ACIT, Trivandrum v. Shri Sunny P. Jose, Trivandrum

ITA 1092/COCH/2004 | 2001-2002
Pronouncement Date: 12-07-2010

Appeal Details

RSA Number 109221914 RSA 2004
Bench Cochin
Appeal Number ITA 1092/COCH/2004
Duration Of Justice 5 year(s) 8 month(s) 11 day(s)
Appellant ACIT, Trivandrum
Respondent Shri Sunny P. Jose, Trivandrum
Appeal Type Income Tax Appeal
Pronouncement Date 12-07-2010
Appeal Filed By Department
Bench Allotted DB
Tribunal Order Date 12-07-2010
Date Of Final Hearing 12-05-2010
Next Hearing Date 12-05-2010
Assessment Year 2001-2002
Appeal Filed On 01-11-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.A.NOS.1091 & 1092/COCH/2004 & ITA NO.140/COCH/2005 ASST. YEARS:2000-01 & 2001-02 THE ASST. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE TRIVANDRUM. VS. SHRI SUNNY P.JOSE TRIVANDRUM. PA NO.ACFPJ 7463F (APPELLANT) ( RESPONDENT ) ITA NOS.902 & 903/COCH/2004 ASST. YEARS:2000-01 & 2001-02 SHRI SUNNY P.JOSE TRIVANDRUM. PA NO.ACFPJ 7463F VS. THE ACIT. CENT.CIR. ALUVA. THE DCIT. CENT.CIR. ALUVA. (APPELLANT) (RESPONDENT) ITA NOS.137 138 139 & 835/COCH/2008 ASST. YEARS: 2002-03 TO 2005-06 THE DY. COMMISSIONER OF INCOME-TAX CENT. CIRCLE TRIVANDRUM. VS. SHRI SUNNY P.JOSE TRIVANDRUM. PA NO.ACFPJ 7463F (APPELLANT) (RESPONDENT) REVENUE BY DR. BABU JOSEPH SR.DR ASSESSEE BY SHRI CBM WARRIE R CA O R D E R PER N.VIJAYAKUMARAN J.M: THIS IS A BUNCH OF NINE APPEALS. THESE ARE CROSS APPEALS. THESE APPEALS ARE DIRECTED AGAINST DIFFER ENT ORDERS OF THE CIT(APPEALS) -I KOCHI. ALL THESE APPEALS RELATE TO ONE AND THE SAME ASSESSEE FOR DIFFERENT ASSESSMENT YEARS ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 2 AND SUBMISSIONS OF BOTH PARTIES ARE COMMON WE HAVE HEARD THESE APPEALS TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. DR. BABU JOSPH LD. SR.D.R. APPEARED ON BEHALF O F THE REVENUE WHEREAS SHRI C.B.M. WARRIER LD. COUNSEL A PPEARED FOR THE ASSESSEE. 3. ITA NO.1091/COCH/2004 : THE ASSESSEE SHRI SUNNY P. JOSE IS THE PROPRIETOR OF M/S. ALAPATT SILKS T RIVANDRUM. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2000-0 1 WAS FILED BY THE ASSESSEE ON 30-3-2002 DECLARING A TOTA L INCOME OF RS.3 57 869 AFTER SETTING OFF OF LOSS FROM ALAP ATT JEWELERS KOLLAM. SMT. MARY SUNNY WIFE OF THE A SSESSEE IS THE PROPRIETOR OF ALAPATT JEWELERS KOLLAM AND I NCOME OF THIS FIRM WAS TREATED AS THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF INCOME-TAX U/S.64(1). THERE WAS A SEARC H U/S.132 OF THE I.T. ACT 1961 AT THE PREMISES OF ALA PATT JEWELERS AND VARIOUS INCRIMINATING DOCUMENTS WERE FOUND AND SEIZED. ACCORDING TO THE ASSESSING OFFICER T HE ASSESSEE WAS NOT ISSUING PROPER BILLS FOR ALL THE S ALES EFFECTED IN THE SHOP AND ONLY A FEW WAS ACCOUNTED. THE ASSESSEE USED TO ISSUE ESTIMATES IN LIEU OF SALE BI LLS. THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 3 ASSESSING OFFICER HAS STATED IN THE ASSESSMENT ORDE R THAT HIS VIEW WAS CONFIRMED BY THE EMPLOYEES OF THE ASSESSEE AND THE CUSTOMERS WHO WERE AVAILABLE AT THE TIME OF SE ARCH. 3.1 THE ASSESSING OFFICER FOUND THAT THERE WAS A PA YMENT OF RS.23 LAKHS TO M/S. MUTHOOT BANKERS KOLLAM. I T WAS THE SUBMISSION OF THE ASSESSEE THAT THESE WERE PERSONAL LOANS OF MRS. MARY SUNNY AND THE LOANS WERE UTILIZED FOR PER SONAL PURPOSES. TOTAL LOAN AVAILED WAS RS.35 LAKHS. RS .23 LAKHS WAS REPAID DURING THE YEAR. THE BALANCE AMOUNT OF LOAN WAS NOT SHOWN IN THE BALANCE-SHEET. THE ENTIRE PAYMEN T HAS BEEN TAKEN TO THE CAPITAL ACCOUNT OF SMT. MARY SUNN Y ON THE LAST DAY OF THE ACCOUNTING YEAR. WHEN THE ASSESSIN G OFFICER CALLED FOR AN EXPLANATION THE ASSESSEE SUBMITTED T HAT ACCOUNT WITH NIL BALANCES WAS NOT REFLECTED IN THE ACCOUNTS. FURTHER THE ASSESSING OFFICER FOUND SUPPRESSION OF SALES FROM 23-12-1999 TO 31-3-2000 AND THIS WAS CONFIRMED BY THE CUSTOMERS OF THE ASSESSEE WHO FURNISHED COPIES OF ESTIMATES ISSUED BY THE ASSESSEE IN RESPECT OF SALE S EFFECTED DURING SUBSEQUENT YEARS. THUS THE ASSESSING OFFIC ER WAS OF THE VIEW THAT THE ASSESSEE CONTINUED TO ISSUE ESTIM ATES IN LIEU OF SALE BILLS AND NOT ACCOUNTED IN THE BOOKS O F ACCOUNTS. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 4 3.2 THE ASSESSING OFFICER NOTICED THAT THE NORMA L GP IN THE TRADE IS AROUND 20% WHEREAS THE ASSESSEE HAS RE TURNED FOR THIS YEAR LESS THAN 10% AND 23.28% FOR THE SPLI T PERIOD AFTER 23-12-1999 BECAUSE OF VARIATION IN GOLD PRIC E. THE ASSESSING OFFICER REJECTED THE ARGUMENTS OF THE ASS ESSEE AND WAS OF THE VIEW THAT THE SALES HAVE TO BE ESTIM ATED. ON THE BASIS OF COMPUTATION OF UNDISCLOSED INCOME I N THE BLOCK ASSESSMENT GP WAS TAKEN AT 18% AND THE DIFFE RENCE IN GP SO COMPUTED AND THAT DECLARED BY THE ASSESSEE WAS TREATED AS UNDISCLOSED INCOME FOR THE PERIOD UPTO 2 3-12- 1999. THUS THE ASSESSING OFFICER CAME TO THE CON CLUSION THAT THERE WAS SUPPRESSION OF SALES AND TO ESTIMATE THE MAGNITUDE OF SUCH SALES HE WAS OF THE VIEW THAT AN Y BUSINESS CAN BE VIABLE ONLY IF THE SALES TURNOVER I S AT LEAST THREE TIMES OF THE RUNNING STOCK. IN JEWELLERY BUS INESS IT IS COMMON KNOWLEDGE THAT ONLY A SMALL PERCENTAGE OF SA LE IS ACCOUNTED. 3.3 FOR THE PURPOSE OF SALES-TAX ASSESSMENT THE RUNNING STOCK METHOD IS AN ACCEPTED PRINCIPLE AND T HIS PRINCIPLE HAS BEEN APPROVED BY THE JURISDICTIONAL H IGH COURT. IN VIEW OF THE ABOVE FACTS THE ASSESSING OFFICER P ROPOSED TO ESTIMATE THE SALES AT THREE TIMES OF THE RUNNING ST OCK AS ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 5 DONE IN THE CASE OF THE ASSESSEE FOR THE BLOCK PERI OD AND GP @ 18% OF THE TURNOVER. 3.4 THE LD. COUNSEL FOR THE ASSESSEE OBJECTED THIS PROPOSAL STATING THAT NO INSTANCES OF SUPPRESSION W ERE FOUND FOR THE PERIOD AFTER THE SEARCH ASSESSEE HAD MAINT AINED REGULAR BOOKS OF ACCOUNTS SINCE THE PERIOD COVERED BY THIS ASSESSMENT WAS ONLY JUST ABOVE THREE MONTHS THE AD OPTION OF THREE TIMES AS THE MULTIPLYING FACTOR IS UNJUSTI FIED AND THERE WAS NO JUSTIFICATION IN ADOPTING GP AT 18%. THE ASSESSING OFFICER REJECTED THE ABOVE CONTENTIONS BY OBSERVING THAT A) THE ASSESSEE HAD NOT BEEN DECLARING THE ENTIRE SALE ; B) THIS WAS ADMITTED BY THE ASSESSEE AND THE STAFF MEMBERS; C) THE CUSTOMERS CONFIRMED SUCH UNACCOUNTED SALES AND MAINTAINED THAT ONLY ESTIMATES IN LIEU OF SALE BILL S WERE ISSUED TO THEM; D) THE UNACCOUNTED INCOME HAS BEEN APPROPRIATED BY THE ASSESSEE. 3.5 WITH REGARD TO THE MULTIPLYING FACTOR THE ASSESSING OFFICER NOTED THAT SALES TURN OVER FOR OV ER 8 ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 6 MONTHS HAVE ALREADY BEEN CONSIDERED IN THE BLOCK ASSESSMENT THE SALES AFTER 23-12-1999 ALONE IS EST IMATED. MULTIPLYING FACTOR HAS NOT BEEN CHANGED AND THE SAM E METHOD HAS BEEN FOLLOWED AS IN EARLIER YEARS. THE TURNOVER AS DECLARED BY THE ASSESSEE IN THE REGULAR RETURN F OR EARLIER PERIOD WAS ACCEPTED. ACCORDINGLY THE ASSESSING OF FICER ESTIMATED THE SALES TURNOVER UNDER THE RUNNING STOC K METHOD AND ADOPTED THE GP RATE AT 13.28% AS DECLARED BY TH E ASSESSEE. AGAINST THE ESTIMATION OF SALES TURNOVER UNDER RUNNING STOCK METHOD ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE CIT(APPEALS) WHO HELD THAT IT WILL BE JUST AND SUFFICIENT TO ESTIMATE THE SALES FOR THE WHOLE YEAR BY MAKING AN ADDITION TO THE RETURNED SALES FOR THE YEAR AS PER ACCOUNTS. FOR THE PURPOSE OF REGULAR ASSESSMENT ESTIMATION OF UN ACCOUNTED SALES FOR THE PERIOD 24-12-1999 TO 31-3-2000 IS WAR RANTED. I DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE UNAC COUNTED SALES FOR THE PERIOD 24-12-1999 TO 31-3-2000 BY MULTIPLYI NG THE ACTUAL SALES SUPPRESSION FOUND FOR THAT PERIOD BY THE FACTOR 365 NO. OF WORKING DAYS IN THE PERIOD 24-12- 1999 TO 31-3-2000 (VIDE 154 ORDER DATED 21-7-22004) THE SALES SUPPRESSION SO WORKED OUT SHALL BE ADDED TO THE TOTAL SALES FOR THE WHOLE YEAR AS PER ACCOUNTS. FROM TH E SALES THUS FIXED GROSS PROFIT AT THE RATE 13.28% AS ADOPTED I N THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 7 ASSESSMENT ORDER SHALL BE WORKED OUT AND THE NET IN COME FROM THE BUSINESS OF ALAPATT JEWELLERS KOLLAM SHALL BE COMPUTED AFTER GIVING THE DEDUCTIONS AND ADJUSTMENTS FOR EXPENSES CLAIMED AND SALES TAX COLLECTED AS DONE IN THE ASSESSMENT ORDER . IT IS FURTHER DIRECTED THAT THE ASSESSMENT ORDER GIVING E FFECT TO THE DIRECTIONS OF THIS ORDER SHALL BE A SPEAKING ONE TO THE EFFECT THAT IT SHALL CONTAIN THE DETAILS OF SALES SUPPRESSION D ETECTED FOR THE PERIOD 24-12-1999 TO 31-3-2000 SUCH AS NAME AND AD DRESS DATE AND QUANTUM OF EACH SUCH ALLEGED SALES SUPPRESSION. 4. NOW THE REVENUE IS AGGRIEVED AND IN APPEAL BEFOR E THE TRIBUNAL. THE LD. COMMISSIONER SUPPORTED THE ACTI ON OF THE ASSESSING OFFICER AND URGED THAT THE LD. CIT(APPEAL S) ERRED IN DEVIATING FROM THE GENERALLY ACCEPTED PRINCIPLE OF ESTIMATING THE SALES TURNOVER BY RUNNING STOCK METH OD ESPECIALLY WHEN THE CIT(APPEALS) HAS UPHELD THE REJ ECTION OF BOOKS OF ACCOUNTS DUE TO VARIOUS IRREGULARITIES AND THE JURISDICTIONAL HIGH COURT HAS UPHELD SUCH ESTIMATIO N IN A NUMBER OF CASES. THE LD. SR.DR FURTHER RELIED ON T HE ORDER OF THE TRIBUNAL IN IT(S&S)A NO.31/COCH/2003 DATED 2 7-2- 2004 WHEREIN IT HAS BEEN HELD THAT ESTIMATION OF TURNOVER IN THE CASE OF A JEWELLERY BUSINESS ON THE BASIS OF AV ERAGE RUNNING METHOD IS NOT UNJUST OR UNFAIR. ESTIMATING THE SAL ES TURNOVER ON THE AVERAGE RUNNING METHOD IS A TIME TESTED METHOD IN ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 8 ESTIMATING THE SALES TURNOVER IN THIS LINE OF BUSIN ESS. THUS THE LD. SR.DR CONTENDED THAT THE LD. CIT(APPEALS) W AS NOT JUSTIFIED IN INTERFERING WITH THE FINDINGS OF THE A SSESSING OFFICER. 5. SHRI WARRIER LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE REASONS STATED BY THE ASSESSING OFFICER I N THE ASSESSMENT ORDER IS THAT THE SEARCH AND POST SEARCH ENQUIRIES REVEALED SUPPRESSION OF SALES IN THE POST SEARCH PERIOD. THIS IS WITHOUT ANY SPECIFIC INSTANCES OF SUPPRESSION OF SALES OR SUPPORTED BY MATERIAL AND CONCLUSIVE EV IDENCES AND THEREFORE THE ESTIMATION OF SALES FOR THE YEAR IS ILLEGAL AND ARBITRARY. THE LD. COUNSEL FOR THE ASSESSEE I NVITED OUR ATTENTION TO THE OBSERVATION OF THE TRIBUNAL IN ITA NO.983/COCH/2004 DATED 22-9-2006 FOR THE ASSESSMENT YEAR 2000-01 IN THE CASE OF ASSESSEES FATHER WHEN THERE ARE NO EVIDENCES FOR ANY UNACCOUNTED SALE DURING THE PE RIOD UNDER CONSIDERATION WE DO NOT FIND ANY REASON FOR MAKING ANY ASSESSMENT ON SUCH NON-EXISTING UNACCOUNTED SAL ES . THE LD. COUNSEL FURNISHING A COPY OF THE ORDER DATE D 3-11- 2004 OF THE ASSESSING OFFICER GIVING EFFECT TO THE IMPUGNED APPELLATE ORDER CONTENDED THAT NO SALES SUPPRESSIO N HAS BEEN DETECTED BY THE ASSESSING OFFICER FOR THE PERI OD 24-12- ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 9 1999 TO 31-3-2000. THUS ESTIMATION OF SALES AND INCOME THERE FROM IS ILLEGAL. ACCORDINGLY HE URGED TO D ISMISS THE APPEAL OF THE REVENUE ON THIS COUNT. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDE NTS. ON THIS ESTIMATION OF INCOME OF ALAPATT JEWELLERS KOL LAM UNDER THE GUISE OF SUPPRESSION OF SALES THE ASSESSING OF FICER MADE THIS ADDITION ON THE GROUND THAT THE POST SURVEY EN QUIRIES REVEALED SUPPRESSION OF SALES IN THE POST SEARCH PE RIOD. IT IS ALSO THE OBSERVATION OF THE ASSESSING OFFICER TH AT THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE HIS CLAIM THAT HE DIS-CONTINUED THE PR ACTICE OF ISSUING THE ESTIMATE IN RESPECT OF SALE BILLS. TH E ASSESSING OFFICER BASED ON THE ESTIMATED INVOICES CAME TO THE CONCLUSION THAT THERE IS SUPPRESSION OF SALES AND P UT THE ASSESSEE TO PROVE IN THE NEGATIVE THAT THE ASSESSEE HAS NOT MADE ANY SUPPRESSION OF SALES WHEREAS IT IS THE ASS ESSING OFFICER TO PROVE ANY CONCEALMENT TO JUSTIFY THE EST IMATION OF SALES TURNOVER. AS THIS IS A BLOCK ASSESSMENT TH ERE SHOULD BE SOME MATERIALS SUGGESTING SUPPRESSION OF SALES. IF IT WAS PROVED THEN ONLY THE EXPLANATION IS EXPECTED FROM T HE ASSESSEE. SPECIFIC INSTANCES OF SUPPRESSION OF SA LES FOR THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 10 PERIOD WERE SUPPORTED BY ANY MATERIAL AND CONCLUSIV E EVIDENCE. THE ESTIMATION OF SALES IN AN ARBITRARY MANNER IS NOT JUSTIFIED. SIMILARLY IN THE CASE OF ASSESSE ES FATHER SHRI P.P.JOSE (DECD.) ON SIMILAR ESTIMATION OF SALE S AND INCOME THE COCHIN BENCH OF THE TRIBUNAL VIDE ITS OR DER DATED 22-09-2006 IN ITA NO.983/COCH/2004 HAS HELD THAT WHEN THERE ARE NO EVIDENCES FOR ANY UN ACCOUNTED SALE DU RING THE PERIOD UNDER CONSIDERATION WE DO NOT FIND ANY REAS ON FOR MAKING ANY ASSESSMENT ON SUCH NON-EXISTING UNACCOUN TED SALES. ACCORDINGLY THE TRIBUNAL DISMISSED THE DEPARTMENTA L APPEAL ON THIS POINT . FOLLOWING THE ABOVE DECISION OF THE COCHIN BENCH IN THE CASE OF ASSESSEES FATHER ON I DENTICAL CIRCUMSTANCES AND FOR THE REASONS STATED THEREIN W E SEE THAT THE ORDER OF THE ASSESSING OFFICER IS NOT JUST IFIED. HENCE THE LD. CIT(APPEALS) BOTH IN HIS ORIGINAL OR DER DATED 5-7-2004 AS WELL AS 154 ORDER DATED 21-07-2004 CATEGORICALLY FOUND THAT THE MULTIPLICATION FACTOR MENTIONED IN THE APPELLATE ORDER STOOD CORRECTED BY WAY OF T HIS 154 ORDER. HENCE WE SEE NO JUSTIFICATION TO INTERFER E WITH THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE DELETION OF DISALL OWANCE OF INTEREST AMOUNTING TO RS.11 41 555/- IN THE CASE OF M/S. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 11 ALAPPAT JEWELLERY KOLLAM ON THE GROUND THAT INTER EST BEARING LOAN WAS DIVERTED BY THE ASSESSEE FOR NON B USINESS PURPOSES. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER FOUND THAT SMT. MARY SUNNY T HE DE- JURE OWNER HAD AVAILED LOANS FROM M/S. MUTHOOT BANK ERS KOLLAM AND THE REPAYMENT OF INTEREST ON LOANS WERE CLAIMED AS BUSINESS EXPENDITURE. HOWEVER THE ASSESSEE HAD TREATED THE ENTIRE LOAN AS PERSONAL LOAN AND WAS TAKEN TO T HE CAPITAL ACCOUNT OF SMT. MARY SUNNY AND THUS APPROPRIATED FO R PERSONAL PURPOSES. ACCORDINGLY THE INTEREST AMOU NTING TO RS.10 92 615/- ON THIS LOAN AND FOR THE PROPORTION ATE INTEREST CLAIMED FOR BROKEN PERIOD AMOUNTING TO RS .48 940/- BEING DIVERSION OF INTEREST BEARING FUNDS FOR NON B USINESS PURPOSES TOTALING TO RS.11 41 555/- WAS DISALLOWED . IN APPEAL THE LD. CIT(APPEALS) AFTER DISCUSSING THE ISSUE AT LENGTH DELETED THE ABOVE ADDITION MADE BY THE ASSE SSING OFFICER. HENCE THE REVENUE IS IN APPEAL. 8. THE LD. SR. DR SUPPORTED THE FINDINGS OF THE AS SESSING OFFICER AND SUBMITTED THAT THE FIRST APPELLATE AUTH ORITY FAILED TO NOTE THAT THE ASSESSING OFFICER HAS OBSERVED THA T THE LOAN AMOUNT CREDITED TO THE ASSESSEES CAPITAL ACCOUNT W AS WITHDRAWN BY HER AND APPROPRIATED FOR PERSONAL PURP OSES. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 12 9. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE CONTENDED THAT THE FINDINGS OF THE ASSESSING OFFICE R IS WRONG AND AGAINST THE FACTS. THE BUSINESS OF ALAPATT JE WELLERS KOLLAM WAS STARTED IN DECEMBER 1998 I.E. THE IMMED IATELY PRECEDING PREVIOUS YEAR. THE ENTIRE LOAN WAS UTIL IZED FOR THE PURCHASE OF STOCK IN THAT YEAR. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 1999-2000 INCORPORATING THE INC OME FROM BUSINESS OF ALAPATT JEWELERS KOLLAM WAS RETUR NED BY SMT. MARY SUNNY VOLUNTARILY AND THE RETURN WAS ACCE PTED AND ASSESSMENT COMPLETED. DURING THAT YEAR ALSO T HE BALANCE LOAN AMOUNT WAS TRANSFERRED AND INCLUDED IN MARY SUNNYS CAPITAL ACCOUNT AS ON 31-3-1999. THERE WAS NO DISALLOWANCE OF INTEREST FOR THAT YEAR WHEN THE LOA N FROM MUTHOOT BANKERS KOLLAM WAS UTILIZED AND REPAYMENTS STARTED OUT OF BUSINESS FUNDS. THE FINDING OF THE ASSESSING OFFICER THAT THE LOAN AMOUNT WAS CREDITED TO THE CA PITAL ACCOUNT AND WITHDRAWN AND APPROPRIATED FOR PERSONAL FACTS IS WRONG AND AGAINST THE FACTS. THE LOAN WAS RECEIVE D IN THE PRECEDING YEAR AND IT WAS UTILIZED ONLY FOR PURCHAS E OF STOCK OF GOODS. THE LIABILITY TO MUTHOOT BANKERS IS CON TINUING IN THE PRESENT ASSESSMENT YEAR ALSO AND THE INTEREST P AID ON SUCH LOAN IS FOR BUSINESS PURPOSES ONLY. THE CHAR ACTER OF THE LOAN DOES NOT CHANGE IN THE PRESENT ASSESSMENT YEAR ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 13 AND HENCE THE DISALLOWANCE OF INTEREST RS.10 92 615 /- IS IMPROPER. FURTHER THE AMOUNT OF RS.48 940/- DISA LLOWED FROM INTEREST IN ALAPATT JEWELLERS KOLLAM AS PROP ORTIONATE INTEREST ON ALLEGED DIVERSION OF INTEREST BEARING F UNDS FOR NON BUSINESS PURPOSES. THE ASSESSMENT ORDER DOES NOT CONTAIN ANY DETAILS AS TO HOW THIS RS.48 940/- HAS BEEN ARRIVED AT. IT ALSO DOES NOT SPEAK WHICH IS THE N ON BUSINESS INVESTMENTS CONSIDERED FOR THIS DISALLOWANCE. NO S HOW CAUSE NOTICE PROPOSING THIS DISALLOWANCE WAS ISSUED BEFORE THE ASSESSMENT ORDER WAS ISSUED. THEREFORE THIS DISALLOWANCE IS ARBITRARY AND IMPROPER. THUS THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(APPEALS) AND URGED US TO UPHOLD THE ORDER OF TH E CIT(APPEALS) ON THIS POINT. 10. WE HAVE HEARD RIVAL SUBMISSIONS ON THIS DISALLO WANCE OF INTEREST EXPENDITURE TO THE TUNE OF RS.11 41 555/-. THE ASSESSING OFFICER DISALLOWED THE INTEREST TO THE TU NE OF RS.10 92 615/- PAID TO MUTHOOT BANKERS KOLLAM. T HE REASON FOR DISALLOWANCE IS THAT THE ASSESSEE HAS TR ANSFERRED THE LOAN BALANCE TO THE CAPITAL ACCOUNT OF MARY SUN NY. THE ENTIRE AMOUNT HAS BEEN WITHDRAWN AND APPROPRIATED F OR PERSONAL USE IS THE FINDING OF THEE ASSESSING OFFIC ER. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 14 FURTHER IT WAS EXPLAINED BY THE ASSESSEE THAT THE B USINESS OF ALAPATT JEWELLERS KOLLAM WAS STARTED IN DECEMBER 1 99 WHICH WE HAVE MENTIONED IN THE BODY OF THE SUBMISSI ON. NOW IT IS TO BE SEEN WHETHER THERE IS ANY DIVERSION OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. FOR THAT THE PARTICULARS OF LOAN AND ADVANCES AS PER THE BAL ANCE SHEET OF ALAPATT JEWELLERS KOLLAM AS ON 31-3-2000 IS VERY RELEVANT. THE SAME IS REPRODUCED HEREUNDER: PARTY BALANCE AS ON 31 -3-2000(RS) NATURE OF PAYMENT ALAPATT SILKS TVM 9 70 000 ADVANCE NA DAVIS 1 50 000 RENT DEPOSIT FOR STAFF QUARTERS PREMIER JEWELLERY 50 006 PAYMENT TO SUPPLI ER OF GOODS ASSOCIATED KURIES 15 033 CHIT SUBSCRIPTION -NON PRIZED BHARATHAKSHEMAM KURI 28 920 CHIT SUBSCRIPTION -NON PRIZED KARUNYA KURIES & LOANS 16 190 CHIT SUBSCRIPTION -NON PRIZED MAJESTIC KURIES & LOANS 18 000 CHIT SUBSCRIPTION -NON PRIZED POWERLINK TECHNOLOGIES 832 CHIT SUBSCRIPTION -NON PRIZED VENPAKAL ADVERTISERS 20 495 ADVANCE FOR ADVERTISEMENT THRISSIVA KURIES & LOANS 8 750 CHIT SUBSCRIPTION -NON PRIZED VENAD CHITS & KURIES 12 250 CHIT SUBSCRIPTION -NON PRIZED SALES TAX ADVANCE 50 000 ADVANCE SALES TAX FOR MARCH 2000 REMITTED TOTAL 13 40 476 THIS WILL GO TO SHOW ON A PERUSAL OF LOANS AND ADV ANCES AS PER THE BALANCE SHEET MAINTAINED BY ALAPATT JEWELLE RS KOLLAM THESE WERE BUSINESS PURPOSE ADVANCES AND NO THING HAS BEEN SHOWN AS NON BUSINESS INVESTMENT SO F AR AS THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 15 AMOUNT OF RS.48 940/- IS CONCERNED WHICH IS RELAT ING TO ANOTHER DISALLOWANCE OF INTEREST IN THE CASE OF ALA PATT JEWELLERS KOLLAM. 11. TURNING BACK TO THE HUGE DISALLOWANCE OF RS.10 92 615/- THE EXPLANATION OF THE ASSESSEE THA T THE INDIVIDUAL RETURN FILED BY MARY SUNNY WAS ACCEPTED BY THE DEPARTMENT AND THE ASSESSMENT IS COMPLETED FOR THE ASSESSMENT YEAR 1999-2000. DURING THAT YEAR ALSO THE LOAN BALANCE WAS TRANSFERRED AND INCLUDED IN MARY S UNNYS CAPITAL ACCOUNT AS ON 31-3-1999. THERE WAS NO DISA LLOWANCE OF INTEREST FOR THAT YEAR WHEN THE LOAN FROM MUTHOO T BANKERS KOLLAM WAS TAKEN AND UTILIZED AND REPAYMEN T STARTED OUT OF THE BUSINESS FUNDS. THIS CONSISTEN CY WHICH THE ASSESSEE FOLLOWS WILL GO TO SHOW THAT THERE IS NO DIVERSION ACTUALLY. IT IS A CONSISTENCE TO THE BU SINESS FOR THE PURPOSE OF RUNNING THE BUSINESS SMOOTHLY. WHE N THE SAID LOAN FROM MUTHOOT BANKERS WAS TAKEN AND UTILIZ ED FROM THE HANDS OF MARY SUNNY BY THE ASSESSEE AND THE REP AYMENT STARTED OUT OF BUSINESS FUNDS THERE IS NO PERSONAL ELEMENT INVOLVED WHICH ATTRACTS DISALLOWANCE. FURTHER TH E LOAN WAS RECEIVED IN THE PRECEDING YEAR ONLY AND IT WAS UTIL IZED ONLY FOR THE PURCHASE OF STOCK OF GOODS. THIS POINT WA S NEVER ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 16 CONTRADICTED BY THE DEPARTMENT AND THE FINDING IS A FINDING OF FACT THAT THIS WAS USED FOR THE PURCHASE OF STOC K OF GOODS. IN OTHER WORDS THE CHARACTER OF LOAN IS NOT CHANGE D FOR THE PRESENT ASSESSMENT YEAR. UNDER THE CIRCUMSTANCES WHEN THERE IS NO CHANGE IN FACT CIRCUMSTANCES AND IN TH E NATURE IT IS CLEARLY ESTABLISHED THAT THIS WAS UTILIZED ON LY FOR THE PURPOSE OF BUSINESS. HENCE THE DISALLOWANCE OF T HIS INTEREST PAID TO MUTHOOT BANKERS IS NOT JUSTIFIED. ACCORDINGLY WE AGREE WITH THE FINDINGS OF THE LD. CIT(APPEALS) WHICH REQUIRES NO INTERFERENCE. 12. THE LAST ISSUE FOR OUR CONSIDERATION IN THIS AP PEAL IS IN RESPECT OF DELETING THE DISALLOWANCE OF INTEREST AM OUNTING TO RS.8 33 694/-. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD TAKEN INTEREST BEARING LOAN TO THE TUN E OF RS.1 81 34 636/-. OUT OF THIS AN AMOUNT OF RS.1 73 49 931/- HAS BEEN ADVANCED INTEREST FREE LOANS TO NEAR RELAT IVES OR SISTER CONCERNS AND FOR INVESTMENT IN SHARES. TOT AL INTEREST PAID DURING THE BROKEN PERIOD BETWEEN 24-12-1999 TO 31-3- 2000 WAS RS.8 85 817/-. THEREFORE THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST CORRESPONDING TO DIVERSION TOWARDS PERSONAL EXPENDITURE ETC. AMOUNTI NG TO RS.8 33 694/-. IN APPEAL THE LD. COUNSEL FOR THE ASSESSEE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 17 CONTENDED THAT THE ADVANCES AND INVESTMENT MADE INC LUDE AN AMOUNT OF RS.10 66 000/- WHICH ARE FOR BUSINESS PURPOSES AND THAT ADVANCE TO MARY SUNNY INCLUDE INVESTMENT IN THE CAPITAL OF ALAPATT JEWELERS KOLL AM TO THE EXTENT OF RS.64 94 534/- WHICH IS BUSINESS INVESTME NT THE INCOME OF WHICH IS ASSESSED IN THE HANDS OF THE ASS ESSEE AND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED T HE NON- INTEREST BEARING FUNDS RECEIVED IN ALAPATT SILKS F ROM ALAPATT JEWELERS TRIVANDRUM AMOUNTING TO RS.4 40 000/- AND FROM ALAPATT JEWELERS KOLLAM RS.9 70 000/-. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER HAS NOT CONSI DERED THE FACT THAT THE CAPITAL ACCOUNT OF THE ASSESSEE IN AL APATT SILKS AS ON 31-3-2000 IS HAVING A CREDIT BALANCE OF RS.1 11 81 884/- AND THEREFORE THERE WAS NO DIVERSI ON OF INTEREST BEARING FUNDS AS ALLEGED BY THE ASSESSING OFFICER. THE LD. CIT(APPEALS) ON A DETAILED PERUSAL OF THE A CCOUNTS FOUND THAT THE SUBMISSIONS MADE BY THE ASSESSEE IS CORRECT AND ACCORDINGLY DELETED THE DISALLOWANCE OF INTERES T OF RS.8 33 694/-. HENCE THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. 12.1. THE LD. SR.DR SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER ON THIS ISSUE. THE LD. FIRST APP ELLATE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 18 AUTHORITY FAILED TO NOTE THAT THE ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT ORDER THAT OUT OF THE LO AN AMOUNT OF RS.1 81 34 636/- A SUM OF RS.1 73 49 931 /- HAS BEEN GIVEN AS INTEREST FREE LOAN TO NEAR RELATIVES AND SISTER CONCERNS AND FOR INVESTMENT IN SHARES AND THAT THE DISALLOWANCE IS OUT OF THE INTEREST FOR THE PERIOD 24-12-1999 TO 31-03-2000. HENCE THE FINDING OF THE CIT(APPE ALS) DESERVES TO BE SET ASIDE THAT THAT OF THE ASSESSING OFFICER MAY BE UPHELD. 12.2 ON BEHALF OF THE ASSESSEE THE LD. COUNSEL SUBMITTED THAT THE ACTION OF THE ASSESSING OFFICER IS BASED ON THE GROUND THAT OUT OF INTEREST BEARING FUNDS O F RS.1 81 34 636/- THE ASSESSEE HAS DIVERTED RS.1 73 49 931/- AS INTEREST FREE ADVANCES TO NEAR RELATIVES OR SIST ER CONCERNS AND FOR INVESTMENT IN SHARES. HOWEVER IN THE ASS ESSMENT ORDER THE ASSESSING OFFICER HAS NOT GIVEN ANY DETA ILS FOR CALCULATING THE PROPORTIONATE DISALLOWANCE OF INTER EST BUT INVESTMENT AND ADVANCES WERE CONSIDERED IN THE ASSESSMENT. THE LD. FIRST APPELLATE AUTHORITY AFTE R CONSIDERING THE FACTS OF THE CASE AND ACCOUNTS OF T HE ASSESSEE AS NOTED IN THE APPELLATE ORDER RIGHTLY HELD THAT THE FINDING OF THE ASSESSING OFFICER THAT THERE IS DIVERSION ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 19 FROM INTEREST BEARING FUNDS IMPROPER. HENCE DELE TED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF RS.8 33 694/-. HENCE THE FINDINGS OF THE LD. CIT (APPEALS) DESERVES TO BE UPHELD. 12.3 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFIC ER DISALLOWED INTEREST EXPENDITURE AMOUNTING TO RS.8 3 3 694/- ON THE GROUND THAT OUT OF INTEREST BEARING FUNDS OF RS.1 81 34 636/- THE ASSESSEE HAS DIVERTED RS.1 73 49 931/- AS INTEREST FREE ADVANCES TO NEAR RELATIVES OR SIST ER CONCERNS AND FOR INVESTMENT IN SHARES. HOWEVER THE CIT(APP EALS) FOUND THAT WHEN THERE IS NO DIVERSION OF FUNDS PART ICULARLY WHILE GRANTING INTEREST FREE LOAN TO NEAR RELATIVE AND SISTER CONCERNS. ON A CONSIDERATION OF RIVAL SUBMISSIONS THAT6 MAJORITY OF THE AMOUNT OF INTEREST BEARING FUNDS HA S BEEN DIVERTED AS INTEREST FREE ADVANCES TO NEAR RELATIVE OR SISTER CONCERNS WHERE AS THE LD. CIT(APPEALS) FOUND THAT CONSIDERING THE FACTS AND ON PERUSAL OF THE ACCOUNT S OF THE ASSESSEE THAT THERE IS NO DIVERSION OF INTEREST BEA RING FUNDS AND BASED ON THAT OBSERVATION THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER T O THE EXTENT OF RS.8 33 694/-. THE LD. COUNSEL RELIED O N THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 20 DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF TIN BOX - 260 ITR 637 WHEREIN IT HAS BEEN HELD THAT SINCE CAPITAL AND INTEREST FREE UNSECURED LOAN WITH THE A SSESSEE FAR EXCEEDED THE AMOUNT ADVANCED TO THE SISTER CONC ERNS IN ALL THE YEARS DISALLOWANCE OF PART OF THE TOTAL IN TEREST PAID BY THE ASSESSEE TO THE BANK IS NOT JUSTIFIED. A P ERUSAL OF THE ACCOUNT BOOKS INCLUDING THE DETAILS OF PARTICUL ARS FILED AND AS PER THE INVESTMENTS AVAILABLE IN THE BALANCE SHEET AND AS PER THE LOANS AND ADVANCE PARTICULARS IN THE BALANCE- SHEET THERE IS A FINDING OF FINDING OF FACT BY THE LD. CIT(APPEALS) THAT THE TOTAL NON-INTEREST BEARING FU NDS AVAILABLE WERE MORE THAN RS.1.25 CRORES. WHEN TH AT BEING THE CASE I.E. THE NON-INTEREST BEARING FUNDS WERE AVAILABLE WHICH THE LD. CIT(APPEALS) ARRIVED BY WAY OF FINDIN G OF FACT DIVERSION CANNOT BE SAID THAT IT RELATES TO INTERES T BEARING FUNDS. WHEN THE INTEREST BEARING FUNDS AND NON I NTEREST BEARING FUNDS WERE KEPT IN A COMMON POOL UNLESS IT IS PIN POINTED BY THE DEPARTMENT THAT PARTICULARLY THE INT EREST BEARING FUNDS ALONE WERE DIVERTED TO THE SISTER CON CERNS AS INTEREST FREE LOANS THEN ONLY THE DISALLOWANCE IS J USTIFIED. THIS WAS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VEECUMSEES VS. CIT (1996) 220 ITR 185 . FURTHER IN THE DECISIONS OF THE HONBLE SUPREME CO URT IN THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 21 CASE OF MUNJAL SALES CORPORATION - 298 ITR 298 AND IN THE CASE OF SA BUILDERS 288 ITR 01 IT HAS BEEN HELD THAT WHEN THERE IS A COMMERCIAL EXPEDIENCY FOR ADVANCING SUCH LOANS IT IS PRUDENT DECISION OF THE BUSINESSMAN LIKE THE ASSESSEE TO DECIDE AND THE DEPARTMENT CANNOT BE SIT IN THE A RM CHAIR OF THE ASSESSEE AND DIRECT TO DO THE BUSINESS IN A PARTICULAR WAY IS TOTALLY UNJUSTIFIED. ON THE ABOVE FACTS AND CIRCUMSTANCES WE SEE NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPEALS). ACCORDINGLY WE UPH OLD THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE. 13. ITA NO.1092/COCH/2004 A.Y.2001-02: IN THIS APPEAL THE ISSUES FOR OUR CONSIDERATION IS IN RESP ECT OF DELETION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.1 96 334/- PAID TO M/S. MUTHOOT BANKERS KOLLAM HOLDING THAT IT WAS BUSINESS EXPENDITURE AND (II) DELETION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.23 84 845/ - BEING PROPORTIONATE INTEREST FOR THE DIVERSION OF INTERES T BEARING FUNDS FOR NON BUSINESS PURPOSES. 13.1 WHILE FRAMING THE ASSESSMENT ASSESSING OFFIC ER DISALLOWED INTEREST PAID TO MUTHOOT BANKERS KOLLAM AMOUNTING TO RS.1 96 334/- FOR THE REASON THAT THE ASSESSEE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 22 HAS TRANSFERRED THE BALANCE IN LOAN ACCOUNT OF MUTH OOT BANKERS TO THE CAPITAL ACCOUNT OF MARY SUNNY AND T HAT THE ENTIRE AMOUNT WAS WITHDRAWN AND APPROPRIATED FOR PE RSONAL USE. THE FIRST APPELLATE AUTHORITY ON SCRUTINY OF ACCOUNTS OF MUTHOOT BANKERS KOLLAM ALAPATT JEWELERS KOLLAM SMT. MARY SUNNY AND THAT OF THE ASSESSEE FOUND THAT AS O N 31- 03-1999 ALSO THE BALANCE OF LOAN ACCOUNT OF MUTHOO T BANKERS WAS TRANSFERRED TO MARY SUNNYS CAPITAL ACC OUNT. DURING THE YEAR UNDER CONSIDERATION THERE WAS ONLY REPAYMENT OF THIS LOAN FROM ALAPATT JEWELERS KOLLA M. NO DISALLOWANCE WAS MADE IN THE BLOCK ASSESSMENT. THE CHARACTER OF THE LOAN ACCOUNT WILL NOT CHANGE MEREL Y BECAUSE THE LOAN ACCOUNT BALANCE WAS TRANSFERRED TO THE CAP ITAL ACCOUNT IN THE YEAR END ALSO SINCE THE LOAN FROM MU THOOT BANKERS WAS UTILIZED FOR THE BUSINESS PURPOSE OF AL APATT JEWELLERS KOLLAM. THE INTEREST ON SUCH LOAN COULD NOT BE TREATED AS PERSONAL EXPENDITURE. IN THIS VIEW OF THEE MATTER THE CIT(APPEALS) HELD THAT THE ENTIRE INTER EST PAID TO MUTHOOT BANKERS KOLLAM DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 AMOUNTING TO RS.1 96 334/- SHOULD BE TREATED AS BUSINESS EXPENDITURE. AGAINST THIS FINDING OF THE LD. CIT(APPEALS) THE DEPARTMENT IS IN APPEAL B EFORE THE TRIBUNAL. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 23 13.2 WE HAVE CONSIDERED THE VERY SAME ISSUE IN ITA NO.1091/COCH/2004 FOR THE ASSESSMENT YEAR 2000-01 A ND GIVEN A FINDING AT PARA.11 PAGE 15 OF THIS ORDER. THERE IS NO DISPUTE THAT THE FACTS AND CIRCUMSTANCES ARE IDE NTICAL AND SIMILAR. THEREFORE WE ADOPT THE SAME REASONING HE RE ALSO AND GIVE SIMILAR FINDING. ACCORDINGLY WE CONFIRM THE FINDING OF THE LD. CIT(APPEALS) ON THIS POINT AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 14. THE OTHER ISSUE IS IN RESPECT OF DELETION OF DI SALLOWANCE OF INTEREST AMOUNTING TO RS.23 84 845/- BEING PROPO RTIONATE INTEREST FOR THE DIVERSION OF INTEREST BEARING FUND S FOR NON BUSINESS PURPOSES. THE ASSESSING OFFICER DISALLOWE D THIS SUM FROM THE INTEREST EXPENDITURE CLAIMED IN ALAPA TT SILKS TRIVANDRUM ON THE GROUND THAT OUT OF INTEREST BEARI NG FUNDS OF RS.11 96 65 185/- ASSESSEE DIVERTED RS.1 44 39 424/- AS INTEREST FREE ADVANCES TO NEAR RELATIVES AND SISTER CONCERNS AND FOR INVESTMENT IN SHARES. SIMILAR DISALLOWANCE WAS MADE FOR THE PRECEDING ASSESSMENT YEAR. THE LD. CIT(APPEALS) CONSIDERING THE ISSUE AT LENGTH AS DE TAILED IN THE APPELLATE ORDER FOUND THAT AS AGAINST THE DEBI T BALANCE IN NON-BUSINESS ADVANCES AND INVESTMENT OF RS.61 88 890/- ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 24 THE ASSESSEE HAD NON-INTEREST BEARING FUNDS TOTALIN G TO RS.81 82 658.29 AS ON 31-3-2001. THEREFORE THE CIT(APPEALS) HELD THAT THE ACTION OF THE ASSESSING OFFICER IS UNWARRANTED AND THUS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE THE REVENUE IS ON APPEAL BEFORE THE TRIBUNAL. 15. WE HEARD RIVAL SUBMISSIONS. WE FIND THAT THE VERY SAME ISSUE HAS CONSIDERED BY US IN PARA 12.3 AT PAG ES 19 TO 21 OF THIS ORDER IN AN ELABORATIVE MANNER AND CAME TO THE CONCLUSION THAT THE LD. CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. THE FACTS OF THE CASE ARE SIMILAR AND IDENTICAL. THEREFORE FOR THE REASONS MENTIONED THEREIN WE CONFIRM THE FINDINGS OF THE LD. CIT(APPEALS) AND DECIDE THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 16. ITA NO.140/COCH/2005 A.Y.2000-01 : IN THIS APPEAL THE GRIEVANCE OF THE REVENUE IS THAT THE CIT (APPEALS) ERRED IN REDUCING THE GP RATE FROM 13.28% TO 9.83% IN THE CASE OF ALAPPAT JEWELLERS KOLLAM BY INVOKING SECTI ON 154 OF THE I.T.ACT. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 25 16.1 THE FACTS OF THE CASE IN BRIEF ARE THAT T HE ASSESSEE FILED A PETITION BEFORE THE LD. CIT(APPEALS) STATIN G THAT A MISTAKE HAS BEEN CREPT IN THE APPELLATE ORDER DATE D 5-7- 2004 AGAINST THE ASSESSMENT ORDER DATED 31-3-2003 INASMUCH AS FOR FIXING THE INCOME FROM ALAPATT JEW ELLERS KOLLAM THE ASSESSING OFFICER HAD ADOPTED G.P. @ 13 .28% AS DECLARED BY THE ASSESSEE IN THE ACCOUNTS FOR THE YE AR BUT THE GP AS PER THE ACCOUNTS WAS ONLY 9.83%. WHILE DECID ING THE INCOME FROM ALAPATT JEWELERS KOLLAM CIT(APPEALS) GAVE A DIRECTION TO THE ASSESSING OFFICER TO ADOPT THE GP @ 13.28% AS PER THE ASSESSMENT ORDER. THIS IS A MISTAKE AP PARENT FROM RECORD. AT THE TIME OF HEARING THE CIT(APP EALS) FILED A COPY OF AUDITED PROFIT AND LOSS ACCOUNT OF ALAPAT T JEWELERS KOLLAM FOR THE YEAR ENDED 31-3-2000 AND T HUS SUBSTANTIATED ITS CLAIM. THE LD. CIT(APPEALS) ACC EPTED THE SUBMISSIONS OF THE ASSESSEE AND GELD THAT GP @ 9.83 % MAY BE SUBSTITUTED IN PLACE OF 13.28% WHILE ESTIMATING THE INCOME FROM ALAPATT JEWELERS KOLLAM. AGAINST THIS MODIFICATION REVENUE IS IN APPEAL. 16.2 WE HAVE CONSIDERED RIVAL SUBMISSIONS. IN TH IS APPEAL THIS IS THE ONLY GROUND URGED BY THE REVENUE . THE LD. CIT(APPEALS) REDUCED THE GP RATE FROM 13.28% TO 9.83% ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 26 IN THE CASE OF ALAPATT JEWELLERS KOLLAM. IT IS A FACT THAT THE CORRECT GP AS PER THE ACCOUNTS ONLY 9.83%. TH EREFORE ASSESSEE MOVED A PETITION BEFORE THE LD. CIT(APPEAL S) FOR CORRECTING THE MISTAKE. THE LD. CIT(APPEALS) EARLI ER DIRECTED THE ASSESSING OFFICER TOP ADOPT THE GP OF ALAPATT J EWELLERS KOLLAM AT 13.28% VIDE HIS ORIGINAL ORDER DATED 05- 07-2004 AFTER CONSIDERING THE PETITION FOR CORRECTION AND A DOPTION OF CORRECT RATE OF GP THE LD. CIT(APPEALS) VIDE HIS O RDER DATED 18-10-2004 FOUND THAT THE CORRECT RATE OF GP AS PER THE ACCOUNTS IS 9.83% ONLY. THEREFORE THE LD. CIT(AP PEALS) DIRECTED THE ASSESSING OFFICER TO ADOPT THE GP AT 9 .83% INSTEAD OF 13.28%. THE GRIEVANCE OF THE DEPARTMEN T BEFORE US IS THAT THERE IS NO MISTAKE APPARENT FROM RECORD AND THEREFORE THE ORDER PASSED BY THE LD. CIT(APPEALS) U/S.1154 IS WITHOUT JURISDICTION. 16.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE A RE OF THE VIEW THAT THIS DEPARTMENTAL APPEAL WILL NOT STA ND TO TEST. IT IS THE ADMISSION OF THE ASSESSING OFFICER IN HIS ORDER GIVING EFFECT TO THE ORDER OF THE CIT(APPEALS) THAT THERE ARE NO UNACCOUNTED SALES DURING THE PERIOD 24-12-1999 T O 31-3- 2000. THE REMAINING SCOPE FOR ESTIMATION OF SALES WOULD BE AVAILABLE ON THE ESTIMATION OF SALES WHICH REQUIRES ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 27 APPLICATION OF GP RATE ON ESTIMATED SALES. IN THE ASSESSMENT ORDER ITSELF THE ASSESSING OFFICER IS AD MITTING THAT HE IS APPLYING GP AS PER THE ACCOUNTS BUT WHIL E APPLYING THAT HE HAS ADOPTED A HIGHER RATE WHERE AS PER THE ACCOUNTS INCLUDING TRADING PROFIT & LOSS ACCOUNT AND BALANC E-SHEET OF ALAPATT JEWELLERS KOLLAM COPY OF WHICH IS ENCL OSED FOR PERUSAL THE FINDING OF THE LD. CIT(APPEALS) THAT T HE CORRECT RATE OF GP IS 9.83% COULD NOT BE CONTROVERTED BY TH E DEPARTMENT BEFORE US. UNDER THE ABOVE FACTS AND CIRCUMSTANCES WE AGREE WITH THE FINDINGS OF THE LD . CIT(APPEALS). THEREFORE THIS APPEAL OF THE REVEN UE IS LIABLE TO BE DISMISSED AND ACCORDINGLY DISMISSED. 17. ITA NOS:902/COCH/2004 A.Y.2000-01: THE ONLY GROUND IS IN RESPECT OF ESTIMATING THE UNACCOUNTED SALES FOR THE PERIOD 24-12-1999 TO 31-3-2000 AND REGARDING S ALES SUPPRESSION. 17.1 THE ASSESSING OFFICER REJECTED THE BOOK RESU LTS OF M/S. ALAPATT JEWELERS KOLLAM AND ESTIMATED THE BUSINES S INCOME THEREFROM. THE REASON FOR SUCH ESTIMATION IS THAT THE ASSESSEE WAS NOT ISSUING PROPER BILLS FOR ALL THE S ALES ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 28 EFFECTED IN THE SHOP. ONLY SMALL PERCENTAGE OF SAL ES WAS BEING ACCOUNTED. ESTIMATES IN LIEU OF SALE BILLS ALONE WERE BEING ISSUED TO CUSTOMERS. STATEMENTS OF THE EMPL OYEES OF THE ASSESSEE AND THE CUSTOMERS ON 23-12-1999 WHO W ERE AVAILABLE AT THE TIME OF SEARCH WAS TAKEN FOR THIS ESTIMATION. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE WA S CONTINUING THIS PRACTICE ISSUING ESTIMATION BILLS IN LIEU OF SALE BILLS WHICH NEVER FOUND PLACE IN THE REGULAR BOOKS OF ACCOUNTS. SINCE SUCH SALES DO NOT GO INTO THE REGU LAR ACCOUNTS SUCH SALES WERE ESTIMATED. THE CIT(APPE ALS) OBSERVED THAT THE UNDISCLOSED INCOME FOR THE PERIOD 1-4- 1999 TO 23-12-1999 COMPRISED IN THE PREVIOUS YEAR R ELEVANT TO THIS ASSESSMENT YEAR WAS FIXED IN HIS APPELLATE ORDER DATED 24-3-2004 AND DIRECTED TO ESTIMATE BY MULTIPL YING THE ACTUAL SALES SUPPRESSION FOUND OUT BY A FACTOR IN P ROPORTION TO THE ACTUAL NUMBER OF DAYS OF THE PERIOD COVERED AND GROSS PROFIT WAS DIRECTED TO BE ADOPTED AT THE RATE AS PE R ACCOUNTS FOR THE RELEVANT PERIOD. THE PERIOD 24-12-1999 TO 31-3- 2000 IS ALSO COMPRISED TO THE ASSESSMENT YEAR 2000- 01. THE LD. CIT(APPEALS) WAS OF THE VIEW THAT CONSIDERI NG THE IRREGULARITIES POINTED OUT THE ESTIMATION OF SALES BY THE RUNNING STOCK MULTIPLICATION METHOD IS NOT PROPER A ND HIGHLY EXCESSIVE. THEREFORE THE CIT(APPEALS) DIRECTED TH E ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 29 ASSESSING OFFICER TO ESTIMATE THE UNACCOUNTED SALES FOR THE PERIOD 24-12-1999 TO 31-3-2000 BY MULTIPLYING THE A CTUAL SALES SUPPRESSION FOUND FOR THAT PERIOD BY THE FACT OR VIZ 365 NO. OF WORKING DAYS IN THE PERIOD 24-12-1999 TO 31-3-2000 ACCORDING TO THE CIT(APPEALS) ON THE ABOVE BASIS T HE SALES SUPPRESSION HAS TO BE WORKED OUT AND THE SAME SHOUL D BE ADDED TO THE TOTAL SALES FOR THE WHOLE YEAR AS PER ACCOUNTS. FROM THIS AMOUNT GP @ 13.28% AS ADOPTED IN THE ASSESSMENT ORDER SHOULD BE COMPUTED AND AFTER MAKIN G DEDUCTIONS AND ADJUSTMENTS FOR EXPENSES AS CLAIMED THE NET INCOME SHOULD BE DETERMINED AND PASS A SPEAKING ORD ER GIVING EFFECT TO THE APPELLATE ORDER CONTAINING THE DETAILS OF SALES SUPPRESSION DETECTED FOR THE PERIOD 24-12-199 9 TO 31- 3-2000. AGAINST THIS FINDING OF THE LD. CIT(APPEA LS) THE ASSESSEE IS ON APPEAL BEFORE THE TRIBUNAL. 17.2 THE LD. COUNSEL FOR THE ASSESSEE CONTENDED TH AT THE FIRST APPELLATE AUTHORITY IS NOT JUSTIFIED TO E STIMATE THE UNACCOUNTED SALES FOR THE PERIOD FROM 24-12-1999 TO 31-3- 2000 WITHOUT ANY SALES SUPPRESSION ESPECIALLY NO S ALES SUPPRESSION WAS POINTED OUT BY THE ASSESSING OFFICE R. IN THE ABSENCE OF THE EVIDENCE OF SALES SUPPRESSION DU RING THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 30 PERIOD IT IS CORRECT ON THE PART OF THE CIT(APPEAL S) TO DIRECT THE ASSESSING OFFICER TO ESTIMATE THE SALES SUPPRES SION. 17.3 THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 17.4 WE HAVE HEARD THE PARTIES TO THE DISPUTE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ON A PERUSAL OF THE RECORDS IT IS CRYSTAL CLEAR THAT THE ASSESSING OFFICER HIMSELF HAS ADOPTED IN HIS ORDER GIVING EFFECT TO T HE ORDER OF THE CIT(APPEALS) THAT THERE ARE NO UNACCOUNTED SALE S DURING THE PERIOD 24-12-1999 TO 31-3-2000. WHEN THAT BEI NG THE CASE AND WHEN NO SALES SUPPRESSION WAS POINTED OUT BY THE ASSESSING OFFICER AND THERE IS NO EVIDENCE SUGGESTI NG SALE SUPPRESSION DURING THE PERIOD THE LD. CIT(APPEALS) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO EST IMATE THE SALE SUPPRESSION BY ADOPTING THE GP RATE AS DISCUSS ED BY HIM INCLUDING IN THE RECTIFICATION PETITION. HENCE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A PPEALS). THEREFORE THIS ISSUE IS DECIDED AGAINST THE REVENU E AND IN FAVOUR OF THE ASSESSEE. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 31 18. ITA NO.903/COCH/2004 A.Y.2001-02 : IN THIS CASE THE ONLY ISSUE FOR OUR CONSIDERATION IS IN RE SPECT OF ESTIMATION OF SALES AND THEREBY THE PROFIT. HERE A LSO ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE US ED TO ISSUE ESTIMATE SLIP IN LIEU OF SALES BILLS AS IN T HE EARLIER YEARS AND THEREBY THERE WAS SUPPRESSION OF SALES. THIS BEING THE POSITION ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS OF ALAPATT JEWELERS KOLLAM AND ESTIMATED INCOME THEREFROM. ACCORDINGLY ASSESSING OFFICER ESTIMA TED GP @ 18% AND ADDED THE SAME TO THE TOTAL INCOME AS AGAIN ST 10.31% DECLARED BY THE ASSESSEE. IN APPEAL THE L D. CIT(APPEALS) HELD THAT CONSIDERING THE IRREGULARITI ES POINTED OUT BY THE ASSESSING OFFICER ESTIMATION OF SALES F OR THE YEAR IS WARRANTED AND ACCORDINGLY UPHELD THE GP ESTIMATI ON @ 18% WHICH IS THE NORMAL RATE IN THIS LINE OF BUSIN ESS. HENCE THE ASSESSEE IS ON SECOND APPEAL BEFORE THE TRIBUNAL. 18.1 THE LD. COUNSEL FOR THE ASSESSEE CONTENDED T HAT NO SPECIFIC INSTANCES OF SALES SUPPRESSION SUPPORTED B Y MATERIAL AND CONCLUSIVE EVIDENCE ARE POINTED OUT IN THE ASSE SSMENT WARRANTING SUCH AN ESTIMATION OF THE SALES FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICERS APPRO ACH THAT THE ASSESSEE SHOULD PROVE THAT HE HAS NOT MADE ANY ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 32 SUPPRESSION OF SALES IS NOT LEGALLY SUSTAINABLE. T HE GP RATE SHOWN BY THE ASSESSEE IS AS PER ACCOUNTS. WITHOUT ANY VALID REASON THE ASSESSING OFFICER ADOPTED GP @ 18 %. THE LD. COUNSEL FURTHER SUBMITTED THAT SIMILAR ISSUE WA S CONSIDERED BY THE TRIBUNAL IN THE CASE OF ASSESSEE S FATHER LATE PP JOSE IN ITA NO.983/COCH/2004 AND THE TRIBUN AL VIDE ITS ORDER DATED 22-09-2006 DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE AND DISMISSED THE DEPARTMENTS APPEAL HOLDING THAT WHEN THERE ARE NO EVIDENCES FOR ANY UNACCOUNT ED SALE DURING THE PERIOD UNDER CONSIDER WE DO NOT FIND AN Y REASON FOR MAKING ANY ASSESSMENT ON SUCH NON-EXISTING UNACCOUNTED SALES. THUS THE LD. COUNSEL FOR THE ASSESSEE URGED US TO DECIDE THE ISSUE IN FAFOUR OF THE ASSES SEE. THE LD. D.R. SUPPORTED THE ORDERS OF THE LOWER AUTHORIT IES. 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. AGAIN THIS IS A CA SE OF ESTIMATE OF INCOME FROM ALAPATT JEWELLERS KOLLAM. SMT. MARY SUNNY WIFE OF THE ASSESSEE IS THE PROPRIETRES S OF ALAPATT JEWELLERS KOLLAMA. THIS WAS CLUBBED IN T HE HANDS OF THE ASSESSEE U/S.64(1). AFTER CONSIDERING THE R IVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE DECISION O F THE COCHIN BENCH IN ITA NO.983/COCH/2004 DATED 22-09-20 06 IN ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 33 THE CASE OF SHRI PP JOSE (DECD.) WHICH WE HAVE REF ERRED EARLIER IS SQUARELY APPLICABLE. IN THAT CASE IT HAS BEEN HELD THAT WHEN THERE ARE NO EVIDENCES FOR ANY UNACCOUNTED SA LE DURING THE PERIOD UNDER CONSIDER WE DO NOT FIND AN Y REASON FOR MAKING ANY ASSESSMENT ON SUCH NON-EXISTING UNACCOUNTED SALES. IN OTHER WORDS AS OBSERVED BY THE TRIBUNAL WE MAY MENTION THAT THERE CANNOT BE ANY A DDITION ON VACUUM. THEREFORE FOLLOWING THE AFORESAID DECI SION OF COCHIN BENCH WE SET ASIDE THE ORDERS OF THE AUTHOR ITIES BELOW AND ALLOW THE APPEAL OF THE ASSESSEE THE ASSE SSMENT YEAR 2001-02 CAPTIONED ITA NO.903/COCH/2004. 20. NOW WE SHALL TAKE UP THE APPEALS IN ITA NOS.137 138 139 & 835/COCH/2008 PERTAINING TO THE ASSESSMENT YEARS 2002-03 2003-04 2004-05 AND 2005 -06 RESPECTIVELY. 20.1 THE FIRST ISSUE IN ITA NO.137 138 & 139/COCH/2008 RELATE TO THE DELETION OF ADDITION ON ACCOUNT OF SUPPRESSION OF SALES. ACCORDING TO THE ASSESSI NG OFFICER DURING THE COURSE OF SEARCH AND POST SEARCH ENQUIRI ES REVEALED SUPPRESSION OF SALES. ACCORDING TO THE AS SESSING OFFICER THE ASSESSEE USED TO ISSUE ESTIMATE IN LIE U OF SALES ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 34 AND NOT ACCOUNTED THOSE SALES IN THE REGULAR BOOKS OF ACCOUNTS. THE STAND OF THE ASSESSEE IS THAT THERE WAS NO SALE BUT ESTIMATE OF THE APPROXIMATE PRICE WAS ISSU ED AT THE REQUEST OF THE CUSTOMERS AND THUS THERE WERE NO ACT UAL SALES. HOWEVER ASSESSING OFFICER REJECTED THE A RGUMENTS OF THE ASSESSEE AND ESTIMATED THE SALES FIGURE BY A DDING 15% OF THE SALES TURNOVER RETURNED BY THE ASSESSEE AND GP WAS TAKEN AT 18%. 20.2 BEFORE THE CIT(APPEALS) THE LD. COUNSEL FOR THEE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSING OFFICE R HAS MADE SOME OBSERVATIONS REGARDING POST SEARCH ENQUIR IES CONDUCTED THE DETAILS OF EVIDENCES GATHERED ON SUC H ENQUIRY REGARDING THE SUPPRESSION OF SALES HAVE NOT BEEN GI VEN AND THIS SHOWS THAT IT WAS THE PRESUMPTION AND ASSUMPTI ON OF THE ASSESSING OFFICER THAT THERE WERE UNACCOUNTED S ALES. WHEN THERE WAS NO IOTA OF EVIDENCE TO SUPPORT THE A LLEGED UNACCOUNTED SALES THE ASSESSING OFFICER WAS NOT JU STIFIED IN RESORTING TO ESTATE THE SALES AND COMPUTING THE BUS INESS INCOME FROM SUCH ESTIMATED SALES. IT WAS FURTHER SUBMITTED THAT FOR THE ASSESSMENT YEAR 2000-01 SIMILAR ESTI MATION WAS MADE FOR THE SALES FOR THE BROKEN PERIOD 24-12- 1999 TO 31-3-2000 OF ALAPATT JEWELERS KOLLAM (AFTER THE DA TE OF ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 35 SEARCH ON 23-12-2000) AND IN APPEAL THE LD. CIT(APP EALS) VIDE HIS ORDER DATED 5-7-2004 DIRECTED THE ASSESSIN G OFFICER TO ADD THE ACTUAL SALES SUPPRESSION DETECTED FOR TH E PERIOD 24-12-1999 TO 31-3-2000 TO THE RETURNED SALES. WH ILE GIVING EFFECT TO THE ABOVE APPELLATE ORDER THE ASS ESSING OFFICER VIDE HIS ORDER DATED 227-08-2004 HAS SPECIF ICALLY STATED THAT THE ACTUAL SALES SUPPRESSION DURING THE PERIOD 24-12-1999 TO 31-3-2000 WAS NIL. IT WAS THE SUBMI SSION OF THE LD. COUNSEL THAT ON THE VERY SAME REASONS T HE ESTIMATION WAS MADE FOR THESE YEARS ALSO. 20.3 THE LD. CIT(APPEALS) DISCUSSING THE ISSUE AT LENGTH WAS OF THE VIEW THAT IN THESE YEARS THE ASSESSING OFFICER HAS FAILED TO PROVE THE ALLEGATIONS WITH DOCUMENTAR Y EVIDENCES. THE ASSESSING OFFICER HAS EVIDENCES TO PROVE THAT THE INGREDIENTS OF THE TRADING ACCOUNT VIZ. OP ENING STOCK PURCHASES SALES AND CLOSING STOCK ARE INCOR RECT. IN THE PRESENT CASE TRADE RESULTS ARE SUPPORTED BY SA LE AND PURCHASE BILLS WHICH WERE RECORDED IN THE BOOKS OF ACCOUNTS MAINTAINED IN THE REGULAR COURSE OF BUSINESS. THE ALLEGATION OF SALE SUPPRESSION HAS NOT BEEN SUBSTANTIATED BY G IVING DETAILS OF THE CUSTOMERS QUANTUM OF SUCH UNACCOUNT ED SALES DATES OF SUCH TRANSACTIONS ETC. NO SHOW CAUS E LETTER ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 36 SHOWING THE DETAILS OF IRREGULARITIES AND EVIDENCES OF SALES SUPPRESSION RECEIVED AND RELIED BY THE ASSESSING OF FICER AS A RESULT OF POST SEARCH ENQUIRIES WAS BROUGHT TO THE NOTICE OF THE ASSESSEE FOR HIS OBJECTIONS. IN VIEW OF THE A BOVE POSITION THE LD. CIT(APPEALS) DIRECTED THE ASSESSI NG OFFICER TO ACCEPT THE BOOK RESULTS OF ALAPATT JEWELERS KOL LAM AS RETURNED BY THE ASSESSEE. AGAINST THIS FINDING O F THE LD. CIT(APPEALS) THE REVENUE IS ON APPEALS. 20.4 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. THIS ADDITION IS ON THE SALE SUPPRESSION THAN THE ACTUAL SALES RESULTING IN THE COMPUTATION OF BUSINESS INCOME FROM ALAPATT JEWELLE RS KOLLAM. THE CONTENTION OF THE DEPARTMENT WOULD BE THAT THE LD. CITAA FAILED TO NOTE THAT ON EXAMINATION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER REVEALED THAT THE ASSESSEE WAS FOLLOWING THE SAME PRACTICE OF NON ISSUING SALE BILLS FOR ALL THE SALES AND IN THE ABSENCE ON THE PART OF THE ASSESSEE IN DIS-PROVING THE ACTION OF THE LD. CIT(APPEALS) WHO FAILED TO NOTE THAT THE GP RETURNED BY THE ASSESSEE IS VER Y LOW COMPARED TO THE RATE ADOPTED FOR EARLIER YEARS IS THE POINT OF OBJECTION IN THE FIRST ISSUE WHICH GROUND NO.2. THE SAME ISSUE HAS BEEN DEALT WITH IN THE EARLIER PART OF THIS ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 37 ORDER. THE FACT THAT IT IS A TRADE PRACTICE IN TH IS LINE OF BUSINESS THAT INITIALLY THE ASSESSEE WILL GIVE THE ESTIMATE OF INVOICE AND WHEN PARTIES SATISFIES WITH THE QUALIT Y DESIGN AND THE LOOK OF THE ORNAMENTS AND ON GETTING FINAL CONFIRMATION ONLY THE SALE BILLS WILL BE ISSUED. IN MOST OF THE TIMES THE PARTIES MAY RELUCTANT IN ACCEPTING T HE DESIGN AS IT WILL CHANGE FROM TIME TO TIME AND ACCORDING T O THE FASHION PREVAILING. THIS IS THE REASON EXPLAINED BY THE ASSESSEE FOR THE PREPARATION OF ESTIMATED INVOICES AND WHEREVER THERE IS A SALE THEN SALE BILL IS ISSUED AND THERE IS NO SUPPRESSION OF SALES. THEREFORE THE GP RATE R EPORTED BY THE ASSESSEE IS TO BE ACCEPTED AND THE LD. CIT(APPE ALS) WAS RIGHT IN CANCELLING THE ADDITION ON ACCOUNT OF SALE SUPPRESSION AT 15% AS IT HAS BEEN CLEARLY BROUGHT O UT IN HIS ORDER INCLUDING THE INFORMATION GATHERED BY THE OBS ERVATION MADE BY THE LD. CIT(APPEALS) THAT THE TRADE RESULTS ARE SUPPORTED BY SALE AND PURCHASE BILLS WHICH WERE REC ORDED IN THE BOOKS OF ACCOUNTS MAINTAINED IN THE REGULAR CO URSE OF BUSINESS AND TO REJECT THE SAME THE ASSESSING OFFI CER SHOULD HAVE EVIDENCES TO PROVE THAT THE FIGURES REP ORTED ARE NOT CORRECT AND THE TRANSACTION OF SALE OR PURCHASE S WERE CONDUCTED BY THE ASSESSEE FOR WHICH THERE ARE NO PU RCHASE OR SALE BILLS AND SUCH TRANSACTIONS ARE NOT RECORDE D IN THE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 38 REGULAR BOOKS OF ACCOUNTS. THIS OBSERVATION OF TH EE LD. CIT(APPEALS) COULD NOT BE CONTROVERTED BY THE LD. SR.DR. UNDER THE CIRCUMSTANCES WE ARE IN AGREEMENT WITH T HE FINDINGS OF THE LD. CIT(APPEALS) FOR THE ABOVE THRE E YEARS ON THIS ISSUE. ACCORDINGLY WE UPHOLD HIS FINDINGS O N THIS ISSUE. 21. NOW COMING TO THE SECOND ISSUE WHICH IS YET A NOTHER DISALLOWANCE OF INTEREST ON ACCOUNT OF DIVERSION OF FUNDS. AFTER CONSIDERING THE RIVAL SUBMISSIONS THE LD. CI T(APPEALS) FOUND THAT THIS DISALLOWANCE OF INTEREST IS NOT JUS TIFIED AS THE LD. CIT(APPEALS) FOUND ON PERUSAL OF THE AUDITED BA LANCE SHEET OF ALAPATT SILKS TRIVANDRUM AS ON 31-3-2002 THAT THE ASSESSEE HAS SUFFICIENT NON-INTEREST BEARING FUNDS TO COVER THE NON INTEREST EARNING ADVANCES. THEREFORE THE RE IS NO DIVERSION OF INTEREST BEARING FUNDS FOR MAKING NON INTEREST EARNING ADVANCES TO NEAR RELATIVES AND SISTER CONCE RNS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE OF INTEREST. WE SEE NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER ON THIS COUNT RELYING ON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATI ON AND ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 39 SA BUILDERS CITED SUPRA. HENCE THESE DEPARTME NTAL APPEALS FOR THE ASSESSMENT YEARS 3003-03 2003-04 A ND 2004-05 ARE DISMISSED. 22. COMING TO THE ONLY ISSUE IN ITA NO. 835/COCH/2 008 WHICH IS FOR THE ASSESSMENT YEAR 2005-06 IS IN RESP ECT OF THE DISALLOWANCE OF INTEREST ON DIVERSION OF FUNDS. HE RE ALSO THE LD. CIT(APPEALS) FOUND AND VERIFIED THAT THE ASSES SEE HAS BROUGHT IN ADDITIONAL CAPITAL DURING THE YEAR IN AL APATT SILKS WITH REFERENCE TO THE BOOKS OF ACCOUNTS WHICH WERE PRODUCED BEFORE THE LD. CIT(APPEALS). BASED ON T HAT THE LD. CIT(APPEALS) FOUND THAT THE ASSESSEE HAS BROUG HT IN MORE THAN RS.1 33 26 085/- IN HIS CAPITAL ACCOUNT I N ALAPATT SILKS. DEFINITELY IT WILL COVER UP THE OTHER NON BUSINESS ADVANCES. HENCE THE LD. CIT(APPEALS) FOUND THAT DURING THIS YEAR THERE IS NO DIVERSION OF INTEREST BEARIN G FUNDS FOR NON BUSINESS ADVANCES. HE THEREFORE DELETED THE DISALLOWANCE WHICH COMES TO RS.23 45 617/-. 23. AS WE HAVE ALREADY DELIBERATED ON THE ISSUE WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD . CIT(APPEALS) WHICH IS A FINDING OF FACT THAT THE AS SESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS. HENCE WE DECIDE ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 40 THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE FOR THIS ASSESSMENT YEAR ALSO. 24. THE THIRD AND THE LAST ISSUE IN ITA NO138/COCH/2008 IS WITH REGARD TO THE DELETION OF DISALLOWANCE U/S. 43B OF RS.11 000/- UNDER ESI AND RS.76 092/- UNDER EPF. THE ARGUMENT OF THE DEPARTMENT IS THAT THE ASSESSEE HIM SELF HAD INCLUDED THESE TWO AMOUNTS IN THE COMPUTATION OF TO TAL INCOME AND DISALLOWED THESE PAYMENTS SUO MOTO. HEN CE THE ACTION OF THE CIT(APPEALS) IN ALLOWING A REVISE D CLAIM OF THE ASSESSEE WITHOUT A REVISED RETURN IS NOT IN ACC ORDANCE WITH LAW. 25. WE HEARD THE PARTIES TO THE DISPUTE. WE HAVE A LSO NOTED THE CONTENTS OF THE ORDERS OF THE INCOME-TAX AUTHORITIES. THE ASSESSING OFFICER DISALLOWED THE ABOVE PAYMENTS ON THE GROUND THAT THE REMITTANCES WERE MA DE BEYOND THE DUE DATES OF THE RESPECTIVE STATUES FOR ESI AND EPF. BEFORE THE CIT(APPEALS) IT WAS THE SUBMISSIO N OF THE ASSESSEE THAT THE ABOVE PAYMENTS WERE MADE WITHIN T HE DUE DATE OF FILING THE RETURN FOR THIS ASSESSMENT YEAR. THE LD. CIT(APPEALS) ACCEPTED THE SUBMISSIONS OF THE ASSESS EE AND QUASHED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 41 26. WE FIND THAT THE HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. AIML LTD. ( WWW.ITATONLINE.ORG .) THIS ISSUE HAS BEEN CONSIDERED AND HELD THAT EVEN EMPLOYEES CONTRIBUTIO N TO PF PAID BEFORE THE DUE DATE FOR FILING THE RETURN OF I NCOME INCLUDING THE DELAYED PAYMENT OF EMPLOYEES PROVIDEN T FUND CONTRIBUTION WERE ALLOWABLE U/S.43B. FURTHER THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 IS DIRECTLY ON THE ISSUE. RESPECTFULLY FOLLOWING THE ABOVE DE CISIONS WE UPHOLD THE FINDINGS OF THE LD. CIT(APPEALS) AND DIS MISS THIS GROUND OF APPEAL OF THE REVENUE. 27. THE OUTCOME OF THESE APPEALS IS AS UNDER: SR. NO. ITA NO. ASSESSMENT YEAR RESULT 1. IT A 1091/COCH/04 2000-01 DISMISSED 2. ITA 1092 /COCH/04 2001-02 DISMISSED 3. ITA 140 /COCH/05 2000-01 DISMISSED 4. ITA 902/COCH/0 4 2000-01 ALLOWED 5. ITA 903/COCH/0 4 2001-02 ALLOWED 6. ITA 137/COCH/08 2002-03 DISMISSED 7. ITA 138/COCH/08 2003-04 DISMISSED 8. ITA 139/COCH/08 2004-05 DISMISSED 9. ITA 835/COCH/08 2005-06 DISMISSED SD/- SD/- (SANJAY ARORA) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM DATED THE 12 TH JULY 2010. PM. ITA NOS. 1091/COCH/2004 & 8 OTHER APPEALS IN THE CASE OF SUNNY P. JOSE 42 COPY FORWARDED TO: 1. THE ASSIST.CIT./DY.CIT. CENTRAL CIRCLE TRIVAN DRUM. 2. SHRI SUNNY P.JOSE AALAPAT SILKS EAST FORT TRIVAND RUM. 3. CIT(A)-I KOCHI. 4. CIT CENTRAL KOCHI. 5. D.R.