ACIT, Kota V. SHRI B.D. MUNDRA & SONS M/S, Kota

ITA 591/JPR/2011

• Counselvise Citation: 59123114 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: C M BIRLA
• Keywords: Unexplained cash credit; Bad and doubtful debts
• Section: 37; 133(6)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAI NI) ITA NO. 591/JP/2011 ASSESSMENT YEAR : 2006-07 PAN: AAAHB 7862 D THE ACIT VS. SHRI B.D. MUNDRA & SONS CIRCLE-1 M/S. MUNDRA TRACTORS, KOTA C-150 IPIA, KOTA (APPELLANT) (RESPONDENT) ITA NO. 608/JP/2011 ASSESSMENT YEAR : 2006-07 PAN: AAAHB 7862 D SHRI B.D. MUNDRA & SONS VS. THE DCIT PROP. M/S. MUNDRA TRACTORS, CIRCLE- 1 C-150 IPIA, KOTA KOTA (APPELLANT) (RESPONDENT) ITA NO. 607/JP/2011 ASSESSMENT YEAR : 2007-08 PAN: AAAHB 7862 D THE ACIT VS. SHRI B.D. MUNDRA & SONS CIRCLE- 1 M/S. MUNDRA TRACTORS, KOTA C-150 IPIA, KOTA (APPELLANT) (RESPONDENT) C.O. NO.67/JP/2011 (ARISING OUT OF ITA NO. 607/JP/2011) ASSESSMENT YEAR : 2007-08 PAN: AAAHB 7862 D SHRI B.D. MUNDRA & SONS VS. THE ACIT PROP. M/S. MUNDRA TRACTORS, CIRCLE- 1 C-150 IPIA, KOTA KOTA (APPELLANT) (RESPONDENT) 2 DEPARTMENT BY: SHRI D.C. SHARMA ASSESSEE BY : SHRI C.M. BIRLA DATE OF HEARING: 15-01-2014 DATE OF PRONOUNCEMENT: 28-01-2014 ORDER PER HARI OM MARATHA, JM:- THE ABOVE CAPTIONED BUNCH OF FOUR MATTERS PERTAINI NG TO THE SAME ASSESSEE AND THEREFORE, FOR THE SAKE OF CONGRUENCE, CONVENIENCE AND BREVITY, WE ARE PROCEEDING TO DECIDE THEM BY A COMMON ORDER. ITA NOS. 591/JP/2011- REVENUE AND 608/JP/2011 ASSE SSEE (A.Y.2006-07) 2.1 THESE ARE THE CROSS APPEALS WHICH HAVE BEEN FIL ED AGAINST THE ORDER OF THE LD. CIT(A), KOTA, DATED 30-03-2011. BRIEFLY STA TED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE (HUF) IS ENGAGED IN THE BUSIN ESS OF SALE OF TRACTORS AS A DISTRIBUTOR FOR FOUR DISTRICTS. THE ASSESSEE HAS EM PLOYED ABOUT 40 EMPLOYEES WHICH ARE SPREAD OVER IN THESE DISTRICTS. THE ASSESSEE MAKES FRESH SALE OF TRACTORS AS WELL AS INDULGING IN MAKING EXC HANGE SALES BY TAKING OLD TRACTORS AND GIVING NEW TRACTORS AS PER TERMS AND C ONDITIONS APPLICABLE. FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE (HUF ) FI LED ITS RETURN OF INCOME (ROI) ON 30-11-2006, DECLARING TOTAL INCOME OF RS. 8,47,350/-. DURING THE YEAR, THE ASSESSEE HAS EARNED INCOME FROM SALE OF SWARAJ TRACTOR AND SWARAJ MAZDA AS A DEALER AND HAS DISCLOSED GROSS PROFIT AND NET PROFIT 3 WHICH IS DEPICTED AS UNDER BY GIVING COMPARATIVE CH ART PERTAINING TO THREE FINANCIAL YEARS NAMELY 2003,04, 2004-05 AND 2005-06 . F.Y. SALES G.P. G.P. RATE N.P. N.P. RATE 2003-04 126237329 21199918 16.79% 869845 0.69% 2004-05 133215586 27082529 20.33% 1239201 0.93% 2005-06 154743358 25918859 16.75% 1237129 0.8% IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAI MED DEDUCTION OF RS. 68,61,144/- AS BAD DEBTS. THIS BAD DEBT HAS BEEN WR ITTEN OFF AS PER THE PROVISIONS OF LAW. HOWEVER, THE AO WANTED THE ASSES SEE TO PROVE THAT THESE DEBTS HAVE BECOME VERILY IRRECOVERABLE. THE ASSESSE E HAS WRITTEN OFF THE ACCOUNTS OF 255 PARTIES. AFTER REFERRING TO THE REQ UISITE CONDITIONS FOR ALLOWANCE OF BAD DEBTS AS WELL AS CERTAIN RELEVANT PRECEDENTS THEREON, THE AO HAS FOUND THAT, IN FACT, THESE ARE CASH LOANS AN D ADVANCES MADE TO THE FARMERS / CUSTOMERS IN THE FORM OF MARGIN MONEY. WI TH THE HELP OF THE ASSESSEE , THE AO HAS UNDERSTOOD THAT THE ASSESSEE (HUF ) HAS BEEN SELLING THE TRACTORS TO FARMERS AND FINANCE FROM THE BANK I S ALSO ARRANGED BY IT. FOR TAKING LOANS, THE BANK REQUIRES MINIMUM MARGIN MONE Y TO BE DEPOSITED AFTER OPENING OF ACCOUNT OF THE CUSTOMER WHO IS BUYING TH E TRACTOR AND SEEKING THE LOAN. THE BANK ISSUES A DRAFT OF THE ENTIRE AMOUNT AGAINST THE BILL AMOUNT OF THAT PARTICULAR PURCHASE OF TRACTOR TO THE ASSESSEE (M/S. MUNDRA TRACTORS) AND THEREAFTER THAT FARMER /CUSTOMER GETS THE DELIVERY OF THE TRACTOR. IN FACT, MANY A TIMES, THE FARMERS/ CUSTOMERS DO NOT HAVE EVEN TH E MARGIN MONEY AND 4 SINCE THE ASSESSEE IS A DISTRIBUTOR OF THESE VEHICL ES, IT HAS TO CAJOLE AND CONVINCE THE FARMERS TO PURCHASE THE TRACTOR AND TH AT MELEE, THE ASSESSEE HAS TO DEPOSIT EVEN THE MARGIN MONEY ON THEIR BEHALF. T HIS MARGIN MONEY HAS BEEN TREATED BY THE ASSESSEE AS A CASH ADVANCE TO T HE CUSTOMERS DURING THE COURSE OF ITS BUSINESS. THE SALE AMOUNT AS PER BILL IS SEPARATELY DEBITED IN THE CUSTOMERS ACCOUNT AND THE AMOUNT RECEIVED FROM THE BANK IS SHOWN SEPARATELY. THE AO HAS DISCUSSED ONE SUCH EXAMPLE I N THE CASE OF CUSTOMER SHRI BHANWAR LAL S/O SHRI MODU LAL, IN RESPECT OF WHICH THE AMOUNT OF RS. 8,907/ HAS BEEN WRITTEN OFF ON 31-03-2006. THE COPY OF ACCOUNT OF THIS PARTY PERTAINING TO FINANCIAL YEAR 01-04-2000 TO 31 -03-2001 IS AS UNDER:- PARTICULARS DEBIT AMOUNT CREDIT AMOUNT CR// DR BALANCE BALANCE B/C 0.00 02-10-2000: TO CASH PAID 970 DR 970 30-11-2000 : BY DRAFT NO.161418 - HKGB 315773 CR 314803 30-11-2000: TO CASH PAID FOR MARGIN DEP. 70000 CR 244803 30-11-2000: TO BILL NO.190 315710 DR 70907 T. TOTAL: 386680 315773 BALANCE C/F 70907 FROM THE ABOVE, THE AO HAS CONSTRUED THAT THE ASSE SSEE HAS MADE CASH ADVANCE OF RS. 70,000/- IN THE FORM OF MARGIN MONEY . OUT OF CLOSING BALANCE OF RS. 70,907/- AS ON 31-03-2011, A PART MU ST HAVE BEEN REPAID AND SUBSEQUENTLY AS ON 01-04-2006, THE OPENING BALANCE IS RS. 8,907/- WHICH HAS 5 BEEN WRITTEN OFF AS IRRECOVERABLE. THE AO HAS TREAT ED THIS ADVANCE NOT AS A TRADE DEBT. ACCORDINGLY, THE AO HAS FOUND THAT THIS NOT A BAD DEBT WHICH CAN BE ALLOWED U/S 36(2) OF THE ACT. AFTER GOING THROUG H SUCH A LENGTHY LIST IN RESPECT OF THE CUSTOMERS, THE AO HAS TAKEN THE SAM E VIEW. REGARDING OTHER ADVANCES GIVEN TO FIELD STAFF, SUB-DEALERS, COMMISS ION AGENTS ETC. THE AO HAS NOTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY P ROOF THAT THESE ADVANCES HAVE BECOME BAD AND NOT RECOVERABLE. AFTER MAKING L IKEWISE OBSERVATIONS, THE AO SHOW CAUSED THE ASSESSEE IN THIS REGARD WHIC H WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 26-12-2008 STATING THERE IN AS UNDER:- THAT YOUR LAST POSER RELATES TO ALLOWABILITY OF BAD DEBTS OF RS. 6861144/-. IN THIS CONNECTION WE REQUEST YOU R HONOUR THAT W.E.F. 01-04-1989 THERE IS SEA CHANGE IN THE P ROVISIONS. NOW THE REQUIREMENTS OF PROVISIONS IS :- (I) SUCH DEBT IS TAKEN INTO ACCOUNT WHILE COMPUTING INCOME EITHER IN THIS YEAR OR EARLIER YEARS; (II) SUCH DEBT OR PART OF IT MAY BE DEDUCTIBLE FROM INCOME IF IT IS WRITTEN OFF; AND (III) SUCH BAD DEBT IS NOT ALLOWED IN EARLIER Y EARS IF THESE CONDITIONS ARE COMPLIED WITH THE DEDUCTION IS ALLOWABLE ONE. WE HAVE STAFF OF ABOUT 40 PERSONS WHICH IS ENGAGED IN SALES AND RECOVERIES. GENERALLY WE WRITE OFF AMOUNT AFTER 3-4 YEARS WHEN WE FEEL THAT AMOUNT IS NOT RECOVERABLE O NE. OF COURSE AS WE HAVE BUSINESS RELATIONS IN THE AREA NE ITHER WE OPT FOR COURT PROCEEDINGS NOR WE APPRECIATE APPOINTMENT OF EXTERNAL AGENCIES FOR RECOVERY. 