ITO 20(2)(3), MUMBAI v. NASIR KHAN, J. MAHADIK, MUMBAI

ITA 153/MUM/2010 | 2006-2007
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 15319914 RSA 2010
Assessee PAN ABGPM6255J
Bench Mumbai
Appeal Number ITA 153/MUM/2010
Duration Of Justice 1 year(s) 10 month(s) 23 day(s)
Appellant ITO 20(2)(3), MUMBAI
Respondent NASIR KHAN, J. MAHADIK, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-11-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year 2006-2007
Appeal Filed On 07-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER ITA NO. 153/MUM/2010 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 20(2)(3) SHRI NASIR KHAN J. MA HADIK ROOM NO. 411 4TH FLOOR 403 KOHINOOR APTS YARI RO AD PIRAMAL CHAMBERS PAREL VS. VERSOVA ANDHERI (W) MUMBAI 400012 MUMBAI 400061 PAN - ABGPM 6255 J APPELLANT RESPONDENT CO NO. 77/MUM/2011 (ASSESSMENT YEAR: 2006-07) SHRI NASIR KHAN J. MAHADIK INCOME TAX OFFICER - 20( 2)(3) 403 KOHINOOR APTS YARI ROAD ROOM NO. 411 4TH FLO OR VERSOVA ANDHERI (W) VS. PIRAMAL CHAMBERS PAREL MUMBAI 400061 MUMBAI 400012 PAN - ABGPM 6255 J CROSS OBJECTOR APPELLANT IN APPEAL REVENUE BY: SHRI O.A. MAO ASSESSEE BY: SHRI M.H. PATEL DATE OF HEARING: 15.11.2011 DATE OF PRONOUNCEMENT: 30.11.2011 O R D E R PER D. MANMOHAN V.P. THESE CROSS APPEALS PERTAIN TO A.Y. 2006-07. AT THE OUTSET IT MAY BE NOTICED THAT THE FACTS NARRATED BY THE A.O. AS WELL AS THE CASUAL APPROACH OF THE REVENUE AUTHORITIES IN PURSUING THE APPEALS AT THE COST OF THE ASSESSEE - AS WELL AS AT THE COST OF THE PUBLIC EXCHEQUER I S A STARK EXAMPLE OF THE FALLACY IN THE WORKING OF THE DEPARTMENT. 2. THE FACTS NECESSARY FOR THE DISPOSAL OF THIS APPEAL AND THE CROSS OBJECTION ARE STATED IN BRIEF. ASSESSEE AN INDIVID UAL BY STATUS WAS ENGAGED IN THE BUSINESS OF EXPORT OF HARDWARE IN THE NAME O F M/S. ALLIANCE EXPORTS. IN RESPECT OF PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 2 ASSESSEE DECLARED TOTAL INCOME OF ` 4 93 354/-. THOUGH THE RETURN OF INCOME WAS ORIGINALLY PROCESSED UNDER SECTION 143(1) OF TH E ACT IT WAS LATER ON TAKEN UP FOR SCRUTINY BY ISSUING NOTICES UNDER SECT ION 143(2) AND 142(1) OF THE ACT. IN THE FIRST PARAGRAPH THE A.O. MENTIONS IN A ROUTINE FASHION THAT ASSESSEE HAS FILED THE RETURN OF INCOME ACCOMPANIED WITH A TAX AUDIT REPORT UNDER SECTION 44AB OF THE ACT AND THEREAFTER ASSESSEES REPRESENTATIVE ATTENDED FROM TIME TO TIME AND FURNISHED THE DETAIL S CALLED FOR . HE FURTHER MENTION THAT THE CASE WAS DISCUSSED WITH HI M AND DETAILS WERE VERIFIED AND KEPT ON RECORD. HAVING MENTIONED THAT ALL THE DETAILS AS CALLED FOR WERE FURNISHED IN PARA 1 OF THE ASSESSMENT OR DER HE OBSERVES THAT ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT. HE QUI CKLY ADDS THAT WHATEVER BOOKS ARE MAINTAINED BY THE ASSESSEE THE SAME ARE REJECTED UNDER SECTION 145(3) OF THE I.T. ACT 1961. IT IS THUS NOT CLEAR AS TO WHETHER THERE WAS A TOTAL FAILURE TO PRODUCE THE BOOKS OF ACCOUNT WHET HER ANY BOOKS WERE CALLED FOR OR SOME BOOKS HAVING MAINTAINED BY ASSESSEE THE Y WERE INCOMPLETE AND THEREFORE BOOKS WERE REJECTED UNDER SECTION 145(3) AS STATED BY HIM. AFTER SUCH INCONSISTENT STATEMENTS HE PROCEEDED TO VERIFY THE LOANS TAKEN BY ASSESSEE AND IN PARAGRAPH 2 HE FURNISHES THE FOLLOW ING CHART: - DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA S TAKEN NEW LOANS FROM THE FOLLOWING PARTIES: SR. NO. NAME OF THE PARTIES AS ON 31-3-2006 AS ON 31-3-2005 1 KHALID KHAN 50000 ----- 2 SAABIA INTERNATIONAL 226000 326000 3 AFZAL MAHDIK 2867319 2112319 IN THE BODY OF THE ASSESSMENT ORDER HE HAS NOWHERE DOUBTED THE FACT THAT ASSESSEE HAD TAKEN LOANS TO THE EXTENT OF ` 3 26 000/- AND ` 21 12 319/- FROM SHRI SAABIA INTERNATIONAL AND MR. AFZAL MAHADI K RESPECTIVELY IN THE PRECEDING YEAR WHICH REPRESENTED CLOSING BALANCES OF EARLIER YEAR AND OPENING BALANCES OF THE YEAR UNDER CONSIDERATION. 3. ON A PLAIN READING OF THE PROVISIONS OF THE INCOME TAX ACT A PERSON WITH REASONABLE KNOWLEDGE OF TAX LAWS CANNOT EVEN R EMOTELY VENTURE UPON MAKING AN ADDITION REFERABLE TO PREVIOUS YEARS LOA NS IN SUBSEQUENT YEAR ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 3 SINCE UNEXPLAINED CASH CREDIT REFERABLE TO LOAN TAK EN IN THE CURRENT YEAR ONLY CAN BE ADDED UNDER SECTION 68 OF THE ACT; SEC TION 68 REFERS TO THE CASH CREDIT FOUND IN THE BOOKS OF ACCOUNT OF ASSESSEE IN THE YEAR UNDER CONSIDERATION. THOUGH THE A.O. HAS NOT MENTIONED AB OUT APPLICATION OF SECTION 68 OF THE ACT IN THE ABSENCE OF ANY OTHER PROVISION IT HAS TO BE ASSUMED THAT THE A.O. HAS MADE THE ADDITION UNDER S ECTION 68 OF THE ACT. 4. WITH REGARD TO THE LOAN RECEIVED FROM MR. AFZAL MAH ADIK THE CLOSING BALANCE AS ON 31.03.2006 BEING ` 28 67 319/- ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF THE LOAN BY PROVIDING SUPPORTING DOCUMENTS AND IN THE ABSENCE OF FURNISHING THE DETAILS TO SUPPORT THE GE NUINENESS OF THE LOAN THE A.O. PROCEEDED TO ADD THE CLOSING BALANCE OF ` 28 67 319/- (WHICH INCLUDES OPENING BALANCE OF ` 21 12 319/-) AND ALSO ADDED INTEREST COMPONENT THEREON @12% WHICH WORKS OUT TO ` 3 44 078/-. IT IS NOT UNDERSTANDABLE AS TO UNDER WHICH PROVISION THE A.O. SEEKS TO ADD INTE REST COMPONENT. IT IS NOT THE CASE OF THE A.O. THAT ASSESSEE WAS TO RECEIVE S OME INTEREST WHICH HE IS SEEKING TO MAKE AN ADDITION AS INCOME. IT IS ALSO N OT THE CASE OF THE A.O. THAT ASSESSEE CLAIMED TO HAVE PAID INTEREST @12% AN D CLAIMED DEDUCTION THEREON WHICH COULD HAVE BEEN DISALLOWED; DISALLOW ANCE IS QUITE DISTINCT AND DIFFERENT IN THE INCOME TAX ACT AND THIS SIMPLE DISTINCTION SHOULD HAVE BEEN TAKEN NOTE OF BY THE A.O. WHILE SEEKING TO MAK E AN ADDITION OF ` 3 44 078/- AND THAT TOO WITHOUT SPECIFYING AS TO U NDER WHICH SECTION HE WAS SEEKING TO MAKE THE ADDITION. THUS AN ADDITION OF ` 32 11 397/- WAS MADE BY THE A.O. REFERABLE TO THE UNEXPLAINED CASH CREDIT IN THE NAME OF SHRI AFZAL KHAN MAHADIK AND INTEREST COMPONENT THER EON. 5. ASSESSEE CONTENDED BEFORE THE LEARNED CIT(A) THAT T HE A.O. ERRED IN ADDING TO THE TOTAL INCOME THE UNSECURED LOAN TOGET HER WITH INTEREST. EXPLAINING FURTHER IN THE STATEMENT-OF-FACTS IT W AS SUBMITTED THE SHRI AFZAL KHAN MAHADIK HAS EXTENDED A SHORT TERM UNSECURED LO AN TO ASSESSEE. IT WAS ALSO STATED THAT THE CREDITOR IS A NRI AND REGU LAR TAX PAYER AND HENCE THERE IS NO BASIS FOR MAKING ADDITION OF THE SAID A MOUNT AS WELL AS ALLEGED INTEREST COMPONENT SINCE IT WAS AN INTEREST FREE SH ORT TERM LOAN WHEREIN THE QUESTION OF INTEREST INCOME DOES NOT ARISE. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 4 6. DURING THE COURSE OF HEARING THE COUNSEL APPEARING ON BEHALF OF ASSESSEE SUBMITTED THAT THE A.O. SOUGHT TO MAKE AN ADDITION UNDER SECTION 68 OF THE ACT IN WHICH EVENT AN ADDITION CAN AT BE ST BE CONTEMPLATED WITH REFERENCE TO CURRENT YEARS LOAN. IN OTHERWORDS THE LOAN TAKEN IN THE EARLIER YEAR WHICH WAS REFLECTED AS OPENING BALANCE IN THIS YEAR AND THE ALLEGED INTEREST COMPONENT ON THE INTEREST FREE LOAN CANNOT BE BROUGHT TO TAX UNDER SECTION 68 OF THE ACT. HE HAS FURNISHED BEFORE THE LEARNED CIT(A) CONFIRMATION LETTERS COPIES OF ACCOUNT OF THE ABOV E MENTIONED PARTY BANK STATEMENT BANK CERTIFICATE DETAILS OF SALARY RECE IVED AND A COPY OF THE PASSPORT IN SUPPORT OF HIS CONTENTION THAT THE CRED ITOR WAS AN INCOME TAX ASSESSEE HAVING PROPER SOURCE OF INCOME AND THE AMO UNT WAS LENT THROUGH BANKING CHANNEL WHICH WAS EVIDENCED BY THE BANK ST ATEMENT AND NO INTEREST WAS CHARGED ON THE SAME. THE LEARNED CIT(A ) OBSERVED THAT THERE WAS AN OPENING BALANCE OF ` 21 12 319/- AS ON 01.04.2005. THERE AFTER ASSESSEE HAD TAKEN A LOAN OF ` 1 00 000/- ON 17.05.2005 ` 3 00 000/- ON 08.10.2005 ` 1 75 000/- ON 28.12.2005 AND ` 1 80 000/- ON 06.01.2006 WHEREAS ASSESSEE REPAID A SUM OF ` 3 00 000/- AS ON 29.02.2005. THUS THE NET OUTSTANDING LOAN AS PER THE CONFIRMATION LETTER FILED AS ON 31.03.2006 IS ` 25 67 319/- ON WHICH NO INTEREST WAS PAID OR CLAIME D. EVEN OTHERWISE THE OPENING BALANCE CANNOT BE TAKEN INTO CONSIDERATION AND THE FRESH LOAN OF ` 7 55 000/- IS DULY SUPPORTED BY CONFIRMATION LETTER SALARY CERTIFICATE ETC. UNDER THE CIRCUMSTANCES THE LEARNED CIT(A) CONCLUDE D THAT THE ENTIRE LOAN TAKEN FROM SHRI AFZAL KHAN MAHADIK IS FULLY EXPLAIN ED. 7. THE INCOME TAX OFFICER WARD 20(2)(3) MUMBAI THE APPELLANT HEREIN APPEARS TO HAVE BEEN AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT(A) ON THE AFOREMENTIONED ISSUE PRESUMABLY BECAUSE HE WAS OF THE FIRM VIEW THAT ATLEAST THE ADDITION OF ` 28 67 319/- REFERABLE TO THE LOAN COMPONENT DESERVES TO BE ADDED UNDER SECTION 68 OF THE ACT AN D HENCE AN APPEAL WAS PREFERRED ON ACCOUNT OF THE FACT THAT THIS APPEAL W AS DULY AUTHORISED BY THE COMMISSIONER OF INCOME TAX 20 MUMBAI UNDER THE POW ERS VESTED IN HIM U/S 253 OF THE ACT. IT IS A WELL KNOWN PRINCIPLE OF LAW THAT A POWER VESTED IN A GOVERNMENT OFFICIAL UNDER A STATUTE CANNOT BE TRE ATED AS A DISCRETIONARY POWER UNLESS SPECIFICALLY MENTIONED THEREIN AND IN THE PRESENT ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 5 CIRCUMSTANCES THE COMMISSIONER OF INCOME TAX IS DUT Y BOUND TO APPLY HIS MIND AS TO WHETHER IT WAS A FIT CASE FOR FILING OF AN APPEAL OR NOT BEFORE AUTHORISING THE A.O. TO PREFER AN APPEAL AS OTHERWI SE THE VERY PURPOSE OF GIVING THE POWER OF AUTHORIZATION TO A SENIOR OFFIC ER GETS FRUSTRATED. 