Shri Manoj Kumar Saraf, Surat v. The Income tax Officer,OSD-II,Range-2,, Surat

ITA 28/AHD/2009 | 2005-2006
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 2820514 RSA 2009
Assessee PAN AKUPS9932M
Bench Ahmedabad
Appeal Number ITA 28/AHD/2009
Duration Of Justice 2 year(s) 6 month(s) 12 day(s)
Appellant Shri Manoj Kumar Saraf, Surat
Respondent The Income tax Officer,OSD-II,Range-2,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 15-07-2011
Date Of Final Hearing 09-06-2011
Next Hearing Date 09-06-2011
Assessment Year 2005-2006
Appeal Filed On 02-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT JM & SHRI A N PAHUJA AM ITA NO.28/AHD/2009 (ASSESSMENT YEAR:-2005-06) SHRI MANOJ KUMAR SARAF PROP. M/S PRECISION ENGINEERS 644 AJANTA SHOPPING CENTRE RING ROAD SURAT V/S INCOME-TAX OFFICER OSD-II RANGE-2 SURAT PAN: AKUPS 9932 M [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI HARDIK VORA AR REVENUE BY:- SHRI B L YADAV DR O R D E R A N PAHUJA: THIS APPEAL BY ASSESSEE AGAINST AN ORDER DATED 10- 10- 2008 OF THE LD. CIT(APPEALS)-II SURAT FOR THE ASS ESSMENT YEAR 2005-06 RAISES THE FOLLOWING GROUNDS:- [1] ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WEL L AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N MAKING ADDITION OF RS.2 68 657/- ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. [2] ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.25 695/- ON ACCOUNT OF PAYMENT OF SALARY TO SISTER U/S. 40A(2)(B). [3] ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.2 60 000/- ON ACCOUNT OF ALLEGED UNEXPLA INED CASH CREDIT U/S. 68 OF THE IT. ACT. [4] ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED \ COMMISSIONER OF INCOME-TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.12 825/- ON ACCOUNT OF INTEREST EXPENSE CL AIMED ON CASH CREDITS. 2 ITA NO.28/AHD/2009 2 [5] ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS.3 021/- BEING 20% OF TELEPHONE EXPENSES . [6] IT IS THEREFORE PRAYED THAT THE ADDITIONS/DISALLOWA NCES MADE BY ASSESSING OFFICER AND CONFIRMED BY COMMISSIONER OF INCOME-TA X (APPEALS) MAY PLEASE BE DELETED. [7] APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE AN Y GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCO ME OF RS.4 58 828/- FILED BY THE ASSESSEE ENGAGED IN CIV IL CONSTRUCTION AND TRADING IN LUBRICANT OIL & INDUSTRIAL BEARINGS BESIDES BEING COMMISSION AGENT IN THE NAME OF M/S PRECISION ENGIN EERS WAS TAKEN UP FOR SCRUTINY WITH THE SERVICE OF NOTICE U/ S 143(2) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS TH E ACT] ON 20-10- 2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE ASSESSEE HAD SHOWN GROSS PROFIT (GP)@ 9.88% ON TURNOVER OF RS.1 79 21 928/- IN THE YEAR UNDER CONSIDERATION AS AGAINST GP @14.22% ON TURNOV ER OF RS.50 70 994/- IN THE PRECEDING ASSESSMENT YEAR. ON VERIFICATION OF BOOKS OF ACCOUNT AND BILLS/VOUCHERS PRODUCED BY THE ASSESSEE THE AO NOTICED THAT THE ASSESSEE DID NOT PRODUCE ALL T HE BILLS OF PURCHASE AND SALES FOR VERIFICATION WHILE CLOSING S TOCK OF BEARINGS WAS NOT VALUED PROPERLY AS EVIDENT FROM THE FOLLOWI NG DETAILS EXTRACTED IN THE ASSESSMENT ORDER: SR. NO. BEARING NOS. QTY. AVERAGE RATE OF CLOSING STOCK AS SHOWN BY YOU (RS.) AVERAGE RATE AS PER LAST PURCHASE BILL (RS.) DIFFERENCE (RS.) PERCENTAGE 1 6203 2Z/C3 16 66.31 84.67 18.36 127.6881 2 32308 2J/U 56 406.89 481.09 74.2 118.2359 3 ITA NO.28/AHD/2009 3 3 6204 2Z/C3 88 96.85 123.25 26.4 127.2586 4 6205 2RS1 46 147.54 160.02 12.48 108.4587 717.59 849.03 131.44 118.3169 2.1 TO A QUERY BY THE AO THE ASSESSEE SUBMITTED THAT THE STOCK HAD BEEN VALUED BY TAKING INTO CONSIDERATION THE IN CENTIVES DISCOUNT SALES TAX REBATE AND OLD STOCKS WHICH WAS APPROXIMATELY 5% OF THE PURCHASE BILL AMOUNT. SINCE THEY WERE REQ UIRED TO SELL THE OLD STOCK AT OLD MRP THEY HAD TAKEN INTO CONSIDERA TION THE VALUE OF OLD STOCK. HOWEVER THE AO DID NOT ACCEPT THE SUBMI SSIONS OF THE ASSESSEE AND CONCLUDED THAT THE STOCK WAS SHOWN LOW ER BY 8.4592 % VIS--VIS THEIR ACTUAL COST AS EVIDENT FROM THE FOLLOWING DETAILS:- ITEM NAME QTY. CLOSING STOCK VALUE SHOWN BY THE ASSESSEE COST AS PER BILLS DIFFERENCE IN AMOUNT DIFFERENCE IN PERCENTAGE 6000-ZZ/C3 100.00 5590 60.63 6063 108.4615 6003-ZZ 24.00 1747.2 78.96 1895.04 108.4615 6203 ZZ/C3 6.00 1060.8 71.9 1150.56 108.4615 6204-ZZ 2.00 10347.2 105.0 11764.48 108.4564 6204-ZZ/C3 58.00 8522.8 105.0 9243.52 108.4564 6205 56.00 807.8 128.3 8468.46 108.4615 6205-ZZ/C3 54.00 1 411.4 147.3 12376.56 108.4579 6205-2RS1 46.00 6787.3 160.03 7361.38 108.4581 6207-ZZ 55.00 11672.25 198. 12876.5 108.4588 6207-ZZ/C3 51.00 9315.15 198 10103.1 108.4588 6208 45.00 8570.25 206.55 9295.2 108.4589 DIFFERENCE IN AVERAGE RATE 108.4592 2.2 WHILE NOT ACCEPTING THE SUBMISSIONS OF THE ASSESSEE REGARDING INCLUSION OF INCENTIVE DISCOUNT SALES TAX REBATE IN VALUING THE CLOSING STOCK ON THE GROUND THAT INCENTIVE OF RS.94302/- AND DISCOUNT INCOME OF RS.258078/- WERE PART OF P&L A/C AND HAD NOTHING TO DO WITH VALUATION OF STOCK THE AO OBSERVED THAT THE INCENTIVES AND DISCOUNTS ALLOWE D AS PER THE POLICY 4 ITA NO.28/AHD/2009 4 ADOPTED BY THE ASSESSEE DID NOT REDUCE THE COST OF PURCHASE AND AS SUCH VALUATION OF STOCK. THE AO FURTHER OBSERVED THAT DIFFER ENCE IN VALUATION OF CLOSING STOCK ON THE BASIS OF AVERAGE COST AND AS SHOWN BY THE ASSESSE W ORKED OUT TO AROUND 8.4592% AND WHEN ADDED TO THE VALUE OF STOCK GP APPROXIMATED TO AROUND 16% SHOWN BY THE ASSESSEE IN THE PRECEDING YEAR. SINCE THE ASSESSE DID NOT PRODUCE ALL THE PURCHASE BILLS DESPITE SPECIFIC REQUE ST THE AO ADDED AN AMOUNT OF RS.2 68 657/- (34 44 572-31 75 915) ON ACCOU NT OF UNDERVALUATION OF THE STOCK OF BEARINGS. 3. ON APPEAL THE LEARNED CIT(A) UPHELD THE ADDITIO N IN THE FOLLOWING TERMS:- 6. I HAVE CAREFULLY CONSIDERED THE DETAILED FINDINGS AN D CONCLUSION OF THE AO AS ALSO THE WRITTEN SUBMISSIONS OF THE AR. THE B ASIC DIFFERENCE BETWEEN THE APPROACH OF THE AO ON ONE HAND AND THE ASSESSEE/AR ON THE OTHER WAS THAT THE VALUATION OF THE CLOSING STOCK HA D VALUE LOWER THAN THE RATES OF PURCHASE OF THE SAME ITEMS. THE ASSESSEE HAD VALUED THE CLOSING STOCK AT 5% LOWER THAN THE PURCHASE COST AND THE RE ASON GIVEN WAS THAT SUCH VALUES HAD BEEN ADOPTED AFTER TAKING INTO CO NSIDERATION THE INCENTIVES REBATES AND DISCOUNTS SO AS TO BE COMPETITIVE I N THE MARKET. WHAT THE AR HAS NOT ANSWERED IS WHY ONLY THE CLOSING STO CK HAD TO BE VALUED AT A LOWER RATE THAN THE RATES OF PURCHASES. IF INDEED THE PURPOSE WAS TO BE COMPETITIVE THEN THE SALE PRICES OUGHT TO HA VE BEEN ADJUSTED ACCORDINGLY AS WELL OR THE PURCHASE COSTS SHOULD HAVE BE EN LOWER. NO PURPOSE COULD HAVE BEEN SERVED BY SIMPLY UNDERVALUING THE CLOSING STOCK WITHOUT MAKING ADJUSTMENTS EITHER IN THE PURCHASE COSTS OR IN THE SALE PRICES. MOST IMPORTANTLY THE AR HAS NOT BEEN ABLE T O EITHER CONTEST OR REBUT THE AO'S FINDING THAT THE ASSESSEE H AD SEPARATELY ACCOUNTED FOR INCENTIVES (RS.94 302) AND DISCOUNTS (RS.2 58 078) IN THE P &. L ACCOUNT. THIS CLEARLY SHOWED THAT THE CLAIM OF THE ASSESSEE AND THE AR WAS NOT REALLY JUSTIFIED AND THAT THE DISCOUNTS AND IN CENTIVES HAD NOT REALLY BEEN INCORPORATED IN THE CLOSING STOCK VALUES. ON HIS PART THE AO GAVE A CLEAR FINDING WITH THE HELP OF TWO CHARTS WHER E HE SHOWED THE DIFFERENCE IN THE COST OF PURCHASES AS REFLECTED IN THE B ILLS AND THE RATES AT WHICH THE SAME ITEMS IN THE CLOSING STOCK HAD BEEN VALUED. S UCH SPECIFIC- DATA HAS NOT BEEN CONTESTED BY THE AR. EVEN THOUGH THE ASSESSEE MAY HAVE ADOPTED THE SAME METHOD OF VALUATION OF THE CLOSING STOCK IN THE EARLIER YEARS NOTHING PREVENTED THE AO FROM GIVIN G A CLEAR FINDING IN A PARTICULAR YEAR AS TO HOW THE ASSESSEE HAD UNDERVALUED THE CLOSING STOCK. 6.1 TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CAS E AS DISCUSSED ABOVE IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN WORKING OUT THE UNDERVALUATION OF THE CLOSING STOCK BY THE SUM OF RS.2 68 65 7. THE ADDITION OF THE SAID SUM IS THEREFORE CONFIRMED. 5 ITA NO.28/AHD/2009 5 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE CONTENDED THAT THE AO DID NOT PROVIDE THE CALCULATION AS MENTIONED ON PAGE 6 OF THE ASSESSMENT ORDER NOR EVE N IDENTIFIED THE RELEVANT BILLS FORMING THE BASIS OF SUCH CALCULATI ON. THE LEARNED DR ON THE OTHER HAND WHILE SUPPORTING THE IMPUGNED OR DER DID NOT THROW ANY LIGHT AS TO THE BASIS ADOPTED BY THE AO I N WORKING OUT DIFFERENCE ON PAGE 6 OF THE OF THE ASSESSMENT ORDE R. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE HAD VALUED THE CLOSING STOCK AT 5% LOWER THAN THE PURCHASE COST AFTER TAKING INTO C ONSIDERATION THE INCENTIVES REBATES AND DISCOUNTS. NEITHER BEFORE T HE AO/LD. CIT(A) NOR EVEN BEFORE US THE ASSESSEE STATED AS TO WHY ONLY T HE CLOSING STOCK OF BEARINGS HAD BEEN VALUED AT A RATE LOWER THAN TH E RATE OF THEIR PURCHASE. EVEN ALL THE PURCHASE BILLS WERE NOT PROD UCED BEFORE THE AO. THE LD. DR ALSO DID NOT EXPLAIN THE BASIS OF CA LCULATION OF DIFFERENCE IN STOCK ON PAGE 6 OF THE ASSESSMENT OR DER. NOW WHEN THE LD. AR HAS AGREED TO FURNISH THE RELEVANT BILL S AND EVIDENCE WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE RAISED IN THE AFORESAID GROUND NO. 1 OF THE APPEAL RELATING TO VALUATION OF CLOSING STOCK AFRESH IN ACCORDANCE WI TH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. NE EDLESS TO SAY THAT WHILE REDECIDING THE AO SHALL BRING OUT CLEARLY THE BASIS OF VALUATION OF STOCK AND IDENTIFY THE RELEVANT BILLS FORMING THE BASIS OF SUCH VALUATION. WITH THESE OBSERVATIONS GROUND NO. 1 IN THE APPEAL IS DISPOSED OF. 6. GROUND NO.2 RELATES TO RELATES TO DISALLOWANCE OF AN AMOUNT OF RS.25 695/- ON ACCOUNT OF SALARY PAID TO HIS SISTER BY THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE PAID OF SALARY OF RS.25 695/- TO SMT. MADHU BAJORIA. THE ASSESSEE EXPLAINED THAT SHE LOOKED AFTER 6 ITA NO.28/AHD/2009 6 THE SALES COLLECTION AND PROMOTION IN UP WHICH CO ULD NOT BE SUPERVISED FROM SURAT. SINCE THE ASSESSEE HAD NOT D ONE ANY BUSINESS IN UP EXCEPT FOR A CONSIGNMENT SALE OF BET EL NUTS FOR WHICH THE ASSESSEE HAD APPOINTED M/S GOMATI ENTERPRISES A S ITS AGENT NOR THERE WAS ANY CONSTRUCTION ACTIVITY OR ANY COLLECTI ON IN UP THE AO DISALLOWED THE SUM OF RS.25 695/- INVOKING THE PROV ISIONS OF SECTION 40A(2)(A) OF THE ACT THEREBEING NO EVIDENCE OF ANY SERVICES RENDERED BY THE SISTER OF THE ASSESSEE. 7. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALLO WANCE IN THE FOLLOWING TERMS:- 10 I DO NOT FINE THE AR'S SUBMISSION TO BE CONVINCING AT AIL. THE PAYMENT OF SALARY DOES NOT HAVE ANY RELATION TO THE VOLUME OF B USINESS. THE ISSUE WAS WHETHER OR NOT SMT. BAJORIA DESERVED TO BE PAID AN Y SALARY ESPECIALLY WHEN THERE WAS NO POSSIBILITY OF HER HAVING PROVIDED ANY S ERVICE TO THE ASSESSEE SINCE DURING THE YEAR THERE WAS NO BUSINESS ACTIVITY I N UP THE ONLY TRANSACTION BEING CARRIED OUT BY A NEWLY APPOINTED AGENT. IT WAS CLAIMED THAT SMT. BAJORIA DEALT WITH ALL MATTERS INVO LVING CONSTRUCTION LITIGATION SALES PROMOTION AND COLLECTION IN UP. ACCORDI NG TO THE AO THERE WASN'T ANY SCOPE FOR SUCH ACTIVITY TO BE CARRIED OUT IN U P DURING THE YEAR AS FAR AS THE ASSESSEE'S BUSINESS IS CONCERNED NOR WAS ANY EVIDE NCE FURNISHED TO SHOW THAT SMT BAJORIA DID ACTUALLY RENDER SOME SERVICE CONNECTED WITH SUCH ACTIVITIES DURING THE YEAR. IN SUCH A SITU ATION I HAVE NO OTHER OPTION BUT TO SUSTAIN AND CONFIRM THE ADDITI ON OF RS.25 695/-. 8. THE ASSESSEE IS IN NOW APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE MERELY REITERATED THEIR SUBMISSIONS BEFORE THE CIT(A) WHILE THE LEARNED DR SUPPORTED FINDINGS IN THE IMPU GNED ORDER. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THERE WAS NO BUSINESS ACTIVITY OF THE ASSESSEE IN UP WHILE THE SOLE TRANSACTION OF CONSIGNMENT SAL E WAS CARRIED OUT THROUGH A NEWLY APPOINTED AGENT M/S GOMATI ENTERPRISES. NEITHER BEFORE THE AO /LD. CIT(A) NOR EVEN BEFORE U S THE ASSESSEE PRODUCED ANY EVIDENCE OF SERVICES RENDERED BY HIS SISTER SMT. MADHU BAJORIA TO THE ASSESSEE. IN THE ABSENCE OF AN Y MATERIAL SO AS 7 ITA NO.28/AHD/2009 7 TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO.2 IN TH E APPEAL IS DISMISSED. 10. GROUND NO.3 IN THE APPEAL RELATES TO AN ADDITI ON OF RS.2 60 000/- ON ACCOUNT OF UNEXPLAINED CASH CREDI T U/S 68 OF THE ACT WHILE GROUND NO.4 RELATES TO DISALLOWANCE OF RS .12 825/- ONACCOUNT OF INTEREST ON THE AFORESAID CASH CREDI T. THE AO NOTICED THAT THE ASSESSEE RECEIVED LOAN/DEPOSIT OF RS.2 50 000/- FROM ONE SHRI GOPAL KRISHNA AND RS. 10 000/- FROM SHRI RAJES H KUMAR AGARWAL. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE AO ASKED THE ASSESSEE TO FURNISH THEIR CONFIRMATIONS COPY OF ACKNOWLEDGEMENT OF THEIR IT RETURNS AND BANK STATE MENT IN RESPECT OF THESE NEW UNSECURED LOANS OBTAINED BY THE ASSES SEE FROM THE CREDITORS DURING THE YEAR UNDER CONSIDERATION. HOWE VER THE ASSESSEE DID NOT PRODUCE THE SAME AND INSTEAD REQUE STED THE AO TO CALL FOR THE INFORMATION FROM THE SAID CREDITORS. O N THE REQUEST OF THE ASSESSEE THE AO ISSUED A LETTER U/S 133(6) OF THE ACT TO THE AFORESAID CREDITORS HOWEVER NO REPLY WAS RECEIVED. SINCE THE ASSESSEE FAILED TO ESTABLISH NOT ONLY THE IDENTITY OF THE CREDITORS BUT ALSO THEIR CREDITWORTHINESS AND CONSEQUENTLY THE GENUINENESS OF THE TRANSACTIONS RELYING ON THE DECISIONS IN KALE KHAN MOHAMMAD HANIF VS. CIT 50 ITR 1(SC) RAJSHREE SYNTHETICS P L TD. VS. CIT 256 ITR 331(RAJ) ITO VS. DIZA HOLDINGS P LTD. 255 ITR 5 73(KER) SMT. IVA GOGOI VS. CIT 254 ITR 576(GAUHATI) RB MITTAL VS. CI T 246 ITR 283(AP) OCEANIC PRODUCTS EXPORTING CO. VS. CIT 241 ITR 497(KER) KM SADHUKHAN & SONS P LTD. VS. CIT 239 ITR 77(CAL.) CIT VS. RS RATHORE 212 ITR 390(RAJ) PUSHAP TRADING CO. VS. CIT 190 ITR 618(DEL.) AND CIT VS. KORLAY TRADING CO. 232 IT R 820(CAL.) THE AO ADDED THE AMOUNT OF RS.2 60 000/- IN TERMS OF P ROVISIONS OF SEC. 68 OF THE ACT BESIDES DISALLOWING INTEREST OF RS.1 2 825/- ON THE AFORESAID CREDITS. 8 ITA NO.28/AHD/2009 8 11. ON APPEAL THE LEARNED CIT(A) UPHELD THE ADDITI ON IN THE FOLLOWING TERMS:- 14. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. IT CA NNOT BE SAID THAT THE AO DID NOT CARRY OUT ANY ENQUIRY OF HIS OWN. EVEN THO UGH THE ASSESSEE HAD SUBMITTED A CONFIRMATION LETTER FROM SHRI G OPAL KRISHNA YET THE AO CHOSE TO CROSS-VERIFY SUCH CLAIM AND THEREFORE ISSUE D A NOTICE U/S.133(6) WHICH WAS DULY SERVED ON THE ALLEGED CREDITOR. THIS HAS BEEN CONFIRMED BY THE AR IN THE WRITTEN SUBMISSION. HOWEVER T HE CREDITOR FOR REASONS BEST KNOWN TO HIM HAD CHOSEN NOT TO RESPOND TO T HE SAID NOTICE WHICH MEANT THAT A COPY OF HIS BANK STATEMENT AS ALSO THE ACKNOWLEDGEMENT OF THE RETURN OF INCOME IF ANY FILED BY HIM AS EVIDENCE OF HIS CREDITWORTHINESS AS ALSO HIS IDENTITY WAS NOT MADE AVAILABLE TO THE AO. MERE FILING OF A CONFIRMATION LETTER CANNOT BE TR EATED AS SUFFICIENT EVIDENCE OF THE GENUINENESS OF THE CASH CREDITS SINCE ANY ONE CAN SIGN ON A CONFIRMATION LETTER AND PROVIDE A PAN. THE CONFIRMATION LETTER HAS TO BE SUBSTANTIATED AND CORROBO RATED. SINCE THE ASSESSEE WAS UNABLE TO DO SO HE HAD FAILED TO DISCHARGE TH E INITIAL BURDEN WHICH LAY ON HIM. THE ENQUIRES MADE BY THE AO ALSO DRE W A BLANK. THIS MEANT THAT THE CONFIRMATION LETTER WAS NOT AUTHENTICA TED AND HENCE COULD NOT BE ACCEPTED AS EVIDENCE OF THE GENUINENESS OF THE CASH CREDITS. IN APPELLATE PROCEEDINGS AS ALREADY STATED THE AR HAS HIM SELF EXPRESSED HIS INABILITY TO DO SO AND APART FROM PLACING RELIANCE O N CERTAIN CASE-LAWS HAS NOT ADDED ANYTHING TO WHAT HAD BEEN SUBMITTED AND CONTENDED IN ASSESSMENT PROCEEDINGS. THE ADDITION OF THE SUM OF RS.2 60 000/- AS UNEXPLAINED CASH CREDITS UNDER THE PROVISIONS OF SEC.68 OF THE IT ACT IS CONFIRMED. ON THE SAME GROUND THE DISALLOWANCE OF THE INTEREST CLAIMED ON SUCH CASH CREDITS OF THE SUM OF RS.12 825/- IS ALSO CON FIRMED. 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT CONFIRMATION OF SHRI RAJESH KUMAR FROM WHOM CASH OF RS. 10 000/- WAS RECEIVED REFLECTED HIS PAN WHI LE PAN OF SHRI GOPAL KRISHNA WAS DULY MENTIONED IN THE ANNEXURE-5 TO THE TAX AUDIT REPORT ENCLOSED WITH THE RETURN. SINCE AMOUNT OF RS . 2 50 000/- WAS RECEIVED THROUGH CHEQUE AND TAX HAD ALSO BEEN DEDUC TED AT SOURCE ON THE AMOUNT OF INTEREST PAID TO SHRI GOPAL KRISHN A THE LD. AR ARGUED THAT ADDITION SUSTAINED BY THE LD. CIT(A) WA S NOT JUSTIFIED. TO A QUERY BY THE BENCH THE LD. AR REPLIED THAT THOUG H THE ASSESSEE HAD REPAID THE AMOUNT HE DID NOT HAVE ANY EVIDENCE OF REPAYMENT AT THE MOMENT. THE LEARNED DR ON THE OTHER HAND S UPPORTED THE 9 ITA NO.28/AHD/2009 9 IMPUGNED ORDER OF THE LEARNED CIT(A) AND ARGUED THA T CONFIRMATION OF SHRI GOPAL KISHNA WAS NOT EVEN SIGNED BY HIM AND THE ASSESSEE FAILED TO ESTABLISH THEIR CREDITWORTHINESS AND GENU INENESS OF THE TRANSACTIONS. THE ONUS WAS ON THE ASSESSEE TO ESTAB LISH THE CREDITWORTHINESS OF THE AFORESAID TWO CREDITORS AS ALSO THE GENUINENESS OF THE TRANSACTIONS. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE DID NOTHING EX CEPT FILING CONFIRMATIONS OF THE AFORESAID TWO CREDITORS BEFORE THE AO. THE LD. CIT(A) CONCLUDED THAT MERE FILING OF A CONFIRMATION LETTER COULD NOT BE TREATED AS SUFFICIENT EVIDENCE OF THE GENUINENES S OF THE CASH CREDITS SINCE ANY ONE COULD SIGN A CONF IRMATION LETTER AND PROVIDE A PAN. THUS THE ASSESSEE FAILED TO DIS CHARGE THE INITIAL BURDEN WHICH LAY ON HIM. THE ENQUIRES MADE BY THE A O ALSO DREW A BLANK. EVEN BEFORE THE LD. CIT(A) THE AR HIMSELF EXPRESSED HIS INABILITY TO HAVE THE CONFIRMATIONS AUTHENTICATED NOR PRODUCED ANY EVIDENCE ESTABLISHING CREDITWORTHINESS OF THE AFORESAID CREDITORS OR GENUINENESS OF THE TRANSACTIONS. THE REVENUE NOW CLAIMED BEFORE US THAT EVEN THE SAID CONFIRMATION OF SHRI GOPAL KISHNA IS NOT SIGNE D BY HIM AND SOMEBODY ELSE ON HIS BEHALF HAD SIGNED THE SAID CON FIRMATION. IN SUMATI DAYAL V. CIT [1995] 214 ITR 801 THE HONBLE SUPREME COURT RULED THAT THE BURDEN IS ON THE ASSESSEE TO PROVE THAT AMOUNTS CRED ITED IN ACCOUNTS DID NOT REPRESENT INCOME IN TERMS OF SECTION 68 OF THE ACT. IN S HANKAR INDUSTRIES V. CIT [1978] 114 ITR 689 THE HONBLE CALCUTTA HIGH C OURT CAME TO THE CONCLUSION AND AS RIGHTLY HELD THAT FOR THE BUR DEN OF PROOF OF GENUINENESS THE ASSESSEE MUST PROVE NOT ONLY THE I DENTITY OF THE CREDITOR BUT EVEN THE CAPACITY OF THE CREDITOR TO ADVANCE MONEY AND GENUINENESS OF THE TRANSACTION. A MERE PROOF OF IDENTITY OF CREDITOR IS NOT SUFFICIENT. SIMILAR VIEWS WERE EXPR ESSED IN CIT V. UNITED COMMERCIAL AND INDUSTRIAL CO. P. LTD. [1991] 187 ITR 596(CAL.) WHEN IT WAS OBSERVED THAT THE ASSESSEE M UST PROVE NOT ONLY THE IDENTITY OF THE CREDITOR BUT THEIR CREDITW ORTHINESS AND 10 ITA NO.28/AHD/2009 10 GENUINENESS OF THE TRANSACTION HAS ALSO TO BE PROVE D BEYOND ANY REASONABLE DOUBT BY THE ASSESSEE. IN R.B. MITTAL'S CASE [2000] 246 ITR 283 (AP) IT WAS HELD THAT THE ASSESSEE WAS EXPE CTED TO ESTABLISH THE PROOF OF HIS CREDITORS THE CAPACITY OF HIS CREDITORS TO ADVANCE MONEY AND THE GENUINENESS OF THE TRANSACTIO NS IN ORDER TO DISCHARGE THE ONUS IMPOSED ON HIM UNDER SECTION 68 OF THE ACT. A SIMILAR VIEW WAS TAKEN BY THE HONBLE KERALA HIGH C OURT IN OCEANIC PRODUCTS EXPORTING CO. V. CIT [2000] 241 ITR 497. A DIVISION BENCH OF THE HONBLE DELHI HIGH COURT IN PREM NATH GOEL AND CO. V. CIT REPORTED AS [2004] 271 ITR 390; [2004] 25 INDIAN TA XATION REPORTS 124 HAS TAKEN A VIEW THAT FOR CASH CREDIT UNDER SE CTION 68 OF THE ACT THE ONUS IS ON THE ASSESSEE TO ESTABLISH THE G ENUINENESS OF THE CREDIT ENTRIES BY PROVING (I) THE IDENTITY OF THE C REDITOR; (II) CAPACITY OF THE CREDITOR TO ADVANCE THE MONEY AND (III) GEN UINENESS OF THE TRANSACTION I.E. THE CIRCUMSTANCES AND THE REASON S FOR SUCH DEPOSITS. IN CIT V. PRECISION FINANCE PVT. LTD. [1994] 208 ITR 465 (CAL) IT WAS CONCLUDED THAT MERE PAYMENT BY ACCOUNT PAYEE CHEQUE I S NOT SACROSANCT NOR CAN IT MAKE A NON-GENUINE TRANSACTIO N GENUINE. IN THE INSTANT CASE THE ASSESSEE HAS MISERABLY FAILED TO ESTABLISH THE CREDITWORTHINESS OF THE AFORESAID TWO CREDITORS AND EVEN THE GENUINENESS OF THE TRANSACTIONS. NOT AN IOTA OF EVI DENCE HAS BEEN PLACED BEFORE THE LOWER AUTHORITIES AND EVEN BEFORE US IN ORDER TO ESTABLISH THE CREDITWORTHINESS OF THE SAID CREDITOR S AND GENUINENESS OF THE TRANSACTIONS. EVEN WHEN IT WAS ARGUED THAT T HE SAID AMOUNT HAS BEEN REPAID NO SUCH EVIDENCE HAS BEEN PLACED B EFORE US. T HE DECISIONS IN ITO V. DIZA HOLDINGS P. LTD. [2002] 25 5 ITR 573 (KER); RAUNAQ RAM NAND LAL V. CIT [2002 254 ITR 617 (P & H ); SMT. IVA GOGOI V. CIT [2002] 254 ITR 576 (GAUHATI); CIT V. P RECISION FINANCE PVT. LTD. [1994] 208 ITR 465 (CAL); RAJSHREE SYNTHE TICS PVT. LTD. V. CIT [2002] 256 ITR 331 (RAJ); R. B. MITTAL V. CIT [ 2000] 246 ITR 283 (AP) ; CIT V. UNITED COMMERCIAL AND INDUSTRIAL CO. P. LTD. [1991] 187 ITR 596 (CAL); M. A. UNNEERI KUTTY V. CIT [1992 ] 198 ITR 147 (KER); NEMI CHAND KOTHARI V. CIT [2003] 264 ITR 254 (GAUHATI); AND 11 ITA NO.28/AHD/2009 11 HINDUSTHAN TEA TRADING CO. LTD. V. CIT [2003] 263 I TR 289 (CAL) SUPPORT THE VIEW THAT REVENUE AUTHORITIES ARE ENTIT LED TO CONSIDER GENUINENESS OF THE TRANSACTIONS AND TO PENETRATE TH E VEIL IN ORDER TO ASCERTAIN THE TRUTH. IT IS WELL SETTLED THAT MERE I DENTIFICATION OF CREDITOR OR RECEIPT OF AMOUNT THROUGH BANKING CHANN EL IS NOT SUFFICIENT TO SATISFY THE REQUIREMENT OF A GENUINE CREDIT. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS ESPECIALL Y WHEN NOT A WHISPER HAS BEEN MADE BEFORE US REGARDING CREDITWO RTHINESS OF THE AFORESAID TWO CREDITORS AND GENUINENESS OF THE TRAN SACTIONS NOR ANY SUCH MATERIAL HAS BEEN PLACED BEFORE THE LOWER AUTH ORITIES AND EVEN BEFORE US WE ARE NOT INCLINED TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT(A).CONSEQUENTLY ADDITION OF RS.2 60 000/- IN TE RMS OF THE PROVISIONS OF SEC.68 OF THE ACT THE INTEREST OF RS. 12 825/- CLAIMED ON SUCH CASH CREDITS IS UPHELD. THUS GROUND NOS.3 & 4 IN THE APPEAL ARE DISMISSED. 14. GROUND NO.5 IN THE APPEAL RELATES TO DISALLOWAN CE OF RS.3021/- ON ACCOUNT OF TELEPHONE EXPENSES. THE AO NOTICED TH AT THE ASSESSEE DEBITED TELEPHONE EXPENSES OF RS.15 107/- IN THE P&L ACCOUNT OF HIS PROPRIETARY CONCERN M/S PRECISION EN GINEERS. TO A QUERY BY THE AO THE AR OF THE ASSESSEE STATED THAT NO CALL REGISTER WAS MAINTAINED BY THE ASSESSEE. ACCORDINGLY THE AO DISALLOWED 20% OF THE EXPENSES FOR PERSONAL USE OF TELEPHONE. 15. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISALL OWANCE IN THE FOLLOWING TERMS :- 18 AS REGARDS TELEPHONE EXPENSES I AM OF THE VIEW THAT HOWEVER MUCH IT IS CLAIMED THAT ASSETS SUCH AS TELEPHONES ARE PROCUR ED/ PURCHASED AND UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS YET THE PERSONAL USE OF SUCH ASSETS BY THE PROPRIE TOR / PARTNERS AND EVEN THEIR FAMILY MEMBERS CANNOT BE ENTIRELY RULED OUT ESPECIALLY WHEN NO RECORD OF THEIR USAGE IS MAINTAINED. THE 20% D ISALLOWANCE OUT OF SUCH EXPENSES BEING RS.3021/- IS THEREFORE SUSTAINED. THE A O IS DIRECTED TO TAKE ACTION ACCORDINGLY. 12 ITA NO.28/AHD/2009 12 16. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. AR SUBMITT ED THE AO MADE ADHOC DISALLOWANCE WHILE THE LEARNED DR SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 17. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTS OF THE CASE WE FIND THAT THE LD. AR HAS NOT REFERRED US TO ANY MATERIAL WARRANTING INTERFERENCE WITH THE FINDINGS OF THE LD . CIT(A). SINCE PERSONAL USE OF TELEPHONES BY THE ASSESSEE AND TH EIR FAMILY MEMBERS OR STAFF HAS NOT BEEN DENIED NOR IT WAS C LAIMED THAT THE ASSESSEE OR THEIR FAMILY MEMBERS HAD ANY INDEPENDE NT TELEPHONES FOR PERSONAL USE IN OUR OPINION DISALLOWANCE OF 2 0% OF THE EXPENSES ON TELEPHONES IN THE LIGHT OF PROVISIONS OF SEC. 38(2) OF THE ACT IS REASONABLE . THEREFORE GROUND NO. 5 IN THE APPEAL OF THE ASSESSEE IS REJECTED. 18. GROUND NO.6 BEING MERE PRAYER NOR ANY SUBMISSIO NS HAVING BEEN MADE ON THIS GROUND DOES NOT REQUIRE ANY SEPA RATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 6 IN THE APPEAL A CCORDINGLY THESE GROUNDS ARE DISMISSED. 19. IN THE RESULT APPEAL IS PARTLY ALLOWED BUT F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 15 -07-2011 SD/- SD/- ( MU KUL SHRAWAT ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 15-07-2011 COPY OF THE ORDER FORWARDED TO: 1. SHRI MANOJ KUMAR SARAF PROP. OF M/S PRECISION EN GINEERS 13 ITA NO.28/AHD/2009 13 644 AJANTA SHOPPING CENTRE RING ROAD SURAT 2. THE INCOME-TAX OFFICER OSD-II RANGE-2 SURAT 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. DR ITAT AHMEDABAD BENCH-D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD