ITO, Noida V. Smt. Meena Narula, Noida

ITA 94/DEL/2009

• Counselvise Citation: 9420114 RSA 2009
• Duration Of Justice: 6 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-03-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Unexplained cash credit; Unexplained investment; Business expenditure; Rectification of order
• Section: 40A(3); 143(3); 142(1); 80HHC; 133A; 69; 154

Judgement Text

ITA NO. 94/ DEL/ 2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 94 /DEL/20 09 A.Y. : 200 3 - 0 4 INCOME TAX OFFICER, WARD - 2, NOIDA VS. SMT. MEENA NARULA, PROP. M/S INDIAN WEAVES, 11/6, NEHRU ENCLAVE, KALKAJI, NEW DELHI 110 019 (PAN: ABWPN4578M) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. P. DAM. KANUNJNA, SR. DR. ASSESSEE BY : NONE PRESENT DATE OF HEARING : 10 - 03 - 201 5 DATE OF ORDER : 1 8 - 03 - 201 5 ORDER PER H.S. SIDHU : J M REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 25.09.2008 ON THE FOLLOWING GROUNDS: - 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF WITHOUT APPRECIATING THE FACTS STATED IN THE ASSESSMENT ORDER U/S. 143(3) UNDER THE DIFFERENT HEADS, AS STATED BELOW: - I) UNEXPLAINED INVESTMENT IN FACTORY AND BUILDING RS. 9,50,000/ - II) UNEXPLAINED INVESTMENT IN MACHINERY & GENERATOR RS. 6,11,000/ - III) UNEXPLAINED INVESTMENT IN FORM OF CASH DEPOSITS IN DIFFERENT BANK ACCOUNT RS. 13,86,400/ - IV) UNEXPLAINED INVESTMENT IN CAR, FURNITURE RS. 1,03,496/ - ITA NO. 94/ DEL/ 2009 2 ETC. V) 20% OF EXPENDITURE INCURRED IN VIOLATION OF SECTION 40A(3) OF THE I.T. ACT. 11,60,000/ - 2. THE ADDITIONS WERE MADE ON THE BASIS OF DISCRIMINATING DOCUMENTS FOUND DURING THE SURVEY AND DURING THE APPELLATE PROCEEDINGS, ASSESSEE HAS NOT BEEN ABLE TO CONTRO VERT THE FINDING OF THE AO. 3. THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 2. THE FACTS RELATING TO THE ISSUES IN DISPUTE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM RUNNING A GARMENT EXPORT UNIT IN SECTOR - 60, NOIDA. SHE FILED HER RETURN FOR ASSESSMENT YEAR UNDER CONSIDERATION ON 29.11.2003 DECLARING NET PROFIT OF RS. 11,09,439/ - AND THE TOTAL INCOME OF RS. 3,32,830/ - WHILE CLAIMING DEDUCTION OF RS. 7,67,607/ - U/S. 80HHC OF I.T. ACT. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S. 143(2) AND 142(1) WERE ISSUED AND DULY SERVED UPON THE ASSESSEE. THE AO HAS POINTED OUT THAT THE ASSESSEE WAS REQUIRED TO PRODUCE BOOKS OF ACCOUNTS AND VARIOUS OTHER DETAILS AND HAS ALSO RAISED SEVERAL QUERIES. THE AO HAS OBSERVED THAT IN SPITE OF VARIOUS OPPORTUNITIES PROVIDE D TO THE ASSESSEE . SHE FAILED TO PRODUCE BO OKS OF ACCOUNTS AND VARIOUS OTHER DETAILS. 2.1 THE AO HAS ALSO BROUGHT ON RECORD THAT A SURVEY OPERATION U/S. 133A WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 18.10.2005 AND DURING SURVEY SEVERAL DOCUMENTS OF INCRIMINATING ITA NO. 94/ DEL/ 2009 3 NATURE WERE FOUND AT HER BUSINESS PREMISES, WHICH REQUIRED LOGICAL EXPLANATION FROM THE ASSESSEE BUT THE ASSEESSEE FAILED TO OFFER ANY PROPER EXPLANATION. 2.2 BESIDES THE ABOVE, THE AO HAS ALSO DISCUSSED IN THE ASSESSMENT ORDER ABOUT POSSESSION OF VARIOUS BUSINESS RESULTS WITH THE ASSESSEE; I.E. THE TWO AUDIT REPORTS BEARING THE SIGNATURE OF TWO DIFFERENT CAS AND BUSINESS IN THE NAME OF BENAMI ENTITIES. THE AO HAS ALSO DISCUSSED IN DETAIL ABOUT SUPPRESSION OF EXPORT RECEIPTS/ BANK BALANCES AND ALSO INFLATED PURCHASES. THE AO HAS ALSO DISCUSSED IN DETAIL ABOUT VARIOUS INVESTMENTS MADE BY THE ASSESSEE AND ALSO VARIOUS DEPOSITS IN HER BANK IN CASH, THE SOURCE OF WHICH COULD NOT BE EXPLAINED BY THE ASSESSEE. THE AO FOR THE DETAILED DISCUSSION MADE IN THE ASSESSMENT ORDER THEN PROCEEDED TO COMPLETE THE ASSESSMENT ON TOTAL INCOME OF RS. 1,43,35,437/ - AS AGAINST RETURNED INCOME OF RS. 3,32,830/ - BY MAKING VARIOUS AD DITIONS INCLUDING THE ADDITIONS IN DISPUTE VIDE HIS ASSESSMENT ORDER DATED 30.3.2006 PASSED U/S. 144/143(3) OF THE I.T. ACT, 1961 . 3 . AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.3.2006 PASSED BY THE AO, ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WH O VIDE IMPUGNED ORDER DATED 25.9.2008 HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. ITA NO. 94/ DEL/ 2009 4 4 . AGAINST THE AFORESAID ORDER OF THE LD. CIT(A) DATED 30.3.2006, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5 . THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE ON 9.1.2009 WHICH CAME UP FOR HEARING BEFORE THE BENCH MANY TIMES SINCE 25.6.2009. AS PER THE ORDER SHEET, WE HAVE SEEN THAT MOST OF TIME ASSESSEE REMAINED ABSENT, IN SPITE OF VALID NOTICE ISSUED TO THE ASSESSEE AND THE BENCH ADJOURNED THE CASE MANY TI MES. WE HAVE PERUSED THE RECORDS AVAILABLE WITH US AND SEEN THAT THIS OFFICE ISSUED MANY TIMES NOTICES BY REGD. POST TO THE ASSESSEE ON THE ADDRESS, AS PER THE ASSESSMENT AND APPELLATE RECORDS, BUT ASSESSEE REMAINED ABSENT. LASTLY, THE NOTICE FOR HEA RING WAS ISSUED BY REGD. POST FOR 10.3.2015 WHICH WAS NOT RECEIVED BACK UNSERVED. THEREFORE, KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES, AS EXPLAINED ABOVE, WE ARE OF THE VIEW THAT ASSESSEE IS NOT INTERESTED TO PROSECUTE HER APPEAL IN DISPUTE, TH EREFORE, WE ARE PROCEEDING TO ADJUDICATE THE ISSUES IN DISPUTES EXPARTE QUA THE ASSESSEE AND AFTER HEARING THE LD. DR AND PERUSING THE RECORDS. 6 . LD. DR AT THE TIME OF HEARING RELIED UPON THE ORDER PASSED BY THE AO AND REITERATED THE CONTENTIONS RAISE D BY THE REVENUE IN THE GROUNDS OF APPEAL. HE FURTHER STATED THAT THE ORDER PASSED BY THE LD. FIRST APPELLATE AUTHORITY IS NOT ELABORATED ON THE ISSUES IN DISPUTE WHEREBY HE HAS WRONGLY DELETED THE ADDITION IN DISPUTE AND HAS ALSO GIVEN THE PART RELIE F TO THE ASSESSEE ON MANY ISSUES WHICH IS CONTRARY TO THE LAW AND FACTS OF THE CASE. SECONDLY, HE REQUESTED THAT THE ISSUE S IN DISPUTE MAY BE SET ASIDE TO THE LD. FIRST APPELLATE AUTHORITY TO DECIDE THE SAME, AFRESH UNDER THE LAW AND TO PASS A SPEAKING ORDER. 7 . WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS PASSED BY THE REVENUE ITA NO. 94/ DEL/ 2009 5 AUTHORITY. WE ARE OF THE VIEW THAT THE AO HAS ADJUDICATED THE ISSUES IN DISPUTE AND MADE THE ADDITIONS TO THE ASSESSEE S INCOME WHICH WAS ASSESSED AS UNDER: - 1. INCOME AS DECLARED BY THE ASSESSEE RS. 3,32,830/ - 2. ADD : DEDUCTION U/S. 80HHC DISALLOWED RS. 7,76,607/ - RS. 11,09,437/ - 3. ADD : UNEXPLAINED INVESTMENT IN BUSINESS ASSETS I) INCOME AS DECLARED BY THE ASSESSEE RS. 19.00 LACS II) UNEXPLAINED INVESTMENT IN MACHINERY & GENERATOR RS. 6.11 LACS III) UNEXPLAINED INVESTMENT IN FORM OF CASH DEPOSIT RS. 17.07 LACS IV) UNEXPLAINED INVESTMENT IN CAR, FURNITURE, SCOOTER, FAX RS. 6.92 LACS V) UNDISCLOSED INVESTMENT IN STOCK RS. 13.97 LACS VI) UNDISCLOSED INVESTMENT IN FDR RS. 2.99 LACS RS. 66,06,000/ - 4. ADD: PURCHASES OUT OF UNDISCLOSED SOURCES RS. 54,60,000/ - 5. ADD: 20% OF EXP. INCURRED IN VIOLATION OF SECTION 40A(3) RS. 11,60,000/ - TOTAL INCOME RS.1,43,35,437/ - 8 . WE FIND THAT THE LD. FIRST APPELLATE AUTHORITY HAS ADJUDICATED THE ISSUES VIDE HIS ORDER DATED 25.9.2008 FROM PAGES 19 TO 27 AS UNDER: - (1) ADDITION OF RS.17,07,250/ - ON A/C OF UNEXPLAINED CASH DEPOSITS IN BANK A/CS. DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS WORKED OUT THE AVAILABILITY OF CASH IN APPELLANT'S BANK ALC. ON PERUSAL OF THE ACCOUNTS, IT IS SEEN THAT THE LEARNED AR HAS GI VEN DATE - WISE WITHDRAWALS FROM HER BANK ACCOUNT ALONG WITH THE DATES ON ITA NO. 94/ DEL/ 2009 6 WHICH THE CASH WAS DEPOSITED, IN THE BANK ACCOUNT. APPARENTLY, THE DATES OF WITHDRAWAL AND THE DATES OF DEPOSITS ARE CLOSE WHICH INDICATE THAT IN ABSENCE OF' ANY OTHER UNDISCLOSED BUSI NESS ACCOUNTS, THE PREPONDERANCE OF PROBABILITY IS THAT 'THE CASH WITHDRAWALS HAVE BEEN DEPOSITED IN HER BANK ACCOUNT APPEARS TO BE LOGICAL. THOUGH THE NEXUS BETWEEN THE WITHDRAWAL AND THE DEPOSIT CANNOT BE DIRECTLY PROVED BUT THE DATES ON WHICH WITHDRAWAL S HAVE BEEN MADE AND THE CASH HAS BEEN DEPOSITED DOES MAKE A CIRCUMSTANTIAL EVIDENCE. SUCH A CIRCUMSTANTIAL EVIDENCE BECOMES MORE CREDIBLE IN VIEW OF THE FACT THAT NO OTHER BUSINESS SOURCE/ACCOUNT HAS BEEN FOUND BY THE AO DURING THE COURSE OF ASSESSMENT P ROCEEDINGS OR IN SUBSEQUENT ASSESSMENT PROCEEDINGS, AS HAS BEEN POINTED OUT BY THE LEARNED AR. CONSIDERING THE OVER FACTS AND CIRCUMSTANCES OF THE CASE, THE PREPONDERANCE OF PROBABILITIES APPEARS TO BE IN FAVOUR OF THE ASSESSEE. HOWEVER, WHILE SCRUTINIZING THE DATE WISE WITHDRAWALS AND THE DATE OF DEPOSIT, IT IS SEEN THAT AT FIVE PLACES APPARENTLY THERE ARE NEGATIVE BALANCES, WHICH WORKS OUT TO RS.3,20,850/ - . IN THE ABOVE CIRCUMSTANCES, OUT OF RS.17 ,07 ,250/ - , FOR THE AMOUNT TO THE EXTENT OF RS.3,20,850/ - , THE ASSESSEE COULD 'NOT GIVE THE SOURCE THEREOF. THEREFORE, OUT OF THE ADDITION OF RS.17,07,250/ - , ADDITION TO THE EXTENT OF RS.3,20,850/ - IS CONFIRMED AND THE BALANCE AMOUNT DELETED. (2) ADDITION OF RS.19,00,OOO/ - ON A/C OF UNEXPLAINED INVESTMENT IN FA CTORY BUILDING: THE AO HAS MADE AN ADDITION OF RS.19,00,000/ - UNDER THE HEAD UNEXPLAINED INVESTMENT IN FACTORY. BUILDING, WHICH CONSISTED OF RS.12,00,000/ - + RS.7, 00,0001 - . THE FACTS OF THE CASE BRIEFLY STATED ARE THAT DURING THE YEAR THE ASSESSEE HAS DECLARED INVESTMENT IN FACTORY BUILDING AMOUNTING TO RS.37,00,000/ - . IT WAS EXPLAINED BEFORE THE AO THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.25,00,000/ - FROM HER DAUGHTERS THROUGH A/C PAYEE CHEQUES AND THE 'REST OF INVESTMENTS OF RS.12,00,000/ - WERE OUT OF CASH BASED TRANS ACTIONS WHICH THE ASSESSEE 'CLAIMED TO HAVE MADE THROUGH THE ACCOUNT BOOKS OF M/S INDIAN WEAVES. (A) ADDITION OF RS.12,00,OOO/ - : THE AO HAS MADE THE ADDITION OF RS.12,00,OOO/ - BY OBSERVING THAT RS.12 LACS HAVE BEEN INVESTED THROUGH CASH BASED TRANSACTIONS FOR WHICH THE ASSESSEE HAS NO EXPLANATION AT ALL. IT HAS BEEN FURTHER OBSERVED THAT THE ASSESSEE NEITHER FURNISHED ANY CASHBOOK NOR CASH FLOW STATEMENT. ACCORDINGLY, THE SAME WAS TREATED AS UNEXPLAINED INCOME AND ADDED TO ASSESSEE S TOTAL INCOME U/S. 69 OF THE I.T. ACT. BEFORE ME THE LEARNED AR HAS FURNISHED STATEMENT SHOWING AVAILABILITY OF SOURCE OF RS.12,00,000/ - . HOWEVER, IT IS SEEN THAT THERE IS NO DIRECT EVIDENCE REGARDING THE CASH TRANSACTION BUT THE DATE ON WHICH SUCH HAS TAKEN PLACE AND THE AVAILABILITY OF CASH ON SUCH DATE SHOWS THAT THERE IS PLAUSIBLE NEXUS, WHICH EXPLAINS ITA NO. 94/ DEL/ 2009 7 THE SOURCE. HOWEVER, THE DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD INDICATE THAT AN AMOUNT OF RS.2,50,000/ - HAS, BEEN SHOWN .TO BE REPRESENTING DIRECT CREDIT IN CA PITAL ACCOUNT. HOWEVER, IN ABSENCE OF RELEVANT DETAIL, THE SAME CANNOT BE ACCEPTED. THUS ADDITION OF RS. 12,00,000/ - ADDITION TO THE EXTENT OF RS. 2,50,000/ - STANDS CONFIRMED AND THE REST OF THE AMOUNT I.E. RS. 9,50,000/ - IS DELETED. (B) ADDITION OF RS . 