MAHAVEER SUTO AGENCIES, Ajmer V. ACIT, Ajmer

ITA 781/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5322 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 21-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business expenditure; Income from undisclosed sources; Charitable institution; Opportunity of being heard; Question of law; Bad and doubtful debts; Commercial expediency
• Section: 143(3); 133A; 133(6); 131; 69

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOE FLAG ;KNO] YS[KK LNL; ,OA JH YFYR DQEKJ] U; KF;D LNL; DS LE{K BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET K UMAR, JM VK;DJ VIHY LA-@ ITA NOS. 781/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2006-07 . M/S. MAHAVEER AUTO AGENCIES, JLN HOSPITAL ROAD, BAJRANGARH CHOURAHA, AJHMER. CUKE VS. THE ACIT, CIRCLE-2, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAKFM 5368 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY S BY : SHRI SUBHASH PORWAL, CA JKTLO DH VKSJ LS@ REVENUE BY : SHRI AJAY MALIK (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 14.03.2016. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 31/03/2016. VKNS'K@ ORDER PER SHRI LALIET KUMAR, J.M. THE APPEAL FILED BY THE ASSESSEE IS ARISING FROM T HE ORDER DATED 17.10.2014 PASSED BY THE LEARNED CIT (A), AJMER FOR THE A.Y. 2 006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- UNDER THE FACTS & CIRCUMSTANCES OF CASE TH ELD. C IT (A) HAS ERRED IN CONFIRMING THE ADDITION OF :- 1) RS. 50,41,497.00 (AFTER CALCULATION ERROR IT IS RS. 51,97,761.00) FOR UNDISCLOSED INVESTMENT IN STOCK U/SEC. 69. 2) RS. 5,88,518.00 & RS. 4,03,580.00 FOR UNACCOUNTED I NCOME BEING GROSS PROFIT MARGIN ON STOCK. 2 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT 3) RS. 4,03,580.00 FOR 15% GROSS PROFIT MARGIN ON SHOR TAGE OF SPARE PARTS CONSIDERING THE SAME AS UNRECORDED SALES. 4) RS. 17,05,634.00 BEING DISALLOWANCE OF INTEREST. 5) RS. 15,58,721.00 BEING DISALLOWANCE OF CLAIM OF BAD DEBTS. THIS IS THE SECOND ROUND OF APPEAL BEFORE THE ITAT, JAIPUR BENCH. EARLIER, THE APPEAL OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION WAS DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 20.01.2012 BY SETTING ASIDE TH E ORDERS OF THE LOWER AUTHORITIES AND RESTORING THE MATTER TO THE FILE OF THE ITO WIT H THE DIRECTION TO ADJUDICATE THE MATTER AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DEALING KINETIC VEHICLES (MAHINDRA DEALERSHIP) AND OTHERS IN THE AREA OF AJMER. THE RETURN OF INCOME WAS FILED ON 31.10.2006 DECLARING A TOTAL LOSS OF RS. 16,23,592/-. THE ASSESSMENT UNDER SECTION 143(3) WAS MADE ON 29.12.2 008 THEREBY DETERMINING THE ASSESSED INCOME AT RS. 85,47,297/- AFTER MAKING THE ADDITION OF RS. 1,01,70,889/-. A SURVEY UNDER SECTION 133A WAS CONDUCTED AT THE BU SINESS PREMISES OF THE ASSESSEE ON 08.12.2005 AND THE INVENTORY OF CASH, B OOKS OF ACCOUNTS VIZ. REGISTERS, INVOICES, BILLS AND VOUCHERS AND OTHER DOCUMENTS HA VE BEEN PREPARED IN THE PRESENCE OF PARTNERS OF THE ASSESSEE FIRM. THE BOO KS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED ON THE BASIS OF THE DEFECTS FOUND AND IT IS DULY MENTIONED IN THE ASSESSMENT ORDER PASSED ON 29.12.2008. AGAINST THE ORDER PASSED BY THE AO, THE APPEAL WAS PREFERRED BEFORE LD. CIT (A) AND THE LD. CIT (A) VIDE ORDER DATED 28.03.2011 HAS GRANTED RELIEF FOR UNACCOUNTED CASH AND UNACCOUNTED STOCK OF 3 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT EXCHANGE OFFER VEHICLES OF RS. 4,90,500/-. THE ASSE SSEE HAS CHALLENGED THE ORDER OF LD. CIT (A) DATED 28.03.2011 FOR SOME OF THE GROUND S. THE ITAT VIDE ORDER DATED 20.01.2012 IN ITA NO. 345/JP/2011 DELETED THE ADDIT ION OF UNRECORDED CASH OF RS. 2,80,000/- AND HAS REMANDED BACK THE MATTER TO THE FILE OF THE AO WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE IN RESPECT OF THE FOLLOWING ADDITIONS :- I) UNACCOUNTED INVESTMENT IN STOCK RS. 50,41,49 1/-. II) UNACCOUNTED SALE OF VEHICLES RS. 5,88,518/- . III) UNACCOUNTED SALE OF SPARE PARTS ON ACCOUNT OF EXCESS STOCK IN BANK RS. 4,03,580/- IV) BANK INTEREST RS. 17,05,634/- V) BAD DEBTS RS. 15,58,721/- VI) REPAIR EXPENSES RS. 82,550/- THE AO HAS GRANTED VARIOUS OPPORTUNITIES AND FINALL Y HE HAS PASSED THE ORDER ON 28.03.2013 THEREBY ASSESSED THE INCOME TO RS. 77,56 ,970/- (EARLIER IT WAS DETERMINED AT RS. 85,47,297/-). 2.1 THE ASSESSEE BEING AGGRIEVED BY THE ORDER PASSE D BY THE AO, HAS FILED APPEAL BEFORE LD. CIT (A). THE LD. CIT (A) VIDE ORDER DAT ED 17.10.2014 HAS PASSED A DETAILED ORDER. AGAINST THE SAID ORDER THE APPELLA NT HAS FILED THE PRESENT APPEAL. 3. GROUND NO. 1 RELATES TO ADDITION OF RS. 50,41,49 7/- FOR UNDISCLOSED INVESTMENT IN STOCK U/S 69. AS PER THE DIRECTION OF THE ITAT, ASSESSEE WAS AFFORDED OPPORTUNITIES BY ISSUING VARIOUS LETTERS FROM 12.07 .2012 TO 22.02.2013 AND VARIOUS DOCUMENTS AS REQUIRED BY THE ASSESSEE WERE SUPPLIED TO THE ASSESSEE. AS REQUIRED BY THE AO, THE ASSESSEE SUBMITTED STOCK POSITION/DE TAILS AS SUBMITTED TO THE BANK AND THE SAME HAS BEEN TAKEN INTO CONSIDERATION BY T HE AO. THE AO HAS NOTICED THAT 4 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT A SURVEY WAS CONDUCTED ON 08.12.2005 AND AT THE TIM E OF SURVEY PROCEEDINGS STOCK FILE INVENTORIZED AT ANNEXURE A-1 CONTAINING MONTH- WISE STOCK POSITION IN RESPECT OF THE VEHICLES AND SPARE PARTS TILL THE DATE OF SURVE Y. THE DETAILED INFORMATION WAS ALSO CALLED FROM THE BANK AND THE BANK OFFICIALS HAVE SU BMITTED THE STOCK STATEMENT FROM 30.04.2002 TO 14.02.2006. BASED ON THE INFORMATION RECEIVED FROM THE BANK, THE AO HAS CALCULATED THE DIFFERENCE IN STOCK AS PER THE B OOKS AND AS PER THE BANK STATEMENT AND THE AO HAS CALCULATED THE EXCESS STOC K OF RS.50,41,497/- AS UNDER :- F.Y. PARTICULARS CLOSING STOCK AS PER RETURN OF INCOME (RS.) CLOSING STOCK AS PER BANK STATEMENT DATE 14.02.06. EXCESS STOCK (4-3) 2006-07 (SHOULD BE 2005-06) VEHICLES 10,77,188.00 43,07,400.00 32,30,212.00 2006-07 (SHOULD BE 2005-06 SPARE 21,13,715.00 39,25,000.00 18,11,285.00 TOTAL 2006-07 I.E. AS ON 31.03.06 31,90,903.00 82,32,400.00 50,41,497.00 IT IS THE CASE OF THE REVENUE THAT WHILE SUBMITTING THE STOCK STATEMENT TO THE BANK, IT WAS FOUND THAT MAKE, RATE AND QUANTITY WERE MENT IONED FOR VEHICLES AND SO FAR AS SPARE PARTS ARE CONCERNED, THERE WERE NO DETAILS. IT IS CASE OF THE REVENUE THAT THOUGH THE STOCK WAS FOUND TO BE LESS DURING THE SU RVEY BUT THE ADDITION WAS MADE ON EXCESS STOCK UNDER SECTION 69 OF THE IT ACT. 3.1. THE LD. A/R FOR THE ASSESSEE HAS SUBMITTED THA T THE AO HAS MADE THE ADDITION UNDER SECTION 69 OF THE ACT AND HAS FURTHER MADE TH E ADDITION ON THE BASIS OF STOCK STATEMENT GIVEN TO THE BANK FOR THE PURPOSE OF OBTA INING THE CASH CREDIT LIMIT. IT IS ALSO THE CONTENTION OF THE LD. A/R FOR THE ASSESSEE THAT IF THE STATEMENT OF BANK AUTHORITIES IS MINUTELY EXAMINED, THEN IT IS FOUND THAT THE STOCKS HAVE NOT BEEN VERIFIED AS MENTIONED IN THE ORDER FROM TIME TO TIM E. NO STOCK VERIFICATION HAS TAKEN 5 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT PLACE PRIOR OR AFTER 14.2.2006. IN FACT THE COOPERA TIVE BANK VIDE LETTER DATED 27.9.2008 HAD INFORMED THE AO UNDER SECTION 133(6) OF THE ACT THAT THE LOAN WAS SANCTIONED ON THE ADDITIONAL SECURITY AND STOCK GIV EN BY THE ASSESSEE. FURTHER THE CLERK WAS CONDUCTING THE VERIFICATION OF STOCK ON T IME TO TIME. ON THE BASIS OF THIS IT WAS SUBMITTED THAT NEITHER THE NAME OF THE CLERK NO R THE DATE OF INSPECTION WAS GIVEN IN THE LETTER DATED 27.9.2008. FURTHER THE AS SESSEE HAD ASKED FOR THE RECORD OF INSPECTION AND CROSS EXAMINATION OF THE OFFICIAL OF THE COOPERATIVE BANK BUT NONE HAS BEEN PROVIDED. LASTLY, IT WAS CONTENDED THAT NO ADDITION CAN BE MADE ON THE BASIS OF THE ORDER PASSED BY THE AO. IT WAS CONTEND ED THAT THE STOCK POSITION AS ON THE DATE OF SURVEY WAS AVAILABLE WITH THE REVENUE A ND IT WAS FOUND TO BE SHORT BY RS. 15,04,931/-. 3.2. THE LD. D/R FOR THE REVENUE HAS SUBMITTED THAT THE ORDERS PASSED BY THE AO AND LD. CIT (A) WERE IN ORDER AND THERE WERE NO ERR OR. IT WAS ALSO CONTENDED THAT THE STATEMENT GIVEN TO THE BANK IS REQUIRED TO BE R ESPECTED AND ADHERED TO AND ON THE BASIS OF THE STATEMENT GIVEN TO THE BANK, THE E XCESS STOCK WAS NOTICED AND, THEREFORE, THE ADDITION OF RS. 50,41,497/- WAS CORR ECTLY MADE. 3.3. BEFORE WE DEAL WITH THE ISSUE, IT IS NECESSARY TO REPRODUCE SECTION 69 OF THE ACT AS UNDER :- SEC. 69 UNEXPLAINED INVESTMENTS : WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING T HE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS W HICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINT AINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS N O EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVE STMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINI ON OF THE ASSESSING OFFICER, SATISFACTORY, THE VALUE OF THE I NVESTMENTS MAY 6 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINANCIAL YEAR. THE PROVISION REQUIRES THAT THE INVESTMENTS WERE MA DE WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM. TH E INVESTMENT IN OUR UNDERSTANDING, IS IN VIEW OF THE ACTUAL STOCK FOUND DURING THE COURSE OF SURVEY. IN THE PRESENT CASE THE ACTUAL STOCK WAS FOUND TO BE L ESS TO THE EXTENT OF RS. 15,04,931/-. THE ACTUAL STOCK SINCE WAS FOUND TO B E LESS TO THE EXTENT OF RS. 15,04,931/-, WE FAIL TO APPRECIATE HOW THE INVESTME NT CAN BE MADE ONCE THE INVESTMENT WAS NOT FOUND EITHER IN THE STOCK REGIST ER OR ON PHYSICAL VERIFICATION OF STOCKS DURING THE SURVEY. THE REVENUE HAS RELIED UP ON THE RECORD OF THE ASSESSEE FOR ARRIVING AT THE MONTH-WISE STOCK IN RESPECT OF VEHI CLES AND SPARE FROM APRIL, 2004 UPTO THE DATE OF SURVEY AND ON THAT BASIS THE STOCK WAS FOUND TO BE LESS TO THE TUNE OF RS. 15,04,931/-. HOWEVER, THE BOOKS OF ACCOUNT/S TOCK REGISTERS AND THE CLOSING STOCK AS MENTIONED IN THE RETURN OF INCOME WAS NOT CONSIDERED BY THE AO TO CALCULATE THE DIFFERENCES FOUND I.E. WHETHER THE ST OCK WAS FOUND LESS OR MORE. THE AO HAS MADE THE SOLE BASIS OF COMING TO THE CONCLUS ION OF ADDITION OF RS. 50,41,497/- ON THE BASIS OF STATEMENT OF STOCK S UBMITTED TO THE BANK. HOWEVER, IF WE MINUTELY EXAMINE THE RECORD SUBMITTED BY THE BAN K DATED 27.9.2008, WE WILL FIND THAT VERIFICATION OF STOCK WAS DONE FROM TIME TO T IME BY THE CLERK BUT NEITHER THE NAME OF CLERK NOR THE DATES OF INSPECTION WERE GIVE N. FROM STOCK STATEMENT FURNISHED BY THE ASSESSEE TO THE BANK, IT WAS FOUND THAT MAKE, RATE AND QUANTITY- WISE STOCK WAS MENTIONED FOR VEHICLES, AND SO FAR A S SPARE PARTS ARE CONCERNED, THERE WERE NO DETAILS. FROM THE RECORD IT IS SURFA CED THAT THE CLERK WAS VERIFYING THE 7 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT STOCK OF THE ASSESSEE IN RESPECT OF VEHICLES BUT WA S NOT ABLE TO VERIFY STOCK IN RESPECT OF SPARE PARTS. AT THE FIRST INSTANCE, N O STATEMENT OF CLERK WAS RECORDED NOR HIS NAME WAS GIVEN. WE ALSO FAIL TO APPRECIATE THAT IF THE SAID LOAN CLERK WAS VISITING THE PREMISES FOR VERIFYING THE STOCK OF TH E ASSESSEE IN RESPECT OF VEHICLES, WHY HE FAILED TO VERIFY THE STOCK IN RESPECT OF SPA RE PARTS. THEREFORE THE RESPONSE SUBMITTED BY THE BANK IS REQUIRED TO BE REJECTED. O UT OF THE TOTAL AMOUNT OF RS. 50,41,497/-, 18,11,285/- PERTAINS TO THE STOCK IN R ESPECT OF SPARE PARTS. SINCE THERE WAS NO VERIFICATION OF STOCK EVEN BY THE BANKING AU THORITY, THEREFORE, THE CONSOLIDATED STOCK STATEMENT SUBMITTED BEFORE THE B ANKING AUTHORITY FOR THE PURPOSE OF SPARES, IS NOT REQUIRED TO BE RELIED UPON AND TH E ADDITION MADE ON THE BASIS OF STOCK STATEMENT GIVEN TO THE BANK WHICH INCLUDED TH E STOCK STATEMENT OF SPARES IS REQUIRED TO BE REJECTED. THE TRIBUNAL VIDE ORDER DA TED 20.1.2012 HAS DIRECTED THE AO TO DECIDE THE ISSUE AFTER TAKING INTO BOOKS OF A CCOUNT AND RECONCILE AS ON 31.03.2006. THE REPLY OF THE MANAGER UNDER 133(6) O F THE ACT CAN NOT BE THE BASIS OF ADDITION AS THE DETAILS OF VERIFICATION OF STOCK IS A HEAR SAY EVIDENCE (IN THE ABSENCE OF DATE AND NAME OF THE CLERK) AND, THEREFO RE, IT DOES NOT HAVE ANY EVIDENTIARY VALUE. MOREOVER THE MANAGER WHO HAD GIV EN THE REPLY WAS ALSO NOT SUBJECTED TO CROSS EXAMINATION. IN THE ABSENCE OF C ROSS EXAMINATION OF THE MANAGER THE REPLY SUBMITTED CANNOT BE MADE THE BASIS OF ADD ITION. FURTHERMORE, THE AO HAS FAILED TO APPRECIATE THAT EVEN ON THE SAID STAT EMENT NO ADDITION CAN BE MADE AS THE VEHICLES AND SPARE PARTS OF M/S. KNETIC INDIA L TD. ARE EXCISABLE ITEMS AND CAN BE PURCHASED THROUGH A PROPER VALID CHANNEL. ADMITTEDL Y, NO NOTICE UNDER SECTION 131 HAS BEEN GIVEN TO M/S. KNETIC INDIA LTD SO AS TO WIN D OUT THE STATUS OF THE VEHICLES SOLD BY M/S. KNETIC INDIA LTD. TO THE ASSESSEE DURIN G THE ASSESSMENT YEAR 2006-07. 8 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT MOREOVER, THE AO HAS FAILED TO APPRECIATE THAT THE VEHICLES ARE KNOWN BY THEIR CHASSIS NUMBER AND REGISTRATION NUMBER. NO STEP HAS BEEN TAKEN BY THE AO TO VERIFY FROM THE REGISTRATION AUTHORITY AS TO HOW MANY VEHI CLES HAS BEEN REGISTERED WITH THE RTO DURING THE ASSESSMENT YEAR PURCHASED FROM T HE ASSESSEE. MOREOVER, THE AO FOR THE A.Y. 2005-06 HELD AS UNDER :- THE STOCK POSITION IS ON 01.04.2005 RS. 66.63 LAC S WAS GIVEN ONLY FOR ACCOMMODATION IN POSITION TO AVAIL THE LIM IT POSITION. THE ASSESSEE GIVEN EXCESS STOCK AMOUNT INSTEAD OF A CTUAL POSITION OF STOCK. THE VEHICLES CANNOT BE PURCHASED WITHOUT BILLS OR ANY OTHER MODE. HENCE, THE DIFFERENCE WAS ONLY O N ACCOUNT FOR SET HIGHER CREDIT FACILITIES IN THE BANK. DURIN G THE SURVEY IN NEXT FINANCIAL YEAR THERE WAS NO EXCESS STOCK WAS F OUND. THEREFORE, NO ADDITION HAS BEEN MADE ON THIS GROUND . IN OUR VIEW, THE PROPOSAL OF CONSISTENCY IS REQUIRED TO BE MAINTAINED AND THE AO CANNOT BE PERMITTED TO TAKE A CONTRARY VIEW AS HAS BEEN TAKEN IN THE EARLIER YEARS. FOR THAT PURPOSE, WE MAY REFER THE JUDGEMENT OF HON BLE SUPREME COURT IN THE MATTER OF RADHASWAMI SATSANGH AND OTHERS WHEREIN IT HAS BEEN HELD AS UNDER :- HELD, REVERSING THE DECISION OF THE HIGH COURT, ON THE FACTS, (I) THAT PROPERTY GIVEN TO THE SATGURU WAS INTENDED FOR THE COMMON PURPOSE OF FURTHERING THE PURPOSE OF THE INSTITUTION. THE C ENTRAL COUNCIL HAD AUTHORITY TO MANAGE THE PROPERTIES OF THE INSTITUTI ON AND, ON REVOCATION OF THE TRUST, THE PROPERLTY WAS NOT TO GO BACK TO T HE SATGURU, AND, AT THE MOST, IN THE PLACE OF THE TRUST, THE CENTRAL CO UNCIL WOULD EXERCISE AUTHORITY. THE TRIBUNAL WAS JUSTIFIED IN HOLDING TH AT THE PROPERTIES WERE SUBJECT TO A LEGAL LIABILITY OF BEING USED FOR THE RELIGIOUS OR CHARITABLE PURPOSES OF THE SATSANG. (II) THAT, IN THE ABSENCE OF ANY MATERIAL CHANGE JU STIFYING THE DEPARTMENT TO TAKE A DIFFERENT VIEW FROM THAT TAKEN IN EARLIER PROCEEINGS, THE QUESTION OF THE EXEMPTION OF THE AS SESSEE APPELLANT SHOULD NOT HAVE BEEN REOPENED. STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO I NCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS 9 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLE NGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALL THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. MOREOVER, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LAXMI ENGINEERING INDUSTRIES, 308 ITR 279 (RAJ.) HAS HELD AS UNDER :- 15. THEN, THE LAST JUDGMENT RELIED UPON, IS A DIV ISION BENCH JUDGMENT OF THIS COURT, IN RELAXO FOOTWEARS CASE ( 2003) 259 ITR 744 (RAJ.), WHERE THE APPLICATION MOVED BY THE REVENUE FOR CALLING FOR REFERENCE, IN IDENTICAL CIRCUMSTANCES, WAS DISMISSE D IN LIMINE, FINDING, THAT THE TRIBUNAL ON APPRECIATION OF EVIDENCE, INCL UDING THE RESULT OF INVESTIGATION, AND, DETAILS CONTAINED STATEMENT TO THE BANK WAS MOTIVATED ONE, AND IT DID NOT REFLECT THE TRUE POSI TION OF THE STOCK POSITION, BUT WAS RIGHTLY REFLECTED IN THE BOOKS OF ACCOUNT. 16. AFTER A REVIEW OF ALL THE JUDGMENTS CITED AT TH E BAR, WE ARE OF THE VIEW, THAT OF COURSE, IN COMBATORE SPINNING & W EAVING CO.S CAE (1974) 95 ITR 375 (MAD.) IT HAS BEEN OBSERVED THAT THE ALLEGED PRACTICE SHOWING INFLATED FIGURE TO THE BANK IS NOT RECOGNISED IN COMMERCIAL CIRCLES OR BY COURT, AND THE TRIBUNAL IS NOT EXPECTED TO TAKE JUDICIAL NOTICE OF SUCH SUBSTANDARD MORALITY, BUT T HEN, THE PLETHORA OF JUDGMENTS CITED ON THE SIDE OF THE ASSESSEE, DO CLE ARLY SHOW, THAT THERE CAN BE CIRCUMSTANCES, WHERE THERE MAY BE DIFF ERENCE IN THE QUANTITY OF STOCK, AS APPEARING IN THE BALANCE SHEE T, AND AS APPEARING IN THE HYPOTHECATION MADE TO THE BANK, AND THAT IF THERE IS ANY EXPLANATION COMING FORWARD FOR THE DISCREPANCY, THE N THE ADDITION NEED NOT BE MADE, AND THAT, SUFFICIENCY OR RELIABIL ITY OF THE EXPLANATION, OFFERED BY THE ASSESSEE, IS A QUESTION OF FACT, AND THE FINDINGS THEREON, AS RECORDED BY THE LEARNED TRIBUN AL, CANNOT BE INTERFERED WITH BY THED HIGH COURT, AS IT DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. 17. WITH THIS, SO FAR AS THE CASE IN HAND IS CONCER NED, IT STANDS AT MUCH HIGHER FOOTING, INASMUCH AS POSITIVE FINDING O F FACT HAS BEEN RECORDED BY THE LEARNED TRIBUNAL, WHICH MAY BE REPE ATED BY US, BEING AS UNDER :- .BESIDES, WE FIND THAT THE ASSESSING OFFICER HAD NOT BEEN ABLE TO POINT OUT ANY DISCREPANCY IN THE QUANTITY O F STOCK 10 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT HYPOTHECATED TO THE BANK AND THE QUANTITY OF STOCK AS PER BOOKS OF ACCOUNT. 18. IN OUR VIEW, ON THE FACE OF THIS FINDING, EVEN I F THERE IS SOME DIFFERENCE IN THE VALUATION OF THE SAID QUANTITY OF THE STOCK IN THE BALANCE-SHEET, AS AGAINST THE VALUATION SHOWN IN TH E BANK, IT CANNOT BE SAID TO BE RESULTING INTO ANY INCOME FROM UNDISCLOS ED SOURCES, COMING TO THE ASSESSEE, CAPABLE OF BEING ADDED IN HIS INCO ME. IN VIEW THEREOF JURISDICTIONAL HIGH COURT AND ALSO I N VIEW OF THE FACT THAT THE AO HAS FAILED TO BRING ON RECORD THE STATEMENT OF PURCHASE OF VEHICLES FROM M/S. KINETIC INDIA LTD. AND THE REGISTRATION OF VEHICLES WITH THE RTO, NO ADDITION OF RS. 50,41,497/- IS CALLED FOR. HOWEVER, SINCE IT IS TH E ADMITTED POSITION THAT DURING THE SURVEY STOCK OF RS. 15,04,931/- WAS FOUND SHORT, TH EREFORE, THE ASSESSEE IS BOUND TO EXPLAIN THE SHORT STOCK FOUND DURING THE COURSE OF SURVEY AND, THEREFORE, AT THE BEST THE ASSESSEE IS LIABLE FOR AN ADDITION OF RS. 15,04 ,931/- (WHICH INCLUDE SHORT STOCK OF VEHICLES AS WELL SPARES). ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN RESPECT OF GROUND NO. 1 AND ADDITION OF RS. 15,04,9 31/- IS SUSTAINED AND REMAINING IS DELETED. 4. GROUND NOS. 2 & 3 : RELATE TO UNACCOUNTED INCOME OF RS. 5,88,518/- & RS . 4,03,580/- BEING PROFIT MARGIN ON SALES OF VEHICLES AND SALES OF SPARE PARTS RESPECTIVELY. IN THE FIRST ROUND OF APPEAL, THE IT AT HAS SET ASIDE THESE MATTERS TO THE AO FOR FRESH ADJUDICATION. AT THE TIME OF REAS SESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED VARIOUS DOCUMENTS AS REQUIRED BY THE AO. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE AO IN THIS REG ARD, THE AO HAS HELD AS UNDER :- ASSESSEES CONTENTION IS PERUSED AND THE SAME IS NOT ACCEPTABLE. THE REASONS ON THIS ISSUE ARE DISCUSSED AT LENGTH IN TH E ORIGINAL ASSESSMENT ORDER. ALL SALE BILLS ARE WITH THE DEPARTMENT AND N O SALE BILL BOOK WAS 11 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT LEFT WHEREIN SALE OF RS. 13,98,212/- WAS RECORDED. IN OTHER WORDS NO SUCH BILL BOOK WAS FOUND AT THE TIME OF SURVEY. EVE N PARTNER SHRI MAHAVEER JAIN HAD ADMITTED THAT THERE WAS NO OTHER RECORDED SALES EXCEPT THOSE MENTIONED IN THE BILLS FOUND DURING TH E COURSE OF SURVEY. NOW ASSESSEES EXPLANATION REGARDING NON ACCEPTANCE OF SALES TO OTHER DEALERS BY THE AO IS AFTER THOUGHT. FURTHER STOCK W OULD HAVE BEEN KEPT SOMEWHERE ELSE OR SOLD WITHOUT RECORDING IN THE BOO KS AND NOT DISCLOSED TO THE SURVEY PARTY. THE G.P. WAS 12.43% WORKED OUT BY THE AUDITOR WAS APPLIED AND THERE IS NO RELEVANCE OF G. P. DECLARED IN THE IMMEDIATE PRECEDING ASSESSMENT YEARS. FURTHER IT IS TO MENTION THAT RATE, MAKE & QUANTITY WISE STOCK WAS SUBMITTED TO T HE BANK, AND NOT ON LUMP SUM BASIS AS CONTENDED BY THE A/R. NOW STOC K POSITION IS WORKED OUT AS ON 31.03.2006 INSTEAD OF 14.02.2006. A/R STATED THAT IN THE ABSENCE OF RECORD AS MENTIONED BY THE ASSESSEE HE COULD NOT GET THE VERIFIED TRANSACTIONS. AT THE TIME OF SURVEY HE WOULD HAVE EXPLAINED THE FACTS AND RECORDS WOULD HAVE PRODUCED BEFORE THE DEPARTMENT. NO SUCH RECORD WAS AVAILABLE IN THE PRE MISES DURING SURVEY. IN VIEW OF THE ABOVE, ADDITION OF RS. 5,88, 518/- IS MADE. PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 4.1. THE ASSESSEE BEING AGGRIEVED BY THE ORDER PASS ED BY THE AO, HAS CHALLENGED THE ORDER BEFORE LD.CIT (A), WHO HAS HELD AS UNDER :- 5.3. I HAVE CONSIDERED THE CONTENTIONS OF THE APPE LLANT AS WELL AS ASSESSMENT ORDER. (I) UNACCOUNTED INCOME BEING G.P. MARGIN ON SHORTAGE OF VEHICLE STOCK : IT IS SEEN THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF STOCK OF SHORTAGE IN VEHICLES FOUND DURING SURVEY A T RS. 15,04,931/-. MOREOVER ON THE BASIS OF STOCK STATEME NT FURNISHED BY THE APPELLANT TO THE BANK, THERE WAS SHORTAGE OF STOCK OF VEHICLES OF RS. 32,30,212/-. ACCORDINGLY, THE AO TR EATED THE TOTAL UNACCOUNTED SALES AT RS. 47,35,143/- ON WHICH GP WA S ESTIMATED @ 12.43% AS PER THE AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION, THEREBY MAKING THE ADDITION OF RS. 5 ,88,518/-. IN THIS CONTEXT, IT MAY BE MENTIONED THAT HONBLE IT AT HAS DIRECTED THE AO TO EXAMINE THE CLAIM REGARDING STOC K BEING FOUND SHORT IN THE SURVEY PROCEEDINGS AND STOCK STA TEMENT GIVEN TO THE BANKERS BEING DATED 14.02.2006. BOTH THE ABOVE ISSUES HAVE BEEN CONSIDERED IN GROUN D NO. 1 AND SIMILAR FINDINGS ARE APPLICABLE WHILE DETERMINI NG THE 12 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT UNACCOUNTED INCOME FROM UNRECORDED SALES OF THE VEH ICLES AND SPARE PARTS. DURING APPEAL, THE ASSESSEE HAS MERELY REITERATED THE CLAIM MADE BEFORE THE AO WHICH HAVE BEEN ALREAD Y CONSIDERED IN THE ASSESSMENT ORDER OF THE AO. IN VI EW OF ABOVE, THE ADDITIONS MADE BY THE AO ARE CONFIRMED. THE AO IS FURTHER DIRECTED TO MAKE THE GP ADDITION ON ACCOUNT OF EXCESS STOCK OF RS. 1,56,124/- ON THE PROPORTIONATE BASIS FOR VEHICLES AND SPARE PARTS AS DISCUSSED IN GROUND NO. 1. (II) G.P. ADDITION ON ACCOUNT OF UNRECORDED SALES OF SPA RE PARTS : IT IS SEEN THAT STOCK OF THE SPARE PARTS WAS FOUND SHO RT BY RS. 8,79,267/- AT THE TIME OF SURVEY AND FURTHER BY A A MOUNT OF RS. 18,11,285/- ON ACCOUNT OF BANK STATEMENT AND GP RAT E OF 15% WAS APPLIED AFTER CONSIDERING THE STATEMENT OF SHRI VINOD KUMAR JAIN IN RESPECT OF STOCK FOUND SHORT. IT MAY BE MENT IONED THAT NO STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE. THE ASSESSEE COULD NOT RECONCILE THE SHORTAGE OF TH E STOCK FOUND IN ANY MANNER. THE ASSESSEE HAS MERELY REITER ATED THE CONTENTIONS MADE BEFORE THE AO WHICH HAVE ALREADY B EEN CONSIDERED BY THE AO IN DETAILS AS REPRODUCED ABOVE . THE SHORTAGE FOUND DURING THE SURVEY AND THAT FOUND AS PER STOCK STATEMENT TO THE BANKERS HAVE BEEN CONSIDERED BY TH E AO. THE CONSEQUANTIAL FINDINGS GIVEN IN GROUND NO. 1 ARE AL SO APPLICABLE IN THIS GROUND OF APPEAL. IN VIEW OF ABOVE, THE ADD ITION MADE BY THE AO OF RS. 4,03,580/- BY APPLYING THE GP RATE OF 15% ON THE SHORT STOCK OF RS. 27,37,730/- (RS. 26,90,552 + RS. 47,178) IS CONFIRMED. THE AO IS FURTHER DIRECTED TO MAKE THE G P ADDITION ON ACCOUNT OF EXCESS STOCK OF RS. 1,56,124/- ON THE PROPORTIONATE BASIS FOR VEHICLES AND SPARE PARTS AS DISCUSSED IN GROUND NO. 1. 5. NOW THE ASSESSEE IS BEFORE US. 5.1. THE LD. A/R FOR THE ASSESSEE BEFORE US HAS SUB MITTED THAT THE ORDERS OF THE AO AND LD. CIT (A) ARE WITHOUT ANY BASIS AND THEY H AVE NOT COMPLIED WITH THE ORDER PASSED BY THE TRIBUNAL ON 20.01.2012. THE ISSUE OF GP MARGIN ON ACCOUNT OF SHORTAGE OF VEHICLES IS DEPENDENT UPON THE OUTCOME OF THE VEHICLES SHORTAGE, SPARE PARTS SHORTAGE AS DISCUSSED IN GROUND NO. 1. THE A O HAS APPLIED THE GP RATE @ 12.43% FOR THE ADDITION TO THE INCOME ON ACCOUNT OF PRESUMING SHORTAGE IN STOCK OF 13 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT VEHICLES FOUND AS PER BOOKS, AND FURTHER APPLIED TH E GP RATE @ 12.43% FOR THE ADDITION TO THE INCOME ON THE BASIS OF DIFFERENCE B ETWEEN THE BANK STATEMENT AND THE STOCK STATEMENT AS PER THE BOOKS OF ACCOUNT MEN TIONED AS ON 31.03.2006. THE ASSESSEE IN THIS REGARD AS SUBMITTED AS UNDER :- (A) THAT SALE TO OTHER DEALERS AMOUNTING TO RS. 1 398123/- HAS NOT BEEN CONSIDERED BY A.O. AS PER BILL BOOKS; ALL THESE SALES ARE DULY RECORDED IN BOOKS & HENCE NO QUESTIO N OF SHORTAGE IN STOCK OF VEHICLES ARISES. THE REVISED S ALES/PURCHASE FIGURES AFTER INCORPORATING ALL BILLS AND VOUCHERS IS AS PER CHART AS ON 08.12.2005. (B) FURTHER THE VEHICLES ARE SUCH THAT CANNOT BE DE AL WITHOUT BILLS OR DOCUMENTS SINCE REQUIRE R.T.OS REGISTRATI ON & CHASSIS NO. & ENGINE NO. (C) FURTHER, SALES OF RS. 1398123/- AS PER THIS BIL L BOOK HAS ALREADY BEEN ADDED IN THIS BOOKS (AUDITED) & FURTHE R ANY ADDITION OF G.P. % WOULD MEAN DOUBLE ADDITION. (D) FURTHER THE G.P. RATE AS TAKEN BY AO IS 12.43% ON SHORTAGE WHEREAS SAME IS 7.85% AS PER LAST YEAR RET URNS & ACCEPTED BY AO IN VIEW OF QUANTITATIVE TALLY. (E) FURTHER, THE STOCK SHEETS AS GIVEN TO BANK ARE ON LUMP SUM BASIS & IS ONLY AS ESTIMATED STATISTICS TO CONT INUE THE CREDIT RATIO & BANK LOAN. IT DOES NOT MEAN ACTUAL BUT JUST TO MAINTAIN THE BANK LIMITS. (F) FURTHER THE BANK TRANSACTIONS STATEMENT ARE AS ON 14.02.2006 & THUS CANNOT BE COMPARED TO ACTUAL STOC K AS ON 31.03.2006. (G) THE STEMENTS OF SHRI KHEMCHAND CHOUHAN PROP. M/ S. CHOUHAN AUTO SERVICES ARE ALSO CLEAR THAT BILLS HAV E BEEN RECEIVED FOR SALES BY HIM BUT IN ABSENCE OF ANY REC ORDS AS MAINTAINED BY HIM HE COULD NOT GET VERIFIED THE TRA NSACTIONS. THIS IT SELF PROVES THAT SALES HAVE BEEN MADE & THE RE WAS NO SHORTAGE OF STOCK. (H) THUS CONSIDERING THESE ALLEGED DIFFERENCE AS S HORTAGE OF SALES AND APPLYING G.P. MARGIN THEREON IS NOT JUST IFIED & IS REQUESTED TO BE DELETED. IN PREVIOUS YEAR (ASSTT. YE AR 2005-06) 14 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT THE AO HAS ACCEPTED THE BOOK RESULTS. IN VIEW OF NA TURE OF TRADE AND QUANTITATIVE TALLY. (I) ALTERNATIVELY EVEN IF ANY SHORTAGE OF STOCK IS CONS IDERED THAN (1) THE SHORTAGE OF VEHICLE SHOULD HAVE BEEN RESTRICTED TO THE TERM OF RS. 13,27,020.00 (REFER REVISED TRADING A/C AND RECONCILIATION THEIR ON). (2) FURTHER THE G.P. PERCENTAGE AS APPLIED ON SUCH SHORTAGE SHOULD HAVE BEEN 7.85% INSTEAD OF APPLYING 12.43% SINCE THE G.P. OF 7.85% HAS BEEN ACCEPTED U/SEC. 143(3) OF INCOME TAX ACT, 1961 IN PAST ASSESSMENTS. SIMILARLY, THE GP RATE WAS APPLIED ON THE BASIS OF THE DIFFERENCE IN STOCK FOUND ON THE BASIS OF ACTUAL VEHICLE STOCKS AS PER BOOKS AND ALSO ON THE BASIS OF THE STATEMENT. 5.2. THE LD. D/R HAS SUPPORTED THE ORDERS OF THE AU THORITIES BELOW. 5.3. AS WE HAVE DECIDED IN GROUND NO. 1 THAT THE ST OCK STATEMENT GIVEN TO THE BANK IN RESPECT OF VEHICLE IS REQUIRED TO BE IGNORE D AND THE STOCK STATEMENT IN RESPECT OF SPARE PARTS BEING NOT VERIFIED AND CONFI RMED BY THE EMPLOYEE OF THE BANK, THEREFORE, THE STOCK STATEMENT GIVEN TO THE B ANK CANNOT BE RELIED UPON. THEREFORE, IN THE LIGHT OF THE OBSERVATIONS MADE IN RESPECT OF GROUND NO. 1, WE DEEM IT APPROPRIATE TO REMAND THE MATTER TO THE FIL E OF THE AO TO RECALCULATE THE UNACCOUNTED INCOME BASED ON THE SHORTAGE OF STOCK F OUND DURING THE SURVEY FOR RS. 15,04,931/- ONLY AND NO GP BEING APPLIED ON THE BAS IS OF DIFFERENCE IN STOCK AS PER BANK STATEMENT AND AS PER THE BOOKS OF ACCOUNT. MOR EOVER, IN OUR OPINION, THE AO SHOULD BE GUIDED BY THE PAST HISTORY OF THE ASSESSE E AND AS PER WHICH THE GP RATE 15 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT WAS FOUND TO BE 5.8%. ACCORDINGLY THE ISSUE IS SET ASIDE TO THE FILE OF THE AO FOR FRESH DECISION. 6. GROUND NO. 4 RELATES TO DISALLOWANCE OF RS. 17,0 5,634/- ON ACCOUNT OF INTEREST. THE TRIBUNAL VIDE ORDER DATED 20.01.2012 IN PARA 9 HAS REMANDED THE MATTER WITH THE FOLLOWING DIRECTIONS :- 9. AFTER CONSDIERING THE SUBMISSIONS, WE FOUND THA T THIS ISSUE ALSO NEEDS RE-VERIFICATION. COMMERCIAL EXPEDI ENCY IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT REPORTED IN 288 ITR 1 HAS NOT BEEN TAKEN INTO CONSIDERATION BY BOTH THE LOWER AUTHORITIES. I T HAS BEEN STGATED THAT CERTAIN AMOUNT HAS BEEN GIVEN TO THE S ISTER CONCERN FOR BUSINESS PURPOSE. DETAILED SUBMISSIONS WERE ALSO FILED IN WHICH IT HAS BEEN STATED THAT THE EXPENDIT URE IS TO BE EXAMINED FROM THE TEST OF COMMERCIAL EXPEDIENCY, WH ICH HAS NOT BEEN CONSIDERED. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE A O FOR FRESH ADJUDICATION, IN ACCORDANCE WITH LAW, AFTER AFFORDI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDE R ACCORDINGLY. 6.1. AFTER THE REMAND, THE AO HAS CALLED UPON THE A SSESSEE TO FILE THE REPLY AND ASSESSEE HAS FILED THE REPLY AND HAS SUBMITTED THAT THE LOAN WAS TAKEN ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND WAS USED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS AND HELD THAT THE INTEREST PAID TO THE FIN ANCIAL INSTITUTIONS AND UNSECURED LOANS CANNOT DELETED. THE AO AFTER RECORDING THE S TATEMENT HAS HELD THAT THE AMOUNT OF RS. 17,05,634/- IS REQUIRED TO BE DISALLO WED AND ADDED TO THE INCOME OF THE ASSESSEE. 6.2. ON APPEAL BEFORE LD. CIT (A), THE LD.CIT (A) H AS CONFIRMED THE ORDER PASSED BY THE AO AND THE ASSESSEE IS BEFORE US. 6.3. THE LD. A/R FOR THE ASSESSEE HAS SUBMITTED THA T THE AMOUNT HAS BEEN SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NO AMOUNT HAS BEEN USED 16 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT EITHER FOR PERSONAL PURPOSES OR FOR THE BENEFIT OF THE PARTNERS AND ON ACCOUNT OF BUSINESS MODEL THE INTEREST WAS PAID TO THE BANK FO R MORTGAGE AND C.C. THEREON AND ALSO FOR UNSECURED LOAN AMOUNTING TO RS. 17,05,634/ -. 6.4. ON THE OTHER HAND, THE LD. D/R FOR THE REVENUE HAS SUBMITTED THAT THE ASSESSEE HAS SUBMITTED BEFORE THE TRIBUNAL THAT CER TAIN AMOUNT HAS BEEN GIVEN TO THE SISTER CONCERN FOR THE BUSINESS PURPOSES AND DE TAILED SUBMISSIONS WERE FILED IN WHICH IT WAS STATED THAT THE EXPENDITURE WAS MADE F OR THE BUSINESS PURPOSES. 6.5. WE HAVE GONE THROUGH THE RECORD AND THE SUBMIS SIONS FILED BY THE PARTIES BEFORE US AND THE CONTENTIONS MADE AT BAR. IN OUR VI EW THE ISSUE HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE MATTER OF HERO CYCLES WHEREIN THE HONBLE SUPREME COURT HAS HELD AS UNDER :- 12. INSOFAR AS LOANS TO THE SISTER CONCERN/SUBSIDIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAPITULATED BY THIS COURT I N THE CASE OF S.A. BUILDERS LTD. V. CIT (APPEALS) [2007 (288) ITR 1/158 TAXMAN 74 ]. AFTER TAKING NOTE OF AND DISCUSSING ON THE SCOPE OF COMMERCIAL EXPEDIENCY, T HE COURT SUMMED UP THE LEGAL POSITION IN THE FOLLOWING MANNER: '26. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN E XPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT B USINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NO T HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. 27. NO DOUBT, AS HELD IN MADHAV PRASAD JATIA V. CIT [1979 (118) ITR 200 (SC) ], IF THE BORROWED AMOUNT WAS DONATED FOR SOME SENT IMENTAL OR PERSONAL REASONS AND NOT ON THE GROUND OF COMMER CIAL EXPEDIENCY, THE INTEREST THEREON COULD NOT HAVE BEEN ALLOWED UN DER SECTION 36(1)(III) OF THE ACT. IN MADHAV PRASAD 'S CASE [ 1979 (118) ITR 200 (SC) ], THE BORROWED AMOUNT WAS DONATED TO A COLLEGE WIT H A VIEW TO COMMEMORATE THE MEMORY OF THE ASSESSEE'S DECEASED H USBAND AFTER WHOM THE COLLEGE WAS TO BE NAMED, IT WAS HELD BY TH IS COURT THAT THE INTEREST ON THE BORROWED FUND IN SUCH A CASE COULD NOT BE ALLOWED, AS IT COULD NOT BE SAID THAT IT WAS FOR COMMERCIAL EXPEDI ENCY. 28. THUS, THE RATIO OF MADHAV PRASAD JATIA 'S CASE [ 1979 (118) ITR 200 (SC) ] IS THAT THE BORROWED FUND ADVANCED TO A THIRD PAR TY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. 17 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT 29. IN THE PRESENT CASE, NEITHER THE HIGH COURT NOR THE TRIBUNAL NOR OTHER AUTHORITIES HAVE EXAMINED WHETHER THE AMOUNT ADVANCED TO THE SISTER CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY. 30. IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS WIDER IN SCOPE THAN THE EXP RESSION 'FOR THE PURPOSE OF EARNING PROFITS' VIDE CIT V. MALAYALAM PLANTATIONS LTD. [ 1964 53 ITR 140 (SC) , CIT V. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [ 1971 82 ITR 166 (SC) ], ETC.' 13. IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIE W TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (P.) LTD. [2002] 254 ITR 377/121 TAXMAN 706 WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ES TABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BU SINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED T O MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD AC T. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BU T THAT OF A PRUDENT BUSINESSMAN. IN THE IDENTICAL FACTS AND CIRCUMSTANCES, THE HONBL E DELHI HIGH COURT IN THE MATTER OF CIT VS. INDO KOPP LTD. (2008) 167 TAXMAN 172 (DEL HI) HAS HELD AS UNDER :- WHETHER JUST BECAUSE ASSESSEE HAD NOT CHARGED INT EREST FROM ITS TRADE DEBTORS, IT DID NOT MEAN THAT INTEREST PAID BY IT TO ITS TRADE CREDITORS SHOULD NOT BE ALLOWED AS A DEDUCTION HE LD, YES - WHETHER, MOREOVER, SINCE THERE WAS NO DIRECT LINKAGE BETWEEN INTEREST PAID BY ASSESSEE TO ITS CREDITORS AND DEBTS WHICH IT HAD TO RECOVER FROM OTHER PARITE,S INCLUDING ITS SISTER CONCERNS, ASSESSEES CLAIM WAS TO BE ALLOWED HELD, YES. THUS IN VIEW THEREOF, WE ALLOW THE APPEAL O F THE ASSESSEE IN RESPECT OF GROUND NO. 4. 7. GROUND NO. 5 RELATES TO DISALLOWANCE OF RS. 15,58,721/- ON ACCO UNT OF BAD DEBTS. AS PER DIRECTIONS OF THE ITAT, THE AO, ON A CCOUNT OF BAD DEBTS, ASKED THE ASSESSEE VIDE QUESTIONNAIRE DATED 11.09.2012 TO FUR NISH THE FOLLOWING :- 18 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT I) NATURE OF TRANSACTION (SALES) MADE TO THE PARTIES. II) LEDGER ACCOUNT OF PARTIES OF THE YEAR IN WHICH SALE OF GOODS WERE MADE. III) WHETHER SALES CORRESPONDING TO BAD DEBTS WERE OFFER ED FOR TAX IV) WHETHER SALES ARE STILL BEING MADE TO THE PARTIES O F WHOM BAD DEBTS WERE CLAIMED. THE ASSESSEE HAS SUBMITTED AS UNDER : A SUM OF RS. 15,58,721/- WAS CLAIMED BY THE ASSES SEE FIRM AS BAD DEBTS IN TERMS OF SEC. 36(1)(VII) OF INCOME TAX ACT , 1961 FOR THE REASON THAT NOT VERIFIABLE. WHEREAS THE PROVISIONS OF SEC. 36(1)(VII) OF INCOME TAX ACT CLEARLY SPEAKS AS UNDER :- SUBJECT TO PROVISIONS OF SUB SECTION (2) THE AMOU NT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNT OF THE ASSESSEE FOR PREVIOUS YEAR. CLAUSE (2) OF SECTION 36 STATES AS UNDER : IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THERE OF THE FOLLOWING PROVISIONS SHALL APPLY NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DE BT OR PART THEREOF IS WRITTEN OF OR OF AN EARLIER PREVIOUS YEAR OF REP RESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR M ONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. IF ANY AMOUNT ULTIMATELY RECOVERED ON ANY SUCH DEBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT OR PART & THE AMOUNT SO DEDUCTED, THE DEFICIENCY SHALL BE DEDUCTIBLE IN THE PREVIOUS YEAR IN WHICH THE ULTIMATE RECOVERY IS MADE. ANY SUCH DEBT ON PART OF DEBT MAY BE DEDUCTED IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF AN EARLIER PREVIOUS YEAR (BEING A PRE VARIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR COMMENCING ON THE 1 ST DAY OF APRIL 1988 OR ANY EARLIER ASSESSMENT YEAR) BUT THE ASSESSING OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN ESTABLISHED TO HAVE BEEN ESTABLISHE D TO HAVE BECOME A BAD DEBT IN THAT YEAR. 19 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1988 OR ANY EARLIER ASSESSMENT YEAR ) & THE ASSESSING OFFICER I S SATISFIED THAT SUCH DEBT OR PAR6T BECAME A BAD DEBT IN ANY EARLIER PREV IOUS YEAR NOT FALLING BEYOND A PERIOD OF 4 PREVIOUS YEAR IMMEDIAT ELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH DEBT OR PART IS WRITTEN OFF, THE PROVISIONS OF SUB-SECTION (6) OF SECTION 155 SHALL APPLY. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE B UT COULD NOT FOUND THE SAME ACCEPTABLE. THE ASSESSEE HAS ALSO NOT PRODUCED THE SALE BILLS ISSUED TO THE PARTIES AGAINST WHICH THE ABOVE BAD DEBTS HAVE BEEN CLAIMED AND THE COMPLETE ADDRESSES OF THE PARTIES AGAINST WHOM THE BAD DEBTS ARE BEING REFLECTED HAVE NOT BEEN PRODUCED BY THE ASSESSEE SO AS TO MAKE THE VERIFICA TION. AS SUCH IN ABSENCE OF VERIFICATION, THE GENUINENESS OF THE SAME IS HELD T O BE DOUBTFUL. THUS THE AO TREATING THE BAD DEBTS AS BOGUS, MADE THE DISALLOWA NCE OF RS. 15,58,721/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8. ON APPEAL, THE LD.CIT (A) CONFIRMED THE ADDITION BY OBSERVING AS UNDER :- 7.3. I HAVE CONSIDERED THE CONTENTIONS OF THE APPE LLANT AS WELL AS ASSESSMENT ORDER. IT IS SEEN THAT IN ORDER TO CLAIM THE BAD DEBTS ASSESSEE SHOULD HAVE PROVED THAT THE SAID AMOUNT HA S BEEN SHOWN AS THE RECEIPTS IN THE EARLIER YEARS ON ACCOUNT OF SAL ES IN NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND THEN ONLY IT HAS BEEN WRITTEN OFF AS BAD DEBTS. THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE SALES OF SAID AMOUNT TO VARIOUS PERSONS IN EARLIER YEARS NOR HAS BEEN ABLE TO GIVE THE ADDRESS OF THESE PERSONS FOR WHICH BAD DEBTS AR E BEING CLAIMED. IN VIEW OF ABOVE, ASSESSEE DOES NOT SATISFY THE CONDIT IONS FOR ALLOWING THE BAD DEBTS. IN VIEW OF ABOVE DISCUSSIONS AND FINDINGS OF THE AO, THE ADDITION MADE BY THE AO IS CONFIRMED. 9. NOW THE ASSESSEE IS BEFORE US. 20 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT 9.1. THE LD. A/R FOR THE ASSESSEE SUBMITTED THE DET AILS OF THE PERSONS FROM WHOM THE AMOUNTS WERE RECOVERABLE RUNNING INTO 50 PAGES (PAGE 61 TO 106 OF THE PAPER BOOK). WE ALSO NOTICED THAT IN THE A.Y. 2005-06, T HE AO HAS TAKEN NOTE OF THE FACT THAT THERE WERE FIRE TOOK PLACE ON 03.05.2006 AT TH E ASSESSEES PREMISES AND THE RECORDS OF THE DEBTORS HAVE BEEN DESTROYED IN THE S AID FIRE. WE FIND THAT THE ASSESSEE WAS SUBJECTED TO 143(3) IN THE PAST FOR TH E A.Y. 2005-06 AND PRIOR THERETO AND IT WAS SUBMITTED BY THE LD. A/R THAT THE SAID D EBTORS WERE DULY MENTIONED IN THE OLD RECORD ALSO AND ON ACCOUNT OF THE DEBT BEING NO T RECOVERABLE, THE ASSESSEE HAS WRITTEN OFF THE AMOUNTS IN THE BOOKS OF ACCOUNTS AN D THE SAME IS ADMISSIBLE UNDER SECTION 36(1)(VII) OF THE IT ACT. 9.2. ON THE OTHER HAND, THE LD. D/R FOR THE REVENUE HAS SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED THE SALE BILLS ISSUED TO THE PARTIES AGAINST WHICH THE ABOVE SAID BAD DEBT HAS BEEN CLAIMED AND FURTHER TH E COMPLETE ADDRESS OF THE PARTIES WAS NOT GIVEN. THEREFORE, IT WAS SUBMITTED THAT THE AO HAS RIGHTLY DISALLOWED THE BAD DEBTS. 9.3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. AS PER SECTION 36(1)(VII) OF THE ACT, THE A MOUNT OF BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN TS OF THE ASSESSEE FOR THE PREVIOUS YEAR IS REQUIRED TO BE DEDUCTED WHILE COMPUTING THE INCOME OF THE ASSESSEE. SECTION 36(2) PROVIDES AS UNDER :- SECTION 36(2) : IN MAKING ANY DEDUCTION FOR A BA D DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOU NT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIE R PREVIOUS YEAR, 21 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE; (II) IF THE AMOUNT ULTIMATELY RECOVERED ON ANY SUCH DEBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT OR PART AND THE AMOUNT SO DEDUCTED, THE DEFICIENCY SHALL BE DED UCTIBLE IN THE PREVIOUS YEAR IN WHICH THE ULTIMATE RECOVERY IS MADE; (III) ANY SUCH DEBT OR PART OF DEBT MAY BE DEDUCTED IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS O F AN EARLIER PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR), BUT THE ASSESSING OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN E STABLISHED TO HAVE BECOME A BAD DEBT IN THAT YEAR; (IV) WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTEN OFF AS IRRECO- VERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO THE EARLIER ASSESSMENT YEAR) AND T HE ASSESSING OFFICER IS SATISFIED THAT FALLING BEYOND A PERIOD O F FOUR PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WH ICH SUCH DEBT OR PART IS WRITTEN OFF, THE PROVISIONS OF SUB- SECTION (6) OF SECTION 155 SHALL APPLY; (V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADVANCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB-SECTION ( 1) APPLIES, NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PRE VIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MA DE UNDER THAT CLAUSE. WE HAVE NOTICED THAT IN ALL THE PREVIOUS YEARS THE ASSESSMENT ORDER HAS BEEN PASSED UNDER SECTION 143(3) OF THE IT ACT AND THE S AID DEBTS WERE MENTIONED. ON PERUSAL OF THE RECORD, IT TRANSPIRED THAT IT IS NOT THE CASE OF THE AO THAT THE DEBTORS (AS MENTIONED AT PAGES 61 TO 106 OF THE PAPER BOOK) WERE NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE PREVIO US YEAR. THIS CLEARLY SHOWS THAT THESE DEBTORS WERE CONSIDERED WHILE DETERMINING THE INCOME OF THE ASSESSEE IN PREVIOUS YEAR AND, THEREFORE, THE SAME IS ADMISSIBL E EXPENDITURE UNDER SECTION 22 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT 36(1)(VII) OF THE ACT. IN OUR VIEW, IT IS FOR THE A SSESSEE TO DETERMINE WHETHER THE DEBIT IS RECOVERABLE OR NOT OR WHEN THE ASSESSEE WI SHES TO WRITE OFF THE DEBT. THE AO CANNOT SIT ON THE ARM CHAIR OF BUSINESSMAN AND D ECIDE AS TO WHEN DEBT CAN BE TREATED AS BAD DEBT. THE AO HAS NOT MENTIONED THAT THESE DEBTS WERE NOT ARISING OUT OF OR DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE. ONCE THE REVENUE HAS BEEN ACCEPTING THESE PARTIES AND DEBTS IN THE PREVI OUS ASSESSMENT YEAR, THE REVENUE CANNOT NOW SUBMIT THAT THE ORIGINAL BILLS A RE REQUIRED TO BE PRODUCED AND IN THE ABSENCE OF ORIGINAL BILLS, THE BAD DEBT CANNOT BE ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT. IN OUR VIEW, ONCE THE ASSES SEE HAS OPTED TO WRITE OFF THE DEBT AS BAD DEBT, IF THE SAME REALIZING OUT OF BUSINESS OF THE ASSESSEE, THE REVENUE CANNOT DISALLOW THE CLAIM OF THE ASSESSEE. THE HON BLE DELHI COURT IN THE CASE CIT VS. BONANZA PORTFOLIO LTD. HAS HELD AS UNDER :- 10. IN SO FAR AS THE QUESTION OF BURDEN IS CONCERNE D, LEARNED COUNSEL FOR THE REVENUE DID NOT DISPUTE THAT THE AFORESAID ASPE CT STANDS SETTLED BY THE JUDGMENT OF THIS COURT IN CIT V. MORGAN SECURIT IES AND CREDITS P. LTD. [2007] 292 ITR 339 (DELHI) NOTE WHEREOF HAS BEEN TAKEN OF BY THE TRIBU NAL. WE ARE, THUS, LEFT WITH ONLY THIS ASPECT AS TO WHETH ER PAYMENT MADE BY THE ASSESSEE ON BEHALF OF HIS CLIENT WAS THE PAYMEN T FOR PURCHASE/SALE OF SHARES AND, THEREFORE, NON-REALIZATION IS TO BE TRE ATED AS BAD DEBT OR IT WAS TO BE TREATED AS INVESTMENT. AS MENTIONED ABOVE , THE ASSESSEE IS CARRYING ON THE BUSINESS OF SHARES AND STOCK BROKIN G. HE IS A MEMBER OF THE NATIONAL STOCK EXCHANGE. THE SHARES WERE PURCHA SED BY HIM ON BEHALF OF HIS CLIENTS. MERELY BECAUSE HE MADE PAYMENTS AGA INST THOSE SHARES WOULD NOT MAKE IT AN INVESTMENT BY THE ASSESSEE ON HIS OWN BEHALF. WE ARE OF THE OPINION THAT THE VERY BASIS OF THIS ARGU MENT IS MISCONCEIVED, NAMELY, THAT THE PARTICULAR PURCHASE SHOULD BE TREA TED AS INVESTMENT BY THE ASSESSEE ONLY BECAUSE HE MADE THE PAYMENT. AS P OINTED OUT ABOVE, THE ASSESSEE HAS SHOWN THE INCOME IN HIS BOOKS OF A CCOUNT AS INCOME FROM THE BROKERAGE. THAT ITSELF SHOWS THAT IN SO FA R AS THE TRANSACTION IN QUESTION IS CONCERNED, IT WAS TREATED AS A TRANSACT ION OF BROKERAGE FOR PURCHASE/SALE OF SHARES ON BEHALF OF HIS CLIENTS AN D IT WAS NOT A TRANSACTION WHICH WAS ENTERED INTO BY THE ASSESSEE ON HIS OWN BEHALF. THIS COURT HAD OCCASION TO DEAL WITH A SOMEWHAT SIM ILAR ISSUE IN INCOME- TAX APPEAL NO. 415 OF 2007 (REPORTED AS CIT V. D. B. (INDIA) SECURITIES 23 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT [2009] 318 ITR 26 (DELHI) WHICH APPEAL WAS DECIDED AGAINST THE REVENU E BY TAKING NOTE OF THE FOLLOWING ASPECTS (PAGE 27) : ' THE ADMITTED FACTS ARE THAT THE ASSESSEE/RESPONDE NT HEREIN IS A MEMBER OF THE DELHI STOCK EXCHANGE AND IS CARRYING ON THE BUSINESS OF SHARES AND STOCK BROKING ALONG WITH THE ALLIED ACTI VITIES SUCH AS BROKER/SUB-BROKER, UNDERWRITERS TO NEW ISSUES OF SH ARES, DEBENTURES AND SECURITIES OF ALL KINDS, BROKERS AND FIXED DEPOSIT OF COMPANIES, TRADING IN SHARES, INVESTMENT CONSULTANTS, ETC. THE ASSESSEE H AD PUR CHASED SHARES OF M/S. MANNU FINLEASE LTD. IN JANUARY AND FEBRUARY , 1996, ON BEHALF OF AND ON INSTRUCTIONS FROM ITS SUB-BROKER M/S. GLORY SECURITIES LTD. TOTAL VALUE OF THESE SHARES PURCHASED BY THE ASSESSEE WAS RS. 1,06,10,247 AT AN AVERAGE PRICE OF RS. 55 PER SHARE. THE SAID SUB- BROKER HAD MADE PAYMENT TO THE EXTENT OF RS. 64 LAKHS ONLY. AS REMA INING AMOUNT OF RS. 41,37,881 WAS NOT PAID, THE ASSESSEE DID NOT DELIVE R THOSE SHARES TO THE SUB-BROKER. HOWEVER, IN THE SAID YEAR, BROKERAGE WA S SHOWN AS INCOME IN THE INCOME-TAX RETURN, WHICH WAS ASSESSED AS WELL. SINCE BALANCE PAYMENT WAS NOT MADE IN THE NEXT YEAR ALSO, PRESUMA BLY BECAUSE OF THE REASON THAT THE PRICE OF SHARES FELL FROM RS. 55 PE R SHARE TO RS. 5 PER SHARE, THE ASSESSEE IN ITS INCOME-TAX RETURN FOR TH E ASSESSMENT YEAR 2001-02 CLAIMED DEDUCTION OF RS. 41,37,881 AS ' BAD DEBT' UNDER SECTION 36(1)(VII) OF THE INCOME- TAX ACT, 1961 (FOR SHORT, THE ' ACT' ). THIS DEDUCTION WAS INITIALLY DISALLOWED BY THE ASSESSING AUTHORITY, WHICH WAS AFFIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEALS ) IN APPEAL BUT THE TRIBUNAL, IN THE APPEAL PREFERRED BY THE ASSESSEE, HAS ALLOWED THE SAID DEDUCTION, VIDE ITS IMPUGNED ORDERS DATED SEPTEMBER 8, 2006. LEARNED COUNSEL FOR THE REVENUE, IN THIS APPEAL FIL ED AGAINST THE AFORESAID ORDER, HAS CANVASSED TWO SUBMISSIONS : (1) THE AFORESAID AMOUNT COULD NOT BE TREATED AS ' DEBT' AT ALL UNDER THE PROVISIONS OF SECTION 36(2) OF THE ACT AND, THEREFO RE, THE QUESTION OF TREATING IT AS 'BAD DEBT' DOES NOT ARISE. (2) THE ASSESSEE HAD NOT SOLD THE SHARES TO ANYBODY ELSE IN THE MARKET AND IN THE ABSENCE OF SUCH A SALE, THE ASSESSEE COU LD NOT CLAIM THE AFORESAID AMOUNT AS ' BAD DEBT' . IN SO FAR AS THE FIRST SUBMISSION OF LEARNED COUNSE L FOR THE REVENUE IS CONCERNED, WE DO NOT FIND ANY FORCE THEREIN. AS POI NTED OUT IN THE AFORESAID ADMITTED FACTS, THE ASSESSEE HAD PURCHASE D THE AFORESAID SHARES ON BEHALF OF THE SUB-BROKER AND, IN FACT, PAID THE AMOUNT OF RS.1,06,10,247. AS AGAINST THIS AMOUNT, HE RECEIVED ONLY A SUM OF RS.64 LAKHS. THE BROKERAGE WHICH WAS RECEIVED IN THE AFOR ESAID TRANS ACTION WAS SHOWN AS INCOME BY THE ASSESSEE IN THE PREVIOUS YEA R, WHICH WAS TAXED AS SUCH AS WELL BY THE ASSESSING AUTHORITY. UNDER T HESE CIRCUMSTANCES, ONLY BECAUSE SHARES WERE NOT DELIVERED FOR WANT OF FULL PAYMENT, WHICH 24 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT WAS TO BE MADE BY THE SUB-BROKER TO THE ASSESSEE, I T CANNOT BE SAID THAT THERE WAS NO TRANSACTION BETWEEN THE PARTIES. ONCE WE PROCEED ON THE BASIS THAT THERE WAS A VALID TRANS ACTION BETWEEN T HE ASSESSEE AND THE SUB-BROKER AND THE ASSESSEE HAD TO MAKE PAYMENT ON BEHALF OF THE SUB- BROKER, WHICH HE COULD NOT RECOVER TO THE EXTENT OF RS. 41,37,881, THAT SUM HAS TO BE TREATED AS ' DEBT' .' TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANC ES OF THE CASE AS DISCUSSED ABOVE AND ALSO RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE CIT VS. BONANZA PORTFOLIO LTD. (SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE. GROUND NO. 5 IS ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2016. SD/- SD/- JH FOE FLAG ;KNO] YFYR DQEKJ (VIKRAM SINGH YADAV) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 31/03/2016 DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. MAHAVEER AUTO AGENCY, AJMER. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-2, AJMER. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 781/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 25 ITA NO. 781/JP/2015 MAHAVEER AUTO AGENCY VS. ACIT