROPOSED TO REJECT THE ACCOUNTS AND ESTIMATE THE INCOME BY APPLICATION OF GROSS PRO FIT RATE OF 46.91% ON THE ESTIMATED SALES OF RS. 37 LAKHS. AFTER CONSIDERING ASSESSEE S REPLY, THE ASSESSING OFFICER REJECTED THE ACCOUNTS BY APPLICATION OF PROVISIONS OF SECTIO N 145(3) OF THE ACT AND ESTIMATED SALES OF RS. 37 LAKHS. GROSS PROFIT OF RS. 17,35,670/- WA S DETERMINED. SINCE THE ASSESSEE HAS ALREADY DECLARED GROSS PROFIT OF RS. 12,87,308/-, T HE DIFFERENCE OF RS. 4,48,362/- WAS ADDED AS INCOME TO THE TRADING RESULTS DECLARED BY THE ASSESSEE. THAT APART, THE ASSESSING OFFICER ALSO BROUGHT TO TAX AN AMOUNT OF RS. 2,85,2 02/- AS UNACCOUNTED INVESTMENT IN THE PURCHASES ON THE DIFFERENCE AMOUNT OF RS. 5,37,205/ - BETWEEN SALES ESTIMATED AND SALES DECLARED BY THE ASSESSEE. THE ASSESSING OFFICER HA S ALSO MADE ADDITION OF RS. 6,87,902/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK AND THUS AGGREGATE ADDITION UNDER THE TRADING RESULT HAS BEEN MADE OF RS. 14,21,466/-. 3. THE LD. CIT (A) VIDE PARA 2.3.3. OF THE IMPUGNED ORDER UPHELD THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT AS THE ASSESSEE IS NOT MAINTAINING PROPER BOOKS OF ACCOUNT, STOCK REGISTER AND THERE A RE SERIOUS DEFECTS AND INCRIMINATING ASPECTS AS HAS BEEN POINTED OUT BY THE ASSESSING OF FICER WHICH REMAINED UNCONTROVERTED BY THE ASSESSEE. THEREAFTER, THE LD. CIT (A) OPINE D THAT IN THE EVENT THE ADDITIONS MADE 5 BY THE ASSESSING OFFICER ARE SUSTAINED THAT WOULD R ESULT INTO A GROSS PROFIT RATE OF 73.21% WHICH OTHERWISE WOULD BE QUITE ABNORMAL AND IMPROBA BLE IN THE NORMAL CIRCUMSTANCES OF THIS CASE AND AS SUCH THE SAME CANNOT BE UPHELD. H E ALSO RECORDED ASSESSEES CONTENTION THAT ONCE ADDITION HAS BEEN MADE BY INCREASING GP R ATE, THEN THERE IS NO FURTHER SCOPE OF MAKING SEPARATE ADDITION UNDER DIFFERENT HEADS IN T HE LIGHT OF JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. P. PRAVIN & CO. 274 ITR 534 (GUJ.) WHICH WAS ALSO FOUND TO BE SUPPORTING THE CASE OF THE ASSESSE E. THE LD. CIT (A) FURTHER CONSIDERED SIMILAR DECISION IN THE CASE OF M/S. CHOUDHARY & BR OTHERS BY THE EARLIER TRIBUNAL BY ITS ORDER DATED 31.5.2011 IN ITA NO. 1177/JP/2010 WHERE THE TRIBUNAL HAD TAKEN A VIEW THAT THE COMPOSITE ADDITION BY WAY OF APPLICATION OF GP RATE AND NET PROFIT RATE WOULD BE SUFFICIENT TO TAKE CARE OF ALL SUCH DISCREPANCIES. HE, THEREFORE, HAVING CONSIDERED THESE ENTIRE FACTS AND THE JUDGMENT BY THE HON'BLE RAJAST HAN HIGH COURT IN THE CASE OF M/S. INANI MARBLES, 316 ITR 125 (RAJ.) AND M/S. ACTION E LECTRICALS, 258 ITR 188 (DEL.) AND ALSO THE PECULIAR FACT THAT THE ASSESSEE HAS DECLAR ED BETTER PROFIT RATE OF 40.70% ON THE SALES OF RS. 31.62 LACS IN THE CURRENT YEAR AS AGAI NST THE GP RATE OF 39.76% IN THE IMMEDIATELY PRECEDING YEAR, DID NOT FIND ANY JUSTIF ICATION IN THE ACTION OF THE ASSESSING AUTHORITY IN ESTIMATING THE SALES AT RS. 37 LAKHS A ND IN ORDER TO TAKE CARE OF POSSIBLE LEAKAGE OF INCOME OR PROFIT OF THE APPELLANT, REDUC ED THE TRADING ADDITION OF RS. 14,21,466/- TO RS. 2,00,000/- ONLY. 4. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD. THE ASSESSING AUTHORITY AFTER FINDING THAT NEITHER THE SALES NOR PURCHASES ARE VERIFIABLE AS THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT AND ALSO CO NSIDERING THE FINDING THAT THERE IS UNDER VALUATION OF STOCK BY RS. 6,87,902/- AND THE FACT THAT THE PURCHASES ARE UNACCOUNTED 6 HAD PROPOSED TO REJECT THE BOOKS OF ACCOUNT BY APPL ICATION OF PROVISIONS OF SECTION 145 OF THE ACT. HE ALSO PROPOSED TO APPLY GP RATE OF 46.9 1% AS DECLARED BY ANOTHER SISTER CONCERN OF THE ASSESSEE, NAMELY, M/S. BALA BUX MOHA N LAL ON SALES TO BE ESTIMATED AT RS. 37 LACS. THERE BEING NO NEW FACT OR FINDING COMING TO HIS NOTICE THEREAFTER, THERE COULD BE NO JUSTIFICATION IN MAKING ANY OTHER ADDITION ON ACCOUNT OF UNDER VALUATION OF STOCK BY RS. 6,87,902/- OR AS UNEXPLAINED INVESTMENT IN PURC HASE FOR RS. 2,85,202/- MERELY BECAUSE THEY WERE NOT VERIFIABLE. THE TWO ADDITION S, THEREFORE, OF RS. 6,87,902/- AND RS. 2,85,202/- WERE UNWARRANTED AND UNJUSTIFIED UNDER T HE PECULIAR FACT SITUATION WHEN THE INCOME IS TO BE ESTIMATED BY APPLICATION OF GP RATE ON THE SALES BY VIRTUE OF SHOW CAUSE NOTICE ON RECORD. THE SAME ARE FOUND JUSTIFIABLY DE LETED. 5. IN THE PRESENT CASE IN APPEAL, THE LD. CIT (A) I S FOUND TO HAVE REACHED A FINDING THAT ESTIMATION OF SALES BY THE ASSESSING AUTHORITY IS A RESULT OF MERE SUSPICION AND MERE CONJECTURES AND THUS HE FOUND NO JUSTIFICATION IN E STIMATION OF SALES AT RS. 37 LAKHS BY THE ASSESSING AUTHORITY NOR IN APPLICATION OF PROFIT RA TE OF 46.91% AND THUS REDUCED THE TRADING ADDITION TO RS. 2.00 LACS. WE, HOWEVER, HA VE PERUSED THE ENTIRE FACTS SET OUT ON RECORD BY THE ASSESSING AUTHORITY. ESSENTIALLY THE CORRECTNESS OF THE PURCHASE PRICE AND DISCLOSURE OF SALE VALUE WERE NOT VERIFIABLE. THE SALES WERE REQUIRED TO BE ESTIMATED. HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANC ES AND PAST HISTORY OF THE CASE, WE CONSIDER IT PROPER AND JUSTIFIED TO ESTIMATE THE SA LES AT RS. 34 LACS AS AGAINST THE DECLARED SALES OF RS. 31.62 LACS WHICH WERE ESTIMATED BY THE