Shri Sathayanarayana Gupta, Mysore v. DCIT, Mysore

ITA 1331/BANG/2008 | 2003-2004
Pronouncement Date: 05-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 133121114 RSA 2008
Assessee PAN ABCPH3524R
Bench Bangalore
Appeal Number ITA 1331/BANG/2008
Duration Of Justice 1 year(s) 4 month(s) 23 day(s)
Appellant Shri Sathayanarayana Gupta, Mysore
Respondent DCIT, Mysore
Appeal Type Income Tax Appeal
Pronouncement Date 05-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 05-03-2010
Date Of Final Hearing 17-12-2009
Next Hearing Date 17-12-2009
Assessment Year 2003-2004
Appeal Filed On 13-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBE R AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NOS. 1330 TO 1333/BANG/2008 ASSESSMENT YEARS : 2002-03 TO 2005-06 SRI H.P. SATHYANARAYANA GUPTA PROP. SRI BALAJI AGRO TRADERS NO.267/D1/1 DESHIKA ROAD NEAR JAGANMOHAN PALACE MYSORE. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1) MYSORE. : RESPONDENT APPELLANT BY : SHRI RAVINDRANATH RESPONDENT BY : SMT. V.S. SREELEKHA O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THESE ARE FOUR APPEALS PREFERRED BY THE ASSESSEE W HICH ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT(A) MYSORE IN ITA NOS:85 TO 88/MYS/CIT(A)/07-08 FOR THE ASSESSMENT YE ARS 2002-03 03-04 04-05 AND 05-06 RESPECTIVELY. 2. THE ASSESSEE HAS RAISED EIGHT IDENTICAL GROUNDS FOR ALL THE ASSESSMENT YEARS UNDER DISPUTE EXCEPT FOR THE AY 05 -06 WHEREIN ONE ITA NO.1330 TO 1333/B/08 PAGE 2 OF 20 MORE ISSUE HAS BEEN RAISED. THE GROUNDS RAISED WERE IN EXHAUSTIVE AND ILLUSTRATIVE IN NATURE. SUBSEQUENTLY THE ASSESSEE HAS COME UP WITH CONCISE GROUNDS OF APPEAL. ON A PERUSAL THE CRUXES OF THE ISSUES FOR THE SAKE OF CLARITY ARE REFORMULATED AS UNDER: FOR THE AYS 2002-03 03-04 & 04-05: (I) DISALLOWANCE OF EXPENDITURE UNDER PURCHASES; & (II) DISALLOWANCE OF INTEREST ON LOAN FOR THE AY 2005-06: (I) DISALLOWANCE OF EXPENDITURE UNDER PURCHASES; (II) DISALLOWANCE OF INTEREST ON LOAN; & (III) DISALLOWANCE OF SALARY PAID TO ASSESSEES SON 3. SINCE THE ISSUES RAISED IN ALL THE AYS UNDER DI SPUTE ARE SIMILAR AND IDENTICAL THESE APPEALS ARE HEARD CON SIDERED TOGETHER AND DISPOSED OFF FOR THE SAKE OF CLARITY AND CONVENIEN CE IN THIS COMMON ORDER. BRIEF: 4. THE ASSESSEE AN INDIVIDUAL WAS A DEALER IN FE RTILIZERS SEEDS AND PESTICIDES UNDER THE NAME OF SRI BALAJI AGRO TR ADERS. THE ISSUE INVOLVED IN THESE APPEALS IS ADDITION ON ACCOUNT OF INFLATED PURCHASES AS MADE BY THE AO: ASST. YEAR AMOUNT 2002-03 RS. 1293872 2003-04 1905650 2004-05 1168811 2005-06 1667925 4.1. THE ASSESSEES BUSINESS PREMISES WERE SUBJECT ED TO ACTION U/S 133A OF THE ACT ON 15.3.2006 AND DURING THE COU RSE OF WHICH IT WAS NOTICED THAT THE ASSESSEE HAD INFLATED THE EXPENDIT URE UNDER THE HEAD ITA NO.1330 TO 1333/B/08 PAGE 3 OF 20 PURCHASES DEBITED TO TRADING ACCOUNT FOR THE AYS UNDER DISPUTE WHICH WERE WORKED OUT TO RS.1293872 RS.1905650 RS.11688 11 & RS.1667925/- RESPECTIVELY. SUBSEQUENTLY THE ASSESSMENTS FOR T HE AYS 2002-03 TO 04- 05 WERE REOPENED BY ISSUANCE OF NOTICES U/S 148 OF THE ACT. IN RESPONSE TO WHICH THE ASSESSEE HAD OFFERED ADDITIONAL GP AND O THER ADDITIONAL INCOMES FOR ALL THE AYS AND FOR THE AY 05-06 A REV ISED RETURN WAS FURNISHED. IN THE STATEMENT RECORDED ON 15.3.2006 THE ASSESSEE HAD ADMITTED THAT TO SUPPRESS THE BUSINESS PROFITS HE H AD INFLATED THE PURCHASES TO SOME EXTENT FOR WHICH PURPOSE HE GOT BLANK INVOICES PRINTED LOCALLY AT MYSORE AND USED THEM TO THE EXTENT REQUI RED. HE HAD FURTHER ADMITTED THAT SUCH INFLATION WAS MADE FOR THE FYS 2 001-02 TO 2004-05 AND ACCORDING TO WHICH SUCH INFLATION BE NOT LESS THAN RS.10 LAKHS APPROXIMATELY EVERY YEAR. HOWEVER WHILE FURNISHIN G THE RETURNS OF INCOME THE ASSESSEE HAD RETRACTED AND THAT NO INFLATED PUR CHASES WERE RETURNED AS INCOME. AFTER A PROTRACTED ENQUIRES IN RESPECT OF PARTIES FROM WHOM THE ALLEGED INFLATED PURCHASES WERE MADE THE AO CAME T O THE CONCLUSION THAT IT IS EVIDENT THAT THE ASSESSEE HAD INFLATED THE PU RCHASES TO THE EXTENT RECORDED IN HIS BOOKS OF ACCOUNTS..THE FACT THAT THERE IS INFLATION OF PURCHASES HAS ALSO BEEN ACCEPTED BY THE ASSESSEE O N MORE THAN TWO TO THREE OCCASIONS. WHILE ANALYZING THE BOOKS OF ACCOUNTS THE AO NOTI CED THAT THERE WERE INSERTION OVER-WRITING ON THE ORIGINAL ENTRIES IN THE GENERAL LEDGERS. IT WAS FURTHER NOTICED THAT IN THE PARTY S LEDGER THE NAMES OF PARTIES IN WHOSE NAME BOGUS PURCHASES WERE EFFECTED APPEARED AT THE END OF ALL OTHER NAMES AND THUS THE ASSESSEE HAD MANIPULATED THE BOOKS OF ACCOUNTS AS THE SUBSEQUENT OPENING OF THE FOLIOS INDICATES THA T DUMMY ITA NO.1330 TO 1333/B/08 PAGE 4 OF 20 PURCHASES IN THEIR NAMES HAVE BEEN INSERTED SUBSEQU ENTLY AS AN AFTERTHOUGHT. 4.2. ALL THE BOGUS PURCHASES WERE CREDIT PURCHASES AND THE ACCOUNTS HAVE BEEN SQUARED UP BY SHOWING CASH PAYME NTS OF LESS THAN RS.20000/- ON VARIOUS OCCASIONS. THE ASSESSEES FU RTHER CLAIM WAS THAT TO THE EXTENT OF DUMMY PURCHASES THERE WERE DUMMY SAL ES JUSTIFYING HIS CLAIM IN RETURNING ADDITIONAL GP IN STEAD OF ADDITI ONAL INCOME ON ACCOUNT OF BOGUS PURCHASES IN THE RETURNS OF INCOME FURNISHED IN COMPLIANCE TO NOTICES U/S 148. 4.3. SUMMARILY REJECTING THE ASSESSEES FRESH OFFER OF ACCEPTING THE BOGUS PURCHASES TO THE EXTENT ADDED BY THE AO IN TH E ASSESSMENT ORDERS UNDER DISPUTE BUT FOR PLEADING FOR THAT ONLY PEAK CREDITS ON ACCOUNT OF PURCHASES BE ADDED THE AO WENT AHEAD WITH THE ADDITIONS AS REFERRED SUPRA FOR THE ELABORATE REASONS SET-OUT IN THE IMPU GNED ASSESSMENT ORDERS. 4.4. WITH REGARD TO THE CLAIM OF INTEREST AT 18% A ND 15% ON BORROWED CAPITAL FOR ALL THE AYS UNDER DISPUTE THE AO AFTER VERIFYING THE SAME WITH THE RELEVANT PROVISIONS OF THE ACT AND AL SO TAKING CUE FROM THE FINDING OF THE DELHI HIGH COURT REPORTED IN 249 ITR 235 THE AO HAD SLASHED THE INTEREST ALLOWABLE TO THE EXTENT ON TH E PRINCIPAL AMOUNTS OR/AND SUBSEQUENT AMOUNTS LENT. ITA NO.1330 TO 1333/B/08 PAGE 5 OF 20 4.5. FOR THE AY 2005-06 THE CLAIM OF SALARY OF RS .112000/- PAID TO THE ASSESSEES SON WAS DISALLOWED ON THE GROUND THAT THE SERVICES RENDERED BY HIS SON WAS NOT ESTABLISHED. 5. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUES WITH THE LD. CIT(A) FOR RELIEF. AFTER CONSIDERING THE SUBMISSIO NS MADE BY THE ASSESSEE THE CIT (A) HAD VIRTUALLY CONFIRMED THE ADDITIONS M ADE BY THE AO. THE RELEVANT PORTIONS OF THE OBSERVATIONS OF THE CIT (A ) ARE EXTRACTED AS UNDER: ( ON PAGE 6) THE APPELLANT HAS CHALLENGED THE AOS FI NDING THAT APPLICATION OF FUNDS HAS BEEN MADE OUT OF UNDISCLOS ED INCOME ON ACCOUNT OF BOGUS PURCHASES. HE HAS SOUGHT TO NEGAT E THE AOS FINDING WITH CERTAIN FACTS DETAILS AND EVIDENCE MANY OF WH ICH CONSTITUTE ADDITIONAL EVIDENCE. SINCE NO CASE IS MADE OUT FO R ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A AND SINCE THE A SSESSMENT HAS BEEN MADE AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE AP PELLANT THIS ADDITIONAL EVIDENCE IS NOT CONSIDERED. IN RESPECT OF ITEM NOS.6 & 7 OF APPLICATION OF FUND S AS SEEN IN PAGE 18 OF THE ASSESSMENT ORDER NO FRESH FACTS ARE LED BY THE APPELLANT AND THE FACTS GIVEN BY AO ARE NOT DENIED. IN RESPECT OF IT EM NO.8 THE PLEA TAKEN IS THAT INCOME HAS ALREADY BEEN OFFERED TO TA X IN DIFFERENT YEARS NET OF EXPENDITURE. THE MAIN POINT WHICH NEEDS TO BE NOTED IS THAT THE CASE REGARDING APPLICATION OF FUNDS IS ONLY AN ADDITIONAL CASE MAD E OUT BY THE AO REGARDING WHERE THE UNDISCLOSED MONEY EARNED OUT OF BOGUS PURCHASES HAS GONE. THERE IS NO ONUS ON THE AO TO PROVE APPL ICATION OF FUNDS AS THERE ARE COUNTLESS WAYS IN WHICH UNDISCLOSED INCOM E MAY BE SPENT OR INVESTED. THESE GROUNDS RAISING DOUBT ON SOME OF T HE APPLICATION CANNOT SERVE AS SUFFICIENT GROUND FOR REJECTION OF MAIN CASE OF THE AO. GROUND NO.2 IS THEREFORE DISMISSED. IN AY 2005-0 6 THIS ISSUE HAS BEEN RAISED VIDE GROUND NOS.2 & 3 BOTH OF WHICH ARE DISMISSED FOR THE REASONS GIVEN ABOVE. FOR THE AY 2005-06: (ON PAGE 7) THE AO HAS DISCUSSE D IN DETAIL IN THE ORDER AS TO WHY THE APPELLANTS CLAIM ON BOGUS SALE S COULD NOT BE ACCEPTED. HE HAS DISCUSSED THE STATEMENT RECORDED FROM THE APPELLANT ON THE ISSUE AND HAS ALSO SHOWN THE APPELLANT HAD N O EVIDENCE IN RESPECT OF THIS PLEA. THE APPELLANT HAS GIVEN NO F ACTS OR DETAILS OR EVEN ARGUMENTS TO COUNTER THE REASONS GIVEN BY THE AO. THIS GROUND IS THEREFORE DISMISSED. ITA NO.1330 TO 1333/B/08 PAGE 6 OF 20 5.1. IN RESPECT OF RESTRICTING INTEREST ON BORROWE D CAPITAL LD. CIT(A) OBSERVED (ON PAGE 9) THAT : I HAVE CONSIDERED THE DELHI HIGH COURT DECISION. INTEREST WAS CLAIMED IN THAT CASE IN RESPECT OF UN-DISBURSED SALARY THAT INTEREST DEDUCTION U/S 36(1)(III) IS RELATABLE TO ONLY MONEY BORROWED AND NOT DEBT. HOWEVER IN THE PRESENT CASE THE INTEREST BEING CLAIMED IS IN RESPECT OF INTEREST RELATABLE TO MONEY BORROWED ONLY. COMPOUNDING OF I NTEREST IS A WELL KNOWN FINANCIAL PRACTICE AND THERE CANNOT BE ANY CA SE FOR DISALLOWANCE UNLESS THERE WAS NO AGREEMENT FOR CHARGING COMPOUND INTEREST AND ONLY SIMPLE INTEREST WAS TO BE CHARGED. THIS IS NOT THE CASE OF THE AO. THE DECISION OF DELHI HIGH COURT DOES NOT SEEM TO COVER A CASE LIKE THIS INVOLVING CHARGING OF COMPOUNDING INTEREST. THIS POINTING IS THEREFORE DECIDED IN FAVOUR OF THE APPELLANT. THE SECOND COMPONENT OF DISALLOWANCE MADE BY THE AO IS ON THE GROUND THAT THE INTEREST PAID @ 18% IS EXCESSIVE AND THERE FORE DISALLOWABLE IS ATTRACTED U/S 40A(2)(A). THE APPELLANT DISPUTES TH IS ARGUING THAT 18% INTEREST IS REASONABLE ON THE GROUND THAT BANKS AND FINANCIAL INSTITUTIONS CHARGE INTEREST @ 13.5% FOR SECURED LOAN WHILE LOAN IN QUESTION IS UNSECURED LOAN. HOWEVER THE AO HAS RIGHTLY POINTE D OUT THAT LOAN HAS BEEN TAKEN FROM CLOSE RELATIVES. IN VIEW OF THIS THE LOAN CAN BE SEEN AS QUITE SECURED. THE AO HAS TAKEN THE YIELD IN GOVERN MENT SECURITY AS A YARDSTICK. WHEN DECIDING A REASONABLE RATE OF INTE REST ONE NEEDS TO LOOK AT THE SECURED INVESTMENTS AND PRIME LENDING RATE O F BANKS. THE RATE OF INTEREST @ 12% P.A. ON COMPOUND INTEREST BASIS APPE ARS TO BE REASONABLE AND THE DISALLOWANCE OF BALANCE INTEREST IS THEREF ORE CONFIRMED. 6. DISAPPOINTED WITH THE FINDING OF THE LD. CIT (A) THE ASSESSEE CAME UP WITH THE PRESENT APPEALS. DURING THE COURS E OF FILING THE APPEALS FOR THE AYS UNDER DISPUTE THE ASSESSEE HAD FURNISH ED IDENTICAL ADDITIONAL GROUNDS OF APPEAL WITH A PRAYER TO ADMIT THE SAME I N THE INTEREST OF JUSTICE AND EQUITY. 6.1. THE IDENTICAL ADDITIONAL GROUNDS OF APPEAL (F OR AY 2002-03) ARE AS UNDER: 1. AO HAS ERRED IN BRINGING NEXUS BETWEEN THE DEC LARED AND ACCOUNTED UNSECURED LOANS FROM RELATIVES OR ASSOCIATED CONCER NS WITH THAT OF FICTITIOUS SUPPRESSED PROFITS. IN FACT PROFIT HAS NOT BEEN SUPPRESSED BECAUSE OF THE FACT THAT BOTH SALES AND PURCHASES A RE INCLUDED WITH THAT OF ITA NO.1330 TO 1333/B/08 PAGE 7 OF 20 FICTITIOUS/ACCOMMODATION TRANSACTIONS; AS SUCH THER E IS NEITHER PHYSICAL MOVEMENT OF CASH NOR STOCK. THE LIST OF LOAN CREDI TORS LINKED WRONGLY BY THE AO AT PAGE NO.:18 FROM PARA 1 TO 8 IN CHRONOLOG ICAL ORDER WITH ASSSESSEES COUNTER REMARKS/COMMENTS ARE AS UNDER: NAME OF THE FUND CREDITOR/HEAD OF ACCOUNT ASST.YEAR LOAN AMOUNT ASSESSEES COMMEN TS LOAN CREDITORS 1.VARSHA GUPTA 2.CHANDRIKA GUPTA 3.S.D.CHANDRASHEKAR 4.VARUN OTHERS FOR AY 2006- 07: 5.DAUGHTERS MARRIAGE EXP. OF ABOUT 6.ACCOMODATION LOAN TO M.S.NAGARAJ GUPTA 7.EXP. INCURRED PENDING ACCOUNTING 8.INTRODUCTION OF CASH 2003-04 2004-05 2005-06 2005-06 2006-07 2006-07 2006-07 2006-7 200000 405000 700000 100000 1200000 260000 200000 984669 RECD BY CHEQUE ON 27.12.02 AND THE SAME IS SHOWN IN THE B/S AS ON 31.3.03 RECD BY CHEQUE FROM HER OWN SOURCE AS SHE IS A PARTNER IN BALAJI ENTERPRISES. AFTER PAYMENT BALANCE SHOWN IN B/S IS RS.349704 WITH INTEREST. RECD BY CHEQUE FROM HIS OWN SOURCE. BALANCE O/S IS SHOWN IN B/S.RECD BY CHEQUE FROM HIS OWN SOURCE. BAL. O/S IS SHOWN IN B/S THIS REFERS TO AY 06-07- PENDING FOR DISPOSAL APPLICABLE FOR AY 2006-07 APPLICABLE FOR AY 2006-07 APPLICABLE FOR AY 2006-07 6.2. IT WAS SUBMITTED BY THE LD. A R THAT THE ISSU ES RAISED IN THE ADDITIONAL GROUNDS OF APPEAL ARE PARAMOUNT IN DECID ING THE ASSESSEES APPEALS AND THEREFORE PLEADED FOR ADMISSION OF T HE SAME. 6.3. AFTER DUE CONSIDERATION OF THE LD.A.RS ARGUM ENT THE ADDITIONAL GROUNDS RAISED ARE ADMITTED FOR ADJUDICA TION. 6.4. THE LD. A.RS REITERATIONS WERE REVOLVED AROU ND WHAT HAS BEEN URGED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE TO THE ABOVE THE SUBMISSIONS OF THE LD. A R ARE SUMMARIZED AS UN DER: (I) THE ASSESSEES CUSTOMERS WERE MAINLY FARMERS AGRIC ULTURAL DEPARTMENT AND NURSERIES. IN THIS LINE OF BUSINESS IT WAS ITA NO.1330 TO 1333/B/08 PAGE 8 OF 20 NECESSARY TO ISSUE INFLATED/BOGUS SALE BILLS TO THE FARMERS WHICH WOULD FACILITATE THEM TO AVAIL MORE CREDIT FACILITI ES FOR THEIR AGRICULTURAL PURPOSE; (II) WHILE ISSUING SUCH BOGUS SALES BILLS ONLY MRP RATE (INCLUSIVE OF GP MARGIN AT 5% ON AN AVERAGE SALE) WAS CHARGED AND HENCE MORE QUANTITY IN SALE BILLS WERE SHOWN; - ONCE SUCH BOGUS/INFLATED SALES BILLS WERE ISSUED I T WAS NECESSARY TO ENTER IN THE SALES REGISTER AND MAKE CORRESPONDING ENTRY IN THE STOCK REGISTER WHICH WOULD BE VERIFIED BY THE GOVERNMENT AGENCIES AND TO ATTEST THE STOCK REGISTER OTHERWISE THE LICENCE TO DEAL IN FERTILIZER WOULD BE TERMINATED UNDER EC ACT. ATTESTED STOCK R EGISTERS WERE AVAILABLE WITH THE AO. TO MAKE GOOD INFLATED/BOGU S SALES INFLATED/BOGUS PURCHASERS WERE RAISED; - IN SUCH A ACTION THERE WAS NEITHER ANY PHYSICAL MO VEMENT OF CASH OR STOCKS; (III) WHILE MAKING THE ASSESSMENT AFTER A SURVEY OPERATIO N THE AO HAD WRONGLY CONCLUDED THAT - ASSESSEE HAS EARNED AN INCOME AND TO SUPPRESS THE INCOME SO EARNED VALUE OF PURCHASES ARE INFLATED/DUMMY PURCHASES ARE ACCOUNTED. THE INCOME SO SUPPRESS ARE BROUGHT INTO BOOKS OF THE AS SESSEE EITHER IN THE CURRENT YEAR OR IN SUBSEQUENT YEARS AND ACCORD INGLY ADDED A SUM OF RS.1293872 FOR THE AY 2002-03. COMMENTS OF THE AO ARE REFUTABLE AS (A) THE ASSESSEE HAD INTRODUCED RS.2 LAKHS AS NEW LOAN GIVEN BY HIS DAUGHTER VARSHA GUPTA. THIS LOAN WAS DRAWN BY AN ACCOUNT PAYEE CHEQUE AND SHE HAS BEEN AN INCOME-TAX ASSESSEE [PAN ABCPH 3524 R]. CONDITIONS LAID DOWN U/S 269SS WERE DULY SATISFIED. THE INTEREST PAID ON THE SAID LOAN WAS SUBJECT TO TDS. WHILE ALLOWING THE INTEREST DEBITED TO P & L A CCOUNT THE LOAN PROCEEDS WERE ADDED TO THE INCOME OF THE ASSES SEE. (B) DURING AY 03-04 THE ASSESSEE HAD RECEIVED RS.40500 0/- AS A LOAN FROM HIS WIFE SMT. CHANDRIKA GUPTA WHO IS AN INCOME- TAX ASSESSEE. SHE HAD INCOME FROM PROPRIETARY BUSI NESS OF SRI BALAJI ENTERPRISES BUT LATER ON THE PROPRIETARY BUSINESS WAS CONVERTED INTO A PARTNERSHIP BUSINESS IN WHICH THE ASSESSEE WAS NOT A PARTNER. FROM HER INDEPENDENT SOURCE OF INCOME THE SAID LOAN WAS OBTAINED THROUGH AN ACCOUNT PAYEE CHE QUE. THE INTEREST PAID ON THE SAID LOAN WAS SUBJECT TO TDS. WHILE ALLOWING THE INTEREST DEBITED TO P & L ACCOUNT THE LOAN PROCEEDS WERE ADDED TO THE INCOME OF THE ASSESSEE. ITA NO.1330 TO 1333/B/08 PAGE 9 OF 20 (C) DURING AY 05-06 A SUM OF RS.7 LAKHS WAS SHOWN AS HAVING BEEN RECEIVED FROM ONE S.D.CHANDRASHEKAR DEVP. OFF ICER LIC MYSORE THROUGH AN ACCOUNT PAYEE CHEQUE DRAWN O N P & SIND BANK MYSORE. ON OATH CHANDRASHEKAR HAD AFFI RMED THAT HE HAD LENT LOAN TO THE ASSESSEE WHICH HE HAD RECEI VED BACK THROUGH A CHEQUE. (D) DURING FY 04-05 THE AOS ASSERTION WAS THAT THERE WAS A LOAN OF RS.1 LAKH SHOWN TO HAVE BEEN RECEIVED FROM HIS SON VARUN WHO WAS BORN IN 1986 AND A STUDENT OF BBM DUR ING 04- 05 FOR WHICH THE ASSESSEES REBUTTAL WAS THAT - THE AMOUNT WAS BORROWED THROUGH AN A/C PAYEE CHEQUE AND THAT DURING THE FY 04-05 VARUN WAS A STUDENT OF BBM ATTE NDING CLASSES UP-TO 12 NOON EXCLUDING HOLIDAYS/SUNDAYS AFTER THAT HE WAS WORKING IN THE ASSESSEES SHOP TILL 8 P.M. OR TILL THE CLOS URE OF THE SHOP AND SUCH HE WAS REMUNERATED OF RS.8000/MONTH THROUGH CH EQUES. THE ACCUMULATED SALARY AND OTHER SAVINGS IN HIS S.B.ACC OUNT WAS LENT TO THE ASSESSEE THROUGH AN A/C PAYEE CHEQUE. WHILE C ONCLUDING THE ASSESSMENT U/S 143(3) FOR THE AY 05-06 THE SALARY MADE TO VARUN WAS ACCEPTED AND THUS THE AO IS NOW AT FAULT. (E) THE AOS ASSERTION THAT THE ASSESSEE HAD INCURRED H IS DAUGHTERS MARRIAGE EXPENSES OF ABOUT RS.12 LAKHS W AS OUT OF INFLATED PURCHASES. THE MARRIAGE EXPENSES HAD IN FACT MET AS UNDER: - WITH THE ASSESSEE: CASH BALANCE AS PER BOOKS AS ON SURVEY DATE 825575 LESS: PHYSICAL CASH AVAILABLE IN THE BUSINESS WITH THE ASSESSEE 52200 BUSINESS EXPENSES PENDING ACCOUNTING 20 0000 573375 AMOUNT DRAWN FROM THE ASSESSEES HUF ACCOUNT 180000 AMOUNT CONTRIBUTED BY THE ASSESSEES WIFE 200000 AMOUNT CONTRIBUTED BY DAUGHTER 200000 TOTAL 1153375 (F) WITH REGARD TO THE BUSINESS EXPENDITURE OF RS.2 LAK HS WHICH WERE NOT ENTERED IN THE BOOKS OF ACCOUNT THE ASSES SEES CONTENTION IS THAT THE EXPENSES INCURRED FOR PENDI NG RECORDING OF ACCOUNTING ENTRIES WHICH CANNOT BE TREATED AS SU PPRESSED INCOME; (G) IN RESPECT OF ALLEGED INTRODUCTION OF RS.984669/- U NDER THE GUISE OF SALE OF FERTILIZERS WITHOUT ACTUALLY EFFEC TING SALES ON A COMPROMISE FORMULA THE ASSESSEE HAD AGREED TO OFFE R FOR TAXATION SUBJECT TO DEDUCTION OF EXPENDITURE OF RS. 2 LAKHS PENDING RECORDING OF ENTRIES WHICH ARE AS UNDER: ITA NO.1330 TO 1333/B/08 PAGE 10 OF 20 - FOR AY 2002-03 RS.1 25 000 AND FOR THE AYS. 03-04 04-05 & 05-06 OF RS.2 LAKHS EACH. (H) THE AO HAD ERRED IN CROSS VERIFYING/ENQUIRING INFLATED/BOGUS/DUMMY PURCHASE ONLY BUT SHOULD HAV E ENQUIRED INTO THE EXTENT OF DUMMY SALES ALSO; (I) IN THE INTEREST OF JUSTICE AND TO BUY PEACE THE AO WAS REQUESTED VIDE THE ASSESSEES LETTER DT.12.12.07 TO TREAT THE PEAK CREDITS ON ACCOUNT OF PURCHASES FOR THE AY 2002-03 RS.1293872/- AND THE BALANCE OF RS.611778 FOR THE A Y 03-04 TOTALING TO RS.1905650/-. THESE INFLATED PURCHASES WERE ONLY TO BALANCE THE INFLATED SALES CAUSED ON ACCOUNT OF ACCOMMODATION SALES TO THE CUSTOMERS WHO HAVE AVAIL ED THE LOANS FROM THE FINANCIAL INSTITUTIONS/BANKS. (J) WITH REGARD TO RESTRICTING THE INTEREST ON BORROWED CAPITAL U/S 40A(2)(A) THE ASSESSEE CONTENTED THAT - THE LOAN PAID AND RECEIVED WERE ENFORCEABLE AS PER THE PROVISIONS OF S.3 OF INDIAN CONTRACT ACT 1872; - INTEREST CHARGED WAS NOT EXORBITANT OR UNREASONABLE AS PER S.40A(2)(A) - INTEREST CREDITED TO ACCOUNT ON ACCRUAL BASIS WHICH WAS SUBJECT TO TDS PROVISION AS PER S.194A OF THE ACT; - THE CASE LAW CITED BY THE AO WAS DISTINGUISHABLE SI NCE IN THAT CASE FOR NON-PAYMENT OF THE SALARIES AND INTEREST ON SUC H ARREARS OF SALARY WAS CLAIMED BY THE CLAIMANT AND HENCE ARREARS OF SA LARY CAN NOT BE CLAIMED AS BORROWED DEBIT WITHIN THE MEANING OF S.2 (28A); - INTEREST CREDIT TO ACCOUNT IF NOT DRAWN BY THE LEN DER SHALL AUTOMATICALLY BECOME PART OF PRINCIPAL LOAN WHICH I S ENTITLED FOR INTEREST AND THESE PRINCIPLES ARE BEING FOLLOWED BY MOST OF THE FINANCIAL INSTITUTIONS; & (K) RELIES ON THE FOLLOWING CASE LAWS: - ITAT CHENNAI BENCH C IN THE CASE OF DCIT CC I CO IMBATORE V. M/S. KRISHNAVENI CARBON PRODUCTS (P) LTD. AND OTHERS IN ITA NO:1809/MDS/08 DATED: 20.11.2009; & - N.K.PROTEINS LTD. V. DCIT REPORTED IN (2004) 83 TT J (AHMD) 904. 6.5. ON HER PART THE LD. D R WAS VERY VEHEMENT IN HER RESOLVE THAT THE AO HAD FOUND EVIDENCE OF INFLATED EXPENDIT URE FOR EACH OF THE FOUR ASSESSMENT YEARS UNDER DISPUTE DURING THE SURVEY OP ERATION AND AFTER GIVING DUE WEIGHT-AGE TO THE ADDITIONAL GP AND CERT AIN ADDITIONAL INCOMES ITA NO.1330 TO 1333/B/08 PAGE 11 OF 20 RETURNED BY THE ASSESSEE AND FOR THE REASONS SET-O UT EXHAUSTIVELY IN THE IMPUGNED ASSESSMENT ORDERS UNDER DISPUTE THE DISAL LOWANCES OF EXPENDITURE UNDER BOGUS PURCHASES HAVE BEEN RESORTE D TO. THE WELL REASONING OF THE AO ALSO FOUND FAVOUR WITH THE CIT( A) WHO HAD LITERALLY SUSTAINED THE ADDITIONS IN TOTO. IT WAS THEREFORE CONTENDED THAT THE FINDING OF THE LD.CIT(A) REQUIRES TO BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS PERUSED THE RELEVANT RECORDS AND ALSO THE VOLUMINOUS PAPER BOOKS FURNISHED BY THE LD. A R DURING THE COURSE OF HEARING. 7.1. IT IS AN UNDENIABLE FACT WHICH HAS BEEN ADMIT TED BY THE ASSESSEE HIMSELF THAT HE HAD ISSUED INFLATED/BOGUS SALE BILLS TO ACCOMMODATE SOME OF THE CUSTOMERS AND TO COVER UP S UCH INFLATED SALES PURCHASES TO THE EXTENT OF RS.12.93 LAKHS FOR INSTA NCE FOR THE AY 2002-03 WERE ALSO INFLATED. 7.2. AFTER ANALYZING THE ISSUE EXTENSIVELY AND ALS O CROSS-VERIFYING THE PURCHASES CLAIMED BY THE ASSESSEE WITH REFEREN CE TO THE VARIOUS PARTIES AS DETAILED IN THE IMPUGNED ORDER THE AO W ENT AHEAD WITH A SPECIFIC ANALYZATION OF HOW THE SUPPRESSED PROFITS OF THE YEAR HAVE BEEN REINTRODUCED IN THE BOOKS OF THE ASSESSEE EITHER IN THE CURRENT YEAR OR IN THE SUBSEQUENT YEARS THE DETAILS OF WHICH IN BRIE F AND COUNTERED BY THE ASSESSEE ARE AS UNDER: (I ) BY THE AO : VARSHA GUPTA DAUGHTER OF THE ASSESSEE WHO WAS BO RN IN 1981 AND WAS STUDYING B.SC. COURSE DURING THE FY 01 -02. SHE WAS A FUND ITA NO.1330 TO 1333/B/08 PAGE 12 OF 20 CREDITOR IN THE BOOKS OF THE ASSESSEE FOR A NOMINAL ACCOUNT AND DURING DEC. 02 RS.2 LAKHS WAS SHOWN AS A NEW LOAN GIVEN. ASSESSEES CONTENTION : SHE IS AN INCOME-TAX ASSESSEE RECEIVED BY CHEQU E ON 27.12.02 AND THE SAME WAS SHOWN IN THE B/S AS ON 31.3.2003 [PAGE 108 110 OF PB ASST. ORDER FOR AY 03-04 U/S 143(1) CO MPUTATION OF INCOME & CAPITAL ACCOUNT ] (II) BY THE AO : SMT.CHANDIKA GUPTA WIFE OF THE ASSESSEE FOR THE FY LOAN OF RS.4.05 LAKHS ASSESSEES CONTENTION : SHE IS AN INCOME-TAX ASSESSEE RECEIVED BY CHEQ UE FROM OWN SOURCE AS SHE WAS A PARTNER IN BALAJI ENTERPRISES [PAGE 88 91 OF PB ASST. ORDER FOR A Y 03-04 U/S 143(1) COMPUTATION OF INCOME & CAPITAL ACCOUNT. AFTER REP AYMENT BALANCE SHOWN IN B/S WAS RS.3.49 LAKHS WITH INTEREST ] (III) BY THE AO : DURING F.Y 04-05 RS.7 LAKHS WAS SHOWN AS LOAN FROM S.D.CHANDRASEKHAR DEVP.OFFICER LIC MYSORE. A FI NDING HAS BEEN GIVEN IN THE AY 05-06 AS TO WHY THE LOAN OF RS.7 LAKHS CA NNOT BE ACCEPTED AS GENUINE. ASSESSEES CONTENTION : HE WAS A DEVELOPMENT OFFICER LIC MYSORE. IN HI S SWORN STATEMENT HE ADMITTED THAT HE WAS DRAWING A GROSS SALARY OF RS.15.98 LAKHS AND HIS PAN AGWPC 52301B AND LENT A LOAN OF RS.7 LAKHS THROUGH A CHEQUE AND RECEIVED ONE YEAR BACK THROUGH A CHEQUE. 7.3. BRUSHING ASIDE THE EXPLANATION OFFERED BY TH E ASSESSEE FROM TIME TO TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO WENT AHEAD WITH THE ADDITIONS BY DISALLOWING THE EXPENDITURE U NDER PURCHASES OF RS.1293872/- RS.1905650/- RS.1168811/- AND RS.166 6925/- FOR THE ASSESSMENT YEARS 2002-03 03-04 04-05 AND 05-06 RE SPECTIVELY. ITA NO.1330 TO 1333/B/08 PAGE 13 OF 20 7.4. ON A CLOSE READING OF THE IMPUGNED ORDER OF T HE LD. CIT (A) ONE COULD FORM AN INFERENCE THAT INSTEAD OF ANALYZI NG THE ISSUES BEFORE HIM INDEPENDENTLY WITH REFERENCE TO THE SUBMISSIONS/CON TENTIONS OF EITHER PARTY THE CIT (A) RELIED HEAVILY ON THE IMPUGNED ORDERS O F THE AO WITHOUT TAKING INTO ACCOUNT THE GROUND REALITIES. THE FINDING OF THE CIT (A) PUT IT MILDLY IS RATHER WANING AND CRYPTIC. 7.5. REVERTING BACK TO THE MAIN ISSUES IT WAS A F ACT THAT DURING THE COURSE OF SURVEY THE REVENUE HAD UNEARTHED DUM MY PURCHASE INVOICES TO THE TUNE OF AROUND RS.80 LAKHS FOR THE ASSESSMENT YEARS UNDER DISPUTE. THE PURCHASE INVOICES WERE ACTUALLY PRINT ED BY THE ASSESSEE HIMSELF AND THE PAYMENTS TO THE SAID PARTIES ACCOR DING TO THE ASSESSEES VERSION WERE MADE THROUGH CASH PAYMENTS BELOW RS.2 0 000/-. 7.6 THE ASSESSEE BEING A DEALER IN FERTILIZERS PE STICIDES AND SEEDS AND HIS MAIN PURCHASERS WERE OF THE FARMERS COMMUNITY. IT IS NOT UNCOMMON PRACTICE PREVALENT IN THIS LINE OF BUSINE SS THAT THE CUSTOMERS WOULD TRY TO GET INFLATED SALE BILLS WITH KNOWN DEA LERS SO AS TO FETCH HIGHER LOANS FROM THE BANKS/AGRICULTURAL SOCIETIES AND SO ON SO FORTH. IF HE DOESNT OBLIGE TO FULFILL THE NEED OF HIS CUSTOMERS AS POI NTED OUT BY THE ASSESSEE HE STANDS TO LOSE HIS CUSTOMERS THEREBY LOSING THE BUSINESS ITSELF. TO COPE UP WITH THE BUSINESS AND TO KEEP THE CUSTOMERS HAP PY THE BUSINESS COMMUNITY DOES INDULGE IN SUCH ACTIVITY THOUGH UNE THICAL IN THE EYES OF LAW. TO STRIKE A BALANCE FOR INFLATED SALE BILLS A ND DUMMY PROFITS IN THE PRESENT CASE THE ASSESSEE HAD INFLATED THE PURCHAS ES BY CREATING PURCHASE INVOICES HIMSELF. THE ASSESSEES CONTENTI ON IS THAT IF THERE WERE ITA NO.1330 TO 1333/B/08 PAGE 14 OF 20 DUMMY PURCHASES NATURALLY THERE SHOULD BE DUMMY SA LES TOO AND HENCE NO ADDITION COULD BE MADE ON SUCH DUMMY PURCHASES. IF ADDITION WERE TO BE MADE IT SHOULD BE IN THE FORM OF GROSS PROFIT O NLY ON SUCH DUMMY PURCHASES AND DUMMY SALES. 7.7. AFTER A CLOSE ANALYZING OF THE ASSESSEES ARG UMENT WHAT IS EMERGING FROM SUCH ANALYZE IS THAT THESE PURCHASES WERE UNPROVED BUT THE SALES WERE ABOVE THE BOARD THE ONLY ALTERNATIVE LE FT IS TO ESTIMATE THE SALES. SUCH BEING THE SITUATION THE QUESTION OF LOOKING AT THE BOOKS OF ACCOUNT WOULD BE A FUTILE EXERCISE. THE HONBLE TR IBUNALS HAVE ALSO CATEGORICALLY OPINED THAT THE PROFIT ON SUCH UNDISC LOSED SALES IS LIABLE TO BE TAXED AND NOT THE ENTIRE SALES ENTERED IN THE BOOKS . 7.8. A SIMILAR ISSUE WAS BEFORE THE HONBLE I.T.A. T CHENNAI C BENCH IN ITA NO.1809/MDS/08 DATED: 20.11.2009 IN T HE CASE OF DCIT CC-I COIMBATORE V. KRISHNAVENI CARBON PRODUCTS (P) LTD. AND OTHER APPEALS ON SIMILAR ISSUES. THE ISSUE BEFORE THE HO NBLE BENCH WAS IN BRIEF THAT THERE WAS A SEARCH IN THE ASSESSEES AN D ITS DIRECTORS RESIDENTIAL PREMISES AND THE BOOKS FOUND DURING THE SEARCH SEI ZED. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPPLY OF CARBON BEARINGS CARBON SEALS THRUST PADS ETC. WH ICH WERE USED IN AN ELECTRICAL MOTOR. THE ALLEGATION OF THE REVENUE WA S THAT WITH A VIEW TO REDUCE THE INCIDENCE OF TAX THE COMPANY HAD INFLAT ED PURCHASES BY PREPARING BOGUS PURCHASE BILLS PREPARED STATIONERY GOT PRINTED BY ITSELF ETC. AFTER DELIBERATING THE ISSUE AT LENGTH AND A LSO TAKEN INTO ACCOUNT THE RIVAL SUBMISSIONS THE HONBLE TRIBUNAL HAS OBSERVE D THUS ITA NO.1330 TO 1333/B/08 PAGE 15 OF 20 8. THE INVOICES RELATING TO IMPORT RECEIPT FOR PAY MENT REFERRING ONLY TO CONSIGNEE. FROM BLANK INVOICES NO CONCRETE EVIDENCE AGAINST THE ASSESSEE CAN BE GATHERED AS THERE IS A PROBABILITY THAT THESE MIGHT HAVE BEEN LEFT WITH THE ASSESSEE INADVE RTENTLY. THUS WE ARE OF THE CONSIDERED OPINION THAT ALL THE POINTS R ECORDED BY THE ASSESSING OFFICER TO ARRIVE AT HIS CONCLUSION THAT THE PURCHASES ARE INFLATED ARE NOT SUCH THAT FROM WHICH A VALID CONCL USION CAN B DRAWN AGAINST THE CLAIM OF THE ASSESSEE. THE DECISI ONS RELIED ON BY THE LD. A R DEFINITELY HELP THE CASE OF THE ASSESSE E. THESE DECISIONS ARE M/S. SHRI RAMA MULTI TECH LTD. 92 TTJ (AHD) 568 M/S.RAINBOW METALS (INDIA) S3 TAXMAN 160 (BOM) M/S.LIYAKAT ALI MOHD. SADIK 81 TTJ (JD)769 M/S.SUNSTEEL 92 TTJ (AHD) 1126 M/S.LEADERS VALVES (P) LTD. 285 TTR 435 (P&H) 9. TO CONCLUDE WHEN THE SALES HAVE BEEN ACCEPTED AND QUANTITATIVE DETAILS FILED BY THE ASSESSEE REGARDING CONSUMPTION OF RAW (SIC) MATERIAL HAS NOT BEEN DISPUTED OR DISTURBED AND THE NET PROFIT RATE OF THE YEAR IS FOUND TO BE BETTER THAN THE SUBSEQUE NT AND OTHER YEARS WE ARE NOT ABLE TO ACCEPT THE ALLEGATION OF THE ASS ESSING OFFICER THAT THE PURCHASES ARE INFLATED. IN THIS REGARD THE FI NDING OF THE CIT(A) ARE CONFIRMED WHO HAS DELETED THE ADDITION MADE ON ACCOUNT OF INFLATED PURCHASES. IN SO FAR AS INVOKING THE PROV ISIONS OF SECTION 40A(3) IS CONCERNED WE ARE NOT IN AGREEMENT WITH T HE LD. CIT(A) AS HIS ACTION IS NOT VALID IN THE GIVEN FACTS AND C IRCUMSTANCES OF THE CASE. THE LD. CIT(A) HAS NOT GIVEN ANY NOTICE TO T HE ASSESSEE FOR INVOKING SUCH A PROVISION. HE HAS MAINLY INVOKED T HIS PROVISION ON THE BASIS OF ASSUMPTION ONLY WHICH HAVE NO SOUND BA SIS. CONSEQUENTLY THE SUSTAINED ADDITION IS ALSO BASELE SS AND CANNOT SURVIVE BEING DEVOID OF MERIT. 7.9 WITH DUE RESPECTS WE HAVE PERUSED THE ABOVE F INDING OF THE HONBLE TRIBUNAL. THE ISSUE DEALT BY THE TRIBUNAL I S SIMILAR TO THAT OF THE ISSUE ON HAND. WE ARE IN TOTAL AGREEMENT WITH THE ABOVE FINDING WHICH IS SQUARELY APPLICABLE TO THE PRESENT CASE. 7.10 THE STRONG PLEA OF THE ASSESSEE THAT THERE WE RE DUMMY SALES [SALES BILLS] TO THE EXTENT OF DUMMY PURCHASES [PU RCHASE BILLS] JUSTIFYING HIS ITA NO.1330 TO 1333/B/08 PAGE 16 OF 20 STAND IN OFFERING THE ADDITIONAL GROSS PROFIT INSTE AD OF ADDITIONAL INCOME ON ACCOUNT OF BOGUS PURCHASES WEIGHS WORTH CONSIDERATI ON. 7.11. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUES AS DELIBERATED IN THE FORE-GOING PARAGRA PHS WHICH IN CONFORMITY WITH THE FINDING OF THE HONBLE TRIBUNAL CHENNAI C BENCH REFERRED SUPRA WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN THEIR STAND AND THUS THE DISALLOWANCE OF EXPEN DITURE CLAIMED UNDER SUCH PURCHASES TO THE EXTENT OF RS.1293872/- RS.19 05650/- RS.1168811/- AND RS.1667925/- FOR THE AYS. 2002-03 2003-04 200 4-05 AND 2005-06 RESPECTIVELY ARE DELETED. 8. THE OTHER GRIEVANCE OF THE ASSESSEE IS WITH REG ARD TO THE DISALLOWANCE OF INTEREST ON LOAN. WE HAVE DULY CON SIDERED THE ASSESSEES CONTENTION ON THIS POINT. AS COULD BE SEEN FROM TH E FINDING OF THE LD.CIT (A) IN HIS IMPUGNED ORDER WHICH IS IN DISPUTE HE H AD DEALT WITH THE ISSUE AT LENGTH AND CONSIDERING THE WELL REASONING OF THE CI T (A) WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ANY INFIRMITY WHIC H INVITES OUR INTERVENTION. ACCORDINGLY WE DECLINE TO ACCEDE TO THE ASSESSEES REQUEST ON THIS COUNT. THIS GROUND IS ACCORDINGLY DISMISSED FOR ALL THE AYS UNDER DISPUTE. 9. FOR THE ASSESSMENT YEAR 2005-06 THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE CIT (A)S STAND IN DISALLOW ING THE PAYMENT OF SALARY OF RS.112000/- TO VARUN GUPTA THE ASSESSEES SON. HOWEVER ON A PERUSAL OF THE IMPUGNED ORDER OF THE CIT (A) WE FI ND THAT THIS ISSUE WAS NOT AT ALL DEALT WITH BY THE FIRST APPELLATE AUTHOR ITY PERHAPS BY OVER-SIGHT EVEN THOUGH THE ASSESSEE HAD AGITATED THE SAME AS O NE OF THE ISSUES IN ITA NO.1330 TO 1333/B/08 PAGE 17 OF 20 THE GROUNDS OF APPEAL RAISED BEFORE THE CIT (A). A S THE ASSESSEE IN HIS GROUNDS OF APPEAL BEFORE THIS BENCH HAS AGITATED TH E ISSUE AS GROUND NO.7 - CIT (A) AND AO HAS ERRED IN DISALLOWING GENUINE PAYMENT OF SALARY OF RS.112000/- TO ASSESSEES SON VARUN GUPTA WE PROCEED TO ADJUDICATE THE ISSUE ACCORDINGLY. 9.1. ON GOING THROUGH THE IMPUGNED ORDER OF THE AY UNDER DISPUTE THE AOS OBSERVATION WAS THAT DURING THE FY 04-05 HE WAS A STUDENT WHICH FACT HAS BEEN ADMITTED BY THE ASSESSE E AND HE HAD JUST ATTAINED MAJORITY DURING MARCH 2004. IMMEDIATELY O N ATTAINING MAJORITY IN THE VERY NEXT FY THE ASSESSEE HAS DEBITED SALARY A ND BONUS OF RS.112000/- IN HIS NAME. EXCEPT CLAIMING THAT AFTER COLLEGE HO URS VARUN WAS ASSISTING THE FATHER IN HIS BUSINESS NO OTHER MATERIAL EVIDE NCES HAVE BEEN PRODUCED JUSTIFYING SALARY PAYMENT OF RS.8000/- P.M . THE C LAIM SO MADE BY THE ASSESSEE HAS BEEN VERIFIED WITH REFERENCE TO SALARY PAID TO OTHER STAFF. THOUGH IN THE CASE OF OTHER STAFF SALARY HAS BEEN P AID EVERY MONTH AND IN THE CASE OF VARUN THROUGH JOURNAL MONTHLY SALARY HA VE BEEN PROVIDED AND CREDITED TO HIS ACCOUNT AND SUCH CREDITS ARE TREAT ED AS LOAN AND INTEREST ALSO PROVIDED ON IT. VARUN IS A PERSON WHO FITS IN TO THE DEFINITION OF PERSON AS DEFINED IN S.40A(2)(B). THE SERVICES RENDERED B Y THIS PERSON TO FETCH HIM SALARY OF RS.8000/- P.M HAS NOT BEEN ESTABLISHED . 9.2. WE HAVE DULY CONSIDERED THE FINDING OF THE AO BUT UNABLE TO FALL IN LINE WITH AOS STAND. AS ADMITTED BY THE A O VARUN GUPTA HAD ATTAINED MAJORITY DURING MARCH 2004. VARUNS SERV ICES WERE REQUISITIONED ITA NO.1330 TO 1333/B/08 PAGE 18 OF 20 BY THE ASSESSEE AFTER THE COLLEGE HOURS TO LESSEN H IS BURDEN AND ALSO TO ASSIST HIM IN BUSINESS FOR WHICH HE WAS COMPENSATED WITH A SALARY AND THE SAME HAS BEEN DULY REFLECTED IN THE BOOKS OF ACCOUN T OF THE ASSESSEE. IT WAS A FACT THAT VARUN WAS BEING PAID A SALARY TO CO MMENSURATE THE SERVICES RENDERED BY HIM. THE SALARY MUST HAVE BEE N CREDITED TO HIS ACCOUNT ON HIS SPECIFIC REQUEST - PREROGATIVE OF A N INDIVIDUAL WHICH CANNOT BE QUESTIONED. MORE THAN THIS WHAT SORT OF MATER IAL EVIDENCE IS REQUIRED TO SUBSTANTIATE OR JUSTIFY THE SALARY PAYMENT? TH E AO HAS TAKEN SANCTUARY UNDER THE PROVISIONS OF S. 40A (2)(B) OF THE ACT TO DISALLOW THE CLAIM. WE HAVE DULY PERUSED THE RELEVANT SECTION. 9.3. FOR READY REFERENCE WE QUOTE THE RELEVANT PO RTION OF S.40A (2)(B): 40A (2)(B) THE PERSONS REFERRED TO IN CLAUSE (A) AR E THE FOLLOWING NAMELY: - (I) WHERE THE ASSESSEE IS AN ANY RELATIVE OF TH E ASSESSEE INDIVIDUAL (II) . .. (III) ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTE REST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE OR ANY RELAT IVE OF SUCH INDIVIDUAL. NO DOUBT ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTE REST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE TO WHOM ( 2)(A) THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH ANY PAYMENT HAS BEE N OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB-SE CTION AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR ITA NO.1330 TO 1333/B/08 PAGE 19 OF 20 UNREASONABLE..SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE AL LOWED AS A DEDUCTION. 9.4. HOWEVER IN THE PRESENT CASE THE ASSESSING O FFICER HAD NOT ESTABLISHED WITH ANY DISCREET DOCUMENTARY EVIDENCE TO PROVE TH AT VARUN HAD A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFE SSION OF THE ASSESSEE EXCEPT TO A FACT THAT HE WAS THE SON OF THE ASSESSEE WHIC H IN OUR CONSIDERED VIEW CANNOT BE A SOLE REASON TO RESORT TO INVOKE THE PROVISIONS OF S. 40A(2)(B) OF THE ACT. IN A LEGAL PARLANCE THE BENEFIT OF DOUBT SHALL ALWAYS BE IN FAVOUR OF THE DEFENDANT/ PLAINTIFF (IN CIDENTALLY THE ASSESSEE). 9.5. IN VIEW OF THE ABOVE THE AO WAS NOT JUSTIFIE D IN INVOKING THE PROVISIONS OF S.40A (2)(B) OF THE ACT. IT IS ORDER ED ACCORDINGLY. 10. IN THE RESULT THE ASSESSEES APPEALS FOR THE ASSESSMENT YEARS 2002-03 2003-04 2004-05 AND 2005-06 ARE PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF MARCH 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE DATED THE 5 TH MARCH 2010. DS/- ITA NO.1330 TO 1333/B/08 PAGE 20 OF 20 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.