BHARAT DANA BERA, MUMBAI V. I.T.O. 19(1)(3), MUMBAI

ITA 7537/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88487 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Assessee Lawyers: HARSHAVARDHAN DATAR
• Keywords: Bogus purchase; Rejection of books of accounts; Business income; Additional evidence; Corroborative evidences; Block assessment
• Section: 68; 145; 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (M.Z.) AN D SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.7537/MUM/2011 (A.Y.2007-08) BHARAT DANA BERA C/O., JAYESH SANGHRAJKA & CO. CHARTERED ACCOUNTANTS UNIT NO.405, HIND RAJASTHAN CENTRE D.S. PHALKE ROAD, DADAR (E) MUMBAI-400 014. GIR NO./PAN : AKVPB 8714 H (APPELLANT ) VS. THE INCOME TAX OFFICER WARD 19 (1)(3), PIRAMAL CHAMBERS MUMBAI. (RESPONDENT) APPELLANT BY : SHRI HARSHAVARDHAN D ATAR RESPONDENT BY : SHRI VIVEK BATRA DATE OF HEARING : 03 /03/201 5 DATE OF PRONOUNCEMENT : 05 /03/2015 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL IS FILED BY THE ASSESSEE. IT IS DIRECTE D AGAINST THE ORDER PASSED BY LD. CIT(A) DATED 05/08/2011 FOR THE ASSE SSMENT YEAR 2007- 08. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO SUSTAINED ADDITION OF RS.23,34,721/- BY CIT(A) OUT OF ADDITION MADE BY AO AT RS.35,13,739/-. 2. FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A PR OPRIETOR OF M/S. NAUGHTY GIRLS WHICH IS IN THE BUSINESS OF MANUFACTU RING AND TRADING IN READY-MADE GARMENTS. THE AO FOUND FROM THE RETURN O F INCOME AND DETAILS THEREOF THAT THERE ARE OUTSTANDING SUNDRY C REDITORS. IN ORDER TO VERIFY THE GENUINENESS OF THE CREDITORS GENERATED O VER THE YEARS ON 2 ITA NO.7537/M UM/11 ACCOUNT OF PURCHASES NOTICES U/S. 133(6) OF THE ACT WERE ISSUED TO 14 PARTIES. OUT OF WHICH 8 NOTICES WERE RETURNED UNSER VED WITH THE REMARKS NOT KNOWN. OUTSTANDING SUNDRY CREDITORS ARE SHOWN AT RS.35.49 LACS IN THE NAME OF 31 PARTIES AS PER THE BALANCE S HEET. THE AO NOTED THAT EVEN, AFTER PROVIDING SUFFICIENT OPPORTUNITIES AND TIME THE ASSESSEE FAILED TO PROVIDE THE NECESSARY DETAILS FOR PROVING THEIR GENUINENESS IN RESPECT OF THE REMAINING 25 PARTIES. THE AO FURTHER NOTED THAT THE NON FURNISHING OF THE REQUISITE DETAILS GIVES AN INDICA TION THAT THE ASSESSEE HAS EITHER NOT PAID CREDITORS OR THE CREDITORS ARE NON EXISTING. AFTER HAVING MADE THOROUGH ENQUIRY IN RESPECT OF SUNDRY C REDITORS THE AO REACHED TO THE CONCLUSION THAT OUT OF TOTAL OUTSTAN DING SUNDRY CREDITORS OF RS.35,49,294/- AN AMOUNT OF RS. 35,555/- IS ONLY GENUINE SUNDRY CREDITORS. THE REMAINING AMOUNT OF RS.35,13,739/- A RE NON-GENUINE CREDITORS AND ARE NO MORE PAYABLE. THEREFORE, THE A O MADE ADDITION OF RS. 35,13,739/- U/S.41(1) OF THE I.T . ACT, 1961. THE ASSESSEE IS IN APPEAL AGAINST THIS ADDITION MADE BY THE AO. 3. ON APPEAL CIT(A) CALLED FOR THE REMAND REPORT FR OM AO AND OBSERVED THAT OUT OF RS.35,13,739/- ASSESSEE FAILED TO FURNISH PROOF OF CREDITORS IN RESPECT OF RS.23,34,721/- AND PROVED T HE CREDITORS ONLY IN RESPECT OF RS.11,79,018/- AND AS SUCH HE HAS SUSTAI NED ADDITION OF RS.23,34,721/- .AGAINST THIS ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE A MOUNT OF RS.23,34,721/- HAS CEASED TO EXIST AND ALSO THERE I S NO REMISSION OF LIABILITY IN RESPECT OF THIS AMOUNT. IT IS FURTHER SUBMITTED THAT SINCE ASSESSEE HAS SHOWN THESE AMOUNTS AS PAYABLE AND NOT CREDITED THEM AS CESSATION OF LIABILITIES AND THERE IS NOTHING ON RE CORD TO SUGGEST THE 3 ITA NO.7537/M UM/11 REMISSION GRANTED BY THE RESPECTIVE PARTIES, ADDITI ON MADE BY THE AO IS TO BE DELETED. IT IS FURTHER SUBMITTED THAT THESE C REDITORS IRRESPECTIVE OF ANYTHING CANNOT BE ADDED BY INVOKING THE PROVISIONS OF SECTION 68 AS THE SAID PROVISIONS ARE NEITHER INVOKED DURING THE ASSESSMENT PROCEEDING NOR DURING THE FIRST APPELLATE PROCEEDIN G. IT IS FURTHER SUBMITTED THAT THESE CREDITORS IRRESPECTIVE OF ANYT HING COULD BE ADDED BY INVOKING THE PROVISIONS OF SECTION 68 AS THE SAI D PROVISIONS ARE APPLICABLE ONLY FOR THE YEAR IN WHICH CREDIT IS MAD E. SINCE, ALL THESE BALANCES ARE OPENING BALANCES HENCE, PROVISIONS OF SECTION 68 COULD BE INVOKED. RELIANCE IN THIS REGARD WAS PLACED ON DE CISION OF ITAT IN MATTER OF ACIT VS. M/S EXPO GAS CONTAINERS LIMITED IN ITA NO.6271/MUM/2011, ORDER DATED 10.7.2013 IN WHICH IT HAD BEEN HELD THAT REMISSION OF LIABILITY ARISES WHEN CREDITOR VO LUNTARILY GIVES UP THE CLAIM. THE CESSATION OF LIABILITY ARISES ONLY WHEN IT CEASES TO EXIST IN THE EYES OF LAW FOR ALL INTENTS AND PURPOSES. FURTHER T HE LD. AR RELIED ON DECISION OF HON. BOMBAY HIGH COURT IN MATTER OF CIT VS SURINDRA ENGINEERING CO. PVT. LTD. ITA NO 2812 OF 2010 ORDER DATED 12.09.2012 IN WHICH IT HAD BEEN HELD THAT ALLEGED BOGUS PURCHA SES COULD BE TAXED ONLY IN YEAR OF TRANSACTION. RELIANCE WAS PLACED ON DECISION OF HON. BOMBAY HIGH COURT IN MATTER OF CIT VS SUGAULI SUGAR WORKS PVT. LTD. (102 TAXMAN 713) IN WHICH IT HAD BEEN HELD THAT OBTAINING THE BENEF IT BY ASSESSEE IS SINE QUA NON FOR THE APPLICATION OF THE SECTION 41(1). RELIANCE WAS ALSO PLACED ON DECISION OF ITAT IN MAT TER OF ITO V. M/S. V. KUMAR & SONS IN ITA NO 4649/MUM/2012 ORDER DATED 21.8.2012 IN WHICH IT HAD BEEN HELD THAT CLOSING BALANCES CANNOT BE CONSIDERED AS REMISSION OR CESSATION BY THE PARTY, EVEN AFTER THR EE YEARS OF BALANCE. RELIANCE WAS PLACED ON DECISION OF ITAT IN THE MATT ER OF MRS. 4 ITA NO.7537/M UM/11 SHAILIKARANI GOEL V. ITO IN ITA NO.911/MUM/2009 ORDER DATED 13/08/2010 IN WHICH IT IS FOUND THAT LIABILITY IN RESPECT OF ALL THREE PARTIES IS APPEARING IN THE BOOKS OF ASSESSEE AND THERE WERE NO PURCHASES DURING THE YEAR. ALL THE BALANCES WERE OU T OF OPENING BALANCES ONLY. THEREFORE, SECTION 68 CANNOT BE INVO KED AS GENUINENESS OF THE TRANSACTION CAN BE EXAMINED ONLY IN YEAR TO WHICH IT PERTAINED. RELIANCE WAS ALSO PLACED ON DECISION OF ITAT IN THE CASE OF BAMBOAT & CO VS. ACIT IN ITA NO. 1438/MUM/2010 ORDER DATED 2 0.04.2011 IN WHICH IT HAS BEEN HELD THAT THE BURDEN FOR PROVING, THAT THE LIABILITY HAD CEASED TO EXIST DURING THE YEAR, IS ON REVENUE. THI S VIEW IS ALSO SUPPORTED BY DECISION OF THE TRIBUNAL IN CASE OF DCIT VS. BHAGWANDAS SHOBERLAL JAIN 60 LTD 118, AND ALSO BY THE DECISION OF HONBLE SUPREME COURT IN MATTER OF SUGAULI SUGAR WORKS 236 ITR 518 . RELIANCE WAS PLACED ON DECISION OF ITAT IN MATTER OF INTERNATIONAL CLOTHING INDS LTD V. DCIT ITA NO. 5923/MUM/2009 ORDER DATED 28/01/2011 IN WHICH IT HAS BEEN FOUND THAT LIABILITY HAS BEEN SHOWN AS OUT STANDING AND NOT WRITTEN OFF BY ASSESSEE. IT HAD BEEN HELD THAT DEPA RTMENT COULD ASSESS THE UNDER SECTION 41(1) ONLY WHEN ASSESSEE WRITES I T OFF ACTUALLY. RELIANCE WAS ALSO PLACED ON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT V. SHRI VARDHAMAN OVERSEAS LIMITED ITA NO 774 O F 2009, 16 TAXMANN.COM 350 IN WHICH IT HAD BEEN HELD THAT ADDITION FOR CESSAT ION OF LIABILITIES CANNOT BE MADE UNDER SECTION 28(IV). FURTHER, RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF ITAT IN MATTER OF DCIT VS. ALLIED LEATHER FINISHERS PVT. LTD 32 SOT 549, IN WHICH IT HAD BEEN HELD THAT CLOSING BALANCES OF CREDITORS COULD NOT BE ADD ED BY INVOKING PROVISIONS OF SECTION 41(1). IT HAD ALSO BEEN HELD THAT SECTION 41(1) IS INVOKED FOR INFLOW OF CREDIT IN EARLIER YEAR WHILE SECTION 68 IS INVOKED FOR 5 ITA NO.7537/M UM/11 INFLOW OF CREDIT IN THE CURRENT YEAR. IN THE LIGHT OF ABOVE FACTS, CIRCUMSTANCES AND JUDICIAL PROPOSITION, IT IS CONTE NDED BY THE LD. AR FOR THE ASSESSEE TO ALLOW THE GROUND AND DELETE THE ADD ITION. 4.1 THE LD. AR FURTHER SUBMITTED THAT GROUND NO. 2 IS AGAINST THE REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE UNDE R SECTION 145(3) AND ESTIMATION OF THE NET PROFITS. DURING THE ASSESSMEN T PROCEEDINGS, DUE TO FAILURE OF ASSESSEE TO FURNISH THE BOOKS OF ACCOUNT S BY ASSESSEE, AO REJECTED THE BOOKS OF ACCOUNTS OF ASSESSEE. HOWEVER , DURING THE APPELLATE PROCEEDING, THE ASSESSEE FURNISHED THE RE LEVANT DETAILS AS AN ADDITIONAL EVIDENCES WHICH WERE ADMITTED BY CIT (A) AND FORWARDED TO AO FOR THE REMAND REPORT. IN HIS REMAND REPORT THE AO HAD NOT REPORTED ANY DEFECT OR ABSENCE OF ANY DOCUMENT. HE HAD ONLY REPORTED THE EXISTENCE OF CASH EXPENSES. ON THESE FACTS, CONFIRM ED THE REJECTION, BUT HOWEVER, REDUCED THE PERCENTAGE OF NET PROFIT RATIO AT 7% AS AGAINST THE 10% ESTIMATED BY AO. THE ASSESSEE SUBMITTED TH AT MERELY BECAUSE CASH EXPENSES ARE FOUND BOOK RESULTS OF THE ASSESSEE SHOULD NOT BE REJECTED, ESPECIALLY WHEN THEY ARE AUDITED. APART FROM THAT NO DEFECT HAS BEEN FOUND BY AO. IT IS SUBMITTED BY TH E LD. AR THAT BOOK RESULTS OF THE ASSESSEE ARE TO BE ACCEPTED AND ADDI TION CONFIRMED BY CIT (A) IS TO BE DELETED ESPECIALLY WHEN NO DEFECT IS SUBSISTING FOR BOOKS OF ACCOUNT. IT IS FURTHER SUBMITTED THAT NO ADHOC ADDITION AT THIS STAGE FOR EXISTENCE OF CASH EXPENSES IS TO BE MADE BECAU SE IT WOULD AMOUNT TO ENHANCEMENT AND REVENUE IS NOT IN THE APPEAL AG AINST THE ORDER OF CIT(A). IT IS CONTENDED BY THE LD AR TO CONFIRM TH E GROUND AND DELETE THE ADDITION. 6 ITA NO.7537/M UM/11 4.2 IT IS THE PLEA OF THE LD AR THAT GROUND NO.3 W ILL COME INTO PLAY ONLY IF GROUND NO. 1 IS REJECTED. GROUND NO.3 IS A GAINST MAKING SEPARATE ADDITION DESPITE REJECTION OF BOOKS OF ACC OUNTS. IT IS SUBMITTED THAT SINCE BOOKS OF ACCOUNTS OF ASSESSEE WERE REJEC TED AND NET PROFIT IS ESTIMATED ADDITION OF CESSATION OF LIABILITIES UNDE R SECTION 41(1) IS NOT JUSTIFIED AND LIABLE TO BE DELETED. RELIANCE IN THI S REGARD WAS PLACED ON DECISION OF ITAT IN MATTER OF M/S EXIM KARGO KARE V. ITO IN ITA NO. 5134/MUM/2011 ORDER DATED 7.08.2013 IN WHICH IT IS FOUND THAT LD. AO MADE ADDITIONS UNDER SECTION 41(1) DESPITE THE ESTI MATION OF NET PROFIT, IT HAD BEEN HELD THAT NO FURTHER ADDITION COULD BE MADE WHEN AO ESTIMATED THE NET PROFITS AFTER RELYING ON THE DECI SION OF HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. BANWARILAL BANSHIDHAR (229 ITR 229) . 4.3 HE FURTHER RELIED ON THE FOLLOWING JUDGMENT IN THE CASE OF MCORP GLOBAL (P.) LTD. (2009) 178 TAXMANN 347(SC). 5. ON THE OTHER HAND THE LD. DR SUBMITTED THAT INSP ITE OF GIVING ENOUGH OPPORTUNITY TO THE ASSESSEE, THE ASSESSEE F AILED TO ESTABLISH THE EXISTENCE OF SUNDRY CREDITORS TO THE TUNE OF RS.23, 34,702/- . BEING SO, IT WAS CONSIDERED THAT THESE CREDITORS WERE NOT IN EXI STENCE AND SAME WAS CONSIDERED AS CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IN THIS CASE THE AO REQUESTED THE ASSESSEE TO FURNISH THE DETAILS OF PURCHASES AND OUTSTANDING SUNDRY CREDITO RS, THE PAYMENT DETAILS OF CREDITORS AND YEAR FROM WHICH THE CREDIT ORS WERE SHOWN AS OUTSTANDING. THE ASSESSEE HAS FURNISHED THE PARTY-W ISE DETAILS OF 7 ITA NO.7537/M UM/11 PURCHASES AND OUTSTANDING SUNDRY CREDITORS. HOWEVER , IT IS SEEN FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT SOME OF THE CREDITORS ARE VERY OLD AND STILL SHOWN AS PAYABLE. AS THE CREDITORS APPEARING IN THE BALAN CE SHEET ARE VERY OLD AND STILL SHOWN AS PAYABLE, IT CLEARLY INDICATES DOUBTS AND HENCE IN ORDER TO VERIFY THE GENUINENESS OF THE CREDITORS GENERATED OVER A YEAR ON ACCOUNT OF PURCHASES, NOTICE U/S 13( 6) OF THE ACT WERE ISSUED TO THE FOLLOWING PARTIES AND SENT BY SPEED P OST. 6.2 IT WAS QUITE STRANGE TO NOTE THAT MOST OF NOTI CES ISSUED AND SENT BY SPEED POST BY AO HAVE BEEN RETURNED UNSERVED BY THE POSTAL AUTHORITIES . THE REASON FOR NON-SERVICE OF NOTICE HAS BEEN STATE D AS NOT KNOWN . NAME OF THE PARTY DT. OF ISSUE OF NOTICE REASON GIVEN BY THE POSTAL AUTHORITIES FOR NON-SERVICE AMOUNT OF CREDIT OUSTANDING(RS.) M/S. MARBEL TAX 14/09/2009 NOT KNOWN 312431/- M/S. FASHION INDIA 14/09/2009 NOT KNOWN 106562/- M/S. SAI BABA TEXTILES 23/09/2009 NOT KNOWN 93010/- M/S/ BABA TEXTILE 23/09/2009 NOT KNOWN 583368/- M/S. BHAVANI TEXTILE 23/09/2009 NOT KNOWN 472642/- M/S. AMBAVI 23/09/2009 NOT KNOWN 25940/- M/S. MARBEL FEB 14/09/2009 NOT KNOWN 69998/- SHREENATH TEXTILES 14/09/2009 NOT KNOWN 300115/- SHREENATH TEXTILES 23/09/2009 REPLY RECEIVED 117809/ - SHREENATH TEXTILES 23/09/2009 REPLY NOT RECEIVED SHREENATH TEXTILES 23/09/2009 REPLY NOT RECEIVED 96501/- SHREENATH TEXTILES 23/09/2009 REPLY RECEIVED 63715/- SHREENATH TEXTILES 23/09/2009 REPLY RECEIVED SHREENATH TEXTILES 23/09/2009 REPLY NOT RECEIVED 126200/- 8 ITA NO.7537/M UM/11 6.3 FROM THE ABOVE, IT CAN BE SEEN THAT OUT OF 14 CASES NOTICES WERE RETURNED UNSERVED IN 8 CASES ON THE GROUND THAT PAR TY IS NOT KNOWN. 6.4 SINCE THE NOTICES ISSUED BY AO TO THE PARTIES WERE RETURNED UNSERVED, ASSESSEE VIDE ORDER SHEET NOTING DATED 01 .10.2009 WAS ASKED TO FURNISH THE DETAILS OF SUBSEQUENT PAYMENT OF OUT STANDING SUNDRY CREDITORS BY GIVING CHEQUE NUMBER THROUGH WHICH CRE DITORS ARE PAID AND DATE OF CHEQUES ISSUED. THE AFORESAID DETAILS WERE FURNISHED ON 29 TH OCTOBER 2009 IN RESPECT OF FEW PARTIES. 6.5 THE DETAILS WERE SUBMITTED BY THE ASSESSEE BEF ORE AO IN RESPECT OF M/S BABA TEXTILES, M/S BHAVANI TEXTILES, M/S HARI ENTER PRISES, M/S JYOTI TRADERS, M/S SAI BABA TEXTILES AND M/S SHREEN ATH TEXTILES. HOWEVER, THE OUTSTANDING SUNDRY CREDITORS ARE SHOWN AT RS. 35.49 LACS IN THE NAME OF 31 PARTIES AS PER THE BALANCE SHEET. EVEN AFTER PROVIDING SUFFICIENT OPPORTUNITIES BY AO, ASSESSEE FAILED TO PROVIDE THE ABOVE DETAILS IN RESPECT OF THE REMAINING 25 PARTIES. NON FURNISHING OF THES E DETAILS GIVES AN INDICATION THAT ASSESSEE HAS EITHER NOT PAID THE CR EDITORS OR CREDITORS ARE NON-EXISTENT. 6.6 IT IS SEEN FROM THE DETAILS OF SUBSEQUENT PAYM ENT OF SUNDRY CREDITORS FURNISHED IN RESPECT OF CERTAIN PARTIES T HAT SOME OF THESE CREDITORS ARE OUTSTANDING FROM 2001 AND SOME OF THE M ARE BEING PAID PARTLY IN THE YEAR 2009. THE DETAILS FURNISHED BY T HE ASSESSEE IN RESPECT OF ONLY 5 PARTIES ARE AS UNDER : NAME OF THE CREDITORS CHEQUE NO. DATE OF ISSUE AMOUNT(RS.) FINAL CLOSING BALANCE BABA TEXTILES 276729 19.4.2007 26650/- BABA TEXTILES 277073 23.10.2008 50000/- BABA TEXTILES 277094 8.12.2008 30000/- 9 ITA NO.7537/M UM/11 BABA TEXTILES 277019 21.2.2009 30000/- 4,46,718/- BHAVANI TEXTILE 277078 2.12.2008 31350/- BHAVANI TEXTILE 277079 2.12.2008 31040/- BHAVANI TEXTILE 277003 09.05.2008 19870/- BHAVANI TEXTILE 277080 04.12.2008 32040/- BHAVANI TEXTILE 277093 8.12.2008 25245/- 3,95,487/- HARI ENTERPRISE 277106 22.12.2008 25000/- 84,700/- HARI ENTERPRISE PAID IN CASH - 42700/- SHREENATH TEXTILES 755923 04.062006 9822/- SHREENATH TEXTILES 755944 12.09.2006 12461/- SHREENATH TEXTILES 755982 14.11.2006 13272/- SHREENATH TEXTILES 277059 11.10.2006 25000/- 2,75,115/- JYOTI TRADERS PAID IN CASH - 55300/- 93,010/- 6.7 THE CREDITORS WHICH ARE OUTSTANDING FROM 2001 IF PAID IN THE YEAR 2009 CLEARLY INDICATES DOUBTS AND HENCE IN ORDER TO EXAMINE THE CORRECTNESS OF THE STATEMENT FURNISHED BY THE ASSES SEE, NOTICE U/S 133(6); WAS ISSUED TO THE BANKER OF THE ASSESSEE BY AO, REQUIRING IT TO FURNISH THE COPY OF BANK STATEMENT AND PAYMENT DETAIL IN RESPECT OF OUTSTANDING CREDITORS AS STATED BY THE ASSESSEE TO SETTLE THE CREDITORS. 7. THE ASSESSEE WAS NOT ABLE TO FURNISH THE BANK ST ATEMENT COPY, HOWEVER, THE AO PROCURED THE BANK STATEMENT FROM TH E BANK AND FOUND CERTAIN DISCREPANCIES IN THE STATEMENT REGARDING PA YMENT TO SUNDRY CREDITORS. FINALLY HE MADE AN ADDITION OF RS.35,13, 739/- IN RESPECT OF OUTSTANDING CREDITORS TREATING AS CESSATION LIABILI TY. HOWEVER, CIT(A) CALLED FOR REMAND REPORT FROM THE AO IN THE COURSE OF FIRST APPELLATE PROCEEDINGS AND ONCE AGAIN THE AO CALLED FOR DETAIL S OF SUNDRY CREDITORS 10 ITA NO.7537/M UM/11 AND PAYMENT TO THEM. THE ASSESSEE FAILED TO FURNISH THE DETAILS IN RESPECT OF SUNDRY CREDITORS AMOUNTING TO RS.23,34,7 21/-. ADMITTEDLY, THESE CREDITS CONTINUED TO BE CARRIED FORWARD YEAR AFTER YEAR. IN THE NORMAL COURSE EVERYBODY WOULD ORDINARILY CLAIM THE DUES AND USUALLY THEY TAKE STEPS TO RECOVER THE DUES IF IT IS A GENU INE LIABILITY. IN THIS CASE, THE LIABILITY REMAINS TO BE RECOVERED YEAR AF TER YEAR. FOR INVOKING PROVISIONS OF SECTION 68 OF THE ACT, IF ANY SUM IS TO BE FOUND CREDITED IN THE BOOKS OF THE ASSESSEE MAINTAINED DURING THE PRE VIOUS YEAR, ONLY THEN IT WOULD BE POSSIBLE TO MAKE ADDITION UNDER SE CTION68 OF THE INCOME TAX ACT. IN THE CASE OF CARRIED FORWARD CRED IT, WHICH IS FROM EARLIER YEAR, PROVISIONS OF SECTION 68 CANNOT BE AP PLIED. IN THE PRESENT CASE, THE LIABILITIES OUTSTANDING IN THE BOOKS OF A CCOUNT OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND ONL Y THE PROVISIONS OF THE SECTION 41(1) OF THE ACT COULD BE APPLIED. IN T HE PRESENT CASE THE ASSESSEE FAILED TO ESTABLISH THE ACTUAL EXISTENCE O F THE IMPUGNED DISPUTED AMOUNT IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE. THE ASSESSEE HAS DRAWN ITS BALANCE SHEET BASED ON ITS BOOKS OF A CCOUNT, IN WHICH THE ABOVE AMOUNT, WERE BEING CLAIMED AS LIABILITIES DUE , TO VARIOUS PARTIES, AS AT THE END OF THE ACCOUNTING YEAR UNDER DISPUTE. HOWEVER, THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE SE LIABILITIES BY PRODUCING SUPPORTING EVIDENCE. SIMPLY THE LIABILITI ES BEING REFLECTED AGAINST CERTAIN NAMES IN THE BOOKS OF ACCOUNT WOULD NOT ESTABLISH THE GENUINENESS OF LIABILITIES. 8. ON THE OTHER HAND THE AO REQUIRED THE ASSESSEE T O FILE SUPPORTING EVIDENCE FROM THE ALLEGED CREDITORS AND THE ASSESSE E WAS ONLY ABLE TO PROVE THE EXISTENCE OF THE LIABILITY IN RESPECT OF RS.11,79,018/- AND BALANCE WAS NOT ESTABLISHED AS GENUINE. THIS SHOWS, THAT THE ASSESSEE 11 ITA NO.7537/M UM/11 HAS NO EXPLANATION TO PROVE THAT THE CREDITORS IN T HE BOOKS OF ACCOUNT ARE GENUINE. THE ASSESSEE FAILED TO DISCHARGE ITS O NUS CAST ON IT, TO SUBSTANTIATE ITS CLAIM. BEING SO, CIT(A) IS JUSTIFI ED IN HOLDING THAT SUCH LIABILITIES DID NOT EXIST AT THE END OF THE ACCOUNT ING YEAR AND RIGHTLY SUSTAINED THE SAID LIABILITIES WHICH HAS CEASED TO EXIST. 9. THE LD. AR HAD ALSO TAKEN A PLEA BEFORE US, THAT THIS ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SURINDRA ENGINEERING CO. PVT. LTD. IN IT APPEAL NO.2812 OF 2010 DATED 12/09/ 2012. WE HAVE CAREFULLY GONE THROUGH THIS JUDGMENT WHEREIN IT WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE REASON THAT THE LIABILITY IN RESPECT OF ALLEGED BOGUS PURCHASES HAVING BEEN MADE IN THE ASSESSMENT YEAR 1993 I.E. OUTSIDE THE BLOCK PERIOD, IT CANNOT BE BROUGHT TO T AX IN THE BLOCK ASSESSMENT COVERING THE PERIOD FROM 1/4/1995 TO 21/ 3/2002. BEING SO, THIS JUDGMENT IS OF NO ASSISTANCE TO THE ASSESSEE . WE FIND THAT THERE ARE FOLLOWING JUDGMENTS WHICH ARE DECIDED BY THE CO -ORDINATE BENCH AGAINST THE ASSESSEE . I) ITO VS. SHAILESH B. DATED 11/12/2013 IN ITA NO .7012/2010; II) YUSUF KANWAR VS. ITO . DATED 28/2/2013 IN ITA NO.8 408/M/2010; III) ITO VS. SAJJAN KUMAR DIDWANI 65 SOT 179; 9.1 BEING SO, IN OUR OPINION THE ABOVE JUDGMENTS AR E SQUARELY APPLICABLE TO THE FACTS OF THE CASE. ACCORDINGLY, T HIS GROUND OF THE ASSESSEE IS DISMISSED. 12 ITA NO.7537/M UM/11 10. THE NEXT GROUND I.E. GROUND NO.3 IN THIS APPEAL IS WITH REGARD TO THE ESTIMATION OF NET PROFIT OF RS. 6.95,7701- BY T HE AO. THE FACTS IN THIS REGARD ARE THAT IN THE P&L A/C, THE ASSESSEE HAS SH OWN TOTAL SALES OF RS. 69,576921 - AND TOTAL PURCHASE AT RS. 52,87,543/-. THE ASSESSEE WAS ASKED TO FURNISH THE PURCHASES MADE BY HIM WHICH WA S FURNISHED BY THE ASSESSEE VIDE LETTER DATED 18.09.2009. THE AO VERIF IED THE PURCHASES OF THE ASSESSEE BY ISSUING NOTICES U/S.133(6) OF THE L .T. ACT IN RESPECT OF 7 PARTIES. REPLIES WERE RECEIVED IN RESPECT OF TWO PA RTIES AND ALL OTHER , NOTICES WERE UNSERVED WITH THE REMARKS NOT KNOWN. T HE AO ASKED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS FOR VERIFICATION. THE AO OBSERVED THAT THESE WERE NOT F URNISHED BEFORE HIM. SINCE THE BOOKS OF ACCOUNTS ETC. WERE NOT PRODUCED BEFORE HIM THE AO PROCEEDED TO COMPLETE THE ASSESSMENT U/S.144 OF THE L.T. ACT BEING BEST AND ESTIMATED THE INCOME OF THE ASSESSEE AT 10% OF THE TURNOVER. 10.1 ON APPEAL, CIT(A) OBSERVED THAT THE AO HAD EST IMATED THE NET PROFIT OF THE ASSESSEE PRIMARILY ON THE GROUND THAT THE BOOKS OF ACCOUNTS AND BILLS ETC. WERE NOT PRODUCED BEFORE HI M. DURING THE REMAND PROCEEDINGS THE ASSESSEE HAD PRODUCED THE BO OKS OF ACCOUNTS WITH BILLS AND VOUCHERS. THE AO HAS NOT COMMENTED A DVERSELY ANYTHING ABOUT THE PURCHASE OF THE ASSESSEE. HOWEVER, WITH R EGARD TO THE FOUR- EXPENSES AS STATED ABOVE HE HAS STATED THAT THERE A RE NO BILLS AND VOUCHERS FOR THESE EXPENSES AND THE SAME ARE INCURR ED IN CASH. IN VIEW OF THIS HE ESTIMATED PROFIT AT 7% OF THE TURNOVER W HICH WORKS OUT TO RS.4,87,038/-. THEREFORE, OUT OF TOTAL ADDITION MAD E RS.6,95,770/- ADDITION TO THE EXTENT OF RS.4,87,038/- WAS CONFIRM ED AND BALANCE ADDITION OF RS.2,08,732/- WAS DIRECT TO BE DELETED. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 13 ITA NO.7537/M UM/11 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PATTERN OF ASSESSMENT IS GIVEN BY SE CTION 29 OF THE INCOME TAX ACT, WHICH STATES THAT THE INCOME FROM P ROFIT AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE P ROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTION 43 PROVIDES FOR CERT AIN DISALLOWANCES IN CERTAIN CASES NOT WITHSTANDING THAT THOSE AMOUNTS A RE ALLOWED JOINTLY UNDER OTHER SECTIONS. 11.1 THE COMPUTATION UNDER SECTION 29 IS TO BE MAD E UNDER SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE INCOME -TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE B EST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. IN OTHER WORDS, AL L THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED T O HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WI LL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACC OUNT. 12. THIS WILL MEAN THAT THE EMBARGO PLACED IN SECTI ON 41 (1) IS ALSO TAKEN INTO ACCOUNT. IN THE PRESENT CASE DURING THE COURSE OF REMAND PROCEEDINGS BEFORE AO THE ASSESSEE PRODUCED THE BOO KS OF ACCOUNT. THE AO ALSO CONFIRMED THE EXAMINATION OF BOOKS OF A CCOUNT AND OBSERVED THAT THE HAS NOT PRODUCED THE BILLS IN RES PECT OF CONVEYANCE EXPENSES RS.75,710/-; GENERAL EXPENSE RS.69,361/-, MOTOR CAR EXPENSES RS.48,000/-, TELEPHONE EXPENSES RS.20,052/ -. ONCE THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS PRODUCED BEFORE THE LOWER AUTHORITIES AND IF THERE IS CERTAIN DISCREPANCY THE AUTHORITIES WERE FREE TO MAKE 14 ITA NO.7537/M UM/11 ADDITION TO THAT EXTENT OF DISCREPANCIES NOTICED BY THE AUTHORITIES AND, AUTHORITIES WERE PRECLUDED IN REJECTING THE BOOKS O F ACCOUNT OF THE ASSESSEE. IN SUCH CIRCUMSTANCES IN OUR OPINION, IN THIS CASE REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE IS NOT JUSTIFIED. HOWEVER, THERE IS CERTAIN DISCREPANCY NOTICED BY THE AUTHORITIES IN T HE COURSE OF FIRST APPELLATE PROCEEDINGS. ACCORDINGLY, IN OUR OPINION INSTEAD OF ADHOC ESTIMATION, WE ARE INCLINED TO SUSTAIN THE DISALLOW ANCE IN RESPECT OF EXPENSES INCURRED IN CASH AND NO BILLS OR VOUCHERS WERE PRODUCED BY THE ASSESSEE FOR VERIFICATION NAMELY CONVEYANCE EX PENSES, RS.75,710/-, GENERAL EXPENSES RS.69,361/-, MOTOR CAR EXPENSES RS .48,000/-, TELEPHONE EXPENSES RS.20,052/-. ACCORDINGLY WE SUST AIN THESE ADDITIONS AND THE GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 13. IN THE RESULT, ITA NO.7537/11 IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2015 ! ' # $%& 05/03/2015 ' SD/- SD/- ( . / D. MANMOHAN ) / CHANDRA POOJARI ) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; $% DATED 05/03/2015 . % . ./JV, SR. PS 15 ITA NO.7537/M UM/11 ()* ()* ()* ()* +*!) +*!) +*!) +*!) / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE ASSESSEE 2. (.,- / THE RESPONDENT. 3. / ( ) / THE CIT(A)- 4. / / CIT 5. *0' ()% , , / DR, ITAT, MUMBAI 6. '12 3 / GUARD FILE. % % % % / BY ORDER, .*) () //TRUE COPY// 4 44 4 / 5 5 5 5 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI