The ITO, Ward-8(2),, Ahmedabad v. Stuio-3 Architect Pvt.Ltd.,, Ahmedabad

ITA 1841/AHD/2009 | 2006-2007
Pronouncement Date: 21-01-2011 | Result: Dismissed

Appeal Details

RSA Number 184120514 RSA 2009
Assessee PAN AABCS5517L
Bench Ahmedabad
Appeal Number ITA 1841/AHD/2009
Duration Of Justice 1 year(s) 7 month(s) 19 day(s)
Appellant The ITO, Ward-8(2),, Ahmedabad
Respondent Stuio-3 Architect Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 21-01-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2006-2007
Appeal Filed On 02-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI JM & SHRI A N PAHUJA AM ITA NO.1841/AHD/2009 (ASSESSMENT YEAR:-2006-07) INCOME-TAX OFFICER WARD- 8(2) AHMEDABAD V/S STUDIO-3 ARCHITECT PVT. LTD. MADHU MALTI NEAR OLD HIGH COURT NAVRANGPURA AHMEDABAD PAN: AABCS 5517 L [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI ANURAG SHARMA DR ASSESSEE BY:- SHRI GAURAV NAHTA AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 27- 03-2009 OF THE LD. CIT(APPEALS)-XIV AHMEDABAD RAI SES THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO DELETE THE DISALLOWANCE OF DEPRECIATION ON CAR OF RS.1 94 948/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE DISALLOWANCE OF RS.10 97 994/- ON INTEREST EXPE NSES. 3. THE LD. CIT(A) HAS ERRED IN SAW AND ON FACTS IN DIRECTING TO ALLOW LOSS INCURRED ON ACCOUNT OF BUSINESS ACTIVITY OF RS .9 49 176/-. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE DISALLOWANCE OF BAD DEBTS OF RS.1 01 081/-. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE ID. COMMISSIONER OF INCOME-TAX (A)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. IT IS THEREFORE PRAYED THAT THE ORDER OF THE ID . COMMISSIONER OF INCOME-TAX(A)-XIV AHMEDABAD MAY BE SET-ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.3 42 071/- FILED ON 27-12-2006 BY THE ASSESSEE ENGAGED IN THE BUSINESS OF INTERIOR AND ARCHITECTURAL WORK AFTER BEING PROCES SED U/S 143(1) OF ITA N O.1841/AHD/2009 2 THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO A S THE ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/ S 143(2) OF THE ACT ON 19.10.2007. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE ASSESSING OFFICER NOTICED THAT THOUGH THE ASSESSE E HAD AN INNOVA CAR REGISTERED IN THE NAME OF A DIRECTOR AND NOT I N THE NAME OF ASSESSEE COMPANY IT CLAIMED DEPRECIATION OF RS.1 9 4 948/- ON THE SAID CAR. WHILE REFERRING TO PROVISIONS OF SEC. 32 OF THE ACT AND DECISIONS IN THE CASE OF M.M. FISHERIES 227 ITR 20 4( DELHI) AND ADDL. CIT VS. UNITED MOTOR TRANSPORT SERVICE ASSOCIATION (1991) 1 90 ITR 13(ALL.) THE AO CONCLUDED THAT DEPRECIATION IS ALLOWABLE ONLY ON AS SETS OWNED BY THE ASSESSEE. SINCE CAR WAS NOT REGISTERED IN THE NAME OF THE COMPANY THE AO DISALLOWED THE CLAIM FOR DEPRECIATION ON CAR. 3. ON APPEAL THE LD. CIT(A) DELETED THE DISAL LOWANCE ON THE GROUND THAT THE CAR HAVING BEEN PURCHASED OUT OF FU NDS OF THE COMPANY AS ITS ASSET EVEN THOUGH REGISTERED IN THE NAME OF THE DIRECTOR WAS WHOLLY AND EXCLUSIVELY USED FOR THEIR BUSINESS OF THE APPELLAN T. INTER ALIA THE LD. CIT(A) RELIED UPON A NUMBER OF DECISIONS CITED ON BEHALF O F THE ASSESSEE. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE RELEVANT PROVISIONS OF SECTION 32 OF THE ACT ST IPULATE DEPRECIATION IN RESPECT OF BUILDING MACHINERY PLANT OR FURNITURE 'OWNED B Y THE ASSESSEE' AND 'USED' FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. INDISPU TABLY THE INNOVA CAR WAS PURCHASED WITH THE FUNDS OF THE COMPANY AND USED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. THE CONTROVERSY IS IN REG ARD TO OWNERSHIP OF THE CAR. THE CONTENTION OF THE ASSESSEE IS THAT CAR BEING NO T REGISTERED UNDER THE MOTOR VEHICLES ACT IN THE NAME OF THE COMPANY BY ITSELF IS NOT SUFFICIENT TO HOLD THE CONTRARY. THE FACTUAL POSITION AS STATED BY THE ASS ESSEE IS NOT DISPUTED BY THE ITA N O.1841/AHD/2009 3 REVENUE. THE CONTENTION OF THE REVENUE IS THAT UNLE SS THE CAR IS REGISTERED IN THE NAME OF THE ASSESSEE UNDER THE MOTOR VEHICLES ACT THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION OF DEPRECIATION ALLOWANCE IN RESPECT THEREOF. WE ARE OF THE OPINION THAT THE ASSESSEE WHO HAD PURCHASED THE CA R FOR VALUABLE CONSIDERATION AND USED THE SAME FOR ITS BUSINESS CANNOT BE DENIE D THE BENEFIT OF DEPRECIATION ON THE GROUND THAT THE TRANSFER WAS NOT RECORDED UN DER THE MOTOR VEHICLES ACT OR THAT THE VEHICLE STOOD IN THE NAME OF A DIRECTOR OF THE ASSESSEE COMPANY IN THE RECORDS OF THE AUTHORITIES UNDER THE MOTOR VEHICLES ACT. 5.1 THE AFORESAID VIEW IS SUPPORTED BY THE DECI SION IN THE CASE OF CIT VS. NAVDURGA TRANSPORT CO. 235 ITR 150(ALL) WHEREIN T HE ISSUE WAS AS TO WHETHER FIRM WAS ENTITLED TO DEPRECIATION ON CARS BROUGHT IN TO THE FIRM FOR USE OF BUSINESS OF THE FIRM EVEN THOUGH CARS CONTINUED TO BE REGI STERED IN THE NAME PARTNERS. HONBLE ALLAHABAD HIGH COURT HELD THAT THE TRIBUN AL RIGHTLY REACHED THE CONCLUSION THAT THE ASSESSEE OWNED AND USED THE THR EE VEHICLES WITHIN THE MEANING OF S. 32 OF THE ACT. SIMILAR VIEW WAS TAKEN IN THE CASE OF CIT VS MOHD. BUX SHOKAT ALI(NO.2) 256 ITR357(RAJ) CIT VS FAZI LKA DABWALI TPT CO. LTD. (2004) 270 ITR 398 (P&H) CIT V. SALKIA TRANSPORT A SSOCIATES [1983] 143 ITR 39/13 TAXMAN 191 (CAL.) CIT V. NIDISH TRANSPORT CO RPN. [1910] 185 ITR 669/[1989] 44 TAXMAN 351(KER.) CIT V. DILIP SINGH BAGGA [1993] 201ITR 995/[1994] 77 TAXMAN 66(BOM.) CIT V. NAVDURGA TRAN SPORT CO. [1999] 235 ITR 158 (ALL.) AND CIT V. BASTI SUGAR MILLS CO. LTD. [2002] 257 ITR 88/123 TAXMAN 693 (DELHI)AS ALSO BY THE ITAT IN THEIR DECISION IN THE CASE OF THE CURIOUS HOUSE (P) LTD. V ITO (1980) 9 TTJ 348(INDORE) AND I TO VS. MODI AGENCY ITA NO. 198/GAU/1977-78(GAUHATI). 5.2 IN THE LIGHT OF VIEW TAKEN IN THE AFORES AID DECISIONS MERE NON- REGISTRATION OF A VEHICLE IN THE NAME OF THE COMPAN Y UNDER THE MOTOR VEHICLES ACT CANNOT DISENTITLE IT IN REGARD TO ITS CLAIM OF DEPRECIATION WHEN THE FACTS ON RECORD ARE UNDISPUTED THAT THE ASSESSEE COMPANY HA S IN FACT MADE THE INVESTMENT IN PURCHASE OF THE VEHICLE AND SUCH VEHI CLE IS BEING USED FOR ITS BUSINESS. THE REQUIREMENT OF SECTION 32 IS THAT THE VEHICLE MUST BE OWNED BY THE ASSESSEE AND NOT THAT THE ASSESSEE MUST BE A REGIS TERED OWNER OF THE SAME ITA N O.1841/AHD/2009 4 UNDER THE MOTOR VEHICLES ACT. THEREFORE WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A).CONSEQUENTLY GROUND NO. 1 RELATING TO DISALLOWANCE OF DEPRECIATION ON MOTOR CAR IS DISMISSED. 6. GROUND NO.2 RELATES TO THE DISALLOWANCE OF RS. 10 97 994/- ON ACCOUNT OF INTEREST. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD ADVANCED LOAN S OF RS.1 04 70 526/- TO ASOPALAV ESTATE AND LEASING PV T. LTD. AND RS 23 76 805/- TO M/S. MISTRY ASSOCIATES WITHOUT C HARGING ANY INTEREST . SINCE THE ASSESSEE FAILED TO ESTABLISH THAT THE FUNDS WER E ADVANCED TO THE AFORESAID ASSOCIATES CONCERN M/S ASOPALAV ESTATE AND LEASING PVT. LTD FOR THE PURPOSE OF BUSINESS WHILE THE TAX AUDIT REPORT AS O N 01/04/2005 REFLECTED THAT FUNDS OF RS.1 73 36 061/- WERE ADVANCED TO SISTER / ASSOCIATE CONCERNS AND AS ON 31.3.2005 THESE STOOD AT RS.2 47 75 240/- THE AO CONCLUDED THAT THE ASSESSEE DIVERTED FUNDS TO THEIR SISTER CONCERNS W ITHOUT CHARGING ANY INTEREST . REGARDING ASSESSEE'S CONTENTION THAT DIRECTORS AND STAFF OF MISTRY ASSOCIATES WERE PROVIDING DESIGNS THE ASSESSEE DID NOT FURN ISH ANY DOCUMENTARY EVIDENCE LIKEWISE THE ASSESSEE ADVANCED RS.23.62 LACS TO AMARKUNJ PLANTATION PVT. LTD. WITHOUT CHARGING ANY INTEREST. THE AO ALSO NOTICED THAT THAT ASSESSEE HAD RECEIVED INTEREST FREE ADVANCE FORM ITS CUSTOMERS. AS ON 31/03/2005. THE ADVANCE FROM CUSTOMERS WAS OF RS.54 59 829/- AND AS ON 31/03/2006 THE SAME INCREASED TO RS.2 30 52 502/-. SINCE THE ASSESSEE H AD HUGE INTEREST FREE FUNDS AT ITS DISPOSAL AND STILL BORROWED FUNDS THE AO DI SALLOWED INTEREST OF RS. 10 97 994/- ON THE GROUND THAT FUNDS NAVE BEEN TRA NSFERRED FOR NON BUSINESS PURPOSES. 7. ON APPEAL THE LEARNED CIT(A) DELETED THE DISALL OWANCE ON THE GROUND THAT THE ADVANCE GIVEN TO ASOPALAV ESTATE AN D LEASING PVT. LTD. WAS FOR PURCHASE OF OFFICE AT MUMBAI AND THUS FOR THE BUSINESS OF THE ASSESSEE WHILE THE ADVANCES GIVEN TO MISTRY ASSOCIATES AND ITS DIR ECTOR SHRI JITENDRA MISTRY AS WELL AS SMT. MAMTABEN MISTRY WERE FOR THE PURPOSE O F INTERIOR DECORATION AND FOR PROVIDING TECHNICAL SUPPORT. SINCE THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS THE LD. CIT(A) CONCLUDED THAT THE QUE STION OF DIVERTING THE INTEREST ITA N O.1841/AHD/2009 5 BEARING FUNDS FOR LOANS TO ASSOCIATE CONCERNS DID N OT ARISE NOR THE AO ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INTEREST FREE ADVANCES GIVEN TO ASSOCIATE CONCERN. INTER ALIA TH E LD. CIT(A) RELIED ON VARIOUS DECISIONS INCLUDING THE DECISION IN THE CASE OF TOR RENT FINANCIERS VS. ACIT 73 TTJ 624 (AHD ). 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 9.. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY AND AS POINTED OUT BY THE LD. CIT(A) THE AFORESAID ADVANCE OF RS.1 04 70 526/- TO M/S ASOPALAV ESTATE AND LEASING PVT. LTD. AND RS 23 76 805/- TO M/S. MISTRY ASSOCIA TES WAS GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE . THERE IS NOTH ING ON RECORD TO SUGGEST THAT THE SAID AMOUNT WAS FOR NON-BUSINESS P URPOSES. BEFORE THE LD. CIT(A) THE ASSESSEE CONTENDED THAT MAJORI TY OF LOANS HAD BEEN ADVANCED IN THE PRECEDING YEARS OUT OF AVAILAB LE SURPLUS WITH THE COMPANY AND THAT THE ASSESSEE HAD NOT UTILIZED BORROWED FUNDS FOR THE PURPOSE. HONBLE KARNATAKA HIGH COURT IN BI T TUL (P.) LTD. V. CIT (ITRC 141 OF 1977 DATED 29-7-1980) HELD THAT THERE SHOULD BE MATERIAL TO JUSTIFY THE CONCLUSION THAT ANY BORROWED MONEY BY THE ASSESSEE IN A YEAR IN WHICH INTEREST HAD BEEN PAID HAD BEEN DIVERTED FOR NON-BUSINESS PU RPOSE BEFORE MAKING ANY DISALLOWANCE. SINCE THE REVENUE HAVE NOT PLACED ANY MATERIAL BEFORE US THAT BORROWED FUNDS HAD INDEED BEEN UTILIZED FOR ADVANC ING INTEREST FREE LOANS AND ADVANCES FOR NON-BUSINESS PURPOSES IN THE YEAR UNDE R CONSIDERATION OR EVEN IN THE EARLIER YEARS NOR ANY SUCH DISALLOWANCE IN REL ATION TO FUNDS ADVANCED IN THE PRECEDING YEARS IS STATED TO HAVE BEEN MADE APPAR ENTLY THERE WAS NO GROUND FOR MAKING ANY DISALLOWANCE OF INTEREST IN THE YEAR UNDER CONSIDERATION. 9.1 EVEN OTHERWISE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) HELD THAT IF THERE WERE FUNDS AVAILABLE ITA N O.1841/AHD/2009 6 BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST -FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 9.2. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS ESPECIALLY WHEN IN THE INSTANT CASE THE REVENUE HAVE NOT PLACE D BEFORE US ANY MATERIAL THAT THE BORROWED FUNDS HAD INDEED BEEN UT ILIZED TOWARDS THE AFORESAID ADVANCES WHILE THE ADVANCES WERE FOU ND BY THE LD. CIT(A) FOR BUSINESS PURPOSES WE ARE NOT INCLINED T O INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND N O.2 IN THE APPEAL IS DISMISSED. 10. GROUND NO.3 IN THE APPEAL OF THE REVENUE RELATE S TO CLAIM FOR LOSS OF RS.9 49 176/- IN THE BUSINESS. THE AO NOTIC ED THAT THE ASSESSEE INCURRED LOSSES IN ITS PROFESSIONAL ACTIVI TY CONTINUOUSLY. TO A QUERY BY THE AO THE ASSESSEE REPLIED THAT THE AS SESSEE CARRIED ON THE BUSINESS OF ARCHITECT DESIGNING & MANUFACTU RING OF FURNITURE ETC. AND FOR THIS PURPOSE LABOUR WORK ON MATERIAL OF THE CUSTOMERS WAS ALSO CARRIED OUT. IT WAS SUBMITTED THAT PROPER ACCOUNTS WERE MAINTAINED AND THESE WERE AUDITED. EVEN THOUGH THE SALES REDUCED CERTAIN EXPENSES INCREASED AND THE G.P. WAS 21.10% . HOWEVER THE A.O. DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE ENGAGED IN THE PROFESSION OF INTE RIOR DESIGNING AND ARCHITECTURAL BUSINESS HAD TWO DIRECTORS WHO WERE HIGHLY QUALIFIED AND EXPERIENCED AND STILL NO INCOME FROM INTERIOR DESIGNING WAS OFFERED TO TAX WHILE THE PROJECT WISE DETAILS OF MATERIAL AND OTHER EXPENSES WERE NOT MAINTAINED AND THE ASSESSEE DID NOT FURNISH BIFURCATION OF THE EXPENSES ON EACH OF THE PROJECT NOR THE ASSESSEE FURNISHED ANY EVIDENCE AS TO WHETHER OR NO T WORK HAD BEEN CARRIED OUT WITH LABOUR OR WITH MATERIAL. INTE R ALIA SINCE THE ASSESSEE DID NOT MAINTAIN ANY STOCK REGISTER NOR F URNISHED PROJECT WISE DETAILS OF COMMENCEMENT AND THEIR COMPLETION WHILE THE ITA N O.1841/AHD/2009 7 EXPENSES ON LABOUR AND RAW MATERIAL INCREASED IN FEBRUARY AND MARCH 2006 WITHOUT ANY BASIS AND THE ASSESSEE FAIL ED TO ESTABLISH THE GENUINENESS OF THE SAID EXPENSES AND THE NO BA SIS WAS SHOWN FOR VALUING WIP THE AO REJECTED BOOK RESULTS HAVI NG RECOURSE TO PROVISIONS OF SEC. 145(3) OF THE ACT AND CONSEQUEN TLY ESTIMATED GROSS PROFIT @ 8% OF TOTAL RECEIPTS RESULTING IN ADDITION OF A N AMOUNT OF RS.9 49 176/-. 11. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDI TION IN THE FOLLOWING TERMS:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AS ADVANCED BY THE A.O. FROM THE DETAIL S FURNISHED BY THE A.R. IT IS SEEN THAT ITS ACCOUNTS ARE DULY AUDITED BY THE CHARTERED ACCOUNTANTS AND THEY HAVE NOT POINTED OUT ANY MISTAKES FURTHER THE A.O. HAS ALS O NOT BEEN ABLE TO FIND OUT ANY DEFECT IN THE BOOKS MAINTAINED BY THE APPELLANT AND HENCE THERE IS NO JUSTIFICATION FOR REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. FURTHER BY FOLLOWING SEVERAL DECISIONS AS RELIED UPON I HOLD THAT REJEC TION OF BOOK RESULT IS NOT JUSTIFIED AND SO ALSO THE ESTIMATE OF PROFIT IS NOT JUSTIFIED. ACCORDINGLY THE DISALLOWANCE OF LOSS AN D ADDITION OF RS.9 49 176/- ARE DELETED. 12 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS INDISPUTABLY AND AS POINTED OUT BY THE LD. CIT(A) NO OTHER DEFECTS IN THE BOOKS OF ACCOUNT S EXCEPT PERHAPS THAT THE ASSESSEE DID NOT MAINTAIN ANY STOCK OR QUANTITY RE CORDS OR THAT THE INCREASE IN EXPENSES IN FEBURARY AND MARCH 2006 WA S NOT JUSTIFIED AND THAT NO BASIS FOR VALUATION OF WIP WAS SHOWN WH ILE PROJECT WISE DETAILS OF EXPENSES WERE NOT FURNISHED . BEFORE TH E LD. CIT(A) THE ASSESSEE EXPLAINED THE BASIS OF VALUATION OF STOCK DEPENDING UPON ITA N O.1841/AHD/2009 8 THE STAGE OF COMPLETION IN THE PROJECT AND POINTED OUT THAT THE ASSESSEE HAD CONSISTENTLY FOLLOWED METHOD OF ACCOU NTING OF RECEIPTS AND VALUATION OF STOCK WHILE THE AO DID N OT POINT OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS. WE ARE O F THE OPINION THAT IT IS DIFFICULT TO CATALOGUE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNTS ON THE GROUN D THAT ACCOUNTS ARE NOT COMPLETE FROM WHICH THE CORRECT PROFIT CANNOT BE DE DUCED. MERELY BECAUSE QUANTITY RECORDS WERE NOT KEPT OR PROJECTWISE DET AILS WERE NOT MAINTAINED BOOK RESULTS CAN NOT BE DISCARDED ALTOGETHER ESPECIALLY WHEN THE AO DID NOT POINT OUT ANY SPECIFIC DEFECTS IN THE BOOKS. INDISPUTABLY RECORDS WERE BEING MAINTAINED IN THE SAME MANNER AS IN THE PRECEDING YEARS WHEN BOOK RESULTS HAVE BEEN ACCEPTED BY THE AO. THE LD. DR APPEARING BEFORE US DID NOT REFER US TO ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF FA CTS RECORDED BY THE LD. CIT(A). IN THE ABSENCE OF ANY DEFECTS WHATSOEVER WE ARE OF THE OPINION THAT THERE WAS NO GROUND FOR REJECTING THE BOOK RESULTS AND MAKING ANY TRADING ADDITION. HONBLE GAUHATI HIGH COURT IN ALUMINI UM INDUSTRIES (P) LTD. V. CIT (I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOULD NO T IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCEN TAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARI LY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT IS NEITHER A CIRCU MSTANCE NOR MATERIAL TO JUSTIFY ADDITION OF PROFITS. THE RATIO OF THE JUDGMENTS IN DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STATE OF B IHAR [1957] 8 STC 770 (SC); STATE OF KERALA V. C. VELUKU TTY [1966] 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO [19 70] 76 ITR 690 (SC); BRIJ BHUSAN LAL PARDUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT [1962] 46 ITR 262 (ASSAM); R.V.S. AND SONS DAIRY FARM V. CIT [2002] 257 ITR 764 (MAD); INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 (J & K) ; M. DURAI RAJ V. CIT [1972] 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA [1970] 25 STC 501 (ORISSA); ACTION ELECTRICALS V. DEPUTY CIT [2002] 258 ITR 188 (DELHI) AND KAMAL KUMAR SAHARIA V. CIT [1995] 216 ITR 217 (GAUHATI) INDICATE THAT THE AO IS NOT FETTERED BY A NY TECHNICAL RULES OF EVIDENCE AND PLEADINGS AND HE IS ENTITLED TO ACT ON MATERIA L WHICH ARE NOT ACCEPTABLE IN ITA N O.1841/AHD/2009 9 EVIDENCE IN A COURT OF LAW BUT WHILE MAKING THE AS SESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT THE INCOME-TAX OFFICER IS NOT ENT ITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THER E MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LO W PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWER S OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI 129 ITR 573 H ELD THAT IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BO OKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIE S IS NOT THE REAL STATE OF AFFAIRS. SECONDLY EVEN IF FOR SOME REASON THE BO OKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. INDISPUTABLY NO SPECIFIC DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN POINTED OUT BEFORE US NOR WAS ANY MATERIAL BROUGHT TO OUR NOTICE TO ESTABLISH THAT PURCHASES WERE INFLATED O R RECEIPTS SUPPRESSED. IN THESE CIRCUMSTANCES WE ARE OPINION THAT THAT THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT [ VIKRAM PLAST ICS 239 ITR 161(GUJ)]. THE BURDEN OF SHOWING THAT THE APPARENT STATE OF AFFAIR S IS NOT THE REAL ONE IS VERY HEAVY ON THE DEPARTMENT [BEDI & CO. PVT. LTD. VS. C IT 144 ITR 352(KARN) AFFIRMED BY HONBLE SUPREME COURT IN 230 ITR 580 WH ILE NO OTHER MATERIAL HAS BEEN PLACED BEFORE US TO DOUBT THE NATURE OF THE T RANSACTIONS RECORDED IN THE BOOKS. IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRE SENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF THESE OB SERVATIONS OF THE HONBLE JURISDICTIONAL HIGH COURT WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.3 IN THE APPEAL IS DISMISSED. 14. GROUND NO.4 RELATES TO DELETION OF DISALLOWANCE OF BAD DEBTS OF RS.1 01 081/-. THE AO NOTICED THAT THE ASSESSEE DE BITED BAD DEBTS OF RS.1.01 081/- IN THE P&L ACCOUNT. TO A QUERY BY THE AO THE ASSESSEE EXPLAINED THAT ONLY THE SUNDRY BALANCES W ERE WRITTEN OFF INCOME IN RELATION TO WHICH WAS DULY ACCOUNTED FOR . HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE O N THE GROUND IN THE AUDITED ACCOUNTS THE ABOVE AMOUNT HAD BEEN SHO WN AS BAD DEBTS AND NO ITA N O.1841/AHD/2009 10 ACTION HAD BEEN TAKEN TO RECOVER THE AMOUNT. SINCE NO ACTION FOR RECOVERY HAD BEEN TAKEN THE AO DISALLOWED THE CLAIM FOR DEDUCT ION OF THE SAID AMOUNT OF RS.1 01 081/- . 15. ON APPEAL THE LEARNED DELETED THE DISALLOWAN CE IN THE FOLLOWING TERMS: 5.3 I HAVE CONSIDERED THE FACTS AND THE CIRCUMSTANC ES AND THE SUBMISSIONS OF THE APPELLANT. I FIND THAT THE AR HA S FILED ACCOUNT COPIES OF PARTIES AND HAS CLAIMED THE SAME AS SUNDRY BALANCES WRITTEN OFF AND THAT THE AMOUNTS WERE NOT RECEIVABLE DUE TO CLAIMS MADE BY THE PARTIES AND THE CLAIMS MADE BY THE PARTIES WERE ACCEPTED BY THE APPELLANT. CONSIDERING THESE FACTS AND SUBMISSIONS I HOLD THA T THE CLAIM OF THE APPELLANT THAT THE AMOUNTS WRITTEN OFF ARE KASAR VA TAV IS GENUINE HENCE I DELETE THE DISALLOWANCE. 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS THE LD. CIT (A) ON PERUSAL OF ACCOUNT COPIES OF PARTIES CONCLUDED THAT THE ASSESSEE HAD ACCEPT ED THE CLAIMS MADE BY THE PARTIES AND THE AMOUNTS WRITTEN OFF WERE KASAR VATA V AND GENUINE . THE REVENUE HAVE NOT PLACED BEFORE ANY MATERIAL CONTROVERTING THESE FINDINGS OF FACTS RECORDED BY THE LD. CIT(A). IN THESE CIRCUMSTANCES ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO.4 IS DISMISSED. 18. GROUND NOS. 5 & 6 BEING MERE PRAYER DO NOT RE QUIRE ANY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. ITA N O.1841/AHD/2009 11 19. IN THE RESULT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 21 -01-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 21 -01-2011 COPY OF THE ORDER FORWARDED TO: 1. STUDIO-3 ARCHITECT PVT. LTD. MADHU MALTI NEA R OLD HIGH COURT NAVRANGPURA AHMEDABAD 2. ITO WARD-8(2) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-C AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD