ITO (OSD), CHENNAI v. Dr.C.Swaminathan, CHENNAI

ITA 1581/CHNY/2007 | 1990-1991
Pronouncement Date: 23-07-2010 | Result: Dismissed

Appeal Details

RSA Number 158121714 RSA 2007
Bench Chennai
Appeal Number ITA 1581/CHNY/2007
Duration Of Justice 3 year(s) 1 month(s) 18 day(s)
Appellant ITO (OSD), CHENNAI
Respondent Dr.C.Swaminathan, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-07-2010
Assessment Year 1990-1991
Appeal Filed On 04-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH --A CHENNAI (BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ITA NOS.1581 TO 1584/MDS/07 ASST.YEARS 1990-91 1992-93 1993-94 & 1994-95 THE INCOME-TAX OFFICER (OSD) VS. DR.C.SWAMINATH AN CO. CIR.IV (1) CHENNAI 25 RC TOWER FIRST FLOOR. ..... JOSIER ST. NUNGAMBAKKAM. PAN S-7196 CHENNAI-34 . (APPELLANT) (RESPONDENT) APPELLANTS BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI. C.V.RAJAN O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THESE APPEALS OF THE REVENUE ARE DIRECTED AGAINST A CONSOLIDATED ORDER OF THE LEARNED CIT (APPEALS) FOR THE IMPUGNED ASSES SMENT YEARS. THE APPEALS WERE INITIALLY DISPOSED BY THIS TRIBUNAL BY ITS ORD ER DATED 17-11-2008 ALONGWITH ANOTHER APPEAL NO.1585/MDS/2007 FOR ASSESSMENT YEAR 1995-96. THROUGH THIS DECISION THE TRIBUNAL HAD DISMISSED ALL THE DEPARTM ENT APPEALS. 2. AGAINST THIS REVENUE WENT ON APPEAL BEFO RE THE HONBLE JURISDICTIONAL HIGH COURT. THEIR LORDSHIPS VIDE ORDER DATED 29-3- 2010 IN T.C.(APPEALS) NOS. 132 TO 136 OF 2010 REMANDED THE APPEALS BACK TO THE TRIBUNAL FOR FRESH CONSIDERATION AND DISPOSAL. THOUGH THE REMAND ORD ER ALSO OPERATES IN RESPECT OF APPEAL NO.1585/MDS/07 FOR ASST. YEAR 1995-96 TH E LATTER APPEAL IS BEING CONSIDERED SEPARATELY SINCE THE ISSUES ARE DIFFERE NT AND CERTAIN PRELIMINARY OBJECTIONS HAVE BEEN RAISED BY THE LD. D.R. ON THE ADMISSIBILITY OF THE SAID APPEAL. HOWEVER APPEALS OF THE REVENUE FOR ASST. Y EARS 1990-91 1992-93 1993-94 AND 1994-95 COVERED BY APPEAL NOS.1581 TO 1584/MDS/2007 HAVE I.T.A. NOS. 1581 TO 1584/MDS/07 2 RAISED SIMILAR GROUNDS AND THEREFORE THESE APPEAL S ARE DISPOSED OF THROUGH A CONSOLIDATED ORDER. 3. AT THE OUTSET IT WILL BE INAPPROPRIATE FOR US IF WE DO NOT REPRODUCE THE RELEVANT PARA OF THE ORDER OF THE HONBLE JURISDICT IONAL HIGH COURT BY WHICH THE APPEALS HAVE BEEN DIRECTED TO BE REHEARD: 5. EVEN IF THE TRIBUNAL HAS NOT GIVEN A VERY DETAI LED ORDER IF WE ARE SATISFIED ON A READING OF THIS ORDER OF THE TRIBUNA L THAT EACH SUBMISSION WAS CONSIDERED AND DECISION WAS ARRIVED AT ON THE B ASIS OF THE SUBMISSIONS AND THE MATERIALS ON RECORD THEN WE WIL L NOT INTERFERE. BUT THAT IS ABSENT HERE. WHILE LTHERE IOS A CURSORY CONSIDER ATION BY THE TRIBUNAL OF THE CLAIM MADE REGARDING COLLECTION OF RAW MATERIAL S WITH REGARD TO THE OTHER HEADS OF CLAIM THERE IS ABSOLUTELY NOTHING T O INDICATE WHY THE TRIBUNAL DISMISSED THE APPEAL. ALMOST UNDER ALL THE HEADS THE TRIBUNAL HAS MERELY DISMISSED THE CASE OF THE REVENUE BY HOL DING THAT THERE IS NO ERROR ON THE PART OF THE CIT(A) OR THAT THE PARTICU LAR CLAIM DID NOT NEED ANY SPECIFIC EVIDENCE OR EXPLANATION. THIS IS A VERY UN SATISFACTORY METHOD OF DECIDING AN APPEAL. THE TRIBUNAL IS THE FINAL COURT OF FACT. IT IS OBLIGED TO GIVE REASONS. THE SUPREME COURT HAS REPEATEDLY STRE SSED THE IMPORTANCE OF REASONED ORDER SINCE REASONS ARE THE ANTITHESIS OF ARBITRARINESS. IN THESE CIRCUMSTANCES WE ANSWER THE QUESTION IN FAVO UR OF THE REVENUE AND REMAND THE MATTER BACK TO THE TRIBUNAL FOR CONS IDERING THE APPEALS IN ACCORDANCE WITH LAW. 4. IN ALL THESE APPEALS REVENUE HAS RAISED FOUR GRO UNDS IN TOTO OUT OF WHICH GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE NEEDING N O SPECIFIC ADJUDICATION. 5. GROUND NO.2 IS REPRODUCED HEREUNDER: 2.1 THE LD. CIT{A) ERRED IN DELETING THE DISALLOW ANCE ON ACCOUNT OF INFLATION OF RAW MATERIAL PURCHASED WAGES AND PACKING MATERIALS FOR ALL THE ABOVE FOUR ASSESSMENT YEARS. 2.2 HAVING REGARD TO THE FACT THAT THE ASSESSEE IN HIS SWORN STATEMENT ON THE DATE OF SEARCH HAD ADMITTED THAT E XPENSES HAD BEEN INFLATED AND THAT UNACCOUNTED INCOME HAD BEEN GENERATED BY THIS INFLATION THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE A.O PARTICULARLY WHEN THE ASSESSEE HAD NOT PRODUCE D ANY SUPPORTING EVIDENCE TO REVERSE THE SUBMISSION MADE BY HIM ON THE DATE OF SEARCH. 2.3. THE LD. CIT(A) FAILED TO APPRECIATE THE DECISI ON OF THE HONBLE KERALA HIGH COURT IN THE CASE OF V.KUNJHAMBU & SONS V. CIT (219 ITR 235). I.T.A. NOS. 1581 TO 1584/MDS/07 3 2.4 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THA T AS PER THE EVIDENCE ACT ADMITTED FACTS NEED NOT BE PROVED. 6. SHORT FACTS APROPOS ARE THAT THE ASSESSEE A MAN UFACTURER AND SELLER OF SIDHA MEDICINES WAS SUBJECTED TO A SEARCH PROCEEDI NGS U/S 132 OF THE INCOME- TAX ACT 1961 (FOR SHORT THE ACT) IN HIS BUSINESS AS WELL AS RESIDENTIAL PREMISES ON 18 TH AND 19 TH JANUARY 1995. ACCORDING TO THE A.O SUCH SEARCH B ROUGHT TO LIGHT THAT ASSESSEE HAD INFLATED COST OF RAW MATERI ALS COST OF PROCESSING INTRODUCED BOGUS CREDIT PURCHASES MANIPULATED ACCO UNTS ETC. BY CLAIMING INFLATED EXPENSES. ASSESSEE HAD FILED HIS RETURNS O F INCOME FOR THE IMPUGNED ASSESSMENT YEARS PRIOR TO THE SEARCH. IN SUCH RETUR NS THE INCOME RETURNED WAS RS.50 070/- FOR A Y 1990-91 RS.1 45 095/- FOR A.Y 1992-93 RS.2 03 650/- FOR A Y 1993-94 AND RS.1 44 750/- FOR A.Y 1994-95. AFTER THE SEARCH ASSESSMENTS WERE REOPENED U/S 147 OF THE ACT. IN SUCH REASSESSM ENTS THE TOTAL INCOME OF ASSESSEE WAS DETERMINED AT RS.12 83 420/- FOR THE A SST. YEAR 1990-91 RS.23 18 3 60/- FOR THE ASST.YEAR 1992-93 RS.50 08 830 FOR THE ASST. YEAR 1993- 94 AND RS.45 13 660/- FOR ASST. YEAR 1994-95 .ASSES SEE HAD FILED APPEALS AGAINST THESE ASSESSMENTS AND THE LD CIT(A) ON SUC H APPEALS SET ASIDE THE SAID ASSESSMENTS AND DIRECTED THE A.O. TO DO THEM AFRESH . THEREAFTER THE A.O CALLED FOR THE BOOKS OF ACCOUNT AND OTHER RECORDS AND ASS ESSEE HAD PRODUCED THE SAME. ASSESSMENTS WERE DONE ONCE AGAIN AFTER EXAMI NING THE ACCOUNTS AND HEARING THE ASSESSEE. 7. IT SEEMS ASSESSEE HAD DURING THE COURSE OF SEARC H ADMITTED THAT THERE WAS UNACCOUNTED INCOME GENERATED BY HIM DURING ASSE SSMENT YEARS 1990-91 TO 1994-95 TO THE EXTENT OF RS.41 29 339/-. A.O ALSO N OTED THAT THE ASST. COMMISSIONER OF INCOME- TAX INVESTIGATION CIRCLE H AD POINTED OUT CERTAIN INFLATION OF COST OF PURCHASES AND PROCESSING EXPEN SES BY THE ASSESSEE. I.T.A. NOS. 1581 TO 1584/MDS/07 4 ACCORDING TO THE A.O ASSESSEE HAD MAINTAINED TWO S ETS OF ACCOUNTS ONE A ROUGH CHITAL IN WHICH ACTUAL EXPENSES WERE RECORDED AND ANOTHER SET OF BOOKS WHEREIN MANIPULATED FIGURES FOR PURCHASE OF RAW MAT ERIAL WERE RECORDED. THE A.O ALSO POINTED OUT CERTAIN DISCREPANCIES IN THE R ECORDING OF TRANSACTIONS WHICH RAN AS UNDER: SL.NO. DATE 1 08-04-1992 2 08-04-1992 3 08-04-1992 NATURE OF TRANSACTION .HERBS PROCUREMENT COOLLY HERBS HEADLOAD COOLLY HERBS CURING EXPENSES VALUE AS PER ROUGH CHITAL 3725 3460 3315 VALUE AS PER CASH BOOK 7725 5460 5315 DIFFERENCE 4000 2000 2000 1 08-04-1992 2. 08-04-1992 3 . 08-04-1992 HERBS PROCUREM- ENT COOLLY. HERBS HEADLOAD COOLLY HERBS CURING EXPENSES 4950 3875 3335 8950 6875 6335 4000 3000 3000 8. ACCORDING TO THE A.O THOUGH ASSESSEE HAD S TATED THE NATURE OF HIS MANUFACTURING ACTIVITIES WHICH INVOLVED PREPARATIO N OF SIDHA MEDICINES USING HERBS ROOTS LEAVES PLANTS ETC. AND SUBJECTING IT TO PROCESSING AT VARIOUS LEVEL WHICH WERE ALL HIGHLY LABOUR ORIENTED THERE WAS IN FLATION OF EXPENSES BY THE ASSESSEE. RELYING ON THE ABOVE MENTIONED ERRORS IN THE BOOKS OF ACCOUNT AND ALSO THE STATEMENT GIVEN BY THE ASSESSEE BEFORE THE ADIT ON THE DATE OF SEARCH AND THE REPORT OF THE ACIT INV. CIRCLE THE A.O CA ME TO A CONCLUSION THAT THERE WERE INFLATION OF COST OF PURCHASE OF RAW MATERIAL BY 15% INFLATION OF WAGES PAYMENT BY 20% AND INFLATION OF COST OF PACKING MA TERIALS BY 10%. 9. VIS--VIS COST OF PACKING MATERIALS A.O W AS OF THE OPINION THAT ASSESSEE COULD PRODUCE PURCHASE VOUCHERS FOR MAJOR ITEMS LI KE ALUMINUM FOILS BOTTLES I.T.A. NOS. 1581 TO 1584/MDS/07 5 PAPER BOARDS ETC ONLY. FINDING THAT VOUCHERS WERE NOT PRODUCED FOR SMALL ITEMS 10% OF THE CLAIM WAS DISALLOWED. 10. BEFORE THE LD. CIT(A) IN THE SECOND ROUND OF PR OCEEDINGS ARGUMENT OF THE ASSESSEE WAS THAT THE A.O. PLACED RELIANCE ON THE S TATEMENT GIVEN BY THE ASSESSEE DURING THE COURSE OF SEARCH COMPLETELY OV ERLOOKING HIS RETRACTION ON THE VERY NEXT DAY. ACCORDING TO ASSESSEE STATEMEN T GIVEN AT THE TIME OF SEARCH WAS SIGNED BY HIM UNDER PRESSURE AND WERE ALL PREPA RED BY THE INCOME-TAX AUTHORITIES AND HE WAS COERCED TO SIGN UNDER THREA T OF DIRE CONSEQUENCES. ACCORDING TO ASSESSEE ASSESSMENTS WERE TAKEN UP AT THE FAG END OF THE LIMITATION PERIOD AND WAS HURRIEDLY COMPLETED BY T HE A.O. 11. VIS--VIS THE ISSUE OF INFLATION OF COST OF RAW MATERIAL SUBMISSION OF ASSESSEE WAS THAT ALL PURCHASES WERE SUPPORTED BY B ILLS. ASSESSEE ALSO FILED BILL WISE DETAILS OF PURCHASES AND COPIES OF THE ORDERS OF THE SALES-TAX AUTHORITIES FOR THE ASST. YEARS 1990-91 AND 1992-93 IN SUPPORT OF H IS CONTENTION THAT THE PURCHASES WERE ACCEPTED BY THE SALES-TAX DEPARTMENT . CRUX OF HIS CONTENTION WAS THAT THE ADDITION WAS MERELY MADE ON THE BASIS OF STATEMENT RECORDED AT THE TIME OF SEARCH WHICH WAS LATER RETRACTED COMPLETEL Y IGNORING THE BOOKS OF ACCOUNT AND BILLS FOR PURCHASES PRODUCED BY HIM. FU RTHER ACCORDING TO ASSESSEE QUANTITIES OF RAW MATERIALS USED BY HIM WERE CERTIF IED BY DRUG CONTROL AUTHORITIES. 12. VIS--VIS THE ERRORS AND OVERWRITING ASSESSEE AFTER PRODUCING THE BOOKS OF ACCOUNT BEFORE THE CIT(A) POINTED OUT THAT NO SU CH ERRORS WERE THERE. AGAINST THE CLAIM OF A.O THAT THE ASSESSEE HAD CHANGED THE ORIGINAL CASH BOOK PLEADING OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT ENTI RE BUNDLE OF VOUCHERS PRODUCED BY HIM TALLIED WITH THE SEIZED RECORD VIDE PANCHNAMA MR/VOU/D/S/A.1 I.T.A. NOS. 1581 TO 1584/MDS/07 6 DATED 18-1-1995. REGARDING CONSUMPTION RATIO OF RAW MATERIAL ASSESSEE ARGUED THAT THERE WAS ONLY A MODERATE JUMP OF 16 TO 21% OV ER THE IMPUGNED ASSESSMENT YEARS. . 13. LD. CIT (A) ACCEPTING THE CONTENTIONS OF THE AS SESSEE DELETED THE ADDITION MADE FOR INFLATION OF PURCHASES. ACCORDING TO HIM ASSESSEE HAD MAINTAINED BILLS FOR PURCHASE AND MOST OF THE PAYM ENTS WERE MADE BY CHEQUES. INSOFAR AS PURCHASE OF COUNTRY DRUGS WERE CONCERNE D LD. CIT (A) OBSERVED THAT SUCH PURCHASES WERE ACCEPTED BY THE SALES-TAX DEPAR TMENT. LD. CIT (A) AFTER GOING THROUGH LEDGER PAGES 381 382 395 396 405 406 437 438 461 462 AND 467 WAS OF THE OPINION THAT THESE DID NOT RELAT E TO ANY PURCHASES BUT ONLY WAGES AND THERE WAS NO OVERWRITING WHATSOEVER. AS P ER THE LD. CIT(A) PURCHASE BILLS PRODUCED BY ASSESSEE WERE IN ACCORDANCE WITH THE AMOUNT OF PURCHASES AS PER BOOKS. LD. CIT(A) ALSO DISAPPROVED THE REASONIN G GIVEN BY THE A.O. THAT GROSS PROFIT FOR ASSESSMENT YEAR 1990-91 WAS ONLY 3 6% AGAINST GROSS PROFIT OF MORE THAN 50% IN SUBSEQUENT TWO ASSESSMENT YEARS F OR ACCORDING TO HIM SALES OF THE ASSESSEE HAD INCREASED MORE THAN 300% IN SUC H SUBSEQUENT YEARS. 14. VIS--VIS THE ADDITION MADE FOR WAGES SUBMISSI ON OF THE ASSESSEE BEFORE THE CIT (A) WAS THAT THE A.O. HAD ERRONEOUSLY CAME TO A CONCLUSION THAT THERE WERE OVERWRITINGS IN CASH BOOK. ASSESSEE ALSO PRODU CED THE CASH BOOK BEFORE THE LD. CIT (A) TO PROVE THAT THERE WAS NO OVERWRIT ING ON 10-4-1989 FOR A SUM OF RS.7.575/- ON 11-4-1989 FOR THE SUMS OF RS.7 840/- RS.5 625/- AND RS.5 735/- ON 9-6-1989 FOR THE SUM OF RS.7 425/- RS.4 365/- A ND RS.6 710/- AND ON 30-3- 1990 FOR THE SUM OF RS.RS.7 495/- RS.7 263/- AND R S.5 742/-. 15. VIS--VIS OVERWRITING IN CHITTAL REGIST ER ASSESSEE PLEADED THAT THE TRIBALS WERE INITIALLY GIVEN ONLY A PART OF THE SUM FROM TH E TOTAL DUES FOR A PARTICULAR I.T.A. NOS. 1581 TO 1584/MDS/07 7 PERIOD AND ONLY WHEN THEY CAME BACK FROM MARKET WAS THE BALANCE GIVEN. ACCORDING TO ASSESSEE THE TOTALS OF THE CASH BOOK C LEARLY PROVED THAT THERE WERE NO ALTERATIONS. ASSESSEE ALSO PRODUCED ORIGINAL VOU CHERS FOR WAGE PAYMENTS. LD. CIT (A) WAS OF THE OPINION THAT CASH BOOK PRODU CED ASSESSEE BEFORE HIM BORE INITIALS OF THE INCOME-TAX INSPECTOR WHO HAD VERIFIED IT DURING THE COURSE OF SEARCH AND THEREFORE ACCORDING TO HIM THE GENUINEN ESS OF BOOKS AND EXTRACTS FILED BY THE ASSESSEE BEFORE HIM COULD NOT BE DOUBT ED. ACCORDING TO LD. CIT (A) THERE WAS NO OVERWRITING OR ERRORS IN THE WAGES AC COUNT AND ASSESSEE HAD PRODUCED THE ORIGINAL VOUCHERS FOR THE WAGES PAID. FURTHER ACCORDING TO THE LD. CIT(A) CORRECTIONS MADE IN THE ROUGH CASH BOOK ( CHITAL) WOULD NOT BE SUFFICIENT ENOUGH TO HOLD THAT THERE WERE ANY INFLATION IN EXP ENSES SINCE ASSESSEES REGULAR BOOKS OF ACCOUNT WERE SUPPORTED BY BILLS AN D VOUCHERS. HE THEREFORE DELETED THE DISALLOWANCE MADE ON WAGES ALSO. 16. VIS--VIS THE DISALLOWANCE OF 10% OF THE EXPENS ES ON PACKING MATERIAL SUBMISSION OF THE ASSESSEE BEFORE THE LD. CIT(A) WA S THAT THIS WAS ALSO MADE ENTIRELY RELYING ON THE STATEMENT GIVEN BY THE ASSE SSEE DURING THE COURSE OF SEARCH WHICH WAS RETRACTED THE VERY NEXT DAY. ACCO RDING TO THE ASSESSEE PURCHASE OF PACKING MATERIALS WERE SUPPORTED BY BI LLS AND THE ADDITION WAS SIMPLY AD-HOC AND ESTIMATE. THOUGH THE A.O HAD NOTE D THAT ASSESSEE WAS UNABLE TO PRODUCE VOUCHERS FOR SMALL AMOUNTS THE A RGUMENT OF ASSESSEE BEFORE THE LD. CIT(A) WAS THAT HE HAD INDEED PRODUCED SUCH VOUCHERS BUT THE A.O. HAD NOT MADE NECESSARY VERIFICATION. IN SUPPORT OF THIS CONTENTION ASSESSEE PRODUCED SUCH VOUCHERS BEFORE THE LD. CIT(A). LD. CIT(A) ACC EPTING THE ABOVE OBJECTIONS DELETED THE DISALLOWANCE ON THE COST OF PACKING MAT ERIALS AS WELL. ACCORDING TO HIM ASSESSEE PRODUCED THE BILLS FOR PURCHASE OF P ACKING MATERIALS AND IT WAS I.T.A. NOS. 1581 TO 1584/MDS/07 8 NOT CORRECT FOR THE A.O TO HAVE INDULGED IN A DISAL LOWANCE BASED ON A RETRACTED STATEMENT. 17. NOW BEFORE US THE LD. DEPARTMENTAL REPRESENTATI VE ASSAILING THE ORDER OF THE LD. CIT(A) SUBMITTED THAT THERE WAS AN ADMISSIO N BY ASSESSEE DURING THE COURSE OF THE SEARCH PROCEEDINGS AND THE A.O. WAS J USTIFIED IN MAKING THE ADDITION BASED ON SUCH ADMISSION. FURTHER ACCORDING TO HIM ASSESSEE HAD MAINTAINED A CHITTAL REGISTER OR IN OTHER WORDS A ROUGH CASH BOOK IN WHICH A NUMBER OF CORRECTIONS WERE THERE AND THE A.O HAD MA DE THE DISALLOWANCE UNDER THE THREE HEADS AFTER FINDING THAT ASSESSEE COULD N OT JUSTIFY THE ALTERATIONS MADE. CONSIDERABLE STRESS WAS PLACED ON THE REPORT OF THE DIRECTOR OF INCOME-TAX WHEREIN INFLATION OF EXPENSES AND WAGES WERE POINTE D OUT. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE KERALA HIGH C OURT IN THE CASE OF V.KUNHAMBU & SONS V. CIT (219 ITR 235). PER CONTRA; THE LD. A.R. STRONGLY SUPPORTED THE ORDER OF THECIT (A). 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. A.O HAD RELIED ON THE FOLLOWING FOR MAKING DISALLOWANCE OF 15% OF RAW MATERIAL COST 20% OF WAGES AND 10% OF COST OF PACKING MATERIALS: I) THERE WAS AN ADMISSION BY ASSESSEE BEFORE ADI TH AT UNACCOUNTED INCOME TO THE EXTENT OF RS.41 29 339/- WAS GENERATE D BY HIM DURING ASST. YEARS 1990-91 TO 1994-95. II) VOUCHERS FOR SMALL ITEMS OF PACKING MATERIALS W ERE NOT PRODUCED BY ASSESSEE. III) ACIT INV. CIRCLE HAD IN HIS ORDER DATED. 26-3 -1997 POINTED OUT INFLATION OF COST OF MATERIALS AND PROCESSING EXPENSES BY THE ASSESSEE. (IV) ROUGH CASH BOOK OF THE ASSESSEE WHICH HAS BEEN CALLED THE CHITAL SHOWED CERTAIN INSTANCES OF OVERWRITING. (V) ACTUAL EXPENSES WERE AS PER ROUGH CHITAL I.E. IN REGULAR CASH BOOKS EXPENSES WERE INFLATED. I.T.A. NOS. 1581 TO 1584/MDS/07 9 LD. CIT(A) HAS DELETED THE DISALLOWANCE ON THE FIND ING THAT ASSESSEE HAD RETRACTED HIS STATEMENT WHEREIN ADMISSION OF THE IN COME WAS ORIGINALLY MADE AND THE ALLEGED OVERWRITING IN THE BOOKS OF ACCOUNT WER E NOT IN FACT THERE. FURTHER ACCORDING TO LD. CIT(A) ASSESSEE PRODUCED THE BILLS AND VOUCHERS FOR THE EXPERNSES. 19 MOST IMPORTANT ASPECT THAT WE FIND IS THAT THE C ASH BOOK PRODUCED BY ASSESSEE BASED ON WHICH HE ARGUED THAT THERE WAS N O OVERWRITING BORE THE INITIALS OF THE INCOME-TAX INSPECTOR WHO HAD VERIFI ED IT DURING THE COURSE OF SEARCH. THIS IS NOTED AT PARA 8 OF CIT(A)S ORDER A ND WAS NOT REBUTTED BY THE LD. D.R. NEITHER DID THE REVENUE CARE TO BRING BEFORE US COPIES OF ANY PAGES OF SUCH CASH BOOK WHEREIN THE ALLEGED OVERWRITINGS WER E THERE. THIS IN OTHER WORDS MEAN WHAT WAS PRODUCED BY THE ASSESSEE WAS THE SAME SET OF CASH BOOK AS WAS VERIFIED BY THE SEARCH OFFICIALS AT THE TIME OF SEARCH. ASSESSEE MIGHT HAVE BEEN MAINTAINING A ROUGH CASH BOOK ALSO. IN OU R OPINION JUST BECAUSE THE ROUGH CASH BOOK AND FAIR CASH BOOK DID NOT TALLY A DISALLOWANCE COULD NOT HAVE BEEN MADE. NO DOUBT ASSESSEE MIGHT HAVE IN A STATE MENT MADE DURING THE COURSE OF SEARCH ADMITTED AN INCOME. BUT IF WE LOOK AT THE SUM THAT HAS BEEN ADMITTED BY HIM IT WAS RS.41 29 339/ AND IT IS HI GHLY IMPROBABLE THAT A PERSON WHO IS SUBJECTED TO A SEARCH DURING THE COURSE OF SEARCH PROCEEDINGS WILL HAVE THE PRESENCE OF MIND TO WORK OUT HIS UNACCOUNTED IN COME TO THE LAST RUPEE THAT TOO SPREAD OVER FIVE YEARS. SUCH STATEMENT WAS RETR ACTED BY THE ASSESSEE THE VERY NEXT DAY. THEREFORE THERE IS CONSIDERABLE STR ENGTH IN THE ARGUMENT OF THE ASSESSEE THAT THE EARLIER STATEMENT WAS PREPARED BY THE SEARCH OFFICIALS AND HE HAD SIGNED IT UNDER PRESSURE. SUCH A STATEMENT WHI CH WAS UNDISPUTEDLY RETRACTED THE VERY NEXT DAY COULD NOT HAVE BEEN RE LIED ON BY THE DEPARTMENT WITHOUT STRONG CORROBORATION. NOW THE QUESTION IS W HETHER THERE WAS ANY I.T.A. NOS. 1581 TO 1584/MDS/07 10 CORROBORATION HERE? THE ANSWER IS A CERTAIN NO. E VERY ITEM OF EXPENDITURE ACCOUNTED BY ASSESSEE IN HIS CASH BOOK WAS SUPPORTE D BY BILLS AND VOUCHERS AS NOTED BY THE LD. CIT(A). THIS ALSO HAS NOT BEEN REB UTTED BY THE REVENUE. BILLS AND VOUCHERS AND CASH BOOK WERE PRODUCED BY THE ASS ESSEE BEFORE THE LD. CIT(A) WHO WAS UNABLE TO FIND ANY OVERWRITINGS. THE RE IS ALSO A FINDING BY THE LD. CIT(A) THAT THE BUNDLE OF BILLS PRODUCED BY ASSESSE E TALLIED WITH THE PANCHNAMA WHICH WAS PREPARED AT THE TIME OF SEARCH. EVEN IN T HE ROUGH CASH BOOK THE OVER WRITINGS FOUND WERE FAR AND FEW. LD. D.R. WAS UNAB LE TO BRING BEFORE US EVEN A SINGLE COPY OF THE CASH BOOK WHERE THE ALLEGED OVER WRITING WAS THERE NOR ANY EVIDENCE TO SHOW THAT ASSESSEE HAD INFLATED HIS EXP ENSES. A.O INSTEAD OF TAKING AN OBJECTIVE VIEW HAS SIMPLY RELIED ON THE REPORT O F THE ACIT INV. CIRCLE DATED 26-3-1997 WHICH ALSO HAS NOT BEEN PLACED BEFORE US BY THE REVENUE. WHAT EMERGES OUT IS THAT TASSESSEE PRODUCED BOOKS OF ACC OUNT WHICH WERE THE VERY SAME BOOKS OF ACCOUNT FOUND AT THE TIME OF SEARCH AND THESE WERE SUPPORTED BY VOUCHERS AND BILLS AND THE DISALLOWANCES WERE MADE BASED ON A RETRACTED STATEMENT WITHOUT ANY CORROBORATING EVIDENCE. IF THERE WERE INDEED EXPENSES WHICH WERE NOT SUPPORTED BY VOUCHERS OR VOUCHERS SH OWING INFLATION OF PURCHASES THE A.O SHOULD HAVE CORRECTLY WORKED IT OUT AND OUGHT NOT TO HAVE MADE ANY AD-HOC DISALLOWANCE. IN OUR OPINION THERE FORE SUCH DISALLOWANCES WERE RIGHTLY DELETED BY THE LD. CIT(A). INSOFAR AS RELIANCE PLACED BY THE REVENUE ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF V KUNHAMBU & SONS (SUPRA) IS CONCERNED ASSESSEE THERE HAD ADMIT TED AN EXCESS STOCK OF RS.3 LAKHS TO BE SPREAD OVER A NUMBER OF YEARS. HONB LE HIGH COURT HELD THAT ASSESSEE COULD NOT SUBSEQUENTLY TURN ROUND AND DISO WN SUCH STATEMENT BECAUSE SUCH STATEMENT WAS AN OFFER OF SETTLEMENT I N THE FORM OF A CONFESSIONAL STATEMENT. HERE ON THE OTHER HAND THE REVENUE WAS UNABLE TO POINT OUT ANY I.T.A. NOS. 1581 TO 1584/MDS/07 11 ECHO OF A SETTLEMENT MADE BY THE ASSESSEE IN THE STATEMENT RECORDED AT THE TIME OF SEARCH.. ON THE OTHER HAND ASSESSEE HAD RE TRACTED SUCH STATEMENT AND SUPPORTED SUCH RETRACTION BASED ON HIS BOOKS OF ACC OUNT AND SUPPORTING DOCUMENTS. THEREFORE WE FIND NO MERITS IN GROUND N O.2 TAKEN BY THE REVENUE WHICH STANDS DISMISSED. 21. GROUND NO.3 OF THE REVENUE READS AS UNDER: 3.1 THE LD.CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF INTEREST PAYMENT FOR ALL THE IMPUGNED FOUR ASSESSMENT YEARS. 3.2 THE LD. CIT(A) FAILED TO NOTE THAT THE ONUS OF PROVING THE CREDITS LIES ON THE ASSESSEE AND NOT ON THE A.O. 3.2 HAVING REGARD TO THE FACT THAT THE LD. CIT(A) HIMSELF HAD OBSERVED IN PAGE 28 OF HIS ORDER THAT 28 MONTHS WERE AVAILABLE FROM THE DATE OF SETTING ASIDE THE ORDER TO THE DATE OF REASSESSMENT THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD AMPLE TIME T O PRODUCE ALL THE CREDITORS BEFORE THE A.O. 3.3 THE LD. CIT(A) OUGHT TO HAVE NOTED THAT ADVERSE INFERENCE CAN ONLY BE DRAWN DUE TO THE ASSESSEES FAILURE TO PRODUCE ALL THE CREDITORS BEFORE THE A.O. FOR VERIFICATION OF CREDITS. 22. SHORT FACTS APROPOS ARE THAT THE A.O HAS DI SALLOWED 50% OF INTEREST CHARGED BY ASSESSEE IN HIS PROFIT AND LOSS ACCOUNT FOR THE RESPECTIVE PREVIOUS YEARS. ACCORDING TO THE A.O. ASSESSEE HAD NEVER PA ID ANY INTEREST BUT MERELY CREDITED THE SUM TO THE ACCOUNTS OF THE LOAN CREDIT ORS. AS PER ASSESSEE HE HAD BORROWED MONIES FROM CLOSE RELATIVES AND FRIENDS AN D THE CREDITORS NUMBERED 37. ASSESSEE WAS REQUIRED BY THE A.O. TO PRODUCE EVIDEN CE FOR THE CREDIT WHEREIN HE SUBMITTED THAT SOME OF THE CREDITORS WERE PRODUC ED BEFORE THE ASSISTANT DIRECTOR OF INVESTIGATION (A.D.I IMMEDIATELY AFTER THE SEARCH AND CONFIRMATION LETTERS WERE FILED IN THE CASE OF OTHERS. ASSESSEE ALSO OFFERED TO PRODUCE THE CREDITORS BEFORE THE A.O. IF CALLED UPON TO DO SO. THE A.O. WAS HOWEVER OF THE OPINION THAT THE SAME CREDITORS WERE APPEARING YEAR AFTER YEAR IN THE BOOKS OF ASSESSEE AND EXCEPT FOR A FEW CASES INTEREST WAS N OT PAID BUT THE ACCUMULATED I.T.A. NOS. 1581 TO 1584/MDS/07 12 BALANCES WERE BEING CARRIED FORWARD. ACCORDING TO A.O ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE CREDITS BEYOND DOUBT. IN HIS OPINION ASSESSE HAD INTRODUCED HIS OWN MONEY GENERATED THROUGH INFLATIO N OF EXPENSES AS LOANS. NEVERTHELESS HE DID NOT DISALLOW THE FULL CLAIM OF INTEREST PAYMENTS BUT RESTRICTED THE DISALLOWANCE TO 50% OF SUCH CLAIM. 23. IN HIS APPEAL BEFORE THE LD. CIT(A) SUBMISSION OF THE ASSESSEE WAS THAT SOME OF THE CREDITORS WERE SUMMONED BY THE A.D.I. A FTER SEARCH AND THEY HAD CONFIRMED THE LOANS GIVEN TO ASSESSEE. COPIES OF CO NFIRMATION WERE ONCE AGAIN FILED BEFORE THE LD. CIT(A). ACCORDING TO ASSESSEE THE INTEREST PAYMENTS IN SOME CASES THOUGH CREDITED TO THE RESPECTIVE ACCOUNTS WERE NOT PAID ON ACCOUNT OF THE REASON THAT THE LOANS WERE RAISED FROM RELATIVE S AND CLAIM OF REPAYMENT WOULD HAPPEN ONLY WHEN THERE WAS A MARRIAGE OR SOM E OTHER CONTINGENCY. HOWEVER ACCORDING TO THE ASSESSEE INTEREST CHARGE D WAS GENUINE AND FAIR. LD. CIT(A) WAS APPRECIATIVE OF THE CONTENTIONS OF THE A SSESSEE. ACCORDING TO HIM ASSESSEE HAD FILED CONFIRMATIONS. LD.CIT(A) ALSO N OTED THAT THE A.O AT PAGE 6 OF HIS NOTE DATED 27-3-2002 MADE THE FOLLOWING STATEME NT: I COULD VERIFY ONLY FIVE ITEMS OF THESE CREDITS AN D AM INCLINED TO ACCEPT THE SAME. ACCORDING TO HIM THE LOANS HAVING BEEN ACCEPTED D ISALLOWANCE OF INTEREST THEREON WAS NOT IN ORDER LD. CIT(A) ALSO NOTED THA T THE A.O. HAD NEVER MADE ANY EFFORT TO SUMMON THE CREDITORS DESPITE AMPLE TI ME GIVEN TO HIM. HE THEREFORE DELETED THE DISALLOWANCE. 24. NOW BEFORE US; THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE A.O. PER CONTRA THE LD. A.R. SUBMITTED THAT ONCE LOANS WERE ACCEPTED DISALLOWANCE OF INTEREST WAS NOT CALLED FOR. 25. WE HAVE PERUSED THE ORDERS AND CONSIDERED THE R IVAL SUBMISSIONS. THOUGH INITIALLY THE A.O HAD DOUBTED THE LOAN CREDI TS WE FIND THAT THESE WERE I.T.A. NOS. 1581 TO 1584/MDS/07 13 ACCEPTED BY HIM IN ASSESSMENT AND NO ADDITION WHATS OEVER WERE MADE CONSIDERING ANY OF THE LOAN TO BE NOT GENUINE. HAVI NG ACCEPTED ;THE LOANS AS GENUINE INTEREST PAYABLE THEREON COULD NOT HAVE BE EN IGNORED OR DISCARDED. ASSESSEE HAD PRODUCED SOME OF THE CREDITORS BEFORE THE A.D.I WHO HAD CONFIRMED THE LOANS AND ALSO PRODUCED CONFIRMATIO NS. A.O FAILED TO SUMMON ANY OF THE CREDITORS. IF THE LD. A.O HAD ANY DOUB T REGARDING CHARGE OF INTEREST NOTHING STOPPED HIM FROM CALLING THE CREDITORS AND VERIFYING THE GENUINENESS OF THE CLAIM. JUST BECAUSE PAYMENT OF INTEREST WERE NOT MADE THE LEGAL LIABILITY TO PAY INTEREST COULD NOT BE GIVEN A GO BYE. THERE I S NO DISPUTE THAT THE ASSESSEE WAS MAINTAINING HIS BOOKS OF ACCOUNT UNDER MERCANTI LE SYSTEM AND HE WAS OBLIGED TO PAY INTEREST ON LOANS. IF THAT BE SO IN TEREST OUTSTANDING HAD TO BE ACCOUNTED. THUS IN OUR OPINION THE DISALLOWANCE O F INTEREST AT AD-BOC 50% WAS NOT WARRANTED AND WITHOUT ANY BASIS. THIS WAS RIGHT LY DELETED BY THE LD.CIT(A). NO INTERERFERENCE IS CALLED FOR. GROUND NO.3 OF TH E REVENUE ALSO STANDS DISMISSED. 26 IN THE RESULT APPEALS OF THE REVENUE FOR ALL THE FOUR ASSESSMENT YEARS STAND DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 23-7-2010 SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 23RD JULY 2010. NBR COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A) (4) CIT (5) D.R. (6) GUARD FILE I.T.A. NOS. 1581 TO 1584/MDS/07 14