6 WE ARE ENCLOSING HEREWITH A LIST OF BAD DEBTS WHERE IN IN REMARKS COLUMN YEAR OF SALE AND YEAR OF WRITTEN OFF OF DEBT IS MENTIONED, BESIDES RELATED ACCOUNTS COPIES ARE ALSO ATTACHED. WE SUBMIT SIR THAT RATIO OF DECISION OF HON'BLE RA JASTHAN HIGH COURT IN KASMIR TRADING CO. VS. CIT IS NOT APPLICAB LE IN OUR CASE BECAUSE IN SAID CASE THE BASIC REQUIREMENT OF CLAIM WAS MISSING THE AMOUNT WAS NOT WRITTEN OFF IN BOOKS B UT DEDUCTION WAS MADE THROUGH COMPUTATION SHEET. IN OU R CASE ACCOUNTING ENTRIES FOR AMOUNT WRITTEN OFF ARE THERE . BESIDES PROPER CARE IS TAKEN FOR RECOVERY AND AMOUNT IS WRI TTEN OFF WHEN IT WAS NOT RECOVERABLE. CONSIDERING ENTIRETY O F THE CIRCUMSTANCES, WE SUBMIT OUR CLAIM IS ALLOWABLE ONE AND THEREFORE, IT SHOULD BE ALLOWED. 2.2 AFTER CONSIDERING THE ABOVE REPLY, THE AO WAS N OT SATISFIED. ACCORDINGLY, THE AO HAS DISALLOWED THE CLAIM OF BAD DEBTS AMOUNTING TO RS. 68,61,144/- AND ADDED BACK TO ITS TOTAL INCOME OF T HIS YEAR. 2.3 BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL A ND THE LD. CIT(A) DELETED A SUM OF RS. 56,86,172/- BY TREATING IT AS AN ALLOWABLE BAD DEBTS AND HAS SUSTAINED THE REMAINING AMOUNT OF RS. 11,74,972 /-. BOTH THE PARTIES ARE AGGRIEVED. THE GROUND NO. 1 OF ASSESSEE'S APPEAL AN D GROUND NO. 1 OF THE REVENUES APPEAL ARE IN RESPECT OF THIS VERY ISSUE . 2.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED ENTIRE RECORDS. AT THE TIME OF HEARING, THE LD. AR MENTIONED THAT IN HIS GROUND OF APPEAL, THE AMOUNT OF DISALLOWANCE CONFIR MED UNDER THE HEAD BAD DEBTS HAS BEEN WRONGLY MENTIONED AS RS. 11,47,972/- WHICH ACTUALLY IS RS. 11,74,972/-. WE HAVE CORRECTED THIS FIGURE BEING A TYPOGRAPHICAL MISTAKE IN 7 THE GROUND ITSELF FOR WHICH LD. DR HAS NO OBJECTION . AFTER HEARING BOTH THE SIDES, WE HAVE FOUND THAT THE REASONS GIVEN BY THE LD. CIT(A) IN DELETING THE BAD DEBTS TO THE TUNE OF RS. 56,86,172/- ARE CORREC T SINCE BOTH THE PARTIES HAVE REITERATED THEIR EARLIER ARGUMENTS WHICH WERE TAKEN BEFORE THE LD. CIT(A). WE HAVE FOUND THAT THE AO HAS MOVED IN A WR ONG DIRECTION. IN FACT, THE BUSINESS OF THE ASSESSEE IS TO SELL VEHICLES AF TER CAJOLING AND COAXING THE FARMERS BY MOTIVATING THEM TO MAKE PURCHASES OF TRA CTORS SO THAT THEY CAN MAKE CULTIVATION IN THEIR FIELDS AND CAN GROW MORE AND MORE CROPS AND ALSO TO DO OTHER ALLIED AGRICULTURAL WORK WITH THE HELP THEREOF. IN THIS REGARD, THE MODUS OPERANDI OF THE ASSESSEE IN ADVANCING THE MAR GIN MONEY IS A REALITY OF LIFE AND IT CANNOT BE IGNORED BECAUSE MANY A TIM ES, THE FARMERS DO NOT HAVE EVEN MARGIN MONEY TO THAT EXTENT FOR TAKING LO AN ETC. THEREFORE, THIS ADVANCE HAS TO BE TREATED AS A TRANSACTION TRANSACT ED DURING THE COURSE OF ASSESSEE'S BUSINESS. THE MANNERS IN WHICH THE ACCOU NTS ARE MAINTAINED OR BILLS ARE DRAWN MAY NOT BE HAVING THAT MUCH RELEVAN CE. THE AO HAS TAKEN INTO ACCOUNT THE REQUIREMENT OF SECTION 36(2) OF TH E ACT THAT THE ASSESSEE HAS TO PROVE THAT DEBT HAS BECOME REALLY BAD. IT IS WEL L SETTLED LAW ON THIS SUBJECT BY NOW THAT THE ASSESSEE IS REQUIRED TO WRITE OFF S UCH DEBTS AS BAD DEBTS WITHOUT PROVING THAT DEBT HAS REALLY BECOME BAD. BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT, 230 CTR 14, WHEN BAD DEBT OCCURS, THE BAD DEBT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED AND THE 8 CUSTOMERS ACCOUNT IS CLOSED. IT IS NOT NECESSARY A FTER IST APRIL, 1989 FOR THE ASSESSEE TO ESTABLISH THAT DEBT, IN FACT, HAS BECOM E BAD OR IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. THEREFORE, TO THAT EXTENT, THE FINDINGS OF THE LD. CIT (A) ARE CORRECT. HOWEVER, WE ARE UNABLE TO UNDERSTAND AS TO WHY THE AMOUNT TO THE TU NE OF RS. 11,74,972/- HAS NOT BEEN ALLOWED. THIS AMOUNT ALSO REPRESENTS T HE MARGIN MONEY AND THIS CANNOT BE DEALT WITH IN ANY MANNER SEPARATELY. BOTH PARTIES HAVE RELIED ON DECISIONS BUT WE HAVE STATED ABOVE AFTER GOING T HROUGH THE MOST RELEVANT LEGAL PRECEDENTS SETTLED ON THE ISSUE. TO FURTHER N ARRATE THE FACTS REGARDING RS. 11,74,972/-, IT WAS FOUND BY THE LD. CIT(A) THA T OUT OF TOTAL SUM OF RS. 68,61,144/- CLAIMED BY THE ASSESSEE AS BAD DEBTS, A SUM OF RS. 11,74,972/- IS IN RELATION TO MARGIN MONEY PAYMENT PERTAINING TO V ARIOUS YEARS. THIS HAS BEEN TREATED AS CASH LOANS/ ADVANCES MADE BY THE AS SESSEE TO VARIOUS PARTIES. THIS PAYMENT FACILITATED THE SALE OF TRACTORS BUT D ID NOT FORM PART OF SALE PROCEEDS OF THE ASSESSEE FOR ANY YEAR. ACCORDINGLY, THE LD. CIT(A) HAS NOT TAKEN IT AS BAD DEBTS. THE LD. CIT(A) HAS DISTINGUI SHED THIS AMOUNT ON THE REASONING THAT THE DEBT WRITTEN OFF AS BAD DEBTS IN THE BOOKS OF THE ASSESSEE'S ACCOUNT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE PREVIOUS YEAR OR IN OTHER EARLIER YEARS AND FAILING WHICH THE SAME CANNOT BE ALLOWED AS SUCH. BE THAT AS IT MAY, WE ARE IN AGREE MENT WITH THE SUBMISSIONS OF THE LD. AR THAT MODUS OPERANDI ADOPTED BY THE AS SESSEE HAS NOT BEEN 9 DISPUTED OR DOUBTED BY THE AO AND, THEREFORE, AT BE ST THIS ADVANCE, WHICH HAS BEEN TAKEN AS IRRECOVERABLE SHOULD BE AS A BUSI NESS LOSS, BUT IN OUR CONSIDERED OPINION THAT MARGIN MONEY ADVANCES GIVEN ON BEHALF OF THE FARMERS IN THE NATURE OF CASH LOANS AND DEPOSITED I N THE BANK ACCOUNT OF THE CUSTOMERS IS A SORT OF BUSINESS TRANSACTION AND THI S HAS BEEN TAKEN AS SUCH WHILE COMPUTING INCOME OF ANY EARLIER YEARS. WE DO NOT HESITATE IN HOLDING THAT THIS AMOUNT HAS TO BE ALLOWED AS BAD DEBTS AND DEFINITELY IT AMOUNTS TO BUSINESS LOSS AS WELL. ACCORDINGLY, WE DELETE THE A DDITION OF RS. 11,74,972/- AND ALLOW THE GROUND NO. 1 OF ASSESSEES APPEAL AND CONSEQUENTLY WE DISMISS GROUND NO. 1 OF REVENUES APPEAL. 3.1 GROUND NO. 2 OF REVENUES APPEAL IS PERTAINING TO DELETION OF ADDITION MADE ON ACCOUNT OF UNVERIFIABLE SUNDRY DE BTORS OF RS. 7,36,851/- 3.2 THE FACTS APROPOS OF GROUND NO. 2 OF THE REVENUE PE RTAINING TO DELETION OF ON ACCOUNT OF UNVERIFIABLE SUNDRY DEBT ORS OF RS. 7,36,851/- ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED FOR THE DETAILS INCLUDING POSTAL ADDRESSES OF THE SUNDRY DE BTORS TOTLLING TO RS. 4,18,43,804/-. THE ASSESSEE SUPPLIES REQUISITE INFO RMATION. THEREAFTER, THE AO ASKED THE ASSESSEE TO FILE CONFIRMATIONS FROM 11 PERSONS. HE ALSO, SIMULTANEOUSLY GATHERED INFORMATION UNDER THE PROVI SIONS OF SECTION 133(6) OF THE ACT FROM THESE 11 PERSONS. THE STATUS OF CON FIRMATIONS/ INFORMATION U/S 133(6) OF THE ACT CAN BE UNDERSTOOD BY FOLLOWIN G CHART. 10 S.N. NAME AMOUNT CONFIRMATIONS SUBMITTED BY ASSESSEE REPLY TO INFORMATION U/S 133(6) 1. SHRI KESHRA S/O SHRI KALYAN 51500 YES - 2. SMT. KESHRI BAI W/O SHRI BALU 54412 YES REFUSED TO RECEIVE LETTER 3. SHRI CHITTER S/O SHRI BAJRANG LAL 80000 YES - 4. SHRI BALLVINDERA SINGH S/O SHRI GOPAL SINGH 90886 YES - 5. SMT. HARVINDER KAUR W/O SHRI MANN SINGH 140000 YES - 6. SHRI RAMKARAN S/O SHRI KISHAN 147500 NO - 7. SMT. SANTRA BAI W/O SHRI BALRAM 158500 YES YES 8. SHRI KANWARLAL S/O SHRI KASHI RAM 200000 YES - 9. SHRI BHAWANI S/O SHRI NATHU 248487 NO - 10. M/S. ASSOCIATES STONE INDUSTRIES 296000 NO YES 11. SHRI KANWRA S/O SHRI GYARSI 340864 YES YES THE AO FOUND THAT THERE WAS DIFFERENCE IN ACCOUNT OF SHRI KANWRA BETWEEN THE INFORMATION SUPPLIED BY THE ASSESSEE AND THE IN FORMATION GATHERED BY THE AO U/S 133(6) OF THE ACT. THE ASSESSEE REPLIED TO E XPLAIN THE DIFFERENCE AS UNDER:- WE HAD SOLD TRACTORS FOR RS. 461864/- TO SHRI KAN WRA S/O SHRI GYARSI ON 08.03.2006. THIS TRACTOR WAS SOL D ON THE UNDERSTANDING THAT THE PARTY SHALL PAY US RS.4 LAC AND OLD TRACTOR. EVEN MARGIN MONEY PAYABLE TO BANK WAS ALSO 11 SUPPOSED TO BE DEPOSITED BY US. THEIR OLD TRACTOR W AS SOLD BY US FOR RS.121000/- AND THE SAID MONEY WAS CREDITED TO THE ACCOUNT OF THE PARTY ON 31.03.2006. THUS LEAVING BA LANCE RECEIVABLE AT RS. 340864/-. MARGIN MONEY RS. 79136/ - WAS DEPOSITED BY US IN BANK ON 03.04.2006 AND ON THE SA ME DATE WE RECEIVED CHEQUE OF RS. 4 LACS FROM BANK THUS LEA VING DEBIT BALANCE WITH THE PARTY AT RS. 20000/- WHICH WE TRAN SFERRED TO DISCOUNT ACCOUNT. NOW THE PARTY SAYS THAT THEY HAD MADE PAYMENT OF RS. 4 LACS THROUGH BANK LOAN DURING F.Y. 2005-06 AND THAT THEY HAD GIVEN US OLD TRACTOR FOR RS. 1600 00/-. IN FACT, HE HAD ESTIMATED SALE PRICE AT THAT TIME AT RS. 160 000/-, BUT WE SUBMIT IT DOES NOT CHANGE THE SITUATION BECAUSE AS PER HIM SALE PRICE OF TRACTOR IS RS. 4.81 LACS WHEREAS IN FACT I T IS RS. 4.61 LAC. FURTHER AMOUNT RECEIVED AGAINST OLD TRACTOR AN D DISCOUNT TOTALS TO RS. 1.41 LACS WHEREAS AS PER HIM THIS IS TOTAL 1.60 LACS. THIS RESOLVES THE DIFFERENCE. WE SUBMIT THAT VARIAT ION IN DATE OF PAYMENT MADE BY HIM IS DUE TO THIS FACT THAT HE DOES NOT UNDERSTAND FINANCIAL YEAR ETC. BECAUSE HE IS ILLITE RATE. THE AO WAS NOT SATISFIED MAINLY BECAUSE SHRI KANWRA HAS PUT HIS THUMP IMPRESSION IN THE CONFIRMATION FILED BY THE ASSESSE E AND THAT TOO OF HIS BROTHER SHRI BARDHILAL WHO WAS LIVING TOGETHER WITH SHRI KANWRA. LIKEWISE CONFIRMATION FROM SHRI RAM KARAN (REGARDING RS. 1,4 7,500/-); SHRI BHAWANI (REGARDING RS. 2,48,487/-); AND SHRI KANWRA (REGARD ING RS. 3,40,864/-) COULD NOT BE FILED . THEREFORE, THE AO TOTALLED THESE AMO UNTS AND ADDED A SUM OF RS. 7,36,851/- IN THE HANDS OF THE ASSESSEE. 3.3 BEFORE THE LD. CIT(A), THE ASSESSEE PRODUCED A LETTER DATED 29-08- 2009 ALONGWITH TWO CONFIRMATIONS AND ALSO EXPLAINED ACCOUNT OF SHRI KANWRA. THE COPIES OF THESE DOCUMENTS ARE ENCLOSED AS ASSESSEE'S PAPER BOOK NO. 34 TO 36 AND 18 TO & 19. THE ASSESSEE ALSO PRODUCED THE CERTIFICATE 12 OBTAINED FROM BANK AND THE COPY OF WHICH IS ENCLOSE D AT PAGE 47 OF THE ASSESSEE'S PAPER BOOK. THE LD. CIT(A) FORWARDED ALL THESE DETAILS AND EVIDENCES TO THE AO FOR VERIFICATION. THE AO AFTER VERIFICATION REPLIED VIDE HIS LETTER DATED 17-11-2009, THE COPY OF WHICH IS E NCLOSED AT PAGE 67 & 68 OF ASSESSEE'S PAPER BOOK. THE AO DISCUSSED THE CASE OF SHRI KANWRA AND HAS REFRAINED FROM MENTIONING ANYTHING ABOUT OTHER TWO PERSONS. THE ASSESSEE EXPLAINED THAT CHEQUE WAS GIVEN BY BANK ON 03-04-20 06 AND THERE WAS NO POSSIBILITY OF INCORPORATING THE SAME IN ASSESSEE'S BOOKS AS ON 31-03-2006. THIS CHEQUE HAS BEEN INCORPORATED IN THE BOOKS OF T HE ASSESSEE ON 03-04- 2006. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, THE LD. CIT(A) HAS DELETED THE ADDITION OF RS. 7,36,851/- BY MAKING FO LLOWING OBSERVATIONS. AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS. 7,3 6,851/- ON ACCOUNT OF DEBTORS SHOWN BY APPELLANT IN HIS BA LANCE SHEET. THESE ARE THE AMOUNTS DUE TO BE RECEIVED BY THE APP ELLANT AND EVEN IF FOR THE SAKE OF ARGUMENT IT IS ACCEPTED THA T THE AMOUNTS WERE NOT DUE TO THE APPELLANT, IT CANNOT BE MADE PA RT OF INCOME OF APPELLANT. THIS IS NOT THE CASE OF AO THAT APPEL LANT RECEIVED CERTAIN AMOUNTS FROM THESE DEBTORS WITHOUT RECORDIN G THE SAME IN HIS REGULAR BOOKS OF ACCOUNTS. THEREFORE, ADDITI ON OF RS. 7,36,851/- IS NOT JUSTIFIED AND THE SAME IS DIRECTE D TO BE DELETED. GROUND NO. 2 IS THUS ALLOWED. 3.4 AGAINST THIS, THE DEPARTMENT IS AGGRIEVED AND W E HAVE HEARD THE RIVAL SUBMISSIONS. BOTH THE PARTIES HAVE REITERATED THEIR STAND PUT BEFORE THE LD. CIT(A) IN RESPECT OF THIS ADDITION. AFTER HEARING AND AFTER EXAMINING THE DETAILS OF THIS ISSUE, WE HAVE FOUND THAT THE ASSES SEE PRODUCED EVIDENCES 13 REGARDING TWO OTHER PERSONS AND IN REMAND REPORT TH E AO HAS NOT MENTIONED ANYTHING ABOUT THEM. IN THIS WAY, THE SUBMISSIONS O F THE ASSESSEE MUST HAVE BEEN ACCEPTED BY HIM AS CORRECT. THEREFORE, THE LD. CIT(A) HAS CORRECTLY DEALT WITH THOSE TWO CASES. HENCE, THE MATTER REGAR DING CONFIRMATION OF RS. 1,47,500/- AND RS. 2,48,487/- CANNOT BE FALTERED WI TH. REGARDING SHRI KANWRA MATTER, THE BANK HAS GIVEN A CERTIFICATE WHI CH IS ENCLOSED AT 47 OF THE ASSESSEE'S PAPER BOOK AND ONLY THE FACT IS THAT CONFIRMATORY LETTER FILED BY THE ASSESSEE ORIGINALLY WAS THUMB MARKED BY SHRI KA NWRAS BROTHER. WHEN THE AO HIMSELF GATHERED INFORMATION REGARDING THIS AMOUNT PERTAINING TO SHRI KANWRA AND THIS HAS BEEN CONFIRMED. WE ARE NOT ABLE TO UNDERSTAND AS TO WHY THERE CAN BE ANY REASON FOR GRIEVANCE TO THE REVENUE. ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE LD. CIT(A) IN THIS R EGARD AND DISMISS THE GROUND NO. 2 OF REVENUES APPEAL. 4.1 THE GROUND NO. 3 OF THE REVENUES APPEAL IS REG ARDING DELETION OF ADDITION OF RS. 95,000/- U/S 68 OF THE ACT MADE BY THE AO ON ACCOUNT OF UNEXPLAINED CREDIT. 4.2 THE FACTS APROPOS TO THIS GROUND ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE AO SOUGHT COPY OF ACCOUNTS OF ACCOU NTS OF M/S. MUNDRA TRACTORS FROM THE BOOKS OF ASSOCIATED STONE INDUSTR IES (ASI). IT WAS SUPPLIED AND THE SAME IS AS UNDER:- 14 31-03-2006 TO CLOSING BALANCE 391000 29-03-2006 BY BILL NO.425 39100 ----------- ------------ 391000 391000 ------------ ------------- IN OUR BOOKS OF ACCOUNTS THEIR ACCOUNT WAS AS UNDER :- 29-03-2006 TO BILL NO.425 391000 31-03-2006 BY TRA NSFER 95000 31-03-2006 BY CLOSING BALANCE 296000 ----------- ---- ----------- 391000 391000 ------------ -------- ------- HOWEVER, THE AO NOTICED VARIATION OF RS. 95,000/- A ND SOUGHT EXPLANATION FROM THE ASSESSEE AND THE ASSESSEE FILED THE FOLLOW ING REPLY. 'WE HAD SOLD ONE TRACTOR TO M/S ASSOCIATED STON E INDUSTRIES, KOTA FOR RS. 391000/- ON 29.03.2006 AGA INST THIS TRACTOR SALE, WE HAD TAKEN THEIR OLD TRACTOR NO. RJ20-R-061 8 WITH AN UNDERSTANDING THAT WE SHALL TAKE A SUM OF RS. 25000 0/- ONLY FROM THEM AND BALANCE SHALL BE ADJUSTED AGAINST OLD TRAC TOR. OLD TRACTOR WAS SOLD BY US TO SHRI JAVED S/O ABDUAL LATIF FOR R S. 95000/- ON 31.03.2006 AND WE RECEIVED PAYMENT ALSO FROM SAID P ARTY ON THAT DATE WHICH WE CREDITED TO ACCOUNT OF ASI LTD. THUS LEAVING BALANCE RECEIVABLE ON 31.03.2006 AT RS. 296000/-. IN NEXT YEAR ON 17.08.2006, WE RECEIVED PAYMENT OF RS. 250000/- BY CHEQUE DATED 10.08.2006 FROM THEM WHICH WAS AS WE HAD RECEIVED F INAL PAYMENT FROM PARTY, BALANCE AMOUNT RS. 46000/- WE TRANSFERR ED TO DISCOUNT ACCOUNT. THAT M/S ASSOCIATED STONE INDUSTRIES, KOTA SHOWING A SUM OF RS. 141000/- PAYABLE TO US TILL DATE BUT IT'S A FAC T THAT TRACTOR WAS SOLD BY US ON BEHALF OF ASI ON 31.03.2006 AND WE HAD GIV EN PHYSICAL DELIVERY ALSO TO JAVED ON SAME DATE AND THEREFORE T HIS AMOUNT HAS BEEN SHOWN BY US IN OUR BOOKS. IT APPEARS THAT AS T RACTOR WAS STILL IN NAME OF ASI, IT DID NOT MAKE CORRESPONDING ENTRY ON 31.03.2006. BUT THE FACT REMAIN THAT THEY HAD MADE PAYMENT OF RS. 2 50000/- ON 17.08.2006 AND SINCE THEN EVEN AFTER GAP OF 27 MONT HS, NOTHING HAS BEEN PAID BY THEM WHICH SPEAKS OF THE NATURE OF THE TRANSACTION CONSIDERING THE ENTIRETY OF THE CIRCUMSTANCES IT IS SUBMITTED THAT OUR EXPLANATIONS BE ACCEPTED. ' 4.3 BEING NOT SATISFIED, THE AO ADDED RS. 95,000/- BY MAKING FOLLOWING OBSERVATIONS. 15 'FURTHER, IN THE CASE OF ASSOCIATED STONE INDUSTR IES, (KOTA) LTD., RAMGANJMANDI THE ASSESSEE HAS SHOWN TH E CLOSING CREDIT BALANCE OF RS.296000/-. IN THE INFORMATION RECEIVED THE ASSOCIATED STONE INDUSTRIES,(KOTA) LTD., RAMGANJMANDI HAS SHOW N THE CREDIT BALANCE AS RS. 391000/-. THUS THE ASSESSEE HAS SHOW N THE CREDIT BALANCE LESS BY RS. 95000/-. THIS AMOUNT HAS BEEN C REDITED IN THE BOOKS OF ASSESSEE ON 31.03.2006 THE ACCOUNT HOLDER DENIES ANY SUCH PAYMENT. THE ASSESSEE COULD NOT FURNISH ANY SATISFA CTORY VERIFIABLE EXPLANATION WHEN THE COPY OF THIS LETTER WAS PROVID ED TO HIM. THEREFORE THIS AMOUNT IS TREATED AS EXPLAINED CREDI T U/S 68 AND RS. 95000/- IS THE TOTAL INCOME OF THE ASSESSEE.' 4.4 HOWEVER, THE LD. CIT(A) HAS DELETED THIS AMOUNT . 4.5 BEFORE US, BOTH THE PARTIES HAVE ADVANCED THE S AME ARGUMENTS AS WERE DONE BEFORE THE LD. CIT(A) . THE SUMS AND SUBSTANCE OF THE ASSESSEE'S SUBMISSION IS AS UNDER:- I) CONFIRMATION FROM SHRI JAVED AHEMD TO WHOM OLD TRACTOR REGISTERED IN NAME OF ASI, KOTA WAS SOLD FO R RS.95000/- ON 31.03.2006. II) COPY OF CASH BOOK FROM 29.03.2006 TO 31.03.2006 WHEREFROM RECEIPT OF RS.95000/- FRON JAVED AHEMD IS VERIFIABLE. BESIDES IT ALSO EVIDENCES THAT WE HAD O PENING CASH IN HAND ON 31.03.2006 AT RS.224384/- AND CLOSING CA SH BALANCE ON THAT DAY AT RS.1507439/- AND THERE WAS NO NEED O F FURTHER FUNDS OF RS.95000/- TO MOTIVATE US TO INTRODUCE RS. 95000/- IN NAME ASL / JAVED AHEMD UNNECESSARILY. 4.6 AFTER CONSIDERING THE SUBMISSIONS, WE HAVE FOUN D THAT THE ASSESSEE SUBMITTED ITS EXPLANATION BEFORE THE AO DURING ASSE SSMENT PROCEEDINGS ON 11- 12-2008 AND IN CASE THE AO WAS NOT SATISFIED WITH T HIS REPLY, HE COULD MAKE ENQUIRIES FROM SHRI JAVED AHMED WHO HAD CLAIMED TO HAVE PURCHASED OLD TRACTOR OF ASSOCIATED STONE INDUSTRIES (ASI) FOR R S. 95,000/-. DURING APPELLATE 16 PROCEEDINGS, NO FURTHER EVIDENCE HAS BEEN BROUGHT B EFORE US IN THIS REGARD. ACCORDINGLY, THE IMPUGNED DELETION OF ADDITION OF R S. 95,000/- IS JUSTIFIED. THUS THE GROUND NO. 3 OF THE REVENUE STANDS DISMISSED. 5.1 THE GROUND NO. 4 OF REVENUES APPEAL IS REGARDI NG DELETION OF ADDITION OF RS. 5,91,393/- ON ACCOUNT OF DISALLOWANCE OF IN TEREST PAYMENT. 5.2 THE FACTS OF THIS GROUND ARE THAT DURING ASSESS MENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST ON ADVANCE OF RS. 49,28,275/- WAS MADE INTEREST FREE. THE ASSESSEE REPLIED VIDE LETTER DATED 26-12-2008 AS UNDER:- WE HAVE INTEREST FREE ADVANCE OF RS. 333000/-, RS . 