ASSESSING OFFICER AT RS. 37 LACS AS THE ASSESSING OFFICER HIMSELF UNDER THE SIMILAR CIR CUMSTANCES ESTIMATED SALES AT RS. 34.00 LACS IN ASSESSMENT YEAR 2008-09. THE APPLICATION OF GP RATE OF 46.91% AS WAS ALSO DECLARED BY THE ASSESSEES SISTER CONCERN DEALING I N SIMILAR ITEMS IS UPHELD. ACCORDINGLY 7 BY APPLICATION OF THIS PROFIT RATE OF 46.91% ON THE ESTIMATED SALES OF RS. 34 LACS, GP OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WORKS OUT TO RS. 15,94,940/- AS AGAINST THE GROSS PROFIT OF RS. 14,21,466/- DISCLOSED BY THE AS SESSEE. THIS RESULTS INTO TRADING ADDITION OF RS. 1,73,474/-. THE LD. CIT (A), HOWEV ER, SUSTAINED AN ADHOC ADDITION OF RS. 2 LAKHS WHICH BEING WITHOUT ANY BASIS IS DIRECTED T O BE REDUCED TO RS. 1,73,474/-. AS A RESULT, GROUND RAISED IN APPEAL BY REVENUE STANDS R EJECTED AND GROUND RAISED BY ASSESSEE IN CROSS OBJECTION STANDS PARTLY ALLOWED. 6. FOR SIMILAR REASONS, IN ASSESSMENT YEAR 2008-09 THE ASSESSING OFFICER REJECTED THE ACCOUNTS BY APPLICATION OF SECTION 145(3) OF THE AC T AND MADE TRADING ADDITION OF RS. 8,90,040/- COMPRISED OF ADDITION OF RS. 2,76,969/- ON ACCOUNT OF APPLICATION OF GP RATE OF 46.91% ON THE ESTIMATED TURNOVER OF RS. 34 LACS AGA INST THE DECLARED GP RATE OF 40.11% ON THE DECLARED TURNOVER OF RS. 32,85,695/- AND FUR THER ADDITIONS OF RS. 5,52,387/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK AND RS. 60,684/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN PURCHASES, WERE ALSO MADE. 7. HAVING HEARD WITH REFERENCE TO MATERIAL ON RECOR D AND CONSIDERING THE FACT THAT THE ASSESSING OFFICER HIMSELF HAS PROPOSED TO APPLY GP RATE AS WAS APPLIED IN ASSESSMENT YEAR 2007-08, THE SALES EFFECTED AT RS. 34 LAKHS IN THIS YEAR ALSO BEING EQUAL TO SALES ESTIMATED IN ASSESSMENT YEAR 2007-08 IN ITA NO. 563 /JP/2012 HEREINBEFORE, WE CONSIDER IT PROPER AND REASONABLE TO ESTIMATE INCOME OF THE ASSESSEE BY APPLICATION OF GP RATE OF 46.9% ON THE ESTIMATED SALES OF RS. 34 LACS AS WAS PROPOSED BY THE ASSESSING AUTHORITY BY GIVING A SHOW CAUSE NOTICE. THEREAFTER, NO FURTH ER ADDITION IS REQUIRED TO BE MADE IN THE LIGHT OF THE ORDER IN ASSESSEES CASE FOR ASSES SMENT YEAR 2007-08 AS HEREIN BEFORE. THE DIFFERENCE OF RS. 2,76,969/- ON ACCOUNT OF APPL ICATION OF ESTIMATED GP RATE IS UPHELD 8 AS AGAINST THE ADHOC ADDITION OF RS. 1.00 LAKH SUST AINED BY LD. CIT (A) WHICH WE FIND WAS NOT RESTED ON ANY REASONABLE BASIS. THE ADDITI ONS DELETED BY LD. CIT (A) ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OR FOR UNEXPLAI NED INVESTMENT IN PURCHASES AFTER MAKING ESTIMATED ADDITION ON THE BASIS OF PROPOSAL MADE BY THE ASSESSING OFFICER ARE FOUND DELETED FOR JUSTIFIABLE REASONS. THE SAME REQ UIRES NO INTERFERENCE BY THE TRIBUNAL. AS A RESULT, THE GROUND IN APPEAL RAISED BY REVENUE STANDS PARTLY ALLOWED AND THAT OF ASSESSEE IN ITS CROSS OBJECTION STANDS REJECTED. 8. IN SO FAR AS GROUND NO. 2 IN APPEAL BY REVENUE I N BOTH THE YEARS, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS DISCLOSED I NTEREST INCOME ON LOANS ADVANCED ON CASH BASIS WHEREAS IT HAS MAINTAINED ITS ACCOUNTS O N MERCANTILE BASIS. IN ASSESSMENT YEAR 2007-08 THE ASSESSING OFFICER, ESTIMATED THAT 50% O F THE INTEREST INCOME SHOWN BY THE ASSESSEE FROM CLOSED ACCOUNTS AFTER COMPLETE RECOVE RY PERTAINS TO THE INTEREST INCOME AMOUNTING TO RS. 1,83,558/- WHEREAS THE BALANCE OF RS. 1,83,558/- IS THE INTEREST INCOME FROM THE LOANS WHICH ARE STILL OUTSTANDING. HE, TH EREFORE, ESTIMATED THAT THE DEBTS AMOUNTING TO RS. 18,32,664/- REMAINED OUTSTANDING F OR WHOLE OF THE YEAR ON WHICH INTEREST OUGHT TO HAVE BEEN APPLIED @ 24% AND THUS FOUND THAT THE ASSESSEE HAS UNDISCLOSED INTEREST INCOME OF RS. 2,56,281/- DURIN G THE YEAR UNDER CONSIDERATION. LIKEWISE, THE INTEREST INCOME OF RS. 2,85,831/- HAS BEEN TREATED AS UNDISCLOSED INTEREST INCOME OF THE ASSESSEE AS PER MERCANTILE SYSTEM ACC OUNTING FOR ASSESSMENT YEAR 2008-09. 9. THE LD. CIT (A) DELETED THE ADDITION AS THE ASSE SSING OFFICER HAS MADE ADDITION MERELY ON THE BASIS OF ASSUMPTION AND PRESUMPTION A ND BY MAKING HYPOTHETICAL BIFURCATION BY WAY OF INTEREST INCOME SHOWN BY THE APPELLANT. SINCE THE ASSESSING OFFICER WAS NOT FOUND TO HAVE MADE A REASONABLE CAS E BASED ON THE RELEVANT MATERIAL, HE 9 FOUND NO JUSTIFICATION IN MAKING THE ADDITION IN BO TH THE YEARS. THE SAME, THEREFORE, STANDS DELETED. 10. HEARD PARTIES WITH REFERENCE TO MATERIAL ON REC ORD. ADMITTEDLY, ASSESSING AUTHORITY HAD NOT BROUGHT ANY BASIS WITH REFERENCE TO RELEVANT MATERIAL VIS--VIS EACH AMOUNT OF DEBTOR FROM WHOM INTEREST CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IT IS ONLY ON THE IRRELEVANT CONSIDERATIONS THE ASSESSING AUTHORITY HAD CHOSEN TO ESTIMATE THAT 50% OF ITS DEBTS STOOD RECOVERED DURING THE YEAR UN DER CONSIDERATION AND THE AMOUNT OF THE DEBTS REMAINED OUTSTANDING FOR THE WHOLE YEAR. HE EVEN HAS NOT SHOWN THAT THERE WAS A RIGHT TO RECEIVE INTEREST ON SUCH DEBTS ON WHICH HE PROPOSES TO ASSESS THE INCOME ON MERCANTILE BASIS. IN THE EVENT, THE ASSESSEE IS NO T SHOWN TO HAVE A RIGHT TO RECEIVE INCOME, INCOME CANNOT BE SAID TO HAVE ACCRUED FOR B RINGING IT TO TAX ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING AS HAS ALSO BEEN HE LD IN THE CASES OF E.D. SASSOON & CO. LTD. VS. CIT 26 ITR 27 (SC) AND ALSO GODHRA ELECTRI CITY CO. LTD. 225 ITR 746 (SC). WE, THEREFORE, FIND NO INFIRMITY IN THE DECISION RE ACHED BY LD. CIT (A). THE REVENUE IN APPEAL, HOWEVER, HAS ASSAILED THE ISSUE ON THE GROU ND OF STATED DIRECTION TO RE-COMPUTE DISALLOWANCE OF INTEREST UNDER SECTION 40A(2)(B) BY APPLYING INTEREST RATE OF 18% AND THE ASSESSEE IN CROSS OBJECTION HAS ALSO TAKEN THE SIMI LAR GROUND FOR SUSTAINING THE FINDING OF LD. CIT (A) WHICH OTHERWISE ARE FOUND MISCONCEIVED AS THE LD. CIT (A) DID NOT GIVE ANY SUCH DIRECTION AS ARE STATED IN THE GROUNDS OF APPE AL BY BOTH THE PARTIES. WE, THEREFORE, DO NOT FIND MERIT IN GROUNDS RAISED BY REVENUE IN B OTH THE APPEALS. THE SAME, THEREFORE, STAND DISMISSED AND THE GROUNDS OF THE ASSESSEE BEC OMES INFRACTUOUS AND SAME DISMISSED IN BOTH THE YEARS. 10 12. THE LAST GROUND IN APPEAL BY REVENUE FOR ASSESS MENT YEAR 2007-08 RELATES TO DELETION OF ADDITION OF RS. 7.91 LACS MADE UNDER SE CTION 41(1) OF THE ACT AS LD. CIT (A) HAS FOUND THAT THE LOANS ARE STILL PAYABLE AND ASSE SSEE IS SHOWING THE LIABILITY IN THE BOOKS OF ACCOUNT. 13. HEARD PARTIES WITH REFERENCE TO MATERIAL ON REC ORD. THE PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT FOUND APPLICABLE AS THE LI ABILITY HAS NOT CEASED TO EXIST NOR THE SAME HAS BEEN UNILATERALLY WRITTEN OFF BY THE ASSES SEE. THE ASSESSEE HAS DECLARED THE LIABILITY AGGREGATING TO RS. 7,91,220/- AS PAYABLE TO 13 PERSONS. EVEN THOUGH SUCH A LIABILITY IS SHOWN AS OUTSTANDING FOR THE LAST MORE THEN 10 YEARS, YET THE FACT REMAINS THAT THE ASSESSEE HAD LAID ON RECORD CONFIRMATION FROM E ACH OF SUCH CREDITORS. PROVISIONS OF SECTION 41(1) OF THE ACT, THEREFORE, ARE NOT FOUND APPLICABLE. THE LD. CIT (A), THEREFORE, CANNOT BE SAID TO HAVE COMMITTED ANY ERROR IN DELET ING THE ADDITION. GROUND RAISED IN APPEAL BY REVENUE STANDS REJECTED. 14. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YEAR 2007-08 STANDS REJECTED AND CROSS OBJECTION OF ASSESSEE STANDS PARTLY ALLOWED. THE REVENUES APPEAL FOR ASSESSMENT YEAR 2008-09 STANDS PARTLY ALLOWED AND CROSS OBJECT ION STANDS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23.01 .2013. SD/- SD/- ( B.R. MITTAL ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 23/01/2013. D/- COPY FORWARDED TO :- THE INCOME-TAX OFFICER, TONK. 11 SHRI MOHAN LAL AGARWAL, NEWAI. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 563(4)/JP/2012) BY ORDER, AR ITAT JAIPUR.