Shri B.L. Choudhary & Co., JAIPUR v. ITO, BHILWARA

CO 4/JODH/2014 | 2009-2010
Pronouncement Date: 11-04-2014 | Result: Allowed

Appeal Details

RSA Number 423323 RSA 2014
Assessee PAN AAFFB9330H
Bench Jodhpur
Appeal Number CO 4/JODH/2014
Duration Of Justice 1 month(s) 23 day(s)
Appellant Shri B.L. Choudhary & Co., JAIPUR
Respondent ITO, BHILWARA
Appeal Type Cross Objection
Pronouncement Date 11-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 04-04-2014
Date Of Final Hearing 04-03-2014
Next Hearing Date 04-03-2014
Assessment Year 2009-2010
Appeal Filed On 18-02-2014
Judgment Text
IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI N.K. SAINI ACCOUNTANT MEMBER. ITA NO.548/JODH/2013 (A.Y. 2009-10) ITO WARD-4 VS. M/ S. B.L. CHOUDHARY & CO. BHILWARA. VPO GADARMALA VIA PUR BHILWARA PAN NO. AAFFB 9330 H (APPELLANT) (RESPONDENT) C.O. NO.04/JODH/2014 (A.Y. 2009-10) M/S. B.L. CHOUDHARY & CO. VS. ITO WARD -4 C/O KALANI & CO. C.AS. BHILWARA. 5 TH FLOOR MILE STONE NEAR GANDHI NAGAR TURN JAIPUR. PAN NO. AAFFB 9330 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 04/04/2014. DATE OF PRONOUNCEMENT : 11/04/2014. O R D E R 2 PER N.K. SAINI A.M THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 19/09 /2013 OF LD. CIT(A) AJMER. COMMON ISSUES ARE INVOLVED IN THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE SO THESE ARE B EING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2 FIRST WE WILL DEAL WITH THE APPEAL OF THE DEPARTME NT IN I.T.A.NO. 548/JODH/2013. THE FOLLOWING GROUNDS HAVE BEEN RAI SED IN THIS APPEAL: IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) AJMER HAS ERRED IN:- 1. RESTRICTING THE TRADING ADDITION BY APPLYING NP RATE OF 4.75% AS AGAINST 8% APPLIED BY THE AO WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. DELETING THE ADDITION ON A/C OF EXPENSES CLAIMED FOR THE DONATION IN THE P & L A/C WHICH IS AN INADMISSIBLE EXPENDITURE . 3. RESTRICTING THE ADDITION MADE U/S 68 TO RS. 1 95 000/- AS AGAINST ADDITION MADE BY AO AT RS. 4 85 000/- WITHOUT APPRE CIATING THE FACTS OF THE CASE. 4. ALLOWING SET OFF OF CONFIRMED ADDITION OF RS. 1 95 000/- MADE U/S 68 AGAINST THE BALANCE CONFIRMED TRADING ADDITION. 5. THE APPELLANT CRAVES TO ADD AMEND ALTER DELET E OR MODIFY THE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. GROUNDS RAISED IN THE CROSS OBJECTION ARE AS FOLLOW S:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 2 52 121/- BY APPLYING N.P. RATE OF 4.75% AS AGAINST N.P. RATE OF 4.30% DECLARED BY ASSESSEE. 3 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN SEPARATELY CONFIRMING ADDITION OF RS. 1 20 898/- ON ACCOUNT OF INTEREST I NCOME FROM NSC/FDR AFTER ESTIMATING THE INCOME BY APPLICATION OF N.P. RATE. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 1 95 000/- U/S 68 BY TREATING THE PART OF LO AN RECEIVED FROM LALITA DEVI SUNITA CHOUDHARY & ANITA CHOUDHARY AS UNEXPLAINED. 4. THE ASSESSEE CRAVES RIGHT TO ADD ALTER AMEND AND MODIFY ANY OF THE GROUND OF APPEAL. 5. NECESSARY COST BE ALLOWED TO THE ASSESSEE. 3. THE FIRST ISSUE AGITATED BY THE ASSESSEE AND THE D EPARTMENT VIDE GROUND NO. 1 IN THEIR RESPECTIVE APPEAL RELATES TO CONFIRMATION/DELETION OF THE ADDITION MADE BY THE ASSESSING OFFICER BY AP PLYING N.P. RATE. 4. FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30/09/2009 DECLARING TOTAL INCO ME OF RS. 10 78 930/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE I.T . ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT). L ATER ON CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SHO WN THE GROSS CONTRACT RECEIPTS AT RS. 556.71 LAC AND NET PROFIT AT RS. 23 .92 LAC RESULTING IN NET PROFIT RATIO OF 4.30%. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE SITE-WISE/CONTRACT-WISE DETAILS/BREAK UP OF ALL THE EXPENSES INCLUDING MATERIAL LABOUR ETC. AND FURNISH A LIST OF NAMES A ND COMPLETE ADDRESSES OF THE LABOURERS TO WHOM WAGES WERE PAID AND TO PRO DUCE SALARY & WAGES 4 REGISTER PURCHASE & SALES REGISTER WORK IN PROGRE SS REGISTER STOCK REGISTER WORKS REGISTER MUSTER ROLL AND THE ATTEN DANCE REGISTER MACHINE OPERATION REGISTER. THE ASSESSING OFFICER MENTIONE D THAT THE ASSESSEE FAILED TO PRODUCE THE AFORESAID REGISTERS AND DETAI LS. THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE PRODUCED BOOK S OF ACCOUNTS WHICH WERE TEST CHECKED. HE ALSO POINTED OUT THAT THE TR AVELLING EXPENSES CAR RUNNING EXPENSES REPAIRS AND MAINTENANCE OF TRACTO R AND TRUCK ETC. WERE THROUGH CASH PAYMENT AND FOUND SUPPORTED BY SELF MA DE VOUCHERS. THE ASSESSING OFFICER ALSO POINTED OUT CERTAIN OTHER DE FECTS IN THE CREDITORS ETC. AND ULTIMATELY REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSES SING OFFICER ASKED THE ASSESSEE AS TO WHY PROFIT RATE OF 12.5% SHOULD NOT BE APPLIED IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF M/S. JAIN CONSTRUCTION CO. IN RESPONSE THE ASSESSEE SU BMITTED AS UNDER:- ' YOUR GOODSELF HAVE MENTIONED JUDGMENT OF RAJASTHA N HIGH COURT IN CASE OF CIT V/S JAIN CONSTRUCTION COMPANY 245 ITR 527 RE GARDING REJECTION OF BOOKS OF ACCOUNT BY INVOKING SECTION 145(3) OF THE INCOME TAX ACT 1961 AND APPLYING NET PROFIT RATE OF 12.5%. HOWEVER THIS IS NOTEWORTHY TO MENTION HERE THAT THE ABOVE CASE IS NOT COMPARABLE WITH CAS E IN THE QUESTION THE ABOVE CASE WAS NOT FOR REJECTING BOOKS OF ACCOUNTS AND APPLYING 12.5% NET PROFIT RATE BUT WAS FOR ALLOWING DEDUCTION OF DEPRE CIATION INTEREST AND SALARY TO PARTNERS FROM THE NET PROFIT RATE OF 12.5 % APPLIED BY THE AO. THIS CASE LAW IS NOT APPLICABLE IN OUR CASE AS THE ASSES SEE HAS MAINTAINED BOOKS OF ACCOUNT AND HAS BEEN ASSESSED BY COMMERCIAL TAXE S DEPARTMENT AND COPY OF SALES TAX ORDER HAS ALREADY BEEN SUBMITTED AND THE ASSESSEE HAD ALSO BEEN ASSESSED IN PREVIOUS YEARS IN INCOME TAX DEPARTMENT ALSO. THIS IS 5 ALSO WORTHY TO MENTION HERE THAT WHILE GIVING JUDGM ENT HON'BLE RAJASTHAN HIGH COURT DID NOT LAY DOWN ANY GUIDELINES/RULINGS FOR ESTIMATING NET PROFIT OF CONTRACTORS. THE COMPARISON OF JAIN CONSTRUCTIONS COMPANY AND TH E ASSESSEE IS NOT POSSIBLE AS JAIN CONSTRUCTIONS COMPANY HAD GROSS TU RNOVER OF RS. 76.12 LAKHS ONLY WHEREAS THE ASSESSEE HAS TURNOVER OF RS. 556.71 LAKHS IN JAIN CONSTRUCTIONS COMPANY THE EFFECTIVE NET PROFIT RATE AFTER APPLYING NET PROFIT RATE OF 12.5% ON GROSS RECEIPTS AND ALLOWING DEDUCT IONS BY WAY OF DEPRECIATIONS INTEREST AND SALARY TO PARTNERS COME S TO 1.10% ONLY WHEREAS THE ASSESSEE HAS ALREADY SHOWN NET PROFIT AT EFFECT IVE RATE OF 1.94 %. AS SUCH THE CASE OF JAIN CONSTRUCTIONS COMPANY IS N OT COMPARABLE IN THE PRESENT CASE WITH RATE OF THE ASSESSEE