7,00,000/ - AS STATED ABOVE, OUT OF RS. 37,00,000/ - INVESTED IN FACTORY BUILDING, SOURCE OF RS.25,00,0001 - WAS EXPLAINED AS THE AMOUNT RECEIVED BY DAUGHTERS THROUGH ACCOUNT' PAYEE CHEQUES. OUT OF RS.25 LACS, THE AO, FOR THE REASONS DISCUSSED' IN THE' A SSESSMENT ORDER, HAS ACCEPTED THE SOURCE TO THE EXTENT OF RS.18 LACS AND THE REST OF RS. 7 LAC AND ADDED THE SAME TO ASSESSEE'S TOTAL INCOME ON THE GROUND THAT THAT THE ASSESSEE COULD NOT JUSTIFIABLY EXPLAIN THE SOURCE OF RS. 7 LAC AS THE LENDERS LACK THE CREDIT WORTHINESS. DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE AO ON FACTUAL BASIS. THE LEARNED AR HAS NOT SPECIFICALLY COUNTERED THE FINDING OF THE AO REGARDING LACK OF CREDITWORTHINESS OF THE LENDER. THE LEARNED AR HAS RELIED UPON THE RATIO DELIVERED IN THE CASE OF CIT VS. REAL TIME MARKETING (P) LTD (2008) 10 DTR 191 (DEL) AND ALSO IN CASE OF RAM KISHAN DASS MUNNU LAL VS CIT (1961) 41 ITR 452 (ALL.) TO SUGGEST THAT THAT THERE BEING NO MATERIAL LINK TO THE ASSESSEE WITH THE AMOUNT DEPOSITED IN CASH AND THE ONUS LIES ON THE DEPARTMENT TO PROVE THAT THE PERSON 'IN WHOSE NAME THE DEPOSITS WERE MADE REALLY BELONG TO THE ASSESSEE. THE ABOVE CASE LAWS RELIED UPON BY THE LEARNED AR HAS NO APPLICATION IN THE INSTANT CASE BECAUSE THE AO HAS BROUGHT ON RECORD THAT THE LENDER HAS NO INDEPENDENT SOURCE OF INCOME AND, THEREFORE, THE PREPONDERANCE OF PROBABILITIES THAT THE SAME REPRESENTS UNEXPLAINED INCOME OF THE ASSESSEE IS REASONABLY PROVED. HENCE, THE ADDITION O F RS.7,00,000/ - MADE BY THE AO TREATING THE SAID SUM AS UNEXPLAINED CREDIT STANDS CONFIRMED. (3) ADDITION OF RS.6, 11,000/ - ON A/C OF UNEXPLAINED INVESTMENT IN MACHINERY & GENERATOR. DURING THE YEAR THE ASSESSEE CLAIMED TO HAVE INVESTED RS.5.3 LACS IN MACHINERY AND RS. 80,000/ - IN GENERATOR. THE AO HAS MADE THE ADDITION BY OBSERVING AS UNDER: - IT IS NOTICEABLE THAT NO LOAN WHATSOEVER FROM ANY BANK WAS OBTAINED FOR THE PURCHASE OF ABOVE MACHINERY. THE MACHINERY & GENERATOR WERE CLAIMED TO HAVE BEEN PUR CHASED IN CASH THROUGH BOOKS OF ACCOUNTS, WHICH WERE NEVER PRODUCED . ITA NO. 94/ DEL/ 2009 8 TO EXPLAIN THE SOURCE OF INVESTMENT, VARIOUS OPPORTUNITIES OF BEING HEARD WERE GIVEN TO THE ASSESSEE BUT THE ASSESSEE HAD NO PROPER EXPLANATION REGARDING THE SOURCE OF INVESTMENT. NO C ASH BOOK OR CASH FLOW STATEMENT WAS FURNISHED BY THE ASSESSEE TO SUPPORT THE AVAILABILITY OF CASH. THE ASSESSEE COULD NOT EVEN LINK UP THE ABOVE CASH BASED INVESTMENT WITH ANY BANK. WITHDRAWAL. IN SUCH CIRCUMSTANCES, THERE IS NO OTHER OPTION BUT TO TREAT T HE SAME AS UNEXPLAINED INVESTMENT AND TO ADD THE SAME U/S 69 OF LT. ACT, 1961.' DURING APPELLATE PROCEEDINGS, THE LEARNED ,AR HAS WORKED OUT THE AVAILABILITY OF FUND ON THE RELEVANT DATES. AGAIN IT IS FOUND THAT THOUGH APPARENTLY THERE MAY NOT BE DIRECT N EXUS BETWEEN THE FUND AVAILABLE AND THE INVESTMENT MADE IN MACHINERY AND GENERATOR BUT THE CIRCUMSTANTIAL EVIDENCE POINTED OUT BY THE LEARNED AR THAT THE DATES ON WHICH CASH WITHDRAWALS HAVE BEEN MADE FROM THE VARIOUS BANKS OF THE ASSESSEE AND THE DATES ON WHICH EXPENDITURE HAS BEEN INCURRED APPEARS TO BE PLAUSIBLE EXPLANATION FOR WHICH BENEFIT CANNOT BE DENIED TO THE ASSESSEE; ACCORDINGLY, ADDITION AMOUNTING TO RS.6,11 ,000/ - IS HEREBY DELETED. (4) ADDITION OF RS.13.97 LAC ON A/C OF UNEXPLAINED INVESTMENT IN STOCK: THE AO HAS MADE THE ADDITION BY OBSERVING AS UNDER: 'FROM THE BUSINESS RESULTS ENCLOSED BY THE ASSESSEE ALONG WITH HER INCOME TAX RETURNS, WE FIND THAT THE ASSESSEE HAD AN OPENING STOCK OF JUST RS.11.07 LACS AT THE BEGINNING OF THE YEAR AND, WITHOUT ANY BIG JUMP IN INCOME, THE CLOSING STOCK HAS BEEN DECLARED AT RS.71.65 LACS. THE ASSESSEE'S COUNSEL HAS EXPLAINED THE INCREASE IN THE STOCK AS FOLLOWING: CLOSING STOCK - RS.71.661ACS LESS: OPENING STOCK - RS: 11.08 LACS RS.60.58 LACS. CAN ARA BANK PC LIMIT - RS. 36.91 LACS INCREASE IN CREDITORS LEVEL - RS. 9.70 LACS DECREASE IN DEBTORS LEVEL - RS. 18.54 LACS RS. 65.15 LACS ITA NO. 94/ DEL/ 2009 9 EVEN IF WE ACCEPT THE ASSESSEE'S ARGUMENTS REGARDING BANK PC LIMIT OF RS.36.91 LACS AND INCREASE IN CREDIT ORS LEVEL OF RS.9.70 LACS, THE REALIZATION OF DEBTORS IS ALSO NOT ON THE CARDS (AS DISCUSSED ON PAGE 20 TO 22). WHILE DISCUSSING ABOUT THE REALIZATION OF DEBTORS, {T IS IMPORTANT TO MENTION THE ARGUMENT OF ASSESSEE'S COUNSEL IN THIS REGARD SUBMITTED BY HI M VIDE HIS LETTER DATED 27.3.2006. THE RELEVANT EXCERPTS FROM THE ABOVE WRITTEN SUBMISSION ARE BEING REPRODUCED HEREUNDER: - '.....IT IS SUBMITTED THAT YOUR GOODSELF HAS NOT CONSIDERED THE ENTRIES OF FOREIGN REMITTANCES IN THE AMOUNT OF BANK OF PUNJAB - CURRENT ACCOUNT CORRECTLY RESULTING INTO DIFFERENCE OF RS.27.43 LACS WHICH IN FACT IS NOT THERE. THE REMITTANCES NOT CONSIDERED/WRONGLY CONSIDERED ARE DETAILED BELOW: - DATE AMOUNT REMARKS 7.6.2002 512820 NOT CONSIDERED 21.6.2002 486600 TAKEN AS RS. 486000 29.6.2002 612720 NOT CONSIDERED 5.9.2002 1419720 TAKEN AS RS. 1419270 10.10.2002 1612017 NOT CONSIDERED .... .. YOUR FINDING THAT REALIZATION OF DEBTORS IS, NOT AS PER DISCLOSED BANK ACCOUNTS AS DISCUSSED ABOVE. YOUR GOOD SELF WILL APPRECIATE THAT REALIZATION OF DEBTORS IS FULLY EXPLAINABLE AS PER THE BANK ACCOUNTS OF THE ASSESSEE IN VIEW OF POINT NO. 5 ABOV E AND AS SUCH THERE IS NO JUSTIFICATION IN MAKING THE SAID ADDITION. FROM THE FACTS ON RECORD, IT IS CLEAR THAT THE SUBMISSION OF THE ASSESSEE'S COUNSEL IS NOT CORRECT EXCEPT FOR THE FACT THAT ENTRY OF RS.4,86,600/ - HAS BEEN TAKEN AS RS.4,86,000/ - BY WA Y OF TYPING MISTAKE WHICH MAKES THE DIFFERENCE OF JUST RS.600/ - ONLY. REST OF THE SUBMISSIONS OF THE ASSESSEE'S COUNSEL ARE NOT CORRECT AS IS APPARENT FROM THE COPIES OF BANK ACCOUNT SUBMITTED BY THE ASSESSEE ONLY. THE COPIES OF RELEVANT PAGES OF THE BANK ACCOUNTS AND THE ASSESSEE'S SUBMISSION ARE BEING ENCLOSED FOR REFERENCE AS ANNEXURE - D. 'FROM THE PERUSAL OF RELEVANT PAGES OF THE BANK ACCOUNT WITH BANK OF PUNJAB, IT IS CLEAR THAT FOLLOWING ENTRIES CLAIMED BY THE ASSESSEE AS 'NOT CONSIDERED' DO NOT EXIST AT ALL ON. THE RELEVANT PAGES IN THE BANK ACCOUNT WITH BANK OF PUNJAB: ITA NO. 94/ DEL/ 2009 10 7.6.2002 5.12.820 29.6.2002 6,12,720 10.10.2002 1612017 TOTAL 27,37,557 SINCE THE ABOVE CLAIM OF THE ASSESSEE HAS BEEN PROVED TO BE WRONG, THE CLAIM REGARDING THE REALIZATION OF DEBTORS IS NOT ACCEPTABLE. SINCE THE CLAIM OF REALIZATION OF DEBTORS IS NOT TRUE, THE JUSTIFICATION GIVEN BY THE ASSESSEE'S COUNSEL REMAINS LIMITED TO RS.46,61 LACS ONLY WHICH CALLS FOR THE ADDITION OF RS.13.97 LACS FOR THE UNEXPLAINED CAPITAL ADDITIO N IN STOCK U/S 69 OF LT. ACT, 1961.' DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS TAKEN GENERAL PLEA THAT THE ASSESSEE HAS MADE SUFFICIENT CASH WITHDRAWALS AND, THEREFORE, THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK IS NOT SUSTAINABLE. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED AR. THE LEARNED AR HAS NOT BEEN ABLE TO POINT OUT ANY CIRCUMSTANTIAL EVIDENCE TO SUPPORT HIS CONTENTION. THE PLEA OF THE LEARNED AR THAT THERE IS AN OVERALL AVAILABILITY OF CASH, WHICH EXPLAIN THE INVEST MENT IN STOCK IS A GENERAL PLEA WHICH LACK CREDIBILITY. THERE IS ABSOLUTELY NO NEXUS / DIRECT PLAUSIBLE EXPLANATION REGARDING THE SAID INVESTMENT AND ACCORDINGLY, THE ADDITION ON ACCOUNT OF U INVESTMENT IN STOCK AMOUNTING TO RS.13.97 LACS MADE BY THE AO IS HEREBY CONFIRMED. (5) ADDITION OF RS.2.99 LACS ON A/C OF UNEXPLAINED INVESTMENT IN FDRS: THE AO HAS MADE THE ADDITION BY OBSERVING AS UNDER: THE ASSESSEE HAS ALSO DECLARED FDR OF RS. 3,85,400/ - WITH AEPC AS ON 31.3.2003. SINCE THE SAME WERE NOT TH E PART OF BALANCE SHEET AS ON 31.3.2002, THE INVESTMENT PERTAINS TO THE FINANCIAL YEAR 2002 - 03 ONLY. REGARDING THE SOURCE OF INVESTMENT IN THE ABOVE FDRS, THE ASSESSEE WAS ABLE TO SUBMIT THE EXPLANATION REGARDING THE FDRS OF RS. 86,400/ - ONLY. REGARD ING THE TIMING, THE AMOUNT AND THE SOURCE OF INVESTMENT REGARDING REST OF THE FDRS NO PROPER EXPLANATION HAS BEEN FILED BY THE ASSESSEE. THE ASSESSEE COULD NOT EVEN LINK UP THE ABOVE INVESTMENT WITH ANY BANK WITHDRAWAL. IT IS ALSO IMPORTANT TO MENTION HERE AGAIN THAT NO CASH BOOK OR CASH FLOW STATEMENT HAS BEEN FURNISHED BY THE ASSESSEE. ITA NO. 94/ DEL/ 2009 11 DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS AGAIN TAKEN THE PLEA THAT THERE IS AN OVERALL AVAILABILITY OF CASH, WHICH COVER THIS INVESTMENT AND THEREFORE NO AD DITION IS CALLED FOR' ON THIS ACCOUNT. THE PLEA OF THE LEARNED AR IS AGAIN NOT ACCEPTABLE. THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY EVIDENCE, WHICH COULD BE DIRECTLY OR INDIRECTLY LINKED TO THE SAID INVESTMENT. HENCE THE PLEA OF THE LEARNED AR REGARD ING SOURCE OF INVESTMENT IN FDRS. REMAINS UNEXPLAINED EVEN AT THE APPELLATE STATE. HENCE THE ACTION OF THE AO IN MAKING ADDITION OF RS.2.99 LACS TREATING IT AS UNEXPLAINED INVESTMENT IN FDRS STANDS CONFIRMED. (6) THE NEXT ISSUE CHALLENGED BY THE ASSESSEE VIDE GROUND NO.8 IS AGAINST THE ADDITION OF RS.54,60,OQOI - MADE BY THE AO UNDER THE HEAD 'PURCHASES OUT OF UNDISCLOSED SOURCES.' DURING APPELLATE PROCEEDINGS, IT HAS BEEN STATED BY THE LEARNED AR THAT RELIEF OF THIS AMOUNT HAS ALREADY BEEN GIVEN BY THE AO VIDE RECTIFICATION ORDER PASSED U/S 154 OF LT. ACT. IN VIEW OF THIS FACT, NO SPECIFIC ADJUDICATION IS CALLED FOR IN RESPECT OF THIS GROUND TAKEN IN APPEAL. (7) DISALLOWANCE OF RS. 11.60 LACS U/S 40A(3 ): VIDE GROUND NO. 9 THE APPELLANT HAS CHALLENGED TH E ACTION OF THE AO IN MAKING DISALLOWANCE OF RS.11.60 U/S 40A(3). THE AO HAS MADE THE DISALLOWANCE BY OBSERVING AS UNDER: 'IF WE HAVE A LOOK UPON THE TRADING & P&L ACCOUNT ENCLOSED ALONG WITH THE RETURN OF INCOME FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS DECLARED THE PURCHASES OF RS. 1.64 CRORES. THE ASSESSEE HAS ALSO DECLARED THE TRADING EXPENSES OF RS.50.51 LACS IN TRADING ACCOUNT AND THE REVENUE EXPENSES OF RS.18.32 LACS IN P/L ACCOUNT WHICH MEANS THAT THE ASSESSEE HAS CLAIMED TOTAL BUSINES S EXPENSES OF RS.2.33 CRORES. IF WE HAVE A LOOK ON THE BALANCE SHEET ENCLOSED ALONG WITH THE RETURN OF INCOME FILED BY THE ASSESSEE, WE FIND THAT THERE IS AN INCREASE IN TRADE CREDITORS BY RS.9.70 LACS (RS.41.07 LACS - 31.37 LACS) DURING THE YEAR. THE ASS ESSEE HAS ALSO SHOWN THE EXPENSES PAYABLE OF RS.2.18 LACS AT THE END OF YEAR. THE ASSESSEE ALSO HAD THE CASH BALANCE OF RS.92,000/ - AT THE BEGINNING OF YEAR. IF WE DEDUCT THE INCREASE IN CREDITORS (RS.9.70 LACS) AND EXPENSES PAYABLE OF (RS.2.18 LACS) AND OPENING CASH BALANCE (RS.92,000/ - ), WE FIND THAT THE ASSESSEE HAS CLAIMED TO HAVE MADE PURCHASES AND BUSINESS EXPENSES OF ABOUT RS.2.20 CRORES WHICH ARE SUPPO SED TO BE WITHDRAWN FROM THE BANK ACCOUNTS DECLARED BY HER. [THE ASSESSEE'S COUNSEL HAS CONTENDED THAT WE SHOULD DEDUCT THE CREDITORS OF RS.4I.07 LACS BUT ONLY THE INCREASE IN CREDITORS IS TO BE DEDUCTED]. ITA NO. 94/ DEL/ 2009 12 BUT THE SURPRISING FACTOR HERE IS THAT THERE ARE HUGE CASH WITHDRAWALS FROM THE BANK (THE DESTINATIONS OF WITHDRAWALS ARE UNKNOWN AND NO CASH BOOK OR CASH FLOW ACCOUNT HAS BEEN FURNISHED BY THE ASSESSEE DURING THE LONG ASSESSMENT PROCEEDINGS) WHICH DO NOT LEAVE ANY ROOM FOR THE PAYMENTS ACTUALLY MADE THR OUGH ACCOUNT PAYEE CHEQUE/DD AS PROVIDED IN SECTION 40A(3) AND, THE VIOLATION OF THESE PROVISIONS IS CLEARLY, ON THE CARDS ON THE BASIS OF FACTS ON RECORD. IT IS HIGHLY SURPRISING THAT THE WITHDRAWAL ENTRIES OF ABOUT RS.1.28 CRORES ONLY CAN BE TERMED AS O THER THAN CASH WITHDRAWALS. EVEN AMONG THIS RS.1.28 CRORES, LOT OF WITHDRAWALS APPEAR TO BE BEARER CHEQUE WITHDRAWALS ON THE FACE OF IT BUT THE SAME HAVE BEEN TREATED AS 'CHEQUE WITHDRAWALS' WHILE GIVING THE BENEFIT OF DOUBT TO THE ASSESSEE . FOLLOWING IS THE BREAK - UP OF BANK WISE WITHDRAWALS MADE BY THE ASSESSEE DURING THE YEAR . NAME OF BANK WITHDRAWALS (OTHER THAN CASH WITHDRAWALS) AMT. (RS.) (IN LACS) BANK OF PUNJAB - CURRENT ALC 82.95 GLOBAL TRUST BANK - CURRENT ALC 5.99 CANARA BANK - CURRENT A/C 43.91 PNB, PATPARGANJ DUTY DRAWBACK A/C 0.60 PNB, ICD, DUTY DRAWBACK A/C NIL CANARA BANK - PC LIMIT A/C NIL TOTAL 132.75 THUS, OUT OF THE TOTAL EXPENSES CLAIMED TO BE ACTUALLY INCURRED (PAYMENT MADE) FOR, THE PURCHASES/BUSINESS EXPO (RS.2.20 CRORES), THE ASSESSEE HAS PAID RS.L.33 CRORES THROUGH MODES OTHER THAN CASH OUT OF DECLARED BANK ACCOUNTS. REST OF RS.87 LACS HAVE BEEN PAID EITHER THROUGH UNDISCLOSED BANK ACCOUNTS OR THROUGH MODES OTHER TH AN CROSSED CHEQUE/CROSSED DD. NOW THERE ARE ONLY TWO OPTIONS. FIRST IS TO CONSIDER THE INVESTMENT OF RS.87 LACS AS HAVING MADE THROUGH UNDISCLOSED BANK ACCOUNTS AND TO MAKE ADDITION OF RS.87 LACS U/S. 69 OF THE L.T. ACT, 1961. THE SECOND IS TO CONSIDER T HE SAME AS HAVING BEEN MADE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OUT OF CASH WITHDRAWALS MADE FROM THE UNDISCLOSED BACK ACCOUNTS. ITA NO. 94/ DEL/ 2009 13 IN THE INTEREST OF JUSTICE, THE SECOND OPTION IS BEING EXERCISED HERE. GIVING THE MAXIMUM LEVERAGE TO THE ASSESS EE, THE EXPENSES OF RS.29 LACS (1/3 RD OF THE TOTAL EXPENSES) ARE PRESUMED AS NOT COVERED BY THE PROVISIONS OF SECTION 40A(3). (THE BENEFIT OF CASH BALANCE OF RS.92,666/ - HAS ALREADY BEEN GIVEN TO THE ASSESSEE FOR INCURRING THE PETTY BUSINESS EXPENSES). I F WE APPLY THE PROVISIONS OF SECTION 40A(3) ON REST OF THE EXPENSES OF RS.58 LACS. THERE IS A CLEAR DISALLOWANCE OF RS.11.60 LACS ON THIS ACCOUNT. IT IS WORTHWHILE TO MENTION HERE THAT, IN THE ABSENCE OF BOOKS OF ACCOUNT, THERE IS NO OTHER OPTION BUT TO DE CIDE THE ISSUE ON THE BASIS OF BEST JUDGMENT WHILE CONSIDERING THE FACTS ON RECORD. IN VIEW OF THE FACTS ON RECORD, THERE IS NO OPTION BUT TO TREAT THE BUSINESS OF RS.58 LACS AS HAVING BEEN MADE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3). ACCORDINGL Y, AN ADDITION OF RS.11.60 LACS IS MADE ON: THIS ACCOUNT.' DURING APPELLATE PROCEEDINGS THE LEARNED AR HAS SUBMITTED THAT THE AO HAS MADE THE ADDITION ON PRESUMPTION BASIS & THERE IS NOTHING ON RECORDS, WHICH SUGGESTS THE PAYMENTS IN VIOLATION OF SECTION 40A(3). THE LEARNED AR HAS ARGUED THAT IN THE ABSENCE OF ANY EVIDENCE BROUGHT OUT BY THE AO, NO DISALLOWANCE CAN BE MADE ON THE BASIS OF MERE PRESUMPTION. THE SUBMISSIONS OF THE LEARNED AR HAVE BEEN CONSIDERED. PERUSAL OF 'ASSESSMENT ORDER SHOWS THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF PRESUMPTION WITHOUT BRINGING ON RECORD THE SPECIFIC TRANSACTION MADE IN CASH. IN THE ABSENCE OF ANY CATEGORICAL FINDINGS BY THE AO REGARDING SPECIFIC TRANSACTION MADE IN CASH, NO DISALLOWANCE COULD BE MADE AS HELD BY VARIOUS HON BLE COURTS. HENCE THE ESTIMATED DISALLOWANCE OF RS.11.60 LACS MADE U/S 40A(3) IS HEREBY DELETED. (8) THE APPELLANT, VIDE GROUND NO.1, HAS CONTENDED THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING RS.7,76,607/ - BEING THE DEDUCTION CLAIMED U/S . 80HHC. DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS POINTED OUT THAT THE ASSESSEE HAS ALREADY BEEN ALLOWED THE. CLAIM OF DEDUCTION OF RS. 7,76,607/ - BY THE AO VIDE HIS ORDER PASSED U/S 154 OF LT. ACT. HOWEVER, DURING APPELLATE PROCEEDINGS, THE LEARNE D AR HAS TAKEN A PLEA THAT IN CASE ANY OF THE ADDITIONS ARE CONFIRMED IN. APPEAL, THE ASSESSEE IS ENTITLED FOR HIGHER CLAIM OF DEDUCTION U/S 80HHC OF LT. ACT. THE PLEA OF THE LEARNED AR HAS BEEN CONSIDERED AND FINDS ITA NO. 94/ DEL/ 2009 14 THAT THE SAME HAS NO MERIT. THE DEDUCTIO N U/S 80HHC IS TO BE ALLOWED IN TERMS OF THE PROVISIONS OF THE ACT. DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS NOT BEEN ABLE TO PROVE THE NEXUS BETWEEN THE ADDITIONS MADE BY THE AO, WHICH HAVE BEEN CONFIRMED IN APPEAL, AND THE EXPORT BUSINESS OF T HE APPELLANT. IN VIEW OF THIS THE CLAIM OF THE LEARNED AR FOR HIGHER DEDUCTION U/S. 80HHC HAS NO BASIS. HENCE, THE PLEA TAKEN BY THE LEARNED AR ON THIS SCORE IS HEREBY REJECTED. (9) VIDE GROUND NO.5 THE APPELLANT HAS CONTENDED THAT THE AO WAS WRONG AND ILLEGAL IN MAKING AN ADDITION OF RS.6.92 LACS TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT IN CAR, FURNITURE, SCOOTER AND FAX. DURING APPELLATE PROCEEDINGS; THE LEARNED AR HAS SUBMITTED THAT OUT OF THE ADDITION MADE OF RS.6,92,201/ - , THE AO HAS GIVEN A RELIEF OF RS.5,24,534/ - VIDE HIS RECTIFICATION ORDER PASSED U/S 154 OF THE ACT REMAINING AN ADDITION OF RS.1,67,667/ - ON THIS ACCOUNT. NOW, DURING APPELLATE PROCEEDINGS, THE LEARNED AR HAS EXPLAINED THE SOURCE OF RS.1,67,667/ - AS UNDER: MARGIN MONEY FOR CAR (DATE OF FINANCE 30.11.02) RS. 77723/ - OUT OF BOP WITHDRAWAL OF RS. 4.15 LACS ON 26.11.2002. MARGIN MONEY FOR SCOOTER (DATE OF FINANCE 28.10.02) RS. 10273/ - OUT OF BOP WITHDRAWAL OF RS. 40000/ - ON 10.10.2002. FAX (BILL DATED 11.11.02) RS. 16000/ - OUT OF BOP WITHDRAWAL OF RS. 5.65 LACS ON 02.11.2002. FURNITURE RS. 64171/ - OUT OF AVAILABLE CASH AS SUFFICIENT CASH WITHDRAWAL ARE THERE AS PER CHARGE SHOWING AVAILABILITY OF CASH. THE SUBMISSION OF THE LEARNED AR HAS BEEN CONS IDERED. OUT OF INVESTMENT OF RS.1 ,67,667/ - , THE SOURCE OF INVESTMENT TO THE EXTENT OF RS.77,223/ - (MARGIN MONEY TOR CAR), RS'.10,273/ - (MARGIN MONEY FOR SCOOTER AND RS.16,000/ - (FOR FAX) APPEARS SATISFACTORILY EXPLAINED TO BE OUT OF BOP WITHDRAWALS, AS STATED ABOVE. HENCE THERE IS NO JUSTIFICATION FOR MAKING ADDITION TO SUCH EXTENT. ITA NO. 94/ DEL/ 2009 15 HOWEVER, AS REGARDS THE INVESTMENT IN FURNITURE TO THE EXTENT OF RS.64, 171/ - , THE LEARNED AR HAS EXPLAINED THE SOURCE THERE OF TO BE OUT OF AVAILABLE CASH. THIS EXPLANATION IS OF GENERAL NATURE AS THE SAME IS NOT SUPPORTED BY ANY PROPER EVIDENCE. HENCE OUT OF RS.1 ,67,667/ - , ADDITION TO THE EXTENT OF RS.64, 171/ - IS CONFIRMED AND THE BALANCE IS DELETED. 9. WITH REGARD TO GROUND 1(I) REGARDING DELETION OF ADDITION OF RS. 9,50,000/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN FACTORY AND BUILDING IS CONCERNED, WE FIND THAT T HE AO HAS MADE AN ADDITION OF RS.19,00,000/ - UNDER THE HEAD UNEXPLAINED INVESTMENT IN FACTORY. BUILDING, WHICH CONSISTED OF RS.12,00,000/ - + RS.7, 00,0001 - . THE ASSESSEE HAS DECLARED INVESTMENT IN FACTORY BUILDING AMOUNTING TO RS.37,00,000/ - AND EXPLAINED BEFORE THE AO THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.25,00,000/ - FROM HER DAUGHTERS THROUGH A/C PAYEE CHEQUES AND THE 'REST OF INVESTME NTS OF RS.12,00,000/ - WERE OUT OF CASH BASED TRANSACTIONS WHICH THE ASSESSEE 'CLAIMED TO HAVE MADE THROUGH THE ACCOUNT BOOKS OF M/S INDIAN WEAVES. 9.1 RELATING TO ADDITION OF RS.12,00,OOO/ - IS CONCERNED, THE AO HAS MADE THE ADDITION OF RS.12,00,OOO/ - BY OBSERVING THAT RS.12 LACS HAVE BEEN INVESTED THROUGH CASH BASED TRANSACTIONS FOR WHICH THE ASSESSEE HAS NO EXPLANATION AT ALL. THE AO OBSERVED THAT THE ASSESSEE NEITHER FURNISHED ANY CASHBOOK NOR CASH FLOW STATEMENT. ACCORDINGLY, THE SAME WAS TREATED A S UNEXPLAINED INCOME AND ADDED TO ASSESSEE S TOTAL INCOME U/S. 69 OF THE I.T. ACT. WE FIND THAT THE ASSESSEE PRODUCED A STATEMENT SHOWING AVAILABILITY OF SOURCE OF RS.12,00,000/ BEFORE THE LD. CIT(A) DURING THE APPELLATE PROCEEDINGS AND WHICH SHOWS THE RE IS NO DIRECT EVIDENCE REGARDING THE CASH TRANSACTION BUT THE DATE ON WHICH SUCH HAS TAKEN PLACE AND THE AVAILABILITY OF CASH ON SUCH DATE SHOWS THAT THERE IS PLAUSIBLE NEXUS, WHICH EXPLAINS THE SOURCE. HOWEVER, THE DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD INDICATE THAT AN AMOUNT OF RS.2,50,000/ - ITA NO. 94/ DEL/ 2009 16 HAS BEEN SHOWN TO BE REPRESENTING DIRECT CREDIT IN CAPITAL ACCOUNT. HOWEVER, IN ABSENCE OF RELEVANT DETAIL, THE SAME CANNOT BE ACCEPTED. THUS IN OUR CONSIDERED OPINION, LD. CIT(A) HAS RIGHTLY CONF IRMED THE ADDITION TO THE EXTENT OF RS. 2,50,000 / - AND THE REST OF THE AMOUNT I.E. RS. 9,50,000/ - IS DELETED. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSE D BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY REJECTING THIS GROUND OF APPEAL RAISED BY THE REVENUE IN THE AFORESAID MANNER. 10. WITH REGARD TO GROUND 1(II) REGARDING DELETION OF ADDITION OF RS. 6,11,000/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN MA CHINERY AND GENERATOR IS CONCERNED, WE FIND THAT THE ASSESSEE CLAIMED TO HAVE INVESTED RS.5.3 LACS IN MACHINERY AND RS. 80,000/ - IN GENERATOR. THE AO HAS MADE THE ADDITION BY OBSERVING AS UNDER: - IT IS NOTICEABLE THAT NO LOAN WHATSOEVER FROM ANY BANK WAS OBTAINED FOR THE PURCHASE OF ABOVE MACHINERY. THE MACHINERY & GENERATOR WERE CLAIMED TO HAVE BEEN PURCHASED IN CASH THROUGH BOOKS OF ACCOUNTS, WHICH WERE NEVER PRODUCED . TO EXPLAIN THE SOURCE OF INVESTMENT, VARIOUS OPPORTUNITIES OF BEING HEARD WERE GIV EN TO THE ASSESSEE BUT THE ASSESSEE HAD NO PROPER EXPLANATION REGARDING THE SOURCE OF INVESTMENT. NO CASH BOOK OR CASH FLOW STATEMENT WAS FURNISHED BY THE ASSESSEE TO SUPPORT THE AVAILABILITY OF CASH. THE ASSESSEE COULD NOT EVEN LINK UP THE ABOVE CASH BASE D INVESTMENT WITH ANY BANK. WITHDRAWAL. IN SUCH CIRCUMSTANCES, THERE IS NO OTHER OPTION BUT TO TREAT THE SAME AS UNEXPLAINED INVESTMENT AND TO ADD THE SAME U/S 69 OF I.T. ACT, 1961.' 10.1 WE FIND THAT D URING APPELLATE PROCEEDINGS, THE LEARNED COUNSEL OF T HE ASSESSEE HAS WORKED OUT THE AVAILABILITY OF FUND ON ITA NO. 94/ DEL/ 2009 17 THE RELEVANT DATES. AGAIN IT WAS FOUND THAT THOUGH APPARENTLY THERE MAY NOT BE DIRECT NEXUS BETWEEN THE FUND AVAILABLE AND THE INVESTMENT MADE IN MACHINERY AND GENERATOR BUT THE CIRCUMSTANTIAL EVIDENCE POINTED OUT BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THE DATES ON WHICH CASH WITHDRAWALS HAVE BEEN MADE FROM THE VARIOUS BANKS OF THE ASSESSEE AND THE DATES ON WHICH EXPENDITURE HAS BEEN INCURRED APPEARS TO BE PLAUSIBLE EXPLANATION FOR WHICH BENEFIT CANNOT BE DENIED TO THE ASSESSEE; ACCORDINGLY, LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION OF RS.6,11 ,000/ - . IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY REJ ECTING THIS GROUND OF APPEAL RAISED BY THE REVENUE IN THE AFORESAID MANNER. 1 1 . WITH REGARD TO GROUND 1(I I I) REGARDING DELETION OF ADDITION OF RS. 13,86,400/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN FORM OF CASH DEPOSITS IS CONCERNED, WE FIND THAT D URI NG THE APPELLATE PROCEEDINGS, THE LEARNED COUNSEL OF THE ASSESSEE HAS WORKED OUT THE AVAILABILITY OF CASH IN ASSESSE 'S BANK ALC. ON PERUSAL OF THE ACCOUNTS, IT IS SEEN THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS GIVEN DATE - WISE WITHDRAWALS FROM HER BANK ACCOUNT ALONG WITH THE DATES ON WHICH THE CASH WAS DEPOSITED, IN THE BANK ACCOUNT. APPARENTLY, THE DATES OF WITHDRAWAL AND THE DATES OF DEPOSITS ARE CLOSE WHICH INDICATE THAT IN ABSENCE OF' ANY OTHER UNDISCLOSED BUSINESS ACCOUNTS, THE PREPONDERANCE OF PROB ABILITY IS THAT 'THE CASH WITHDRAWALS HAVE BEEN DEPOSITED IN HER BANK ACCOUNT APPEARS TO BE LOGICAL. THOUGH THE NEXUS BETWEEN THE WITHDRAWAL AND THE DEPOSIT CANNOT BE DIRECTLY PROVED BUT THE DATES ON WHICH WITHDRAWALS HAVE BEEN MADE AND THE CASH HAS BEEN D EPOSITED DOES MAKE A CIRCUMSTANTIAL EVIDENCE. SUCH A CIRCUMSTANTIAL ITA NO. 94/ DEL/ 2009 18 EVIDENCE BECOMES MORE CREDIBLE IN VIEW OF THE FACT THAT NO OTHER BUSINESS SOURCE/ACCOUNT HAS BEEN FOUND BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR IN SUBSEQUENT ASSESSMENT P ROCEEDINGS, AS HAS BEEN POINTED OUT BY THE LEARNED AR. CONSIDERING THE OVER FACTS AND CIRCUMSTANCES OF THE CASE, THE PREPONDERANCE OF PROBABILITIES APPEARS TO BE IN FAVOUR OF THE ASSESSEE. HOWEVER, WHILE SCRUTINIZING THE DATE WISE WITHDRAWALS AND THE DATE OF DEPOSIT, IT IS SEEN THAT AT FIVE PLACES APPARENTLY THERE ARE NEGATIVE BALANCES, WHICH WORKS OUT TO RS.3,20,850/ - . IN THE ABOVE CIRCUMSTANCES, OUT OF RS.17,07,250/ - , FOR THE AMOUNT TO THE EXTENT OF RS.3,20,850/ - , THE ASSESSEE COULD 'NOT GIVE THE SOURCE T HEREOF. IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE COGENCY IN THE FINDING OF THE LD. CIT(A) TO DELETE THE ADDITION OF RS. 13,86,400/ - AND RS.3,20,850/ - IS CONFIRMED . IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT NO INTE RFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY REJECTING THIS GROUND OF APPEAL RAISED BY THE REVENUE IN THE AFORESAID MANNER. 12. WITH REGARD TO GROUND 1(I V ) REGARDING DELETION OF ADDITION OF RS. 1,03,496/ - ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CAR, FURNITURE ETC. IS CONCERNED, WE FIND THAT CONSIDERABLE FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE AO WAS WRONG AND ILLEGAL IN MAKING AN ADDITION OF RS.6.92 LACS TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT IN CAR, FURNITURE, SCOOTER AND FAX. WE FIND THAT D URING THE APPELLATE PROCEEDINGS; THE LEARNED COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT O UT OF THE ADDITION MADE OF RS.6,92,201/ - , THE AO HAS GIVEN A RELIEF OF RS.5,24,534/ - VIDE HIS RECTIFICATION ORDER PASSED U/S 154 OF THE ACT REMAINING AN ADDITION OF RS.1,67,667/ - ON THIS ACCOUNT. NOW, DURING APPELLATE PROCEEDINGS, ITA NO. 94/ DEL/ 2009 19 THE LEARNED COUNSEL OF TH E ASSESSEE HAS EXPLAINED THE SOURCE OF RS.1,67,667/ - AS UNDER: MARGIN MONEY FOR CAR (DATE OF FINANCE 30.11.02) RS. 77723/ - OUT OF BOP WITHDRAWAL OF RS. 4.15 LACS ON 26.11.2002. MARGIN MONEY FOR SCOOTER (DATE OF FINANCE 28.10.02) RS. 10273/ - OUT OF BOP WITHDRAWAL OF RS. 40000/ - ON 10.10.2002. FAX (BILL DATED 11.11.02) RS. 16000/ - OUT OF BOP WITHDRAWAL OF RS. 5.65 LACS ON 02.11.2002. FURNITURE RS. 64171/ - OUT OF AVAILABLE CASH AS SUFFICIENT CASH WITHDRAWAL ARE THERE AS PER CHARGE SHOWING AVAILABILITY OF CASH. 12.1 LD. CIT(A) HAS RIGHTLY OBSERVED THAT O UT OF INVESTMENT OF RS.1 ,67,667/ - , THE SOURCE OF INVESTMENT TO THE EXTENT OF RS.77,223/ - (MARGIN M ONEY TOR CAR), RS'.10,273/ - (MARGIN MONEY FOR SCOOTER AND RS.16,000/ - (FOR FAX) APPEARS SATISFACTORILY EXPLAINED TO BE OUT OF BOP WITHDRAWALS, AS STATED ABOVE. HENCE THERE IS NO JUSTIFICATION FOR MAKING ADDITION TO SUCH EXTENT. HOWEVER, AS REGARDS THE IN VESTMENT IN FURNITURE TO THE EXTENT OF RS.64,171/ - , THE LEARNED COUNSEL OF THE ASSESSEE HAS EXPLAINED THE SOURCE THERE OF TO BE OUT OF AVAILABLE CASH. LD. CIT(A) HELD RIGHTLY HELD THAT T HIS EXPLANATION IS OF GENERAL NATURE AS THE SAME IS NOT SUPPORTED BY ANY PROPER EVIDENCE. THEREFORE, THE LD. CIT(A) HAS RIGHTLY HELD THAT OUT OF RS.1,67,667/ - , ADDITION TO THE EXTENT OF RS.64, 171/ - IS CONFIRMED AND THE BALANCE ADDITION OF RS. 1,03,496/ - IS DELETED. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE ARE O F THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE ITA NO. 94/ DEL/ 2009 20 LD. CIT(A), HENCE, WE UPHOLD THE SAME BY REJECTING THIS GROUND OF APPEAL RAISED BY THE REVENUE IN THE AFORESAID MANNER. 1 3 . WITH REGARD TO GROUND 1(V) REGA RDING DELETION OF ADDITION OF RS. 11,60,000/ - ON ACCOUNT OF 20% OF EXPENDITURE INCURRED IN VIOLATION OF SECTION 40A(3) OF THE I.T. ACT IS CONCERNED, WE FIND AO HAS MADE THE DISALLOWANCE BY OBSERVING AS UNDER: 'IF WE HAVE A LOOK UPON THE TRADING & P&L A CCOUNT ENCLOSED ALONG WITH THE RETURN OF INCOME FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS DECLARED THE PURCHASES OF RS. 1.64 CRORES. THE ASSESSEE HAS ALSO DECLARED THE TRADING EXPENSES OF RS.50.51 LACS IN TRADING ACCOUNT AND THE REVENUE EXPENSE S OF RS.18.32 LACS IN P/L ACCOUNT WHICH MEANS THAT THE ASSESSEE HAS CLAIMED TOTAL BUSINESS EXPENSES OF RS.2.33 CRORES. IF WE HAVE A LOOK ON THE BALANCE SHEET ENCLOSED ALONG WITH THE RETURN OF INCOME FILED BY THE ASSESSEE, WE FIND THAT THERE IS AN INCREASE IN TRADE CREDITORS BY RS.9.70 LACS (RS.41.07 LACS - 31.37 LACS) DURING THE YEAR. THE ASSESSEE HAS ALSO SHOWN THE EXPENSES PAYABLE OF RS.2.18 LACS AT THE END OF YEAR. THE ASSESSEE ALSO HAD THE CASH BALANCE OF RS.92,000/ - AT THE BEGINNING OF YEAR. IF WE D EDUCT THE INCREASE IN CREDITORS (RS.9.70 LACS) AND EXPENSES PAYABLE OF (RS.2.18 LACS) AND OPENING CASH BALANCE (RS.92,000/ - ), WE FIND THAT THE ASSESSEE HAS CLAIMED TO HAVE MADE PURCHASES AND BUSINESS EXPENSES OF ABOUT RS.2.20 CRORES WHICH ARE SUPPOSED TO B E WITHDRAWN FROM THE BANK ACCOUNTS DECLARED BY HER. [THE ASSESSEE'S COUNSEL HAS CONTENDED THAT WE SHOULD DEDUCT THE CREDITORS OF RS.4I.07 LACS BUT ONLY THE INCREASE IN CREDITORS IS TO BE DEDUCTED]. BUT THE SURPRISING FACTOR HERE IS THAT THERE ARE HUGE CASH WITHDRAWALS FROM THE BANK (THE DESTINATIONS OF WITHDRAWALS ARE UNKNOWN AND NO CASH BOOK OR CASH FLOW ACCOUNT HAS BEEN FURNISHED BY THE ASSESSEE DURING THE LONG ASSESSMENT PROCEEDINGS) WHICH DO NOT LEAVE ANY ITA NO. 94/ DEL/ 2009 21 ROOM FOR THE PAYMENTS ACTUALLY MADE THROUGH ACCOUNT PAYEE CHEQUE/DD AS PROVIDED IN SECTION 40A(3) AND, THE VIOLATION OF THESE PROVISIONS IS CLEARLY, ON THE CARDS ON THE BASIS OF FACTS ON RECORD. IT IS HIGHLY SURPRISING THAT THE WITHDRAWAL ENTRIE S OF ABOUT RS.1.28 CRORES ONLY CAN BE TERMED AS OTHER THAN CASH WITHDRAWALS. EVEN AMONG THIS RS.1.28 CRORES, LOT OF WITHDRAWALS APPEAR TO BE BEARER CHEQUE WITHDRAWALS ON THE FACE OF IT BUT THE SAME HAVE BEEN TREATED AS 'CHEQUE WITHDRAWALS' WHILE GIVING THE BENEFIT OF DOUBT TO THE ASSESSEE . FOLLOWING IS THE BREAK - UP OF BANK WISE WITHDRAWALS MADE BY THE ASSESSEE DURING THE YEAR. NAME OF BANK WITHDRAWALS (OTHER THAN CASH WITHDRAWALS) AMT. (RS.) (IN LACS) BANK OF PUNJAB - CURRENT ALC 82.95 GLOBAL TRUST BANK - CURRENT ALC 5.99 CANARA BANK - CURRENT A/C 43.91 PNB, PATPARGANJ DUTY DRAWBACK A/C 0.60 PNB, ICD, DUTY DRAWBACK A/C NIL CANARA BANK - PC LIMIT A/C NIL TOTAL 132.75 THUS, OUT OF THE TOTAL EXPENSES CLAIMED TO BE A CTUALLY INCURRED (PAYMENT MADE) FOR, THE PURCHASES/BUSINESS EXPO (RS.2.20 CRORES), THE ASSESSEE HAS PAID RS.L.33 CRORES THROUGH MODES OTHER THAN CASH OUT OF DECLARED BANK ACCOUNTS. REST OF RS.87 LACS HAVE BEEN PAID EITHER THROUGH UNDISCLOSED BANK ACCOUNTS OR THROUGH MODES OTHER THAN CROSSED CHEQUE/CROSSED DD. NOW THERE ARE ONLY TWO OPTIONS. FIRST IS TO CONSIDER THE INVESTMENT OF RS.87 LACS AS HAVING MADE THROUGH UNDISCLOSED BANK ACCOUNTS AND TO MAKE ADDITION OF RS.87 LACS U/S. 69 OF THE L.T. ACT, 1961. TH E SECOND IS TO ITA NO. 94/ DEL/ 2009 22 CONSIDER THE SAME AS HAVING BEEN MADE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OUT OF CASH WITHDRAWALS MADE FROM THE UNDISCLOSED BACK ACCOUNTS. IN THE INTEREST OF JUSTICE, THE SECOND OPTION IS BEING EXERCISED HERE. GIVING THE MAXIMU M LEVERAGE TO THE ASSESSEE, THE EXPENSES OF RS.29 LACS (1/3 RD OF THE TOTAL EXPENSES) ARE PRESUMED AS NOT COVERED BY THE PROVISIONS OF SECTION 40A(3). (THE BENEFIT OF CASH BALANCE OF RS.92,666/ - HAS ALREADY BEEN GIVEN TO THE ASSESSEE FOR INCURRING THE PET TY BUSINESS EXPENSES). IF WE APPLY THE PROVISIONS OF SECTION 40A(3) ON REST OF THE EXPENSES OF RS.58 LACS. THERE IS A CLEAR DISALLOWANCE OF RS.11.60 LACS ON THIS ACCOUNT. IT IS WORTHWHILE TO MENTION HERE THAT, IN THE ABSENCE OF BOOKS OF ACCOUNT, THERE IS NO OTHER OPTION BUT TO DECIDE THE ISSUE ON THE BASIS OF BEST JUDGMENT WHILE CONSIDERING THE FACTS ON RECORD. IN VIEW OF THE FACTS ON RECORD, THERE IS NO OPTION BUT TO TREAT THE BUSINESS OF RS.58 LACS AS HAVING BEEN MADE IN VIOLATION OF THE PROVISIONS OF S ECTION 40A(3). ACCORDINGLY, AN ADDITION OF RS.11.60 LACS IS MADE ON: THIS ACCOUNT.' 1 4 . WE FIND THAT DURING APPELLATE PROCEEDINGS THE LEARNED COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THE AO HAS MADE THE ADDITION ON PRESUMPTION BASIS & THERE IS NOTHING ON RECORDS, WHICH SUGGESTS THE PAYMENTS IN VIOLATION OF SECTION 40A(3). HE FURTHER ARGUED THAT IN THE ABSENCE OF ANY EVIDENCE BROUGHT OUT BY THE AO, NO DISALLOWANCE CAN BE MADE ON THE BASIS OF MERE PRESUMPTION. LD. CIT(A) HAS OBSERVED THAT ON PERUSAL O F THE ASSESSMENT ORDER IT WAS SEEN THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF PRESUMPTION WITHOUT BRINGING ON RECORD THE SPECIFIC TRANSACTION MADE IN CASH. IN THE ABSENCE OF ANY CATEGORICAL FINDINGS BY THE AO REGARDING SPECIFIC TRANSACTION MADE IN CASH, NO DISALLOWANCE COULD BE MADE AS HELD BY VARIOUS HON BLE COURTS. IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE COGENCY IN THE FINDING OF THE LD. CIT(A) TO ITA NO. 94/ DEL/ 2009 23 ESTIMATE THE DISALLOWANCE OF RS. 11,60,000/ - ON ACCOUNT OF 20% EXPENDITURE INCURRED IN VIOLATION OF SECTION 40A(3) OF THE I.T. ACT. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY REJECTING THIS GROUND OF A PPEAL RAISED BY THE REVENUE IN THE AFORESAID MANNER. 1 5 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 1 8 / 3 /20 1 5 . SD / - S D / - [ T.S. KAPOOR ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 1 8 / 3 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, TAT, DELHI BENCHES