26600/-, RS. 788000/-, RS. 112366/-, RS. 685000/- & RS. 2983309/- RECEIVABLE FROM M/S. ANIL INDUSTRIES (PROP. ANIL MU NDRA) SMT. SARLA MUNDRA, M/S. MANAK GRANITE (P) LTD., M/S.MUNDRA CAP ITAL LEASING (P) LTD., M/S. SHREE INDUSTRIES (PROP. SMT. RUKMANI DEV I MUNDRA) & M/S. MUNDRA AGRICULTURAL HOUSE RESPECTIVELY, TOTALING TO RS. 4928275/- ALL FAMILY MEMBERS / CONCERNS. SIMILARLY WE HAVE INTERE ST FREE CREDITS FROM M/S. AGRO GENERAL INDUSTRIES (PROP. ANIL INDUSTRIES ), M/S. MUNDRA & JAIN MARBLES, M/S. MUNDRA STONES (PROP. SMT. SARLA MUNDRA), M/S. MUNDRA METALS (PROP. B.D. MUNDRA), M/S. MUNDRA TRAC TORS (P) LTD. AND M/S. SARAL INDUSTRIES (PROP. SMT. SARLA MUNDRA) FOR RS. 1247140/-, RS. 144000/-, RS. 2152408/-. RS. 407151/-, RS. 3141767/ - & 750000/- RESPECTIVELY FROM FAMILY MEMBERS / CONCERNS TOTALIN G TO RS. 7842466/-. NEITHER WE ARE CHARGING INTEREST FROM INTEREST FREE ADVANCES NOR WE ARE PAYING INTEREST ON DEPOSITS. IT SHALL NOT BE OUT OF PLACED TO MENTION HERE THAT TOTAL ADVANCES GIVEN BY US INCLUDES RS. 298330 9/- TO MUNDRA AGRICULTURE HOUSE (WHICH RELATES TO SELL/PURCHASE T RANSACTION) IS RS. 4928275/- WHEREAS TOTAL INTEREST FREE DEPOSITS WITH US ARE OF RS. 7842466/-. CONSIDERING MAGNITUDE OF INTEREST FREE D EPOSITS OF RS. 7842466/- VIS-A-VIS INTEREST FREE ADVANCE OF RS. 19 44966/- (4928275 17 2983309) IT IS SUBMITTED THERE IS NO CASE OF ANY DI SALLOWANCE OF INTEREST AS PROPOSED BY YOU ON INTEREST TO BANK/ UNSECURED L OAN, SMT. RUKMANI MUNDRA AND SHRI B.D. MUNDRA AT RS. 1334309/- RS. 77 912/- & RS. 262481/- RESPECTIVELY. 5.3 HOWEVER, THE AO DISALLOWED THE INTEREST BY CALC ULATING IT @ 12 PER ANNUM ON THE AMOUNT OF RS. 49,28,275/- FOR THE ENTI RE YEAR WHICH COMES TO RS. 5,91,393/- AND HAS DISALLOWED FROM INTEREST PAYMEN T. HOWEVER, THE LD. CIT(A) HAS DELETED THIS ADDITION. NOW REVENUE IS AGGRIEVED . 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE ENTIRE RECORDS. AFTER HEARING BOTH THE SIDES, WE HAVE FOUND THAT TH E ASSESSEE HAS OBTAINED INTEREST FREE DEPOSITS DURING THE YEAR AT RS. 1,60, 11,432/- AND HAS MADE INTEREST FREE ADVANCES/ LOANS TOTALING TO RS. 4928,275/- AS UNDER:- INTEREST FREE DEPOSITS RS. INTEREST FREE A DVANCES/ LOANS RS. CAPITAL 8168966 ANIL INDUSTRIES (PROP. ANIL MUNDRA SON) 333000. AGRO GENERAL INDUSTRIES (PROP. ANIL MUNDRA SON 1247140 M/S. SHREE STONE INDUSTRIES PROP.RUKMANI MUNDRA W/O B.D. MUNDRA 685000 M/S. MUNDRA METALS (PROP. SARLA MUNDRA) 2152408 SMT. SARLA MUNDRA W/O ANIL MUNDRA 26600 M/S. SARAL INDUSTRIES (PROP. SARLA MUNDRA) 750000 M/S. MANAK GRANITE (P) LTD. (DIRECTORS B.D.MUNDRA, ANIL MUNDRA & PAWAN MUNDRA) 788000 M/S. MUNDRA TRACTORS (P) LTD. (DIRECTORS B.D.MUNDRA, ANIL MUNDRA & PAWAN MUNDRA) 3141767 M/S. MUNDRA CAPITAL LEASING (P) LTD. DIRECTORS B.D. MUNDRA, ANIL MUNDRA & PAWAN MUNDRA 112366 M/S. MUNDRA JAIN MARBLES (FAMILY PARTNERSHIP FIRM) 144000 M/S. MUNDRA AGRICULTRUE HOUSE (FAMILY PARTNERSHIP FIRM) 2983309 RS. 16011432 RS. 4928275 18 BY ADOPTING THE NEXUS THEORY, NO DISALLOWANCE CAN B E MADE AS THE ASSESSEE'S INTEREST FREE ADVANCES ARE MUCH MUCH MORE THAN THE INTEREST FREE ADVANCES. IN THIS REGARD, THE DECISION OF HON'BLE APEX COURT IN THE CASE OF HIGHWAY CONSTRUCTION CO. VS. CIT, 111 CTR 143 AMONGST OTHER ARE RELEVANT. IN FACT, THE AO HAS NOT DISALLOWED INTEREST OF RS. 5,91,393 ON I NTEREST FREE LOANS / ADVANCES BUT HAS CHARGED INTEREST @ 12% PER ANNUM FOR FULL Y EAR ON INTEREST FREE ADVANCES OF RS. 49,28,275/-. THEREFORE, NO CASE OF INTEREST DISALLOWANCE IS MADE OUT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CAS E. THE DECISIONS OF HON'BLE APEX COURT IN THE CASE OF MADHAV PRASAD JAIN VS. CI T, (1979) 10 CTR 375 AND S.A. BUILDERS LTD. VS. CIT (2006) 206 CTR 631 ARE R ELEVANT. ACCORDINGLY, WE CANNOT ALLOW GROUND NO. 4 OF REVENUE APPEAL. THUS T HE SAME IS DISMISSED. 6.1 THE GROUND NO. 2 OF ASSESSEE'S APPEAL PERTAINS TO CONFIRMATION OF ADDITION TO THE TUNE OF RS. 4,59,348/- OUT OF TRADE COMMISSION. 6.2 THE FACTS OF THIS CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO REQUIRED DETAILS REGARDING TRAD E COMMISSION OF RS. 11,19,848/-.THE ASSESSEE FURNISHED REPLY VIDE LETTE R DATED 24-12-2008 AS UNDER:- THAT TRADE COMMISSION OF RS.11,19,848/-REPRSENTS PAYMENTS MADE TO FARMERS AT THE TIME OF SALE OF TRA CTOR. IT IS SUBMITTED THAT IN ORDER TO PROMOTE FARMERS AND THEI R FAMILIES, WHO ARE NORMALLY ACCOMPANIED WITH THE FARMER AT THE TIM E OF PURCHASE OF THE TRACTOR, WE PAY THEM AT THE RATE OF RS. 3500 /- PER TRACTOR. 19 THIS SYSTEM IS GOING ON SINCE 1982. WE TAKE SIGNATU RES OF THE FARMERS ON PAYMENT VOUCHERS. FURTHER THE AO CALLED FOR VOUCHERS PERTAINING TO TH ESE EXPENSES. THE ASSESSEE REPLY VIDE LETTER DATED 28-12-2008 AS UNDER:- YOUR HONOUR HAS PROMISED THAT AS NEITHER TRADE COMMISSION IS SUPPORTED BY VOUCHER, NOR IT IS BEING PAID IN CONSIDERATION OF SERVICES RENDERED, WHY IT SHOULD N OT BE DISALLOWED. IN THIS CONNECTION, WE SUBMIT THAT TRAD E COMMISSION OF RS. 3500/- ON EACH TRACTOR, AS STATED ON EARLIER HE ARING, IS BEING PAID TO FARMERS AT THE TIME OF SALE OF TRACTOR AND THEREFORE, THERE IS NO CASE OF RENDERING ANY SERVICE. IT IS SUBMITTED T HAT IT IS IN NATURE OF INCENTIVE T FARMERS AND THEREFORE, IT IS ALLOWAB LE EXPENDITURE. THESE EXPENSES ARE SUPPORTED BY VOUCHERS. WE SUBMIT THAT IF ANY EXPENSE IS NOT SUPPORTED BY VOUCHERS IT MAY BE DISA LLOWED BUT NO ADHOC DISALLOWANCE BE MADE. VOUCHERS SHALL BE MADE AVAILABLE TO YOU FOR YOUR VERIFICATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE FILED THE ZEROX COPIES OF VOUCHERS AND THE AO DID NOT REQUIRE THE A SSESSEE TO FURNISH THE EXPLANATION OF THESE EXPENSES. THE AO HAS FOUND THA T OUT OF 212 VOUCHERS, 03 REMAINED UNSIGNED BY ANY ONE. HOWEVER, AFTER IGNORI NG THE SUBMISSION OF THE ASSESSEE, THE AO HAS DISALLOWED ENTIRE CLAIM OF RS. 11,90,848/- BY MENTIONING THAT THE ASSESSEE HAS NOT PRODUCED VOUCHERS REGARDI NG ALL THE EXPENSES AND ONLY ON SOME OF THESE VOUCHERS THUMB IMPRESSIONS ARE PUT . HE HAS FOUND THAT VOUCHERS CONTAINED THE NAME WHICH IS NOT SIMILARLY SIGNED BY THAT PERSON. 6.3 HOWEVER, IN APPEAL, THE ASSESSEE FURTHER FILED VIDE LETTER DATED 29-08- 2009 A SUBMISSION THAT THE ASSESSEE HAD ALREADY SUP PLIED THE COPY OF TRADE 20 ACCOUNT BUT THE AO ASKED THE ASSESSEE ONLY TO FILE VOUCHERS FOR COMMISSION ON 24-12-2008 WHICH WAS REPLIED BY THE ASSESSEE. IT WA S STATED THAT THE SCRUTINY ASSESSMENT WAS MADE DURING THE ASSESSMENT YEAR 1989 -90, 19901-91, 1991-92, AND 1992-93 AND IN THESE YEARS THE ASSESSEE HAD PAI D SIMILAR COMMISSION AMOUNTING TO RS. 3,19,204/-, RS. 3,73,320/-, RS. 17 1,215/- AND RS. 2,25,100/-, RESPECTIVELY BUT THE AO DID NOT DISALLOW ANYTHING O UT OF THESE CLAIMS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) HAS TAKEN FOLLOWING DECISION. AO IS NOT SUPPOSED TO STEP INTO SHOES OF BUSINESS MAN AND DECIDE AS TO HOW MUCH EXPENDITURE SHALL BE INCURRED UNDER A PARTICULAR HEAD. AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT EXPENSES CLAIMED ARE EITHER BOGUS OR INF LATED. HE ONLY MENTIONED THATIT APPEARS THAT THE ASSESSEE HAS IN FLATED HIS EXPENSES SO AS TO REDUCE THE TAXABLE PROFITS. IT WAS INTIMATED BY THE APPELLANT THAT SIMILAR EXPENSES ARE BEING INCUR RED BY HIM FROM LAST MANY YEARS AND IN THE PAST NO DISALLOWANCE HAS BEEN MADE ON THIS ACCOUNT. APPELLANT ON THE OTHER HAND FURNISHED PHOTOCOPIES OF CASH PAYMENT VOUCHERS IN RESPECT OF SALE OF 209 TR ACTORS DURING ASSESSMENT PROCEEDINGS. IF AO WAS NOT SATISFIED ABO UT GENUINENESS OF THESE PAYMENTS, HE SHOULD HAVE CONDU CTED INQUIRY AT LEAST IN A FEW CASES ON RANDOM BASIS AND BROUGHT SOME SPECIFIC MATERIAL ON RECORD. IN THE ABSENCE OF ANY SUCH EXER CISE, AO IS NOT JUSTIFIED TO SUMMARILY REJECT CLAIM OF APPELLANT IN THIS REGARD. I ALSO DO NOT AGREE TO THE OBSERVATION OF AO THAT THE EXPENDITURE CLAIMED UNDER THIS HEAD IS IN THE NATURE OF CHARITY AND DONATION. THE PAYMENT IS MADE ONLY TO FARMERS WHO PURCHASES T RACTORS DURING THE YEAR FROM APPELLANT AND NOT TO EVERY PER SON. THEREFORE, THE EXPENDITURE IS ESSENTIALLY RELATED TO BUSINESS OF APPELLANT. AO IS THEREFORE, DIRECTED TO ALLOW PAYMENT UNDER THIS HEAD IN RESPECT OF SALE OF 209 TRACTORS FOR WHICH VOUCHERS WERE PR ODUCED BEFORE HIM. THUS DISALLOWANCE UNDER THIS HEAD IS RESTRICTE D TO RS. 4,59,348/- MADE BY AO GROUND NO. 6 IS THUS PARTLY A LLOWED. 21 THE LD. CIT(A) ALLOWED PART RELIEF TO THE ASSESSEE. HENCE, BOTH THE PARTIES ARE AGGRIEVED. THE DEPARTMENT HAS CHALLENGED PART RELIE F GRANTED TO THE ASSESSEE WHEREAS THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF ADDITION OF RS. 4,59,348/- 6.4 BEFORE US, BOTH THE PARTIES HAVE REITERATED THE IR EARLIER STANDS. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAVE FOUND TH AT THE ASSESSEE HAS BEEN CLAIMING SIMILAR EXPENSES IN PAST AND THE SAME HAVE BEEN ALLOWED BY THE AO. THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOU NTING FOR CLAIMING THE DEDUCTION OF EXPENDITURE CONSISTENTLY FOR SEVERAL P AST YEARS. THIS PRACTICE FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED CONTINUO USLY BY THE DEPARTMENT. THE SAME PRACTICE HAS ALSO BEEN ACCEPTED EVEN IN SU BSEQUENT YEARS. THEREFORE, REVENUES CONTENTION OF MAKING ENTIRE ADDITION OF R S.11,90,848/-IS NOT TENABLE IN THE EYES OF LAW IN VIEW OF THE DOCTRINE OF STARE DECISIS . IT IS NOTICED THAT THE AO HAD GIVEN SHORT NOTICE TO THE ASSESSEE TO PRODUC E THE SUPPORTING VOUCHERS OF THESE EXPENSES. WE ARE IN AGREEMENT WITH THE LD. AR THAT SUCH A SHORT SPAN OF TIME, IT IS NOT PRACTICABLE TO PRODUCE ALL THE SUPP ORTING VOUCHERS. THIS CONTENTION OF THE ASSESSEE SEEMS TO BE JUSTIFIED. HOWEVER, IN PRINCIPLE, WE ACCEPT THE CONTENTION OF THE ASSESSEE AND BY FOLLOWING THE THE ORY OF CONSISTENCY, THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION IN THIS GROUND BUT THE EXPENSES WHICH ARE NOT SUPPORTED BY VOUCHERS CAN ONLY BE ALLOWED A FTER ASKING THE ASSESSEE AND GIVING CLEAR OPPORTUNITY TO PRODUCE THE REMAINING V OUCHERS. IN CASE THE ASSESSEE 22 IS SUCCESSFUL IN PRODUCING THESE VOUCHERS, THE REMA INING ADDITION OF RS. 4,59,348/- SHALL ALSO BE DELETED. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED . 7.1 THE GROUND NO. 3 OF THE ASSESSEE'S APPEAL READS AS UNDER:- THAT THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FURTHER ERRED IN CONFIRMING ADDITION OF RS. 1,48,295/- ON ACCOUNT OF SUPPRESSED CLOSING STOCK WITHOUT APPREC IATING THAT CONSIDERING MAGNITUDE OF EXPENSES IT WAS CHARGED TO EXPENSES A/C IN FULL AS AND WHEN PURCHASED. BESIDES, IT IS SUBJE CT TO CORRESPONDING RELIEF IN ASSTT. YEAR 2007-08 7.2 THIS GROUND HAS NOT BEEN PRESSED BY THE LD. AR AT THE TIME OF HEARING. THEREFORE, THE GROUND NO. 3 OF THE ASSESSEE STANDS DISMISSED. 8.1 THE GROUND NO. 4 OF THE ASSESSEE'S APPEAL IS RE GARDING DISALLOWANCE OF TELEPHONE EXPENSES AT RS. 38,847/- WHICH HAS BEEN C ONFIRMED BY THE LD. CIT(A) 8.2 THIS GROUND HAS NOT BEEN PRESSED BY THE LD. AR AT THE TIME OF HEARING. THEREFORE, THE GROUND NO. 4 OF THE ASSESSEE STANDS DISMISSED. 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ITA NO. 607/JP/2011- REVENUE & CO 67/JP/2011 ASSES SEE(A.Y.2007-08) 10. THE APPEAL BY THE REVENUE AND THE C.O. BY THE A SSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), KOTA, DATED 30 -03-2011. 23 11.1 THE REVENUE HAS RAISED FOLLOWING GROUNDS IN IT S APPEAL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN:- 1. RESTRICTING ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST PAYMENT FROM RS. 807853/- TO RS. 13609/-. 2. DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF RS. 1695700/- OF TRADE COMMISSION. 3. DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF 2,15,240/- FOR NO TDS DEDUCTED ON INTEREST PAID. 4. RESTRICTING ADDITION ON ACCOUNT OF DISALLOWANCE OF DISCOUNT ACCOUNT (LOSS ON SALE OF OLD TRACTORS) FRO M RS. 338800/- TO RS. 45000/- 5. RESTRICTING ADDITION ON ACCOUNT OF TELEPHONE EXPENSES FROM RS. 38653/- TO RS. 1000/- 6. RESTRICTING ADDITION ON ACCOUNT OF PETROL AND DIESEL EXPENSES FROM RS. 1,05,983/- TO RS. 25,000/- . 7. RESTRICTING ADDITION ON ACCOUNT OF VEHICLE REPA IR AND MAINTENANCE EXPENSES FROM RS. 50,000/0 TO RS. 10,000/- 8. DELETING ADDITION ON ACCOUNT OF DIWALI EXPENSES OF RS. 10,000/- 9. DELETING ADDITION ON ACCOUNT OF CLUB MEMBERSHIP FEES OF RS. 17,090/- 10. THE APPELLANT CRAVES LIBERTY TO RAISE ADDITIONA L GROUND AND TO MODIFY/ AMEND THE GROUND OF APPEAL AT THE TIME OF HEARING. 11.2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS C.O. 24 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DIRECTING LD. AO TO CONFIRM DISALLOWANCE OF THE BAD DEBTS RS. 38,211/- IF IT RE LATES TO MARGIN MONEY PAYMENT TO TRACTOR PURCHASES. 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FURTHER ERRED IN CONFIRMING :- (I) DISALLOWANCE OF RS. 13,609/- OUT OF INTEREST PAYMENT; (II) DISALLOWANCE OF RS.10,000/- OUT OF TELEPHONE EXPENSES; (III) DISALLOWANCE OF RS.25,000/- OUT OF PETROL/ DIESEL EXPENSES; (IV) DISALLOWANCE OF RS. 10,000/- OUT OF VEHICLE REPAIR AND MAINTENANCE EXPENSES; AND (V) DISALLOWANCE OF RS. 40,000/- OUT OF DUSHERA MEAL EXPENSES. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY AND/ OR OTHERWISE SUBSTITUTE ANY OF T HE FOREGOING GROUNDS AS AND WHEN REQUIRED. 12.1 THE GROUND NO. 1 OF THE REVENUES APPEAL AND G ROUND NO. 2 (I) OF C.O. OF THE ASSESSEE ARE IN RESPECT OF ADDITION MADE ON ACCOUNT OF DISALLOWANCE OUT OF INTEREST PAYMENT OF RS. 8,07,853/- WHICH HAS BEE N RESTRICTED TO RS. 13,609/- BY THE LD. CIT(A) THAT IS WHEY BOTH THE PARTIES ARE AGGRIEVED. AS WE HAVE DISCUSSED IN ASSESSMENT YEAR 2006-07, THE INTEREST FREE ADVANCES ARE MUCH LESS THAN THE INTEREST FREE DEPOSITS. ACCORDINGLY WITH T HE SIMILAR ANALOGY, WE DELETE 25 ENTIRE ADDITION OF RS. 8,07,853/- AND ALLOW GROUND NO. 2(I) OF ASSESSEE'S C.O. AND DISMISS THE GROUND NO. 1 OF REVENUES APPEAL . 13.1 THE GROUND NO. 2 OF THE REVENUES APPEAL IS RE GARDING DELETION OF ADDITION OF RS. 16,95,700/- ON ACCOUNT OF DISALLOW ANCE OF TRADE COMMISSION. 13.2 THE FACTS APROPOS TO THIS GROUND ARE THAT THE ASSESSEE HAS CLAIMED TRADE COMMISSION AMOUNTING TO RS. 16,95,700/- IN THE PROF IT AND LOSS ACCOUNT .THE ASSESSEE WAS ASKED TO PROVIDE COMPLETE DETAILS INCL UDING NAMES OF THE PAYEES ALIONGWITH THEIR COMPLETE ADDRESSED AND PANS TO JUS TIFY THE GENUINENESS OF THE TRANSACTIONS. THIS PAYMENT IS MADE TO THE TRACTOR P URCHASERS @ RS. 4500/- PER TRACTOR. SINCE THE INCEPTION OF THE FIRM IN 1982-83 , THE ASSESSEE HAS BEEN FOLLOWING THE SIMILAR MODUS OF PAYING SUCH A TRADE COMMISSION AS IT IS SO CALLED. THE IDEA STATED BEHIND THIS ACTION IS TO PROMOTE TH E SALES OF THE ASSESSEE BUT THE AO WAS OF THE OPINION THAT THAT PROMOTING OF WELFAR E OF FAMILY OF FARMERS INOT THE BUSINESS OF THE ASSESSEE. HE HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF COMMISSION PAID TO ITS SUB -DEALERS FOR SALE OF TRACTORS AND TOWARDS SALES PROMOTION EXPENSES INCURRED BY IT S FIELD STAFF/ SALES STAFF. THE ASSESSEE HAS ALSO PAID VEHICLE, PETROL EXPENSES AND THEIR MAINTENANCE & REPAIRS. THUS THE AO TOOK THIS PAYMENT AS INFLATION OF EXPE NSES TO REDUCE THE TAXABLE INCOME AND HE DISALLOWED ENTIRE TRADE COMMISSION O F RS. 16,.95,700/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 26 13.3 BEFORE THE LD. CIT(A), ASSESSEE HAS MADE ALMO ST SIMILAR SUBMISSIONS WHICH CAN BE SUMMARIZED AS UNDER:- WE SUBMIT LD. AO COULD NOT UNDERSTAND THE NATURE OF PAYMENT. PAYMENT @ RS. 4500/- HAS BEEN MADE TO FARM ERS AT THE TIME OF PURCHASE OF TRACTOR. PAYMENT OF THIS COMMIS SION WAS INITIATED BY US BEFORE 27YEARSD WHEN WE HAD COMMEN CED TRACTOR BUSINESS. IN EARLIER YEARS, IT WAS RS. 500/- PER TR ACTOR WHICH WITH THE PASSAGE OF TIME INCREASED FROM RS. 500/- TO RS. 4500/- PER TRACTOR. THE LD AO ASKED US TO SUBMIT PAN NOS. AND ACCOUNTS COPIES OF THE PARTIES WHICH WAS NOT AT ALL REQUIRED BECAUSE FARMERS DO NOT HAVE PAN NOS. BESIDE THIS COMMISSION WAS NOT REFLECT IN ACCOUNTS ALSO BECAUSE THIS EXPENSES WAS PAID IN CAS H THROUGH CASH VOUCHER. WE HAD DURING ASSESSMENT PROCEEDINGS FURNI SHED NAME AND ADDRESS OF THE PERSONS TO WHOM COMMISSION WAS PAID AND ALSO PRODUCED VOUCHERS. THE LD. AO COULD NOT FOUND ANY DEFICIENCIES IN THE VOUCHERS AND THEREFORE, WE SUBM IT THIS IS ALLOWABLE EXPENSES U/S 37 OF THE I.T. ACT, 1961. WE MAY FURTHER MENTION THAT IN ASSESSMENT YEAR 1989-90, 1990-91, 1 991-92 & 1992-93, WHEN WE WERE SUBJECT TO SCRUTINY ASSESSMEN TS AND EXPENSES OF THIS NATURE TO THE EXTENT OF RS. 319204 /-, RS. 373320/-, RS. 171215/- AND RS. 225100/- RESPECTIVELY WEE THER E AND AFTER DETAILED ENQUIRIES FROM FARMERS NOT EVEN A SINGLE P ENNY DISALLOWED. IT IS THEREFORE, PRAYED THAT EXPENSES O F RS. 1695700/- BE ALLOWED. WE MAY FURTHER SUBMIT THAT RULE OF CONS ENTIENCE ALSO REQUIRES THAT THIS EXPENSES BE ALLOWED IN TOTO. WE MAY MENTION AT THIS STAGE THAT RATIO OF DECISION OF LAXMI NARAYAN MADANLAL & SWADESHI COTTON MILLS CITED BY THE LD. AO ARE NOT A PPLICABLE IN OUR CASE BECAUSE THEY ARE IN RELATION TO MANAGING A GENCY/ SELLING AGENCY COMMISSION. 13.4 AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS COME TO THE CONCLUSION THAT THE AO CANNOT STEP INTO THE SHOES OF THE BUSINESSMAN AND DECIDE THE MANNER OF CONDUCTING ITS BUSINESS. HE HAS FOUND THAT AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO P ROVE THE EXPENSES CLAIMED 27 BY THE ASSESSEE EITHER BOGUS OR INFLATED. ACCORDING LY, BY OBSERVING THAT THESE PAYMENTS HAVE BEEN MADE TO THE FARMERS WHO PURCHASE S TRACTORS DURING THE YEAR FROM THE ASSESSEE AND NOT TO EVERY PERSON, HAS ALLO WED THIS EXPENDITURE AND HAS ORDERED THE DELETION OF IMPUGNED ADDITION OF RS. 16 ,95,700/-. 14.1 NOW THE REVENUE IS AGGRIEVED. WE HEARD BOTH TH E SIDES IN THIS REGARD. SINCE WE HAVE DECIDED THE SIMILAR ISSUE IN EARLIER ASSESSMENT YEAR AS ABOVE WITH SIMILAR REASONING, WE ALSO CANNOT ALLOW THIS GROUND OF THE REVENUES APPEAL IN THIS YEAR. AS A RESULT, WE DISMISS THIS GROUND NO. 2 OF THE REVENUES APPEAL. 15.1 THE GROUND NO. 3 OF THE REVENUES APPEAL PERTA INS TO DELETION OF ADDITION OF RS. 2,15,240/- MADE ON ACCOUNT OF DISALLOWANCE FOR NON-DEDUCTION OF TDS ON INTEREST PAID. 15.2 THE FACTS APROPOS TO THIS GROUND ARE THAT THE ASSESSEE HAS DEBITED THE INTEREST AMOUNT OF RS. 1,29,978/- AND RS. 87,262/- ALLEGEDLY PAID TO SHRI B.D. MUNDRA AND SMT. RUKMANI DEVI MUNDRA, RESPECTIVELY B UT NO TDS IS FOUND TO HAVE BEEN DEDUCTED ON THESE PAYMENTS. THE ASSESSEE WAS CONFRONTED WITH THIS OBJECTION OF THE AO. THE REPLIED VIDE LETTER DATED 28-12-2009 WHICH WAS FOUND TO BE SATISFACTORY. THE AO ADDED THE TOTAL AMOUNT O F RS. 2,15,240/- (RS. 1,27,978 PLUS RS. 87,262) TO THE INCOME OF THE ASSE SSEE. 28 15.3 IN APPEAL, THE LD. CIT(A) WAS CONVINCED THAT S HRI B.D. MUNDRA AND SMT. RUKMANI DEVI MUNDRA HAD PAID DUE TAXES ON THIS RECE IPT OF INTEREST WHILING FILING THEIR INDIVIDUAL RETURNS FOR THE ASSESSMENT YEAR 2007-08. THE LD. CIT(A) HAS OBSERVED THAT IF THIS FACT IS FOUND TO BE CORRE CT THEN IN VIEW OF THE DECISION OF HON'BLE APEX COURT RENDERED IN THE CASE OF HINDU STAN COCA COLA BAVERAGRE (P) LTD. VS. CIT (2002) 211 CTR 545 INCLUDING OTH ER DECISIONS OF THIS TRIBUNAL. HE HAS DIRECTED THE AO TO VERIFY THIS CLA IM OF THE ASSESSEE AND SUBJECT TO THIS VERIFICATION, HE HAS ORDERED THE DELETION OF IMPUGNED ADDITION. THE REVENUE HAS RAISED THE GROUND WITHOUT MENTIONING TH EREIN THAT THEY ARE IN AGREEMENT, IN PRINCIPLE THAT IN CASE THE PAYEES HAV E PAID THEIR RESPECTIVE TAXES ON THE INTEREST RECEIVED THEN IN THAT CASE, THE ASS ESSEE PAYEE CANNOT BE HELD LIABLE IN DEFAULT OR GUILTY IN CONTRAVENTION OF TDS PROVISIONS. 15.4 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE IN AGREEMENT OF THE LD. CIT(A) AND THEREFORE, CANNOT ALLOW THIS GROUND OF T HE REVENUES APPEAL AND HENCE THE GROUND NO. 3 OF THE REVENUE STANDS DISMIS SED. 16.1 THE GROUND NO. 4 OF REVENUES APPEAL PERTAINS TO RESTRICTIPN OF ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DISCOUNT ACCOUN T (I.E. LOSS ON SALE OF OLD TRACTORS) FROM RS. 3,38,800/- TO RS. 45,000/-. 29 16.2 IN THIS BOTH THE PARTIES HAVE REITERATED THEIR EARLIER ARGUMENTS. THE ASSESSEE HAS NOT PREFERRED AN APPEAL AGAINST THE SU STAINED ADDITION. WE HAVE FOUND THAT THE ASSESSEE WOULD TAKE POSSESSION OF OL D TRACTORS FROM PURCHASERS OF NEW TRACTORS. THE OLD TRACTORS WOULD BE SOLD TO OTH ER CUSTOMERS BETWEEN THE PRICE SETTLED. BUT IN THIS MELEE, THE ASSESSEE WOUL D MANY A TIMES SUFFER A LOSS AS THE ASSESSEE'S OLD TRACTORS MAY BE SOLD FOR A LESSE R PRICE THAN WHAT WAS SETTLED WITH EARLIER CUSTOMERS. THE AO FOUND THAT IN 13 SUC H CASE, THE ASSESSEE DID NOT PRODUCE THE REGISTRATION NUMBERS OF OLD TRACTORS FO R WHICH A TOTAL AMOUNT OF RS. 3,38,800/- IS INVOLVED. ACCORDINGLY, HE DID NOT ALL OW THIS CLAIM AND ADDED THIS AMOUNT TO THE ASSESSEE'S INCOME OF THIS YEAR. HOWE VER, IN APPEAL, THE ASSESSEE WAS ABLE TO PROVE THAT IT HAD PROVIDED SALE AGREEME NT OF ALL THE 63 PARTIES WHICH HAVE RESULTED INTO ABOVE MENTIONED LOSS TO THE ASSE SSEE. THE ASSESSEE HAS SUBMITTED A STATEMENT OF LOSS INCURRED ON ACCOUNT O F EXCHANGE OF OLD TRACTORS VIDE ANNEXURE D OF LETTER DATED 13-12-2009. THE LD . CIT(A) WAS ALSO CONVINCED THAT CUT THROAT COMPETITION IN THIS LINE OF BUSINESS, SUCH EXPENSES ARE INEVITABLE. HOWEVER, BEFORE DELETING THE IMPUGNED A DDITION, THE LD. CIT(A) HAS MENTIONED THE FIGURES THAT THE ASSESSEE HAS DISCLOS ED BETTER PROFIT IN TERMS OF GROSS PROFIT EVEN AFTER SUCH LOSS. 16.3 AFTER HEARING BOTH THE SIDES, WE ARE OF THE OP INION THAT , IN PRINCIPLE, THE AO HAS ALLOWED THIS PRACTICE ENSUED BY THE ASSESSEE YEAR AFTER YEAR. BUT OUT OF 30 63 CASES TRANSACTED IN THIS YEAR, HE HAS ALLOWED ON LY 50 CASES. THE LOSS QUA OF 13 SUCH TRANSACTIONS WAS NOT ALLOWED ONLY BECAUSE R EGISTRATION NUMBERS OF OLD TRACTORS WERE NOT SUPPLIED BY THE ASSESSEE. IT IS N OTICED THAT REGISTRATION OF 08 OLD TRACTORS ARE AVAILABLE IN THE COPIES OF AGREEMENT F ILED BEFORE THE AO FROM 18-12- 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE REGISTRATION NUMBERS OF 12 TRACTORS WERE FURNISHED. THE LD. CIT(A) HAS FURT HER DIRECTED THE AO TO VERIFY THIS FACT AND ALLOW DEDUCTION OF THE ENTIRE AMOUNT CLAIMED. THEREFORE, WE DO NOT FIND ANY FALLACY IN THIS FINDING OF THE LD. CIT(A) WHICH IS QUITE JUSTIFIED. OUR ABOVE OBSERVATIONS ARE RESULTED IN DISMISSAL OF GRO UND NO. 4 OF THIS APPEAL OF THE REVENUE. 17.1 THE GROUND NOS. 5, 6 AND 7 OF THE REVENUE AND GROUND NO. 2 OF THE C.O. OF THE ASSESSEE ARE SUMMARILY DECIDED ON THE C ONCURRENCE OF BOTH THE PARTIES BY THE LD. CIT(A). 17.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. CONSIDERING THE C IRCUMSTANCES AND FACTS OF THE CASE, THE DISALLOWANCE SUSTAINED OUT OF TELEPHONE E XPENSES, PETROL AND DIESEL EXPENSES, VEHICLE AND REPAIR MAINTENANCE EXPENSES A RE MADE JUST HALF. THEREFORE, WE ALLOW PARTLY THE GROUND NO. 2 OF THE C.O. OF THE ASSESSEE AND DISMISS THE RELATED GROUNDS OF THE REVENUES APPEAL . 31 18.1 AS REGARDS THE GROUND NO. 8 OF THE REVENUE PER TAINING TO DELETION OF DIWALI EXPENSES OF RS. 10,000/-, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). HENCE, GROUND NO. 8 O THE ASSESSEE IS DISMISSED. 19.1 THE GROUND NO. 9 OF THE REVENUE PERTAINS TO DE LETION OF ADDITION ON ACCOUNT OF CLUB MEMBERSHIP FEES OF RS. 17,090/-. 19.2 THE FACTS OF THIS CASE ARE THAT THE ASSESSEE H AS SPENT A SUM OF RS. 17,090/- TOWARDS MEMBERSHIP OF ROTARY CLUB. ACCORDING TO THE ASSESSEE , THIS EXPENDITURE IS REQUIRED FOR THE BENEFIT OF THE BUSI NESS OF THE ASSESSEE AS THIS RESULTS IN GOOD RELATIONS WITH THE DISTRICT ADMINIS TRATION AND OTHER RESPECTABLE PEOPLE AND THEREFORE, THIS EXPENDITURE IS ALLOWABLE UNDER THE PROVISION OF SECTION 37 OF THE ACT. THE LD. CIT(A) HAS DELETED T HIS ADDITION. 19.3 WE HAVE HEARD BOTH THE PARTIES AND FOUND THAT THIS EXPENDITURE HAS BEEN ALLOWED AND THE SAME SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS. ACCORDINGLY, NO INTERFERENCE IS WARRANTED IN THIS F INDINGS OF THE LD. CIT(A). THUS THE GROUND NO. 9 OF THE REVENUES APPEAL STAND S DISMISSED. 32 20.0 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED AND THE APPEAL OF THE ASSESSEE AND THE CROSS OBJECTION ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 -01-2014 SD/- SD/- (.N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMEBR JAIPUR DATED: 28 TH JAN 2014 *MISHRA COPY FORWARDED TO:- BY ORDER 1. THE ACIT, CIRCLE- 1 / DCIT, CIRCLE- 1, KOTA 2. M/S. B.D. MUNDRA & SONS, PROP. MUNDRA TRACTORS, KOTA 3. THE LD. CIT(A) 4. THE LD. CIT 5. THE DR 6. THE GUARD FILE (IT NO.591/JP/11) A.R., ITAT, JAIPUR 33 34