WHETHER EFFE CTIVE NET PROFIT RATE AS PER THE DECISION OF JAIN CONSTRUCTIONS CO. IS APPL IED THAN THE INCOME DECLARED BY US IS MORE THAN THAT OF JAIN CONSTRUCTI ONS &CO. MADAM THE PROVISIONS OF SEC 44 AD OF THE INCOME TA X ACT 1961 AS PRESCRIBED NET PROFIT RATE OF 8% FOR THE CONTRACTOR ASSESSEE HAVING TURNOVER UP TO RS. 60 LACS AND FROM THAT INTEREST AND REMUNE RATION TO PARTNERS IS ALSO ALLOWABLE. THE TURNOVER OF THE ASSESSEE IS RS. 556.71 LACS AND THE ASSESSEE WITH THE VOLUME OF WORK HAS MUCH HIGHER OV ERHEADS AND THE RATE OF PROFIT ALSO DECLINES WITH INCREASE IN VOLUME OF WORK THE ASSESSEE HAS DECLARED NET PROFIT RATE OF 1.94% AFTER DEPRECIATIO N INTEREST AND REMUNERATION TO PARTNERS WHICH IS QUITE REASONABLE AND HIGHER FROM THE PREVIOUS YEAR. THE HON'BLE RAJASTHAN HIGH COURT IN CASE OF M/S SHR I RAM JHANWAR LAL V/S ITO BIKANER & ORS HELD THAT EVEN IN CASE OF THE ASS ESSEE'S WHO ARE HAVING TURNOVER MORE THAN LIMIT PRESCRIBED U/S 44 AD THE PROVISIONS OF 44 AD SHOULD NOT BE APPLIED AND HON'BLE COURT ALSO UPHELD THE FINDINGS OF ITA T THAT APPLICATION OF NET PROFIT RATE IS SUPPOSED TO BE GUIDED EITHER BY THE PREVIOUS RESULTS OF THE ASSESSEE OR SOME COMPARABLE CASES. WE REQUEST YOU TO CONSIDER ALL THE ABOVE FACTS AND NATURE OF THE BUSINESS OF THE ASSESSEE AND APPROPRIATELY DECIDE UPON THE MERI TS OF THE CASE.' 6 THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SU BMISSIONS OF THE ASSESSEE. HE ALSO OBSERVED THAT EVEN THOUGH THE CA SE OF M/S. JAIN CONSTRUCTION CO. WAS NOT DIRECTLY APPLICABLE TO THE ASSESSEES CASE YET IN VIEW OF THE QUANTUM OF DEFECTS FOUND IN THE BOOKS O F ACCOUNTS THE NET PROFIT RATE OF 8% WAS BEING APPLIED. ACCORDINGLY THE ASSESSING OFFICER APPLIED THE NET PROFIT RATE OF 8% INSTEAD OF 4.3% D ECLARED BY THE ASSESSEE AND MADE THE ADDITION OF RS. 21 44 482/-. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'AT THE OUTSET WE MAY POINT OUT THAT THE SO CALLED DISCREPANCIES POINTED OUT BY THE AO IN THE ASSESSMENT ORDER ARE ONLY FOR THE SAKE OF MENTIONING THE DISCREPANCIES WITHOUT POINTING OUT THE RELEVANCE OF SUCH DISCREPANCIES TO THE REASONABILITY OF THE PROFIT DECLARED BY THE ASS ESSEE. MOST OF THE DISCREPANCIES POINTED OUT ARE IRRELEVANT. NO ONE IN THIS LINE OF BUSINESS MAINTAINS SUCH RECORDS/ DOCUMENTS AS STATED BY THE AO. EXPLANATION IN RESPECT OF EACH OF THE ALLEGED DISCREPANCY IS TABUL ATED AS UNDER: NATURE OF DISCREPANCY EXPLANATION CONTRACT WISE/ SITE WISE DETAILS OF VARIOUS EXPENSES ARE NOT FURNISHED. ASSESSEE CONSTRUCTS RESIDENTIAL HOUSES FOR RAJASTHAN HOUSING BOARD (RHB) AT DIFFERENT SITES AT (RAJSAMAND) UDAIPUR BHILWARA AND PARTAPUR DUNGARGARH. ALL ACTIVITIES ARE CONTROLLED FROM ITS OFFICE AT BHILWARA. MAINTENANCE OF CONTRACT WISE/ SITE WISE DETAIL S OF EXPENSES IS IMPOSSIBILITY. NO PERSON IN THIS LINE OF BUSINESS MAINTAINS CONTRACT WISE/ SITE WISE DETAILS OF VARIOUS EXPENSES. THERE IS NO LAW TO MAINTAIN CONTRACT/ SITE WISE DETAIL OF EXPENSES. 7 COMPLETE ADDRESS OF THE LABOURERS TO WHOM WAGES WERE P AID WAS NOT FURNISHED. THE WAGES REGISTER PRODUCED DO NOT CONTAIN THE DETAILS REGARDING THE NATURE OF WORK DONE BY THEM THE NATURE OF THE ACTIVITY IS SUCH THAT LABOURS ARE ENGAGED FROM THE NEARBY PLACES AT SITE. THESE LABOURS ARE ENGAGED AS PER THE REQUIR EMENT. THEREFORE THE ADDRESSES OF THE LABOURS ARE NOT MENTIONED IN THE WAGES REGISTER. BUT THE NAME OF THE LABOUR AND PAYMENT MADE TO THEM IS VERIFIABLE FROM SUCH REGISTER. THE AO HIMSELF HAS ACCEPTED THAT WAGES HAS BEEN PAID BY THE ASSESSEE TO GET THE WOR K DONE. IT IS NOT THE CASE OF THE AO THAT THE PAYMENT OF WAGES IS INFLATED. THEREFORE ONLY BECAUSE ADDRESS OF THE LABOURS IN THE WAGES REGISTER IS NOT MENTIONED WOULD NOT MAKE THE EXPENDITURE UNVERIFIABLE. ASSESSEE HAS NOT MAINTAINED STOCK REGISTER WIP REGISTER MUSTER ROLL ATTENDANCE REGISTER WORKS REGISTER PURCHASES/ SALES REGISTER AND MACHINE OPERATION REGISTER. THESE REGISTER ARE REQUIRED TO BE MAINTAINED ACCORDING TO THE NEED OF ACCOUNTING. THERE IS NO LAW WHICH REQUIRES MAINTENANCE OF SUCH REGI STER. THE ASSESSEE PURCHASED THE RAW MATERIAL AS PER THE REQUIREMENT OF SITE UNLOAD THE SAME AT SITE AND CONSUME THE SAME AT SITE. THEREFORE ASSESSEE DOES NOT REQUIRE MAINTENANCE OF ANY STOCK REGISTER/ WORK REGISTER/ WIP REGISTER. IN FACT THERE IS NO OPE NING/ CLOSING STOCK OF THE MATERIAL WITH THE ASSESSEE. ASSESSEE IS IN CONTRACT BUSINESS. NO MACHINES ARE REQUIRED. THEREFORE NO SALE REGISTER OF MACHINE OPERATING REGISTER IS REQUIRED TO BE MAINTAINED. THE PURCHASE REGISTER IS NOT MAINTAINED AS THE MATERIA L IS UNLOADED AT SITE AND CONSUMED THEREAT. THE MUSTER ROLL/ ATTENDANCE REGISTER IS MAINTAINED AT SITE ON THE BASIS OF WHICH WAGES ARE PAID BY THE SITE SUPERVISOR WHICH IS INCORPORATED IN THE BOOKS. HENCE NON MAINTENANCE OF SUCH REGISTER WOULD NOT MAKE THE TRANSACTION RECORDED IN THE BOOKS OF ACCOUNTS AS UNVERIFIABLE. THE BILLS AND VOUCHERS OF VARIOUS EXPENSES ARE MOSTLY SELF MADE AND DO NOT ONLY BECAUSE CERTAIN EXPENSES HAS BEEN CLAIMED ON THE BASIS OF SELF MADE VOUCHERS WOULD NOT MEAN THAT THE 8 SPECIFY THE PURPOSE OF EXPENSES. EXPENSES ARE NOT VERIFIABLE. THE NATURE OF CERTAIN EXPENSES ARE SUCH THAT IN RESPECT OF THE SAME NO OUTSIDE BILL IS POSSIBLE THEREFORE PAYMENT IS MADE ON THE BASIS OF VOUCHER DULY SIGNED BY THE RECIPIENT OF THE AMOUNT. THE EXPENSE S CLAIMED ARE COMPARABLE TO THE EARLIER YEAR (P.8 6- 8). THEREFORE FOR THIS REASON A HIGHER NP RATE IGNORING THE NP RATE OF EARLIER YEAR CANNOT BE APPLIED. CONFIRMATION OF SOME OF THE SUNDRY CREDITORS AND THE PARTIES FROM WHOM PURCHASES WERE MADE IS NOT FURNISHED. AO AT PAGE 6 OF THIS ORDER HAS OBSERVED THAT ASSESSEE HAS NOT FURNISHED CONFIRMATION OF BIRLA CORPORATION LTD. & BINANI CEMENT LTD. IGNORING THAT ASSESSEE VIDE LETTER DATED 17.10.2011 (P.B 13- 18) INTIMATED THAT IT HAS SEND LETTER TO THEM FOR GETT ING THE CONFIRMATION BUT THE SAME IS NOT RECEIVED TILL DATE. AGAIN VIDE LETTER DATED 20.10.2011 (P.B 19- 27) ASSESSEE REQUESTED TO COLLECT THE INFORMATION FROM THEM DIRECTLY. THEREFORE FOR THIS REASON ALONE PURCHASE MADE FROM THEM CANNOT BE SAID TO BE UNVE RIFIABLE. BOTH THESE CREDITORS ARE CORPORATE ENTITIES AND THEREFORE PURCHASES MADE FROM THEM CANNOT BE PRESUMED TO BE UNVERIFIABLE ONLY BECAUSE THEY HAVE NOT FURNISHED THE CONFIRMATION PARTICULARLY WHEN THEY HAVE MADE FROM THEM. FURTHER IT CANNOT BE EXPECT ED FROM THE ASSESSEE TO FURNISH THE PAN OF SUNDRY CREDITORS. THEREFORE THE PURCHASES MADE BY THE ASSESSEE CANNOT BE PRESUMED TO BE UNVERIFIABLE AND FOR THIS REASON APPLICATION OF HIGHER NP RATE IS NOT JUSTIFIED. EXPLANATION REGARDING PARASMAL IMPREST A/C AND GOPAL CHOUDHARY IMPREST A/C VIS- A- VIS ADJUSTMENT OF WAGES PAYMENT IS NOT PROPERLY EXPLAINED. PARASMAL IS THE PARTNER OF THE FIRM AND GOPAL CHOUDHARY IS THE SITE SUPERVISOR. THEY ARE GIVEN ADVANCE FOR MAKING PAYMENT OF WAGES TO LABOURS OR THE SUPPLIERS . SUCH ADVANCE IS DEBITED TO THEIR IMPREST ACCOUNT AND AS AND WHEN THEY GIVE THE ACCOUNT THEIR ACCOUNT IS ADJUSTED FOR THE AMOUNT PAID BY THEM. (P.B 29 - 39) 9 THIS IS EVIDENT FROM COPY OF THEIR ACCOUNT AND THE WAGES UNPAID ACCOUNT (P.B 40- 42) THEREFORE THERE IS NO DISCREPANCY IN THE WAGES SO PAID. FROM THE ABOVE IT CANNOT BE NOTED THAT THE DISCREPA NCIES POINTED OUT BY THE AO ARE NOT SUCH WHICH REQUIRE APPLICATION OF HIGHER NP RATE OF 8% EVEN IF ON THE BASIS OF SAID DISCREPANCIES BOOKS OF ACCOUNTS A RE TO BE REJECTED U/S 145(3). 