8. GROUNDS URGED ON BEHALF OF REVENUE ARE EXTRACTED FO R READY REFERENCE: - I. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W AND IN THE CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT OF RS.28 67 319/- THE UNSEC URED LOAN OUTSTANDING IN THE NAME OF MR. AFZAL MAHADIK. II. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W AND IN THE CIRCUMSTANCES OF THE CASE IN ADMITTING THE NEW EVID ENCE OF LOAN CONFIRMATION FILED BY THE ASSESSEE BEFORE HIM WITHO UT CALLING REMAND REPORT AND NOT TAKING COGNIZANCE OF ASSESSIN G OFFICER IN CONTRAVENTION TO RULE 46A. 9. AT THIS JUNCTURE IT IS NECESSARY TO TRAVEL BACK TO THE ORDER PASSED BY THE A.O. TO APPRECIATE THE REASONS GIVEN BY HIM FOR MAKING CERTAIN OTHER ADDITIONS WHICH WERE ALSO IN DISPUTE BEFORE US BY W AY OF CROSS OBJECTIONS FILED BY ASSESSEE - TAKING ADVANTAGE OF THE APPEAL FILED BY REVENUE. 10. ASSESSEES TURNOVER OF HARDWARE ITEMS WAS TO THE TU NE OF ` 1 20 59 537/- ON WHICH HE HAS DECLARED GROSS PROFIT OF ` 21 84 765/- WHICH WORKS OUT TO 15.40% OF THE TURNOVER. HE DECLARED NE T PROFIT OF ` 6 02 364/-. THE TRADING ACCOUNT FILED BY ASSESSEE SHOWS THAT TH E GROSS PROFIT WORKS OUT TO 15.41%. 11. THE A.O. COMPARED THE GROSS PROFIT OF ASSESSEE WITH THE IMMEDIATELY PROCEEDING ASSESSMENT YEAR TO HIGHLIGHT THAT THERE WAS A FALL IN THE GROSS PROFIT TO THE EXTENT OF 7.56%. ACCORDING TO THE A.O . THE G.P. FOR THE A.Y. 2005-06 WORKS OUT TO 22.96% AND THEREFORE THE DIFFE RENCE WAS SOUGHT TO BE ADDED. IN THIS REGARD ASSESSEE WAS ASKED TO FURNISH THE VALUATION OF CLOSING STOCK AND OPENING STOCK WITH BOOKS OF ACCOUNT BILL S OF PURCHASE VOUCHERS AND SUPPORTING MATERIAL. HOWEVER ASSESSEE FAILED T O SUBMIT THE DETAILS TO EXPLAIN THE REASONS FOR FALL IN GROSS PROFIT. UNDER THE CIRCUMSTANCE THE A.O. OBSERVED THAT ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT BILLS AND VOUCHERS. HE HAS ADOPTED THE FIGURE OF ` 27 73 693/- AS GROSS PROFIT DECLARED ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 6 FOR A.Y. 2005-06 WHEREAS FOR THE A.Y. 2006-07 THE G .P. OF RS .18 57 737/- HAVING BEEN DECLARED THE DIFFERENCE FIGURE OF ` 9 19 956/- WAS ADDED TO THE INCOME DECLARED BY ASSESSEE. 12. THE A.O. HAS ALSO NOTICED THAT ASSESSEE HAD BORROWE D LOAN OF ` 50 000/- FROM SHRI KHALID KHAN AND ` 2 26 000/- FROM M/S. SAABIA INTERNATIONAL. IT MAY BE NOTICED HERE THAT THE SUM OF ` 50 000/- FROM SHRI KHALID KHAN WAS A FRESH LOAN TAKEN DURING THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WHEREAS IN RES PECT OF M/S. SAABIA INTERNATIONAL THE AMOUNT PAYABLE TO THE ABOVE MENTI ONED PARTY AS ON 31.03.2005 WAS ` 3 26 000/- AND DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07 ASSESSEE HAD TAKEN FRESH LOAN OF ` 1 00 000/- AND REPAID A SUM OF ` 2 00 000/- AND THUS THE NET BALANCE STANDING IN THE NAME OF M/S. SAABIA INTERNATIONAL WORKS OUT TO ` 2 26 000/-. THE A.O. OBSERVED THAT ASSESSEE FAILED TO PROVIDE ANY DETAILS OR ANY DOCUMENT OR A NY CONFIRMATION TO PROVE THE LOANS AND HENCE HE ADDED THE CLOSING BALANCE AS ON 31.03.2006 ALONG WITH INTEREST @12% PRESUMABLY UNDER SECTION 68 OF THE ACT. 13. ASSESSEE INCURRED CERTAIN MISCELLANEOUS EXPENDITURE UNDER THE FOLLOWING HEADS AND IT WAS DEBITED TO HIS P & L ACC OUNT: - SR. NO. PARTICULARS TOTAL EXPENSES DEBITED TO P & L ACCOUNT 1 MOTOR CAR EXPENSES RS.56 362/- 2 COMPUTER EXPENSES RS.23 770/- 3 TRAVELLING & CONVEYANCE EXPN. RS.91 152/- 4 SUNDRY EXPENSES RS.22 360/- 5 TELEPHONE AND MOBILE EXPENSES RS.51 123/- 6 RENT RATES & TAXES RS.25 000/- 7 EXPORT PROMOTION EXPENSES RS.4 03 994/- 8 FREIGHT & OCTROI RS.10 95 159/- 9 CLEARING & FORWARDING EXPENSES RS.1 80 319/- TOTAL RS.19 49189/- ADMITTEDLY MOST OF THE EXPENDITURE INCURRED IN CAS H WAS SUPPORTED BY SELF MADE VOUCHERS. AS REGARDS MOTOR CAR EXPENSES ETC. PERSONAL USE CANNOT BE RULED OUT. UNDER THE CIRCUMSTANCES THE A.O. DISALLO WED 30% OF THE EXPENDITURE WHICH WORKS OUT TO ` 5 84 756/-. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 7 14. AGGRIEVED BY THE ORDER OF THE A.O. WITH REGARD TO A DDITION OF ` 9 15 956/- ` 50 000/-(+INTEREST) ` 2 26 000/- (+INTEREST) AND ` 5 84 956/- ASSESSEE CONTENDED BEFORE THE LEARNED CIT(A) THAT A DDITIONS MADE BY THE A.O. ARE ARBITRARY. 15. REGARDING G.P. ADDITION IT WAS SUBMITTED THAT THE A .O. PROCEEDED ON A TOTAL UNACCEPTABLE WAY OF GROSS PROFIT CALCULATION OVERLOOKING THE FACT THAT ANY HARDWARE ITEMS RATE CANNOT BE CONSISTENT IN EV ERY YEAR. IN PARTICULAR THERE WAS LOT OF FLUCTUATION IN DOLLAR RATE WHICH WAS THE MAIN REASON FOR DECREASE IN GROSS PROFIT AND ADDED TO THAT ASSESSEE HAD TO SELL AT LOWER RATE THAN THE NORMAL SELLING PRICE TO ATTRACT NEW CUSTOM ERS AND THUS THE A.O. WAS NOT JUSTIFIED IN TAKING INTO CONSIDERATION THE GROSS PROFIT OF THE EARLIER YEAR AS YARDSTICK. 16. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE HAS N OT DENIED ABOUT NON-MAINTENANCE OF THE DAY-TO-DAY STOCK TALLY AND D ETAILS REQUIRED FOR SHOWING THE TRADING RESULTS WERE ALSO NOT FURNISHED AND HENCE THE ADDITION MADE BY THE A.O. WAS CONFIRMED. 17. AS REGARDS CASH CREDIT IN THE NAME OF SHRI KHALID K HAN AND SAABIA INTERNATIONAL THE CASE OF ASSESSEE WAS THAT SHRI K HALID KHAN WAS BROTHER OF ASSESSEE AND HE HAS EXTENDED A SHORT TERM UNSECURED LOAN WITHOUT CHARGING ANY INTEREST. SHRI KHALID KHAN WAS ALSO A NRI. SIMI LARLY PROPRIETOR OF M/S. SAAIBA INTERNATIONAL WAS A FAMILY FRIEND AND HE HAD EXTENDED SHORT TERM LOANS. THEY ARE REGULAR TAX PAYERS. THEY HAVE ALSO NOT CHARGED ANY INTEREST AND HENCE THE QUESTION OF MAKING ANY ADDITION IN P ARTICULAR TOWARDS INTEREST DOES NOT ARISE. 18. BEFORE THE CIT(A) ASSESSEE FURNISHED CONFIRMATION L ETTERS AND COPY OF PASSPORT OF SHRI KHALID KHAN. IN THE CASE OF M/S. S AABIA INTERNATIONAL THE LEARNED A.R. HAS FURNISHED THE PAN OF ITS PROPRIETO R AND A COPY OF THE RETURN OF INCOME FILED FOR THE RELEVANT YEAR BUT NO BANK A CCOUNT OR FURTHER EVIDENCE WAS FILED. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE DETAILS WITH REFERENCE TO THE AFOREMENTIONED TWO PARTIES HAVING NOT BEEN F URNISHED BEFORE THE LEARNED CIT(A) IT IS A FIT CASE FOR MAKING AN ADDI TION UNDER SECTION 68 OF THE ACT. AS REGARDS SHRI KHALID KHAN HE CONFIRMED ADDI TION OF ` 50 000/- ONLY. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 8 IN OTHER WORDS THE ADDITION REFERABLE TO THE INTERE ST ADDITION MADE BY THE A.O. WAS DELETED BY THE LEARNED CIT(A) THOUGH THER E WAS NO DISCUSSION ABOUT THE UNREASONABLE METHOD ADOPTED BY THE A.O. H E MERELY MENTIONED THAT ASSESSEE HAS NEITHER PAID ANY INTEREST NOR CLA IMED ANY INTEREST EXPENDITURE IN HIS P & L ACCOUNT. AS REGARDS THE AD DITION REFERABLE TO CASH CREDIT IN THE NAME OF M/S. SAABIA INTERNATIONAL A PROPRIETARY CONCERN OF SHRI MOHAMMED SHAHID ILYAS THOUGH ASSESSEE HAS FUR NISHED THE REQUISITE CONFIRMATION LETTER ALONG WITH COPY OF THE RETURN O F INCOME AND PAN THE LEARNED CIT(A) WAS OF THE VIEW THAT IN THE ABSENCE OF REQUISITE BANK ACCOUNT OF THE CONCERNED PARTY THE LOAN CANNOT BE STATED TO HAVE BEEN PROVED. HE HOWEVER MENTIONED A NEW FIGURE OF ` 2 00 000/- WHICH WAS STATED TO BE OUTSTANDING IN THE NAME OF M/S. SAABIA INTERNATIONA L AND THEREFORE CONFIRMED THE ADDITION TO THE EXTENT OF ` 2 00 000/-. 19. AS REGARDS THE ESTIMATED DISALLOWANCE OF 30% ON MIS CELLANEOUS EXPENDITURE THE CASE OF THE ASSESSEE WAS THAT IT I S NOT POSSIBLE TO MAINTAIN BILLS AND VOUCHERS FOR VERIFICATION IN RESPECT OF C ERTAIN EXPENDITURE SINCE MANY PAYMENTS WERE MADE IN CASH AND SOME OF THE EXP ENDITURE WAS SUPPORTED BY SELF-MADE VOUCHERS. EVEN IF AN ADDITIO N IS CALLED FOR DISALLOWANCE OF 30% IS ON THE HIGHER SIDE CONSIDERI NG THE CIRCUMSTANCES OF THE CASE. THE LEARNED CIT(A) WAS SATISFIED WITH THE SUBMISSION OF ASSESSEE AND HENCE RESTRICTED THE DISALLOWANCE TO 10% OF THE EXPENDITURE WHICH WORKS OUT TO ` 1 94 918/-. 20. THOUGH ASSESSEE DID NOT PREFER ANY APPEAL ON THE AF OREMENTIONED ADDITIONS SINCE REVENUE HAS PREFERRED AN APPEAL B Y WAY OF A CROSS OBJECTION ASSESSEE CHALLENGED THE ORDER OF THE CIT( A) WHEREIN IT WAS CONTENDED THAT ADDITION OF ` 9 15 956/- REFERABLE TO ESTIMATION OF G.P. IS NOT JUSTIFIED ADDITION OF ` 2 50 000/- TOWARDS CASH CREDIT IS NOT IN ACCORDANCE WITH LAW AND ADDITION OF ` 1 94 918/- BY WAY OF ADHOC DISALLOWANCE DESERVES TO BE DELETED. 21. THE APPEAL FILED THE REVENUE AS WELL AS THE CROSS O BJECTIONS FILED BY ASSESSEE ARE TAKEN UP. WE HAVE HEARD THE LEARNED D. R. AND THE LEARNED COUNSEL APPEARED ON BEHALF OF THE ASSESSEE AND CARE FULLY PERUSED THE RECORD. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 9 THE ONLY ISSUE URGED IN REVENUES APPEAL IS WITH RE FERENCE TO UNEXPLAINED CASH CREDIT IN THE NAME OF MR. AFZAL KHAN MAHADIK. THE LEARNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE A.O. T O SUBMIT THAT ADDITION OF ` 28 69 319/- OUGHT TO HAVE BEEN CONFIRMED BY THE CIT (A) UNDER SECTION 68 OF THE ACT AND FURTHER CONTENDED THAT THE LEARNED C IT(A) WAS NOT JUSTIFIED IN TAKING INTO CONSIDERATION ADDITIONAL EVIDENCE IN TH E FORM OF CONFIRMATION LETTERS ETC.; NO OPPORTUNITY WAS GIVEN TO THE A.O. 22. REGARDING THE ISSUES URGED IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE THE LEARNED D.R. SUBMITTED THAT ESTIMATIO N OF G.P. IS REASONABLE AND HENCE THE ORDER PASSED BY THE CIT(A) DOES NOT C ALL FOR ANY MODIFICATION. SIMILARLY WITH REGARD TO THE ADDITION OF ` 2 50 000/- TOWARDS UNEXPLAINED CASH CREDIT THOUGH THE LEARNED D.R. ADMITTED THAT THE ADDITION IF ANY SHOULD BE EITHER THE ENTIRE CLOSING BALANCE AS ON 3 1.03.2006 OR THE AMOUNT TAKEN AS LOAN IN THIS YEAR (BUT THE LEARNED CIT(A) HAS WRONGLY TAKEN INTO CONSIDERATION ONLY A SUM OF ` 2 00 000/- IN THE CASE OF SAABIA INTERNATIONAL). HE SUBMITTED THAT THE FACT REMAINS THAT ASSESSEE HA S NOT FURNISHED CONFIRMATION LETTERS AND DETAILS OF BANK ACCOUNT BE FORE THE A.O. AND THUS THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE A.O. AS REGARDS DISALLOWANCE OF 10% OF THE MISCELLANEOUS EXPENDITURE THE LEARNED D.R. SUBMITTED THAT MOST OF THE EXPENDITURE WAS SUPPORTED BY MERE SELF-MADE VOUCHERS AND THUS THE A.O. ESTIMATED THE AMOUNT DISALLOWABLE AT 30% WHEREAS THE CIT(A) HAS SUSTAINED THE DISALLOWAN CE TO THE EXTENT OF 10% ONLY AND THUS HIS ORDER DOES NOT CALL FOR ANY INTER FERENCE. 23. WHILE ADDRESSING THE ISSUE URGED IN REVENUES APPEA L THE LEARNED COUNSEL APPEARING ON BEHALF OF ASSESSEE SUBMITTED THAT THE VERY BASIS FOR MAKING THE ADDITION IS ARBITRARY AND ON ACCOUNT OF EXCESSIVE USE OF THE QUASI JUDICIAL POWER VESTED IN THE A.O.; THEREFORE IT IS A FIT CASE WHERE THE METHODOLOGY FOLLOWED BY THE A.O. DESERVES TO BE HIG HLIGHTED. HE FURTHER SUBMITTED THAT THE A.O. ON ONE HAND CATEGORICALLY S TATES THAT ALL THE DETAILS CALLED FOR WERE FURNISHED BUT AT THE SAME TIME STAT ES THAT CONFIRMATION LETTERS AND SUPPORTING MATERIAL WERE NOT FURNISHED WHICH STATEMENT IS CONTRADICTORY IN TERMS. HE FURTHER SUBMITTED THAT W HERE AN ASSESSEE HAS ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 10 OBTAINED LOAN FREE OF INTEREST THERE CANNOT BE ADDI TION TOWARDS INTEREST SINCE ADDITION TOWARDS INTEREST IS PERMISSIBLE ONLY WHEN ASSESSEE WAS TO RECEIVE CERTAIN INTEREST FROM OTHER PARTY WHICH WAS NOT DEC LARED OR ASSESSEE CLAIMED DEDUCTION TOWARDS INTEREST PAYABLE WHICH WAS NOT PA ID WHEREAS IN THE INSTANT CASE IT WAS A PURE AND SIMPLE CASE OF LOAN TAKEN FROM THE BROTHER A NRI WHO HAD ADVANCED THE AMOUNT FREE OF INTEREST A ND HE HAS SUFFICIENT SOURCES TO GIVE THE LOAN. WHATEVER MATERIAL WAS CAL LED FOR WERE FURNISHED BEFORE THE A.O. SINCE THE A.O. HAS NEVER CALLED FOR FURTHER DETAILS BEFORE MAKING THE ADDITION AT THE FIRST AVAILABLE OPPORTU NITY I.E. BEFORE THE CIT(A) ASSESSEE FURNISHED ALL THE DETAILS WHO HAD VERIFIED THE PAN ETC. AND ALSO TOOK NOTE OF THE FACT THAT THE CREDITOR WAS AN EMPL OYEE OF JERSEY INDUSTRIAL COMPANY LTD. DOHA QATAR AND IN HIS CAPACITY AS GEN ERAL MANAGER OF THE SAID COMPANY HE WAS DRAWING A BASIC SALARY OF QR 40 000/- PER MONTH PLUS INCENTIVES SINCE 1994. HE HAS VERIFIED THE BANK ACC OUNT MAINTAINED WITH HONG KONG & SHANGHAI CORPORATION BANK LTD. WHEREIN THE LOAN AMOUNTS RECEIVED BY ASSESSEE ON SEVERAL DATES WERE REFLECTE D. HE ALSO NOTICED THE FACT THAT THE A.O. HAS ARBITRARILY MADE THE ADDITION OF THE CLOSING BALANCE IGNORING THE FACT THAT PREVIOUS YEARS LOAN CANNOT B E ADDED UNDER SECTION 68 OF THE ACT IN THE YEAR UNDER CONSIDERATION. IN FACT THE A.O. HAS NOT PREFERRED ANY APPEAL AGAINST THE SO CALLED INTEREST WHICH IN ITSELF INDICATE THAT HE WAS AWARE OF THE FACT THAT THERE CANNOT BE ANY ADDITION TOWARDS ALLEGED INTEREST INCOME WHICH HIGHLIGHTS THE ADMISSION OF ARBITRARY ACTION OF THE A.O. AND DESPITE SUCH ARBITRARY ACTION WHICH WAS HIGHLIGHTE D BY THE CIT(A) THE SAME A.O. CHOSE TO FILE AN APPEAL TO CHALLENGE THE ADDIT ION OF ` 28 67 319/- WHICH WAS THE CLOSING BALANCE AS ON 31.03.2006 WHICH INCL UDES THE EARLIER YEARS CLOSING BALANCE OF ` 21 12 319/- AND SUCH REQUEST FOR FILING AN APPEAL W AS TO BE PROPERLY SCRUTINISED BY A SENIOR OFFICER OF THE RANK OF COMMISSIONER OF INCOME TAX BUT HE CHOSE TO AUTHORISE THE A.O. TO PR EFER AN APPEAL TO CHALLENGE THE DELETION OF ADDITION OF ` 28 67 319/- WHICH HIGHLIGHTS THAT THE COMMISSIONER OF INCOME TAX HAS NOT EXERCISED HIS M IND OVER THE ISSUE. SINCE THE AUTHORIZATION UNDER SECTION 253(2) OF THE ACT IS WITHOUT EXERCISE OF MIND THE VERY PROCEEDING DESERVES TO BE ANNULLED. A T ANY RATE AN ADDITION CAN AT BEST CAN BE MADE UNDER SECTION 68 WHICH REF ERS TO LOAN TAKEN IN THIS ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 11 YEAR FROM SHRI AFZAL KHAN MAHADIK AND EVEN AT THIS STAGE THE A.O. WAS NOT ABLE TO POINT OUT AS TO WHY HE CHOSE TO STICK TO TH E ADDITION OF ` 28 67 319/-. HE THUS FIRMLY SUBMITTED THAT THE FIRST APPELLATE A UTHORITY WAS JUSTIFIED IN CANCELLING THE ADDITION MADE BY THE A.O. 24. AS NOTICED FROM THE ASSESSMENT ORDER THE A.O. WAS FULLY CONSCIOUS OF THE FACT THAT ` 21 12 319/- WAS THE CLOSING BALANCE AS ON 31.03.200 5 AND THUS CURRENT YEARS LOAN WAS ONLY ` 7 55 000/-. WE ASKED THE LEARNED D.R. WHO HAS TO MAKE A FAIR REPRESENTATION OF THE MATTER TO EXPLAIN AS TO WHETHER ANY LETTER WAS ADDRESSED BY HIM TO SEEK CLA RIFICATION FROM THE A.O. ON THIS ISSUE OR WHETHER THERE WAS ANY LETTER FROM THE A.O. JUSTIFYING HIS ACTION OF MAKING ADDITION OF ` 28 67 319/- SO AS TO APPRECIATE THE VIEW POINT OF THE A.O. WHO IS THE APPELLANT IN THE INSTANT AP PEAL. THE LEARNED D.R. FAIRLY SUBMITTED THAT THE RECORD DOES NOT INDICATE ANY SUCH MATERIAL. 25. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. HAVING REGARD TO THE PECULIAR CIRCUMSTANCES OF THE CASE WE ARE OF THE FIRM VIEW THAT THE A.O. NOT ONLY SOUGHT TO MAKE AN ARBITRARY ADDITION BY INCLUDING THE LOAN TAKEN IN THE PRECEDING YEAR ALSO BY ROPING IN SECTION 68 OF THE ACT BUT HE HAS FURTHER SOUGHT TO ADD THE SO CALLED INTEREST INCOME PRESUMABLY UNDER SECTION 68 OF THE ACT. SUCH ARBITR ARY ACTION WOULD RESULT IN LOSS OF FAITH IN THE ADMINISTRATION OF REVENUE A UTHORITIES IN THE EYES OF THE TAX PAYING PUBLIC WHO ARE THE BACKBONE OF OUR SOCI ETY SINCE THE TAX PAID BY THE PUBLIC IS THE ONLY SOURCE OF REVENUE WHICH IS U TILISED FOR THE WELFARE OF THE ECONOMY. ADDED TO THAT AT LEAST WHEN THE CIT(A ) HAS CORRECTED THE WRONG DOING OF THE A.O. HE HAD A SECOND CHANCE TO P ROPERLY APPLY HIS MIND AND TO INTROSPECT AS TO WHETHER HIS ACTION IS JUSTI FIED BUT HE CHOSE TO CHALLENGE THE DELETION OF ADDITION OF ` 28 67 319/- WHICH INCLUDES THE LOAN TAKEN IN THE PRECEDING YEAR WHICH WOULD CERTAINLY G IVE UNDUE HARDSHIP TO AN ASSESSEE SINCE HE HAS TO ENGAGE A COUNSEL TO ENS URE PROPER REPRESENTATION TO HIGHLIGHT THE FACTS OF THE CASE. IN ORDER TO AVOID SUCH ARBITRARY FILING OF APPEAL BY AN A.O. THE LEGISLATU RE VESTED THE POWER OF FILING OF AN APPEAL WITH A SENIOR OFFICER I.E. COMMISSIONE R OF INCOME TAX - WHO IS SUPPOSED TO VERIFY THE RECORD BEFORE AUTHORISING TH E INCOME TAX OFFICER TO ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 12 PREFER AN APPEAL BEFORE THE TRIBUNAL. IN THE INSTAN T CASE THE COMMISSIONER OF INCOME TAX HAS MECHANICALLY GIVEN HIS APPROVAL. A PLAIN READING OF THE ORDER OF THE A.O. OR THE CIT(A) WOULD HAVE HIGHLIGH TED THAT THERE WAS NO CASE FOR MAKING ADDITION OF THE CLOSING BALANCE OF THE P RECEDING YEAR. BY VIRTUE OF THE AUTHORIZATION AN APPEAL WAS FILED BY THE REVENU E WHICH COMPELLED THE ASSESSEE TO ENGAGE A COUNSEL TO PROPERLY HIGHLIGHT THE FACTS BEFORE THE TRIBUNAL. THE CASE OF THE A.O. IS THAT NEW EVIDENCE S IN THE FORM OF CONFIRMATION LETTERS WERE ACCEPTED BY THE LEARNED C IT(A) WITHOUT CALLING FOR REMAND REPORT I.E. IN CONTRAVENTION OF RULE 46A OF THE INCOME TAX RULES. THE ORDER OF THE CIT(A) WAS PASSED IN 2009 AND THE APPEAL WAS FILED BY THE REVENUE ON 07.01.2010. THOUGH THERE WAS A TIME GAP OF MORE THAN ONE YEAR NOTHING WAS BROUGHT ON RECORD TO SUBMIT THAT SHRI A FZAL MAHADIK WAS NOT THE BROTHER OF ASSESSEE AND WAS NOT EARNING ANY INC OME. SUFFICIENT MATERIAL WAS BROUGHT ON RECORD BEFORE THE CIT(A) TO HIGHLIGH T THAT ALL THE PAYMENTS WERE THROUGH BANK ACCOUNT AND THE CREDITOR HAS SUFF ICIENT CREDITWORTHINESS BEING A HIGHLY PAID EMPLOYEE IN DOHA QATAR. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THA T THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. IN FACT BY VIRTUE OF AN ARBITRARY ADDITION WHICH HAD TO BE CH ALLENGED BEFORE THE CIT(A) AND ALSO TO BE CONTESTED BEFORE THE TRIBUNAL ASSES SEE WAS PUT TO GREAT STRESS APART FROM INCURRING EXPENDITURE IN ENGAGING AUTHORISED REPRESENTATIVE AT VARIOUS STAGES. SINCE IT IS ATTRI BUTABLE TO THE ARBITRARY ACTION OF THE A.O. WE ARE OF THE VIEW THAT IT IS A FIT CASE TO AWARD COSTS. A TOKEN AMOUNT OF ` 1000/- IS AWARDED AS COSTS - PAYABLE BY REVENUE. WE ORDER ACCORDINGLY. APPEAL FILED BY REVENUE IS HEREB Y DISMISSED. 26. WITH REGARD TO THE CROSS OBJECTIONS FILED BY ASSESS EE THE LEARNED COUNSEL SUBMITTED THAT THOUGH THE FACTS WERE ON REC ORD FOR WANT OF PROPER REPRESENTATION CERTAIN FACTS AVAILABLE ON RECORD OF THE A.O. COULD NOT BE PROPERLY FOCUSED BEFORE THE TAX AUTHORITIES. AS REG ARDS ADDITION OF ` 9 15 956/- REFERABLE TO ESTIMATION OF GROSS PROFIT THE LEARNED COUNSEL SUBMITTED THAT THE A.O. HAS FOLLOWED AN ARBITRARY M ETHOD OF ARRIVING AT THE ABOVE FIGURE. EXPLAINING FURTHER THE LEARNED COUNSE L ADVERTED OUR ATTENTION TO PAGE 2 OF THE PAPER BOOK WHICH IS THE INCOME ST ATEMENT FILED ALONG WITH ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 13 THE APPEAL PAPERS WHEREIN EARLIER YEARS GROSS PRO FIT WAS SHOWN AT ` 13 03 469/- AS AGAINST ` 18 57 737/- IN THE YEAR UNDER CONSIDERATION AND THE NET DIFFERENCE IF ANY IS ONLY TO THE TUNE OF ` 5 54 268/- WHEREAS THE A.O. SOUGHT TO BRING TO TAX A SUM OF ` 9 15 956/- BY TAKING INTO CONSIDERATION THE GROSS PROFIT FIGURE PLUS DEPB FOR THE YEAR ENDING 3 1.03.2005 AS AGAINST THE GROSS PROFIT MINUS DEPB FOR A.Y. 2006-07. IN ORDER TO HIGHLIGHT THIS ASPECT HE ADVERTED OUT ATTENTION TO PAGES 24 & 25 FROM WHE RE IT CAN BE SEEN THAT IN RESPECT OF A.Y. 2005-06 THE SALES WERE TO THE TUNE OF ` 80 51 515/- AND DEPB RECEIPTS WERE TO THE TUNE OF ` 5 45 769/- AND IF TRADING ACCOUNT IS PREPARED BY ADDING THE DEPB AMOUNT ALSO ON THE CRED IT SIDE OF THE TRADING ACCOUNT THE GROSS PROFIT WORKS OUT TO ` 18 49 328/- WHICH COMES TO A RATE OF 22.96% WHEREAS EXCLUDING THE DPEB THE GROSS PROFIT RATE WORKS OUT TO 16.19% ONLY. SIMILARLY FOR A.Y. 2006-06 THE TRADING ACCOUNT PREPARED BY INCLUDING DEPB ON THE CREDIT SIDE GIVES RISE TO A P ROFIT OF ` 21 84 946/- WHICH GIVES A RATE OF 18.11% WHEREAS EXCLUDING DEPB THE G.P. RATE WORKS OUT TO 15.41%. IT WAS THUS SUBMITTED THAT THE A.O. HAS FOLLOWED AN ARBITRARY METHOD IN MAKING ADDITION TO THE GROSS PROFIT DECLA RED BY ASSESSEE THOUGH THESE FACTS ARE ALREADY AVAILABLE ON RECORD (PAGE 2 OF THE PAPER BOOK). HE FURTHER SUBMITTED THAT THE SALES IN THE IMMEDIATELY PRECEDING YEAR WERE TO THE TUNE OF ` 80 00 000/- WHEREAS IN THE YEAR UNDER CONSIDERATION THE SALES WERE TO THE TUNE OF ` 1 20 00 000/- AND THUS THERE IS SUBSTANTIAL RISE IN THE TURNOVER WHICH CAN BE ACHIEVED ONLY BY EXPORT/SELL ING THE HARDWARE ITEMS ON COMPETITIVE RATES. HOWEVER IN THE ABSENCE OF PR OPER DETAILS AND VOUCHERS TO SUPPORT THE CLAIM THE LEARNED COUNSEL COULD NOT SUPPORT HIS STAND THAT NO ADDITION AT ALL IS CALLED FOR. 27. ON THE OTHER HAND THE LEARNED D.R. SUBMITTED THAT ASSESSEE HAS NOT HIGHLIGHTED THIS FACT EITHER BEFORE THE A.O. OR BEF ORE THE CIT(A) AND NO BILLS/VOUCHERS COULD BE PRODUCED IN ORDER TO PROVE THE CLAIM THAT SALES WERE MADE AT COMPETITIVE RATES OR FLUCTUATION OF DOLLAR RATE WAS THE REASON FOR DECLINE IN G.P. HE THUS STRONGLY RELIED UPON THE OR DER PASSED BY THE FIRST APPELLATE AUTHORITY. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 14 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION A ND PERUSED THE RECORD. WE HAVE NOTICED FROM THE AUDITED TRADING AC COUNT AND P & L ACCOUNT FILED BY THE ASSESSEE THAT THERE IS MARGINA L VARIATION IN THE GROSS PROFIT I.E. ASSESSEE HAS DECLARED GROSS PROFIT RATE OF 15.41% AS AGAINST 16.19% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR . HOWEVER THE A.O. WHILE COMPLETING THE ASSESSMENT HAS WRONGLY NOTED THAT THE GROSS PROFIT RATE WORKS OUT TO 22.96% WHICH IS THE RATE ADOPTED AFTER TAKING INTO CONSIDERATION THE DPEB INCOME ALSO WHICH IN OUR CO NSIDERED OPINION IS NOT IN ACCORDANCE WITH LAW. HOWEVER THE FACT REMAINS T HAT ASSESSEE HAS NOT PRODUCED BILLS VOUCHERS OR ANY OTHER DETAILS IN SU PPORT OF HIS CLAIM THAT SALES WERE MADE ON COMPETITIVE RATES OR FLUCTUATION OF DOLLAR RATE HAS GIVEN RISE TO LOW GROSS PROFIT. EVEN IF THE GROSS PROFIT AS ADOPTED FOR THE IMMEDIATELY PRECEDING YEAR HAS BEEN ADOPTED FOR THI S YEAR ALSO THE ADDITION SHOULD BE IN THE RANGE OF 1% OF THE SALE OF THIS YE AR. ON A CONSPECTUS OF THE MATTER WE DEEM IT FAIR AND REASONABLE TO SUSTAIN AN ADDITION OF ` 1 00 000/- AS AGAINST ` 9 15 956/- MADE BY THE A.O. TO THIS EXTENT THE ORDE R OF THE LEARNED CIT(A) IS MODIFIED. 29. WITH REGARD TO THE ADDITION MADE UNDER SECTION 68 O F THE ACT THE LEARNED COUNSEL SUBMITTED THAT IN THE CASE OF M/S. SAABIA INTERNATIONAL THE OPENING BALANCE WAS TO THE TUNE OF ` 3 26 000/- AND THERE WAS IN FACT REDUCTION OF THE BALANCE IN WHICH EVENT NO ADDITIO N IS CALLED FOR WHEREAS THE A.O. PROCEEDED TO MAKE AN ADDITION OF ` 2 26 000/- REFERABLE TO CLOSING BALANCE AS ON 31.03.2006 AND ALSO INTEREST THEREON. THE CIT(A) HAS COMMITTED A FURTHER ERROR IN SUSTAINING AN ADDITION OF ` 1 50 000/- OVERLOOKING THE FACT THAT IN THE YEAR UNDER CONSIDE RATION ONLY A SUM OF ` 1 00 000/- HAS BEEN TAKEN AS FRESH LOAN WHEREAS ASS ESSEE REPAID A SUM OF ` 2 00 000/-. THUS AN ADDITION OF ` 1 00 000/- AT BEST COULD HAVE BEEN MADE BUT IN THE PARTICULAR FACTS OF THE CASE EVEN S UCH ADDITION IS NO MAINTAINABLE SINCE ASSESSEE REPAID A SUM OF ` 1 00 000/- ON 01.06.2005 WHICH IS DEEMED TO BE AVAILABLE AS ON 26.10.2005 IF THE CASH CREDIT IS HELD TO BE NON-GENUINE. IN THIS REGARD HE REFERRED TO PA GE 82 OF THE PAPER BOOK. HE STRONGLY SUBMITTED THAT THE CIT(A) WAS TOTALLY C ONFUSED IN CONFIRMING THE ADDITION OF ` 1 50 000/- REFERABLE TO LOAN TAKEN FROM M/S. SAABIA ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 15 INTERNATIONAL. IT WAS ALSO SUBMITTED THAT THE PROPR IETOR OF M/S. SAABIA INTERNATIONAL IS AN INCOME TAX ASSESSEE (PG. 8 OF T HE PAPER BOOK) AND PAN IS AVAILABLE ON RECORD AND HENCE THE IDENTITY AND CRED ITWORTHINESS HAVE BEEN PROVED IN THE SAID CASE. SIMILARLY AS REGARDS THE LOAN TAKEN FROM SHRI KHALID KHAN HE SUBMITTED THAT PAN AND PASSPORT COPY WERE FILED BEFORE THE CIT(A) AND HENCE THERE IS NO BASIS FOR CONFIRMING T HE ADDITION OF ` 50 000/-. 30. ON THE OTHER HAND THE LEARNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNED CIT(A). 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. UNDER SECTION 68 OF THE ACT THE INITIAL BUR DEN IS ON ASSESSEE TO PROVE THE IDENTITY GENUINENESS AND CREDITWORTHINESS OF T HE CREDITOR. IN SO FAR AS THE CASH CREDIT IN THE NAME OF SHRI KHALID KHAN THE ASSESSEE HAS NOT FURNISHED ANY DETAILS BEFORE THE A.O. AND EVEN BEFO RE THE LEARNED CIT(A) EXCEPT SUBMITTING CONFIRMATION AND COPY OF PASSPORT NO OTHER DETAILS - SUCH AS BANK ACCOUNT AND OTHER EVIDENCE - TO PROVE THE CREDITWORTHINESS OF THE LENDER WERE FURNISHED. UNDER THESE CIRCUMSTANCE S WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND TH US THE AFFIRM THE ADDITION OF ` 50 000/-. 32. HOWEVER WITH REGARD TO ADDITION OF ` 1 50 000/- WE ARE OF THE VIEW THAT APART FROM THE FACT THAT A.O. HAS MADE AN ARBI TRARY ADDITION OF 2 26 000/- PLUS INTEREST OVERLOOKING THE FACT THAT ONLY A SUM OF ` 1 00 000/- WAS LENT BY THE SAID PARTY IN THIS YEAR THE LEARNE D CIT(A) CONFUSED HIMSELF IN CONFIRMING THE ADDITION OF ` 1 50 000/-. AS NOTICED FROM PAGES 82 TO 84 OF THE PAPER BOOK THE LENDER SHRI MOHAMMED SHAHID ILYA S PROPRIETOR OF M/S. SAABIA INTERNATIONAL IS AN INCOME TAX ASSESSEE HAV ING SUBSTANTIAL INCOME AND THE LOAN TAKEN THIS YEAR IS ONLY ` 1 00 000/- WHICH WAS RECORDED AS HAVING BEEN GIVEN IMMEDIATELY AFTER REPAYMENT OF LO AN OF ` 1 00 000/- AND EVEN IF ASSESSEE HAS TO PROVE THE SOURCE OF LOAN OF ` 1 00 000/- THE SAME CAN BE SAID TO HAVE BEEN OUT OF THE AMOUNT SHOWN TO HAV E BEEN PAID BY ASSESSEE TO M/S. SAABIA INTERNATIONAL ON 01.06.2005. THUS I N OUR CONSIDERED OPINION THE LEARNED CIT(A) HAS NOT MADE OUT A CASE FOR ADDITION OF ` 1 50 000/-. WE DIRECT THE A.O. ACCORDINGLY. ITA NO. 153/MUM/2010 SHRI NASIR KHAN J. MAHADIK 16 33. THIS LEAVES US WITH GROUND NO. 3 IN THE CROSS OBJEC TIONS I.E. CORRECTNESS OF THE ADDITION OF ` 1 94 918/- SUSTAINED BY THE LEARNED CIT(A). ADMITTEDLY MOST OF THE EXPENDITURE WAS NOT SUPPORT ED BY BILLS AND SOME OF THE EXPENDITURE WAS SUPPORTED BY MERE SELF-MADE VOU CHERS. UNDER THE CIRCUMSTANCES THE A.O. DISALLOWED 30% OF THE CLAIM WHEREAS THE LEARNED CIT(A) WAS VERY REASONABLE IN RESTRICTED THE DISALL OWANCE TO 10%. IN FACT THE LEARNED COUNSEL APPEARING ON BEHALF OF ASSESSEE H AS NOT SERIOUSLY CHALLENGED THE ORDER PASSED BY THE LEARNED CIT(A) O N THIS ISSUE. UNDER THE CIRCUMSTANCES WE AFFIRM THE ORDER OF THE LEARNED CI T(A) AND UPHOLD THE ADDITION OF ` 1 94 918/-. ACCORDINGLY THE CROSS OBJECTIONS ARE TR EATED AS PARTLY ALLOWED. 34. IN THE RESULT APPEAL FILED BY REVENUE IS DISMISSED WITH COSTS WHEREAS THE CROSS OBJECTIONS FILED BY ASSESSEE ARE PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2011. SD/- SD/- (RAJENDRA SINGH) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI DATED: 30 TH NOVEMBER 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI MUMBAI 4. THE CIT XX MUMBAI CITY 5. THE DR B BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.