2. IT MAY BE NOTED THAT ONCE BOOKS ARE REJECTED T HE ASSESSMENT IS TO BE MADE IN THE MANNER PROVIDED U/S 144 I.E. BEST JUDGM ENT ASSESSMENT. IN MAKING A BEST JUDGMENT ASSESSMENT THE AO MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCI SE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO B E A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT & FOR THIS PURPOSE HE M UST BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE & REPUTE IN REGARD TO THE ASSESSEE'S CIRCUMSTANCES & HIS OWN KNOWLEDGE OF THE PREVIOUS R ETURNS & ASSESSMENT OF THE ASSESSEE & ALL THE OTHER MATTERS WHICH HE THINK S WILL ASSIST HIM IN ARRIVING AT A FAIR & PROPER ESTIMATE & THOUGH THERE MUST NECESSARILY THE GUESS WORK IN THE MATTER IT MUST BE A HONEST GUESS WORK. IN MAKING BEST JUDGMENT ASSESSMENT THE AO DOES NOT POSSES ABSOLUT ELY ARBITRARY AUTHORITY TO ASSESS AT ANY FIGURE HE LIKES & THAT ALTHOUGH HE IS NOT BOUND BY THE STRICT JUDICIAL PRINCIPALS HE SHOULD BE GUIDED BY RULES O F JUSTICE EQUITY & GOOD CONSCIENCE. 3. IN THIS BACKGROUND IF THE PAST HISTORY OF THE ASSESSEE IS CONSIDERED IT CAN BE NOTED THAT ASSESSEE HAS REGULARLY BEEN ASSESSED TO TAX U/S 143(3) IN EARLIER YEARS. IN AY 05-06 ON CONTRACT RECEIPTS OF 226.40 LAKHS ASSESSEE DECLARED NP RATE OF 3.61%. AO INVOKED PROVISIONS OF SECTION 145 AND MADE ADDITION OF RS. 90000 (P.B 45-46). IN AY2006-07 ON CONTACT RECEIPTS OF 201.19 LAKHS ASSESSEE DECLARED NP RATE OF 3.60%. A O INVOKED SECTION 145 AND MADE TRADING ADDITION OF RS. 90.000/-. (P.B 47- 48). IN AY 2007-08 ON CONTRACT RECEIPT OF 178.78 LACS NP RATE DECLARED I S 5.28% WHICH IS ACCEPTED. AGAIN IN AY 2008-09 ON CONTRACT RECEIPTS OF 306.84 LAKHS NP RATE IS 4.23% WAS DECLARED WHICH WAS ACCEPTED. IN THESE CIRCUMSTA NCES HIGHER NP RATE OF 4.30% DECLARED BY THE ASSESSEE ON HIGHER CONTRACT R ECEIPTS OF 556.71 LAKHS IN THE YEAR UNDER CONSIDERATION CALLS FOR NO DISTUR BANCE. THIS FACT IS 10 ALTOGETHER BEEN IGNORED BY THE AO. HE HAS ALSO NOT CITED ANY COMPARABLE CASE TO APPLY NP RATE OF 8%. THIS SHOWS THAT AO HAS NOT ACTED FAIRLY BY IGNORING THE PREVIOUS RETURNS & THE ASSESSMENTS OF THE ASSESSEE. IN THESE CIRCUMSTANCES THE ADDITION MADE BY THE AO BY APPLY ING NP RATE OF 8% IS ARBITRARY WITHOUT RATIONAL BASIS AND NOT A FAIR AN D PROPER ESTIMATE. RELIANCE IN THIS CONNECTION IS PLACED IN THE FOLLOW ING CASES: CJT VS. INANI MARBLES PVT LTD. [316 ITR 125] (RAJ.) (HC) WHERE AO REJECTED THE BOOKS OF ACCOUNTS FOR VALID REASONS INVOKED SE CTION 145 & MADE ASSESSMENT BY APPLYING GP RATE OF 15% ON THE SALES DISCLOSED BY ASSESSEE BUT TRIBUNAL HELD THAT IN THE ABSENCE OF ANY CHANGE IN FACTUAL POSITION NORMALLY THE PROFIT DECLARED & ACCEPTED IN PRECEDIN G YEAR CONSTITUTES A GOOD BASIS FOR WORKING OUT THE GROSS PROFIT AND ACC ORDINGLY IT APPLIED GP RATE DECLARED & ACCEPTED AT 2.51% IN EARLIER YEAR. THE HON'BLE HIGH COURT HELD THAT AS THE G.P. RATE OF 2.51% WAS APPLIED IN A. Y. 99-00 & THAT HAVING BEEN UPHELD BY THE TRIBUNAL THE ORDER OF THE TRIBU NAL FOR A.Y. 00-01 WAS JUSTIFIED. IN THESE CIRCUMSTANCES IN THE PRESENT CASE AO IS NOT JUSTIFIED IN APPLYING NP RATE OF 8% AND THEREBY MAKING ADDITION OF RS. 21 44 482/-. CIT V. GOTAN LIME KHANIZ UDYOG 256 ITR 243 (RAJ.); WHERE IT WAS HELD THAT MERE REJECTION OF BOOKS OF A CCOUNTS BY RESORTING TO SECTION 145 DID NOT NECESSARILY LEAD TO THE ADDITIO N TO THE RETURNED INCOME OR A DIFFERENT FIGURE OF INCOME. HENCE SIMPLY BECAU SE SECTION 145 IS APPLICABLE SHOULD NOT BE A CRITERIA FOR MAKING TRAD ING ADDITION MORE PARTICULARLY WHEN PURCHASES AND SALES ARE FULLY VOU CHED AND NO DISCREPANCIES AS SUCH WAS FOUND IN THE BOOKS OF ACC OUNTS MAINTAINED BY THE ASSESSEE. BATHINDA TRUCK OPERATOR UNION VS. ITO 158 TAXMAN 14 8 (AMRS.) (MAG.) IN THIS CASE IT WAS HELD THAT EVEN IF THE BOOK RESULTS ARE REJECTED AO IS DUTY BOUND TO MAKE A FAIR & REASONABLE ESTIMATE OF INCOM E BASED ON EVIDENCE & MATERIAL ON RECORD. HE CAN NOT MAKE AN ADDITION IN AN ARBITRARY MANNER OR ON THE BASIS OF PERSONAL VENDETTA. WHEN THE AO HAS NEITHER REFERRED TO THE PAST HISTORY OF THE CASE NOR HAD MADE ANY INDEPENDE NT ENQUIRIES & ALSO NOT REFERRED TO ANY COMPARABLE CASE & HAD ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING N. P. RATE OF 10% IT COULD BE SAID THAT ESTIMATION OF INCOME BY AO WAS HIGHLY ARBITRARY UNREASONABLE & W ITHOUT ANY BASIS & 11 THUS THE AO WAS DIRECTED TO COMPUTE THE INCOME BY A PPLYING THE N.P. RATE OF 3%. 4. IN THE SHOW CAUSE NOTICE AO PROPOSED TO APPLY N P RATE OF 12.5% ON THE BASIS OF DECISION OF HON'BLE RAJ. HC IN CASE OF JAI N CONSTRUCTION CO. THE ASSESSEE VIDE LETTER DATED 20.10.2011 (P.B 19) EXPL AINED THAT IN THIS CASE AO APPLIED NP RATE OF 12.5% ON THE CONTRACT RECEIPTS B UT ALLOWED DEDUCTION OF DEPRECIATION INTEREST AND SALARY TO THE PARTNERS A ND AFTER SUCH DEDUCTION THE NET EFFECTIVE RATE WAS 1.10% WHEREAS ON THE SIM ILAR BASIS THE NET EFFECTIVE RATE OF THE ASSESSEE IS 1.94%. AFTER CONS IDERING THIS REPLY THE AO HAS NOT APPLIED NP RATE OF 12.5% AS PROPOSED BY HIM BUT AT THE TIME SHE APPLIED NP RATE OF 8% WITHOUT ANY MATERIAL OR COMPA RABLE CASES. SHE ALSO DID NOT CONSIDER THE PAST HISTORY OF THE ASSESSEE. THEREFORE NP RATE OF 8% APPLIED BY HER IS WITHOUT BASIS AND UNJUSTIFIED. 5. WITHOUT PREJUDICE TO ABOVE AO IS NOT JUSTIFIE D IN NOT ALLOWING THE DEPRECIATION AND INTEREST TO THIRD PARTIES FROM THE NP RATE APPLIED BY HER. THE HON'BLE RAJASTHAN HIGH COURT AND IT AT JAIPUR BENCH HAVE CONSISTENTLY HELD THAT AFTER THE APPLICATION OF NP RATE DEDUCTI ON ON ACCOUNT OF DEPRECIATION AND INTEREST TO THIRD PARTIES SHOULD B E SEPARATELY ALLOWED. FOR THIS RELIANCE IS PLACED IN FOLLOWING CASES: CIT VS. JAIN CONSTRUCTION COMPANY 245 ITR 527 (RAJ. ):- HON'BLE COURT HELD AS UNDER: THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION AS A DMISSIBLE UNDER THE RULES AS THE ASSETS USED IN THE BUSINESS AS CLAIMED IN TH E RETURN. IN A CASE OF REJECTION OF ACCOUNTS AND ESTIMATE OF NET PROFIT D EPRECIATION IS REQUIRED TO BE -WORKED OUT SEPARATELY. THE TRIBUNAL HAD DIRECTE D THE ASSESSING AUTHORITY TO RECOMPUTE THE TOTAL INCOME AS ESTIMATE D BY HIM AND ALLOW RELIEF ON ACCOUNT OF PAYMENT OF INTEREST AND CLAIM OF DEPRECIATION. THE FINDING RECORDED BY THE TRIBUNAL WAS PURELY A FINDI NG OF FACT BASED ON PROPER APPRECIATION OF MATERIAL ON RECORD AND THE E VIDENCE PRODUCED BY THE ASSESSEE. NO QUESTION OF LAW AROSE OUT OF THE ORDER OF THE TRIBUNAL. CIT VS. BHAWAN PATH NIRMAN (BOHRA) & CO. 258 ITR 44 0 (RAJ) IT WAS HELD THAT WHERE THE BOOKS OF THE ASSESSEE WERE REJECTED AND THE APPELLATE TRIBUNAL APPLIED THE NET PROFIT RATE AND MADE THE E STIMATE SUBJECT TO DEDUCTION ON ACCOUNT OF DEPRECIATION AND INTEREST O N BORROWED MONEY NO INTERFERENCE IS REQUIRED IN THE ORDER OF IT AT. 12 RISHABH CONSTRUCTION PVT. LTD. VS. DCIT [ITAT JAIP UR] ORDER DATED 31.08.2012 {ITA NO. 108/JP/2011} (P.B 49-51) IN THIS CASE HON'BLE ITAT WHILE DISPOSING THE APPEA L OF DEPARTMENT HELD AS UNDER: THE LD. CIT (A) DIRECTED THE AO TO ALLOW THE BENEFI T OF DEPRECIATION AND FINANCIAL EXPENSES TO THE ASSESSEE AFTER APPLYING T HE NET PROFIT RATE OF 8% AND THAT VIEW IS ALSO SUPPORTED BY JUDGMENTS OF HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAIN CONSTRUCTION 245 ITR 527 AND CIT VS. BHAWAN PATH NIRMAN (BOHRA) AND CO. 258 ITR 440. WE THEREFORE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE IMPUGNED ORD ER PASSED BY THE LD. CIT(A). KIRODIMAL MODI VS. ACIT IN MA NO. 37/JP/2009 FOR A. Y. 05-06 DCIT VS. KIRODIMAL MODI IN ITA NO. 119/JP/2010 DT. 10.09.2010 FOR A.Y. 07- 08 BESIDE DEPRECIATION INTEREST PAID TO THIRD PARTIES IS ALSO ALLOWABLE FROM THE NET PROFIT RATE APPLIED. THEREFORE AO BE DIRECTED TO SEPARATELY ALLOW THE DE PRECIATION OF RS. 4 03 406/-AND INTEREST TO THIRD PARTIES OF RS. 3 54 881/- IF INCOME OF THE ASSESSEE IS ASSESSED BY APPLYING THE NP RATE. 6. THE AO IN COMPUTING THE TOTAL INCOME HAS DISALLO WED DONATION OF RS. 5000/-DEBITED IN THE PROFIT AND LOSS A/C. THIS IS I NCORRECT SINCE ONCE INCOME IS ESTIMATED BY APPLICATION OF NP RATE NO FURTHER DISALLOWANCE CAN BE MADE OF THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS A /C WHETHER THE SAME IS ALLOWABLE OR NOT ALLOWABLE IN COMPUTING THE TOTAL I NCOME UNDER THE NORMAL PROVISIONS OF THE ACT. HENCE THE SEPARATE DISALLOWA NCE OF RS. 5000 MADE BY AO BE DIRECTED TO BE DELETED. IN VIEW OF ABOVE THE ADDITION OF RS. 21 44 482/- MA DE BY THE AO BE DIRECTED TO BE DELETED.' 6 . THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE SUSTAINED THE ADDITION OF RS. 2 52 121/- BY APPLYING NET PROFIT RATE OF 4.75% BY OBSERVING AS UNDER:- 13 3.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPEL LANT AS WELL AS ASSESSMENT ORDER. IT IS SEEN THAT THE AO HAS POINTE D OUT THAT ASSESSEE HAS NOT MAINTAINED THE VARIOUS PRIMARY DOCUMENTS VIZ ST OCK REGISTER WORK IN PROGRESS REGISTER MUSTER ROLL ATTENDANCE REGISTER PURCHASES REGISTER WHILE EXECUTING THE VARIOUS CIVIL CONTRACT WORKS. FURTHER OUT OF THE EXPENSES OF RS. 5.34 CRORES EXPENSES TO THE EXTENT OF RS.2.25 CROR ES ARE SUPPORTED ONLY BY SELF MADE VOUCHERS OR PAPER SLIPS. EVEN IN THESE DO CUMENTS THE PROPER DETAILS REGARDING WORK CARRIED OUT OR PURPOSE OF IN CURRING EXPENSES HAS NOT BEEN MENTIONED ALONG WITH THE DETAILS OF THE PAYEES . IN ADDITION TO ABOVE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT THE CONFIRMATI ONS FOR THE PURCHASES TO THE EXTENT OF RS.35 09 277. THE AUDIT REPORT ALSO P OINTS OUT VARIOUS DEFICIENCIES AS MENTIONED IN THE ASSESSMENT ORDER W HICH HAVE NOT BEEN MET BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS. FROM ABOVE THE VARIOUS DEFECTS IN THE BOOKS OF ACCOUNTS HAVE BEEN POINTED BY THE AO AT THESE NUMBER 2 TO 9 OF THE ASSESSMENT ORDER. IN VIE W OF ABOVE DISCUSSION THE REJECTION OF THE BOOKS OF THE ACCOUNT BY AO U/S 145(3) OF THE I.T. ACT IS UPHELD. HOWEVER IT HAS BEEN POINTED OUT BY THE ASSESSEE TH AT THE NP RATE HAS BEEN ESTIMATED BY THE AO @8% WITHOUT ANY BASIS. THE PAST RECORD OF THE ASSESSEE NOR ANY COMPARABLE CASE HAS BEEN CONSIDERE D BY THE AO WHILE APPLYING THE NP RATE OF 8%. IN THIS CONTEXT IT IS OBSERVED THAT ASSESSEE HAS DECLARED THE NP RATE AS UNDER EARLIER YEARS. A.Y. CONTRACT RECEIPTS NP RATE DECLARED ADDITI ONS 2005-06 226.40 LACS 3.61% RS. 90 000 (SEC. 143 (3) R.W. 145) 2006-07 201.19 LACS 3.60% RS. 90 000 (SEC. 143 (3) R.W. 145) 2007-08 178.78 LACS 5.28% ACCEPTED 2008-09 306.84 LACS 4.23% ACCEPTED THE ABOVE PAST RESULTS OF THE ASSESSEE ARE REASONAB LE BASIS FOR ESTIMATING THE INCOME OF THE ASSESSEE AFTER REJECTION OF BOOKS OF ACCOUNTS. IT IS SEEN THAT IN A.Y. 2005-06 AND 2006-007 CASE WAS UNDER SC RUTINY AND ADDITION OF RS.90 000 WAS MADE IN EACH OF ABOVE YEARS AFTER REJ ECTION OF BOOKS OF ACCOUNTS. THE ABOVE RATES ARE NET PROFIT RATES AFTE R DEDUCTION OF DEPRECIATION AND INTEREST TO THIRD PARTIES. IN VIEW OF PAST RECORD IT IS CONSIDERED REASONABLE TO APPLY THE AVERAGE NP RATE OF LAST TWO YEARS I.E. 14 A.Y. 2007-08 AND 2008-09 WHICH COMES TO 4.75% (5.28 +4.23/2). THIS NP RATE OF 4.75% IS APPLIED IN PLACE OF NP RATE OF 8% APPLI ED BY THE AO AFTER DEPRECIATION AND INTEREST TO 3 RD PARTIES. AS SUCH THE NET PROFIT @4.75% IS DETERMINED AT RS. 26 44 390 AND ASSESSEE HAS ALREAD Y SHOWN THE NET PROFIT OF RS. 23 92 269/-. ACCORDINGLY THE ADDITION TO T HE EXTENT OF RS. 2 52 121/- IS CONFIRMED AND BALANCE AMOUNT IS DELETED. NOW THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF ALLOWED TO THE ASSESSEE AND THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE SUSTENANCE OF ADDITION. 7 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT V ARIOUS COURTS HAD LAID DOWN THE PRINCIPLE THAT THE ESTIMATION OF THE ASSESSING OFFICER MUST BE FAIR BY TAKING INTO CONSIDERATION LEGAL KNOWLEDG E AND REPUTE IN REGARD TO THE ASSESSEES CIRCUMSTANCES AND HIS OWN KNOWLED GE IN PREVIOUS RETURNS AND THAT THE ASSESSING OFFICER DOES NOT POS SESS ABSOLUTELY ARBITRARY AUTHORITY TO ASSESS AT ANY FIGURE. IT WA S FURTHER STATED THAT THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF M/S. JA IN CONSTRUCTION CO. AFTER APPLYING THE NET PROFIT RATE OF 12.5% ON CONT RACT RECEIPTS ALLOWED DEDUCTION OF DEPRECIATION INTEREST AND SALARY TO T HE PARTNERS AND AFTER SUCH DEDUCTION NET EFFECTIVE RATE OF PROFIT WAS 1. 10% WHEREAS ON THE SIMILAR BASIS THE NET EFFECTIVE RATE OF THE ASSESSE E WAS 1.94%. IT WAS ARGUED THAT THE NET PROFIT RATE OF 4.75% SUSTAINED BY THE LD. CIT(A) WAS 15 NOT JUSTIFIED WHEN THE ASSESSEE DECLARED BETTER NET PROFIT IN COMPARISON TO THE PRECEDING YEAR. 8 . IN HIS RIVAL SUBMISSIONS LEARNED D.R. STRONGLY S UPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT TH E ASSESSING OFFICER WAS FULLY JUSTIFIED IN APPLYING THE NET PROFIT RATE OF 8% BY CONSIDERING THE VARIOUS DEFECTS POINTED OUT IN THE BOOKS OF ACCOUNT S. THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE NET PRO FIT RATE TO 4.75%. 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT CERTAIN SPECIFIC DEFECTS WERE POINTED OUT IN THE BOOKS OF ACCOUNTS WHICH THE ASSESSEE COULD N OT PROPERLY EXPLAINED THEREFORE THE BOOKS OF ACCOUNTS WERE RIGHTLY REJEC TED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 145(3 ) OF THE ACT. IN SUCH TYPE OF CASES WHERE THE BOOKS OF ACCOUNTS ARE REJEC TED THE ONLY OPTION TO WORK OUT THE INCOME IS APPLICATION OF GROSS PROF IT RATE OR NET PROFIT RATE. THE SAID RATE CAN BE APPLIED ON THE BASIS OF COMPARABLE CASE OR BY CONSIDERING THE PAST HISTORY OF THE ASSESSEE. NORM ALLY IN THE ABSENCE OF CHANGE IN FACTUAL POSITION THE PROFIT RATE DECLARE D AND ACCEPTED IN THE PRECEDING YEAR CONSTITUTES A GOOD BASIS FOR WORKING OUT THE GROSS PROFIT OR 16 THE NET PROFIT AS THE CASE MAY BE. IN THE PRESENT CASE THE CONTRACT RECEIPTS AND NET PROFIT RATE DECLARED BY THE ASSESS EE IN THE PRECEDING YEAR WERE AT RS. 306.84 LAC AND 4.23% RESPECTIVELY WHILE IN THE YEAR UNDER CONSIDERATION THE SAME ARE AT RS. 556.71 LAC AND 4.30% RESPECTIVELY. THEREFORE IT IS CLEAR THAT THERE WA S INCREASE IN THE TOTAL TURNOVER AS WELL AS NET PROFIT RATE DECLARED BY THE ASSESSEE. IN OTHER WORDS THE TRADING RESULTS DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WERE PROGRESSIVE IN COMPARISON TO THE PRECEDING YEAR. CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESEN T CASE WE ARE OF THE VIEW THAT EVEN IF THE BOOKS WERE REJECTED BY INVOKI NG THE PROVISIONS OF SECTION 145(3) OF THE ACT NO TRADING ADDITION WAS CALLED FOR WHEN THE NET PROFIT RATE DECLARED BY THE ASSESSEE WAS HIGHER IN COMPARISON TO THE EARLIER YEAR. IN THAT VIEW OF THE MATTER THE ADDIT ION SUSTAINED BY THE LD. CIT(A) IS DELETED. ACCORDINGLY GROUND NO. 1 OF TH E DEPARTMENTAL APPEAL IS DISMISSED AND GROUND NO.1 OF THE ASSESSEES CROS S OBJECTION IS ALLOWED. 10 . VIDE GROUND NO. 2 THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES CLAIMED FOR THE DONATION. 11. DURING THE COURSE OF HEARING LEARNED COUNSEL FOR T HE ASSESSEE WAS FAIR ENOUGH TO CONCEDE THAT THE DISALLOWANCE OF RS. 5 000/- ON ACCOUNT OF 17 DONATION WAS RIGHTLY MADE BY THE ASSESSING OFFICER. IN VIEW OF THAT THIS GROUND OF DEPARTMENTAL APPEAL IS ALLOWED AND THE OR DER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 5 000/- ON ACCO UNT OF DONATION IS SET ASIDE. ACCORDINGLY GROUND NO. 2 OF THE DEPARTMENT AL APPEAL IS ALLOWED. 12. GROUNDS NO. 3 & 4 OF THE DEPARTMENTAL APPEAL ARE CO RRELATED AND GROUND NO. 3 OF THE ASSESSEE IS ALSO ON THE SAME IS SUE SO THESE GROUNDS ARE ADJUDICATED SIMULTANEOUSLY. 13. FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE D THAT THE ASSESSEE HAD RECEIVED LOANS AMOUNTING TO RS. 4 85 000/- FROM THE FOLLOWING PERSONS:- 1. SMT. MAYA DEVI RS. 95 000/- 2. SMT. TAMMU CHOUDHARY RS. 95 000/- 3. SMT. ANITA CHOUDHARY RS. 1 00 000/- 4. SMT. LALITA CHOUDHARY RS. 95 000/- 5. SMT. SUNITA CHOUDHARY RS. 1 00 000/- 14. THE ASSESSEE FILED THE CONFIRMATION PAN AND DESIGN ATION OF ASSESSING OFFICER IN RESPECT OF ALL THOSE PARTIES. HOWEVER COPY OF THE INCOME TAX RETURN WAS FURNISHED ONLY IN RESPECT OF SMT. TAMMU CHOUDHARY AND SHIV NARAYAN. THE ASSESSING OFFICER O BSERVED THAT IN ALL 18 THE ACCOUNTS CASH WAS DEPOSITED BEFORE GIVING LOAN S TO THE ASSESSEE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE ALL THOSE PARTIES FOR EXAMINATION BUT THE ASSESSEE FAILED TO DO SO. THE ASSESSING OFFICER OBSERVED THAT THE AVERAGE BALANCE IN THE BANK ACCOU NT OF ALL THOSE PARTIES DURING THE YEAR WAS GENERALLY NIL OR VERY N OMINAL AND ASSESSEE HAD OFFERED NO EXPLANATION IN RESPECT OF CASH DEPOS ITS IN THE ACCOUNTS OF CASH LENDERS. HE THEREFORE HELD THAT THE LOANS R EMAINED UNEXPLAINED AND THE ASSESSEE FAILED TO PROVE THE CREDITWORTHINE SS OF ALL THE PARTIES. ACCORDINGLY THE ADDITION OF RS. 4 85 000/- WAS MAD E. 15. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND THE SUBMISSIONS MADE AS INCORPORATED IN PARA 6. 2 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM AS UNDER:- '1. AT THE OUTSET WE MAY POINT OUT THAT ALL THE ABO VE PERSONS ARE INCOME TAX ASSESSEE. THEIR CONFIRMATION AND AFFIDAVITS ALO NG WITH THE COPY OF RETURN AND BANK STATEMENT WAS FILED. THE OBSERVATIONS OF T HE AO IN RESPECT OF EACH OF SUCH PERSON AND ASSESSEE'S EXPLANATION THEREON I S AS UNDER: NAME OF PERSON AMOUNT OF LOAN AO'S OBSERVATION ASSESSEE 'S EXPLANATION SMT. TAMMU DEVI C/O PROP- M/S RAJU WATER SUPPLIERS V/POST. GADARMALA DIST. BHILWARA (RAJ.) PAN: AEFPC2539B (WIFE OF THE PARTNER) RS. 95 000 THERE IS A CASH DEPOSIT OF RS. 99000/- ON 26.09.2008 BEFORE ISSUE OF CHEQUE OFRS. 95.000/- ON 08.10.08 TO THE ASSESSEE. FURTHER THERE IS A CASH DEPOSIT OF RS. 90 000/- ON 26.03.2009. SHE IS REGULARLY ASSESSED TO TAX. SHE DECLARED INCOME OF RS. 1 63 070 DURING THE YEAR. COPY OF HER INCOME TAX RETURN AFFIDAVIT C ONFIRMATION AND BANK STATEMENT IS ENCLOSED AT (P.B 53- 58) THE DEPOSIT OF RS. 99000/- 19 ON 26.09. 2008 IS OUT OF HER INCOME AND CAPITAL. IN EARLIER YEARS SHE GAVE LOAN OF RS. 5 10 000/- WHICH IS ACCEPTED. THUS THE IDENTITY OF THE CREDITOR THE CREDITWORTHINESS OF THE CR EDITOR AND GENUINENESS OF THE TRANSACTION IS ESTABLISHED. SMT. LALITA DEVI V/POST GADARMALA DISTRICT. BHILWARA (RAJ.) PAN ARRPC 3155G (DAUGHTER OF THE PARTNER) RS. 95 000 THE ASSESSEE HAD SHOWN LOAN RECEIVED FROM LALITA DEVI ON 08/10/2008 FOR RS. 50 000/- AND RS. 45 000/- ON 10/10/2008 BUT IN HER ACCOUNT THERE IS A WRONG CREDIT ON 26/09/2008 FOR RS. 99 000/- . THIS AMOUNT HAD NOT BEEN DEBITED BACK TILL 31/03/2009 . FURTHER CASH OF RS. 40 000/- WAS DEPOSITED ON 17/03/2009 AND RS. 80 000/- ON 26/03/2009 . FURTHER NO ITR HAS BEEN FURNISHED. SHE IS THE DAUGHTER OF PARTNER MR. B.L. CHOUDHARY. THE CASH DEPOSITS WERE MADE OUT OF HER INCOME AND CAPITAL. IN EARLIER YEARS SHE GAVE LOAN OF RS. 1 95 000/- WHICH IS ACCEPTED. THE AFFIDAVIT FILED IN THE ASSESSMENT PROCEEDINGS IS AT P.B. 61-62 . THUS THE IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION IS ESTABLISHED. COPY OF HER BANK STATEMENT ALONG WITH THE CONFIRMATION FROM THE CREDITOR IS AT P.B. 59-60. SMT. SUNITA CHOUDHAR V/POST GADARMALA DISTRICT. BHILWARA (RAJ) PAN AREPC 9353 K (DAUGHTER OF THE PARTNER) RS. 1 00 000/ - ASSESSEE HAS TAKEN LOAN FROM SUNITA CHOUDHARY OF RS. 50 000/- ON 15/04/2008 AND RS. 50 000/- ON 08/10/2008 BUT NO DETAILS IN RESPECT OF BANK ACCOUNT TRANSACTION FROM 01/04/ 2008 TO 15/04/2008 WERE FURNISHED. FURTHER CASH WAS DEPOSITED IN THE BANK ACCOUNT ON FOLLOWING DATES 26/09/2008 RS. 52 000 17/03/2009 RS. 30 000 SHE IS ALSO THE DAUGHTER OF PARTNER MR. B.L. CHOUDHARY. AS FAR AS THE OBSERVATION OF AO REGARDING THE NON FURNISHING OF DETAILS IN BANK ACCOUNT FROM 01/04/2008 TO 15/04/ 2008 IS CONCERNED WE MAY POINT OUT THAT THERE IS NO TRANSACTION IN THIS PERIOD AS EVIDENT FROM THE BANK STATEMENT ITSELF WHEREIN IT HAS BEEN MENTIONED THAT OPENING BALANCE AS ON 01/04/2008 IS RS. 55 406/-. THE SOURCE OF 20 26/03/2009 RS. 85 000 ALSO NO RETURN OF INCOME HAS BEEN FURNISHED THIS BALANCE IN THE BANK ACCOUNT IS FRO M SALE OF MILK AND MISCELLANEOUS INCOME. THE CASH HA S BEEN DEPOSITED IN THE BANK ACCOUNT SINCE THE GENERATION OF INCOME BY SMT. ANITA CHOUDHARY IS IN CASH. COPY OF THE CONFIRMATION AFFIDAVIT AND BANK STATEMENT IS AT (P.B. 67- 70). FURTHER RS. 50 000/- GIVEN ON 15/04/2008 IS OUT OF THE OPENING BANK BALANCE OF RS. 55 406/- AND THEREFORE THIS AMOUNT CANNOT BE ADDED OTHERWISE. SMT. ANITA CHOUDHARY V/POST GADARMALA DISTRICT. BHILWARA (RAJ) PAN AREPC 9338 E (DAUGHTER OF THE PARTNER) RS. 1 00 000/ - ASSESSEE HAS TAKEN LOAN FROM ANITA CHOUDHARY OF RS. 50 000/- ON 15/04/2008 AND RS. 50 000/- ON 08/10/2008 BUT NO DETAILS IN RESPECT OF BANK ACCOUNT TRANSACTION FROM 01/04/ 2008 TO 15/04/2008 WERE FURNISHED. FURTHER CASH WAS DEPOSITED IN THE BANK ACCOUNT ON THE FOL LOWING DATES: 26/09/2008 RS. 52 000 17/03/2009 RS. 30 000 26/03/2009 RS. 85 000 ALSO NO RETURN OF INCOME HAS BEEN FURNISHED. SHE IS THE DAUGHTER OF PARTNER MR. B.L. CHOUDHARY. SO FAR AS THE OBSERVATION OF AO REGARDING THE NON FURNISHING OF DETAILS IN BANK ACCOUNT FROM 01/04/2008 TO 15/04/ 2008 IS CONCERNED WE MAY POINT OUT THAT THERE IS NO TRANSACTION IN THIS PERIOD AS EVIDENT FROM THE BANK STATEMENT ITSELF WHEREIN IT HAS BEEN MENTIONED THAT OPENING BALANCE AS ON 01/04/2008 IS RS. 55 406/-. THE SOURCE OF THIS BALANCE IN THE BANK ACCOUNT IS FROM SALE OF MILK MISCELLANEOUS INCOME AND OLD SAVINGS. THE CASH HAS BEEN DEPOSITED IN THE BANK ACCOUNT SINCE THE GENERATION OF INCOME BY SMT. ANITA CHOUDHARY IS IN CASH. COPY OF THE CONFIRMATION AFFIDAVIT 21 AND BAN K STATEMENT IS AT (P.B. 62-65). FURTHER RS. 50 000/- GIVEN ON 15/04/2008 IS OUT OF OPENING BANK BALANCE OF RS. 55 406/- AND THEREFORE THIS AMOUNT CANNOT BE ADDED OTHERWISE. SMT. MAYA DEVI V/POST GADARMALA DISTRICT BHILWARA (RAJ.) PAN AEXPC 5902J (WIFE OF PARTNER) RS. 95 000/ - THERE IS CASH DEPOSIT OF RS. 99 000/- ON 26/09/2008 BEFORE ISSUE OF CHEQUE RS. 95 000/- ON 10/10/2008 TO THE ASSESSEE. SHE IS DOING THE BUSINESS AND EARNING INCOME FROM THE TWO CONCERNS VIZ M/S. CHOUDHARY FLOUR MILLS AND M/S WIBRETOR MIXTURE MACHINE. IN THE YEAR UNDER CONSIDERATION SHE HAS DECLARED INCOME OF RS. 1 79 650/- AS EVIDENT FROM THE COPY OF HER INCOME TAX RETURN & COMPUTATION (P.B. 73- 74) CONFIRMATION AFFIDAVIT AND COPY OF BANK ACCOUNT IS AT P.B. 71- 75. THEREFORE THE SOURCE OF THE AMOUNT RECEIVED AS LOAN IS FULLY EXPLAINED. 2. FROM THE ABOVE IT CAN BE NOTED THAT ALL THE ABO VE FIVE CREDITORS HAVE FURNISHED THEIR AFFIDAVIT IN WHICH THEY HAVE EXPLAI NED SOURCE OF THEIR INCOME. TWO OF THE CREDITORS NAMELY SMT. TAMMU DEVI AND SMT. MAYA DEVI ARE ALSO ASSESSED TO TAX DECLARING INCOME MORE THAN WHAT IS DEPOSITED BY THEM IN THEIR BANK ACCOUNT. IN CASE OF SUNITA CHOUD HARY AND SMT. ANITA CHOUDHARY THEY HAVE OPENING BALANCE IN THE BANK ACC OUNT OUT OF WHICH THEY ADVANCED RS. 50 000/- EACH TO THE ASSESSEE IN EARLIER YEARS ALSO WHICH HAS BEEN ACCEPTED. SUMMONS ISSUED TO THESE CREDITOR S HAVE BEEN SERVED ON THEM. THE CREDITORS HAVE DEPOSITED CASH IN THE BANK ACCOUNT BEFORE GIVING ADVANCE TO THE ASSESSEE SINCE THE GENERATION OF THE IR INCOME IS IN CASH. THUS ASSESSEE HAS ESTABLISHED THE IDENTITY OF THE CREDIT ORS GENUINENESS OF THE TRANSACTION AND THE CREDIT WORTHINESS OF THE CREDIT ORS. IN THESE CIRCUMSTANCES ADDITION MADE BY THE AO BY TREATING T HE AMOUNT RECEIVED 22 FROM THESE CREDITORS IS UNJUSTIFIED. RELIANCE IN TH E CONNECTION IS PLACED ON THE FOLLOWING CASES: CIT V. HEERA LAL CHAGAN LAL 257ITR 281 (RAJ.): IT H AS BEEN HELD THAT WHERE THE IDENTITY OF THE CREDITOR IS ESTABLISHED AND THE CREDITOR HAS CONFIRMED THE LOAN ADDITION CAN'T BE MADE. CIT VS. ROHINI BUILDERS 256 ITR 360 (GUJARAT): IF T HE IDENTITY OF THE CREDITORS IS PROVED AND THE AMOUNTS ARE RECEIVED BY ACCOUNT P AYEE CHEQUES THE INITIAL BURDEN OF PROVING CREDIT IS DISCHARGED AND THE SOURCE OF CREDITS NEED NOT BE PROVED. FACT THAT THE EXPLANATION WAS NOT SA TISFACTORY WOULD NOT AUTOMATICALLY RESULT IN DEEMING AMOUNTS AS INCOME O F THE ASSESSEE. THE TRIBUNAL'S HOLDING THAT AMOUNT REPRESENTING CASH CR EDITS NOT INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE WAS THUS HELD TO B E JUSTIFIABLE. HARISH KUMAR VS. DCIT 85 ITD 366 (HYD.): THE HON'BL E SUPREME COURT IN CIT V. NOORJAHAN (P.K.) (SMT.) [1999] 237 ITR 570 HELD THAT THE DISCRETION POSTULATED IN SECTION 69 BEFORE MAKING THE ADDITION HAS TO BE JUDICIOUSLY EXERCISED. THE PROVISIONS OF SECTION 68 ARE IN PARI MATERIAL WITH SECTION 69 SECTION 68 ALSO USED THE WORD 'MAY' AND THEREFORE BEFORE MAKING AN ADDITION UNDER SECTION 68 THE ASSESSING OFFICER HA S TO EXERCISE HIS DISCRETION JUDICIOUSLY. APPLYING THE AFORESAID TESTS WE FIND THAT IT IS NOT SO. IN SPITE OF THE FACTS POINTING IN THE DIRECTION OF GENUINENESS AND IDENTITY OF 'S' AND ITS CREDITWORTHINESS NOT BEING IN DOUBT THE ADDITION H AS BEEN MADE ON PRESUMPTIONS SURMISES AND SUSPICIONS AND THEREFOR E THE JUDGMENT OF THE SUPREME COURT (SUPRA) APPLIES TO THE FACTS OF THE P RESENT CASE. WE THEREFORE HOLD THAT THE ASSESSING OFFICER HAS ERRE D IN MAKING THE ADDITION OF RS. 51 92 750 UNDER SECTION 68 OF THE INCOME-TAX ACT 1961. 3. WITHOUT PREJUDICE TO ABOVE WE MAY POINT OUT T HAT IF ANY PART OF TRADING ADDITION IS SUSTAINED AND ADDITION FOR CASH CREDITO R IS ALSO SUSTAINED THE TRADING ADDITION SO CONFIRMED BECOMES THE SOURCE OF INTRODUCTION OF FUND THROUGH CREDITORS. MAKING ADDITION FOR BOTH OF THEM WILL TANTAMOUNT TO DOUBLE TAXATION. HENCE SET OFF OF TRADING ADDITION BE ALLOWED AGAINST THE ADDITION FOR CASH CREDITOR. FOR THIS RELIANCE IS PL ACED ON THE FOLLOWING CASES; ANARNATHAM VEERASINGHAIAH & CO. VS. CIT 123 ITR 457 (SC): WHEN AN INTANGIBLE ADDITION IS MADE TO THE BOOK PROFITS DUR ING AN ASSESSMENT PROCEEDINGS. IT IS ON THE BASIS THAT THE AMOUNT REP RESENTED BY THAT ADDITION CONSTITUTES THE UNDISCLOSED INCOME OF THE ASSESSEE. THAT INCOME ALTHOUGH 23 COMMONLY DESCRIBED AS 'INTANGIBLE' IS AS MUCH A PA RT OF HIS REAL INCOME AS THAT DISCLOSED BY HIS ACCOUNTS BOOK. IT HAS THE SAM E CONCRETE EXISTENCE. IT COULD BE AVAILABLE TO THE ASSESSEE AS THE BOOK PROF IT COULD BE. CIT VS. THRAYAMAL BALCHAND 165 ITR 453 (RAJ.): WHER E ADDITION MADE TO TRADING RESULTS AND FOR CASH CREDIT TRIBUNAL'S FIN DING THAT ADDITION TO TRADING RESULTS WOULD COVER CASH CREDIT IS JUSTIFIED. IN VIEW OF ABOVE ADDITION MADE BY THE AO IS UNJUSTI FIED AND HENCE IS DELETED. ' 16. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE SUSTAINED THE ADDITION OF RS. 1 95 000/- AND DELETED THE ADDITION TO THE EXTENT OF RS. 2 90 000/- BY OBSERVI NG IN PARA 6.3 OF THE IMPUGNED ORDER AS UNDER:- 6.3 I HAVE CONSIDERED THE CONTENTIONS OF THE AP PELLANT AS WELL AS ASSESSMENT ORDER. THE ADDITIONS ARE DISCUSSED AS UN DER: (I) SMT. TAMMU DEVI (WIFE OF THE PARTNER) RS.95 000 : THE AO HAS ADDED RS.95 000 IN RESPECT OF THE LOAN RECEIVED BY THE AS SESSEE ON 08.10.2008 STATING THAT THERE IS CASH DEPOSIT OF RS.99 000 IN HER BANK ACCOUNT ON 26.09.2008. HOWEVER IT IS SEEN THAT SHE HAS FILED THE RETURN OF INCOME ON 20.03.2010 SHOWING THE INCOME OF RS.1 43 620 FROM R AJU WATER SUPPLIERS TANKER RENT AND HAS FILED THE CONFIRMATION ALONG WI TH THE AFFIDAVIT IN SUPPORT OF THE SAME. FROM ABOVE IT IS APPARENT THAT HER SOURCES OF INCOME ARE EXPLAINED. ACCORDINGLY THE ADDITION MADE ON TH IS ACCOUNT OF RS.95 000 IS DELETED. (II) SMT. LALITA DEVI (RS.95 000): SHE IS DAUGHTER OF PARTNER OF THE FIRM. THERE WAS CREDIT ENTRY IN THE BANK ACCOUNT OF SMT. LALITA DEVI BEFORE GIVING THE LOAN OF RS.50 000+RS.45 000 ON 08.10.2008 AND 10.10 .2008 WITH THE NARRATION THAT WRONG CREDIT OF RS.99 000 HAS BEEN G IVEN IN HER ACCOUNT. THE ASSESSEE HAS NOT EXPLAINED THE SOURCE OF THIS DEPO SIT AND SMT. LALITA DEVI IS 24 NOT A INCOME TAX ASSESSEE. NO EVIDENCE REGARDING IN COME FROM SALE OF MILK AS CLAIMED HAS BEEN GIVEN. ACCORDINGLY ADDITION OF RS. 95.000 IS CONFIRMED. (III) SMT. SUNITA CHOUDHARY (RS 1 00 000): THE LOAN HAS BEEN SHOWN ON 15.04.2008 AND 08.10.2008 OF RS.50 000 EACH. SHE IS DAUGHTER OF THE PARTNER SHRI B.L. CHOUDHARY. THE ASSESSEE HAS CLAIM ED THAT SHE DERIVED INCOME FROM SALE OF MILK AND MISCELLANEOUS INCOME. NO EVIDENCE REGARDING THE ABOVE SOURCES OF INCOME HAS BEEN FILED AND SHE HAS NOT BEEN PRODUCED FOR EXAMINATION. NO RETURN OF INCOME HAS BEEN FILED IN HER CASE. HOWEVER AS PER BANK ACCOUNT THE LOAN OF RS.50 000 ON 15.04.20 08 HAS BEEN GIVEN FROM THE OPENING BALANCE AS ON 01.04.2008. SO ADDITION TO THIS EXTENT CANNOT BE MADE DURING THE YEAR UNDER CONSIDERATION AS THIS LO AN IS FROM THE RECEIPTS OF EARLIER YEAR. THE BALANCE ADDITION OF RS.50.000 IS CONFIRMED. (IV) SMT. ANITA CHOUDHARY (RS.1 00 000): SHE IS THE DAUGHTER OF THE PARTNER SHRI B.L. CHOUDHARY. HER CASE IS SIMILAR TO THAT OF SMT. SUNITA CHOUDHARY AND ON SIMILAR REASONING ADDITION TO THE EXTENT OF RS.5 0 000 IS CONFIRMED. (V) SMT. MAYA DEVI (RS.95 000): SHE IS WIFE OF THE PARTNER OF THE FIRM. SHE HAS FILED THE RETURN OF INCOME ON 26.03.2010 SHOWIN G INCOME OF RS.1 79 650 FROM PROPRIETARY CONCERNS I.E. M/S CHOUDHARY FLOUR MILLS AND M/S WIBRETOR MIXTURE MACHINE. SHE HAS FILED THE CONFIRMATION ALO NG WITH THE AFFIDAVIT. AS SUCH THE SOURCE OF INCOME OF SMT. MAYA DEVI ARE EXP LAINED OUT OF WHICH LOAN HAS BEEN GIVEN. ACCORDINGLY THE ADDITION OF R S. 95 000 IS DELETED. THE ASSESSEE HAS CLAIMED THAT THE TRADING ADDITION MADE MAY BE ALLOWED TO BE SET OFF AGAINST THE ADDITION ON ACCOUNT OF CASH CREDITS AS HELD IN THE CASE OF CIT VS. THRAYAMAL BALCHAND 165 ITR 453 (RAJ.). T HE AO IN THE ASSESSMENT ORDER HAS MENTIONED THAT ASSESSEE HAS INTRODUCED HI S MONEY BY WAY OF CASH CREDITS. AS SUCH THE CLAIM OF THE ASSESSEE IS REAS ONABLE. IN VIEW OF ABOVE DISCUSSION THE ADDITION TO THE EXTENT OF RS.1 95 0 00 IS SET OFF AGAINST THE TRADING ADDITION MADE IN THE CASE OF THE ASSESSEE A ND NO SEPARATE ADDITION IN THIS ACCOUNT IS CALLED FOR. NOW THE BOTH THE PARTIES ARE IN APPEAL. 25 17. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE AS SESSING OFFICER AND SUBMITTED THAT MERE FILING OF THE AFFIDAVIT AND CONFIRMATIONS FROM THE PARTIES WAS NOT SUFFICIENT TO BELIEVE THAT THE CREDITORS WERE HAVING THE CAPACITY TO GIVE THE LOANS. THEREFORE THE ADD ITION WAS RIGHTLY MADE BY THE ASSESSING OFFICER BECAUSE THE ASSESSEE FAILE D TO PRODUCE THE CREDITORS FOR EXAMINATION AND THE LD. CIT(A) WAS NO T JUSTIFIED IN ALLOWING RELIEF TO THE ASSESSEE. 18 IN HIS RIVAL SUBMISSIONS LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE ASSESSEE FURNISHED THE AFFIDAVIT OF ALL TH E PARTIES WHEREIN THE CREDITORS EXPLAINED THE SOURCE OF THEIR INCOME AND TWO OF THE CREDITORS SMT. TAMMU CHOUDHARY & SMT. MAYA DEVI WERE ALSO ASS ESSED TO TAX AND DECLARED INCOME MORE THAN WHAT WAS DEPOSITED BY THE M IN THEIR BANK ACCOUNT. IT WAS FURTHER STATED THAT SMT. SUNITA CH OUDHARY AND SMT. ANITA WERE HAVING OPENING BALANCE IN THEIR BANK ACCOUNT OUT OF WHICH THEY ADVANCED RS. 50 000/- EACH TO THE ASSESSEE. IT WAS FURTHER STATED THAT ALL THE CREDITORS EXCEPT SMT. SUNITA AND ANITA CHOUDHAR Y HAD ADVANCED TO THE ASSESSEE IN EARLIER YEARS ALSO WHICH HAD BEEN ACCEPTED. IT WAS EXPLAINED THAT THE CREDITORS HAD DEPOSITED CASH IN THE BANK ACCOUNT 26 BEFORE GIVING ADVANCE TO THE ASSESSEE SINCE THE GEN ERATION OF THEIR INCOME WAS IN CASH. THUS THE ASSESSEE HAD ESTABLI SHED THE IDENTITY OF THE CREDITORS THEIR CREDITWORTHINESS AND GENUINENE SS OF THE TRANSACTIONS. THEREFORE THE ADDITION SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1. CIT VS. HEERA LAL CHAGAN LAL 257 ITR 281 (RAJ.) 2. CIT VS. ROHINI BUILDERS 256 ITR 360 (GUJ.) 3. HARISH KUMAR VS. DCIT 85 ITD 366 (HYD.) 4. ANARNATHAM VEERASINGHAIAH & CO. VS. CIT 123 ITR 457 (SC) 5. CIT VS. THRAYAMAL BALCHAND 165 ITR 453 (RAJ.) 19 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE IT IS NOTICED THAT SMT. TAMMU DEVI AND SMT. M AYA DEVI HAD FILED THEIR RETURN OF INCOME COPY OF WHICH WERE FURNISHE D BEFORE THE ASSESSING OFFICER. THEY WERE HAVING SUFFICIENT INCOME TO GIV E LOAN TO THE ASSESSEE. THEREFORE THE ADDITION OF RS. 95 000/- EACH ON ACC OUNT OF LOAN RECEIVED FROM THEM WAS RIGHTLY DELETED BY THE LD. CIT(A). IN THE PRESENT CASE IT IS NOTICED THAT THE ASSESSEE RECEIVED THE LOAN FROM SMT. LALITA CHOUDHARY IN THE EARLIER YEAR ALSO WHICH WAS ACCEPTED BY THE DEPARTMENT. SHE MADE THE CASH DEPOSIT IN THE BANK ACCOUNT OUT OF HE R INCOME AND CAPITAL. SHE ALSO FILED AN AFFIDAVIT COPY OF WHICH IS PLACE D AT PAGE NO. 41 OF THE 27 ASSESSEES PAPER BOOK IN THE SAID AFFIDAVIT SHE H AD DISCLOSED HER PAN AND STATED THAT SINCE THE INCOME WAS BELOW TAXABLE LIMIT SO THE RETURN OF INCOME WAS NOT FILED. SHE HAD ACCEPTED THAT A L OAN OF RS. 95 000/- WAS GIVEN TO THE ASSESSEE. THE CONTENTS OF THE AFF IDAVIT HAD NOT BEEN DOUBTED. SHE HAS ALSO FILED COPY OF HER BANK STATEM ENT ALONG WITH THE CONFIRMATION TO THE ASSESSING OFFICER AND DISCLOSED SOURCE HER INCOME WHICH WAS FROM SALE OF MILK ETC. THEREFORE WHEN T HE ASSESSEE PROVED THE IDENTITY AND CREDITWORTHINESS OF THE TAX PAYER BY FURNISHING AFFIDAVIT AND THE BANK ACCOUNT OF THE CREDITORS AND THE TRAN SACTIONS WAS THROUGH BANKING CHANNEL THERE WAS NO REASON FOR CONFIRMING THE ADDITION OF RS. 95 000/-. ACCORDINGLY THE SAME IS DELETED. 20. AS REGARDS TO THE CONFIRMATION OF ADDITIONS OF RS. 50 000/- EACH ON ACCOUNT OF LOANS RECEIVED FROM SMT. ANITA CHOUDHARY & SMT. SUNITA CHOUDHARY IS CONCERNED IT IS NOTICED THAT THEY HAV E FILED THEIR AFFIDAVITS STATING THEREIN THEIR PANS AND ALSO FILED THE CONFI RMATIONS BUT THE LD. CIT(A) DOUBTED THEIR SOURCE SO THE ADDITION MADE W AS BY DOUBTING THE SOURCE OF SOURCE. HOWEVER THE LD. CIT(A) DELETED THE ADDITION OF RS. 50 000/- EACH OUT OF RS. 1 LAC LOAN RECEIVED FR OM EACH OF THEM ON THE BASIS THAT THEY WERE HAVING OPENING BALANCE IN THEIR BANK ACCOUNT OUT 28 OF WHICH LOAN WAS GIVEN. IN THE PRESENT CASE THIS EXPLANATION OF THE ASSESSEE THAT THE SAID CREDITORS WERE HAVING THE IN COME WHICH WAS BELOW TAXABLE CANNOT BE BRUSHED ASIDE PARTICULARLY WHEN N OTHING IS BROUGHT ON RECORD THAT THEY WERE NOT HAVING ANY INCOME FROM SA LE OF MILK. THEREFORE WE ARE OF THE VIEW THAT THE ADDITION SUS TAINED BY THE LD. CIT(A) ON ACCOUNT OF LOAN RECEIVED FROM SMT. SUNIT A CHOUDHARY & SMT. ANITA CHOUDHARY WAS NOT JUSTIFIED. ACCORDINGLY SAM E IS DELETED. IN THIS MANNER GROUND NO. 3 & 4 OF THE DEPARTMENTAL APPEAL ARE DISMISSED AND GROUND NO. 3 OF THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 21. NOW THE ONLY ISSUE WHICH REMAINED FOR ADJUDICATION RELATES TO THE CONFIRMATION OF ADDITION OF RS. 1 20 898/- ON ACCOU NT OF INTEREST INCOME FROM NSC/FDR AFTER ESTIMATING THE INCOME BY APPLICA TION OF NET PROFIT RATE WHICH IS RAISED BY THE ASSESSEE VIDE GROUND NO . 2. 22. FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT TH E ASSESSING OFFICER ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING NE T PROFIT RATE. THE ASSESSING OFFICER ALSO CONSIDERED THE INTEREST EARN ED ON FDR AND NSC AS INCOME FROM OTHER SOURCES AND MADE THE ADDITION O F RS. 1 20 898/-. 29 23. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- '1. IN THE PROFIT AND LOSS ACCOUNT ASSESSEE HAS SHO WN INTEREST INCOME OF RS. 1 20 898/- ON NSC AND FDR AS SEPARATE LINE ITEM. WH ILE FRAMING THE ASSESSMENT ORDER AO HAS SEPARATELY ADDED INTEREST I NCOME OF RS. 1 20 898/- TO THE TRADING ADDITION OF RS. 21 44 482/- COMPUTED BY HIM AS MENTIONED IN THE GROUND NO. 1 ABOVE. 2. IN DOING SO AO IGNORED THE FACT THAT INTEREST I NCOME WHICH ARISES TO THE ASSESSEE FIRM IS DERIVED FROM THE FDR AND NSC'S WHI CH ARE HELD BY THE ASSESSEE FOR PROVIDING BANK GUARANTEE/ MARGIN MONEY AGAINST THE LOAN RAISED BY IT. FURTHER THE NSC WERE PURCHASED FOR G IVING SECURITIES TO RHB/ UIT ETC. AS A CONDITION PRECEDENT FOR GETTING WORK FROM THEM. HENCE SUCH INTEREST IS BUSINESS INCOME. ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS. 3 54 488/- AGAINST THE INCOME OF RS. 1 20 898/-. TH E AO HAS NOT SEPARATELY ALLOWED THE CLAIM OF INTEREST EXPENDITURE WHILE ASS ESSING THE INCOME OF THE ASSESSEE BY APPLICATION OF NP RATE. THEREFORE SEPAR ATELY INCLUDING THE INTEREST RECEIPT OF RS. 1 20 898/- WITHOUT OFFSETTI NG IT AGAINST THE INTEREST EXPENDITURE IS UNJUSTIFIED AND RESULTED INTO DOUBLE ADDITION. IN VIEW OF THE ABOVE ONCE BOOKS ARE REJECTED AND I NCOME IS ESTIMATED BY APPLICATION OF NP RATE NO SEPARATE ADDITION FOR IN TEREST RECEIPT SHOULD BE MADE BY THE AO AND THE SAME BE DELETED. ' 24. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE CONFIRMED THE ADDITION BY OBSERVING AS UN DER:- 5.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPELL ANT AS WELL AS ASSESSMENT ORDER. THE AO HAS HELD THE INTEREST INCO ME FROM FDR AND NSC'S AS INCOME FROM OTHER SOURCES. IT IS SEEN THAT THE A SSESSEE HAS DERIVED THE INTEREST INCOME FROM THE NSC/ FDR'S AND IT IS NOT F ROM THE CONTRACT RECEIPTS. THE ASSESSEE HAD DEBITED ALL THE INTEREST EXPENSES IN THE PROFIT AND LOSS ACCOUNT AND IT HAS NOT BEEN SHOWN THAT ADDITIONAL I NTEREST EXPENSES WERE INCURRED FOR EARNING THE ABOVE INTEREST INCOME. IN VIEW OF ABOVE THE 30 ADDITION MADE BY THE AO OF RS. 1 20 898 ON ACCOUNT OF INTEREST INCOME IS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL. 25 LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE LD. CIT(A) AND FURTHER SUBMITTED THAT TH E INTEREST INCOME WHICH AROSE TO THE ASSESSEE WAS DERIVED FROM THE FD R/NSC WHICH WERE HELD FOR PROVIDING BANK GUARANTEE/MARGIN MONEY AGAI NST THE LOAN RAISED BY IT. IT WAS FURTHER STATED THAT THE NSC WAS PURCH ASED FOR GIVING SECURITIES TO RHB/UIT ETC AS PER CONDITION PRECEDEN T FOR GETTING WORK FROM THEM. THEREFORE THE INTEREST INCOME WAS A BU SINESS INCOME AND THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF R S. 3 54 881/- AGAINST THE INTEREST INCOME OF RS. 1 20 898/- AND THE ASSES SING OFFICER HAD NOT SEPARATELY ALLOWED THE CLAIM OF INTEREST EXPENDITUR E WHILE ASSESSING THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT RATE. THEREFORE SEPARATELY INCLUDING THE INTEREST RECEIPT OF RS. 1 20 898/- WI THOUT OFFSETTING IT AGAINST THE INTEREST EXPENDITURE WAS UNJUSTIFIED. 26 LEARNED D.R. IN HIS RIVAL SUBMISSIONS STRONGLY SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT 31 CASE THE ASSESSEE HELD FDR AND NSC FOR PROVIDING B ANK GUARANTEE/ MARGIN MONEY AGAINST LOAN RAISED BY IT AND THE NSC WERE PURCHASED FOR GIVING SECURITIES TO RHB/UIT. THEREFORE THE INTER EST RECEIVED ON THE FDR AND NSC WAS DIRECTLY LINKED WITH THE INTEREST PAID BY THE ASSESSEE ON THE LOAN RAISED. SO IT SHOULD HAVE BEEN SET OFF AGAINS T THE INTEREST EXPENDITURE AND NO SEPARATE ADDITION WAS CALLED FOR . THEREFORE THE ADDITION SUSTAINED BY THE LD. CIT(A) IS DELETED. 28 IN THE RESULT APPEAL OF THE DEPARTMENT IS DISMISSE D AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 11 TH APRIL 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH APRIL 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR ITAT JODHPUR.